Electronic Filing of Financial Reports and Notices, 52434-52441 [E9-24480]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 74, Number 196 (Tuesday, October 13, 2009)]
[Proposed Rules]
[Pages 52434-52441]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-24480]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AB87


Electronic Filing of Financial Reports and Notices

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is proposing to amend certain of its regulations in 
connection with electronic filing of financial reports and other 
notices (``Proposal''). The Proposal would broaden the language in the 
Commission's regulations applicable to electronic filings of financial 
reports to clarify that, to the extent a futures commission merchant 
(``FCM'') submits a Form 1-FR to the Commission electronically, it may 
do so using any user authentication procedures established or approved 
by the Commission. The Proposal also would permit registrants to 
electronically submit filings in addition to financial reports, 
including an election to use a non-calendar fiscal year, requests for 
extensions of time to file uncertified financial reports and ``early 
warning'' notices required under Commission regulations. In connection 
with the filing of financial reports, the Commission also is proposing 
to specify, consistent with other requirements and existing practice, 
that a statement of income and loss is included as a required part of 
the non-certified 1-FR filings for FCMs and introducing brokers 
(``IBs''). The Commission also is proposing to require more immediate, 
but less prescriptive, documentation regarding a firm's capital 
condition when a firm falls below its required minimum adjusted net 
capital. Finally, the Commission is proposing several other minor 
amendments to correct certain outdated references and to make other 
clarifications to existing regulations.

DATES: Comments must be received on or before November 12, 2009.

ADDRESSES: You may submit comments, identified by RIN 3038-AB87, by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.
     E-mail: secretary@cftc.gov. Include ``Electronic Filing 
Amendments'' in the subject line of the message.
     Fax: (202) 418-5521.
     Mail: Send to David Stawick, Secretary, Commodity Futures 
Trading Commission, 1155 21st Street, NW., Washington, DC 20581.
     Courier: Same as Mail above.
    All comments received will be posted without change to https://www.cftc.gov, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Thelma Diaz, Associate Director, 
Division of Clearing and Intermediary Oversight, 1155 21st Street, NW., 
Washington, DC 20581. Telephone number: 202-418-5137; facsimile number: 
202-418-5547; and electronic mail: tdiaz@cftc.gov, or Lawrence T. 
Eckert, Special Counsel, Division of Clearing and Intermediary 
Oversight, 140 Broadway, New York, New York 10005. Telephone number 
(646) 746-9704; and electronic mail: leckert@cftc.gov.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 4f(b) of the Commodity Exchange Act, as amended (the 
``Act'') authorizes the Commission to impose by regulation minimum 
financial and related reporting requirements on futures commission 
merchants (``FCMs'') and introducing brokers (``IBs'').\1\ Commission 
Regulation 1.10 sets forth the financial reporting requirements for 
FCMs and IBs.\2\ This regulation includes a requirement for FCMs and 
IBs to file annual financial statements that have been certified by an 
independent public accountant in accordance with Regulation 1.16. 
Regulation 1.10 also requires generally that FCMs file with the 
Commission non-certified Form 1-FR-FCM financial reports each month and 
that IBs file non-certified Form 1-FR-IB financial

[[Page 52435]]

reports semiannually.\3\ Commission Regulation 1.12 requires FCMs, IBs 
and applicants for registration thereof to provide notice of a variety 
of predefined events as or before they occur.\4\
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    \1\ The Act is codified at 7 U.S.C. 1 et seq. (2009), and 
section 4f(b) of the Act is codified at 7 U.S.C. 6f(b). The 
Commission's regulations cited in this proposed rulemaking may be 
found at 17 CFR Ch. 1 (2009).
    \2\ For simplicity, references in this Federal Register release 
to IBs in connection with financial reporting and notice 
requirements are intended to refer to IBs that are not operating 
pursuant to a guarantee agreement.
    \3\ Commission Regulation 1.10(h) permits a registrant that also 
is registered as a securities broker-dealer with the Securities and 
Exchange Commission (``SEC'') to file a copy of its Financial and 
Operational Combined Uniform Single Report (``FOCUS'') with the 
Commission in lieu of Form 1-FR.
    \4\ For example, Regulation 1.12(a) requires immediate 
telephonic notice, to be confirmed in writing by facsimile, when a 
registrant's (or applicant's) adjusted net capital falls below that 
required by Regulation 1.17. Other provisions of Regulation 1.12 
require notification to the Commission for certain ``early warning'' 
events. Regulation 1.12(b), for example, requires notification by a 
registrant or applicant if such entity's adjusted net capital drops 
below a specified threshold.
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    The Commission amended Regulation 1.10 in 1997 to provide for the 
first time the regulatory means for FCMs and IBs to file financial 
reports electronically with the Commission.\5\ Regulation 1.10(c)(2) 
permits FCMs to file non-certified financial reports with the 
Commission via electronic transmission using a Commission-assigned 
personal identification number (``PIN''). Regulation 1.10(b)(2)(iii) 
requires FCMs to continue to file certified financial reports in paper 
form, but requires IBs to file such certified reports electronically in 
accordance with procedures adopted by the National Futures Association 
(``NFA'').\6\
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    \5\ See 62 FR 10441 (March 7, 1997) (a technical amendment to 
the final rules is found at 62 FR 33007 (June 18, 1997)). Many firms 
were already filing financial reports electronically with their self 
regulatory organizations (``SROs'') at this time pursuant to SRO 
rules approved by the Commission.
    \6\ The Commission approved on an expedited basis, effective 
June 30, 2004, NFA rule amendments which require that IBs submit 
non-certified Forms 1-FR-IB or FOCUS reports electronically using 
NFA's EasyFile electronic filing system. On November 22, 2006, in 
response to a petition by NFA, the Commission adopted amendments to 
its regulations that effectively provided NFA with the ability to 
further expand its electronic financial report filing requirements 
applicable to IBs to include mandatory electronic filing of 
certified financial reports. 71 FR 54789 (Sep. 19, 2006). Although 
submissions by IBs of certified Form 1-FR-IB must be made 
electronically, NFA has not yet mandated electronic filing of 
certified FOCUS reports by IBs registered as securities brokers or 
dealers.
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    FCMs that file their non-certified financial reports electronically 
with the Commission currently do so through WinJammer,TM a 
software application initially developed jointly by the Chicago 
Mercantile Exchange (``CME'') and the Chicago Board of Trade (``CBT''). 
The WinJammer TM Group \7\ has licensed or otherwise 
provided application access to a number of SROs and regulatory 
agencies, including the Commission. IBs file financial reports with NFA 
through NFA's ``EasyFile'' system, which was developed by NFA as an 
internet-based alternative to WinJammer.TM
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    \7\ The ``WinJammer TM Group'' consists of the CME, 
CBT, and NFA, which joined the group in 2000.
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    The WinJammer TM Group currently is working on a new 
release of its application that would, among other things, move toward 
an internet-based approach to electronic filing of documents. It is 
envisioned that security access to the updated WinJammer TM 
application will no longer require a PIN, but rather will use a 
username/password combination for authentication. The new application 
is expected to provide a number of advancements over the current 
software, including the ability for FCMs to file notices on a central 
server to be maintained by the WinJammer TM Group. The use 
of a central server-approach will facilitate greater filing efficiency 
by enabling an FCM to make a single electronic filing to the server. 
The filing would be available to and would be downloaded by the 
software of the Commission, NFA and/or the relevant SRO, as applicable. 
The registrant would be responsible to check its WinJammer 
TM account for confirmation that the filing had in fact been 
received by the intended recipients. Currently, FCMs must make separate 
electronic filings with each relevant party.

II. Proposed Rule Amendments

A. Electronic Filing Issues

    Commission Regulation 1.10(c) generally sets forth the provisions 
governing where and how the financial reports required to be filed by 
FCMs and IBs under Regulation 1.10 must be filed. Regulation 1.10(c)(1) 
indicates with whom reports should be filed. Regulation 1.10(c)(2) 
addresses the method, rather than the location of filing and provides 
that certain non-certified financial reports may be submitted to the 
Commission via electronic transmission using a Commission-assigned 
personal identification number. Electronic submission of certified 
financial reports is addressed in Regulation 1.10(b)(2)(iii). This 
section provides that FCMs must file certified financial reports in 
paper form and IBs must file such reports electronically in accordance 
with electronic filing procedures established by NFA.
    For clarification and ease of reading, the Proposal would move 
Regulation 1.10(b)(2)(iii) into a new subparagraph of Regulation 
1.10(c)(2). Regulation 1.10(c)(2) would be amended as discussed below 
and divided into 2 new subparagraphs: Subparagraph (c)(2)(i) would 
address electronic filing by FCMs with the Commission and subparagraph 
(c)(2)(ii) would address electronic filings with NFA by IBs and by 
applicants for registration as IBs and FCMs.
    Regulation 1.10(c)(2) currently provides that non-certified 
financial reports may be submitted to the Commission ``in electronic 
form using a Commission assigned Personal Identification Number, and 
otherwise in accordance with instructions issued by the Commission * * 
*.'' As discussed above, the anticipated changes to the user 
authentication process for WinJammer TM users would no 
longer utilize a PIN. Accordingly, the Commission is proposing to 
broaden the language in the regulation relating to user authentication. 
In addition, the Commission is proposing to permit any filing or other 
notice submitted under the regulation to be transmitted electronically, 
rather than limiting such submission to financial reports as under the 
current regulation. This would enable FCMs to electronically file, for 
example, an election to use a fiscal year other than a calendar year 
under Regulation 1.10(e) or a request for an extension of time to file 
uncertified financial reports under Regulation 1.10(f). As amended, 
Regulation 1.10(c)(2)(i) would provide that ``[except with respect to 
the filing of certified financial reports which must be filed in paper 
form], all filings or other notices or applications prepared by a 
futures commission merchant pursuant to [Regulation 1.10] may be 
submitted to the Commission in electronic form using a form of user 
authentication assigned in accordance with procedures established by or 
approved by the Commission, and otherwise in accordance with 
instruction issued by or approved by the Commission, if the futures 
commission merchant or a designated self-regulatory organization has 
provided the Commission with the means necessary to read and to process 
the information contained in such report.'' The Commission also would 
revise the instructions to Form 1-FR-FCM to reflect this change. 
Regulation 1.10(c)(2)(ii) would provide that ``[except with respect to 
the filing of certified FOCUS reports by a registered broker or dealer 
with the SEC], all filings or other notices or applications prepared by 
an introducing broker or applicant for registration as an introducing 
broker or futures commission merchant * * * must be

[[Page 52436]]

filed electronically in accordance with electronic filing procedures 
established by the National Futures Association * * *.''
    Regulation 1.10(d)(4)(iii) provides that with respect to the 
electronic submission of a Form 1-FR, the transmission must be 
accompanied by the PIN or other user authentication assigned to the 
authorized signer under procedures established or approved by the 
Commission, and the use of such PIN or other user authentication will 
substitute for the manual signature of the authorized signer for the 
purposes of making the oath or affirmation required to accompany the 
filing of Form 1-FR. In light of the amendments to Regulation 1.10 
discussed above related to user authentication procedures, the Proposal 
would delete from Regulation 1.10(d)(4)(iii) references to the use of a 
PIN.
    Commission Regulation 1.12 requires FCMs, IBs and applicants for 
registration thereof to provide notice of a variety of predefined 
events as or before they occur.\8\ The regulation generally requires 
such notices to be provided in writing by facsimile and, in certain 
cases, written notice must be preceded by immediate telephonic notice. 
Regulation 1.12(i) provides the procedures for filing notices under 
Regulation 1.12. In light of the anticipated changes to the WinJammer 
TM application, the successful implementation in the past of 
the electronic filing of Form 1-FR with the Commission and the 
potential benefits in terms of efficiency and paper reduction, the 
Commission is proposing to amend Regulation 1.12(i) to allow FCMs and 
IBs to submit electronically filings otherwise required to be submitted 
in writing via facsimile under Regulation 1.12.\9\ The Proposal would 
add new subparagraph 1.12(i)(3) which would provide that ``[e]very 
notice or report required to be provided in writing under [Regulation 
1.12] may, in lieu of facsimile, be filed via electronic transmission 
using a form of user authentication assigned in accordance with 
procedures established by or approved by the Commission, and otherwise 
in accordance with instructions issued by or approved by the 
Commission.'' An electronic submission would be required to clearly 
indicate the registrant or applicant on whose behalf such filing is 
made and the use of such user authentication in submitting such filing 
would constitute and become a substitute for the manual signature of 
the authorized signer.
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    \8\ See footnote 4, above.
    \9\ IBs file notices under Regulation 1.12 with NFA pursuant to 
NFA rules. NFA has indicated that it intends to make changes to the 
EasyFile system and/or NFA rules, as may be necessary to facilitate 
the electronic filing by IBs of notices or other information 
permitted to be submitted electronically by the Proposal but 
currently filed with NFA in paper form.
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B. Income Statement Filing Requirement

    Commission Regulation 1.10(d) sets forth the content requirements 
for financial reports filed with the Commission: Regulation 1.10(d)(2) 
applies to certified financial reports and Regulation 1.10(d)(1) 
applies to non-certified financial reports.
    Certified financial reports are required to include, among other 
things, ``statements of income (loss)'' pursuant to Regulation 
1.10(d)(2)(ii). This requirement is not currently included as part of 
Regulation 1.10(d)(1) in connection with the filing of non-certified 
financial reports. In practice, however, FCMs and IBs typically include 
such statements with all financial report filings made with the 
Commission, whether or not such reports are required to be certified. 
FCMs that are also registered with the SEC as broker-dealers and that 
carry or clear customer accounts already are required to file with 
their designated examining authority an income statement as part of 
their monthly FOCUS filing.\10\ Other FCMs and IBs, while not 
necessarily required to file these statements, must nonetheless compute 
the firm's income and loss on a monthly basis (or semiannual basis in 
the case of IBs) in order to appropriately complete other relevant 
portions of Form 1-FR or FOCUS. Both Form 1-FR and FOCUS already are 
formatted to accept the reporting of income and loss data 
electronically.
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    \10\ Non-clearing broker-dealers file FOCUS, including the 
statement of income (loss), on a quarterly basis.
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    The income statement is an integral part of the financial report 
that the Commission believes should be available for review along with 
other relevant financial data filed on an interim basis. Additionally, 
requiring the filing of such statements should not add any additional 
burden to registrants. In fact, as mentioned, substantially all FCMs 
and IBs already include such statements as part of their non-certified 
financial reports filed with the Commission. Accordingly, the 
Commission is proposing to amend Regulation 1.10(d)(1)(ii) to require 
``statements of income (loss)'' to be included as part of FCM and IB 
non-certified financial report filings. By requiring that firms file an 
income statement with their non-certified financial reports as well as 
with their annual certified report, the amended rule would ensure that 
Commission staff receive more current information and have the ability 
to review this information relating to a firm's financial health more 
than once a year. This amendment would not affect the ability of a 
broker-dealer to file with the Commission in accordance with Regulation 
1.10(h) the FOCUS report under the Securities and Exchange Act of 1934, 
including the income statement currently provided in that report.\11\ 
Further, as is true of such statements filed as part of a certified 
financial report, income statements included as part of a non-certified 
1-FR or FOCUS filing would be afforded nonpublic treatment pursuant to 
Commission Regulation 1.10(g).
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    \11\ Under SEC Regulation 17a-5 and rules of applicable self-
regulatory organizations, certain securities brokers or dealers may 
include as part of their quarterly FOCUS report filings a 
consolidated Statement of Income (Loss) for the relevant quarter 
rather than a Statement of Income (Loss) for the month for which the 
report is being filed (i.e., March, June, September or December). 
Such broker-dealers that also are registered as FCMs would file 
these same reports with the Commission. The Commission wishes to 
make clear that an otherwise complete FOCUS report filing made with 
the Commission that includes such a consolidated Statement of Income 
(Loss) would be deemed an acceptable filing in accordance with 
Commission Regulation 1.10(h).
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C. Net Capital Undercapitalization Documentation

    The Commission is proposing to amend Regulations 1.12(a)(2) and 
(a)(3) to require more immediate, but less prescriptive, reporting to 
the Commission when a registrant or applicant falls below its minimum 
net capital requirement. Regulation 1.12(a) requires a registrant or 
applicant for registration as an FCM or IB that knows or should have 
known that its adjusted net capital is less than the minimum required 
by the Commission or by its designated self-regulatory organization 
(``DSRO'') to provide notice of such event immediately by telephone and 
confirm such telephonic notice in writing by facsimile. Regulation 
1.12(a)(2) further requires that, within 24 hours thereafter, the 
registrant (or applicant) must file certain financial records with the 
Commission. Specifically, an FCM (or applicant) is required to file: 
(1) A statement of financial condition; (2) a statement of the 
computation of its minimum capital requirements; (3) the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts; 
and (4) the statement of secured amounts

[[Page 52437]]

and funds held in separate accounts for foreign futures and foreign 
options customers. Regulation 1.12(a)(3) requires an IB (or applicant) 
to file a statement of financial condition and a statement of the 
computation of its minimum capital requirements. All statements under 
Regulations 1.12(a)(2) and (a)(3) must be prepared as of the date the 
registrant's or applicant's adjusted net capital was below its minimum 
requirement.
    When a firm falls below its minimum adjusted net capital 
requirement, the Commission's interest is to understand fully the 
circumstances that gave rise to the reduction in capital and to ensure 
that there are no imminent concerns regarding the firm's ability to 
meet its obligations to the market or customers, or to otherwise 
continue normal business operations. The statements required by the 
current regulation help provide a picture of a firm's financial 
position as of the time such statements are prepared. The regulations, 
however, currently allow up to 24 hours from the receipt of original 
notice of a net capital deficiency for such documentation to be 
provided. In practice, firms that notify the Commission of a fall below 
minimum net capital under Regulation 1.12(a) often simultaneously 
provide written information to the Commission sufficient to evidence 
the firm's then-current capital condition. Such information has not 
always taken the specific form prescribed in the regulation, however. 
Upon receipt of information from a registrant, Commission staff members 
have requested further information as determined appropriate and 
necessary in the circumstances. Firms generally have been prompt in 
providing such data.
    The Commission has found that receiving more immediate information 
regarding a firm's capital condition better satisfies the Commission's 
interests and typically is of greater benefit than obtaining 
documentation in the specific form currently prescribed at the expense 
of a time delay. Accordingly, the Commission is proposing to amend 
Regulation 1.12(a) consistent with this practice. Under the Proposal, a 
firm must continue to provide immediate telephonic notice, confirmed in 
writing, in the event that its adjusted net capital falls below its 
required minimum. Paragraph 1.12(a)(2) would be amended to require that 
together with such initial telephonic notice and written confirmation, 
a firm must provide ``documentation in such form as necessary to 
adequately reflect the firm's capital condition as of any date such 
person's adjusted net capital is less than the minimum required.'' \12\ 
Thus, a firm would be required to provide documentation regarding its 
capital condition at the same time as it provides its notice and 
confirmation of a capital deficiency to the Commission. The amended 
regulation would, however, provide greater flexibility with respect to 
the form such documentation must take, allowing any documentation that 
adequately reflects the firm's capital condition. The Commission 
envisions that such adequate documentation would at a minimum specify 
the firm's adjusted net capital requirement and actual adjusted net 
capital for any date during which the firm fell below its regulatory 
requirement. By requiring documentation as of ``any'' date that 
adjusted net capital is less than the required minimum, the amended 
regulation makes clear that where a firm is undercapitalized on more 
than one day, documentation related to all such time must be provided. 
The amended regulation also would require a firm to provide similar 
documentation to that initially provided for any other days the 
Commission may request.\13\ Regulation 1.12(a)(3), which provides 
supplementary documentation requirements for IBs, would be deleted 
because amended Regulation 1.12(a)(2) would subsume this section.
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    \12\ This amendment is consistent with SEC Regulation 17a-11 
which requires a broker or dealer whose net capital falls below its 
required minimum to give notice of the deficiency that same day, 
specifying the broker or dealer's net capital requirement and its 
current amount of net capital.
    \13\ Regulation 1.10(b)(4) already provides that representatives 
of the Commission may upon written notice require Form 1-FR or other 
financial information at such times as specified by the 
representative.
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    As a corollary to the amendment to Regulation 1.12(a)(2), the 
Commission is proposing to amend Regulation 1.12(i)(1). This section 
addresses the process for filing notices under Regulation 1.12 and 
currently requires, among other things, that the documentation required 
under Regulations 1.12(a)(2) and (a)(3) be filed in accordance with the 
provisions of section 1.10(d), which specifies the required content of 
financial reports. This requirement is no longer necessary as the 
specific financial statements currently referenced in Regulation 
1.12(i)(1) would no longer be required under the Proposal. Accordingly, 
the Proposal would delete this requirement. Documentation required to 
be provided under amended Regulation 1.12(a)(2) would be submitted 
either by facsimile or electronically pursuant to amended Regulation 
1.12(i)(3).

D. Miscellaneous Amendments to Regulations

    The Commission is proposing several minor amendments to Regulations 
1.10 and 1.12 to correct certain outdated references and to otherwise 
clarify existing regulations. Regulation 1.10(c)(1) states generally 
that reports filed by IBs pursuant to paragraph (b)(2)(i) or (b)(2)(ii) 
(i.e., the filing provisions for non-certified and certified reports by 
registered IBs) are filed only with NFA. Other reports are generally 
required to be filed with the relevant regional office of the 
Commission and the registrant's SRO, except that an applicant for 
registration is required to file reports with the relevant regional 
office of the Commission and NFA. The Commission has issued orders 
delegating to NFA the processing of application requests by FCMs and 
IBs, and in practice almost all financial reports from applicants for 
registration as FCMs or IBs are filed with the NFA only.\14\ 
Accordingly, the Commission is proposing to amend the language of 
Regulation 1.10(c)(1) to delete reference to an applicant's need to 
file financial reports with a regional office of the Commission.
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    \14\ The Commission order delegating to NFA the registration 
function for IB applicants is published at 48 FR 35158 (August 3, 
1983), and the order delegating the registration function for FCM 
applicants is published at 49 FR 39593 (October 9, 1984).
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    Similarly, Regulation 1.12(i)(1) currently indicates that an 
applicant for registration as an FCM must file any notices required 
under Regulation 1.12 with, among others, the regional office of the 
Commission that has jurisdiction over the state in which the 
applicant's principal place of business is located and with the 
Commission's principal office in Washington, DC. The proposed, amended 
language in Regulation 1.12(i)(1) would make clear that an applicant 
for registration as an FCM would file such notices only with NFA and 
that such notices need not be filed with the Commission. The amended 
regulation would also make clear that any notice or report filed with 
the National Futures Association will be deemed to be filed with, and 
to be the official record of, the Commission.
    The Commission also is proposing the following minor wording 
changes to Regulation 1.10(c)(1) for the purposes of consistency with 
other provisions of the regulations and/or general clarification as 
follows: (1) The reference to ``[a] report filed by an [IB] pursuant to 
paragraph (b)(2)(i) or (b)(2)(ii)'' would be amended to clarify that 
``a report'' in this context is meant to refer to Form 1-

[[Page 52438]]

FR; (2) the reference to subparagraphs (b)(2)(i) and (b)(2)(ii) would 
be amended for simplicity to refer only to paragraph (b)(2) in general; 
and (3) the language of paragraph 1.10(c)(1) would be amended to make 
clear that it is intended to cover not only ``reports'' but all reports 
and other ``information.'' The Commission, NFA and SROs are permitted 
under Regulation 1.10(b)(4) to make a written request of an FCM or IB 
for information as they may determine is necessary. The proposed 
amendment would clarify that the guidance provided in Regulation 
1.10(c)(1) regarding with whom filings should be made would govern the 
filing of such requested information.
    Regulation 1.10(b)(2)(i) provides generally that an IB must file a 
Form 1-FR-IB semiannually as of the middle and close of each fiscal 
year ``unless the [IB] elects * * * to file a Form 1-FR-IB semiannually 
as of the middle and close of each calendar year.'' Regulation 
1.10(b)(2)(ii) generally states further that an IB must file a 
certified 1-FR-IB as of the close of its fiscal year ``(even if it 
files semiannual reports on a calendar year basis).'' Prior to 1993, 
Commission regulations required IBs to file Form 1-FR on a quarterly 
rather than a semiannual basis, unless the IB's SRO permitted 
semiannual filing. The regulations also allowed IBs to elect to file 
reports on a calendar year basis rather than on a fiscal year 
basis.\15\ This election was separate from the election to use a fiscal 
year other than a calendar year, which is still permitted to be made 
under Regulation 1.10(e)(1). The Commission's regulations no longer 
provide a separate option to elect to file on a calendar year rather 
than a fiscal year basis and, accordingly, the Commission is proposing 
to delete the language quoted above referencing such an election.
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    \15\ See 48 FR 35248 (Aug. 3, 1983) (adopting registration 
requirements and procedures for IBs, among others).
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    Regulation 1.10(b)(3) provides generally that an FCM or IB can 
satisfy the 1-FR filing requirements applicable to them set forth in 
Regulations 1.10(b)(1) and (2), respectively, if the FCM or IB is a 
member of a DSRO and satisfies the minimum financial standards and 
reporting requirements established by rules of the DSRO which have been 
approved ``after the effective date of these regulations by the 
Commission * * *.'' The language ``after the effective date of these 
regulations'' is no longer relevant and, accordingly, the Commission is 
proposing to delete the language.
    Finally, for purposes of clarification and consistency with the 
Commission's regulations the Commission is proposing to amend language 
within regulation 1.10(h) that references ``NFA'' by spelling out 
``National Futures Association.''

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires that agencies, in proposing regulations, consider the impact 
of those regulations on small businesses. The amendments proposed 
herein would affect FCMs and IBs. The Commission has previously 
determined that, based upon the fiduciary nature of FCM/customer 
relationships, as well as the requirement that FCMs meet minimum 
financial requirements, FCMs should be excluded from the definition of 
small entity.
    With respect to IBs, the Commission stated that it is appropriate 
to evaluate within the context of a particular rule proposal whether 
some or all IBs should be considered to be small entities and, if so, 
to analyze the economic impact on such entities at that time.\16\ The 
Proposal will not place any additional burdens on IBs that are small 
businesses because all such parties, if any, already are subject to the 
financial reporting and notice requirements under Regulations 1.10 and 
1.12 and already file financial reports through NFA's electronic filing 
system. Additionally, although the Commission is proposing to add a 
requirement to include statements of income and loss as part of non-
certified financial report filings, substantially all IBs already are 
filing this data in practice and, in any event, must compute the 
relevant income and loss data (although not currently required to be 
provided in a separate income statement) in order to complete 
Commission Form 1-FR or the SEC FOCUS report, as applicable, under the 
Commission's regulations.\17\ Accordingly, pursuant to Section 3(a) of 
the RFA, 5 U.S.C. 605(b), the Chairman, on behalf of the Commission, 
certifies that these proposed rule amendments will not have a 
significant economic impact on a substantial number of small entities. 
However, the Commission invites the public to comment on this finding.
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    \16\ See 48 FR 35248, 35275-78 (Aug. 3, 1983).
    \17\ See Commission Regulations 1.10(b)(2) and 1.10(h) 
(requiring IBs to file with the Commission Form 1-FR-FCM or, as an 
alternative in the case of a registered broker or dealer with the 
SEC, the FOCUS report).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \18\ 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 does not require a new 
collection of information on the part of any entities subject to the 
proposed amendments. The amendments would, if adopted in final form, 
provide FCMs and IBs with an alternative method for submitting certain 
data. The amendments proposed under Regulation 1.12(a)(2) would provide 
FCMs and IBs with a more flexible approach to providing documentation 
if a registrant's adjusted net capital fell below its minimum 
requirement, but would not require a new collection or affect the 
collection burden, as discussed below. Additionally, although the 
Commission is proposing to add a requirement to include statements of 
income and loss as part of non-certified financial report filings, 
substantially all registrants that file financial reports with the 
Commission already are filing this data.
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    \18\ 44 U.S.C. 3507(d).
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Collection of Information
    (Regulations and Forms Pertaining to the Financial Integrity of the 
Marketplace, OMB Control Number 3038-0024). Although the amendments if 
promulgated in final form would alter the method of collection of some 
of the information required in the above referenced collection, would 
provide a simpler approach of documenting compliance with certain 
regulatory obligations, and would add a requirement to include an 
additional statement as part of non-certified financial report filings, 
the estimated burden associated with this collection is not expected to 
increase or decrease as a result. The Commission is proposing to add a 
requirement for certain registrants to include statements of income and 
loss as part of their monthly non-certified financial report filings 
with the Commission. Substantially all registrants that file financial 
reports with the Commission already are filing this data in practice, 
however. Additionally, to the extent a firm did not already file this 
report with the Commission monthly, it would, nonetheless, need to have 
this information computed and available in order to file other 
currently required reports. Filing the information with the Commission 
would require nothing more than inputting a few extra data items into a 
form already required to be filed. Accordingly, the burden associated 
with such a filing already is included in the estimated burden for this 
collection. With respect to proposed

[[Page 52439]]

rule amendments that would permit certain entities to file 
electronically reports and notices that currently are filed in paper 
form, all such affected entities currently must complete these same 
reports and notices. The amendments would simply substitute electronic 
submission for the mailing of a paper filing. With respect to rule 
amendments concerning the documentation required of FCMs and IBs that 
fall below their required net capital requirements, these amendments 
would provide registrants with more flexibility in choosing the form 
documentation will take when providing the Commission with required 
information. The Commission believes, however, that the burden 
associated with preparing such documentation would be equivalent to 
that required under current regulations. Additionally, although the 
amendments allow the Commission to request registrants to provide 
additional documentation on request, this is simply a clarification of, 
rather than a change to, current regulations and practice and would not 
affect the collection burden. Accordingly, for purposes of the PRA, the 
Commission certifies that the proposed rule amendments, if promulgated 
in final form, would not impact the total annual reporting or 
recordkeeping burden associated with the above-referenced collection of 
information, which has been approved previously by the Office of 
Management and Budget (``OMB''). Pursuant to the PRA, the Commission 
has submitted a copy of this section to OMB for its review.
    The Commission considers comments by the public on this proposed 
collection of information in--
    Evaluating whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have a practical 
use;
    Evaluating the accuracy of the Commission's estimate of the burden 
of the proposed collection of information, including the validity of 
the methodology and assumptions used;
    Enhancing the quality, utility, and clarity of the information to 
be collected; and
    Minimizing the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses.
    Organizations and individuals desiring to submit comments on the 
information collection should contact the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Room 10235, New 
Executive Office Building, Washington, DC 20503, Attn: Desk Officer of 
the Commodity Futures Commission. OMB is required to make a decision 
concerning the collection of information contained in these proposed 
regulations between 30 and 90 days after publication of this document 
in the Federal Register. Therefore, a comment to OMB is best assured of 
having its full effect if OMB receives it within 30 days of 
publication. This does not affect the deadline for the public to 
comment to the Commission on the proposed regulations. Copies of the 
information collection submission to OMB are available from the CFTC 
Clearance Officer, 1155 21st Street, NW., Washington, DC 20581 or (202) 
418-5160.

C. Cost-Benefit Analysis

    Section 15(a) of the Act, as amended by Section 119 of the 
Commodity Futures Modernization Act, 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) as amended 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.
    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. The Commission, in its discretion, can choose to give 
greater weight to any one of the five enumerated areas and determine 
that, notwithstanding its costs, a particular regulation is necessary 
or appropriate to protect the public interest or to effectuate any of 
the provisions or to accomplish any of the purposes of the Act.
    The Commission has considered the costs and benefits of this 
proposed regulation in light of the specific provisions of Section 
15(a) of the Act, as follows:
    1. Protection of market participants and the public. The proposed 
amendments should not affect the protection of market participants and 
the public as they generally provide an alternate method of delivery of 
information contained in certain reports and notice filings currently 
required or permitted by Commission regulations but do not 
substantively alter the character of such information.
    2. Efficiency and competition. The Commission anticipates that the 
proposed amendments will benefit efficiency by permitting the 
Commission and NFA to streamline their processes for receiving 
financial reports and various notice filings from FCMs and IBs and 
providing greater flexibility to registrants in providing certain 
required documentation to the Commission. The proposed amendments are 
considered by the Commission as benefiting efficiency and not impacting 
competition.
    3. Financial integrity of futures markets and price discovery. The 
proposed amendments should have no effect, from the standpoint of 
imposing costs or creating benefits, on the financial integrity of 
futures markets or the price discovery function of such markets.
    4. Sound risk management practices. The proposed amendment should 
have no effect, from the standpoint of imposing costs or creating 
benefits, on sound risk management practices.
    5. Other public interest considerations. The Commission believes 
that the proposed regulations are beneficial in that they should 
encourage improvements to future systems of electronic authorization 
and streamline the timeliness of delivery and electronic accessibility 
of notices to and by the Commission and NFA as well as allow the 
Commission and NFA to retain such reports in a more streamlined manner.
    After considering these factors, the Commission has determined to 
propose the amendments discussed above. The Commission invites public 
comment on its application of the cost-benefit provision. Commenters 
also are invited to submit any data that they may have quantifying the 
costs and benefits of the proposal with their comment letters.

List of Subjects in 17 CFR Part 1

    Brokers, Commodity futures, Reporting and recordkeeping 
requirements.

    In consideration of the foregoing and pursuant to the authority 
contained in the Commodity Exchange Act and, in particular, Sections 
4f, 4g and 8a(5) thereof, 7 U.S.C. 6f, 6g and 12a(5), the Commission 
hereby proposes to amend 17 CFR part 1 as follows:

[[Page 52440]]

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    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, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 
13a, 13a-1, 16, 16a, 19, 21, 23 and 24, as amended by the Commodity 
Futures Modernization Act of 2000, appendix E of Pub. L. 106-554, 
114 Stat. 2763 (2000).

    2. Section 1.10 is amended by removing paragraph (b)(2)(iii) and 
revising paragraphs (b)(2)(i), (b)(2)(ii)(A), (b)(3), (c)(1) and 
(c)(2), (d)(1)(ii), (d)(4)(iii), and (h) to read as follows:


Sec.  1.10  Minimum financial requirements for futures commission 
merchants and introducing brokers.

* * * * *
    (b) * * *
    (2)(i) Except as provided in paragraphs (b)(3) and (h) of this 
section, and except for an introducing broker operating pursuant to a 
guarantee agreement which is not also a securities broker or dealer, 
each person registered as an introducing broker must file a Form 1-FR-
IB semiannually as of the middle and the close of each fiscal year. 
Each Form 1-FR-IB must be filed no later than 17 business days after 
the date for which the report is made.
    (ii)(A) In addition to the financial reports required by paragraph 
(b)(2)(i) of this section, each person registered as an introducing 
broker must file a Form 1-FR-IB as of the close of its fiscal year 
which must be certified by an independent public accountant in 
accordance with Sec.  1.16 no later than 90 days after the close of 
each introducing broker's fiscal year: Provided, however, that a 
registrant which is registered with the Securities and Exchange 
Commission as a securities broker or dealer must file this report not 
later than the time permitted for filing an annual audit report under 
Sec.  240.17a-5(d)(5) of this title.
* * * * *
    (3) The provisions of paragraphs (b)(1) and (b)(2) of this section 
may be met by any person registered as a futures commission merchant or 
as an introducing broker who is a member of a designated self-
regulatory organization and conforms to minimum financial standards and 
related reporting requirements set by such designated self-regulatory 
organization in its bylaws, rules, regulations, or resolutions and 
approved by the Commission pursuant to Section 4f(b) of the Act and 
Sec.  1.52: Provided, however, That each such registrant shall promptly 
file with the Commission a true and exact copy of each financial report 
which it files with such designated self-regulatory organization.
* * * * *
    (c) Where to file reports. (1) Form 1-FR filed by an introducing 
broker pursuant to paragraph (b)(2) of this section need be filed only 
with, and will be considered filed when received by, the National 
Futures Association. Other reports or information provided for in this 
section will be considered filed when received by the regional office 
of the Commission with jurisdiction over the state in which the 
registrant's principal place of business is located and by the 
designated self-regulatory organization, if any; and reports or other 
information required to be filed by this section by an applicant for 
registration will be considered filed when received by the National 
Futures Association. Any report or information filed with the National 
Futures Association pursuant to this paragraph shall be deemed for all 
purposes to be filed with, and to be the official record of, the 
Commission.
    (2)(i) Except as provided in the last sentence of this 
subparagraph, all filings or other notices prepared by a futures 
commission merchant pursuant to this section may be submitted to the 
Commission in electronic form using a form of user authentication 
assigned in accordance with procedures established by or approved by 
the Commission, and otherwise in accordance with instructions issued by 
or approved by the Commission, if the futures commission merchant or a 
designated self-regulatory organization has provided the Commission 
with the means necessary to read and to process the information 
contained in such report. A Form 1-FR required to be certified by an 
independent public accountant in accordance with Sec.  1.16 which is 
filed by a futures commission merchant must be filed in paper form and 
may not be filed electronically.
    (ii) Except as provided in paragraph (h) of this section, all 
filings or other notices or applications prepared by an introducing 
broker or applicant for registration as an introducing broker or 
futures commission merchant pursuant to this section must be filed 
electronically in accordance with electronic filing procedures 
established by the National Futures Association. In the case of a Form 
1-FR-IB that is required to be certified by an independent public 
accountant in accordance with Sec.  1.16, a paper copy of any such 
filing with the original manually signed certification must be 
maintained by the introducing broker or applicant for registration as 
an introducing broker in accordance with Sec.  1.31.
* * * * *
    (d) * * *
    (1) * * *
    (ii) Statements of income (loss) and a statement of changes in 
ownership equity for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
* * * * *
    (4) * * *
    (iii) In the case of a Form 1-FR filed via electronic transmission 
in accordance with procedures established by or approved by the 
Commission, such transmission must be accompanied by the user 
authentication assigned to the authorized signer under such procedures, 
and the use of such user authentication will constitute and become a 
substitute for the manual signature of the authorized signer for the 
purpose of making the oath or affirmation referred to in this 
paragraph.
* * * * *
    (h) Filing option available to a futures commission merchant or an 
introducing broker that is also a securities broker or dealer. Any 
applicant or registrant which is registered with the Securities and 
Exchange Commission as a securities broker or dealer may comply with 
the requirements of this section by filing (in accordance with 
paragraphs (a), (b), (c), and (j) of this section) a copy of its 
Financial and Operational Combined Uniform Single Report under the 
Securities Exchange Act of 1934, Part II, Part IIA, or Part II CSE 
(FOCUS Report), in lieu of Form 1-FR; Provided, however, That all 
information which is required to be furnished on and submitted with 
Form 1-FR is provided with such FOCUS Report; and Provided, further, 
That a certified FOCUS Report filed by an introducing broker or 
applicant for registration as an introducing broker in lieu of a 
certified Form 1-FR-IB must be filed according to National Futures 
Association rules, either in paper form or electronically, in 
accordance with procedures established by the National Futures 
Association, and if filed electronically, a paper copy of such filing 
with the original manually signed certification must be maintained by 
such introducing broker or applicant in accordance with Sec.  1.31.
* * * * *
    3. Section 1.12 is amended by:
    a. Revising paragraphs (a)(2) and (i)(1);
    b. Removing paragraph (a)(3); and

[[Page 52441]]

    c. Adding paragraph (i)(3).
    The revisions and addition read as follows:


Sec.  1.12  Maintenance of minimum financial requirements by futures 
commission merchants and introducing brokers.

    (a) * * *
    (2) Provide together with such notice documentation in such form as 
necessary to adequately reflect the applicant's or registrant's capital 
condition as of any date such person's adjusted net capital is less 
than the minimum required. The applicant or registrant must provide 
similar documentation for other days as the Commission may request.
* * * * *
    (i)(1) Every notice and written report required to be given or 
filed by this section (except for notices required by paragraph (f) of 
this section) by a futures commission merchant or a self-regulatory 
organization must be filed with the regional office of the Commission 
with jurisdiction over the state in which the registrant's principal 
place of business is located, with the principal office of the 
Commission in Washington, DC, with the designated self-regulatory 
organization, if any, and with the Securities and Exchange Commission, 
if such registrant is a securities broker or dealer. Every notice and 
written report required to be given or filed by this section by an 
applicant for registration as a futures commission merchant must be 
filed with the National Futures Association (on behalf of the 
Commission), with the designated self-regulatory organization, if any, 
and with the Securities and Exchange Commission, if such applicant is a 
securities broker or dealer. Any notice or report filed with the 
National Futures Association pursuant to this paragraph shall be deemed 
for all purposes to be filed with, and to be the official record of, 
the Commission.
* * * * *
    (3) Every notice or report required to be provided in writing to 
the Commission under this section may, in lieu of facsimile, be filed 
via electronic transmission using a form of user authentication 
assigned in accordance with procedures established by or approved by 
the Commission, and otherwise in accordance with instructions issued by 
or approved by the Commission. Any such electronic submission must 
clearly indicate the registrant or applicant on whose behalf such 
filing is made and the use of such user authentication in submitting 
such filing will constitute and become a substitute for the manual 
signature of the authorized signer.
* * * * *

    Issued in Washington, DC on October 6, 2009 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-24480 Filed 10-9-09; 8:45 am]
BILLING CODE P