Membership in a Registered Futures Association, 67078-67084 [2013-26790]
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Federal Register / Vol. 78, No. 217 / Friday, November 8, 2013 / Proposed Rules
accommodates side-by-side placement
of LD–3 containers in the cargo
compartment. The basic Airbus Model
A350–900 series configuration will
accommodate 315 passengers in a
standard two-class arrangement. The
design cruise speed is Mach 0.85 with
a Maximum Take-Off Weight of 602,000
lbs. Airbus proposes the Model A350–
900 series to be certified for extended
operations (ETOPS) beyond 180 minutes
at entry into service for up to a 420minute maximum diversion time.
The Airbus Model A350–900 series
airplane, like its predecessors the A320,
A330, A340 and A380, will use side
stick controllers for pitch and roll
control. Regulatory requirements
pertaining to conventional wheel and
column, such as pilot strength and
controllability, are not directly
applicable for the side stick. In addition,
pilot control authority may be uncertain
because the side sticks are not
mechanically interconnected as with
conventional wheel and column
controls.
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Type Certification Basis
Under Title 14, Code of Federal
Regulations (14 CFR) 21.17, Airbus must
show that the Model A350–900 series
meets the applicable provisions of 14
CFR part 25, as amended by
Amendments 25–1 through 25–128.
The FAA has determined that Airbus
Model A350–900 series airplanes must
comply with the following sections:
§§ 25.143, 25.145(b), 25.175(b), 25.671,
and 25.1329(a).
If the Administrator finds that the
applicable airworthiness regulations
(i.e., 14 CFR part 25) do not contain
adequate or appropriate safety standards
for the Airbus Model A350–900 series
because of a novel or unusual design
feature, special conditions are
prescribed under § 21.16.
Special conditions are initially
applicable to the model for which they
are issued. Should the type certificate
for that model be amended later to
include any other model that
incorporates the same or similar novel
or unusual design feature, the proposed
special conditions would also apply to
the other model under § 21.101.
In addition to the applicable
airworthiness regulations and proposed
special conditions, the Airbus Model
A350–900 series must comply with the
fuel vent and exhaust emission
requirements of 14 CFR part 34 and the
noise certification requirements of 14
CFR part 36 and the FAA must issue a
finding of regulatory adequacy under
section 611 of Public Law 92–574, the
‘‘Noise Control Act of 1972.’’
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The FAA issues special conditions, as
defined in 14 CFR 11.19, under § 11.38,
and they become part of the typecertification basis under § 21.17(a)(2).
Novel or Unusual Design Features
The Airbus Model A350–900 series
will incorporate the following novel or
unusual design features: side stick
controllers for pitch and roll control in
place of conventional wheels and
columns.
Discussion
Current FAA regulations do not
specifically address the use of side stick
controllers for pitch and roll control.
The unique features of the side stick
must therefore be demonstrated through
flight and simulator tests to have
suitable handling and control
characteristics when considering the
following:
(1) The handling qualities tasks/
requirements of the A350 Special
Conditions and other 14 CFR part 25
requirements for stability, control, and
maneuverability, including the effects of
turbulence.
(2) General ergonomics: Arm rest
comfort and support, local freedom of
movement, displacement angle
suitability, and axis harmony.
(3) Inadvertent input in turbulence.
(4) Inadvertent pitch-roll cross talk.
The Handling Qualities Rating
Method (HQRM) of Appendix 5 of the
Flight Test Guide, AC 25–7C, may be
used to show compliance.
Applicability
As discussed above, these proposed
special conditions apply to Airbus
Model A350–900 series airplanes.
Should Airbus apply later for a change
to the type certificate to include another
model incorporating the same novel or
unusual design feature, the proposed
special conditions would apply to that
model as well.
Conclusion
This action affects only certain novel
or unusual design features on the Airbus
Model A350–900 series airplanes. It is
not a rule of general applicability.
List of Subjects in 14 CFR Part 25
Aircraft, Aviation safety, Reporting
and recordkeeping requirements.
The authority citation for these
special conditions is as follows:
Authority: 49 U.S.C. 106(g), 40113, 44701,
44702, 44704.
The Proposed Special Conditions
Accordingly, the Federal Aviation
Administration (FAA) proposes the
following special conditions as part of
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the type certification basis for Airbus
Model A350–900 series airplanes in the
absence of specific requirements for side
stick controllers:
1. Pilot strength: In lieu of the
‘‘strength of pilots’’ limits shown in
§ 25.143(c) for pitch and roll, and in lieu
of specific pitch force requirement of
§§ 25.145(b) and 25.175(d), it must be
shown that the temporary and
maximum prolonged force levels for the
side stick controllers are suitable for all
expected operating conditions and
configurations, whether normal or nonnormal.
2. Pilot control authority: The
electronic side stick controller coupling
design must provide for corrective and/
or overriding control inputs by either
pilot with no unsafe characteristics.
Annunciation of the controller status
must be provided, and must not be
confusing to the flight crew.
3. Pilot control: It must be shown by
flight tests that the use of side stick
controllers does not produce unsuitable
pilot-in-the-loop control characteristics
when considering precision path
control/tasks and turbulence. In
addition, pitch and roll control force
and displacement sensitivity must be
compatible, so that normal inputs on
one control axis will not cause
significant unintentional inputs on the
other.
Issued in Renton, Washington, on October
22, 2013.
Stephen P. Boyd,
Acting Manager, Transport Airplane
Directorate, Aircraft Certification Service.
[FR Doc. 2013–26912 Filed 11–7–13; 8:45 am]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 170
RIN 3038–AE09
Membership in a Registered Futures
Association
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Commodity Futures
Trading Commission (‘‘Commission’’)
proposes to amend its regulations to
require that all persons registered with
the Commission as introducing brokers
(‘‘IBs’’), commodity pool operators
(‘‘CPOs’’), and commodity trading
advisors (‘‘CTAs’’) must become and
remain members of at least one
registered futures association (‘‘RFA’’).
DATES: Comments must be received on
or before January 17, 2014.
SUMMARY:
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Federal Register / Vol. 78, No. 217 / Friday, November 8, 2013 / Proposed Rules
You may submit comments,
identified by RIN number 3038–AE09,
by any of the following methods:
• The agency’s Web site, at https://
comments.cftc.gov. Follow the
instructions for submitting comments
through the Web site.
• Mail: Melissa D. Jurgens, Secretary
of the Commission, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW.,
Washington, DC 20581.
• Hand Delivery/Courier: Same as
mail above.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
Please submit your comments using
only one method.
All comments must be submitted in
English, or if not, accompanied by an
English translation. Comments will be
posted as received to https://
www.cftc.gov. You should submit only
information that you wish to make
available publicly. If you wish the
Commission to consider information
that you believe is exempt from
disclosure under the Freedom of
Information Act, a petition for
confidential treatment of the exempt
information may be submitted according
to the procedures established in § 145.9
of the Commission’s regulations.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 https://www.cftc.gov that it may
deem to be inappropriate for
publication, such as obscene language.
All submissions that have been redacted
or removed that contain comments on
the merits of the rulemaking will be
retained in the public comment file and
will be considered as required under the
Administrative Procedure Act and other
applicable laws, and may be accessible
under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT:
Andrew Chapin, Associate Director,
Division of Swap Dealer and
Intermediary Oversight, 202–418–5465,
achapin@cftc.gov; Jason Shafer,
Attorney Advisor, Division of Swap
Dealer and Intermediary Oversight,
(202) 418–5097, jshafer@cftc.gov; or
Hannah Ropp, Economist, 202–418–
5228, hropp@cftc.gov, Office of the
Chief Economist, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW.,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
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ADDRESSES:
1 17 CFR 145.9. Commission regulations referred
to herein can be found on the Commission’s Web
site, www.cftc.gov.
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I. Background
Part 170 of the Commission’s
regulations pertains to RFAs. RFAs
serve a vital self-regulatory role by
functioning as frontline regulators of
their members subject to Commission
oversight. Regulations 170.15 and
170.16 require each registered futures
commission merchant (‘‘FCM’’), and
each registered swap dealer (‘‘SD’’) and
major swap participant (‘‘MSP’’),
respectively, to become a member of an
RFA, subject to an exception for certain
notice registered brokers or dealers.2
However, there is no such mandatory
membership requirement for other
registrants. In the absence of a
mandatory membership requirement,
those registrants not already members of
an RFA are nevertheless subject to the
rules and regulations of the
Commission,3 and, absent this proposal,
the Commission would assume the role
performed by the RFA for this class of
registrants. Currently, the National
Futures Association (‘‘NFA’’) is the sole
RFA under Section 17(a) of the
Commodity Exchange Act (‘‘CEA’’),4
and it is also a self-regulatory
organization (‘‘SRO’’).5
II. Proposed Regulation
Section 8a(5) of the CEA authorizes
the Commission to promulgate such
regulations as, in the judgment of the
Commission, are reasonably necessary
to effectuate any of the provisions, or to
accomplish any of the purposes, of the
CEA.6 Section 17(m) of the CEA permits
the Commission to require membership
in an RFA if the Commission
determines that mandatory membership
is necessary or appropriate to achieve
the purposes and objectives of the CEA.7
Pursuant to its statutory authority, the
Commission hereby proposes to amend
Part 170 by adding § 170.17 to require
each person registered as an IB, CPO, or
CTA to become and remain a member of
an RFA based on its preliminary belief
that such membership is necessary or
2 17 CFR 170.15 and 170.16. See also Registration
of Swap Dealers and Major Swap Participants, 77
FR 2613 (Jan. 19, 2012).
3 See 7 U.S.C. 21(e), which specifies that any
person registered under the CEA, who is not a
member of an RFA, shall be subject to such other
rules and regulations as the Commission may find
necessary to protect the public interest and promote
just and equitable principles of trade.
4 7 U.S.C. 21(a).
5 SROs include designated contract markets
(‘‘DCMs’’ or ‘‘exchanges’’), swap execution facilities
(‘‘SEFs’’), registered futures associations, and
derivatives clearing organizations (‘‘DCOs’’). Among
other things, SROs maintain and update a
standardized audit program and coordinate audit
and financial statement surveillance activities over
firms that are members of more than one SRO.
6 7 U.S.C. 12a(5).
7 7 U.S.C. 21(m).
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67079
appropriate to ensure comprehensive
and effective market oversight which is
applied consistently to all registered
intermediaries.
The Commission previously
promulgated § 170.15 to require, subject
to an exception for certain notice
registered securities brokers or dealers,
that all persons registered with the
Commission as FCMs must become and
remain members of at least one RFA.8
NFA Bylaw 1101 states that no member
of NFA may ‘‘carry an account, accept
an order or handle a transaction’’ in
commodity futures contracts for, or on
behalf of, any non-member of NFA that
is required to be registered with the
Commission as, inter alia, an IB, CPO,
or CTA.9 Accordingly, any IB, CPO or
CTA required to be registered that
desires to conduct business directly
with an FCM must become a member of
NFA, and derivatively, must ensure that
it conducts business only with those
IBs, CPOs or CTAs that also are NFA
members. Therefore, given the NFA’s
status as the sole RFA under Section
17(a) of the CEA, at the time it was
proposed, the Commission noted that
§ 170.15 would operate in conjunction
with NFA Bylaw 1101 to assure
essentially complete NFA membership
from the universe of commodity
professionals: FCMs, CPOs, CTAs and
IBs.10
In proposing new Regulation 170.17,
the Commission recognizes that due to
recent changes to the CEA, § 170.15 and
NFA Bylaw 1101 will no longer assure
NFA membership for all IBs, CPOs or
CTAs. In particular, the Dodd-Frank
Wall Street Reform and Consumer
Protection Act (‘‘Dodd-Frank Act’’)
amended the CEA to establish a
comprehensive new regulatory
framework for swaps.11 The new
regulatory framework provides that,
among other things, entities that engage
in regulated activity with respect to
swaps will be required to register with
the Commission as IBs, CPOs, or CTAs,
as appropriate. However, due to the
unique nature of swap transactions, it
may be possible for these Commission
registrants to serve clients without
interacting with a firm that ‘‘carries an
account,’’ e.g., an FCM or an SD who
8 Membership in Registered Futures Association,
72 FR 2614 (Jan. 22, 2007).
9 NFA Bylaw 1101 is available at: https://
www.nfa.futures.org/nfamanual/NFAManual.aspx?
RuleID=BYLAW%201101&Section=3.
10 Membership in a Registered Futures
Association, 71 FR 64171 at n.7 (proposed Nov. 1,
2006). The Commission notes that proposed
§ 170.17, like § 170.15 and § 170.16, does not
directly require associated persons (‘‘APs’’) to join
a RFA. This is because APs must be sponsored by
one of the aforementioned entities.
11 Public Law 111–203, 124 Stat. 1376 (2010).
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Federal Register / Vol. 78, No. 217 / Friday, November 8, 2013 / Proposed Rules
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accepts customer funds. For example, a
CTA may advise a ‘‘special entity’’ on
swaps in the capacity of an
‘‘independent advisor,’’ pursuant to
section 4s(h)(5) of the CEA,12 or a CPO
may operate a pool that trades only
swaps that are not cleared through a
DCO. As a result, these registrants
would not be captured by the
intersection of §§ 170.15 or 170.16, and
NFA Bylaw 1101, and would not be
required to become members of NFA.
Proposed § 170.17 would eliminate
existing gaps in the regulatory oversight
programs established by the
Commission and NFA. The proposed
rule would advance the Commission’s
effort to create an oversight regime that
levels the playing field by ensuring
consistent treatment of all its registered
intermediaries, including FCMs, SDs,
MSPs, IBs, CPOs, and CTAs.
In sum, consistent with Sections 8a(5)
and 17m of the CEA, the Commission
preliminarily believes that the proposed
rule is necessary or appropriate to
facilitate comprehensive and effective
market oversight by NFA in its capacity
as an SRO. By mandating membership
in an RFA by each person registered as
an IB, CPO, or CTA, the proposed rule
would enable NFA to ensure
compliance with Section 17 of the CEA,
and rules and regulations thereunder.
As the only RFA, NFA serves as the
frontline regulator of its members,
subject to Commission oversight.
Without mandatory membership in
NFA or another RFA, effective
implementation of the programs
required by Section 17 of the CEA and
NFA’s self-regulatory programs could be
impeded.
III. Request for Comment
To ensure that the proposed rule
would, if adopted, achieve its stated
purpose, the Commission requests
comment generally on all aspects of the
proposed rule. Specifically, the
Commission requests comment on the
following:
(1) Regulation 4.14(a)(9) was adopted
on March 10, 2000.13 Regulation
4.14(a)(9) provides that a person is not
required to register as a CTA if it does
not: (i) Direct any client accounts; or (ii)
provide commodity trading advice
based on, or tailored to, the commodity
interest or cash market positions or
other circumstances or characteristics of
particular clients. This exemption from
CTA registration generally pertains to
persons only providing advice to the
general public, such as in a newsletter,
and not to specific clients. When
adopted, Regulation 4.14(a)(9) did not
require CTAs to de-register who were, at
the time, registered with the
Commission, but who could avail
themselves of 4.14(a)(9). Therefore,
many CTAs are currently registered
with the Commission even though they
qualify for an exemption from
Commission registration pursuant to
4.14(a)(9). Should entities who are
currently registered with the
Commission but otherwise qualify for a
Rule 4.14(a)(9) exemption be required to
become members of NFA? If not, why?
(2) The Commission has not identified
an impact on the risk management
decisions of market participants as a
result of the proposed regulation, but
seeks comment as to any potential
impact. Will proposed § 170.17 impact,
positively or negatively, the risk
management procedures or actions of
intermediaries?
The Commission further requests
comment on the specific questions
included throughout this release.
IV. Administrative Compliance
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(‘‘PRA’’) 14 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.
This proposed rulemaking would result
in an amendment to existing collection
of information OMB Control Number
3038–0023.15 The Commission is
therefore submitting this proposal to the
Office of Management and Budget
(‘‘OMB’’) for review. If adopted,
responses to this collection of
information would be mandatory. An
agency may not conduct or sponsor, and
a person is not required to respond to,
a collection of information unless it
displays a currently valid control
number.
Registration with the Commission
requires each applicant for registration
to, among other things, file a Form
7–R providing basic background and
contact information.16 The proposed
regulation would not require affected
IBs, CPOs, and CTAs to register with the
14 44
U.S.C. 3501 et seq.
OMB Control No. 3038–0023, https://
www.reginfo.gov/public/do/
PRAOMBHistory?ombControlNumber=3038-0023.
16 The Commission has designated NFA to
receive Form 7–R submissions on its behalf. The
Commission notes that application for NFA
membership is incorporated in Form 7–R.
15 See
12 See, e.g., Business Conduct Standards for Swap
Dealers and Major Swap Participants with
Counterparties, Final Rule, 77 FR 9734, 9825 (Feb.
17, 2012).
13 Exemption from Registration as a Commodity
Trading Advisor, 65 FR 12938 (March 10, 2000).
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Commission, but only to become a
member of the NFA.
As of April 11, 2013, NFA has
indicated that 53 CPOs, CTAs, and IBs
have applied for or have been approved
for Commission registration solely
because of their activity in the swaps
market.17 Furthermore, NFA indicated
to the Commission that, as of April 11,
2013, there are 756 non-FCM registrants
that are currently registered with the
Commission, but are not NFA
members.18 Therefore, based on current
information provided by NFA, the
Commission estimates that there may be
a total of 809 respondents affected by
this proposed rule, and accordingly, the
Commission preliminarily believes that
OMB Collection 3038–0023 needs to be
adjusted to account for an increase in
the number of respondents. The
proposed regulation would otherwise
not impact the burden estimates
currently provided for Collection 3038–
0023.
The Commission seeks comment
about the total number of respondents
that it estimates may be impacted by the
proposed rule, i.e., the Commission’s
preliminary estimate of 809 potential
respondents. In particular, the
Commission seeks comment as to the
number of persons who have registered
or plan to register as CTAs, CPOs, and
IBs in order to serve the swap market
exclusively and would be required to
register with the Commission as a result
of their activity in uncleared swaps (i.e.,
would not otherwise be captured by the
aforementioned interplay of CFTC
§§ 170.15 and 170.16 and NFA Bylaw
1101).
Information Collection Comments
The Commission invites the public
and other Federal agencies to comment
on any aspect of the reporting burdens
discussed above. Pursuant to 44 U.S.C.
3506(c)(2)(B), the Commission solicits
comments in order to: (1) Evaluate
whether the proposed collection of
information is necessary for the proper
performance of the functions of the
Commission, including the information
will have practical utility; (2) evaluate
the accuracy of the Commission’s
estimate of the burden of the proposed
collection of information; (3) determine
whether there are ways to enhance the
17 Data provided by NFA was used in estimating
this figure. Specifically, the data shows that, on
April 11, 2013, there were 5 IBs, 1 IB/CTA, 30
CPOs, 8 CTAs, and 9 CPO/CTAs who indicated that
they transact exclusively in swaps.
18 Data provided by NFA was used in estimating
this figure. Specifically, the 756 figure is calculated
by adding the following (as of April 11, 2013, the
total number of registered firms without NFA
membership): 20 IBs, 1 IB/CPO, 2 IB/CTAs, 59
CPOs, 628 CTAs, and 46 CPO/CTAs.
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quality, utility, and clarity of the
information to be collected; and (4)
minimize the burden of the collection of
information on those who are to
respond, including through the use of
automated collection techniques or
other forms of information technology.
Comments may be submitted directly
to the Office of Information and
Regulatory Affairs, by fax at (202) 395–
6566 or by email at OIRAsubmissions@
omb.eop.gov. Please provide the
Commission with a copy of submitted
comments so that all comments can be
summarized and addressed in the final
rule preamble. Refer to the ADDRESSES
section of this notice of proposed
rulemaking for comment submission
instructions to the Commission. A copy
of the supporting statements for the
collections of information discussed
above may be obtained by visiting
RegInfo.gov. OMB is required to make a
decision concerning the collection of
information between 30 and 60 days
after publication of this document in the
Federal Register. Therefore, a comment
is best assured of having its full effect
if OMB receives it within 30 days of
publication.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act 19
requires that agencies consider whether
the rules they propose will have a
significant economic impact on a
substantial number of small entities
and, if so, provide a regulatory
flexibility analysis respecting the
impact.
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1. CPOs
The Commission has previously
determined that CPOs are not small
entities for purposes of the Regulatory
Flexibility Act.20 Accordingly, the
Chairman, on behalf of the Commission,
hereby certifies pursuant to 5 U.S.C.
605(b) that the proposed rules will not
have a significant economic impact on
a substantial number of small entities
with respect to these entities.
2. IBs and CTAs
The Commission has previously
determined to evaluate within the
context of a particular rule proposal
whether all or some IBs or CTAs should
be considered to be small entities and,
if so, to analyze the economic impact on
them of any such rule.21
19 5
U.S.C. 601 et seq.
Statement and Establishment of
Definitions of ‘‘Small Entities’’ for Purposes of the
Regulatory Flexibility Act, 47 FR 18618, 18619
(Apr. 30, 1982).
21 See, with respect to commodity trading
advisors, 47 FR at 18620, and see, with respect to
IBs, Introducing Brokers and Associated Persons of
20 Policy
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Since there could be some small
entities that register as IBs or CTAs, the
Commission is considering whether this
rulemaking would have a significant
economic impact on these registrants.
The proposed rules would require all
CTAs and IBs who register with the
Commission to become members of an
RFA. As previously noted, this would
require CTAs and IBs to ‘‘check a box’’
on Form 7–R and ensure they are
prepared for an NFA audit.22 However,
as discussed below, the Commission
preliminarily believes that any costs
associated with preparing for an audit
by the NFA should not be substantially
different from, or significantly exceed,
the costs associated with preparing for
an audit by the Commission, which
every registered entity would already be
responsible to do.23 To the extent that
this proposed rule only pertains to
CFTC registrants, the Commission
preliminarily believes that any auditrelated costs incident to NFA
membership would be minimal, and
should not have a significant economic
impact on IBs, CPOs, or CTAs that are
small entities. Consequently, the
Commission finds that there is no
significant economic impact on IBs or
CTAs resulting from this rulemaking.
Accordingly, for the reasons stated
above, the Commission preliminarily
believes that the proposal will not have
a significant economic impact on a
substantial number of small entities.
Therefore, the Chairman, on behalf of
the Commission, hereby certifies,
pursuant to 5 U.S.C. 605(b), that the
proposed regulations being published
today by this Federal Register release
will not have a significant economic
impact on a substantial number of small
entities.
C. Considerations of Costs and Benefits
Section 15(a) of the CEA requires the
Commission to consider the costs and
Introducing Brokers, Commodity Trading Advisors
and Commodity Pool Operators; Registration and
Other Regulatory Requirements, 48 FR 35276 (Aug.
3, 1983).
22 See infra note 28. As stated in the booklet titled
‘‘NFA Regulatory Requirements: For FCMs, IBs,
CPOs, and CTAs,’’ NFA audits have two major
objectives: (1) To determine whether the firm is
maintaining records in accordance with NFA rules
and applicable CFTC regulations; and (2) To ensure
that the firm is being operated in a professional
manner and that customers are protected against
unscrupulous activities and fraudulent or highpressure sales practices.
23 The Commission believes that many of the
recordkeeping obligations associated with preparing
with a NFA audit are already required for
Commission registrants. For example, Sections 4.23
and 4.33 of the Commission’s Regulations are
recordkeeping requirements associated with
registered CPOs and CTAs, respectively. Moreover,
given the average periodicity for NFA audits, the
magnitude of annual audit-related costs is limited.
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67081
benefits of its actions before
promulgating a regulation under the
CEA or issuing an order. Section 15(a)
further specifies that the costs and
benefits shall be evaluated in light of the
following five broad areas of market and
public concern: (1) Protection of market
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.
1. Background
As discussed above, prior to the
Dodd-Frank Act, the intersection of
§ 170.15 and NFA Bylaw 1101
effectively required most CFTCregistered intermediaries to be members
of NFA. Because NFA Bylaw 1101
provides that NFA members transacting
futures business on behalf of customers
cannot transact with non-members, and
§ 170.15 requires all FCMs to be NFA
members, any IB, CPO, or CTA that
engages with an FCM is required to
maintain NFA membership in order to
transact in futures.
In assessing the costs and benefits of
the proposed rule, the Commission, in
consultation with the NFA, has
identified the following typical
scenarios in which, under the current
Commission regulations and NFA rules,
a firm is registered with the
Commission, but is not an NFA
member:
• A firm that is no longer in business,
but subject to Commission action, is
prohibited from withdrawing its
registration with the Commission until
after the Commission action is resolved,
but, since the firm no longer actively
participates in the futures markets, it
has withdrawn its NFA membership (in
other words, a firm has a ‘‘withdrawal
hold’’);
• A firm that is not ready to
commence business as a CTA and/or
CPO first becomes registered in order to
complete the more complex process of
being properly vetted for registration,
and then adds membership later when
it is preparing to commence trading and
to submit a disclosure document to NFA
for review;
• When an NFA member firm no
longer has at least one principal who is
registered as an AP of the firm, NFA
rules provide that the firm’s
membership can be withdrawn if the
situation is not corrected. If the firm
does not re-attain NFA membership by
adding a new principal who is an AP of
the firm, typically the firm’s registration
is subsequently withdrawn as well;
• CTAs that do not manage accounts
consistent with the parameters of
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§ 4.14(a)(9) register with the
Commission, but are not required to
become members of NFA and thus do
not become members of NFA.
Moreover, the Dodd-Frank Act
amended the CEA to establish a
comprehensive new regulatory
framework for swaps markets.
Accordingly, an intermediary that was
previously not required to register with
the Commission because its activities
were limited to swaps may now be
required to register with the
Commission. However, unlike futures
transactions, because some swaps can
be entered into bilaterally and not be
cleared through a central counterparty
(in other words, will not necessarily
require the use of an FCM, SD, or MSP),
the intersection of §§ 170.15 and 170.16
and NFA Bylaw 1101 may not require
an IB, CPO, or CTA who transacts only
in uncleared swaps to become a member
of an RFA.24
Proposed § 170.17 would eliminate
these gaps in the regulatory oversight
programs established by the
Commission and NFA. In conjunction
with § 170.15, which requires all FCMs
to become members of an RFA, and
§ 170.16, which requires all SDs and
MSPs to become members of an RFA,
the Commission is intending to create
an oversight regime that levels the
playing field by ensuring consistent
treatment of all its registered
intermediaries. The Commission
preliminarily believes that the proposed
regulation is necessary to ensure
comprehensive regulation and equal
oversight of all intermediaries.
2. Costs
There would be certain costs
associated with the proposed regulation.
First, affected CFTC registrants would
be required to become NFA members.
The Commission understands that the
process for a current CFTC registrant to
become an NFA member amounts to
checking a box on the CFTC registration
form and updating some contact
information; thus, the Commission
preliminarily believes the cost of filing
for membership to be less than one halfhour of labor.25
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24 Under
the current Regulations and NFA
bylaws, an IB, CPO, and CTA who transacts only
in uncleared swaps with another IB, CPO, or CTA
who similarly limits its transactions to uncleared
swaps, will not be required to become a member of
NFA so long as both parties are (1) not members of
NFA and (2) continue to transact only in uncleared
swaps with similarly-situated entities.
25 See Form 7–R, https://www.nfa.futures.org/nfaregistration/templates-and-forms/form7-r.HTML.
Applications forms for NFA membership and
Associate membership are incorporated in Forms
7–R and 8–R. See NFA Membership and Dues,
https://www.nfa.futures.org/nfa-registration/NFAmembership-and-dues.HTML.
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Affected entities would also be
subject to certain membership fees. The
Commission understands that NFA
imposes initial membership dues and
annual membership dues for IBs, CPOs,
and CTAs. Currently, the initial
membership dues to become an NFA
member are $750 for the first year, and
the annual dues to maintain
membership are $750 per year
thereafter.26
The Commission preliminarily
believes that the rule may impose
certain compliance costs on affected
entities. However, such costs should not
be substantially different from or
significantly exceed the costs associated
with current Commission regulations.
NFA members are subject to periodic
audits by NFA. The Commission
understands that NFA audits CPOs,
CTAs and IBs every three to four years,
but the frequency may vary depending
on NFA’s risk analysis.27 The
Commission also understands that
while the direct cost of the audit is
covered by the annual membership
dues, members may incur indirect costs
associated with an on-site audit, e.g.,
preparing for the audit and providing
staff to assist NFA staff during the audit.
The Commission has authority to ensure
all IBs, CTAs, and CPOs, registered with
the Commission are in compliance with
Commission regulations applicable to
IBs, CTAs and CPOs as Commission
registrants and to conduct on-site
examinations of the operations and
activities of IBs, CTAs, and CPOs as
Commission registrants. Given the
existing costs associated with ongoing
compliance and examinations under the
Commission regulations currently in
effect, the Commission preliminarily
believes that the costs associated with
preparing for an audit by the NFA
should not be substantially different
from or significantly exceed the costs
associated with preparing for an audit
by the Commission, which every
registered entity is already responsible
to do (e.g., have properly prepared and
maintained books and records available
for examination at all times).28 All
affected entities should expect to incur
costs necessary to work with NFA to
26 See NFA Membership and Dues, https://
www.nfa.futures.org/nfa-registration/NFAmembership-and-dues.HTML.
27 The Commission notes that the NFA states that
it seeks to audit all new registrants within the first
year of NFA membership, and periodically
thereafter. See https://www.nfa.futures.org/nfa-faqs/
compliance-faqs/audits/.
28 Entities that will become Commission
registrants for the first time should expect to incur
the costs of ensuring they are adequately prepared
for an on-site examination by the Commission.
Such costs, however, are not attributable to the
present rule proposal.
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facilitate regulatory audits.29 Therefore,
the Commission preliminarily believes
that IBs, CPOs, and CTAs covered by the
proposed rule may incur few, if any,
additional audit-related costs by virtue
of their NFA membership.
Likewise, with respect to general,
ongoing compliance costs, the
Commission preliminarily believes that
NFA membership would impose few
additional costs on subject IBs, CPOs,
and CTAs, because as Commission
registrants, these participants would
already be subject to the majority of
regulations that NFA is responsible to
enforce. Specifically, in its capacity as
an SRO, NFA would act, in respect of
entities subject to the proposed rule, as
the frontline regulator for the programs
required by Section 17 of the CEA and
the regulations thereunder. Section 17
and those regulations, however, are
applicable to subject entities,
independent of whether they are NFA
members. Accordingly, in the main,
entities would not incur any additional
general, ongoing compliance costs as a
result of NFA membership. However, in
certain limited situations, there may be
costs associated with being an NFA
member in excess of those costs
incurred for being registered with the
Commission. For example, the
Commission’s capital rules require that
registered IBs maintain adjusted net
capital equal to or in excess of the
greatest of $45,000 [or] the amount of
adjusted net capital required by a
registered futures association of which it
is a member.30 However, section 5 of the
NFA Manual sets forth the following
capital requirements for member IBs:
(a) Each Member IB, except an IB operating
pursuant to a guarantee agreement which
meets the requirements set forth in CFTC
Regulation 1.10(j), must maintain Adjusted
Net Capital (as defined in CFTC Regulation
1.17) equal to or in excess of the greatest of:
(i) $45,000;
(ii) For Member IBs with less than
$1,000,000 in Adjusted Net Capital, $6,000
per office operated by the IB (including the
main office);
(iii) For Member IBs with less than
$1,000,000 in Adjusted Net Capital, $3,000
for each AP sponsored by the IB.31
Therefore, while the Commission
preliminarily believes, as noted above,
that comprehensive and effective market
oversight conducted by NFA would
29 NFA provides a booklet titled ‘‘NFA Regulatory
Requirements: For FCMs, IBs, CPOs, and CTAs,’’
the NFA Manual, CFTC Regulations, and the ‘‘SelfExamination Checklist,’’ which all NFA must
complete on a yearly basis. All are available on
NFA’s Web site at www.nfa.futures.org.
30 See 17 CFR 1.17(a)(1)(iii).
31 NFA’s manual is available at https://
www.nfa.futures.org/nfamanual/NFAManual.aspx?
RuleID=SECTION%205&Section=7.
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enhance market oversight and promote
effective implementation of the CEA,
the Commission recognizes that in
certain limited situations, the
requirements to be an NFA member may
be more stringent, and potentially most
costly to comply with, than the
requirements associated with being
registered with the Commission. The
Commission requests comment on
whether there are any additional
situations similar to the example
described above where the costs
associated with NFA membership
diverge from the costs of Commission
registration.
The Commission contacted NFA to
determine the number of IBs, CPOs, and
CTAs that would be directly impacted
by this rule (i.e., currently registered
with the Commission, but not currently
members of NFA). NFA indicated to the
Commission that, as of April 11, 2013,
there were 756 non-FCM firms that are
registered with the Commission, but are
not NFA members.32 Large percentages
of the identified IBs, IB/CPOs, IBs/
CTAs, and CPOs —90%, 100%, 100%
and 66%, respectively—are firms that
are subject to a withdrawal hold. A
smaller percentage of CPOs/CTAs (46%)
and CTAs (4%) also fit within this
category. This category of entities—i.e.,
those intermediaries that are subject to
a withdrawal hold—should not be
affected by the proposed regulations
because they are, in the majority of
cases, no longer in business, and, in any
case, are not actively trading.
Relying on the information provided
by NFA, the Commission estimates that
a combined 652 entities are CFTC
registrants because of the activities that
qualify them as a CPO, CTA or IB, but
are not NFA members, equating to an
initial cost to the industry of
approximately $489,000.33 In addition,
the Commission anticipates a small cost
to each firm to update the firm’s
registration statement and other
paperwork necessary to become an NFA
member. The Commission estimates
annual ongoing cost to the industry of
the same amount ($489,000) 34 plus the
indirect costs of the periodic audits,
32 See
supra note 18.
supra note 18. Specifically, the 652 figure
is calculated by adding the following (as of April
11, 2013): 2 IBs, 20 CPOs, 605 CTAs, and 25 CPO/
CTAs. To arrive at the monetary estimate, the 652
figure was multiplied by the $750.00 per-entity
initial cost. The Commission notes, however, that
some entities currently registered with the
Commission may withdraw their registration
because they are inactive in derivatives markets or
for some other reason. As a result, the total number
of affected entities may be reduced, and
corresponding total costs associated with the
proposed rule may be lower.
34 Id.
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33 See
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which the Commission cannot estimate
at this time due to the entity-specific
nature of the indirect costs incurred.
The Commission also asked NFA for
estimates regarding the number of future
IBs, CPOs, and CTAs who will be
required to register for the first-time
with the Commission because of their
swaps activity. NFA indicated that 53
firms that have applied for or have been
approved for Commission registration
have indicated they participate
exclusively in the swaps markets.35
However, the Commission estimates
that this number may increase after
certain regulations affecting the
registration status of swaps entities
come into effect.36 Moreover, as
described above, this regulation would
directly affect the subset of these new
entities required to register for the first
time because they are active exclusively
in the uncleared swaps market and
engage with similarly-situated entities.
The Commission preliminarily believes
that many entities have yet to apply for
registration under the Commission’s
new swaps market regime, and as such
the Commission is not yet able to
accurately determine the exact number
of new registrants that will be affected
by the proposed regulation.
The Commission requests comment
on all aspects of its preliminary
consideration of costs. Has the
Commission accurately identified the
costs of this proposed regulation? Are
there other costs to the Commission,
market participants, and/or the
American public that may result from
the adoption of the proposed regulation
that the Commission should consider?
The Commission seeks specific
comment on the following:
• How many IBs, CPOs, and CTAs
will be affected by the proposed
regulation?
• How many entities are active only
in the uncleared swaps markets and
plan to register with the Commission—
and so would need to become members
of NFA as a result of the proposed
regulation?
• What are the costs of an NFA audit?
Please identify and, where possible,
quantify such costs. Do the types of
costs or amount of costs vary depending
on whether the audit is online or onsite?
Do market participants bear different
35 See supra note 17. NFA indicated that on April
11, 2013, it had approved 52 firms that deal
exclusively in swaps for registration as an IB, CPO,
or CTA and that the IB, CPO, or CTA registration
of 1 additional firm that deals exclusively in swaps
is currently pending.
36 For example, the Commission’s final definition
of the term ‘‘U.S. Person’’ as it relates to crossborder swap transactions could dramatically affect
the number of market participants required to
register with the Commission.
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67083
costs with respect to NFA’s periodic
audits versus daily audits?
• Would the proposed rule result in
ongoing compliance costs beyond those
an entity would face as a result of being
registered with the Commission? Are
there any costs of NFA membership
beyond those an entity would face as a
result of being registered with the
Commission?
• Are there other costs of NFA
membership that the Commission
should consider?
3. Benefits
The proposed regulation would
enable the Commission to carry out its
obligations pursuant to Section 17 of the
CEA to delegate certain oversight
responsibility for intermediaries,
including IBs, CPOs, and CTAs, to an
RFA. As described above, the NFA
cannot enforce its rules over registrants
who do not become NFA members, and
existing regulations would not require
all IBs, CPOs, and CTAs to become NFA
members. Thus, the Commission
proposed new § 170.17 to require IBs,
CPOs, and CTAs to become NFA
members analogously to how § 170.15
presently requires FCMs to become NFA
members and how § 170.16 requires the
same of SDs and MSPs. In so doing, the
Commission preliminarily believes it
would ensure a level regulatory playing
field for all registered intermediaries.
The proposed rule would enable the
NFA to apply its experience as a SRO
to oversee all registered IBs, CPOs, and
CTAs.
In addition, the Commission
preliminarily believes that by requiring
membership in an RFA, the proposed
rule would result in a more efficient
deployment of agency resources which
would otherwise have to be used to
oversee these registrants who would,
without this rule, not be overseen by
NFA.
Moreover, by requiring all registered
IBs, CPOs and CTAs to become NFA
members, the public would benefit from
NFA’s developed set of rules and
oversight capabilities to ensure the
integrity of the swaps market and its
participants. This increase in market
integrity may lead to a corresponding
increase in market participation as the
public and market participants grow
more confident in the safety of these
markets. The Commission preliminarily
believes that the proposed regulation
would ensure that NFA has the
authority necessary to fulfill its
delegated responsibilities to provide
regulatory oversight and promote
market integrity.
The Commission requests comment
on all aspects of its preliminary
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consideration of benefits. Has the
Commission accurately identified the
benefits of this proposed regulation? Are
there other benefits to the Commission,
market participants, and/or the public
that may result from the adoption of the
proposed regulation that the
Commission should consider?
promote public confidence in the
integrity of derivatives markets by
ensuring consistent and adequate
regulation and oversight of all
intermediaries. Will proposed § 170.17
impact, positively or negatively, any
heretofore unidentified matter of
interest to the public?
4. Section 15(a)
Section 15(a) of the CEA requires the
Commission to consider the effects of its
actions in light of the following five
factors:
List of Subjects in 17 CFR Part 170
a. Protection of Market Participants and
the Public
The proposed regulation would
protect the public by ensuring that all
registered intermediaries are subject to
the same level of comprehensive NFA
oversight. Because the entities affected
by the proposed regulation act as
intermediaries for clients, it is
imperative that these entities be subject
to proper oversight in order to protect
customers from wrongdoing.
The Commission seeks comment as to
how market participants and the public
may be protected by the proposed
regulation.
b. Efficiency, Competitiveness, and
Financial Integrity of Markets
The proposed regulation would act to
create a more level playing field for
intermediaries, ensuring that all such
registered entities are subject to the
same level of oversight and regulatory
responsibility. In so doing, the
Commission preliminarily believes the
integrity of markets would be enhanced.
The Commission seeks comment as to
how the proposed regulation may
promote the efficiency, competitiveness,
and financial integrity of markets.
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c. Price Discovery
The Commission has not identified an
impact on price discovery as a result of
the proposed regulation, but seeks
comment as to any potential impact.
Will proposed § 170.17 impact,
positively or negatively, the price
discovery process?
d. Sound Risk Management
The Commission has not identified an
impact on the risk management
decisions of market participants as a
result of the proposed regulation, but
seeks comment as to any potential
impact. Will proposed § 170.17 impact,
positively or negatively, the risk
management procedures or actions of
intermediaries?
e. Other Public Interest Considerations
The Commission preliminarily
believes that proposed § 170.17 may
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Authority delegations (Government
agencies), Commodity futures,
Reporting and recordkeeping
requirements.
For the reasons stated in the
preamble, the Commodity Futures
Trading Commission proposes to amend
17 CFR part 170 as follows:
PART 170—REGISTERED FUTURES
ASSOCIATIONS
1. The authority citation for part 170
is revised to read as follows:
■
Authority: 7 U.S.C. 6p, 12a, and 21.
Subpart C—Membership in a
Registered Futures Association
2. In subpart C, add § 170.17 to read
as follows:
■
§ 170.17 Introducing Brokers, Commodity
Pool Operators, and Commodity Trading
Advisors.
Each person registered as an
introducing broker, commodity pool
operator, or commodity trading advisor
must become and remain a member of
at least one futures association that is
registered under Section 17 of the Act
and that provides for the membership
therein of such introducing broker,
commodity pool operator, or commodity
trading advisor, as the case may be,
unless no such futures association is so
registered.
Issued in Washington, DC, on November 5,
2013, by the Commission.
Melissa D. Jurgens,
Secretary of the Commission.
Appendix to Membership in a
Registered Futures Association—
Commission Voting Summary
Note: The following appendix will not
appear in the Code of Federal Regulations.
Appendix—Commission Voting
Summary
On this matter, Chairman Gensler and
Commissioners Chilton, O’Malia, and Wetjen
voted in the affirmative; no Commissioner
voted in the negative.
[FR Doc. 2013–26790 Filed 11–7–13; 8:45 am]
BILLING CODE 6351–01–P
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DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 117
[Docket No. USCG–2013–0778]
RIN 1625–AA09
Drawbridge Operation Regulation;
Broad Creek, Laurel, DE
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Coast Guard is proposing
to change the regulation that governs the
operation of the Poplar Street Bridge,
mile 8.2, and the U.S. 13A Bridge over
Broad Creek, mile 8.25, both at Laurel,
DE. The proposed new rule would
change the current regulation by
requiring a forty-eight hour advance
notice and by allowing the bridges to
remain in the closed position for the
passage of vessels.
DATES: Comments and related material
must reach the Coast Guard on or before
January 7, 2014.
ADDRESSES: You may submit comments
identified by docket number USCG–
2013–0778 using any one of the
following methods:
(1) Federal eRulemaking Portal:
https://www.regulations.gov.
(2) Fax: 202–493–2251.
(3) Mail or Delivery: 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. Deliveries
accepted between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal
holidays. The telephone number is 202–
366–9329.
See the ‘‘Public Participation and
Request for Comments’’ portion of the
SUPPLEMENTARY INFORMATION section
below for instructions on submitting
comments. To avoid duplication, please
use only one of these four methods.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this proposed
rule, call or email Mrs. Jessica Shea,
Fifth Coast Guard District Bridge
Administration Division, Coast Guard;
telephone 757–398–6422, email
jessica.c.shea2@uscg.mil. If you have
questions on viewing or submitting
material to the docket, call Barbara
Hairston, Program Manager, Docket
Operations, telephone 202–366–9826.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Table of Acronyms
CFR Code of Federal Regulations
DHS Department of Homeland Security
E:\FR\FM\08NOP1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 217 (Friday, November 8, 2013)]
[Proposed Rules]
[Pages 67078-67084]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26790]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 170
RIN 3038-AE09
Membership in a Registered Futures Association
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'')
proposes to amend its regulations to require that all persons
registered with the Commission as introducing brokers (``IBs''),
commodity pool operators (``CPOs''), and commodity trading advisors
(``CTAs'') must become and remain members of at least one registered
futures association (``RFA'').
DATES: Comments must be received on or before January 17, 2014.
[[Page 67079]]
ADDRESSES: You may submit comments, identified by RIN number 3038-AE09,
by any of the following methods:
The agency's Web site, at https://comments.cftc.gov. Follow
the instructions for submitting comments through the Web site.
Mail: Melissa D. Jurgens, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
https://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Sec. 145.9 of the Commission's regulations.\1\
---------------------------------------------------------------------------
\1\ 17 CFR 145.9. Commission regulations referred to herein can
be found on the Commission's Web site, www.cftc.gov.
---------------------------------------------------------------------------
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 https://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: Andrew Chapin, Associate Director,
Division of Swap Dealer and Intermediary Oversight, 202-418-5465,
achapin@cftc.gov; Jason Shafer, Attorney Advisor, Division of Swap
Dealer and Intermediary Oversight, (202) 418-5097, jshafer@cftc.gov; or
Hannah Ropp, Economist, 202-418-5228, hropp@cftc.gov, Office of the
Chief Economist, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
Part 170 of the Commission's regulations pertains to RFAs. RFAs
serve a vital self-regulatory role by functioning as frontline
regulators of their members subject to Commission oversight.
Regulations 170.15 and 170.16 require each registered futures
commission merchant (``FCM''), and each registered swap dealer (``SD'')
and major swap participant (``MSP''), respectively, to become a member
of an RFA, subject to an exception for certain notice registered
brokers or dealers.\2\ However, there is no such mandatory membership
requirement for other registrants. In the absence of a mandatory
membership requirement, those registrants not already members of an RFA
are nevertheless subject to the rules and regulations of the
Commission,\3\ and, absent this proposal, the Commission would assume
the role performed by the RFA for this class of registrants. Currently,
the National Futures Association (``NFA'') is the sole RFA under
Section 17(a) of the Commodity Exchange Act (``CEA''),\4\ and it is
also a self-regulatory organization (``SRO'').\5\
---------------------------------------------------------------------------
\2\ 17 CFR 170.15 and 170.16. See also Registration of Swap
Dealers and Major Swap Participants, 77 FR 2613 (Jan. 19, 2012).
\3\ See 7 U.S.C. 21(e), which specifies that any person
registered under the CEA, who is not a member of an RFA, shall be
subject to such other rules and regulations as the Commission may
find necessary to protect the public interest and promote just and
equitable principles of trade.
\4\ 7 U.S.C. 21(a).
\5\ SROs include designated contract markets (``DCMs'' or
``exchanges''), swap execution facilities (``SEFs''), registered
futures associations, and derivatives clearing organizations
(``DCOs''). Among other things, SROs maintain and update a
standardized audit program and coordinate audit and financial
statement surveillance activities over firms that are members of
more than one SRO.
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II. Proposed Regulation
Section 8a(5) of the CEA authorizes the Commission to promulgate
such regulations as, in the judgment of the Commission, are reasonably
necessary to effectuate any of the provisions, or to accomplish any of
the purposes, of the CEA.\6\ Section 17(m) of the CEA permits the
Commission to require membership in an RFA if the Commission determines
that mandatory membership is necessary or appropriate to achieve the
purposes and objectives of the CEA.\7\ Pursuant to its statutory
authority, the Commission hereby proposes to amend Part 170 by adding
Sec. 170.17 to require each person registered as an IB, CPO, or CTA to
become and remain a member of an RFA based on its preliminary belief
that such membership is necessary or appropriate to ensure
comprehensive and effective market oversight which is applied
consistently to all registered intermediaries.
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\6\ 7 U.S.C. 12a(5).
\7\ 7 U.S.C. 21(m).
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The Commission previously promulgated Sec. 170.15 to require,
subject to an exception for certain notice registered securities
brokers or dealers, that all persons registered with the Commission as
FCMs must become and remain members of at least one RFA.\8\ NFA Bylaw
1101 states that no member of NFA may ``carry an account, accept an
order or handle a transaction'' in commodity futures contracts for, or
on behalf of, any non-member of NFA that is required to be registered
with the Commission as, inter alia, an IB, CPO, or CTA.\9\ Accordingly,
any IB, CPO or CTA required to be registered that desires to conduct
business directly with an FCM must become a member of NFA, and
derivatively, must ensure that it conducts business only with those
IBs, CPOs or CTAs that also are NFA members. Therefore, given the NFA's
status as the sole RFA under Section 17(a) of the CEA, at the time it
was proposed, the Commission noted that Sec. 170.15 would operate in
conjunction with NFA Bylaw 1101 to assure essentially complete NFA
membership from the universe of commodity professionals: FCMs, CPOs,
CTAs and IBs.\10\
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\8\ Membership in Registered Futures Association, 72 FR 2614
(Jan. 22, 2007).
\9\ NFA Bylaw 1101 is available at: https://www.nfa.futures.org/nfamanual/NFAManual.aspx?RuleID=BYLAW%201101&Section=3.
\10\ Membership in a Registered Futures Association, 71 FR 64171
at n.7 (proposed Nov. 1, 2006). The Commission notes that proposed
Sec. 170.17, like Sec. 170.15 and Sec. 170.16, does not directly
require associated persons (``APs'') to join a RFA. This is because
APs must be sponsored by one of the aforementioned entities.
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In proposing new Regulation 170.17, the Commission recognizes that
due to recent changes to the CEA, Sec. 170.15 and NFA Bylaw 1101 will
no longer assure NFA membership for all IBs, CPOs or CTAs. In
particular, the Dodd-Frank Wall Street Reform and Consumer Protection
Act (``Dodd-Frank Act'') amended the CEA to establish a comprehensive
new regulatory framework for swaps.\11\ The new regulatory framework
provides that, among other things, entities that engage in regulated
activity with respect to swaps will be required to register with the
Commission as IBs, CPOs, or CTAs, as appropriate. However, due to the
unique nature of swap transactions, it may be possible for these
Commission registrants to serve clients without interacting with a firm
that ``carries an account,'' e.g., an FCM or an SD who
[[Page 67080]]
accepts customer funds. For example, a CTA may advise a ``special
entity'' on swaps in the capacity of an ``independent advisor,''
pursuant to section 4s(h)(5) of the CEA,\12\ or a CPO may operate a
pool that trades only swaps that are not cleared through a DCO. As a
result, these registrants would not be captured by the intersection of
Sec. Sec. 170.15 or 170.16, and NFA Bylaw 1101, and would not be
required to become members of NFA.
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\11\ Public Law 111-203, 124 Stat. 1376 (2010).
\12\ See, e.g., Business Conduct Standards for Swap Dealers and
Major Swap Participants with Counterparties, Final Rule, 77 FR 9734,
9825 (Feb. 17, 2012).
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Proposed Sec. 170.17 would eliminate existing gaps in the
regulatory oversight programs established by the Commission and NFA.
The proposed rule would advance the Commission's effort to create an
oversight regime that levels the playing field by ensuring consistent
treatment of all its registered intermediaries, including FCMs, SDs,
MSPs, IBs, CPOs, and CTAs.
In sum, consistent with Sections 8a(5) and 17m of the CEA, the
Commission preliminarily believes that the proposed rule is necessary
or appropriate to facilitate comprehensive and effective market
oversight by NFA in its capacity as an SRO. By mandating membership in
an RFA by each person registered as an IB, CPO, or CTA, the proposed
rule would enable NFA to ensure compliance with Section 17 of the CEA,
and rules and regulations thereunder. As the only RFA, NFA serves as
the frontline regulator of its members, subject to Commission
oversight. Without mandatory membership in NFA or another RFA,
effective implementation of the programs required by Section 17 of the
CEA and NFA's self-regulatory programs could be impeded.
III. Request for Comment
To ensure that the proposed rule would, if adopted, achieve its
stated purpose, the Commission requests comment generally on all
aspects of the proposed rule. Specifically, the Commission requests
comment on the following:
(1) Regulation 4.14(a)(9) was adopted on March 10, 2000.\13\
Regulation 4.14(a)(9) provides that a person is not required to
register as a CTA if it does not: (i) Direct any client accounts; or
(ii) provide commodity trading advice based on, or tailored to, the
commodity interest or cash market positions or other circumstances or
characteristics of particular clients. This exemption from CTA
registration generally pertains to persons only providing advice to the
general public, such as in a newsletter, and not to specific clients.
When adopted, Regulation 4.14(a)(9) did not require CTAs to de-register
who were, at the time, registered with the Commission, but who could
avail themselves of 4.14(a)(9). Therefore, many CTAs are currently
registered with the Commission even though they qualify for an
exemption from Commission registration pursuant to 4.14(a)(9). Should
entities who are currently registered with the Commission but otherwise
qualify for a Rule 4.14(a)(9) exemption be required to become members
of NFA? If not, why?
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\13\ Exemption from Registration as a Commodity Trading Advisor,
65 FR 12938 (March 10, 2000).
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(2) The Commission has not identified an impact on the risk
management decisions of market participants as a result of the proposed
regulation, but seeks comment as to any potential impact. Will proposed
Sec. 170.17 impact, positively or negatively, the risk management
procedures or actions of intermediaries?
The Commission further requests comment on the specific questions
included throughout this release.
IV. Administrative Compliance
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \14\ 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. This proposed rulemaking would
result in an amendment to existing collection of information OMB
Control Number 3038-0023.\15\ The Commission is therefore submitting
this proposal to the Office of Management and Budget (``OMB'') for
review. If adopted, responses to this collection of information would
be mandatory. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid control number.
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\14\ 44 U.S.C. 3501 et seq.
\15\ See OMB Control No. 3038-0023, https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0023.
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Registration with the Commission requires each applicant for
registration to, among other things, file a Form 7-R providing basic
background and contact information.\16\ The proposed regulation would
not require affected IBs, CPOs, and CTAs to register with the
Commission, but only to become a member of the NFA.
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\16\ The Commission has designated NFA to receive Form 7-R
submissions on its behalf. The Commission notes that application for
NFA membership is incorporated in Form 7-R.
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As of April 11, 2013, NFA has indicated that 53 CPOs, CTAs, and IBs
have applied for or have been approved for Commission registration
solely because of their activity in the swaps market.\17\ Furthermore,
NFA indicated to the Commission that, as of April 11, 2013, there are
756 non-FCM registrants that are currently registered with the
Commission, but are not NFA members.\18\ Therefore, based on current
information provided by NFA, the Commission estimates that there may be
a total of 809 respondents affected by this proposed rule, and
accordingly, the Commission preliminarily believes that OMB Collection
3038-0023 needs to be adjusted to account for an increase in the number
of respondents. The proposed regulation would otherwise not impact the
burden estimates currently provided for Collection 3038-0023.
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\17\ Data provided by NFA was used in estimating this figure.
Specifically, the data shows that, on April 11, 2013, there were 5
IBs, 1 IB/CTA, 30 CPOs, 8 CTAs, and 9 CPO/CTAs who indicated that
they transact exclusively in swaps.
\18\ Data provided by NFA was used in estimating this figure.
Specifically, the 756 figure is calculated by adding the following
(as of April 11, 2013, the total number of registered firms without
NFA membership): 20 IBs, 1 IB/CPO, 2 IB/CTAs, 59 CPOs, 628 CTAs, and
46 CPO/CTAs.
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The Commission seeks comment about the total number of respondents
that it estimates may be impacted by the proposed rule, i.e., the
Commission's preliminary estimate of 809 potential respondents. In
particular, the Commission seeks comment as to the number of persons
who have registered or plan to register as CTAs, CPOs, and IBs in order
to serve the swap market exclusively and would be required to register
with the Commission as a result of their activity in uncleared swaps
(i.e., would not otherwise be captured by the aforementioned interplay
of CFTC Sec. Sec. 170.15 and 170.16 and NFA Bylaw 1101).
Information Collection Comments
The Commission invites the public and other Federal agencies to
comment on any aspect of the reporting burdens discussed above.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits comments
in order to: (1) Evaluate whether the proposed collection of
information is necessary for the proper performance of the functions of
the Commission, including the information will have practical utility;
(2) evaluate the accuracy of the Commission's estimate of the burden of
the proposed collection of information; (3) determine whether there are
ways to enhance the
[[Page 67081]]
quality, utility, and clarity of the information to be collected; and
(4) minimize the burden of the collection of information on those who
are to respond, including through the use of automated collection
techniques or other forms of information technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by email at
OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy
of submitted comments so that all comments can be summarized and
addressed in the final rule preamble. Refer to the ADDRESSES section of
this notice of proposed rulemaking for comment submission instructions
to the Commission. A copy of the supporting statements for the
collections of information discussed above may be obtained by visiting
RegInfo.gov. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this document in the Federal Register. Therefore, a comment is best
assured of having its full effect if OMB receives it within 30 days of
publication.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act \19\ requires that agencies consider
whether the rules they propose will have a significant economic impact
on a substantial number of small entities and, if so, provide a
regulatory flexibility analysis respecting the impact.
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\19\ 5 U.S.C. 601 et seq.
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1. CPOs
The Commission has previously determined that CPOs are not small
entities for purposes of the Regulatory Flexibility Act.\20\
Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not
have a significant economic impact on a substantial number of small
entities with respect to these entities.
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\20\ Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618, 18619 (Apr. 30, 1982).
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2. IBs and CTAs
The Commission has previously determined to evaluate within the
context of a particular rule proposal whether all or some IBs or CTAs
should be considered to be small entities and, if so, to analyze the
economic impact on them of any such rule.\21\
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\21\ See, with respect to commodity trading advisors, 47 FR at
18620, and see, with respect to IBs, Introducing Brokers and
Associated Persons of Introducing Brokers, Commodity Trading
Advisors and Commodity Pool Operators; Registration and Other
Regulatory Requirements, 48 FR 35276 (Aug. 3, 1983).
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Since there could be some small entities that register as IBs or
CTAs, the Commission is considering whether this rulemaking would have
a significant economic impact on these registrants. The proposed rules
would require all CTAs and IBs who register with the Commission to
become members of an RFA. As previously noted, this would require CTAs
and IBs to ``check a box'' on Form 7-R and ensure they are prepared for
an NFA audit.\22\ However, as discussed below, the Commission
preliminarily believes that any costs associated with preparing for an
audit by the NFA should not be substantially different from, or
significantly exceed, the costs associated with preparing for an audit
by the Commission, which every registered entity would already be
responsible to do.\23\ To the extent that this proposed rule only
pertains to CFTC registrants, the Commission preliminarily believes
that any audit-related costs incident to NFA membership would be
minimal, and should not have a significant economic impact on IBs,
CPOs, or CTAs that are small entities. Consequently, the Commission
finds that there is no significant economic impact on IBs or CTAs
resulting from this rulemaking.
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\22\ See infra note 28. As stated in the booklet titled ``NFA
Regulatory Requirements: For FCMs, IBs, CPOs, and CTAs,'' NFA audits
have two major objectives: (1) To determine whether the firm is
maintaining records in accordance with NFA rules and applicable CFTC
regulations; and (2) To ensure that the firm is being operated in a
professional manner and that customers are protected against
unscrupulous activities and fraudulent or high-pressure sales
practices.
\23\ The Commission believes that many of the recordkeeping
obligations associated with preparing with a NFA audit are already
required for Commission registrants. For example, Sections 4.23 and
4.33 of the Commission's Regulations are recordkeeping requirements
associated with registered CPOs and CTAs, respectively. Moreover,
given the average periodicity for NFA audits, the magnitude of
annual audit-related costs is limited.
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Accordingly, for the reasons stated above, the Commission
preliminarily believes that the proposal will not have a significant
economic impact on a substantial number of small entities. Therefore,
the Chairman, on behalf of the Commission, hereby certifies, pursuant
to 5 U.S.C. 605(b), that the proposed regulations being published today
by this Federal Register release will not have a significant economic
impact on a substantial number of small entities.
C. Considerations of Costs and Benefits
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before promulgating a regulation
under the CEA or issuing an order. Section 15(a) further specifies that
the costs and benefits shall be evaluated in light of the following
five broad areas of market and public concern: (1) Protection of market
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.
1. Background
As discussed above, prior to the Dodd-Frank Act, the intersection
of Sec. 170.15 and NFA Bylaw 1101 effectively required most CFTC-
registered intermediaries to be members of NFA. Because NFA Bylaw 1101
provides that NFA members transacting futures business on behalf of
customers cannot transact with non-members, and Sec. 170.15 requires
all FCMs to be NFA members, any IB, CPO, or CTA that engages with an
FCM is required to maintain NFA membership in order to transact in
futures.
In assessing the costs and benefits of the proposed rule, the
Commission, in consultation with the NFA, has identified the following
typical scenarios in which, under the current Commission regulations
and NFA rules, a firm is registered with the Commission, but is not an
NFA member:
A firm that is no longer in business, but subject to
Commission action, is prohibited from withdrawing its registration with
the Commission until after the Commission action is resolved, but,
since the firm no longer actively participates in the futures markets,
it has withdrawn its NFA membership (in other words, a firm has a
``withdrawal hold'');
A firm that is not ready to commence business as a CTA
and/or CPO first becomes registered in order to complete the more
complex process of being properly vetted for registration, and then
adds membership later when it is preparing to commence trading and to
submit a disclosure document to NFA for review;
When an NFA member firm no longer has at least one
principal who is registered as an AP of the firm, NFA rules provide
that the firm's membership can be withdrawn if the situation is not
corrected. If the firm does not re-attain NFA membership by adding a
new principal who is an AP of the firm, typically the firm's
registration is subsequently withdrawn as well;
CTAs that do not manage accounts consistent with the
parameters of
[[Page 67082]]
Sec. 4.14(a)(9) register with the Commission, but are not required to
become members of NFA and thus do not become members of NFA.
Moreover, the Dodd-Frank Act amended the CEA to establish a
comprehensive new regulatory framework for swaps markets. Accordingly,
an intermediary that was previously not required to register with the
Commission because its activities were limited to swaps may now be
required to register with the Commission. However, unlike futures
transactions, because some swaps can be entered into bilaterally and
not be cleared through a central counterparty (in other words, will not
necessarily require the use of an FCM, SD, or MSP), the intersection of
Sec. Sec. 170.15 and 170.16 and NFA Bylaw 1101 may not require an IB,
CPO, or CTA who transacts only in uncleared swaps to become a member of
an RFA.\24\
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\24\ Under the current Regulations and NFA bylaws, an IB, CPO,
and CTA who transacts only in uncleared swaps with another IB, CPO,
or CTA who similarly limits its transactions to uncleared swaps,
will not be required to become a member of NFA so long as both
parties are (1) not members of NFA and (2) continue to transact only
in uncleared swaps with similarly-situated entities.
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Proposed Sec. 170.17 would eliminate these gaps in the regulatory
oversight programs established by the Commission and NFA. In
conjunction with Sec. 170.15, which requires all FCMs to become
members of an RFA, and Sec. 170.16, which requires all SDs and MSPs to
become members of an RFA, the Commission is intending to create an
oversight regime that levels the playing field by ensuring consistent
treatment of all its registered intermediaries. The Commission
preliminarily believes that the proposed regulation is necessary to
ensure comprehensive regulation and equal oversight of all
intermediaries.
2. Costs
There would be certain costs associated with the proposed
regulation. First, affected CFTC registrants would be required to
become NFA members. The Commission understands that the process for a
current CFTC registrant to become an NFA member amounts to checking a
box on the CFTC registration form and updating some contact
information; thus, the Commission preliminarily believes the cost of
filing for membership to be less than one half-hour of labor.\25\
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\25\ See Form 7-R, https://www.nfa.futures.org/nfa-registration/templates-and-forms/form7-r.HTML. Applications forms for NFA
membership and Associate membership are incorporated in Forms 7-R
and 8-R. See NFA Membership and Dues, https://www.nfa.futures.org/nfa-registration/NFA-membership-and-dues.HTML.
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Affected entities would also be subject to certain membership fees.
The Commission understands that NFA imposes initial membership dues and
annual membership dues for IBs, CPOs, and CTAs. Currently, the initial
membership dues to become an NFA member are $750 for the first year,
and the annual dues to maintain membership are $750 per year
thereafter.\26\
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\26\ See NFA Membership and Dues, https://www.nfa.futures.org/nfa-registration/NFA-membership-and-dues.HTML.
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The Commission preliminarily believes that the rule may impose
certain compliance costs on affected entities. However, such costs
should not be substantially different from or significantly exceed the
costs associated with current Commission regulations. NFA members are
subject to periodic audits by NFA. The Commission understands that NFA
audits CPOs, CTAs and IBs every three to four years, but the frequency
may vary depending on NFA's risk analysis.\27\ The Commission also
understands that while the direct cost of the audit is covered by the
annual membership dues, members may incur indirect costs associated
with an on-site audit, e.g., preparing for the audit and providing
staff to assist NFA staff during the audit. The Commission has
authority to ensure all IBs, CTAs, and CPOs, registered with the
Commission are in compliance with Commission regulations applicable to
IBs, CTAs and CPOs as Commission registrants and to conduct on-site
examinations of the operations and activities of IBs, CTAs, and CPOs as
Commission registrants. Given the existing costs associated with
ongoing compliance and examinations under the Commission regulations
currently in effect, the Commission preliminarily believes that the
costs associated with preparing for an audit by the NFA should not be
substantially different from or significantly exceed the costs
associated with preparing for an audit by the Commission, which every
registered entity is already responsible to do (e.g., have properly
prepared and maintained books and records available for examination at
all times).\28\ All affected entities should expect to incur costs
necessary to work with NFA to facilitate regulatory audits.\29\
Therefore, the Commission preliminarily believes that IBs, CPOs, and
CTAs covered by the proposed rule may incur few, if any, additional
audit-related costs by virtue of their NFA membership.
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\27\ The Commission notes that the NFA states that it seeks to
audit all new registrants within the first year of NFA membership,
and periodically thereafter. See https://www.nfa.futures.org/nfa-faqs/compliance-faqs/audits/.
\28\ Entities that will become Commission registrants for the
first time should expect to incur the costs of ensuring they are
adequately prepared for an on-site examination by the Commission.
Such costs, however, are not attributable to the present rule
proposal.
\29\ NFA provides a booklet titled ``NFA Regulatory
Requirements: For FCMs, IBs, CPOs, and CTAs,'' the NFA Manual, CFTC
Regulations, and the ``Self-Examination Checklist,'' which all NFA
must complete on a yearly basis. All are available on NFA's Web site
at www.nfa.futures.org.
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Likewise, with respect to general, ongoing compliance costs, the
Commission preliminarily believes that NFA membership would impose few
additional costs on subject IBs, CPOs, and CTAs, because as Commission
registrants, these participants would already be subject to the
majority of regulations that NFA is responsible to enforce.
Specifically, in its capacity as an SRO, NFA would act, in respect of
entities subject to the proposed rule, as the frontline regulator for
the programs required by Section 17 of the CEA and the regulations
thereunder. Section 17 and those regulations, however, are applicable
to subject entities, independent of whether they are NFA members.
Accordingly, in the main, entities would not incur any additional
general, ongoing compliance costs as a result of NFA membership.
However, in certain limited situations, there may be costs associated
with being an NFA member in excess of those costs incurred for being
registered with the Commission. For example, the Commission's capital
rules require that registered IBs maintain adjusted net capital equal
to or in excess of the greatest of $45,000 [or] the amount of adjusted
net capital required by a registered futures association of which it is
a member.\30\ However, section 5 of the NFA Manual sets forth the
following capital requirements for member IBs:
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\30\ See 17 CFR 1.17(a)(1)(iii).
(a) Each Member IB, except an IB operating pursuant to a
guarantee agreement which meets the requirements set forth in CFTC
Regulation 1.10(j), must maintain Adjusted Net Capital (as defined
in CFTC Regulation 1.17) equal to or in excess of the greatest of:
(i) $45,000;
(ii) For Member IBs with less than $1,000,000 in Adjusted Net
Capital, $6,000 per office operated by the IB (including the main
office);
(iii) For Member IBs with less than $1,000,000 in Adjusted Net
Capital, $3,000 for each AP sponsored by the IB.\31\
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\31\ NFA's manual is available at https://www.nfa.futures.org/nfamanual/NFAManual.aspx?RuleID=SECTION%205&Section=7.
Therefore, while the Commission preliminarily believes, as noted
above, that comprehensive and effective market oversight conducted by
NFA would
[[Page 67083]]
enhance market oversight and promote effective implementation of the
CEA, the Commission recognizes that in certain limited situations, the
requirements to be an NFA member may be more stringent, and potentially
most costly to comply with, than the requirements associated with being
registered with the Commission. The Commission requests comment on
whether there are any additional situations similar to the example
described above where the costs associated with NFA membership diverge
from the costs of Commission registration.
The Commission contacted NFA to determine the number of IBs, CPOs,
and CTAs that would be directly impacted by this rule (i.e., currently
registered with the Commission, but not currently members of NFA). NFA
indicated to the Commission that, as of April 11, 2013, there were 756
non-FCM firms that are registered with the Commission, but are not NFA
members.\32\ Large percentages of the identified IBs, IB/CPOs, IBs/
CTAs, and CPOs --90%, 100%, 100% and 66%, respectively--are firms that
are subject to a withdrawal hold. A smaller percentage of CPOs/CTAs
(46%) and CTAs (4%) also fit within this category. This category of
entities--i.e., those intermediaries that are subject to a withdrawal
hold--should not be affected by the proposed regulations because they
are, in the majority of cases, no longer in business, and, in any case,
are not actively trading.
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\32\ See supra note 18.
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Relying on the information provided by NFA, the Commission
estimates that a combined 652 entities are CFTC registrants because of
the activities that qualify them as a CPO, CTA or IB, but are not NFA
members, equating to an initial cost to the industry of approximately
$489,000.\33\ In addition, the Commission anticipates a small cost to
each firm to update the firm's registration statement and other
paperwork necessary to become an NFA member. The Commission estimates
annual ongoing cost to the industry of the same amount ($489,000) \34\
plus the indirect costs of the periodic audits, which the Commission
cannot estimate at this time due to the entity-specific nature of the
indirect costs incurred.
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\33\ See supra note 18. Specifically, the 652 figure is
calculated by adding the following (as of April 11, 2013): 2 IBs, 20
CPOs, 605 CTAs, and 25 CPO/CTAs. To arrive at the monetary estimate,
the 652 figure was multiplied by the $750.00 per-entity initial
cost. The Commission notes, however, that some entities currently
registered with the Commission may withdraw their registration
because they are inactive in derivatives markets or for some other
reason. As a result, the total number of affected entities may be
reduced, and corresponding total costs associated with the proposed
rule may be lower.
\34\ Id.
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The Commission also asked NFA for estimates regarding the number of
future IBs, CPOs, and CTAs who will be required to register for the
first-time with the Commission because of their swaps activity. NFA
indicated that 53 firms that have applied for or have been approved for
Commission registration have indicated they participate exclusively in
the swaps markets.\35\ However, the Commission estimates that this
number may increase after certain regulations affecting the
registration status of swaps entities come into effect.\36\ Moreover,
as described above, this regulation would directly affect the subset of
these new entities required to register for the first time because they
are active exclusively in the uncleared swaps market and engage with
similarly-situated entities. The Commission preliminarily believes that
many entities have yet to apply for registration under the Commission's
new swaps market regime, and as such the Commission is not yet able to
accurately determine the exact number of new registrants that will be
affected by the proposed regulation.
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\35\ See supra note 17. NFA indicated that on April 11, 2013, it
had approved 52 firms that deal exclusively in swaps for
registration as an IB, CPO, or CTA and that the IB, CPO, or CTA
registration of 1 additional firm that deals exclusively in swaps is
currently pending.
\36\ For example, the Commission's final definition of the term
``U.S. Person'' as it relates to cross-border swap transactions
could dramatically affect the number of market participants required
to register with the Commission.
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The Commission requests comment on all aspects of its preliminary
consideration of costs. Has the Commission accurately identified the
costs of this proposed regulation? Are there other costs to the
Commission, market participants, and/or the American public that may
result from the adoption of the proposed regulation that the Commission
should consider? The Commission seeks specific comment on the
following:
How many IBs, CPOs, and CTAs will be affected by the
proposed regulation?
How many entities are active only in the uncleared swaps
markets and plan to register with the Commission--and so would need to
become members of NFA as a result of the proposed regulation?
What are the costs of an NFA audit? Please identify and,
where possible, quantify such costs. Do the types of costs or amount of
costs vary depending on whether the audit is online or onsite? Do
market participants bear different costs with respect to NFA's periodic
audits versus daily audits?
Would the proposed rule result in ongoing compliance costs
beyond those an entity would face as a result of being registered with
the Commission? Are there any costs of NFA membership beyond those an
entity would face as a result of being registered with the Commission?
Are there other costs of NFA membership that the
Commission should consider?
3. Benefits
The proposed regulation would enable the Commission to carry out
its obligations pursuant to Section 17 of the CEA to delegate certain
oversight responsibility for intermediaries, including IBs, CPOs, and
CTAs, to an RFA. As described above, the NFA cannot enforce its rules
over registrants who do not become NFA members, and existing
regulations would not require all IBs, CPOs, and CTAs to become NFA
members. Thus, the Commission proposed new Sec. 170.17 to require IBs,
CPOs, and CTAs to become NFA members analogously to how Sec. 170.15
presently requires FCMs to become NFA members and how Sec. 170.16
requires the same of SDs and MSPs. In so doing, the Commission
preliminarily believes it would ensure a level regulatory playing field
for all registered intermediaries. The proposed rule would enable the
NFA to apply its experience as a SRO to oversee all registered IBs,
CPOs, and CTAs.
In addition, the Commission preliminarily believes that by
requiring membership in an RFA, the proposed rule would result in a
more efficient deployment of agency resources which would otherwise
have to be used to oversee these registrants who would, without this
rule, not be overseen by NFA.
Moreover, by requiring all registered IBs, CPOs and CTAs to become
NFA members, the public would benefit from NFA's developed set of rules
and oversight capabilities to ensure the integrity of the swaps market
and its participants. This increase in market integrity may lead to a
corresponding increase in market participation as the public and market
participants grow more confident in the safety of these markets. The
Commission preliminarily believes that the proposed regulation would
ensure that NFA has the authority necessary to fulfill its delegated
responsibilities to provide regulatory oversight and promote market
integrity.
The Commission requests comment on all aspects of its preliminary
[[Page 67084]]
consideration of benefits. Has the Commission accurately identified the
benefits of this proposed regulation? Are there other benefits to the
Commission, market participants, and/or the public that may result from
the adoption of the proposed regulation that the Commission should
consider?
4. Section 15(a)
Section 15(a) of the CEA requires the Commission to consider the
effects of its actions in light of the following five factors:
a. Protection of Market Participants and the Public
The proposed regulation would protect the public by ensuring that
all registered intermediaries are subject to the same level of
comprehensive NFA oversight. Because the entities affected by the
proposed regulation act as intermediaries for clients, it is imperative
that these entities be subject to proper oversight in order to protect
customers from wrongdoing.
The Commission seeks comment as to how market participants and the
public may be protected by the proposed regulation.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
The proposed regulation would act to create a more level playing
field for intermediaries, ensuring that all such registered entities
are subject to the same level of oversight and regulatory
responsibility. In so doing, the Commission preliminarily believes the
integrity of markets would be enhanced.
The Commission seeks comment as to how the proposed regulation may
promote the efficiency, competitiveness, and financial integrity of
markets.
c. Price Discovery
The Commission has not identified an impact on price discovery as a
result of the proposed regulation, but seeks comment as to any
potential impact. Will proposed Sec. 170.17 impact, positively or
negatively, the price discovery process?
d. Sound Risk Management
The Commission has not identified an impact on the risk management
decisions of market participants as a result of the proposed
regulation, but seeks comment as to any potential impact. Will proposed
Sec. 170.17 impact, positively or negatively, the risk management
procedures or actions of intermediaries?
e. Other Public Interest Considerations
The Commission preliminarily believes that proposed Sec. 170.17
may promote public confidence in the integrity of derivatives markets
by ensuring consistent and adequate regulation and oversight of all
intermediaries. Will proposed Sec. 170.17 impact, positively or
negatively, any heretofore unidentified matter of interest to the
public?
List of Subjects in 17 CFR Part 170
Authority delegations (Government agencies), Commodity futures,
Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR part 170 as follows:
PART 170--REGISTERED FUTURES ASSOCIATIONS
0
1. The authority citation for part 170 is revised to read as follows:
Authority: 7 U.S.C. 6p, 12a, and 21.
Subpart C--Membership in a Registered Futures Association
0
2. In subpart C, add Sec. 170.17 to read as follows:
Sec. 170.17 Introducing Brokers, Commodity Pool Operators, and
Commodity Trading Advisors.
Each person registered as an introducing broker, commodity pool
operator, or commodity trading advisor must become and remain a member
of at least one futures association that is registered under Section 17
of the Act and that provides for the membership therein of such
introducing broker, commodity pool operator, or commodity trading
advisor, as the case may be, unless no such futures association is so
registered.
Issued in Washington, DC, on November 5, 2013, by the
Commission.
Melissa D. Jurgens,
Secretary of the Commission.
Appendix to Membership in a Registered Futures Association--Commission
Voting Summary
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Chilton,
O'Malia, and Wetjen voted in the affirmative; no Commissioner voted
in the negative.
[FR Doc. 2013-26790 Filed 11-7-13; 8:45 am]
BILLING CODE 6351-01-P
