Dual and Multiple Associations of Persons Associated With Swap Dealers, Major Swap Participants and Other Commission Registrants, 35892-35897 [2012-14654]
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35892
Federal Register / Vol. 77, No. 116 / Friday, June 15, 2012 / Proposed Rules
srobinson on DSK4SPTVN1PROD with PROPOSALS
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and Diamond Aircraft Industries GmbH Work
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Issued in Kansas City, Missouri, on May
11, 2012.
John Colomy,
Acting Manager, Small Airplane Directorate,
Aircraft Certification Service.
[FR Doc. 2012–14705 Filed 6–14–12; 8:45 am]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 3 and 23
RIN 3038–AD66
Dual and Multiple Associations of
Persons Associated With Swap
Dealers, Major Swap Participants and
Other Commission Registrants
Commodity Futures Trading
Commission.
ACTION: Proposed rules.
AGENCY:
The Commodity Futures
Trading Commission (Commission or
CFTC) is proposing regulations that
would make clear that each swap dealer
(SD), major swap participant (MSP), and
other Commission registrant with whom
an associated person (AP) is associated
is required to supervise the AP and is
jointly and severally responsible for the
activities of the AP with respect to
customers common to it and any other
SD, MSP or other Commission registrant
(Proposal).
DATES: Comments must be received on
or before August 14, 2012.
ADDRESSES: You may submit comments,
identified by RIN 3038–AD66 and ‘‘Dual
SUMMARY:
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and Multiple Associations of Persons
Associated with Swap Dealers, Major
Swap Participants and other
Commission Registrants,’’ by any of the
following methods:
• Agency Web Site, via its Comments
Online process: https://
comments.cftc.gov. Follow the
instructions on the Web site for
submitting comments.
• Mail: Send to David A. Stawick,
Secretary, Commodity Futures Trading
Commission, 1155 21st Street NW.,
Washington, DC 20581.
• Hand delivery/Courier: Same as
Mail above.
• Federal eRulemaking Portal: https://
www.regulations.gov/search/index.jsp.
Follow the instructions for submitting
comments.
Please submit your comments using
only one method. All comments must be
submitted in English, or if not,
accompanied by an English translation.
Comments will be posted as received to
www.cftc.gov and the information you
submit will be publicly available. If,
however, you submit information that
ordinarily is exempt from disclosure
under the Freedom of Information Act,
you may submit a petition for
confidential treatment of the exempt
information according to the procedures
set forth in Commission Regulation
145.9.1 The Commission reserves the
right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse
or remove any or all of your submission
from www.cftc.gov that it may deem to
be inappropriate for publication, such as
obscene language. All submissions that
have been redacted or removed that
contain comments on the merits of the
rulemaking will be retained in the
public comment file and will be
considered as required under the
Administrative Procedure Act 2 and
other applicable laws, and may be
accessible under the Freedom of
Information Act.
FOR FURTHER INFORMATION CONTACT:
Israel J. Goodman, Attorney-Advisor, or
Barbara S. Gold, Associate Director,
Division of Swap Dealer and
Intermediary Oversight, 1155 21st Street
NW., Washington, DC 20581. Telephone
number: 202–418–6700 and electronic
mail: igoodman@cftc.gov or
bgold@cftc.gov.
SUPPLEMENTARY INFORMATION:
1 Commission regulations referred to herein are
found at 17 CFR Ch. 1 (2011). They are accessible
on the Commission’s Web site, https://www.cftc.gov.
2 5 U.S.C. 500 et seq.
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Federal Register / Vol. 77, No. 116 / Friday, June 15, 2012 / Proposed Rules
I. Introduction
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A. Background
On July 21, 2010, President Obama
signed the Dodd-Frank Act.3 Section
731 of the Dodd-Frank Act amended the
Commodity Exchange Act (CEA) 4 by
adding Section 4s, which, among other
things, prohibits any person from acting
as a ‘‘swap dealer’’ or ‘‘major swap
participant’’ unless the person is
registered with the Commission.5 To
effectuate the Congressional directive
that an SD or MSP apply for registration
in such form and manner as prescribed
by the Commission,6 on November 23,
2010, the Commission proposed
regulations to establish a registration
process for SDs and MSPs (Proposed
Registration Regulations),7 and on
January 19, 2012, the Commission
adopted regulations that establish a
registration process for SDs and MSPs
(Final Registration Regulations).8
However, Section 731 did not direct
the Commission to adopt regulations
that provide for the registration of APs
of SDs and MSPs.9 Thus, unlike APs of
other Commission registrants, who are
generally required to register with the
Commission,10 APs of SDs and MSPs
are not required to register as such.11
Although APs of SDs and MSPs are not
subject to registration with the
Commission, an SD or MSP is
3 See Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010). The text of the Dodd-Frank Act
also may be accessed on the Commission’s Web
site, https://www.cftc.gov.
4 7 U.S.C. 1 et seq.
5 CEA Sections 4s(a).
6 CEA Section 4s(b).
7 75 FR 71379.
8 77 FR 2613. Additionally, through a separate
Notice and Order, the Commission delegated to the
National Futures Association (NFA) the authority to
perform the full range of registration functions with
respect to SDs and MSPs. 77 FR 2708 (Jan. 19,
2012).
9 See 77 FR at 2613 (noting that CEA Section 4s
does not direct the Commission to adopt regulations
that provide for the registration of APs of SDs or
MSPs).
10 See, e.g., CEA Section 4k and Commission
Regulation 3.12(a).
11 As is the case for other categories of
Commission registrants, the term ‘‘associated
person,’’ when used with respect to an SD or MSP,
means a natural person (as opposed to an entity,
such as a partnership or corporation). See 77 FR
2614–15, whereby the Commission adopted in new
Regulation 1.3(aa)(6) a definition of the term
‘‘associated person’’ of an SD or MSP to mean a
natural person who is associated with an SD or
MSP as:
[A] partner, officer, employee, agent (or any
natural person occupying a similar status or
performing similar functions), in any capacity that
involves:
(i) The solicitation or acceptance of swaps (other
than in a clerical or ministerial capacity); or
(ii) The supervision of any person or persons so
engaged.
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prohibited from permitting any person
associated with it to effect or be
involved in effecting swaps on its behalf
if such person is subject to a statutory
disqualification.12
The Commission adopted the Final
Registration Regulations after
considering the comments it received
from the public on the Proposed
Registration Regulations. One
commenter recommended that the
Commission expand the scope of the
provisions on dual and multiple
associations currently found in
Regulation 3.12(f), or adopt a new
regulation, ‘‘to address the situations in
which an individual conducts swapsrelated activity on behalf of more than
one Swap Entity [SD and/or MSP] or
conducts swaps activity on behalf of a
Swap Entity and is also registered as an
AP of a different firm.’’ 13 When
adopting the Final Registration
Regulations, the Commission stated that
‘‘[w]hile the Commission agrees with
the commenter’s recommendation, it
anticipates promptly addressing this
issue in a future rulemaking.’’ 14 The
Proposal addresses this issue.
B. Regulation 3.12(f)
Regulation 3.12 concerns the
registration of those persons who must
register as an AP of a Commission
registrant. Regulation 3.12(c) provides
that application is made through the
filing of a Form 8–R, accompanied by a
specified certification from the
registrant who will be employing the
AP—i.e., the AP’s ‘‘sponsor.’’ The term
‘‘sponsor’’ is defined in Regulation
3.1(c) to mean ‘‘the futures commission
merchant, retail foreign exchange
dealer, introducing broker, commodity
trading advisor, commodity pool
operator or leverage transaction
merchant which makes the certification
required by § 3.12 of [Part 3] for the
registration of an associated person of
such sponsor.’’
Regulation 3.12(f)(1)(i) permits dual
and multiple associations of a person
registered as an AP.15 Regulation
3.12(f)(1)(iii) provides that each sponsor
of the AP is required to supervise the
AP, and that each sponsor is jointly and
severally responsible for the AP’s
activities with respect to any customers
common to it and any other sponsor
12 See CEA Section 4s(b)(6) and Regulation
23.22(b).
13 Comment letter from the National Futures
Association at page 10 (Jan. 24, 2011).
14 77 FR at 2616.
15 Section 3.12(f)(1)(i) provides that a person who
is already registered as an AP in any capacity may
become associated with another sponsor if the new
sponsor files with the NFA a Form 8–R, as
discussed below.
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35893
with which the AP is associated. The
Commission adopted this joint and
several responsibility provision in 1992
in connection with amendments to
Regulation 3.12(f) that eliminated thenexisting restrictions on dual and
multiple associations in many
circumstances.16 The provision was
intended to address concerns that
permitting dual and multiple
associations would lead to situations
where each sponsor might disclaim
responsibility for the AP’s activities—
that is, that each sponsor would claim
that the dually associated AP was not
acting on its behalf but, rather, for the
other sponsor, and therefore the other
sponsor should be held responsible for
the conduct in question.17
16 57 FR 23136 (June 2, 1992) (the 1992
Amendments). The Commission first adopted a
prohibition on dual and multiple associations in
1980, with respect to APs of futures commission
merchants (FCMs), explaining that it was necessary
‘‘[i]n view of the obvious difficulties of supervision
in such a situation and in view of the inherent
possibilities for conflicts of interest that might arise
if an AP were to have more than one sponsor.’’ 45
FR 80485, 80489 (Dec. 5, 1980) (footnote omitted).
The Commission subsequently amended and
broadened the scope of Regulation 3.12(f) such that,
prior to the 1992 Amendments, Regulation 3.12(f)
prohibited a person from associating as an AP with:
(1) More than one FCM or more than one
introducing broker (IB); (2) an FCM and an IB or
a leverage transaction merchant (LTM); and (3) an
IB and an LTM. Subject to certain exceptions, the
regulations also prohibited a person from
associating as an AP with: (1) An FCM and a
commodity trading advisor (CTA); (2) an FCM and
a commodity pool operator (CPO); (3) an IB and a
CTA; and (4) an IB and a CPO. See 56 FR 37026,
37033 (Aug. 2, 1991). In proposing to eliminate
most of these restrictions, the Commission
explained that, in its experience, these regulations
had been ‘‘difficult to understand and follow, even
for experienced practitioners’’ and that, in certain
cases, they could have perverse effects, such as
limiting the choice of which FCM a customer could
use to carry his managed account. Id. Moreover, the
Commission explained, the concerns raised by dual
and multiple associations could be better addressed
through an alternative approach, as further
discussed below. Id.
17 See 56 FR at 37033; see, e.g., In Re Global
Telecom, et al., [2005–2007 Transfer Binder] Comm.
Fut. L. Rep. (CCH) ¶ 30,143 (CFTC Oct. 4, 2005)
(holding an FCM liable for the activities of its APs
who were also APs of a CTA, and noting that
holding otherwise would ‘‘bring about the very
situation the rule is aimed at preventing—one in
which a futures customer who contracts with two
entities to receive two products or services is left
with nobody minding the store’’).
In connection with the 1992 Amendments, the
Commission also amended Regulation 3.12(f) to
require that the new sponsor file with the NFA a
Form 3–R signed by the AP’s existing sponsor and
that included, among other things, an
acknowledgement by each sponsor that, in addition
to each sponsor’s responsibility to supervise the AP,
each sponsor was jointly and severally responsible
for the conduct of the AP with respect to customers
common to it and any other sponsor. 57 FR at
23146. By signing the Form 3–R, each sponsor
would make clear that it was aware of the new
association and that it was jointly and severally
responsible for the AP’s conduct. Id. at 23141. As
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Federal Register / Vol. 77, No. 116 / Friday, June 15, 2012 / Proposed Rules
However, and, as explained above, the
Dodd-Frank Act does not direct the
Commission to provide for—and, thus,
the Commission has not adopted
regulations requiring—the registration
of APs of SDs and MSPs. As a result, the
provisions of current Regulation
3.12(f)(1), which apply to a sponsoring
registrant with respect to its APs who
are required to register as such, do not
apply to SDs and MSPs and their APs.
II. The Proposed Regulations
srobinson on DSK4SPTVN1PROD with PROPOSALS
A. Proposed Regulations 3.12(f)(5) and
23.22(c)
The Proposal would provide for dual
and multiple associations of persons
associated with SDs, MSPs and other
Commission registrants (i.e., FCMs,
retail foreign exchange dealers (RFEDs),
IBs, CTAs, CPOs, and LTMs).
Specifically, proposed Regulation
3.12(f)(5)(i)(A) would apply where a
person associated as a registered AP of
one or more (other) Commission
registrants seeks to become associated as
an AP of one or more SDs or MSPs;
proposed Regulation 3.12(f)(5)(i)(B)
would apply where a person associated
as an AP of one or more SDs or MSPs
seeks to become associated as a
registered AP of one or more other
Commission registrants; and proposed
Regulation 23.22(c) would apply where
a person associated as an AP of an SD
or MSP seeks to become associated as an
AP of one or more other SDs or MSPs.18
The Proposal would make clear that
each SD, MSP and other Commission
registrant with whom the AP is
associated is required to supervise the
AP and is jointly and severally
responsible for the activities of the AP
with respect to customers common to it
and any other SD, MSP or other
Commission registrant. These proposed
regulations are based on the form and
text of current Regulation 3.12(f)(1).19
further discussed in Part II.B of this Federal
Register release, the Commission subsequently
amended Regulation 3.12(f) to eliminate the
requirement for each sponsor to sign a Form 3–R
and to specifically acknowledge joint and several
responsibility therein.
18 Two separate regulations addressing dual and
multiple associations of APs of SDs and MSPs are
necessary because, as noted above, the term
‘‘sponsor’’ and the provisions of current Regulation
3.12(f) do not, by their terms, apply to SDs and
MSPs with respect to their APs (who are not subject
to a registration requirement).
19 Thus, for example, proposed Regulation
3.12(f)(5)(i)(B) provides that where an AP of an SD
or MSP seeks to register an as AP of another
Commission registrant, the new sponsor must meet
the requirements of Regulation 3.60(b)(2)(i)(A) and
(B), as is required of a new sponsor under current
Regulation 3.12(f)(1). However, proposed
Regulation 3.12(f)(5)(i)(A) provides that an SD or
MSP seeking to associate with an already registered
AP must meet the requirements of Regulation
3.60(b)(2)(i)(A), but not also the requirements of
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B. Request for Comments
The Commission requests comments
on all aspects of the Proposal. In
particular, the Commission is requesting
comment on whether it should adopt a
provision (in both Regulation 3.12(f)(5)
and Regulation 23.22(c)) that would
provide a mechanism to notify SDs,
MSPs and existing sponsors of
registered APs when one of their APs
seeks to become associated with another
SD or MSP (or, in the case of an AP of
an SD or MSP, seeks to register as an AP
of another Commission registrant).
These provisions would serve the
purpose of putting any other SD, MSP
or other registrant associated with the
AP on notice that it is (or will become)
subject to the supervisory and joint and
several responsibility requirements of
Regulation 3.12(f) that would be
applicable to it as a result of the
regulations proposed herein. Under
current Regulation 3.12(f)(1), which
does not address dual and multiple
associations with SDs and MSPs, a
person registered as an AP may become
an AP of another sponsor if the new
sponsor files a Form 8–R with NFA, and
NFA, in turn, is required to notify any
existing sponsor of the AP that the
person has applied to become associated
with another sponsor. Thus, the current
regulations provide a mechanism
through which sponsors are put on
notice that their registered APs will
subject them to additional supervisory
and joint and several responsibility
requirements under Regulation 3.12(f).20
Employment as an AP of an SD or MSP,
however, does not require registration
with the Commission and, thus, the
filing of a Form 8–R with NFA.
Regulation 3.60(b)(2)(i)(B). This is because the
requirements of the former regulation concern
specified adjudicatory proceedings which would be
applicable to SDs and MSPs while the requirements
of the latter regulation concern financial
requirements which are not applicable to SDs and
MSPs.
20 See 67 FR 38869 (June 6, 2002). The
Commission adopted Regulation 3.12(f)(1)(ii) in
2002, in connection with other amendments to
Regulation 3.12 to accommodate NFA’s
implementation of an online registration system.
Prior to that time, a potential sponsor of an already
registered AP was required to file a Form 3–R that
included a certification signed by it and any
existing sponsor acknowledging their supervisory
obligations and their joint and several responsibility
with respect to the AP’s activities. In eliminating
these requirements, the Commission explained that
continuing to require a signature from each sponsor
would result in unnecessary costs and delays under
the new electronic filing system, and that the
acknowledgment was not needed because
Commission regulations make clear that each
sponsor is required to supervise the AP and is
jointly and severally responsible for his or her
conduct. Instead, as adopted, Regulation
3.12(f)(1)(ii) requires NFA to notify existing
sponsors of the AP of the application. Id. at 38870–
71.
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Therefore, NFA would not otherwise be
aware of a particular person’s current or
planned association with an SD or MSP
and would not be in a position to notify
other SDs, MSPs or existing sponsors.
To the extent commenters believe it is
necessary to adopt regulations aimed at
providing such notice, the Commission
also is seeking comment specifically on
how to do so. One potential mechanism
would be to require any SD, MSP or
other Commission registrant seeking to
associate with an AP who is also
associated with another SD or MSP to
notify the other SD or MSP that the AP
is or intends to become associated with
the SD, MSP or other Commission
registrant.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act
(RFA) 21 requires Federal agencies, in
promulgating regulations, to consider
the impact of those regulations on small
entities. The Commission has
previously established certain
definitions of ‘‘small entities’’ to be used
by the Commission in evaluating the
impact of its rules on small entities in
accordance with the RFA.22 The
Commission previously has determined
that FCMs, registered CPOs,23 LTMs and
RFEDs are not small entities for
purposes of the RFA, and, thus, the
requirements of the RFA do not apply
to those entities.24 In addition, in
connection with its adoption of the
Final Registration Regulations, the
Commission determined that SDs and
MSPs are not small entities for purposes
of the RFA.25 Therefore, the
requirements of the RFA do not apply
to SDs and MSPs. With respect to CTAs
and IBs, the Commission previously has
stated that it would evaluate within the
context of a particular rule proposal
whether all or some of the affected
CTAs and IBs would be considered to be
small entities and, if so, the economic
impact on them of the particular
regulation.26 The Commission notes that
the Proposal would only impact,
21 5
U.S.C. 601 et seq.
FR 18618 (Apr. 30, 1982).
23 To the extent the Proposal (specifically,
proposed Regulation 3.12(f)(5)) would have an
impact on CPOs, it would only impact registered
CPOs, since Regulation 3.12(f), by its terms, would
not apply where an AP’s new or existing association
is with a person who is not registered with the
Commission.
24 See 47 FR at 18619–20 (discussing FCMs and
CPOs); 54 FR 19556, 19557 (May 8, 1989)
(discussing LTMs); 75 FR 55410, 55416 (Sept. 19,
2010) (discussing RFEDs).
25 See 77 FR at 2620 (adopting the Final
Registration Regulations).
26 See 47 FR at 18619 (discussing CTAs); 48 FR
35248, 35276–77 (Aug. 3, 1983) (discussing IBs).
22 47
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Federal Register / Vol. 77, No. 116 / Friday, June 15, 2012 / Proposed Rules
potentially, registered CTAs and
registered IBs,27 and the number of such
impacted entities, if any, should likely
be very small.28 Accordingly, the
Chairman, on behalf of the Commission,
hereby certifies pursuant to 5 U.S.C.
605(b) that the Proposal will not have a
significant economic impact on a
substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act
(PRA) 29 imposes certain requirements
on federal agencies (including the
Commission) in connection with their
conducting or sponsoring any collection
of information as defined by the PRA.
The Proposal would expressly obligate
each SD, MSP and other Commission
registrant to supervise their APs who
have dual and multiple associations and
make each SD, MSP and other
Commission registrant jointly and
severally responsible for the activities of
such APs with respect to customers
common to it and any other SD, MSP or
other Commission registrant. The
Proposal contains no provision that
would impose a ‘‘burden’’ or ‘‘collection
of information’’ as those terms are
defined in the PRA.30
srobinson on DSK4SPTVN1PROD with PROPOSALS
C. Cost-Benefit Considerations
In response to the Proposed
Registration Regulations, a commenter
requested that the Commission address
‘‘situations in which an individual
conducts swaps-related activity on
behalf of more than one Swap Entity
[SD and/or MSP] or conducts swaps
activity on behalf of a Swap Entity and
is also registered as an AP of a different
firm.’’ The Proposal addresses that
issue, and in the following paragraphs,
the Commission is considering the costs
and benefits of the proposal in
accordance with CEA section 15(a).31
As described in the text above, the
Commission is proposing to specify the
responsibilities applicable with respect
to dual and multiple associations of APs
of SDs and MSPs, and particularly, that
such associations are permitted, but that
they implicate the joint and several
supervisory and responsibility
27 This is because, as noted above, Regulation
3.12(f) would not apply where an AP’s new or
existing association is with a person (e.g., a CTA or
an IB) who is not registered with the Commission.
28 See Amendments to Commodity Pool Operator
and Commodity Trading Advisor Regulations
Resulting from the Dodd-Frank Act, 76 FR 11701,
11703 (Mar. 3, 2011) (noting with regard to RFA
considerations that the regulations proposed therein
would only impact registered CTAs). As of February
7, 2011, less than three percent of all registered APs
(or less than 1500 APs) were associated on a dual
or multiple basis with Commission registrants.
29 44 U.S.C. 3501 et seq.
30 See 44 U.S.C. 3502(2) and (3).
31 7 U.S.C. 19(a).
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Jkt 226001
provisions applicable with respect to
such associations under existing
Regulation 3.12(f).
As noted above, existing regulations
addressing dual and multiple
associations of APs do not address APs
of SDs and MSPs and the obligations of
those persons with whom they are
associated concerning common
customers. Thus, the primary benefits of
the Proposal include the same benefits
noted by the Commission when it
adopted the supervisory and joint and
several responsibility provisions under
current Regulation 3.12(f), namely, the
prevention of circumstances where an
SD, MSP or other Commission registrant
seeks to avoid responsibility for the
activities of an AP who has dual or
multiple associations by asserting the
conduct in question was not within the
purview of its supervisory
responsibilities with respect to the AP.
Therefore, the Commission believes the
Proposal will provide protection to
market participants and the public by
ensuring that such APs will be
adequately supervised, and those
charged with supervising them will be
held responsible for failing to do so. The
Commission does not believe that
compliance with the Proposal will
impose any significant, new cost on SDs
or MSPs but, as discussed below, the
Commission seeks comment on the
same, including the potential insurance
and litigation costs associated with joint
and several responsibility for APs of
SDs and MSPs with dual and multiple
associations.
35895
other Commission registrants.33 Under
such a scenario, the costs to the public
of inaction would, in qualitative terms,
be that: (1) APs of SDs and MSPs that
have dual or multiple associations
would not be subject to the same
regulatory regime as APs of other
Commission registrants that have dual
or multiple associations; and (2) SDs
and MSPs (or other Commission
registrants) employing an AP with dual
or multiple associations would not be
prevented from attempting to disclaim
responsibility for the activities of the AP
by asserting that the AP was not acting
on its behalf, but rather on behalf of
another SD or MSP with whom the AP
was associated (with respect to their
common customers). In contrast, the
amendment to Regulation 3.12(f) and
the adoption of Regulation 23.22(c)
would yield a substantial if
unquantifiable benefit to the public
relative to inaction by preventing SDs,
MSPs and other Commission registrants
from seeking to avoid supervision of
and responsibility for the activities of
their APs who have dual or multiple
associations with respect to the common
customers of the SDs, MSPs and other
Commission registrants.
Section 15(a) Factors
Under current Commission
regulations, SDs and MSPs are not
subject to the joint supervisory and
responsibility requirements applicable
to other Commission registrants with
respect to the activities of their APs who
have dual or multiple associations.32
This current situation provides a
reference point from which to compare
the costs and benefits of the proposed
regulations to the alternative of not
taking any action—that is, where SDs
and MSPs, though required to register,
would not be subject to the supervisory
or joint and several responsibility
provisions under (proposed) Regulation
3.12(f) or Regulation 23.22(c), as
applicable, for the activities of their APs
that are also APs of other SDs, MSPs, or
Section 15(a) specifies that the costs
and benefits shall be evaluated in light
of the following five broad areas of
market and public concern: (1)
Protection of market participants and
the public; (2) efficiency,
competitiveness, and financial integrity
of the futures markets; (3) price
discovery; (4) sound risk management
practices; and (5) other public interest
considerations.
(1) The protection of market
participants and the public.
As discussed above, the Commission
believes the Proposal will provide
protection to market participants and
the public by expressly obligating each
SD, MSP or other Commission registrant
to supervise its APs who have dual or
multiple associations and by subjecting
each SD, MSP and other Commission
registrant to joint and several
responsibility for the activities of such
APs with respect to customers common
to it and any other SD, MSP or other
Commission registrants. More
specifically, the Proposal will prevent
SDs, MSPs and other Commission
registrants from disclaiming
responsibility for the activities of their
32 As noted above, these requirements, which are
set forth in existing Regulation 3.12(f)(1)(iii), apply
to the activities of such APs with respect to the
common customers of the APs’ employing
registrants.
33 Similarly, and as noted above, these proposed
requirements would apply to the activities of such
APs with respect to the common customers of the
APs’ employing SDs, MSPs and/or other
Commission registrants.
Consideration of Costs and Benefits
Relative to the Alternative of Not Taking
Any Action
PO 00000
Frm 00008
Fmt 4702
Sfmt 4702
E:\FR\FM\15JNP1.SGM
15JNP1
35896
Federal Register / Vol. 77, No. 116 / Friday, June 15, 2012 / Proposed Rules
APs who have dual and multiple
associations.
(2) The efficiency, competitiveness,
and financial integrity of the futures
markets.
The Commission does not expect the
Proposal to have an impact on the
efficiency, competitiveness and
financial integrity of the futures market.
(3) The market’s price discovery
functions.
The Commission does not expect the
Proposal to have an impact on the
market’s price discovery functions.
(4) Sound risk management practices.
The Commission does not expect the
Proposal to have an impact on risk
management practices by SDs, MSPs
and other Commission registrants.
(5) Other public interest
considerations.
The Commission has not identified
any other public interest considerations
in light of which it should consider the
costs and benefits of the Proposal. The
Commission specifically requests
comment on its cost and benefit
considerations of the Proposal, as
discussed above.
The Commission requests comment
on all aspects of its proposed
consideration of costs and benefits,
including identification and assessment
of any costs and benefits not discussed
above, such as costs associated with
determining if a potential AP is already
associated with another SD, MSP or
other Commission registrant. In
addition, the Commission requests that
commenters provide data and any other
information or statistics that the
commenters relied on to reach any
conclusions on the Commission’s
proposed considerations of costs and
benefits.
List of Subjects
17 CFR Part 3
Associated persons, Brokers,
Commodity futures, Customer
protection, Major swap participants,
Registration, Swap dealers.
srobinson on DSK4SPTVN1PROD with PROPOSALS
17 CFR Part 23
Associated persons, Commodity
futures, Customer protection, Major
swap participants, Registration,
Reporting and recordkeeping
requirements, Swap dealers.
For the reasons presented above, the
Commission proposes to amend Chapter
I of Title 17 of the Code of Federal
Regulations as follows:
PART 3—REGISTRATION
1. The authority citation for part 3
continues to read as follows:
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16:34 Jun 14, 2012
Jkt 226001
Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a,
2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m,
6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 16a,
18, 19, 21, and 23, as amended by Title VII
of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111–203,
124 Stat. 1376 (July 21, 2010).
2. Section 3.12 is amended by adding
new paragraph (f)(5) to read as follows:
§ 3.12 Registration of associated persons
of futures commission merchants, retail
foreign exchange dealers, introducing
brokers, commodity trading advisors,
commodity pool operators and leverage
transaction merchants.
*
*
*
*
*
(f) * * *
(5)(i)(A) A person who is already
registered as an associated person in any
capacity whose registration is not
subject to conditions or restrictions may
become associated as an associated
person of a swap dealer or major swap
participant if the swap dealer or major
swap participant meets the
requirements set forth in
§ 3.60(b)(2)(i)(A) of this part.
(B) A person who is already
associated as an associated person of a
swap dealer or major swap participant
may become registered as an associated
person of a futures commission
merchant, retail foreign exchange
dealer, introducing broker, commodity
trading advisor, commodity pool
operator, or leverage transaction
merchant if the futures commission
merchant, retail foreign exchange
dealer, introducing broker, commodity
trading advisor, commodity pool
operator, or leverage transaction
merchant with which the person
intends to associate meets the
requirements set forth in
§ 3.60(b)(2)(i)(A) and (B) of this part.
(ii) Each sponsor and each swap
dealer and/or major swap participant
with whom the person is associated
shall supervise that associated person,
and each sponsor and each swap dealer
and/or major swap participant is jointly
and severally responsible for the
conduct of the associated person with
respect to the:
(A) Solicitation or acceptance of
customer orders,
(B) Solicitation of funds, securities or
property for a participation in a
commodity pool,
(C) Solicitation of a client’s or
prospective client’s discretionary
account,
(D) Solicitation or acceptance of
leverage customers’ orders for leverage
transactions,
(E) Solicitation or acceptance of
swaps, and
(F) Associated person’s supervision of
any person or persons engaged in any of
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
the foregoing solicitations or
acceptances, with respect to any
customers common to it and any futures
commission merchant, retail foreign
exchange dealer, introducing broker,
commodity trading advisor, commodity
pool operator, leverage transaction
merchant, swap dealer, or major swap
participant with which the associated
person is associated.
*
*
*
*
*
PART 23—SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS
3. The authority citation for Part 23
continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6p,
6s, 9, 9a, 13b, 13c, 16a, 18, 19, 21 as amended
by Title VII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L.
111–203, 124 Stat. 1376 (July 21, 2010).
4. Section 23.22 is amended by
adding paragraph (c) to read as follows:
§ 23.22 Associated persons of swap
dealers and major swap participants.
*
*
*
*
*
(c) Dual and multiple associations.
(1) A person who is already associated
as an associated person of a swap dealer
or major swap participant may become
associated as an associated person of
another swap dealer or major swap
participant if the other swap dealer or
major swap participant meets the
requirements set forth in
§ 3.60(b)(2)(i)(A) of this chapter.
(2) Each swap dealer and major swap
participant associated with such
associated person shall supervise that
associated person, and each swap dealer
and major swap participant is jointly
and severally responsible for the
conduct of the associated person with
respect to the:
(i) Solicitation or acceptance of
customer orders,
(ii) Solicitation of funds, securities or
property for a participation in a
commodity pool,
(iii) Solicitation of a client’s or
prospective client’s discretionary
account,
(iv) Solicitation or acceptance of
leverage customers’ orders for leverage
transactions,
(v) Solicitation or acceptance of
swaps, and
(vi) Associated person’s supervision
of any person or persons engaged in any
of the foregoing solicitations or
acceptances, with respect to any
customers common to it and any other
swap dealer or major swap participant.
E:\FR\FM\15JNP1.SGM
15JNP1
Federal Register / Vol. 77, No. 116 / Friday, June 15, 2012 / Proposed Rules
Issued in Washington, DC, on June 11,
2012, by the Commission.
David A. Stawick,
Secretary of the Commission.
2128, email
james.r.wetherington@uscg.mil. If you
have questions on viewing or submitting
material to the docket, call Renee V.
Wright, Program Manager, Docket
Operations, telephone 202–366–9826.
SUPPLEMENTARY INFORMATION:
[FR Doc. 2012–14654 Filed 6–14–12; 8:45 am]
BILLING CODE 6351–01–P
A. Public Participation and Request for
Comments
DEPARTMENT OF HOMELAND
SECURITY
We encourage you to participate in
this rulemaking by submitting
comments and related materials. All
comments received will be posted,
without change to https://
www.regulations.gov and will include
any personal information you have
provided.
Coast Guard
33 CFR Part 117
[Docket No. USCG–2011–0926]
RIN 1625–AA09
Drawbridge Operation Regulation;
Lafourche Bayou, LA
1. Submitting Comments
Coast Guard, DHS.
Notice reopening comment
AGENCY:
ACTION:
period.
The U.S. Coast Guard is
reopening the comment period to solicit
additional comments concerning its
Notice of Proposed Rulemaking to
change the regulation governing the six
bridges across Bayou Lafourche, south
of the Gulf Intracoastal Waterway
(GIWW).
SUMMARY:
The comment period for the
proposed rule published April 16, 2012,
at 77 FR 22520, is reopened. Comments
and related material must be received by
July 5, 2012.
ADDRESSES: You may submit comments
identified by docket number USCG–
2011–0926 using any one of the
following methods:
(1) Federal eRulemaking Portal:
https://www.regulations.gov.
(2) Fax: 202–493–2251.
(3) Mail: Docket Management Facility
(M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue SE., Washington, DC 20590–
0001.
(4) Hand delivery: Same as mail
address above, between 9 a.m. and
5 p.m., Monday through Friday, except
Federal holidays. The telephone number
is 202–366–9329.
To avoid duplication, please use only
one of these four methods. See the
‘‘Public Participation and Request for
Comments’’ portion of the
SUPPLEMENTARY INFORMATION section
below for instructions on submitting
comments.
srobinson on DSK4SPTVN1PROD with PROPOSALS
DATES:
If
you have questions on this rule, call or
email Mr. Jim Wetherington; Bridge
Administration Branch, Eighth Coast
Guard District; telephone 504–671–
FOR FURTHER INFORMATION CONTACT:
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16:34 Jun 14, 2012
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If you submit a comment, please
include the docket number for this
rulemaking (USCG–2011–0926),
indicate the specific section of this
document to which each comment
applies, and provide a reason for each
suggestion or recommendation. You
may submit your comments and
material online (https://
www.regulations.gov), or by fax, mail or
hand delivery, but please use only one
of these means. If you submit a
comment online via https://
www.regulations.gov, it will be
considered received by the Coast Guard
when you successfully transmit the
comment. If you fax, hand deliver, or
mail your comment, it will be
considered as having been received by
the Coast Guard when it is received at
the Docket Management Facility. We
recommend that you include your name
and a mailing address, an email address,
or a phone number in the body of your
document so that we can contact you if
we have questions regarding your
submission.
To submit your comment online, go to
https://www.regulations.gov, click on the
‘‘submit a comment’’ box, which will
then become highlighted in blue. In the
‘‘Document Type’’ drop down menu
select ‘‘Proposed Rules’’ and insert
‘‘USCG–2011–0926’’ in the ‘‘Keyword’’
box. Click ‘‘Search’’ then click on the
balloon shape in the ‘‘Actions’’ column.
If you submit your comments by mail or
hand delivery, submit them in an
unbound format, no larger than 81⁄2 by
11 inches, suitable for copying and
electronic filing. If you submit them by
mail and would like to know that they
reached the Facility, please enclose a
stamped, self-addressed postcard or
envelope. We will consider all
comments and material received during
the comment period and may change
the rule based on your comments.
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Frm 00010
Fmt 4702
Sfmt 4702
35897
2. Viewing Comments and Documents
To view comments, as well as
documents mentioned in this preamble
as being available in the docket, go to
https://www.regulations.gov, click on the
‘‘read comments’’ box, which will then
become highlighted in blue. In the
‘‘Keyword’’ box insert ‘‘USCG–2011–
0926’’ and click ‘‘Search.’’ Click the
‘‘Open Docket Folder’’ in the ‘‘Actions’’
column. You may also visit the Docket
Management Facility in Room W12–140
on the ground floor of the Department
of Transportation West Building, 1200
New Jersey Avenue SE., Washington,
DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal
holidays. We have an agreement with
the Department of Transportation to use
the Docket Management Facility.
3. Privacy Act
Anyone can search the electronic
form of comments received into any of
our dockets by the name of the
individual submitting the comment (or
signing the comment, if submitted on
behalf of an association, business, labor
union, etc.). You may review a Privacy
Act notice regarding our public dockets
in the January 17, 2008, issue of the
Federal Register (73 FR 3316).
4. Public Meeting
We do not now plan to hold a public
meeting. But you may submit a request
for one to the docket using one of the
four methods specified under
ADDRESSES. Please explain why one
would be beneficial. If we determine
that one would aid this rulemaking, we
will hold one at a time and place
announced by a later notice in the
Federal Register.
B. Background and Purpose
On April 16, 2012, we published a
notice of proposed rulemaking (NPRM)
entitled, ‘‘Drawbridge Operation
Regulation; Lafourche Bayou, LA,’’ in
the Federal Register (77 FR 22520). The
original comment period closed on May
16, 2012. The NPRM proposed the
initial changes to the regulation
governing six bridges that cross
Lafourche Bayou and contains useful
background and analysis related to the
initial proposed change to accommodate
traffic during the local school year
schedule change. The public is
encouraged to review the NPRM. We
received one comment in support of the
proposed change. We also received a
request for an additional change specific
to the operating schedule for the Tarpon
Bridge, at Galliano, Lafourche Parish,
LA, one of the six bridges under the
regulation. The one comment received
and the request for an additional change
E:\FR\FM\15JNP1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 116 (Friday, June 15, 2012)]
[Proposed Rules]
[Pages 35892-35897]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14654]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 3 and 23
RIN 3038-AD66
Dual and Multiple Associations of Persons Associated With Swap
Dealers, Major Swap Participants and Other Commission Registrants
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing regulations that would make clear that each swap dealer
(SD), major swap participant (MSP), and other Commission registrant
with whom an associated person (AP) is associated is required to
supervise the AP and is jointly and severally responsible for the
activities of the AP with respect to customers common to it and any
other SD, MSP or other Commission registrant (Proposal).
DATES: Comments must be received on or before August 14, 2012.
ADDRESSES: You may submit comments, identified by RIN 3038-AD66 and
``Dual and Multiple Associations of Persons Associated with Swap
Dealers, Major Swap Participants and other Commission Registrants,'' by
any of the following methods:
Agency Web Site, via its Comments Online process: https://comments.cftc.gov. Follow the instructions on the Web site for
submitting comments.
Mail: Send to David A. Stawick, Secretary, Commodity
Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581.
Hand delivery/Courier: Same as Mail above.
Federal eRulemaking Portal: https://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.
Please submit your comments using only one method. All comments
must be submitted in English, or if not, accompanied by an English
translation. Comments will be posted as received to www.cftc.gov and
the information you submit will be publicly available. If, however, you
submit information that ordinarily is exempt from disclosure under the
Freedom of Information Act, you may submit a petition for confidential
treatment of the exempt information according to the procedures set
forth in Commission Regulation 145.9.\1\ The Commission reserves the
right, but shall have no obligation, to review, pre-screen, filter,
redact, refuse or remove any or all of your submission from
www.cftc.gov that it may deem to be inappropriate for publication, such
as obscene language. All submissions that have been redacted or removed
that contain comments on the merits of the rulemaking will be retained
in the public comment file and will be considered as required under the
Administrative Procedure Act \2\ and other applicable laws, and may be
accessible under the Freedom of Information Act.
---------------------------------------------------------------------------
\1\ Commission regulations referred to herein are found at 17
CFR Ch. 1 (2011). They are accessible on the Commission's Web site,
https://www.cftc.gov.
\2\ 5 U.S.C. 500 et seq.
FOR FURTHER INFORMATION CONTACT: Israel J. Goodman, Attorney-Advisor,
or Barbara S. Gold, Associate Director, Division of Swap Dealer and
Intermediary Oversight, 1155 21st Street NW., Washington, DC 20581.
Telephone number: 202-418-6700 and electronic mail: igoodman@cftc.gov
---------------------------------------------------------------------------
or bgold@cftc.gov.
SUPPLEMENTARY INFORMATION:
[[Page 35893]]
I. Introduction
A. Background
On July 21, 2010, President Obama signed the Dodd-Frank Act.\3\
Section 731 of the Dodd-Frank Act amended the Commodity Exchange Act
(CEA) \4\ by adding Section 4s, which, among other things, prohibits
any person from acting as a ``swap dealer'' or ``major swap
participant'' unless the person is registered with the Commission.\5\
To effectuate the Congressional directive that an SD or MSP apply for
registration in such form and manner as prescribed by the
Commission,\6\ on November 23, 2010, the Commission proposed
regulations to establish a registration process for SDs and MSPs
(Proposed Registration Regulations),\7\ and on January 19, 2012, the
Commission adopted regulations that establish a registration process
for SDs and MSPs (Final Registration Regulations).\8\
---------------------------------------------------------------------------
\3\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act also may be accessed on the Commission's Web site,
https://www.cftc.gov.
\4\ 7 U.S.C. 1 et seq.
\5\ CEA Sections 4s(a).
\6\ CEA Section 4s(b).
\7\ 75 FR 71379.
\8\ 77 FR 2613. Additionally, through a separate Notice and
Order, the Commission delegated to the National Futures Association
(NFA) the authority to perform the full range of registration
functions with respect to SDs and MSPs. 77 FR 2708 (Jan. 19, 2012).
---------------------------------------------------------------------------
However, Section 731 did not direct the Commission to adopt
regulations that provide for the registration of APs of SDs and
MSPs.\9\ Thus, unlike APs of other Commission registrants, who are
generally required to register with the Commission,\10\ APs of SDs and
MSPs are not required to register as such.\11\ Although APs of SDs and
MSPs are not subject to registration with the Commission, an SD or MSP
is prohibited from permitting any person associated with it to effect
or be involved in effecting swaps on its behalf if such person is
subject to a statutory disqualification.\12\
---------------------------------------------------------------------------
\9\ See 77 FR at 2613 (noting that CEA Section 4s does not
direct the Commission to adopt regulations that provide for the
registration of APs of SDs or MSPs).
\10\ See, e.g., CEA Section 4k and Commission Regulation
3.12(a).
\11\ As is the case for other categories of Commission
registrants, the term ``associated person,'' when used with respect
to an SD or MSP, means a natural person (as opposed to an entity,
such as a partnership or corporation). See 77 FR 2614-15, whereby
the Commission adopted in new Regulation 1.3(aa)(6) a definition of
the term ``associated person'' of an SD or MSP to mean a natural
person who is associated with an SD or MSP as:
[A] partner, officer, employee, agent (or any natural person
occupying a similar status or performing similar functions), in any
capacity that involves:
(i) The solicitation or acceptance of swaps (other than in a
clerical or ministerial capacity); or
(ii) The supervision of any person or persons so engaged.
\12\ See CEA Section 4s(b)(6) and Regulation 23.22(b).
---------------------------------------------------------------------------
The Commission adopted the Final Registration Regulations after
considering the comments it received from the public on the Proposed
Registration Regulations. One commenter recommended that the Commission
expand the scope of the provisions on dual and multiple associations
currently found in Regulation 3.12(f), or adopt a new regulation, ``to
address the situations in which an individual conducts swaps-related
activity on behalf of more than one Swap Entity [SD and/or MSP] or
conducts swaps activity on behalf of a Swap Entity and is also
registered as an AP of a different firm.'' \13\ When adopting the Final
Registration Regulations, the Commission stated that ``[w]hile the
Commission agrees with the commenter's recommendation, it anticipates
promptly addressing this issue in a future rulemaking.'' \14\ The
Proposal addresses this issue.
---------------------------------------------------------------------------
\13\ Comment letter from the National Futures Association at
page 10 (Jan. 24, 2011).
\14\ 77 FR at 2616.
---------------------------------------------------------------------------
B. Regulation 3.12(f)
Regulation 3.12 concerns the registration of those persons who must
register as an AP of a Commission registrant. Regulation 3.12(c)
provides that application is made through the filing of a Form 8-R,
accompanied by a specified certification from the registrant who will
be employing the AP--i.e., the AP's ``sponsor.'' The term ``sponsor''
is defined in Regulation 3.1(c) to mean ``the futures commission
merchant, retail foreign exchange dealer, introducing broker, commodity
trading advisor, commodity pool operator or leverage transaction
merchant which makes the certification required by Sec. 3.12 of [Part
3] for the registration of an associated person of such sponsor.''
Regulation 3.12(f)(1)(i) permits dual and multiple associations of
a person registered as an AP.\15\ Regulation 3.12(f)(1)(iii) provides
that each sponsor of the AP is required to supervise the AP, and that
each sponsor is jointly and severally responsible for the AP's
activities with respect to any customers common to it and any other
sponsor with which the AP is associated. The Commission adopted this
joint and several responsibility provision in 1992 in connection with
amendments to Regulation 3.12(f) that eliminated then-existing
restrictions on dual and multiple associations in many
circumstances.\16\ The provision was intended to address concerns that
permitting dual and multiple associations would lead to situations
where each sponsor might disclaim responsibility for the AP's
activities--that is, that each sponsor would claim that the dually
associated AP was not acting on its behalf but, rather, for the other
sponsor, and therefore the other sponsor should be held responsible for
the conduct in question.\17\
---------------------------------------------------------------------------
\15\ Section 3.12(f)(1)(i) provides that a person who is already
registered as an AP in any capacity may become associated with
another sponsor if the new sponsor files with the NFA a Form 8-R, as
discussed below.
\16\ 57 FR 23136 (June 2, 1992) (the 1992 Amendments). The
Commission first adopted a prohibition on dual and multiple
associations in 1980, with respect to APs of futures commission
merchants (FCMs), explaining that it was necessary ``[i]n view of
the obvious difficulties of supervision in such a situation and in
view of the inherent possibilities for conflicts of interest that
might arise if an AP were to have more than one sponsor.'' 45 FR
80485, 80489 (Dec. 5, 1980) (footnote omitted).
The Commission subsequently amended and broadened the scope of
Regulation 3.12(f) such that, prior to the 1992 Amendments,
Regulation 3.12(f) prohibited a person from associating as an AP
with: (1) More than one FCM or more than one introducing broker
(IB); (2) an FCM and an IB or a leverage transaction merchant (LTM);
and (3) an IB and an LTM. Subject to certain exceptions, the
regulations also prohibited a person from associating as an AP with:
(1) An FCM and a commodity trading advisor (CTA); (2) an FCM and a
commodity pool operator (CPO); (3) an IB and a CTA; and (4) an IB
and a CPO. See 56 FR 37026, 37033 (Aug. 2, 1991). In proposing to
eliminate most of these restrictions, the Commission explained that,
in its experience, these regulations had been ``difficult to
understand and follow, even for experienced practitioners'' and
that, in certain cases, they could have perverse effects, such as
limiting the choice of which FCM a customer could use to carry his
managed account. Id. Moreover, the Commission explained, the
concerns raised by dual and multiple associations could be better
addressed through an alternative approach, as further discussed
below. Id.
\17\ See 56 FR at 37033; see, e.g., In Re Global Telecom, et
al., [2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 30,143
(CFTC Oct. 4, 2005) (holding an FCM liable for the activities of its
APs who were also APs of a CTA, and noting that holding otherwise
would ``bring about the very situation the rule is aimed at
preventing--one in which a futures customer who contracts with two
entities to receive two products or services is left with nobody
minding the store'').
In connection with the 1992 Amendments, the Commission also
amended Regulation 3.12(f) to require that the new sponsor file with
the NFA a Form 3-R signed by the AP's existing sponsor and that
included, among other things, an acknowledgement by each sponsor
that, in addition to each sponsor's responsibility to supervise the
AP, each sponsor was jointly and severally responsible for the
conduct of the AP with respect to customers common to it and any
other sponsor. 57 FR at 23146. By signing the Form 3-R, each sponsor
would make clear that it was aware of the new association and that
it was jointly and severally responsible for the AP's conduct. Id.
at 23141. As further discussed in Part II.B of this Federal Register
release, the Commission subsequently amended Regulation 3.12(f) to
eliminate the requirement for each sponsor to sign a Form 3-R and to
specifically acknowledge joint and several responsibility therein.
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[[Page 35894]]
However, and, as explained above, the Dodd-Frank Act does not
direct the Commission to provide for--and, thus, the Commission has not
adopted regulations requiring--the registration of APs of SDs and MSPs.
As a result, the provisions of current Regulation 3.12(f)(1), which
apply to a sponsoring registrant with respect to its APs who are
required to register as such, do not apply to SDs and MSPs and their
APs.
II. The Proposed Regulations
A. Proposed Regulations 3.12(f)(5) and 23.22(c)
The Proposal would provide for dual and multiple associations of
persons associated with SDs, MSPs and other Commission registrants
(i.e., FCMs, retail foreign exchange dealers (RFEDs), IBs, CTAs, CPOs,
and LTMs). Specifically, proposed Regulation 3.12(f)(5)(i)(A) would
apply where a person associated as a registered AP of one or more
(other) Commission registrants seeks to become associated as an AP of
one or more SDs or MSPs; proposed Regulation 3.12(f)(5)(i)(B) would
apply where a person associated as an AP of one or more SDs or MSPs
seeks to become associated as a registered AP of one or more other
Commission registrants; and proposed Regulation 23.22(c) would apply
where a person associated as an AP of an SD or MSP seeks to become
associated as an AP of one or more other SDs or MSPs.\18\ The Proposal
would make clear that each SD, MSP and other Commission registrant with
whom the AP is associated is required to supervise the AP and is
jointly and severally responsible for the activities of the AP with
respect to customers common to it and any other SD, MSP or other
Commission registrant. These proposed regulations are based on the form
and text of current Regulation 3.12(f)(1).\19\
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\18\ Two separate regulations addressing dual and multiple
associations of APs of SDs and MSPs are necessary because, as noted
above, the term ``sponsor'' and the provisions of current Regulation
3.12(f) do not, by their terms, apply to SDs and MSPs with respect
to their APs (who are not subject to a registration requirement).
\19\ Thus, for example, proposed Regulation 3.12(f)(5)(i)(B)
provides that where an AP of an SD or MSP seeks to register an as AP
of another Commission registrant, the new sponsor must meet the
requirements of Regulation 3.60(b)(2)(i)(A) and (B), as is required
of a new sponsor under current Regulation 3.12(f)(1). However,
proposed Regulation 3.12(f)(5)(i)(A) provides that an SD or MSP
seeking to associate with an already registered AP must meet the
requirements of Regulation 3.60(b)(2)(i)(A), but not also the
requirements of Regulation 3.60(b)(2)(i)(B). This is because the
requirements of the former regulation concern specified adjudicatory
proceedings which would be applicable to SDs and MSPs while the
requirements of the latter regulation concern financial requirements
which are not applicable to SDs and MSPs.
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B. Request for Comments
The Commission requests comments on all aspects of the Proposal. In
particular, the Commission is requesting comment on whether it should
adopt a provision (in both Regulation 3.12(f)(5) and Regulation
23.22(c)) that would provide a mechanism to notify SDs, MSPs and
existing sponsors of registered APs when one of their APs seeks to
become associated with another SD or MSP (or, in the case of an AP of
an SD or MSP, seeks to register as an AP of another Commission
registrant). These provisions would serve the purpose of putting any
other SD, MSP or other registrant associated with the AP on notice that
it is (or will become) subject to the supervisory and joint and several
responsibility requirements of Regulation 3.12(f) that would be
applicable to it as a result of the regulations proposed herein. Under
current Regulation 3.12(f)(1), which does not address dual and multiple
associations with SDs and MSPs, a person registered as an AP may become
an AP of another sponsor if the new sponsor files a Form 8-R with NFA,
and NFA, in turn, is required to notify any existing sponsor of the AP
that the person has applied to become associated with another sponsor.
Thus, the current regulations provide a mechanism through which
sponsors are put on notice that their registered APs will subject them
to additional supervisory and joint and several responsibility
requirements under Regulation 3.12(f).\20\ Employment as an AP of an SD
or MSP, however, does not require registration with the Commission and,
thus, the filing of a Form 8-R with NFA. Therefore, NFA would not
otherwise be aware of a particular person's current or planned
association with an SD or MSP and would not be in a position to notify
other SDs, MSPs or existing sponsors. To the extent commenters believe
it is necessary to adopt regulations aimed at providing such notice,
the Commission also is seeking comment specifically on how to do so.
One potential mechanism would be to require any SD, MSP or other
Commission registrant seeking to associate with an AP who is also
associated with another SD or MSP to notify the other SD or MSP that
the AP is or intends to become associated with the SD, MSP or other
Commission registrant.
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\20\ See 67 FR 38869 (June 6, 2002). The Commission adopted
Regulation 3.12(f)(1)(ii) in 2002, in connection with other
amendments to Regulation 3.12 to accommodate NFA's implementation of
an online registration system. Prior to that time, a potential
sponsor of an already registered AP was required to file a Form 3-R
that included a certification signed by it and any existing sponsor
acknowledging their supervisory obligations and their joint and
several responsibility with respect to the AP's activities. In
eliminating these requirements, the Commission explained that
continuing to require a signature from each sponsor would result in
unnecessary costs and delays under the new electronic filing system,
and that the acknowledgment was not needed because Commission
regulations make clear that each sponsor is required to supervise
the AP and is jointly and severally responsible for his or her
conduct. Instead, as adopted, Regulation 3.12(f)(1)(ii) requires NFA
to notify existing sponsors of the AP of the application. Id. at
38870-71.
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III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \21\ requires Federal
agencies, in promulgating regulations, to consider the impact of those
regulations on small entities. The Commission has previously
established certain definitions of ``small entities'' to be used by the
Commission in evaluating the impact of its rules on small entities in
accordance with the RFA.\22\ The Commission previously has determined
that FCMs, registered CPOs,\23\ LTMs and RFEDs are not small entities
for purposes of the RFA, and, thus, the requirements of the RFA do not
apply to those entities.\24\ In addition, in connection with its
adoption of the Final Registration Regulations, the Commission
determined that SDs and MSPs are not small entities for purposes of the
RFA.\25\ Therefore, the requirements of the RFA do not apply to SDs and
MSPs. With respect to CTAs and IBs, the Commission previously has
stated that it would evaluate within the context of a particular rule
proposal whether all or some of the affected CTAs and IBs would be
considered to be small entities and, if so, the economic impact on them
of the particular regulation.\26\ The Commission notes that the
Proposal would only impact,
[[Page 35895]]
potentially, registered CTAs and registered IBs,\27\ and the number of
such impacted entities, if any, should likely be very small.\28\
Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that the Proposal will not have a
significant economic impact on a substantial number of small entities.
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\21\ 5 U.S.C. 601 et seq.
\22\ 47 FR 18618 (Apr. 30, 1982).
\23\ To the extent the Proposal (specifically, proposed
Regulation 3.12(f)(5)) would have an impact on CPOs, it would only
impact registered CPOs, since Regulation 3.12(f), by its terms,
would not apply where an AP's new or existing association is with a
person who is not registered with the Commission.
\24\ See 47 FR at 18619-20 (discussing FCMs and CPOs); 54 FR
19556, 19557 (May 8, 1989) (discussing LTMs); 75 FR 55410, 55416
(Sept. 19, 2010) (discussing RFEDs).
\25\ See 77 FR at 2620 (adopting the Final Registration
Regulations).
\26\ See 47 FR at 18619 (discussing CTAs); 48 FR 35248, 35276-77
(Aug. 3, 1983) (discussing IBs).
\27\ This is because, as noted above, Regulation 3.12(f) would
not apply where an AP's new or existing association is with a person
(e.g., a CTA or an IB) who is not registered with the Commission.
\28\ See Amendments to Commodity Pool Operator and Commodity
Trading Advisor Regulations Resulting from the Dodd-Frank Act, 76 FR
11701, 11703 (Mar. 3, 2011) (noting with regard to RFA
considerations that the regulations proposed therein would only
impact registered CTAs). As of February 7, 2011, less than three
percent of all registered APs (or less than 1500 APs) were
associated on a dual or multiple basis with Commission registrants.
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B. Paperwork Reduction Act
The Paperwork Reduction Act (PRA) \29\ imposes certain requirements
on federal agencies (including the Commission) in connection with their
conducting or sponsoring any collection of information as defined by
the PRA. The Proposal would expressly obligate each SD, MSP and other
Commission registrant to supervise their APs who have dual and multiple
associations and make each SD, MSP and other Commission registrant
jointly and severally responsible for the activities of such APs with
respect to customers common to it and any other SD, MSP or other
Commission registrant. The Proposal contains no provision that would
impose a ``burden'' or ``collection of information'' as those terms are
defined in the PRA.\30\
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\29\ 44 U.S.C. 3501 et seq.
\30\ See 44 U.S.C. 3502(2) and (3).
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C. Cost-Benefit Considerations
In response to the Proposed Registration Regulations, a commenter
requested that the Commission address ``situations in which an
individual conducts swaps-related activity on behalf of more than one
Swap Entity [SD and/or MSP] or conducts swaps activity on behalf of a
Swap Entity and is also registered as an AP of a different firm.'' The
Proposal addresses that issue, and in the following paragraphs, the
Commission is considering the costs and benefits of the proposal in
accordance with CEA section 15(a).\31\
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\31\ 7 U.S.C. 19(a).
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As described in the text above, the Commission is proposing to
specify the responsibilities applicable with respect to dual and
multiple associations of APs of SDs and MSPs, and particularly, that
such associations are permitted, but that they implicate the joint and
several supervisory and responsibility provisions applicable with
respect to such associations under existing Regulation 3.12(f).
As noted above, existing regulations addressing dual and multiple
associations of APs do not address APs of SDs and MSPs and the
obligations of those persons with whom they are associated concerning
common customers. Thus, the primary benefits of the Proposal include
the same benefits noted by the Commission when it adopted the
supervisory and joint and several responsibility provisions under
current Regulation 3.12(f), namely, the prevention of circumstances
where an SD, MSP or other Commission registrant seeks to avoid
responsibility for the activities of an AP who has dual or multiple
associations by asserting the conduct in question was not within the
purview of its supervisory responsibilities with respect to the AP.
Therefore, the Commission believes the Proposal will provide protection
to market participants and the public by ensuring that such APs will be
adequately supervised, and those charged with supervising them will be
held responsible for failing to do so. The Commission does not believe
that compliance with the Proposal will impose any significant, new cost
on SDs or MSPs but, as discussed below, the Commission seeks comment on
the same, including the potential insurance and litigation costs
associated with joint and several responsibility for APs of SDs and
MSPs with dual and multiple associations.
Consideration of Costs and Benefits Relative to the Alternative of Not
Taking Any Action
Under current Commission regulations, SDs and MSPs are not subject
to the joint supervisory and responsibility requirements applicable to
other Commission registrants with respect to the activities of their
APs who have dual or multiple associations.\32\ This current situation
provides a reference point from which to compare the costs and benefits
of the proposed regulations to the alternative of not taking any
action--that is, where SDs and MSPs, though required to register, would
not be subject to the supervisory or joint and several responsibility
provisions under (proposed) Regulation 3.12(f) or Regulation 23.22(c),
as applicable, for the activities of their APs that are also APs of
other SDs, MSPs, or other Commission registrants.\33\ Under such a
scenario, the costs to the public of inaction would, in qualitative
terms, be that: (1) APs of SDs and MSPs that have dual or multiple
associations would not be subject to the same regulatory regime as APs
of other Commission registrants that have dual or multiple
associations; and (2) SDs and MSPs (or other Commission registrants)
employing an AP with dual or multiple associations would not be
prevented from attempting to disclaim responsibility for the activities
of the AP by asserting that the AP was not acting on its behalf, but
rather on behalf of another SD or MSP with whom the AP was associated
(with respect to their common customers). In contrast, the amendment to
Regulation 3.12(f) and the adoption of Regulation 23.22(c) would yield
a substantial if unquantifiable benefit to the public relative to
inaction by preventing SDs, MSPs and other Commission registrants from
seeking to avoid supervision of and responsibility for the activities
of their APs who have dual or multiple associations with respect to the
common customers of the SDs, MSPs and other Commission registrants.
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\32\ As noted above, these requirements, which are set forth in
existing Regulation 3.12(f)(1)(iii), apply to the activities of such
APs with respect to the common customers of the APs' employing
registrants.
\33\ Similarly, and as noted above, these proposed requirements
would apply to the activities of such APs with respect to the common
customers of the APs' employing SDs, MSPs and/or other Commission
registrants.
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Section 15(a) Factors
Section 15(a) specifies that the costs and benefits shall be
evaluated in light of the following five broad areas of market and
public concern: (1) Protection of market participants and the public;
(2) efficiency, competitiveness, and financial integrity of the futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations.
(1) The protection of market participants and the public.
As discussed above, the Commission believes the Proposal will
provide protection to market participants and the public by expressly
obligating each SD, MSP or other Commission registrant to supervise its
APs who have dual or multiple associations and by subjecting each SD,
MSP and other Commission registrant to joint and several responsibility
for the activities of such APs with respect to customers common to it
and any other SD, MSP or other Commission registrants. More
specifically, the Proposal will prevent SDs, MSPs and other Commission
registrants from disclaiming responsibility for the activities of their
[[Page 35896]]
APs who have dual and multiple associations.
(2) The efficiency, competitiveness, and financial integrity of the
futures markets.
The Commission does not expect the Proposal to have an impact on
the efficiency, competitiveness and financial integrity of the futures
market.
(3) The market's price discovery functions.
The Commission does not expect the Proposal to have an impact on
the market's price discovery functions.
(4) Sound risk management practices.
The Commission does not expect the Proposal to have an impact on
risk management practices by SDs, MSPs and other Commission
registrants.
(5) Other public interest considerations.
The Commission has not identified any other public interest
considerations in light of which it should consider the costs and
benefits of the Proposal. The Commission specifically requests comment
on its cost and benefit considerations of the Proposal, as discussed
above.
The Commission requests comment on all aspects of its proposed
consideration of costs and benefits, including identification and
assessment of any costs and benefits not discussed above, such as costs
associated with determining if a potential AP is already associated
with another SD, MSP or other Commission registrant. In addition, the
Commission requests that commenters provide data and any other
information or statistics that the commenters relied on to reach any
conclusions on the Commission's proposed considerations of costs and
benefits.
List of Subjects
17 CFR Part 3
Associated persons, Brokers, Commodity futures, Customer
protection, Major swap participants, Registration, Swap dealers.
17 CFR Part 23
Associated persons, Commodity futures, Customer protection, Major
swap participants, Registration, Reporting and recordkeeping
requirements, Swap dealers.
For the reasons presented above, the Commission proposes to amend
Chapter I of Title 17 of the Code of Federal Regulations as follows:
PART 3--REGISTRATION
1. The authority citation for part 3 continues to read as follows:
Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a,
13b, 13c, 16a, 18, 19, 21, and 23, as amended by Title VII of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L.
111-203, 124 Stat. 1376 (July 21, 2010).
2. Section 3.12 is amended by adding new paragraph (f)(5) to read
as follows:
Sec. 3.12 Registration of associated persons of futures commission
merchants, retail foreign exchange dealers, introducing brokers,
commodity trading advisors, commodity pool operators and leverage
transaction merchants.
* * * * *
(f) * * *
(5)(i)(A) A person who is already registered as an associated
person in any capacity whose registration is not subject to conditions
or restrictions may become associated as an associated person of a swap
dealer or major swap participant if the swap dealer or major swap
participant meets the requirements set forth in Sec. 3.60(b)(2)(i)(A)
of this part.
(B) A person who is already associated as an associated person of a
swap dealer or major swap participant may become registered as an
associated person of a futures commission merchant, retail foreign
exchange dealer, introducing broker, commodity trading advisor,
commodity pool operator, or leverage transaction merchant if the
futures commission merchant, retail foreign exchange dealer,
introducing broker, commodity trading advisor, commodity pool operator,
or leverage transaction merchant with which the person intends to
associate meets the requirements set forth in Sec. 3.60(b)(2)(i)(A)
and (B) of this part.
(ii) Each sponsor and each swap dealer and/or major swap
participant with whom the person is associated shall supervise that
associated person, and each sponsor and each swap dealer and/or major
swap participant is jointly and severally responsible for the conduct
of the associated person with respect to the:
(A) Solicitation or acceptance of customer orders,
(B) Solicitation of funds, securities or property for a
participation in a commodity pool,
(C) Solicitation of a client's or prospective client's
discretionary account,
(D) Solicitation or acceptance of leverage customers' orders for
leverage transactions,
(E) Solicitation or acceptance of swaps, and
(F) Associated person's supervision of any person or persons
engaged in any of the foregoing solicitations or acceptances, with
respect to any customers common to it and any futures commission
merchant, retail foreign exchange dealer, introducing broker, commodity
trading advisor, commodity pool operator, leverage transaction
merchant, swap dealer, or major swap participant with which the
associated person is associated.
* * * * *
PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS
3. The authority citation for Part 23 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6p, 6s, 9, 9a, 13b,
13c, 16a, 18, 19, 21 as amended by Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (July 21, 2010).
4. Section 23.22 is amended by adding paragraph (c) to read as
follows:
Sec. 23.22 Associated persons of swap dealers and major swap
participants.
* * * * *
(c) Dual and multiple associations. (1) A person who is already
associated as an associated person of a swap dealer or major swap
participant may become associated as an associated person of another
swap dealer or major swap participant if the other swap dealer or major
swap participant meets the requirements set forth in Sec.
3.60(b)(2)(i)(A) of this chapter.
(2) Each swap dealer and major swap participant associated with
such associated person shall supervise that associated person, and each
swap dealer and major swap participant is jointly and severally
responsible for the conduct of the associated person with respect to
the:
(i) Solicitation or acceptance of customer orders,
(ii) Solicitation of funds, securities or property for a
participation in a commodity pool,
(iii) Solicitation of a client's or prospective client's
discretionary account,
(iv) Solicitation or acceptance of leverage customers' orders for
leverage transactions,
(v) Solicitation or acceptance of swaps, and
(vi) Associated person's supervision of any person or persons
engaged in any of the foregoing solicitations or acceptances, with
respect to any customers common to it and any other swap dealer or
major swap participant.
[[Page 35897]]
Issued in Washington, DC, on June 11, 2012, by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2012-14654 Filed 6-14-12; 8:45 am]
BILLING CODE 6351-01-P
