Dual and Multiple Associations of Persons Associated With Swap Dealers, Major Swap Participants and Other Commission Registrants, 20788-20792 [2013-07755]
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[FR Doc. 2013–08081 Filed 4–5–13; 8:45 am]
I. Introduction
BILLING CODE 4910–13–P
A. Background
On July 21, 2010, President Obama
signed the Dodd-Frank Act.1 Section
731 of the Dodd-Frank Act amended the
Commodity Exchange Act (CEA) 2 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.3 To
effectuate the Congressional directive
that an SD or MSP apply for registration
in such form and manner as prescribed
by the Commission,4 on November 23,
2010, the Commission proposed
regulations to establish a registration
process for SDs and MSPs (Proposed
Registration Regulations),5 and on
January 19, 2012, the Commission
adopted regulations that establish a
registration process for SDs and MSPs
(Final Registration Regulations).6
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: Final rules.
AGENCY:
The Commodity Futures
Trading Commission (Commission or
CFTC) is adopting regulations to 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.
SUMMARY:
DATES:
Effective June 7, 2013.
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FOR FURTHER INFORMATION CONTACT:
Israel J. Goodman, Special Counsel, 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:
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1 See Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. No. 111–203, 124
Stat. 1376 (2010). The text of the Dodd-Frank Act
may be accessed through the Commission’s Web
site, https://www.cftc.gov.
2 7 U.S.C. 1 et seq. (2006). The Commission’s
regulations are found at 17 CFR Part 1 et seq.
(2012). Both the CEA and the Commission’s
regulations also may be accessed through the
Commission’s Web site.
3 CEA Section 4s(a).
4 CEA Section 4s(b).
5 75 FR 71379.
6 77 FR 2613. Concurrently, 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).
Subsequently, the Commission issued regulations
that further define the terms ‘‘swap dealer’’ and
‘‘major swap participant.’’ 77 FR 30596 (May 23,
2012). In this regard, the Commission notes that
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Although APs of other Commission
registrants are generally required to
register with the Commission,7 APs of
SDs and MSPs 8 are not required to
register as such.9 However, an SD or
MSP is prohibited from permitting any
pursuant to CEA Section 1a(49)(D), CFTC
Regulation 1.3(ggg)(4) establishes a de minimis
exception from the SD definition, thereby allowing
a person who otherwise meets the criteria for being
an SD to engage in a certain amount of swap dealing
activity without being required to register as an SD.
If a person exceeds the de minimis amount of swap
dealing at the effective date of the swap definition,
then CFTC Regulation 1.3(ggg)(4)(iii) provides that
the person must register as an SD by no later than
two months from the end of the month in which
it exceeded the de minimis threshold, i.e.,
December 31, 2012. Similarly, the definition of MSP
in CFTC Regulation 1.3(hhh)(3) generally requires
a person that meets the MSP definition as a result
of its swaps activity in a fiscal quarter to register
as an MSP no later than two months after the end
of that quarter, with the earliest possible date by
which the person should be registered as an MSP
being February 28, 2013 (i.e., two months from the
quarter end on December 31, 2012).
7 See, e.g., CEA Section 4k and Commission
Regulation 3.12(a). 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.
8 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
Regulation 1.3(aa)(6) for 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 the solicitation or acceptance of swaps
(other than in a clerical or ministerial capacity); or
the supervision of any person or persons so
engaged.
9 Section 731 did not direct the Commission to
adopt regulations that provide for the registration of
APs of SDs and MSPs, and, thus, the Commission
has not done so. See 77 FR at 2613.
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person associated with it to effect or be
involved in effecting swaps on its behalf
if such person is subject to a statutory
disqualification.10
B. The Proposed Regulations
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 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
[i.e., an 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.’’ 11 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.’’ 12
Regulation 3.12(f)(1)(i) permits dual
and multiple associations of a person
registered as an AP.13 Regulation
3.12(f)(1)(iii) provides that each
sponsor 14 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.15 This joint and several
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10 See
CEA Section 4s(b)(6) and Regulation
23.22(b).
11 Comment letter from the National Futures
Association at page 10 (Jan. 24, 2011).
12 77 FR at 2616.
13 Regulation 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.
14 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.’’
15 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. 57 FR 23136
(June 2, 1992) (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).
Subsequently, the Commission amended and
broadened the scope of Regulation 3.12(f) such that,
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responsibility provision is intended to
prevent 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.16 However, because, as noted
above, the Commission has not adopted
regulations requiring the registration of
APs of SDs and MSPs, the provisions of
Regulation 3.12(f)(1), which apply to a
sponsoring registrant with respect to its
APs who are registered or seeking to
register as such, do not apply to SDs and
MSPs and their APs.
To address this issue, on June 15,
2012, the Commission proposed
amendments to Regulation 3.12(f) and
Regulation 23.22 (Proposal) to provide
that an AP of an SD or MSP may
associate with one or more other SDs,
MSPs or other Commission registrants
(i.e., FCMs, retail foreign exchange
dealers (RFEDs), IBs, CTAs, CPOs, and
LTMs), and that each SD, MSP or other
Commission registrant with whom the
AP is associated is required to supervise
the AP and is jointly and severally
responsible for the conduct of the AP
with respect to customers common to it
and any other SD, MSP or other
Commission registrant with whom the
AP is associated.17
II. Comments on the Proposal
In the Proposal, the Commission
requested comment on all aspects of the
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.
16 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’’).
17 77 FR 35892.
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20789
Proposal and, in particular, on whether
it should adopt a provision (in both new
Regulation 3.12(f)(5) and new
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).18
The Commission received one
comment letter on the Proposal. The
letter supported the Proposal, stating
that:
[The] proposal will help to ensure that
SDs, MSPs and other Commission registrants
do not avoid supervision of and
responsibility for the activities of their APs
with such dual or multiple associations;
increase transparency of lines of
responsibility and promote accountability
thereon; improve internal consistency with
the other Commission regulations pertaining
to such dual or multiple associations; and
improve protection for both market
participants and the public by obligating
each SD, MSP or other Commission registrant
to supervise its APs who have such dual or
multiple associations.19
The comment letter also supported
the adoption of a regulation 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. After further considering
this issue, the Commission has
determined not to adopt such a
regulation. The Commission believes
18 Under Regulation 3.12(f)(1), 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. This
notification puts sponsors on notice that their
registered APs will subject them to additional
supervisory and joint and several responsibility
requirements under Regulation 3.12(f). 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.
More recently (and subsequent to the Proposal),
NFA amended NFA Bylaw 301 to add a new
paragraph 301(l) (Eligibility to Conduct Swaps
Activities), which requires NFA Member FCMs, IBs,
CPOs and CTAs and their APs that engage in swaps
activity that is subject to Commission jurisdiction
to be approved by NFA as a ‘‘swaps firm’’ or ‘‘swaps
associated person,’’ as applicable. The amendments
also provide that in order to obtain NFA approval
as a swaps firm, at least one of the firm’s principals
must be registered as an AP and approved as a
swaps associated person. The amendments are
intended to enable NFA to identify entities and
individuals that are engaging in swaps activities.
However, these requirements do not apply to SDs,
MSPs or their APs, nor do they apply with respect
to APs of an FCM that is also registered as an SD
if the APs do not engage in swaps activity on behalf
of the firm in its capacity as an FCM. See NFA
Notice to Members I–12–24 (Oct. 3, 2012).
19 Comment letter from Chris Barnard at page 1
(July 24, 2012).
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that each SD, MSP and other
Commission registrant is best positioned
to determine the policies and
procedures it will need to implement in
order to determine whether any of its
APs are associated with another SD or
MSP.
III. The Final Regulations
A. Regulations 3.12(f)(5) and 23.22(c)
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In light of the foregoing, the
Commission is adopting as proposed
regulations to provide for dual and
multiple associations of persons
associated with SDs, MSPs and other
Commission registrants. Specifically,
Regulation 3.12(f)(5)(i)(A) applies 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;
Regulation 3.12(f)(5)(i)(B) applies 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
Regulation 23.22(c) applies 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.20
The regulations 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. As proposed and
as adopted, the regulations are based on
the form and text of current Regulation
3.12(f)(1).21
20 As discussed in the Proposal, 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 Regulation 3.12(f) do not apply to
SDs and MSPs with respect to their APs (who are
not subject to a registration requirement).
21 Thus, for example, Regulation 3.12(f)(5)(i)(B)
provides that where an AP of an SD or MSP seeks
to register as an 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, 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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IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act
(RFA) 22 requires federal agencies, in
promulgating regulations, to consider
whether those regulations will have a
significant economic impact on a
substantial number of small entities
and, if so, to provide a regulatory
flexibility analysis respecting the
impact. A regulatory flexibility analysis
or certification typically is required for
‘‘any rule for which the agency
publishes a general notice of proposed
rulemaking pursuant to’’ the notice-andcomment provisions of the
Administrative Procedure Act, 5 U.S.C.
553(b).23 As discussed in the Proposal,
the Commission has previously
established certain definitions of ‘‘small
entities’’ to be used by the Commission
in evaluating the impact of its
regulations on small entities in
accordance with the RFA.24 The
Commission previously has determined
that FCMs, registered CPOs,25 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.26 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.27 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.28 The Commission notes that
the regulations being published by this
Federal Register release will only
impact, potentially, registered CTAs and
registered IBs,29 and the number of such
22 5
U.S.C. 601 et seq.
U.S.C. 601(2), 603, 604 and 605.
24 47 FR 18618 (Apr. 30, 1982).
25 To the extent the regulations being published
by this Federal Register release (specifically, new
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.
26 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).
27 See 77 FR 2613, 2620 (Jan. 19, 2012) (adopting
the Final Registration Regulations).
28 See 47 FR at 18619 (discussing CTAs); 48 FR
35248, 35276–77 (Aug. 3, 1983) (discussing IBs).
29 This is because, as noted above, Regulation
3.12(f) would not apply where an AP’s new or
23 5
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impacted entities, if any, should likely
be very small.30
The Commission did not receive any
comments regarding its RFA analysis in
the Proposal. Accordingly, pursuant to 5
U.S.C. 605(b), the Chairman, on behalf
of the Commission, certifies that the
regulations being published today by
this Federal Register release will not
have a significant economic impact on
a substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act
(PRA) 31 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 regulations being published by this
Federal Register release 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. As discussed in the Proposal,
the regulations contain no provision
that would impose a ‘‘burden’’ or
‘‘collection of information’’ as those
terms are defined in the PRA.32
The Commission did not receive any
comments regarding its PRA analysis in
the Proposal. Accordingly, for purposes
of the PRA, the Chairman, on behalf of
the Commission, certifies that the
regulations being published today by
this Federal Register release will not
impose any new reporting or
recordkeeping requirements.
C. Cost-Benefit Considerations
Section 15(a) of the CEA 33 requires
the Commission to consider the costs
and benefits of its actions before
promulgating a regulation under the
CEA or issuing certain orders. Section
15(a) further specifies that the costs and
benefits shall be evaluated in light of
five broad areas of market and public
concern: (1) Protection of market
existing association is with a person (e.g., a CTA or
an IB) who is not registered with the Commission.
30 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 October
19, 2012, less than three percent of all registered
APs (or approximately 1500 APs) were associated
on a dual or multiple basis with Commission
registrants.
31 44 U.S.C. 3501 et seq.
32 77 FR 35892, 35895 (June 15, 2012).
33 7 U.S.C. 19(a).
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Federal Register / Vol. 78, No. 67 / Monday, April 8, 2013 / Rules and Regulations
participants and the public; (2)
efficiency, competitiveness and
financial integrity of futures markets; (3)
price discovery; (4) sound risk
management practices; and (5) other
public interest considerations. The
Commission considers the costs and
benefits resulting from its discretionary
determinations with respect to the
section 15(a) factors.
As discussed above, the Commission
is adopting regulations 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 Regulation
3.12(f). As noted above, prior to the
adoption of these regulations, no
regulations addressed dual and multiple
associations of 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
regulations being adopted by the
Commission include the same benefits
noted by the Commission when it first
adopted the supervisory and joint and
several responsibility provisions under
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
regulations being published by this
Federal Register release 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 regulations
being adopted will impose any
significant, new cost on SDs or MSPs.
By this rulemaking, APs of SDs and
MSPs that have dual or multiple
associations will be subject to the same
regulatory regime as APs of other
Commission registrants that have dual
or multiple associations, and SDs and
MSPs (or other Commission registrants)
employing an AP with dual or multiple
associations will 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).
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These amendments will yield a
substantial if unquantifiable benefit to
the public because they will prevent
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
their common customers.
in light of which it should consider the
costs and benefits of the regulations.
Section 15(a) Factors
17 CFR Part 23
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.
Associated persons, Commodity
futures, Customer protection, Major
swap participants, Registration,
Reporting and recordkeeping
requirements, Swap dealers.
For the reasons presented above, the
Commission hereby amends Chapter I of
Title 17 of the Code of Federal
Regulations as follows:
(1) The Protection of Market
Participants and the Public
(2) The Efficiency, Competitiveness, and
Financial Integrity of the Futures
Markets
The Commission does not expect the
regulations 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
regulations to have an impact on the
market’s price discovery functions.
(4) Sound Risk Management Practices.
The Commission does not expect the
regulations 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
Frm 00009
Fmt 4700
Sfmt 4700
17 CFR Part 3
Associated persons, Brokers,
Commodity futures, Customer
protection, Major swap participants,
Registration, Swap dealers.
PART 3—REGISTRATION
1. The authority citation for part 3
continues to read as follows:
■
As discussed above, the Commission
believes the regulations it is adopting by
this Federal Register release 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
registrant. More specifically, the
regulations will prevent SDs, MSPs and
other Commission registrants from
disclaiming responsibility for the
activities of their APs who have dual
and multiple associations.
PO 00000
List of Subjects
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).
(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
E:\FR\FM\08APR1.SGM
08APR1
20792
Federal Register / Vol. 78, No. 67 / Monday, April 8, 2013 / Rules and Regulations
requirements set forth in
§ 3.60(b)(2)(i)(A) and (B).
(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.
*
*
*
*
*
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.
Issued in Washington, DC, on March 29,
2013, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
[FR Doc. 2013–07755 Filed 4–5–13; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket No. USCG–2013–0132]
PART 23—SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS
Safety Zone; San Francisco Giants
Fireworks Display, San Francisco, CA
3. The authority citation for Part 23
continues to read as follows:
AGENCY:
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).
SUMMARY:
■
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.
mstockstill on DSK4VPTVN1PROD with RULES
*
*
*
*
*
(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
VerDate Mar<15>2010
16:11 Apr 05, 2013
Jkt 229001
Coast Guard, DHS.
Notice of enforcement of
regulation.
ACTION:
The Coast Guard will enforce
the safety zone for the San Francisco
Giants Fireworks Display in the Captain
of the Port, San Francisco area of
responsibility during the dates and
times noted below. This action is
necessary to protect life and property of
the maritime public from the hazards
associated with the fireworks display.
During the enforcement period,
unauthorized persons or vessels are
prohibited from entering into, transiting
through, or anchoring in the safety zone,
unless authorized by the Patrol
Commander (PATCOM).
DATES: The regulations in 33 CFR
165.1191, Table 1, Item 1, are effective
from 11 a.m. to 10:25 p.m. on April 19,
2013.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this notice, call
or email Lieutenant Junior Grade
William Hawn, U.S. Coast Guard Sector
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
San Francisco; telephone (415) 399–
7442 or email at D11-PFMarineEvents@uscg.mil.
The Coast
Guard will enforce a 100 foot safety
zone around the fireworks barge off of
Pier 50 in approximate position
37°46′28″ N, 122°23′06″ W (NAD 83)
from 11 a.m. until 9:30 p.m. on April 19,
2013. From 8:30 p.m. to 8:40 p.m. on
April 19, 2013 the loaded barge will
transit from Pier 50 to the launch site
near Pier 48 in position 37°46′38″ N,
122°23′01″ W (NAD83). The 100 foot
safety zone applies to the navigable
waters around and under the fireworks
barge within a radius of 100 feet during
the loading, transit, and arrival of the
fireworks barge to the display location
and until the start of the fireworks
display. Upon the commencement of the
15 minute fireworks display, scheduled
to take place between 9:30 p.m. and
10:15 p.m. on April 19, 2013, the safety
zone will increase in size and
encompass the navigable waters around
and under the fireworks barge within a
radius 1,000 feet around the launch site
near Pier 48 in position 37°46′38″ N,
122°23′01″ W (NAD83) for the San
Francisco Giants Fireworks Display in
33 CFR 165.1191, Table 1, Item number
1.
Under the provisions of 33 CFR
165.1191, unauthorized persons or
vessels are prohibited from entering
into, transiting through, or anchoring in
the safety zone during all applicable
effective dates and times, unless
authorized to do so by the PATCOM.
Additionally, each person who receives
notice of a lawful order or direction
issued by an official patrol vessel shall
obey the order or direction. The
PATCOM is empowered to forbid entry
into and control the regulated area. The
PATCOM shall be designated by the
Commander, Coast Guard Sector San
Francisco. The PATCOM may, upon
request, allow the transit of commercial
vessels through regulated areas when it
is safe to do so.
This notice is issued under authority
of 33 CFR 165.1191 and 5 U.S.C. 552 (a).
In addition to this notice in the Federal
Register, the Coast Guard will provide
the maritime community with extensive
advance notification of the safety zone
and its enforcement period via the Local
Notice to Mariners.
If the Captain of the Port determines
that the regulated area need not be
enforced for the full duration stated in
this notice, a Broadcast Notice to
Mariners may be used to grant general
permission to enter the regulated area.
SUPPLEMENTARY INFORMATION:
E:\FR\FM\08APR1.SGM
08APR1
]]>Agencies
[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]
[Rules and Regulations]
[Pages 20788-20792]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07755]
=======================================================================
-----------------------------------------------------------------------
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: Final rules.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is adopting regulations to 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.
DATES: Effective June 7, 2013.
FOR FURTHER INFORMATION CONTACT: Israel J. Goodman, Special Counsel, 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:
I. Introduction
A. Background
On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\
Section 731 of the Dodd-Frank Act amended the Commodity Exchange Act
(CEA) \2\ 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.\3\
To effectuate the Congressional directive that an SD or MSP apply for
registration in such form and manner as prescribed by the
Commission,\4\ on November 23, 2010, the Commission proposed
regulations to establish a registration process for SDs and MSPs
(Proposed Registration Regulations),\5\ and on January 19, 2012, the
Commission adopted regulations that establish a registration process
for SDs and MSPs (Final Registration Regulations).\6\
---------------------------------------------------------------------------
\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed through the Commission's Web site,
https://www.cftc.gov.
\2\ 7 U.S.C. 1 et seq. (2006). The Commission's regulations are
found at 17 CFR Part 1 et seq. (2012). Both the CEA and the
Commission's regulations also may be accessed through the
Commission's Web site.
\3\ CEA Section 4s(a).
\4\ CEA Section 4s(b).
\5\ 75 FR 71379.
\6\ 77 FR 2613. Concurrently, 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).
Subsequently, the Commission issued regulations that further
define the terms ``swap dealer'' and ``major swap participant.'' 77
FR 30596 (May 23, 2012). In this regard, the Commission notes that
pursuant to CEA Section 1a(49)(D), CFTC Regulation 1.3(ggg)(4)
establishes a de minimis exception from the SD definition, thereby
allowing a person who otherwise meets the criteria for being an SD
to engage in a certain amount of swap dealing activity without being
required to register as an SD. If a person exceeds the de minimis
amount of swap dealing at the effective date of the swap definition,
then CFTC Regulation 1.3(ggg)(4)(iii) provides that the person must
register as an SD by no later than two months from the end of the
month in which it exceeded the de minimis threshold, i.e., December
31, 2012. Similarly, the definition of MSP in CFTC Regulation
1.3(hhh)(3) generally requires a person that meets the MSP
definition as a result of its swaps activity in a fiscal quarter to
register as an MSP no later than two months after the end of that
quarter, with the earliest possible date by which the person should
be registered as an MSP being February 28, 2013 (i.e., two months
from the quarter end on December 31, 2012).
---------------------------------------------------------------------------
Although APs of other Commission registrants are generally required
to register with the Commission,\7\ APs of SDs and MSPs \8\ are not
required to register as such.\9\ However, an SD or MSP is prohibited
from permitting any
[[Page 20789]]
person associated with it to effect or be involved in effecting swaps
on its behalf if such person is subject to a statutory
disqualification.\10\
---------------------------------------------------------------------------
\7\ See, e.g., CEA Section 4k and Commission Regulation 3.12(a).
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.
\8\ 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 Regulation 1.3(aa)(6) for
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 the solicitation or acceptance of swaps (other than in
a clerical or ministerial capacity); or the supervision of any
person or persons so engaged.
\9\ Section 731 did not direct the Commission to adopt
regulations that provide for the registration of APs of SDs and
MSPs, and, thus, the Commission has not done so. See 77 FR at 2613.
\10\ See CEA Section 4s(b)(6) and Regulation 23.22(b).
---------------------------------------------------------------------------
B. The Proposed Regulations
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 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 [i.e., an 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.'' \11\ 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.'' \12\
---------------------------------------------------------------------------
\11\ Comment letter from the National Futures Association at
page 10 (Jan. 24, 2011).
\12\ 77 FR at 2616.
---------------------------------------------------------------------------
Regulation 3.12(f)(1)(i) permits dual and multiple associations of
a person registered as an AP.\13\ Regulation 3.12(f)(1)(iii) provides
that each sponsor \14\ 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.\15\ This joint and several
responsibility provision is intended to prevent 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.\16\ However, because, as noted above, the Commission has not
adopted regulations requiring the registration of APs of SDs and MSPs,
the provisions of Regulation 3.12(f)(1), which apply to a sponsoring
registrant with respect to its APs who are registered or seeking to
register as such, do not apply to SDs and MSPs and their APs.
---------------------------------------------------------------------------
\13\ Regulation 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.
\14\ 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.''
\15\ 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. 57 FR 23136
(June 2, 1992) (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).
Subsequently, the Commission 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.
\16\ 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'').
---------------------------------------------------------------------------
To address this issue, on June 15, 2012, the Commission proposed
amendments to Regulation 3.12(f) and Regulation 23.22 (Proposal) to
provide that an AP of an SD or MSP may associate with one or more other
SDs, MSPs or other Commission registrants (i.e., FCMs, retail foreign
exchange dealers (RFEDs), IBs, CTAs, CPOs, and LTMs), and that each SD,
MSP or other Commission registrant with whom the AP is associated is
required to supervise the AP and is jointly and severally responsible
for the conduct of the AP with respect to customers common to it and
any other SD, MSP or other Commission registrant with whom the AP is
associated.\17\
---------------------------------------------------------------------------
\17\ 77 FR 35892.
---------------------------------------------------------------------------
II. Comments on the Proposal
In the Proposal, the Commission requested comment on all aspects of
the Proposal and, in particular, on whether it should adopt a provision
(in both new Regulation 3.12(f)(5) and new 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).\18\
---------------------------------------------------------------------------
\18\ Under Regulation 3.12(f)(1), 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. This notification puts sponsors on notice that
their registered APs will subject them to additional supervisory and
joint and several responsibility requirements under Regulation
3.12(f). 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.
More recently (and subsequent to the Proposal), NFA amended NFA
Bylaw 301 to add a new paragraph 301(l) (Eligibility to Conduct
Swaps Activities), which requires NFA Member FCMs, IBs, CPOs and
CTAs and their APs that engage in swaps activity that is subject to
Commission jurisdiction to be approved by NFA as a ``swaps firm'' or
``swaps associated person,'' as applicable. The amendments also
provide that in order to obtain NFA approval as a swaps firm, at
least one of the firm's principals must be registered as an AP and
approved as a swaps associated person. The amendments are intended
to enable NFA to identify entities and individuals that are engaging
in swaps activities. However, these requirements do not apply to
SDs, MSPs or their APs, nor do they apply with respect to APs of an
FCM that is also registered as an SD if the APs do not engage in
swaps activity on behalf of the firm in its capacity as an FCM. See
NFA Notice to Members I-12-24 (Oct. 3, 2012).
---------------------------------------------------------------------------
The Commission received one comment letter on the Proposal. The
letter supported the Proposal, stating that:
[The] proposal will help to ensure that SDs, MSPs and other
Commission registrants do not avoid supervision of and
responsibility for the activities of their APs with such dual or
multiple associations; increase transparency of lines of
responsibility and promote accountability thereon; improve internal
consistency with the other Commission regulations pertaining to such
dual or multiple associations; and improve protection for both
market participants and the public by obligating each SD, MSP or
other Commission registrant to supervise its APs who have such dual
or multiple associations.\19\
---------------------------------------------------------------------------
\19\ Comment letter from Chris Barnard at page 1 (July 24,
2012).
The comment letter also supported the adoption of a regulation 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. After further considering this issue, the Commission
has determined not to adopt such a regulation. The Commission believes
[[Page 20790]]
that each SD, MSP and other Commission registrant is best positioned to
determine the policies and procedures it will need to implement in
order to determine whether any of its APs are associated with another
SD or MSP.
III. The Final Regulations
A. Regulations 3.12(f)(5) and 23.22(c)
In light of the foregoing, the Commission is adopting as proposed
regulations to provide for dual and multiple associations of persons
associated with SDs, MSPs and other Commission registrants.
Specifically, Regulation 3.12(f)(5)(i)(A) applies 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; Regulation 3.12(f)(5)(i)(B) applies 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
Regulation 23.22(c) applies 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.\20\ The regulations 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. As proposed and as
adopted, the regulations are based on the form and text of current
Regulation 3.12(f)(1).\21\
---------------------------------------------------------------------------
\20\ As discussed in the Proposal, 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 Regulation 3.12(f) do not apply to SDs and MSPs with
respect to their APs (who are not subject to a registration
requirement).
\21\ Thus, for example, Regulation 3.12(f)(5)(i)(B) provides
that where an AP of an SD or MSP seeks to register as an 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,
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.
---------------------------------------------------------------------------
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \22\ requires federal
agencies, in promulgating regulations, to consider whether those
regulations will have a significant economic impact on a substantial
number of small entities and, if so, to provide a regulatory
flexibility analysis respecting the impact. A regulatory flexibility
analysis or certification typically is required for ``any rule for
which the agency publishes a general notice of proposed rulemaking
pursuant to'' the notice-and-comment provisions of the Administrative
Procedure Act, 5 U.S.C. 553(b).\23\ As discussed in the Proposal, the
Commission has previously established certain definitions of ``small
entities'' to be used by the Commission in evaluating the impact of its
regulations on small entities in accordance with the RFA.\24\ The
Commission previously has determined that FCMs, registered CPOs,\25\
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.\26\
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.\27\ 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.\28\ The
Commission notes that the regulations being published by this Federal
Register release will only impact, potentially, registered CTAs and
registered IBs,\29\ and the number of such impacted entities, if any,
should likely be very small.\30\
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\22\ 5 U.S.C. 601 et seq.
\23\ 5 U.S.C. 601(2), 603, 604 and 605.
\24\ 47 FR 18618 (Apr. 30, 1982).
\25\ To the extent the regulations being published by this
Federal Register release (specifically, new 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.
\26\ 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).
\27\ See 77 FR 2613, 2620 (Jan. 19, 2012) (adopting the Final
Registration Regulations).
\28\ See 47 FR at 18619 (discussing CTAs); 48 FR 35248, 35276-77
(Aug. 3, 1983) (discussing IBs).
\29\ 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.
\30\ 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 October 19, 2012, less than three
percent of all registered APs (or approximately 1500 APs) were
associated on a dual or multiple basis with Commission registrants.
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The Commission did not receive any comments regarding its RFA
analysis in the Proposal. Accordingly, pursuant to 5 U.S.C. 605(b), the
Chairman, on behalf of the Commission, certifies that the regulations
being published today by this Federal Register release will not have a
significant economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act (PRA) \31\ 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 regulations being published by this Federal Register
release 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. As
discussed in the Proposal, the regulations contain no provision that
would impose a ``burden'' or ``collection of information'' as those
terms are defined in the PRA.\32\
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\31\ 44 U.S.C. 3501 et seq.
\32\ 77 FR 35892, 35895 (June 15, 2012).
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The Commission did not receive any comments regarding its PRA
analysis in the Proposal. Accordingly, for purposes of the PRA, the
Chairman, on behalf of the Commission, certifies that the regulations
being published today by this Federal Register release will not impose
any new reporting or recordkeeping requirements.
C. Cost-Benefit Considerations
Section 15(a) of the CEA \33\ requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
[[Page 20791]]
participants and the public; (2) efficiency, competitiveness and
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations. The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the
section 15(a) factors.
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\33\ 7 U.S.C. 19(a).
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As discussed above, the Commission is adopting regulations 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 Regulation 3.12(f). As noted above,
prior to the adoption of these regulations, no regulations addressed
dual and multiple associations of 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 regulations being adopted by the
Commission include the same benefits noted by the Commission when it
first adopted the supervisory and joint and several responsibility
provisions under 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 regulations being
published by this Federal Register release 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 regulations being adopted will impose any
significant, new cost on SDs or MSPs.
By this rulemaking, APs of SDs and MSPs that have dual or multiple
associations will be subject to the same regulatory regime as APs of
other Commission registrants that have dual or multiple associations,
and SDs and MSPs (or other Commission registrants) employing an AP with
dual or multiple associations will 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). These amendments will yield a substantial if unquantifiable
benefit to the public because they will prevent 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 their common customers.
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 regulations it is
adopting by this Federal Register release 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 registrant. More specifically, the
regulations will prevent SDs, MSPs and other Commission registrants
from disclaiming responsibility for the activities of their APs who
have dual and multiple associations.
(2) The Efficiency, Competitiveness, and Financial Integrity of the
Futures Markets
The Commission does not expect the regulations 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 regulations to have an impact on
the market's price discovery functions.
(4) Sound Risk Management Practices.
The Commission does not expect the regulations 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 regulations.
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 hereby amends
Chapter I of Title 17 of the Code of Federal Regulations as follows:
PART 3--REGISTRATION
0
1. The authority citation for part 3 continues to read as follows:
Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 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).
0
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).
(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
[[Page 20792]]
requirements set forth in Sec. 3.60(b)(2)(i)(A) and (B).
(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
0
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).
0
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.
Issued in Washington, DC, on March 29, 2013, by the Commission.
Christopher J. Kirkpatrick,
Deputy Secretary of the Commission.
[FR Doc. 2013-07755 Filed 4-5-13; 8:45 am]
BILLING CODE 6351-01-P
