Electronic Filing of Financial Reports and Notices, 69004-69009 [E9-31032]
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Federal Register / Vol. 74, No. 249 / Wednesday, December 30, 2009 / Rules and Regulations
10 times a month, and arrives more than
30 minutes late (including cancelled
flights) more than 50 percent of the time
during that month.
(3) For purposes of this paragraph, the
Department considers all of a carrier’s
flights that are operated in a given citypair market whose scheduled departure
times are within 30 minutes of the most
frequently occurring scheduled
departure time to be one single flight.
(4) The holding out of a chronically
delayed flight for more than four
consecutive one-month periods
represents one form of unrealistic
scheduling and is an unfair or deceptive
practice and an unfair method of
competition within the meaning of 49
U.S.C. 41712.
[FR Doc. E9–30615 Filed 12–29–09; 8:45 am]
BILLING CODE 4910–9X–P
COMMODITY FUTURES TRADING
COMMISSION
immediate, but less prescriptive,
documentation regarding a firm’s capital
condition when a firm falls below its
required minimum adjusted net capital.
Finally, the final regulations include
several other minor amendments to
correct certain outdated references and
to make other clarifications to existing
regulations.
DATES: Effective Date: January 4, 2010.
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:
17 CFR Part 1
I. Background
RIN 3038–AB87
On October 13, 2009, the Commission
published for comment in the Federal
Register proposed amendments to
Regulations 1.10 and 1.12 (the
‘‘Proposals’’).1 Commission Regulation
1.10 sets forth the financial reporting
requirements for FCMs and IBs 2 and
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.3
The Proposals consisted of several
amendments regarding electronic filing
of financial reports and notices by FCMs
and IBs as well as amendments to
certain other financial reporting
requirements. Specifically, the
Commission proposed amendments to:
(1) Broaden language in the
Commission’s regulations concerning
authentication procedures applicable to
electronic filing of financial reports in
order to enable internet-based filing of
such reports in anticipation of expected
Electronic Filing of Financial Reports
and Notices
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AGENCY: Commodity Futures Trading
Commission.
ACTION: Final rules.
SUMMARY: The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is amending certain of its
regulations in connection with
electronic filing of financial reports and
related notices. The amendments
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 amendments also
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
amendments 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
amendments also require more
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1 74
FR 52434 (Oct 13, 2009). The Commission’s
regulations cited in this 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 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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changes to ‘‘WinJammerTM,’’ an
application used by FCMs that file their
non-certified financial reports
electronically with the Commission; (2)
expand the types of filings that FCMs
and IBs may submit electronically to
include required ‘‘early warning’’
notices and certain other notices and
filings under Regulations 1.10 and 1.12;
(3) provide for less prescriptive, but
more immediate, documentation to be
filed regarding a firm’s undercapitalized
condition; (4) expressly include an
income statement in the required
periodic unaudited financial reports of
FCMs and IBs; and (5) make several
other minor amendments to correct
certain outdated references and to make
other clarifications to existing
regulations.
The 30-day public comment period on
the Proposals expired on November 12,
2009. The Commission received one
written comment on the Proposals,
submitted by the National Futures
Association (‘‘NFA’’). NFA noted its
agreement and support of the
Commission’s Proposals and
commended the Commission for its
review of its electronic filing
requirements and proposal of changes to
reflect technological advances and
current practices. As discussed below,
NFA also encouraged the Commission
to consider certain additional
amendments to further expand the use
of electronic filing in certain
circumstances. NFA did not suggest
delaying the implementation of the
Proposals while these additional
suggestions made by NFA are under
consideration by the Commission. The
Commission further notes that certain
provisions included in the additional
amendments offered by NFA for
consideration may require publication
in the Federal Register for prior notice
and comment before they may be
adopted. For the reasons set forth below,
the Commission has therefore
determined to adopt the amendments as
proposed.
II. Rule Amendments
A. Electronic Filing Issues
1. Amendments to Regulation 1.10
Commission Regulation 1.10(c)
generally sets forth the provisions
governing where and how 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 and
Regulation 1.10(c)(2) addresses the
method for submitting such reports.
Electronic submission of certified
financial reports currently is addressed
separately in Regulation 1.10(b)(2)(iii).
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Federal Register / Vol. 74, No. 249 / Wednesday, December 30, 2009 / Rules and Regulations
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 Commission is moving Regulation
1.10(b)(2)(iii) into a new subparagraph
of Regulation 1.10(c)(2). Regulation
1.10(c)(2) is being amended as discussed
below and divided into 2 new
subparagraphs: New subparagraph
(c)(2)(i) addresses electronic filing by
FCMs with the Commission and new
subparagraph (c)(2)(ii) addresses
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 * * *.’’ The adopted
amendments to Regulation 1.10(c)(2)
broaden the language in the regulation
relating to user authentication by no
longer limiting user authentication to
the use of a personal identification
number (‘‘PIN’’). As described in the
proposing release, the use of such a PIN
is no longer consistent with the internetbased enhancements under
development for Winjammer. The
revisions to Regulation 1.10(c)(2) also
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.
Such other notices would include, for
example, an election to use a fiscal year
other than a calendar year under
Regulation 1.10(e) and a request for an
extension of time to file uncertified
financial reports under Regulation
1.10(f). Regulation 1.10(d)(4)(iii), which
deals with electronic filing of Form
1–FR, is being amended by deleting
references to the use of a PIN.
As amended, Regulation 1.10(c)(2)(i)
provides that all filings or other notices
or applications prepared by a futures
commission merchant ‘‘[except with
respect to the filing of certified financial
reports which must be filed in paper
form], and 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
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organization has provided the
Commission with the means necessary
to read and to process the information
contained in such report.’’
Amended Regulation 1.10(c)(2)(ii)
provides 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
filed electronically in accordance with
electronic filing procedures established
by the National Futures Association
* * *.’’
In its comment letter, NFA indicated
that it would support the Commission
further broadening the permitted use of
electronic filing to include FCM
certified financial statements. The
current requirement in Regulation 1.10
for FCM certified financial statements to
be filed in paper form is due in part to
the fact that such statements are not
prepared in a standard format that lends
itself easily to electronic input. NFA
suggested that notwithstanding this lack
of standardization, the Commission
could consider permitting the
submission of such statements in
portable document format (‘‘pdf’’). The
Commission notes, however, that this
suggestion requires further review
because the pdf format is not conducive
to the application of automated review
of the data by the Commission. Further
review would also be beneficial in light
of continuing developments in
technology that may at a later date result
in increased benefits of electronic filing
of certified financial statements for the
filers, the Commission and the DSRO
recipients. The adoption of the
amendments as proposed will not
impede such further review, and will
make available to these same parties
other recognized enhancements to the
current requirements for electronic
filing.
2. Amendments to Regulation 1.12
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 The Commission
proposed to amend Regulation 1.12(i),
which sets forth the procedures for
filing notices under Regulation 1.12, to
allow FCMs and IBs to submit
electronically filings otherwise required
to be submitted in writing via
facsimile.5 In its comment letter, NFA
4 See
footnote 3, above.
file notices under Regulation 1.12 with NFA
pursuant to NFA rules. NFA has indicated that it
5 IBs
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supported this change, but suggested
that the Commission consider requiring,
rather than simply permitting,
registrants to electronically file such
notices. Although the Commission
strongly encourages, and believes that
most registrants will choose to utilize,
electronic filing as a more efficient and
expeditious means to file notices, the
Commission nonetheless appreciates
that there may be times when a
registrant would prefer, or is otherwise
unable, to file electronically. For
example, a registrant may have a
regulatory deadline under the
Commission’s regulations but be unable
to satisfy such deadline through
electronic means due to temporary
technological issues with
WinJammerTM, NFA’s EasyFile system
or the registrants’ own systems.
Moreover, moving from a permissive to
mandatory filing requirement may
require publication in the Federal
Register in order to obtain public
comment on such a proposal. In light of
these concerns, the Commission has
determined to adopt the amendment as
proposed.
The amendment adopted adds a new
subparagraph 1.12(i)(3) to the
Commission’s regulations which
provides 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 is 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.
B. Income Statement Filing Requirement
Commission Regulation 1.10(d) sets
forth the content requirements for
financial reports filed with the
Commission: The Commission proposed
to amend Regulation 1.10(d)(1) to
require ‘‘statements of income (loss)’’ to
be included as part of FCM and IB noncertified financial report filings. The
Commission noted that this amendment
is consistent with Regulation
1.10(d)(2)(ii), which requires FCMs and
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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IBs to include an income statement as
part of their certified financial reports,
and is a practice currently followed by
most registrants. NFA voiced its support
of this amendment in its comment letter
noting its agreement that the income
statement provides the Commission
with important information for
monitoring the financial condition of
firms. The Commission is adopting the
amendment as proposed.
As noted in the Proposals, this
amendment does 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.6
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C. Net Capital Undercapitalization
Documentation
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 selfregulatory organization (‘‘DSRO’’) to
provide notice of such event
immediately by telephone and confirm
such telephonic notice in writing by
facsimile. Regulations 1.12(a)(2)
(applicable to FCMs) and 1.12(a)(3)
(applicable to IBs) further require that,
within 24 hours thereafter, the registrant
(or applicant) must file certain specific
financial records with the Commission.7
The Commission also is amending
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
6 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 brokerdealers 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) will be deemed an
acceptable filing in accordance with Commission
Regulation 1.10(h).
7 Specifically, Regulation 1.12(a)(2) requires an
FCM (or applicant) to file with the Commission:
(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 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.
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capital requirement. NFA supported this
amendment, stating its agreement with
the Commission that it is more
beneficial for the Commission to receive
prompt information concerning a firm’s
capital condition than to receive such
information in a specific prescribed
format. Under the amended regulation,
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. Amended Regulation
1.12(a)(2) requires 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.’’ 8 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. The amended regulation
also requires a firm to provide similar
documentation to that initially provided
for any other days the Commission may
request.9 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.
Regulation 1.12(a)(3), which provides
documentation requirements for IBs that
provide the Commission with notice of
their undercapitalized condition, has
been deleted because Regulation
1.12(a)(2) as amended applies to IBs as
well as to FCMs. Regulation 1.12(i)(1)
also is being amended by deleting
certain language related to the method
of filing documentation that is no longer
required to be submitted to the
Commission in light of the amendments
to Regulation 1.12(a)(2) discussed
above.
D. Miscellaneous Amendments to
Regulations
The Commission proposed a number
of minor amendments to Regulations
1.10 and 1.12 to correct certain outdated
8 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.
9 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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references and to otherwise clarify
existing regulations. NFA noted their
support of certain of these amendments
that eliminated requirements that
provided for duplicative filing with
NFA and the Commission (enumerated
as items (1) and (2), below). The
Commission received no comments on
the other amendments. The Commission
is, therefore, adopting each of the
amendments as proposed and, as
outlined below:
(1) Regulation 1.10(c)(1) is amended
to clarify that FCM and IB applicants for
registration need file financial reports
required as part of the application
process only with NFA and not also
with a regional office of the
Commission;
(2) Regulation 1.12(i)(1) is amended to
clarify that an applicant for registration
as an FCM need file any notices
required under Regulation 1.12 only
with NFA and not also with the
Commission. The amended regulation
makes clear that any notice or report
filed with NFA will be deemed to be
filed with, and to be the official record
of, the Commission;
(3) The following minor wording
amendments are being made to
Regulation 1.10(c)(1) for the purposes of
consistency with other provisions of the
regulations and/or general clarification:
(A) The reference to ‘‘[a] report filed
by an [IB] pursuant to paragraph (b)(2)(i)
or (b)(2)(ii)’’ is amended to clarify that
‘‘a report’’ in this context is meant to
refer to Form 1–FR;
(B) The reference to subparagraphs
(b)(2)(i) and (b)(2)(ii) is being amended
for simplicity to refer only to paragraph
(b)(2) in general; and
(C) The language of paragraph
1.10(c)(1) is being amended to clarify
that it is intended to cover not only
‘‘reports’’ but all reports and other
‘‘information;’’
(4) Regulations 1.10(b)(2)(i) and
1.10(b)(2)(ii) are being amended to
delete language referring to an option to
file financial statements on a calendaryear basis which is no longer contained
in the Commission’s regulations;
(5) Regulation 1.10(b)(3), which
permits an FCM or IB to satisfy the
Commission’s Form 1–FR filing
requirements if it satisfies certain
financial reporting standards and
reporting requirements of its DSRO, is
being amended to delete outdated
language referring to DSRO regulations
applicable ‘‘after the effective date of
these regulations by the Commission’’;
and
(6) Language within regulation 1.10(h)
that references ‘‘NFA’’ is amended for
consistency purposes by spelling out
‘‘National Futures Association.’’
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III. Related Matters
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A. Administrative Procedure Act
The Administrative Procedure Act
(‘‘APA’’) provides that the required
publication of a substantive rule shall be
made not less than 30 days before its
effective date, unless the agency is
permitted to implement an earlier
effective date under one of the
exceptions recognized by the APA.10
The exceptions set forth in the APA are
as follows: (1) A substantive rule which
grants or recognizes an exemption or
relieves a restriction; (2) interpretative
rules and statements of policy; or (3) as
otherwise provided by the agency for
good cause found and published with
the rule.11
The amendments being made to Rules
1.10 and 1.12 will ‘‘grant or recognize
an exemption or relieve a restriction’’ in
that they generally serve to permit and
enable registrants to file notices and
reports electronically that previously
were required to be filed in paper form.
In addition, the amendments include a
number of non-substantive amendments
to correct certain outdated references
and to otherwise clarify existing
regulations.
With regard to the amendments
relating to the timing of documentation
required by firms that become
undercapitalized, the Commission has a
clear interest in receiving such
information immediately and believes,
therefore, that there is ‘‘good cause’’ to
make such requirement effective in
fewer than 30 days. With respect to the
amendments requiring an income
statement, the Commission believes that
there is also ‘‘good cause’’ to make this
provision effective on January 4, 2010,
consistent with the other rule
amendments. It would not be logical for
the income statement requirement to be
implemented at a time later than the
effective date of the remaining rules, as
the information in the income statement
is an integral part of a registrant’s
financial statements. Further, as the SEC
and several self-regulatory organizations
already require dual registrants and
other FCMs to include the income
statement in their financial statements,
the income statement is already
formatted as part of the Form 1–FR
reports that registrants currently file
with the Commission, and the data
required to complete it is generally
already available from other parts of the
form. In fact, substantially all FCMs and
IBs already complete the income
statement as part of their required
10 5
11 5
U.S.C. 553(b) and (d).
U.S.C. 553–(d).
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periodic non-certified financial report
filings.
Accordingly, the Commission has
determined to make these amendments
effective on January 4, 2010, consistent
with the anticipated availability of the
updated WinJammerTM system.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’), 5 U.S.C. 601 et seq., requires
that agencies, in rulemaking, consider
the impact of those regulations on small
businesses. This rulemaking 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.12 These
amendments 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 amending
its regulations 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.13 The
Commission’s Proposals solicited public
comment on this analysis.14 No
comments were received. Accordingly,
pursuant to Section 3(a) of the RFA, 5
U.S.C. 605(b), the Chairman, on behalf
of the Commission, certifies that the
action taken herein will not have a
significant economic impact on a
substantial number of small entities.
12 See
48 FR 35248, 35275–78 (Aug. 3, 1983).
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).
14 74 FR at 52438.
13 See
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69007
C. Paperwork Reduction Act
This rulemaking provides an
alternative method of collection for a
required collection of information under
Part 1 of the Commission’s rules, but is
not anticipated to change the burden
under such collection as the actual
financial reporting requirements have
not changed significantly. As required
by the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)), the Commission
submitted a copy of this section to the
Office of Management and Budget
(‘‘OMB’’) for its review. No comments
were received in response to the
Commission’s invitation in its notice of
proposed rulemaking to comment on
any change in the potential paperwork
burden associated with these rule
amendments.15
D. 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’s proposal contained
an analysis of its consideration of these
costs and benefits and solicited public
comment thereon.16 No comments were
received with respect to this analysis.
Therefore, pursuant to such
consideration, the Commission has
decided to adopt these amendments as
discussed above.
15 Id.
16 74
E:\FR\FM\30DER1.SGM
FR at 52439.
30DER1
69008
Federal Register / Vol. 74, No. 249 / Wednesday, December 30, 2009 / Rules and Regulations
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 amends 17 CFR part
1 as follows:
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) as follows:
■
§ 1.10 Minimum financial requirements for
futures commission merchants and
introducing brokers.
erowe on DSK5CLS3C1PROD with RULES
*
*
*
*
*
(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 § 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 § 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
VerDate Nov<24>2008
15:16 Dec 29, 2009
Jkt 220001
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
§ 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 § 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
PO 00000
Frm 00026
Fmt 4700
Sfmt 4700
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 § 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
§ 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
E:\FR\FM\30DER1.SGM
30DER1
Federal Register / Vol. 74, No. 249 / Wednesday, December 30, 2009 / Rules and Regulations
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 § 1.31.
*
*
*
*
*
■ 3. Section 1.12 is amended by:
■ a. Revising paragraphs (a)(2) and
(i)(1);
■ b. Removing paragraph (a)(3); and
■ c. Adding paragraph (i)(3) as follows:
erowe on DSK5CLS3C1PROD with RULES
§ 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 selfregulatory 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
VerDate Nov<24>2008
15:16 Dec 29, 2009
Jkt 220001
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 December
24, 2009, by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9–31032 Filed 12–29–09; 8:45 am]
BILLING CODE P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 275
[Release No. IA–2965; File No. S7–23–07]
RIN 3235–AJ96
Temporary Rule Regarding Principal
Trades With Certain Advisory Clients
AGENCY: Securities and Exchange
Commission.
ACTION: Final rule.
SUMMARY: The Securities and Exchange
Commission is adopting as final Rule
206(3)–3T under the Investment
Advisers Act of 1940, the interim final
temporary rule that establishes an
alternative means for investment
advisers who are registered with the
Commission as broker-dealers to meet
the requirements of Section 206(3) of
the Investment Advisers Act when they
act in a principal capacity in
transactions with certain of their
advisory clients. As adopted, the only
change to the rule is the expiration date.
Rule 206(3)–3T will sunset on December
31, 2010.
DATES: Effective Date: December 30,
2009.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Bessin, Assistant Director,
Daniel S. Kahl, Branch Chief, or
Matthew N. Goldin, Senior Counsel, at
(202) 551–6787 or IArules@sec.gov,
Office of Investment Adviser
Regulation, Division of Investment
Management, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–5041.
SUPPLEMENTARY INFORMATION: The
Securities and Exchange Commission is
adopting as final temporary Rule
206(3)–3T [17 CFR 275.206(3)–3T]
under the Investment Advisers Act of
1940 [15 U.S.C. 80b].
PO 00000
Frm 00027
Fmt 4700
Sfmt 4700
69009
I. Background
On September 24, 2007, we adopted,
on an interim final basis, Rule 206(3)–
3T, a temporary rule under the
Investment Advisers Act of 1940 (the
‘‘Advisers Act’’) that provides an
alternative means for investment
advisers who are registered with us as
broker-dealers to meet the requirements
of Section 206(3) of the Advisers Act
when they act in a principal capacity in
transactions with certain of their
advisory clients.1 The purpose of the
rule was to permit broker-dealers to sell
to their advisory clients, in the wake of
Financial Planning Association v. SEC
(the ‘‘FPA Decision’’),2 certain securities
held in the proprietary accounts of their
firms that might not be available on an
agency basis—or might be available on
an agency basis only on less attractive
terms 3—while protecting clients from
conflicts of interest as a result of such
transactions.4
The rule vacated in the FPA Decision
had allowed broker-dealers to offer feebased accounts without complying with
the Advisers Act, including the
requirements of Section 206(3). Section
206(3) makes is unlawful for any
investment adviser, directly or
indirectly, ‘‘acting as a principal for his
own account, knowingly to sell any
security to or to purchase any security
from a client * * *, without disclosing
to such client in writing before the
completion of such transaction the
1 Rule 206(3)–3T [17 CFR 275.206(3)–3T]. All
references to Rule 206(3)–3T and the various
sections thereof in this Release are to 17 CFR
275.206(3)–3T and its corresponding sections. See
also Temporary Rule Regarding Principal Trades
with Certain Advisory Clients, Investment Advisers
Act Release No. 2653 (Sep. 24, 2007) [72 FR 55022
(Sep. 28, 2007)] (‘‘2007 Principal Trade Rule
Release’’).
2 482 F.3d 481 (D.C. Cir. 2007). In the FPA
Decision, handed down on March 30, 2007, the
Court of Appeals for the District of Columbia
Circuit vacated (subject to a subsequent stay until
October 1, 2007) Rule 202(a)(11)–1 under the
Advisers Act. Rule 202(a)(11)–1 provided, among
other things, that fee-based brokerage accounts were
not advisory accounts and were thus not subject to
the Advisers Act. For further discussion of feebased brokerage accounts, see 2007 Principal Trade
Rule Release, Section I.
3 See 2007 Principal Trade Rule Release at nn.19–
20 and Section VI.C.
4 As a consequence of the FPA Decision, brokerdealers offering fee-based brokerage accounts
became subject to the Advisers Act with respect to
those accounts, and the client relationship became
fully subject to the Advisers Act. These brokerdealers—to the extent they wanted to continue to
offer fee-based accounts and met the requirements
for registration—had to register as investment
advisers, if they had not done so already, act as
fiduciaries with respect to those clients, disclose all
material conflicts of interest, and otherwise fully
comply with the Advisers Act, including the
restrictions on principal trading contained in
Section 206(3) of the Act. See 2007 Principal Trade
Rule Release, Section I.
E:\FR\FM\30DER1.SGM
30DER1
]]>Agencies
[Federal Register Volume 74, Number 249 (Wednesday, December 30, 2009)]
[Rules and Regulations]
[Pages 69004-69009]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-31032]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
RIN 3038-AB87
Electronic Filing of Financial Reports and Notices
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is amending certain of its regulations in connection with
electronic filing of financial reports and related notices. The
amendments 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 amendments also 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 amendments 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 amendments also 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 final regulations include several other minor
amendments to correct certain outdated references and to make other
clarifications to existing regulations.
DATES: Effective Date: January 4, 2010.
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
On October 13, 2009, the Commission published for comment in the
Federal Register proposed amendments to Regulations 1.10 and 1.12 (the
``Proposals'').\1\ Commission Regulation 1.10 sets forth the financial
reporting requirements for FCMs and IBs \2\ and 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.\3\
---------------------------------------------------------------------------
\1\ 74 FR 52434 (Oct 13, 2009). The Commission's regulations
cited in this 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\ 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.
---------------------------------------------------------------------------
The Proposals consisted of several amendments regarding electronic
filing of financial reports and notices by FCMs and IBs as well as
amendments to certain other financial reporting requirements.
Specifically, the Commission proposed amendments to: (1) Broaden
language in the Commission's regulations concerning authentication
procedures applicable to electronic filing of financial reports in
order to enable internet-based filing of such reports in anticipation
of expected changes to ``WinJammerTM,'' an application used
by FCMs that file their non-certified financial reports electronically
with the Commission; (2) expand the types of filings that FCMs and IBs
may submit electronically to include required ``early warning'' notices
and certain other notices and filings under Regulations 1.10 and 1.12;
(3) provide for less prescriptive, but more immediate, documentation to
be filed regarding a firm's undercapitalized condition; (4) expressly
include an income statement in the required periodic unaudited
financial reports of FCMs and IBs; and (5) make several other minor
amendments to correct certain outdated references and to make other
clarifications to existing regulations.
The 30-day public comment period on the Proposals expired on
November 12, 2009. The Commission received one written comment on the
Proposals, submitted by the National Futures Association (``NFA''). NFA
noted its agreement and support of the Commission's Proposals and
commended the Commission for its review of its electronic filing
requirements and proposal of changes to reflect technological advances
and current practices. As discussed below, NFA also encouraged the
Commission to consider certain additional amendments to further expand
the use of electronic filing in certain circumstances. NFA did not
suggest delaying the implementation of the Proposals while these
additional suggestions made by NFA are under consideration by the
Commission. The Commission further notes that certain provisions
included in the additional amendments offered by NFA for consideration
may require publication in the Federal Register for prior notice and
comment before they may be adopted. For the reasons set forth below,
the Commission has therefore determined to adopt the amendments as
proposed.
II. Rule Amendments
A. Electronic Filing Issues
1. Amendments to Regulation 1.10
Commission Regulation 1.10(c) generally sets forth the provisions
governing where and how 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 and Regulation 1.10(c)(2)
addresses the method for submitting such reports. Electronic submission
of certified financial reports currently is addressed separately in
Regulation 1.10(b)(2)(iii).
[[Page 69005]]
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 Commission is moving
Regulation 1.10(b)(2)(iii) into a new subparagraph of Regulation
1.10(c)(2). Regulation 1.10(c)(2) is being amended as discussed below
and divided into 2 new subparagraphs: New subparagraph (c)(2)(i)
addresses electronic filing by FCMs with the Commission and new
subparagraph (c)(2)(ii) addresses 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 * *
*.'' The adopted amendments to Regulation 1.10(c)(2) broaden the
language in the regulation relating to user authentication by no longer
limiting user authentication to the use of a personal identification
number (``PIN''). As described in the proposing release, the use of
such a PIN is no longer consistent with the internet-based enhancements
under development for Winjammer. The revisions to Regulation 1.10(c)(2)
also 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. Such other
notices would include, for example, an election to use a fiscal year
other than a calendar year under Regulation 1.10(e) and a request for
an extension of time to file uncertified financial reports under
Regulation 1.10(f). Regulation 1.10(d)(4)(iii), which deals with
electronic filing of Form 1-FR, is being amended by deleting references
to the use of a PIN.
As amended, Regulation 1.10(c)(2)(i) provides that all filings or
other notices or applications prepared by a futures commission merchant
``[except with respect to the filing of certified financial reports
which must be filed in paper form], and 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.''
Amended Regulation 1.10(c)(2)(ii) provides 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 filed
electronically in accordance with electronic filing procedures
established by the National Futures Association * * *.''
In its comment letter, NFA indicated that it would support the
Commission further broadening the permitted use of electronic filing to
include FCM certified financial statements. The current requirement in
Regulation 1.10 for FCM certified financial statements to be filed in
paper form is due in part to the fact that such statements are not
prepared in a standard format that lends itself easily to electronic
input. NFA suggested that notwithstanding this lack of standardization,
the Commission could consider permitting the submission of such
statements in portable document format (``pdf''). The Commission notes,
however, that this suggestion requires further review because the pdf
format is not conducive to the application of automated review of the
data by the Commission. Further review would also be beneficial in
light of continuing developments in technology that may at a later date
result in increased benefits of electronic filing of certified
financial statements for the filers, the Commission and the DSRO
recipients. The adoption of the amendments as proposed will not impede
such further review, and will make available to these same parties
other recognized enhancements to the current requirements for
electronic filing.
2. Amendments to Regulation 1.12
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\ The Commission proposed to amend
Regulation 1.12(i), which sets forth the procedures for filing notices
under Regulation 1.12, to allow FCMs and IBs to submit electronically
filings otherwise required to be submitted in writing via facsimile.\5\
In its comment letter, NFA supported this change, but suggested that
the Commission consider requiring, rather than simply permitting,
registrants to electronically file such notices. Although the
Commission strongly encourages, and believes that most registrants will
choose to utilize, electronic filing as a more efficient and
expeditious means to file notices, the Commission nonetheless
appreciates that there may be times when a registrant would prefer, or
is otherwise unable, to file electronically. For example, a registrant
may have a regulatory deadline under the Commission's regulations but
be unable to satisfy such deadline through electronic means due to
temporary technological issues with WinJammer\TM\, NFA's EasyFile
system or the registrants' own systems. Moreover, moving from a
permissive to mandatory filing requirement may require publication in
the Federal Register in order to obtain public comment on such a
proposal. In light of these concerns, the Commission has determined to
adopt the amendment as proposed.
---------------------------------------------------------------------------
\4\ See footnote 3, above.
\5\ 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.
---------------------------------------------------------------------------
The amendment adopted adds a new subparagraph 1.12(i)(3) to the
Commission's regulations which provides 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 is 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.
B. Income Statement Filing Requirement
Commission Regulation 1.10(d) sets forth the content requirements
for financial reports filed with the Commission: The Commission
proposed to amend Regulation 1.10(d)(1) to require ``statements of
income (loss)'' to be included as part of FCM and IB non-certified
financial report filings. The Commission noted that this amendment is
consistent with Regulation 1.10(d)(2)(ii), which requires FCMs and
[[Page 69006]]
IBs to include an income statement as part of their certified financial
reports, and is a practice currently followed by most registrants. NFA
voiced its support of this amendment in its comment letter noting its
agreement that the income statement provides the Commission with
important information for monitoring the financial condition of firms.
The Commission is adopting the amendment as proposed.
As noted in the Proposals, this amendment does 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.\6\
---------------------------------------------------------------------------
\6\ 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) will be deemed an acceptable filing in accordance with
Commission Regulation 1.10(h).
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C. Net Capital Undercapitalization Documentation
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. Regulations 1.12(a)(2)
(applicable to FCMs) and 1.12(a)(3) (applicable to IBs) further require
that, within 24 hours thereafter, the registrant (or applicant) must
file certain specific financial records with the Commission.\7\
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\7\ Specifically, Regulation 1.12(a)(2) requires an FCM (or
applicant) to file with the Commission: (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 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.
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The Commission also is amending 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. NFA supported this amendment, stating its
agreement with the Commission that it is more beneficial for the
Commission to receive prompt information concerning a firm's capital
condition than to receive such information in a specific prescribed
format. Under the amended regulation, 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. Amended
Regulation 1.12(a)(2) requires 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.'' \8\ 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. The amended regulation also requires a firm to provide
similar documentation to that initially provided for any other days the
Commission may request.\9\ 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.
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\8\ 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.
\9\ 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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Regulation 1.12(a)(3), which provides documentation requirements
for IBs that provide the Commission with notice of their
undercapitalized condition, has been deleted because Regulation
1.12(a)(2) as amended applies to IBs as well as to FCMs. Regulation
1.12(i)(1) also is being amended by deleting certain language related
to the method of filing documentation that is no longer required to be
submitted to the Commission in light of the amendments to Regulation
1.12(a)(2) discussed above.
D. Miscellaneous Amendments to Regulations
The Commission proposed a number of minor amendments to Regulations
1.10 and 1.12 to correct certain outdated references and to otherwise
clarify existing regulations. NFA noted their support of certain of
these amendments that eliminated requirements that provided for
duplicative filing with NFA and the Commission (enumerated as items (1)
and (2), below). The Commission received no comments on the other
amendments. The Commission is, therefore, adopting each of the
amendments as proposed and, as outlined below:
(1) Regulation 1.10(c)(1) is amended to clarify that FCM and IB
applicants for registration need file financial reports required as
part of the application process only with NFA and not also with a
regional office of the Commission;
(2) Regulation 1.12(i)(1) is amended to clarify that an applicant
for registration as an FCM need file any notices required under
Regulation 1.12 only with NFA and not also with the Commission. The
amended regulation makes clear that any notice or report filed with NFA
will be deemed to be filed with, and to be the official record of, the
Commission;
(3) The following minor wording amendments are being made to
Regulation 1.10(c)(1) for the purposes of consistency with other
provisions of the regulations and/or general clarification:
(A) The reference to ``[a] report filed by an [IB] pursuant to
paragraph (b)(2)(i) or (b)(2)(ii)'' is amended to clarify that ``a
report'' in this context is meant to refer to Form 1-FR;
(B) The reference to subparagraphs (b)(2)(i) and (b)(2)(ii) is
being amended for simplicity to refer only to paragraph (b)(2) in
general; and
(C) The language of paragraph 1.10(c)(1) is being amended to
clarify that it is intended to cover not only ``reports'' but all
reports and other ``information;''
(4) Regulations 1.10(b)(2)(i) and 1.10(b)(2)(ii) are being amended
to delete language referring to an option to file financial statements
on a calendar-year basis which is no longer contained in the
Commission's regulations;
(5) Regulation 1.10(b)(3), which permits an FCM or IB to satisfy
the Commission's Form 1-FR filing requirements if it satisfies certain
financial reporting standards and reporting requirements of its DSRO,
is being amended to delete outdated language referring to DSRO
regulations applicable ``after the effective date of these regulations
by the Commission''; and
(6) Language within regulation 1.10(h) that references ``NFA'' is
amended for consistency purposes by spelling out ``National Futures
Association.''
[[Page 69007]]
III. Related Matters
A. Administrative Procedure Act
The Administrative Procedure Act (``APA'') provides that the
required publication of a substantive rule shall be made not less than
30 days before its effective date, unless the agency is permitted to
implement an earlier effective date under one of the exceptions
recognized by the APA.\10\ The exceptions set forth in the APA are as
follows: (1) A substantive rule which grants or recognizes an exemption
or relieves a restriction; (2) interpretative rules and statements of
policy; or (3) as otherwise provided by the agency for good cause found
and published with the rule.\11\
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\10\ 5 U.S.C. 553(b) and (d).
\11\ 5 U.S.C. 553-(d).
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The amendments being made to Rules 1.10 and 1.12 will ``grant or
recognize an exemption or relieve a restriction'' in that they
generally serve to permit and enable registrants to file notices and
reports electronically that previously were required to be filed in
paper form. In addition, the amendments include a number of non-
substantive amendments to correct certain outdated references and to
otherwise clarify existing regulations.
With regard to the amendments relating to the timing of
documentation required by firms that become undercapitalized, the
Commission has a clear interest in receiving such information
immediately and believes, therefore, that there is ``good cause'' to
make such requirement effective in fewer than 30 days. With respect to
the amendments requiring an income statement, the Commission believes
that there is also ``good cause'' to make this provision effective on
January 4, 2010, consistent with the other rule amendments. It would
not be logical for the income statement requirement to be implemented
at a time later than the effective date of the remaining rules, as the
information in the income statement is an integral part of a
registrant's financial statements. Further, as the SEC and several
self-regulatory organizations already require dual registrants and
other FCMs to include the income statement in their financial
statements, the income statement is already formatted as part of the
Form 1-FR reports that registrants currently file with the Commission,
and the data required to complete it is generally already available
from other parts of the form. In fact, substantially all FCMs and IBs
already complete the income statement as part of their required
periodic non-certified financial report filings.
Accordingly, the Commission has determined to make these amendments
effective on January 4, 2010, consistent with the anticipated
availability of the updated WinJammerTM system.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires that agencies, in rulemaking, consider the impact of those
regulations on small businesses. This rulemaking 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.\12\ These
amendments 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 amending its
regulations 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.\13\ The Commission's Proposals
solicited public comment on this analysis.\14\ No comments were
received. Accordingly, pursuant to Section 3(a) of the RFA, 5 U.S.C.
605(b), the Chairman, on behalf of the Commission, certifies that the
action taken herein will not have a significant economic impact on a
substantial number of small entities.
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\12\ See 48 FR 35248, 35275-78 (Aug. 3, 1983).
\13\ 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).
\14\ 74 FR at 52438.
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C. Paperwork Reduction Act
This rulemaking provides an alternative method of collection for a
required collection of information under Part 1 of the Commission's
rules, but is not anticipated to change the burden under such
collection as the actual financial reporting requirements have not
changed significantly. As required by the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)), the Commission submitted a copy of this
section to the Office of Management and Budget (``OMB'') for its
review. No comments were received in response to the Commission's
invitation in its notice of proposed rulemaking to comment on any
change in the potential paperwork burden associated with these rule
amendments.\15\
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\15\ Id.
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D. 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's proposal contained an analysis of its
consideration of these costs and benefits and solicited public comment
thereon.\16\ No comments were received with respect to this analysis.
Therefore, pursuant to such consideration, the Commission has decided
to adopt these amendments as discussed above.
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\16\ 74 FR at 52439.
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[[Page 69008]]
List of Subjects in 17 CFR Part 1
Brokers, Commodity futures, Reporting and recordkeeping
requirements.
0
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 amends 17 CFR part 1 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, 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).
0
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) 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
[[Page 69009]]
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.
* * * * *
0
3. Section 1.12 is amended by:
0
a. Revising paragraphs (a)(2) and (i)(1);
0
b. Removing paragraph (a)(3); and
0
c. Adding paragraph (i)(3) 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 December 24, 2009, by the
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-31032 Filed 12-29-09; 8:45 am]
BILLING CODE P
