Technical Amendments to Rules on Registration and Review of Exchange Disciplinary, Access Denial, or Other Adverse Actions, 1538-1548 [2018-00467]
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Federal Register / Vol. 83, No. 9 / Friday, January 12, 2018 / Rules and Regulations
Class D and E airspace designations
are published in paragraph 5000, and
6005, respectively, of FAA Order
7400.11B dated August 3, 2017, and
effective September 15, 2017, which is
incorporated by reference in 14 CFR
71.1. The Class E airspace designations
listed in this document will be
published subsequently in the Order.
Availability and Summary of
Documents for Incorporation by
Reference
Adoption of the Amendment
ACTION:
In consideration of the foregoing, the
Federal Aviation Administration
amends 14 CFR part 71 as follows:
SUMMARY:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
1. The authority citation for part 71
continues to read as follows:
■
This document proposes to amend
FAA Order 7400.11B, Airspace
Designations and Reporting Points,
dated August 3, 2017, and effective
September 15, 2017. FAA Order
7400.11A is publicly available as listed
in the ADDRESSES section of this
document. FAA Order 7400.11B lists
Class A, B, C, D, and E airspace areas,
air traffic service routes, and reporting
points.
Authority: 49 U.S.C. 106(f), 106(g); 40103,
40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR,
1959–1963 Comp., p. 389.
§ 71.1
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of Federal Aviation
Administration Order 7400.11B,
Airspace Designations and Reporting
Points, dated August 3, 2017, effective
September 15, 2017, is amended as
follows:
■
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The Rule
Paragraph 5000
Class D Airspace.
This action amends Title 14 Code of
Federal Regulations (14 CFR) part 71 by
removing Class E airspace designated as
an extension to a Class D surface area at
Felker Army Airfield, Fort Eustis, VA,
due to the decommissioning of the
Felker NDB and cancellation of the NDB
approach, and for continued safety and
management of IFR operations at the
airport. The geographic coordinates of
the airport are adjusted under Class D to
coincide with the FAA’s aeronautical
database.
Additionally, this action removes the
words ‘‘(formerly the Airport/Facility
Directory)’’ from the Class D airspace
legal description.
The FAA has determined that this
regulation only involves an established
body of technical regulations for which
frequent and routine amendments are
necessary to keep them operationally
current. Therefore, this regulation: (1) Is
not a ‘‘significant regulatory action’’
under Executive Order 12866; (2) is not
a ‘‘significant rule’’ under DOT
Regulatory Policies and Procedures (44
FR 11034; February 26, 1979); and (3)
does not warrant preparation of a
regulatory evaluation as the anticipated
impact is so minimal. Since this is a
routine matter that only affects air traffic
procedures and air navigation, it is
certified that this rule, when
promulgated, does not have a significant
economic impact on a substantial
number of small entities under the
criteria of the Regulatory Flexibility Act.
*
*
Lists of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
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*
*
*
AEA VA D Fort Eustis, VA [Amended]
Felker Army Airfield, Fort Eustis, VA
(Lat. 37°07′57″ N, long. 76°36′32″ W)
That airspace extending upward from the
surface to and including 2,500 feet MSL
within a 4.4-mile radius of Felker Army
Airfield, excluding the portion that coincides
with the Newport News, VA, Class D airspace
area. This Class D airspace area is effective
during specific dates and times established in
advance by a Notice to Airmen. The effective
dates and times will thereafter be published
continuously in the Chart Supplement.
Paragraph 6004 Class E Airspace
Designated as an Extension to a Class D
Surface Area.
*
*
*
AEA VA E4
*
*
Fort Eustis, VA [Removed]
Issued in College Park, Georgia, on January
4, 2018.
Ryan W. Almasy,
Manager, Operations Support Group, Eastern
Service Center, Air Traffic Organization.
[FR Doc. 2018–00397 Filed 1–11–18; 8:45 am]
BILLING CODE 4910–13–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 3 and 9
RIN 3038–AE15
Technical Amendments to Rules on
Registration and Review of Exchange
Disciplinary, Access Denial, or Other
Adverse Actions
Commodity Futures Trading
Commission.
AGENCY:
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Final rule.
The Commodity Futures
Trading Commission (‘‘CFTC’’ or
‘‘Commission’’) is adopting certain
amendments to its rules that,
respectively, govern registration of
intermediaries and relate to the
Commission’s review of exchange
disciplinary, access denial, or other
adverse actions. Generally speaking,
these amendments are technical in
nature. The amendments to both areas
of the rules integrate existing advisory
guidance. The amendments to the rules
on review of exchange disciplinary,
access denial, or other adverse actions
also incorporate swap execution
facilities (‘‘SEFs’’) and update
provisions currently applicable to
designated contract markets (‘‘DCMs’’).
These final rules also remove numerous
outdated cross-references, and add
citations to applicable parallel
provisions contained in other
Commission regulations pertaining to
SEFs and DCMs. Additionally, the final
rules address the publication of final
disciplinary and access denial actions
taken by the SEFs and DCMs on their
exchange websites.
This final rule is effective March
13, 2018.
DATES:
FOR FURTHER INFORMATION CONTACT:
Rachel Berdansky, Deputy Director,
202–418–5429 or rberdansky@cftc.gov;
David Steinberg, Associate Director,
202–418–5102 or dsteinberg@cftc.gov;
Division of Market Oversight,
Commodity Futures Trading
Commission, Three Lafayette Centre,
1151 21st Street NW, Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Description of Part 9
B. DCM Final Rules and Part 8 Removal
C. SEF Final Rules
II. Summary of the Proposal
A. Amendments to Part 9: Rules Relating
to Review of Exchange Disciplinary,
Access Denial or Other Adverse Actions
B. Amendment to Regulation 3.31:
Deficiencies, Inaccuracies, and Changes
To Be Reported
III. Comments on the Proposal
IV. Final Rules and Notice and Order
A. Final Rules
B. Deletion of References to Commission
Form 3–R
C. Notice and Order
V. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
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Federal Register / Vol. 83, No. 9 / Friday, January 12, 2018 / Rules and Regulations
I. Background
A. Description of Part 9
On December 20, 1978, the
Commission adopted part 9 rules
relating to the Commission’s review of
exchange disciplinary, access denial, or
other adverse actions.1 These rules
detail the process and procedures for
Commission review, including the
appellate process in cases where a
person applies to the Commission for
review. The rules also address the
procedures and standards governing
filing and service, motions, and
settlement; the process that exchanges
must follow in providing notice of the
final disciplinary action to the subject of
the action and to the Commission; and
the publication of such notice. As
discussed below, DCMs and SEFs are
already required to comply with the part
9 regulations.
B. DCM Final Rules and Part 8 Removal
In June 2012, the Commission
adopted final regulations for DCMs
(‘‘DCM Final Rules’’).2 Commission
regulation 38.2 of the DCM Final Rules
provides that DCMs ‘‘shall comply with
all applicable regulations under Title 17
of the Code of Federal Regulations,’’
except for certain exempt provisions.3
Part 9 applies to DCMs by defining
‘‘exchange’’ in Commission regulation
9.2(c) for purposes of the rules as ‘‘any
board of trade which has been
designated as a contract market.’’ 4
Additionally, in the DCM Final Rules,
the Commission adopted regulations in
Subpart N—Disciplinary Procedures of
part 38 to amend the disciplinary
procedures applicable to DCMs.5
Several of the regulations adopted in
subpart N of part 38 are similar to the
text of the disciplinary procedures
found in former part 8—exchange
procedures for disciplinary, summary,
and membership denial actions.6 The
Commission removed part 8 from the
regulations in order to avoid any
confusion from having two sets of
disciplinary procedures for DCMs.7 As a
1 43
FR 59343 (Dec. 20, 1978).
Principles and Other Requirements for
Designated Contract Markets, 77 FR 36612 (June 19,
2012).
3 Id. at 36697; 17 CFR 38.2. Part 9 is not included
in the list of exempt provisions.
4 17 CFR 9.2(c).
5 17 CFR 38.700 through 38.712.
6 43 FR 41950 (Sept. 19, 1978); 17 CFR 38.700
through 38.712. For example, part 8 contained
regulations 8.05 (Enforcement staff); 8.08
(Disciplinary committee); and 8.20 (Final decision).
Subpart N of part 38 has corresponding provisions:
38.701 (Enforcement staff); 38.702 (Disciplinary
panels); and 38.709 (Final decisions).
7 Although Commission regulation 38.2 of the
DCM Final Rules specifies that DCMs are not
required to comply with part 8, the Commission
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result of this removal, the current part
9 rules, which contain cross-references
to part 8 throughout, are being updated
in the final rules to instead cite to
parallel provisions now contained in
part 37 for SEFs and part 38 for DCMs.
C. SEF Final Rules
On June 4, 2013, the Commission
adopted new rules in part 37 for SEFs
(‘‘SEF Final Rules’’).8 In regulation 37.2
of the SEF Final Rules, the Commission
specified that SEFs shall comply with
the requirements of part 9.9
Accordingly, for clarity purposes, the
final rules amend certain part 9
definitions and language which have
not yet been addressed, to integrate
them into the post-Dodd-Frank
regulatory regime.
II. Summary of the Proposal
A. Amendments to Part 9: Rules
Relating to Review of Exchange
Disciplinary, Access Denial or Other
Adverse Actions
On January 23, 2017, the Commission
published a Notice of Proposed
Rulemaking (‘‘NPRM’’ or ‘‘Proposal’’) to
amend certain part 3 and part 9 rules.10
As discussed in the NPRM, most of the
amendments are purely ministerial—for
instance, some of the proposed changes
updated definitions in Commission
regulation 9.2 to conform them to the
Commodity Exchange Act (‘‘CEA’’ or
‘‘Act’’) as amended by the Dodd-Frank
Act as well as other sections of the
Commission’s regulations.11
The Commission proposed to amend
the definitions of four terms in
regulation 9.2. First, the Commission
proposed to amend the definition of
‘‘disciplinary action’’ by removing the
reference to ‘‘member of an exchange’’
and inserting ‘‘person’’ in its place.12
The Commission explained in the
NPRM that it is necessary to expand the
‘‘disciplinary action’’ definition to
account for instances where an
exchange imposes sanctions against a
person that is not a member of the
exchange.13 The proposed language to
include ‘‘person’’ in the ‘‘disciplinary
removed part 8 to avoid any confusion resulting
from the regulations containing two sets of
exchange disciplinary procedures as part of the
Adaptation of Regulations to Incorporate Swaps
Rulemaking. 17 CFR 38.2; and removal of part 8 at
77 FR 66304 (Nov. 2, 2012).
8 Core Principles and Other Requirements for
Swap Execution Facilities, 78 FR 33476 (June 4,
2013).
9 See id. 33479; 17 CFR 37.2.
10 82 FR 7738 (Jan. 23, 2017).
11 Id. at 7740.
12 The Commission also proposed to amend the
disciplinary action definition by removing the
reference to regulation 8.03(i).
13 82 FR 7741 (Jan. 23, 2017).
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1539
action’’ definition is consistent with the
statutory language found in Core
Principle 2 for DCMs and section 8c(b)
of the CEA, as amended by the DoddFrank Act.14 Second, the Commission
proposed to amend the definition of
‘‘exchange’’ in regulation 9.2(c) to
include SEFs. This change makes it
clear that the Commission has the
discretion to review adverse actions
imposed by a SEF and clarify that SEFs
are subject to all of the part 9
requirements.15 Third, the Commission
proposed to amend regulation 9.2(f) to
expand the definition of ‘‘member of an
exchange’’ to include any person who
has trading privileges on an exchange.
This change is necessary to conform the
part 9 definition of ‘‘member’’ to the
meaning set forth in section 1a(34) of
the CEA and in 1.3(q) of the
Commission’s regulations.16 Fourth, the
Commission proposed to amend the
definition of ‘‘summary action’’ in
regulation 9.2(k) by adding references to
part 37 for SEFs and replacing the part
8 references with the relevant
provisions from part 38.17
14 Section 735 of the Dodd-Frank Act amends
section 5 of the CEA, including DCM Core Principle
2. Paragraph (B)—Capacity of Contract Market—of
Core Principle 2 specifically requires that the board
of trade shall have the capacity to detect,
investigate, and apply appropriate sanctions to any
person that violates any rule of the contract market.
Section 8c(b) of the CEA, 7 U.S.C. 12c(b), provides
that the Commission may, in its discretion and in
accordance with such standards and procedures as
it deems appropriate, review any decision by an
exchange whereby a person is suspended, expelled,
disciplined, or denied access to the exchange. In
addition, section 8c(b) of the CEA provides that the
Commission may, in its discretion and upon
application of any person who is adversely affected
by any other exchange action, review such action.
15 Id. The Commission notes that regulation 37.2
requires, among other things, that a SEF shall
comply with the part 9 regulations. 17 CFR 37.2.
Additionally, footnote 40 of the SEF Final Rules
states ‘‘the term ‘exchange’ used in part 9 of the
Commission’s regulations should be interpreted to
include a SEF for purposes of applying the
requirements of part 9 to a SEF.’’ 78 FR 33476,
33479 (June 4, 2013).
16 Section 1a(34) of the CEA provides that the
term ‘‘member’’ means, among other things, an
individual, association, partnership, corporation, or
trust having trading privileges on the registered
entity. See also 17 CFR 1.3(q). By amending the
definition of ‘‘member of an exchange’’ to include
all persons with trading privileges, the Commission
is clarifying that the appellate process and
Commission review, as defined in part 9, applies to
all persons with trading privileges.
17 Specifically, the proposed definition of
‘‘summary action’’ means a disciplinary action
resulting in the imposition of a penalty on a person
for violation of rules of the exchange permitted
under the provisions of part 37, appendix B, Core
Principle 2, section (a)(10)(vi) or part 38, appendix
B, Core Principle 13, section (a)(4) (penalty for
impeding progress of hearing); part 37, appendix B,
Core Principle 2, section (a)(14) or part 38,
appendix B, Core Principle 13, section (a)(7)
(emergency disciplinary actions); part 37, appendix
B, Core Principle 2, section (a)(13) (summary fines
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The Commission also proposed to
amend regulation 9.11(a) to remove the
requirement that an exchange provide
written notice to the Commission of a
final disciplinary action or access denial
action and replace it with a requirement
to provide notice to the National
Futures Association (‘‘NFA’’). As
explained in the NPRM, the
Commission delegated authority to the
NFA in 1999 to receive and process
exchange disciplinary and access denial
information (‘‘Part 9 Delegation’’).18
Consequently, the NFA currently serves
as the official custodian of records for
exchange disciplinary filings. The
Commission noted in the NPRM that it
intends to amend the Part 9 Delegation
order, consistent with the requirement
that exchanges provide exchange
disciplinary and access denial
information to the NFA.19 In 1999,
concurrent with the Part 9 Delegation,
the Commission also published an
advisory permitting exchanges to file
§ 9.11 notices with the Commission or
the NFA (‘‘Part 9 Advisory’’).20 The
Commission proposed to codify the Part
9 Advisory and formally replace the
regulation 9.11 requirement that written
notice be provided to the Commission
by amending § 9.11 to require that
notice be provided to the NFA via the
NFA’s BASIC system and eliminate the
option of filing the notice with the
Commission.
The Commission proposed an
amendment to regulation 9.11(b)(3)(ii)
by adding the type of product (as
applicable) involved in the adverse
action as an additional element required
to be included in the contents of the
notice. The Commission stated in the
NPRM that requiring exchanges to
provide this information in the § 9.11
notice will provide the Commission,
market participants, the public, and
other exchanges with greater
transparency concerning where market
abuses originate and whether the abuses
are concentrated among certain product
types.21 The Commission also proposed
for violations of rules regarding timely submission
of records); or part 38, appendix B, Core Principle
13, section (a)(6) (summary fines for violations of
rules regarding timely submission of records,
decorum, or other similar activities).
18 82 FR 7741 (Jan. 23, 2017). The NFA created
the Background Affiliation Status Information
Center (‘‘BASIC’’) system through which the public
can access information pertaining to the types of
violations committed, penalties imposed, the
effective date of the action, and, in some cases, the
text from the exchange’s decision.
19 Id.
20 64 FR 39915 (July 23, 1999) (‘‘Part 9
Advisory’’).
21 For example, a product trading on a DCM might
be specified as a July 2016 Eurodollar future; while
a product trading on a SEF may be a CDX North
American High Yield Series 26 5 year.
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to amend regulation 9.11(b)(3)(ii) by
codifying the clarification contained in
the Part 9 Advisory that an exchange
indicate in its notice of disciplinary or
access denial actions whether the
violation underlying the notice resulted
in financial harm to any customers.22
The Commission also proposed to
amend regulation 9.11(c) by deleting
instructions for filing notice with the
Commission and replacing them with
instructions for filing notice with the
NFA given the proposed changes to
regulation 9.11(a) discussed above. The
NPRM provided that filing of the notice
with the NFA is accomplished when an
authorized exchange employee verifies
the accuracy of the information entered
into BASIC.
The Commission proposed to amend
regulation 9.11(d), which sets forth the
effect of delivery and filing by mail, by
deleting instructions related to filing
notices with the Commission by mail
since proposed regulation 9.11(c) calls
for notice filings to be made to the NFA
via BASIC instead of with the
Commission by mail.
Pursuant to Commission regulation
9.12(b), an exchange that determines
that a disciplinary action will become
effective prior to the expiration of 15
days after written notice to the person
that is the subject of such action must
provide notification in writing either
personally or by telegram or other
means of written telecommunication.
The exchange also must immediately
notify the Commission by telegram or
other means of written
telecommunication. The Commission
proposed to modernize regulation
9.12(b) by replacing references to
‘‘telegram or other means of written
telecommunication’’ with the term
‘‘email’’ and provide a Commission
email address for Commission
notification.
Commission regulation 9.13 provides
that whenever an exchange suspends,
expels or otherwise disciplines, or
denies any person access to the
exchange, it must make its findings
public by disclosing at least the
information contained in the
Commission regulation 9.11(b) notice.
An exchange also must make such
findings public as soon as the
disciplinary action or access denial
action becomes effective by posting a
notice in a conspicuous place on its
premises. As noted in the NPRM,
posting a notice of disciplinary action
on the premises of an exchange does
little to publicize the action.23
Accordingly, the Commission proposed
22 64
23 82
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FR 39917 (July 23, 1999).
FR 7743 (Jan. 23, 2017).
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to modernize regulation 9.13 by
requiring the notice to be posted on an
exchange’s website to which its
members, market participants, and the
public regularly have access.24 The
Commission also proposed to amend
regulation 9.13 by requiring the notice
to be maintained and readily available
on an exchange’s website.25 As a result,
the existing requirement to maintain
and make available for public
inspection a record of the information
contained in the disciplinary or access
denial notice would be eliminated.
The Commission also noted in the
NPRM that it anticipates that upon the
effective date of the final part 9 rules, it
will include links on its SmartCheck
website to each exchange’s website for
posting notice of disciplinary action or
access denial action.26
B. Amendment to Regulation 3.31:
Deficiencies, Inaccuracies, and Changes
To Be Reported
Pursuant to Commission regulation
3.31, an applicant or registrant as a
futures commission merchant (‘‘FCM’’),
retail foreign exchange dealer (‘‘RFED’’),
swap dealer (‘‘SD’’), major swap
participant (‘‘MSP’’), commodity trading
advisor (‘‘CTA’’), commodity pool
operator (‘‘CPO’’), introducing broker
24 The Commission noted in the NPRM that many
DCMs have already adopted more modern methods
to publicize notices of disciplinary action. 82 FR
7743 (Jan. 23, 2017). For example, the CME Group
DCMs (Chicago Board of Trade (‘‘CBOT’’), Chicago
Mercantile Exchange (‘‘CME’’), Commodity
Exchange, Inc., (‘‘COMEX’’), and New York
Mercantile Exchange, Inc. (‘‘NYMEX’’)) and ICE
Futures U.S. notify subscribers of exchange
disciplinary postings via email. The Commission
also noted that the amendment generally tracks the
Securities and Exchange Commission’s (‘‘SEC’’)
standards for Release of Disciplinary Complaints,
Decisions and Other Information in Financial
Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rule
8313, in which FINRA, with SEC approval, has
established its standard for releasing to the public
a copy of FINRA issued disciplinary complaints,
decisions, and other disciplinary information. See
FINRA Rule 8313 ‘‘Release of Disciplinary
Complaints, Decisions and Other Information,’’
available at https://finra.complinet.com/en/display/
display_main.html?rbid=2403&element_id=3892.
See also SEC Release No. 34–69825; File No. SR–
FINRA–2013–018 (June 21, 2013).
25 Some DCMs currently maintain records of
disciplinary action on their websites. For example,
CBOE Futures Exchange, LLC maintains a
disciplinary decision database on its website that
allows the public to review disciplinary decisions
dating back to 2012. The Commission notes that in
the securities industry, the New York Stock
Exchange maintains disciplinary notices as far back
as 1972.
26 82 FR 7743 (Jan. 23, 2017). In November 2014,
the CFTC launched the SmartCheck website. It
connects investors to tools to check the registration,
license, and disciplinary history of certain financial
professionals. This collection of tools allows the
responsible investor to confirm the credentials of
investment professionals, uncover any past
disciplinary history, and stay ahead of scam artists
with news and alerts.
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Federal Register / Vol. 83, No. 9 / Friday, January 12, 2018 / Rules and Regulations
(‘‘IB’’), or floor trader (‘‘FT’’) that is a
non-natural person or leverage
transaction merchant (‘‘LTM’’) must
promptly correct any deficiency or
inaccuracy in Form 7–R or Form 8–R
which has rendered the information
contained therein non-current or
inaccurate. These corrections must be
made in accordance with the
instructions of each form to create a
Form 3–R record of such change.
In 1999, concurrent with the Part 9
Delegation and Part 9 Advisory, the
Commission issued an advisory
pertaining to part 3 of the Commission’s
regulations (‘‘Part 3 Advisory’’). The
Part 3 Advisory relieves registrants and
applicants for registrant status from
filing the Form 3–R if the information to
be reported is solely the result of an
exchange disciplinary or access denial
action.27 In 2012, the Commission
eliminated the requirement that
registrants and individuals use Form 3–
R to update their existing Form 7–R or
8–R and provided that an update to a
registrant’s online Form 7–R or 8–R
would automatically create a record of
changes equivalent to a completed Form
3–R.28 The Commission proposed to
codify the Part 3 Advisory by amending
regulation 3.31(a)(1) with language that
relieves applicants or registrants from
the obligation to update their Form 7–
R or 8–R if the information to be
reported is solely the result of an
exchange disciplinary or access denial
action.
III. Comments on the Proposal
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The comment period for the Proposal
ended on March 24, 2017. The
Commission received one comment
letter.29 The Minneapolis Grain
Exchange (‘‘MGEX’’) generally
supported the Proposal while offering
some suggestions for certain provisions.
27 The Part 3 Advisory also explains that the
Commission has: (1) Permitted exchanges (via the
Part 9 Advisory) to file either electronic or written
§ 9.11 notices with the NFA instead of the
Commission and (2) delegated to the NFA (via the
Part 9 Delegation) the duty to receive and process
exchange disciplinary and access denial action
information filed by the exchanges in accordance
with Commission regulation 9.11. The Commission
further explained that, as a result of the Part 9
Advisory and Part 9 Delegation, the NFA possesses
the exchange disciplinary and access denial action
information that registrants and applicants for
registrant status would otherwise be required to
include in Form 3–R. Therefore, to avoid
duplicative reporting, the Part 3 Advisory advises
all individuals and entities subject to Commission
regulation 3.31 that they are relieved from
Commission regulation 3.31 reporting obligations
resulting from an exchange disciplinary or access
denial action and reported by an exchange pursuant
to a § 9.11 notice. 64 FR 39912 (July 23, 1999).
28 77 FR 51898 (Aug. 28, 2012).
29 See https://comments.cftc.gov/Public
Comments/CommentList.aspx?id=1776.
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MGEX agreed with the Commission’s
general approach to modernize
permitted methods of communication.
For example, MGEX cited the language
in proposed regulation 9.11(c) that
would require an exchange only to
verify that information entered into
NFA’s BASIC system instead of mailing
a notice to the Commission as a positive
change. MGEX also favorably cited
proposed regulation 9.12(b) that would
permit an exchange to email notice of an
early effective date of disciplinary
action instead of mailing it or by
telegram. MGEX noted these changes
reduce burdens and suggested that the
Commission make similar changes to
proposed regulations 9.11(c) and (d) to
allow an exchange to email a
disciplinary or access denial notice to
the person subject to the action.
MGEX agreed that an exchange
should publish notices of certain
disciplinary actions on its website.
However, MGEX requested that an
exchange have flexibility regarding how
it fulfills this obligation. In particular,
MGEX requested that regulation 9.13 be
amended to ensure that an exchange has
flexibility over the format, style, and
location of the notice on its website, as
well as any ancillary website relating to
the publication of such notices. MGEX
stated that an exchange should be able
to archive notices on its website after a
reasonable period of time. MGEX noted
that archived notices should be
accessible, but an exchange should have
discretion to maintain them separately
on its website. In addition, MGEX
indicated that there may be situations
where removing a notice from its
website would be appropriate and
exchanges should be provided with this
discretion. In support of its position,
MGEX stated that the regulatory
environment or exchange rules could
change over time such that certain
notices no longer provide educational or
informative value. MGEX commented
that having notices that are predicated
on antiquated rules may actually
confuse members, market participants,
or the public. Finally, MGEX requested
guidance that regulation 9.13 will be
limited to disciplinary actions that were
finalized after the effective date of any
final rulemaking.
IV. Final Rules and Notice and Order
A. Final Rules
The Commission, in consideration of
the MGEX comment, is adopting the
part 9 rules as proposed subject to the
minor modifications described below.
The Commission agrees with MGEX’s
suggestion to amend regulations 9.11(c)
and (d) to allow an exchange to use
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1541
email as a permitted method of
delivering notice of the disciplinary or
access denial action to the person
subject to the action. Accordingly, the
Commission is modifying 9.11(c) to
allow delivery of the notice to the
person’s last known email address. The
Commission is also amending 9.11(d) to
provide that delivery of the disciplinary
notice will be complete upon
transmission of the email.
The Commission also agrees with
MGEX that an exchange should have
flexibility over the format, style, and
location of the notice on its website
including any indexing or search
functionality. The Commission believes
that adopting the rule as proposed
provides sufficient flexibility for
exchanges in this regard, although the
Commission notes that an exchange
must ensure that access to all
disciplinary notices remain readily
accessible regardless of whether the
exchange decides to archive notices
after a reasonable period of time.
In response to MGEX’s comment
requesting that exchanges should be
given discretion in certain situations to
remove a disciplinary notice from its
website, the Commission acknowledges
MGEX’s concern that the regulatory
environment or exchange rules could
change over time and having notices
that are predicated on antiquated rules
may confuse members, market
participants, or the public. However, the
Commission believes that all
disciplinary and access denial notices
must be maintained on the exchange’s
website without the possibility of
removal. Access to information
regarding all exchange disciplinary and
access denial actions provides valuable
guidance and information to exchange
members, market participants, and the
public regardless of whether the
regulatory environment or an exchange
rule has changed. For example, the
notices allow customers to consider
member firms’ and traders’ disciplinary
histories when considering whether to
engage in business with them. This
includes conduct by firms and traders
that violated an exchange rule at the
time the rule was in effect. The final
rule also enables customers to consider
an exchange’s propensity to sanction
firms and traders for rule violations
when considering whether to trade on
the exchange. In the limited
circumstances where an exchange
believes that a disciplinary notice may
confuse its members, market
participants, or the public as a result of
a regulatory environment or exchange
rule change, an exchange could address
this concern by posting an attachment to
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the disciplinary notice that explains the
nature of any such change.
The Commission agrees with MGEX
that the rulemaking should not be
applied retroactively to final exchange
disciplinary actions. Therefore,
exchanges only will be required to
publish disciplinary actions that are
finalized after the effective date of the
final rules.
As discussed above, the Commission
proposed to amend regulation 9.2(f) to
expand the definition of ‘‘member of an
exchange’’ to include any person who
has trading privileges on an exchange.
The Commission explained that this
change is necessary to conform the part
9 definition of ‘‘member’’ to the
meaning set forth in section 1a(34) of
the CEA and in 1.3(q) of the
Commission’s regulations. The
Commission is adopting the amendment
to regulation 9.2(f) as proposed. The
Commission notes that 9.2(f)(1)
preserves the prior definition of
‘‘member of an exchange,’’ while the
inclusion of ‘‘any person who has
trading privileges on an exchange’’
under 9.2(f)(2) conforms the ‘‘member of
an exchange’’ definition with the
meaning set forth in section 1a(34)(B) of
the CEA and regulation 1.3(q)(1)(ii).
The Commission is also adopting the
amendment to regulation 3.31(a)(1) as
proposed. Therefore, the final rule
relieves applicants and registrants from
the obligation to update their Form 7–
R or 8–R if the information to be
reported is solely the result of an
exchange disciplinary or access denial
action.
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B. Deletion of References to Commission
Form 3–R
The Commission is making an
additional technical change to
regulation 3.31. As reflected in the
amended text of the rule, the
Commission is eliminating the
references to Form 3–R from subsections
(a)(1), (a)(3), (b), and (c)(1) of regulation
3.31 by deleting from these subsections
the phrase ‘‘to create a Form 3–R record
of change.’’ 30 The Commission no
longer requires market participants to
use the Form 3–R.31 Additionally, by
separate Notice, the Commission
formally proposed to cancel the Form 3–
R and transfer the administrative
burdens associated with that form to
Forms 7–R and 8–R.32 Accordingly, the
30 The phrase being deleted from subsection (a)(1)
of regulation 3.31 is ‘‘to create a Form 3–R record
of such change.’’
31 Registration of Intermediaries, 77 FR 51898
(Aug. 28, 2012).
32 Agency Information Collection Activities:
Proposed Collection Revision, Comment Request:
Adoption of Revised Registration Form 8–R and
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Commission is updating regulation 3.31
to reflect the retirement of Form 3–R.
For these same reasons, the Commission
is making a similar technical change to
regulation 3.11. As reflected in the
amended text of the rule, the
Commission is deleting the reference to
Form 3–R from subsection (b) of
regulation 3.11. The Commission notes
that these changes to regulations 3.11
and 3.31 are purely technical and do not
affect the obligations of the individuals
and entities subject to these rules.
C. Notice and Order
In a separate document published
elsewhere in this issue of the Federal
Register, the Commission issued an
updated Notice and Order to replace the
Part 9 Delegation from 1999 regarding
the specific duties delegated by the
Commission to the NFA for receiving
and processing exchange disciplinary
and access denial information. Among
other things, the Notice and Order is
being updated to account for the
amendment to regulation 9.11(a) that
will require exchanges to file
disciplinary and access denial actions
with the NFA. As discussed above, prior
to this amendment, exchanges were
only encouraged to file the notifications
with the NFA, but not required. In
addition, the updated Notice and Order
includes SEFs now filing the required
notices with the NFA as SEFs did not
exist when the Commission issued the
Part 9 Delegation and Advisory in 1999.
Consistent with the Part 9 Delegation,
the updated Notice and Order delegates
to the NFA the authority to perform the
following functions: (1) To process
exchange disciplinary information filed
by an exchange or the Commission in
the BASIC system; (2) to provide the
Commission with access to a
Management Report summarizing all
recent exchange disciplinary
information and to provide the
Commission with the capability to
generate standardized reports on the
BASIC system; (3) to assist the
Commission in enforcing exchange
compliance with regulation 9.11 filing
requirements; and (4) to serve as the
official custodian of a database
containing records of all exchange
disciplinary and access denial actions
filed with the NFA for inclusion in the
BASIC system.
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’) requires federal agencies, in
promulgating rules, to consider the
Cancellation of Form 3–R, 82 FR 19663, 19664 (Apr.
28, 2017).
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impact of those rules on small entities.33
The Commission did not receive any
comments with respect to the RFA. The
part 9 rules adopted herein will affect
all SEFs and DCMs. The Commission
previously established certain
definitions of ‘‘small entities’’ to be used
by the Commission in evaluating the
impact of its regulations on small
entities in accordance with the RFA.34
The Commission previously determined
that DCMs and SEFs are not small
entities for purposes of the RFA.35
The part 3 rules adopted herein will
affect certain applicant or registrant
FCMs, RFEDs, SDs, MSPs, CTAs, CPOs,
IBs, FTs who are non-natural persons,
and LTMs who will no longer have to
file a Form 7–R or 8–R if the
information to be reported is solely the
result of an exchange disciplinary or
access denial action. The Commission
previously determined that FCMs,
RFEDs, SDs, MSPs, CPOs, and LTMs are
not small entities for purposes of the
RFA.36 Therefore, the requirements of
the RFA do not apply to those entities.
With respect to CTAs, FTs, and IBs, the
Commission has found it appropriate to
consider whether such registrants
should be deemed small entities for
purposes of the RFA on a case-by-case
basis, in the context of the particular
Commission regulation at issue.37 As
certain of these registrants may be small
entities for purposes of the RFA, the
Commission has considered whether the
final rules will have a significant impact
on these registrants.
The amendment to Commission
regulation 3.31 is not substantive in
nature. In 1999, the Commission
published the Part 3 Advisory which
relieved all applicants and registrants
from filing a Form 3–R if the
information to be reported is solely the
result of an exchange disciplinary or
33 5
U.S.C. 601 et seq.
47 FR 18618 through 18621 (Apr. 30,
34 See
1982).
35 See 47 FR 18618, 18619 (Apr. 30, 1982)
(DCMs); 78 FR 33548 (June 4, 2013) (SEFs).
36 See Policy Statement and Establishment of
Definitions of ‘‘Small Entities’’ for Purposes of the
Regulatory Flexibility Act, 47 FR 18618 (Apr. 30,
1982) (FCMs and CPOs); Leverage Transactions, 54
FR 41068 (Oct. 5, 1989) (LTMs); Regulation of OffExchange Retail Foreign Exchange Transactions and
Intermediaries, 75 FR 55410, 55416 (Sept. 10, 2010)
(RFEDs); and Registration of Swap Dealers and
Major Swap Participants, 77 FR 2613, 2620 (Jan. 19,
2012) (SDs and MSPs).
37 See 47 FR 18620 (Apr. 30, 1982) (CTAs);
Registration of Floor Traders; Mandatory Ethics
Training for Registrants; Suspension of Registrants
Charged With Felonies, 58 FR 19575, 19588 (Apr.
15, 1993) (FTs); and Introducing Brokers and
Associated Persons of Introducing Brokers,
Commodity Trading Advisors and Commodity Pool
Operators; Registration and Other Regulatory
Requirements, 48 FR 35248, 35276 (Aug. 3, 1983)
(IBs).
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access denial action.38 Beyond
conforming the regulation to an
established agency policy provided for
in the Part 3 Advisory, the conforming
amendments to regulation 3.31 will not
affect the current processes or impose
any new costs on small entities. The
final rule codifies the filing relief set
forth in the Part 3 Advisory and will not
impose any new regulatory obligations
on any registrant, including CTAs, FTs,
and IBs.
The Commission does not, therefore,
expect small entities to incur any
additional costs as a result of the final
rules. Consequently, the Commission
finds that no significant economic
impact on small entities will result from
the final rules.
Accordingly, the Chairman, on behalf
of the Commission pursuant to 5 U.S.C.
605(b), certifies that the final rules will
not have a significant economic impact
on a substantial number of small
entities.
collection requirements would result
from the Proposal.41 The Commission
did not receive any such comments.
Accordingly, the Commission believes
the final rules will not impact the
current burden estimates for collections
3038–0052 and 3038–0074. The
Commission will nevertheless, by
separate action, publish in the Federal
Register a notice and request for
comment on the additional elements to
be included as part of exchange notices,
and submit to OMB an information
collection request to amend the relevant
information collection, in accordance
with 44 U.S.C. 3506(c)(2)(A) and 5 CFR
1320.8(d). As noted previously, by
separate Notice published in the
Federal Register, the Commission
provided notice that the Form 3–R was
being cancelled, and that the PRA
burdens associated with Form 3–R
under collections 3038–0023 and 3038–
0072 were being reassigned to Forms 7–
R and 8–R.42
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(‘‘PRA’’) 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.39
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 issued by the Office of
Management and Budget (‘‘OMB’’). The
final rules contain provisions that
qualify as collections of information, for
which the Commission has already
sought and obtained control numbers
from the OMB. The titles for these
collections of information are ‘‘Part 38—
Core Principles and Other Requirements
for Designated Contract Markets’’ (OMB
Control Number 3038–0052) and ‘‘Part
37—Core Principles and Other
Requirements for Swap Execution
Facilities’’ (OMB Control Number 3038–
0074).
As explained in the NPRM, the
Commission did not seek to amend
information collections 3038–0052 or
3038–0074 because the Commission
believes that the rule modifications
proposed would not impose any new
information collection requirements that
require approval from OMB under the
PRA.40 The Commission invited public
comment on the accuracy of its
determination that no additional
recordkeeping or information collection
requirements or changes to existing
C. Cost-Benefit Considerations
38 64
FR 39912 (July 23, 1999).
U.S.C. 3501 et seq.
40 82 FR 7745–46 (Jan. 23, 2017).
39 44
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1. Introduction
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 certain orders.43 Section
15(a) further specifies that the costs and
benefits shall be evaluated in light of
five broad areas of market and public
concern: (1) Protection of market
participants and the public; (2)
efficiency, competitiveness, and
financial integrity of the markets; (3)
price discovery; (4) sound risk
management practices; and (5) other
public interest considerations. The
Commission considers the costs and
benefits resulting from its discretionary
determinations with respect to the
section 15(a) factors.
The Commission considers the costs
and benefits associated with the final
rules, including updating the preexisting regulatory framework to
incorporate SEFs, removing references
to part 8 of the Commission’s
regulations, and revising the reporting
and notice requirements for DCMs and
SEFs. The Commission compares the
costs and benefits of this rulemaking
against a baseline of the status quo, the
current requirements under part 3 and
41 For collection 3038–0052, see OMB Control No.
3038–0052, available at https://www.reginfo.gov/
public/do/PRAOMBHistory?ombControlNumber=
3038-0052. For collection 3038–0074, see OMB
Control No. 3038–0074, available at https://
www.reginfo.gov/public/do/PRAOMB
History?ombControlNumber=
3038-0074.
42 82 FR 19663 (Apr. 28, 2017).
43 7 U.S.C. 19(a).
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1543
part 9. As explained in the NPRM, and
as adopted, the rules are primarily
technical in nature that clarify the
obligations under the current rules and
generally do not impose any new costs
on DCMs, SEFs, or market
participants.44 Regulation 9.11(b)(3)(ii)
will require the exchanges to specify in
the disciplinary notices the product
involved in the disciplinary action and
whether the rule violation resulted in
financial harm to any customers. The
Commission acknowledges that these
additional elements in the disciplinary
notices may result in additional costs,
but any such costs would be de
minimis. Accordingly, the Commission
addresses below the costs associated
with Commission regulation 9.13
requirement for DCMs and SEFs to
publish and maintain disciplinary
notices on their respective websites.
In the Proposal, the Commission
sought comment concerning all aspects
of the costs and benefits. The
Commission did not receive any
comments that specifically addressed
the Cost-Benefit Considerations section
of the Proposal. However, MGEX
commented that the proposed
amendment to regulation 9.11(c) that
would allow an exchange to only have
to verify that information has been
entered into NFA BASIC instead of
mailing a notice to the Commission, and
the amendment to 9.12(b) that would
permit an exchange to satisfy its
obligations to deliver notice of the
disciplinary or access denial action by
email reduces the burden to exchanges,
albeit in nominal ways. As discussed
above, the Commission is amending
regulations 9.11(c) and (d) to allow
exchanges to satisfy their delivery
obligations of the disciplinary or access
denial action to the person subject to the
action by email.
Finally, in light of NFA’s role and
experience in performing registration
functions on behalf of the Commission
and as the custodian of related records
(including exchange disciplinary
filings), the Commission believes that it
is appropriate to remove the
requirement that an exchange provide
written notice to the Commission of a
final disciplinary action or access denial
action and replace it with a requirement
to provide notice to the NFA. NFA
performs registration processing
functions with respect to applicants and
registrants and an individual’s or firm’s
disciplinary history is a factor that must
be considered in any fitness
determination. Delegating to the NFA
the responsibility for processing such
filings and generating reports with the
44 82
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information amassed, should ensure
that the NFA has the necessary
information to continue to make
appropriate registration determinations.
The Commission also believes this
delegation will enhance efficiency by
permitting the Commission to carry out
its statutory responsibilities under the
CEA, while also freeing up Commission
resources to be directed to other parts of
its regulatory mandate.
2. Commission Regulation 9.13—
Publication of Notice
Commission regulation 9.13 requires
all DCMs and SEFs to maintain and
make readily accessible final notices of
exchange disciplinary and access denial
actions on their websites.45 This new
requirement replaces the existing
requirement in Commission regulation
9.13 that exchanges publish the notice
in a conspicuous place on the
exchange’s premises.
a. Costs
The Commission continues to believe
that requiring exchanges to post final
disciplinary and access denial notices to
their websites will slightly increase the
costs for DCMs and SEFs. The
Commission notes that the additional
costs incurred by DCMs and SEFs will
be offset in part due to the amendment
in Commission regulation 9.13 that
removes the requirement of posting
disciplinary and access denial notices
on the premises of the respective DCM
or SEF. In order to estimate the
additional costs, the Commission
queried the NFA’s BASIC system to
determine the total number of
disciplinary and access denial actions
filed by DCMs and SEFs in 2016.46
Total number of reported disciplinary
and access denial actions in BASIC by
all DCMs: 296.
Total number of reported disciplinary
and access denial actions in BASIC by
all SEFs: 15.
45 17
CFR 9.13.
Commission’s cost estimates in the NPRM
were based on the 452 disciplinary and access
denial actions filed by DCMs in 2015. Because SEFs
did not post any such actions with BASIC in 2015,
the cost estimates for SEFs were based on the
disciplinary and access denial actions filed by
DCMs in 2015, excluding the four DCMs with the
largest number of reported disciplinary and access
denial actions. The Commission explained that the
average number of disciplinary and access denial
actions by the other 11 DCMs provide a more
appropriate comparison with respect to estimating
the number of actions filed by SEFs annually. This
average resulted in an estimate of eight disciplinary
and access denial actions filed in BASIC for each
SEF annually. The Commission noted that as the
SEFs mature, in terms of the number of participants
and volume, the number of disciplinary and access
denial actions may increase accordingly. 82 FR
7746 (Jan. 23, 2017).
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The total number of exchange
disciplinary and access denial actions
per year for all DCMs and SEFs is
estimated to be 311 (296 actions for
DCMs plus 15 actions for SEFs equals
311 total actions per year). The
Commission anticipates each DCM and
SEF will spend an additional 15
minutes per disciplinary notice to post
on the exchange’s website above the
current requirement of posting the
notice on the exchange’s premises.
Accordingly, the aggregate new burden
of Commission regulation 9.13 is
estimated to be 77.75 hours per year for
the 15 DCMs and 24 SEFs (15 minutes
multiplied by 311 anticipated actions
per year equals 77.75 burden hours).
The Commission expects that a
compliance officer employed by the
exchange will post the disciplinary or
access denial action notices to the
exchange website. According to recent
Bureau of Labor Statistics National
Occupational Employment and Wage
Estimates, the mean hourly wage of an
employee under occupation code 13–
1041, ‘‘Compliance Officers,’’ that is
employed by the ‘‘Securities and
Commodity Exchanges’’ industry is
$46.01. Because DCMs and SEFs can be
large, specialized entities that may
engage employees with wages above the
mean, the Commission has
conservatively chosen to use a mean
hourly wage of $50 per hour.47
Accordingly, the burden associated with
posting the disciplinary notices on
exchange websites is approximately
$3,887.50 per year for all of the 15
DCMs and 24 SEFs, ($50 multiplied by
the anticipated 77.75 burden hours
equals $3,887.50 per year).48
b. Benefits
The Commission continues to believe
that greater access to information
regarding exchange disciplinary and
access denial actions provides valuable
guidance and information to exchange
members, market participants, and the
public. Releasing disciplinary
information to the public serves to deter
and prevent future misconduct and to
improve overall compliance standards
in the futures and swaps industry. It
also allows customers to consider
47 Bureau of Labor Statistics, Occupational
Employment and Wages: 13–1041 Compliance
Officers, (May 2014), available at https://
www.bls.gov/oes/current/oes131041.htm.
48 As noted in the NPRM, the Commission
acknowledges that requiring exchanges to post final
notices of disciplinary and access denial actions on
their websites may necessitate additional
bandwidth. The Commission anticipates that any
increased costs due to added bandwidth will be
insignificant in its calculation of the total annual
burden associated with the final rules. 82 FR 7747
(Jan. 23, 2017).
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member firms’ and traders’ disciplinary
histories when considering whether to
engage in business with them. In
addition, firms may use such
information to educate their traders and
associated persons as to compliance
matters, highlighting potential
violations and related sanctions.
Further, any firm or individual facing
allegations of rule violations may access
existing disciplinary decisions to gain
greater insight on related facts and
sanctions. The Commission believes
that the added deterrence of publishing
disciplinary notices on exchange
websites and the enhanced investigative
and educational benefits of making such
information public will ultimately
decrease the incidents of wrongdoing
and market abuses which benefits both
market participants and the general
public.
c. Section 15(a) Factors
As noted above, section 15(a) of the
CEA requires the Commission to
consider the effects of its actions in light
of the following five factors:
(1) Protection of market participants
and the public. The Commission
believes that market participants and
the public will benefit from the
ministerial and conforming
amendments since they eliminate
obsolete, vestigial provisions and
references that otherwise could be
construed to give rise to confusing
inconsistencies between the
Commission’s regulations and the
provisions of the CEA. Furthermore, the
Commission believes that the
amendment to regulation 9.13, which
requires exchanges to publish notice of
final disciplinary and access denial
actions on exchange websites, increases
transparency of exchange disciplinary
actions and serves as a deterrence of
future market abuses. These
enhancements allow for operational
efficiencies in oversight, increased
deterrence from market abuses, and
greater transparency of the exchange
disciplinary process. Therefore, the
Commission anticipates that the
amendment to regulation 9.13 will
result in improved protection of market
participants and the public.
(2) The efficiency, competitiveness,
and financial integrity of the markets.
The requirement that exchanges publish
disciplinary notices and access denial
actions on their websites is intended to
improve the operational efficiency and
financial integrity of the futures and
swaps markets by enabling the public
and those who access an exchange
website to be made aware of any
disciplinary and access denial actions
imposed by the exchange. By publishing
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the notice on the exchange’s website,
the Commission believes that the
efficiency and financial integrity of the
markets will be bolstered by the
deterrent effect achieved by posting the
notice in a publicly accessible medium.
(3) Price discovery. The Commission
did not identify any impact on price
discovery as a result of the proposed
regulations, and did not believe there
would be one, but sought comment as
to any potential impact. The
Commission did not receive any
comments on this issue. Accordingly,
the Commission believes that the final
regulations will not impact price
discovery.
(4) Sound risk management practices.
The Commission did not identify any
impact on sound risk management
practices as a result of the proposed
regulations, and did not believe there
would be one, but sought comment as
to any potential impact. The
Commission did not receive any
comments on this issue. Accordingly,
the Commission believes that the final
regulations will not impact sound risk
management practices.
(5) Other public interest
considerations. The Commission has not
identified any other public interest
considerations.
D. Antitrust Considerations
Section 15(b) of the CEA requires the
Commission to take into consideration
the public interest to be protected by the
antitrust laws and endeavor to take the
least anticompetitive means of
achieving the objectives of the CEA in
issuing any order or adopting any
Commission rule or regulation. The
Commission does not anticipate that the
amendments adopted herein would
promote or result in anticompetitive
consequences or behavior.
List of Subjects
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17 CFR Part 3
Administrative practice and
procedure, Brokers, Commodity futures,
Major swap participants, Reporting and
recordkeeping requirements, Swap
dealers.
17 CFR Part 9
Administrative practice and
procedure, Commodity exchanges,
Commodity futures.
For the reasons stated in the
preamble, the Commodity Futures
Trading Commission amends 17 CFR
chapter I as follows:
PART 3—REGISTRATION
1. The authority citation for part 3 is
revised to read as follows:
■
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Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a,
2, 6a, 6b, 6b–1, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k,
6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c,
16a, 18, 19, 21, and 23.
2. In § 3.11, revise paragraph (b) to
read as follows:
■
§ 3.11 Registration of floor brokers and
floor traders.
*
*
*
*
*
(b) Duration of registration. A person
registered as a floor broker or floor
trader in accordance with paragraph (a)
of this section, and whose registration
has neither been revoked nor
withdrawn, will continue to be so
registered unless such person’s trading
privileges on all contract markets and
swap execution facilities have ceased:
Provided, that if a floor broker or floor
trader whose trading privileges on all
contract markets and swap execution
facilities have ceased for reasons
unrelated to any Commission action or
any contract market or swap execution
facility disciplinary proceeding and
whose registration is not revoked,
suspended or withdrawn is granted
trading privileges as a floor broker or
floor trader, respectively, by any
contract market or swap execution
facility where such person held such
privileges within the preceding sixty
days, such registration as a floor broker
or floor trader, respectively, shall be
deemed to continue and no new Form
7–R, Form 8–R or change to Form 7–R
or Form 8–R need be filed solely on the
basis of the resumption of trading
privileges. A floor broker or floor trader
is prohibited from engaging in activities
requiring registration under the Act or
from representing such person to be a
registrant under the Act or the
representative or agent of any registrant
during the pendency of any suspension
of such registration or of all such trading
privileges. Each contract market and
swap execution facility that has granted
trading privileges to a person who is
registered, or has applied for
registration, as a floor broker or floor
trader, must provide notice in
accordance with § 3.31(d) after such
person’s trading privileges on such
contract market or swap execution
facility have ceased.
*
*
*
*
*
■ 3. In § 3.31, revise paragraphs (a)(1),
(a)(3)(i), (b), and (c)(1) to read as
follows:
§ 3.31 Deficiencies, inaccuracies, and
changes, to be reported.
(a)(1) Each applicant or registrant as a
futures commission merchant, retail
foreign exchange dealer, swap dealer,
major swap participant, commodity
trading advisor, commodity pool
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operator, introducing broker, floor
trader that is a non-natural person or
leverage transaction merchant shall, in
accordance with the instructions
thereto, promptly correct any deficiency
or inaccuracy in Form 7–R or Form 8–
R that no longer renders accurate and
current the information contained
therein, with the exception of any
change that requires withdrawal from
registration under § 3.33 or any change
resulting from an exchange disciplinary
or access denial action. Each such
correction shall be prepared and filed in
accordance with the instructions
thereto.
*
*
*
*
*
(3) * * *
(i) If the new principal is not a natural
person, the registrant shall update such
Form 7–R.
*
*
*
*
*
(b) Each applicant or registrant as a
floor broker, floor trader or associated
person, and each principal of a futures
commission merchant, retail foreign
exchange dealer, swap dealer, major
swap participant, commodity trading
advisor, commodity pool operator,
introducing broker, floor trader that is a
non-natural person, or leverage
transaction merchant must, in
accordance with the instructions
thereto, promptly correct any deficiency
or inaccuracy in the Form 8–R or
supplemental statement thereto.
(c)(1) After the filing of a Form 8–R
or updating a Form 8–R by or on behalf
of any person for the purpose of
permitting that person to be an
associated person of a futures
commission merchant, retail foreign
exchange dealer, commodity trading
advisor, commodity pool operator,
introducing broker, or a leverage
transaction merchant, that futures
commission merchant, retail foreign
exchange dealer, commodity trading
advisor, commodity pool operator,
introducing broker or leverage
transaction merchant must, within
thirty days after the occurrence of either
of the following, file a notice thereof
with the National Futures Association
indicating:
(i) The failure of that person to
become associated with the futures
commission merchant, retail foreign
exchange dealer, commodity trading
advisor, commodity pool operator,
introducing broker, or leverage
transaction merchant, and the reasons
therefor; or
(ii) The termination of the association
of the associated person with the futures
commission merchant, retail foreign
exchange dealer, commodity trading
advisor, commodity pool operator,
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introducing broker, or leverage
transaction merchant, and the reasons
therefor.
*
*
*
*
*
PART 9—RULES RELATING TO
REVIEW OF EXCHANGE
DISCIPLINARY, ACCESS DENIAL OR
OTHER ADVERSE ACTIONS
4. The authority citation for part 9 is
revised to read as follows:
■
Authority: 7 U.S.C. 1a, 2, 6b–1, 6c, 7, 7a–
2, 7b–3, 8, 9, 9a, 12, 12a, 12c, 13b, 16a, 18,
19, and 21.
5. In § 9.1, revise paragraphs (b) and
(c) to read as follows:
■
§ 9.1
Scope of rules.
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*
*
*
*
*
(b) Matters excluded. This part does
not apply to and the Commission will
not accept notices of appeal, or petitions
for stay pending review, of:
(1) Any arbitration proceeding,
regardless of whether the proceeding
involved a controversy between
members of an exchange;
(2) Except as provided in §§ 9.11(a),
(b)(3)(i) through (v), and (c), and 9.12(a)
and 9.13 (concerning the notice,
effective date and publication of a
disciplinary or access denial action),
any summary action permitted under
the provisions of part 37, appendix B,
Core Principle 2, paragraph (a)(13) of
this chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(6) of this
chapter imposing a minor penalty for
the violation of exchange rules relating
to decorum or attire, or relating to the
timely submission of accurate records
required for clearing or verifying each
day’s transactions or other similar
activities; and
(3) Any exchange action arising from
a claim, grievance, or dispute involving
cash market transactions which are not
a part of, or directly connected with,
any transaction for the purchase, sale,
delivery or exercise of a commodity for
future delivery, a commodity option, or
a swap.
(4) The Commission will, upon its
own motion or upon motion filed
pursuant to § 9.21(b), promptly notify
the appellant and the exchange that it
will not accept the notice of appeal or
petition for stay of matters specified in
this paragraph. The determination to
decline to accept a notice of appeal will
be without prejudice to the appellant’s
right to seek alternate forms of relief that
may be available in any other forum.
(c) Applicability of these part 9 rules.
Unless otherwise ordered, these rules
will apply in their entirety to all
appeals, and matters relating thereto.
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6. In § 9.2, revise paragraphs (b), (c),
(f), and (k) to read as follows:
■
§ 9.2
Definitions.
*
*
*
*
*
(b) Disciplinary action means any
suspension, expulsion or other penalty
imposed on a person by an exchange for
violations of rules of the exchange,
including summary actions.
(c) Exchange means a swap execution
facility or any board of trade which has
been designated as a contract market.
*
*
*
*
*
(f) Member of an exchange means:
(1) Any person who is admitted to
membership or has been granted
membership privileges on an exchange;
any employee, officer, partner, director
or affiliate of such member or person
with membership privileges including
any associated person; and any other
person under the supervision or control
of such member or person with
membership privileges; or
(2) Any person who has trading
privileges on an exchange.
*
*
*
*
*
(k) Summary action means a
disciplinary action resulting in the
imposition of a penalty on a person for
violation of rules of the exchange
permitted under the provisions of part
37, appendix B, Core Principle 2,
paragraph (a)(10)(vi) of this chapter or
part 38, appendix B, Core Principle 13,
paragraph (a)(4) of this chapter (penalty
for impeding progress of hearing); part
37, appendix B, Core Principle 2,
paragraph (a)(14) of this chapter or part
38, appendix B, Core Principle 13,
paragraph (a)(7) of this chapter
(emergency disciplinary actions); part
37, appendix B, Core Principle 2,
paragraph (a)(13) of this chapter
(summary fines for violations of rules
regarding timely submission of records);
or part 38, appendix B, Core Principle
13, paragraph (a)(6) of this chapter
(summary fines for violations of rules
regarding timely submission of records,
decorum, or other similar activities).
■ 7. Revise § 9.3 to read as follows:
§ 9.3
Provisions referenced.
Except as otherwise provided in this
part, the following provisions of the
Commission’s rules relating to
reparations contained in part 12 of this
chapter apply to this part: § 12.3
(Business address; hours); § 12.5
(Computation of time); § 12.6
(Extensions of time; adjournments;
postponements); § 12.7 (Ex parte
communications in reparation
proceedings); and § 12.12 (Signature).
■ 8. In § 9.4, revise paragraphs (a), (b),
and (c) to read as follows:
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§ 9.4
Filing and service; official docket.
(a) Filing with the Proceedings Clerk;
proof of filing; proof of service. Any
document that is required by this part
to be filed with the Proceedings Clerk
must be filed by delivering it in person
or by mail to: Proceedings Clerk, Office
of Proceedings, Commodity Futures
Trading Commission, Three Lafayette
Centre, 1155 21st Street NW,
Washington, DC 20581. To be timely
filed under this part, a document must
be delivered or mailed to the
Proceedings Clerk within the time
prescribed for filing. A party must use
a means of filing which is at least as
expeditious as that used in serving that
document upon the other parties. Proof
of filing must be made by attaching to
the document for filing a statement of
service as provided in § 10.12(a)(6) of
this chapter.
(b) Formalities of filing—(1) Number
of copies. Unless otherwise specifically
provided, an original and one
conformed copy of all documents filed
with the Commission in accordance
with the provisions of this part must be
filed with the Proceedings Clerk.
(2) Title page. All documents filed
with the Proceedings Clerk must
include at the head thereof, or on a title
page, the name of the Commission, the
title of the proceeding, the docket
number (if one has been assigned by the
Proceedings Clerk), the subject of the
particular document and the name of
the person on whose behalf the
document is being filed.
(3) Paper, spacing, type. All
documents filed with the Proceedings
Clerk must be typewritten, must be on
one grade of good white paper no less
than 8 or more than 81⁄2 inches wide
and no less than 101⁄2 or more than 111⁄2
inches long, and must be bound on the
top only. They must be double-spaced,
except for long quotations (3 or more
lines) and footnotes which should be
single-spaced.
(4) Signature. The original copy of all
papers must be signed in ink by the
person filing the same or by his or her
duly authorized agent or attorney.
(c) Service—(1) General requirements.
All documents filed with the
Proceedings Clerk must, at or before the
time of filing, be served upon all parties.
A party must use a means of service
which is at least as expeditious as that
used in filing that document with the
Proceedings Clerk. One copy of all
motions, petitions or applications made
in the course of the proceeding, all
notices of appeal, all briefs, and letters
to the Commission or an employee
thereof must be served by a party upon
all other parties.
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(2) Manner of service. Service may be
either personal or by mail. Service by
mail is complete upon deposit of the
document in the mail. Where service is
effected by mail, the time within which
the person served may respond thereto
will be increased by three days.
(3) Designation of person to receive
service. The first document filed in a
proceeding by or on behalf of any party
must state on the first page the name
and postal address of the person who is
authorized to receive service for the
party of all documents filed in the
proceeding. Thereafter, service of
documents must be made upon the
person authorized unless service on a
different authorized person or on the
party himself or herself is ordered by
the Commission, or unless pursuant to
§ 9.8 the person authorized is changed
by the party upon due notice to all other
parties. Parties must file and serve
notification of any changes in the
information provided pursuant to this
subparagraph as soon as practicable
after the change occurs.
*
*
*
*
*
■ 9. In § 9.8, revise paragraph (a)(1) to
read as follows:
§ 9.8
Practice before the Commission.
(a) * * *
(1) By non-attorneys. An individual
may appear pro se (on his or her own
behalf); a general partner may represent
the partnership; a bona fide officer of a
corporation, trust or association may
represent the corporation, trust or
association.
*
*
*
*
*
■ 10. In § 9.9, revise paragraphs (b)(3)
and (4) to read as follows:
§ 9.9 Waiver of rules; delegation of
authority.
*
*
*
*
(b) * * *
(3) The General Counsel, or his or her
designee, may submit to the
Commission for its consideration any
matter which has been delegated
pursuant to paragraph (b)(1) of this
section.
(4) Nothing in this section will be
deemed to prohibit the Commission, at
its election, from exercising the
authority delegated to the General
Counsel, or his or her designee, under
this section.
■ 11. Revise § 9.11 to read as follows:
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*
§ 9.11 Form, contents and delivery of
notice of disciplinary or access denial
action.
(a) When required. Whenever an
exchange decision pursuant to which a
disciplinary action or access denial
action is to be imposed has become
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final, the exchange must, within thirty
days thereafter, provide written notice
of such action to the person against
whom the action was taken and notice
to the National Futures Association
(‘‘NFA’’) through the NFA’s Background
Affiliation Status Information Center
(‘‘BASIC’’) system: Provided, That a
designated contract market is not
required to notify the NFA of any
summary action, as permitted under the
provisions of part 38, appendix B, Core
Principle 13, paragraph (a)(6) of this
chapter, which results in the imposition
of minor penalties for the violation of
exchange rules relating to decorum or
attire. No final disciplinary or access
denial action may be made effective by
the exchange except as provided in
§ 9.12.
(b) Contents of notice. For purposes of
this part:
(1) The written notice of a
disciplinary action or access denial
action provided to the person against
whom the action was taken by a
designated contract market must be a
copy of a written decision which
accords with:
(i) Part 38, appendix B, Core Principle
13, paragraph (a)(3) of this chapter in
the case of settlement offers;
(ii) Section 38.708 of this chapter in
the case of decisions; or
(iii) Part 38, appendix B, Core
Principle 13, paragraph (a)(5)(iv) of this
chapter in the case of appeal decisions
(including copies of any materials
incorporated by reference) or other
written notice which must include
items listed in paragraphs (b)(3)(i)—(vi)
of this section.
(2) The written notice of a
disciplinary action or access denial
action provided to the person against
whom the action was taken by a swap
execution facility must be a copy of a
written decision which accords with:
(i) Part 37, appendix B, Core Principle
2, paragraph (a)(9) of this chapter in the
case of settlement offers;
(ii) Section 37.206(d) of this chapter
in the case of decisions; or
(iii) Part 37, appendix B, Core
Principle 2, paragraph (a)(11)(iv) of this
chapter in the case of appeal decisions
(including copies of any materials
incorporated by reference) or other
written notice which must include
items listed in paragraphs (b)(3)(i)
through (vi) of this section.
(3) The notice of a disciplinary action
or access denial action provided to the
NFA must include only the items listed
in the following paragraphs (b)(3)(i)
through (v):
(i) The name of the person against
whom the disciplinary action or access
denial action was taken;
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1547
(ii) A statement of the reasons for the
disciplinary action or access denial
action, detailing the exchange product
which was involved, as applicable, and
whether the violation that resulted in
the action also resulted in financial
harm to any customers together with a
listing of any rules which the person
who was the subject of the disciplinary
action or access denial action was
charged with having violated or which
otherwise serve as the basis of the
exchange action;
(iii) A statement of the conclusions
and findings made by the exchange with
regard to each rule violation charged or,
in the event of settlement, a statement
specifying those rule violations which
the exchange has reason to believe were
committed;
(iv) The terms of the disciplinary
action or access denial action;
(v) The date on which the action was
taken and the date the exchange intends
to make the disciplinary or access
denial action effective; and
(vi) Except as otherwise provided in
§ 9.1(b), a statement informing the party
subject to the disciplinary action or
access denial action of the availability of
Commission review of the exchange
action pursuant to section 8c of the Act
and this part.
(c) Delivery and filing of the notice.
Delivery of the notice must be made
personally to the person who was the
subject of the disciplinary action or
access denial action, by mail to such
person at that person’s last known
address, or by email to the person’s last
known email address. Filing of the
notice with the NFA is accomplished
when an authorized exchange employee
verifies the accuracy of the information
entered into BASIC.
(d) Effect of delivery by mail or email.
Delivery by mail to the person
disciplined or denied access will be
complete upon deposit in the mail of a
properly addressed and postpaid
document. Where delivery to the person
disciplined or denied access is effected
by such mail, the time within which a
notice of appeal or petition for stay may
be filed will be increased by three days.
Delivery by email will be complete
upon transmission of the email.
(e) Certification. Copies of the notice
and the submission of any additional
information provided pursuant to this
section must be certified as true and
correct by a duly authorized officer,
agent or employee of the exchange.
Notice filed with the NFA is deemed
certified when an authorized exchange
employee verifies the accuracy of the
information entered into BASIC.
■ 12. Revise § 9.12 to read as follows:
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§ 9.12 Effective date of disciplinary or
access denial action.
(a) Effective date. Any disciplinary or
access denial action taken by an
exchange will not become effective until
at least fifteen days after the written
notice prescribed by § 9.11 is delivered
to the person disciplined or denied
access; Provided, however, That the
exchange may cause a disciplinary
action to become effective prior to that
time if:
(1) As permitted by part 37, appendix
B, Core Principle 2, paragraph (a)(14) of
this chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(7) of this
chapter (emergency disciplinary
actions), the exchange reasonably
believes, and so states in its written
decision, that immediate action is
necessary to protect the best interests of
the marketplace; or
(2) As permitted by part 37, appendix
B, Core Principle 2, paragraph (a)(10)(vi)
of this chapter or part 38, appendix B,
Core Principle 13, paragraph (a)(4) of
this chapter (hearings), the exchange
determines, and so states in its written
decision, that the actions of a person
who is within the exchange’s
jurisdiction has impeded the progress of
a disciplinary hearing; or
(3) As permitted by part 37, appendix
B, Core Principle 2, paragraph (a)(13) of
this chapter (summary fines for
violations of rules regarding timely
submission of records) or part 38,
appendix B, Core Principle 13,
paragraph (a)(6) of this chapter
(summary fines for violations of rules
regarding timely submission of records,
decorum, or other similar activities), the
exchange determines that a person has
violated exchange rules relating to
decorum or attire, or timely submission
of accurate records required for clearing
or verifying each day’s transactions or
other similar activities; or
(4) The person against whom the
action is taken has consented to the
penalty to be imposed and to the timing
of its effectiveness.
(b) Notice of early effective date. If the
exchange determines in accordance
with paragraph (a)(1) of this section that
a disciplinary action will become
effective prior to the expiration of
fifteen days after written notice thereof,
it must notify the person disciplined in
writing, either personally or by email to
the person’s last known email address,
stating the reasons for the
determination. The exchange must also
immediately notify the Commission by
email to secretary@cftc.gov. Where
notice is delivered by email, the time
within which the person so notified
may file a petition for stay pursuant to
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§ 9.24(a)(2) will be increased by one
day.
■ 13. Revise § 9.13 to read as follows:
§ 9.13
Publication of notice.
Whenever an exchange suspends,
expels or otherwise disciplines, or
denies any person access to the
exchange, it must make public its
findings by disclosing at least the
information contained in the notice
required by § 9.11(b). An exchange must
make such findings public as soon as
the disciplinary action or access denial
action becomes effective in accordance
with the provisions of § 9.12 by posting
a notice on its website to which its
members and the public regularly have
access. Such notice must be maintained
and readily available on the exchange’s
website.
■ 14. In § 9.24, revise paragraph (a)(2) to
read as follows:
§ 9.24
Petition for stay pending review.
(a) * * *
(2) Within ten days after a notice of
summary action has been delivered in
accordance with § 9.12(b) to a person
who is the subject of a summary action
permitted by part 37, appendix B, Core
Principle 2, paragraph (a)(14) of this
chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(7) of this
chapter (emergency disciplinary
actions), that person may petition the
Commission to stay the effectiveness of
the summary action pending completion
of the exchange proceeding.
*
*
*
*
*
■ 15. Revise § 9.31 to read as follows:
§ 9.31 Commission review of disciplinary
or access denial action on its own motion.
(a) Request for additional information.
Where a person disciplined or denied
access has not appealed the exchange
decision to the Commission, upon
review of the notice specified in § 9.11,
the Division of Market Oversight or the
Division of Swap Dealer and
Intermediary Oversight may request that
the exchange file with the Division the
record of the exchange proceeding, or
designated portions of the record, a brief
statement of the evidence and testimony
adduced to support the exchange’s
findings that a rule or rules of the
exchange were violated and such
recordings, transcripts and other
documents applicable to the particular
exchange proceeding as the Division
may specify. The exchange must
promptly advise the person who is the
subject of the disciplinary or access
denial action of the Division’s request.
Within thirty days after service of the
Division’s request, the exchange must
file the information requested with the
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Division in the manner requested by the
Division and, upon request, deliver that
information to the person who is the
subject of the disciplinary or access
denial action. Delivery to the person
who is the subject of the disciplinary or
access denial action must be in the
manner prescribed by § 9.11(c). A
person subject to the disciplinary action
or access denial action requesting a
copy of the information furnished to the
Division must, if the exchange rules so
provide, agree to pay the exchange
reasonable fees for printing the copy.
(b) Review on motion of the
Commission. The Commission may
institute review of an exchange
disciplinary or access denial action on
its own motion. Other than in
extraordinary circumstances, such
review will be initiated within 180 days
after the NFA has received the notice of
exchange action provided for in § 9.11.
If the Commission should institute
review on its own motion, it will issue
an order permitting the person who is
the subject of the disciplinary or access
denial action an opportunity to file an
appropriate submission, and the
exchange an opportunity to file a reply
thereto.
Issued in Washington, DC, on January 9,
2018, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not
appear in the Code of Federal Regulations.
Appendix to Technical Amendments to
Rules on Registration and Review of
Exchange Disciplinary, Access Denial
or Other Adverse Actions—Commission
Voting Summary
On this matter, Chairman Giancarlo and
Commissioners Quintenz and Behnam voted
in the affirmative. No Commissioner voted in
the negative.
[FR Doc. 2018–00467 Filed 1–11–18; 8:45 am]
BILLING CODE 6351–01–P
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 9
Performance of Certain Functions by
the National Futures Association With
Respect to the Receipt and Processing
of Exchange Disciplinary and Access
Denial Action Information
Commodity Futures Trading
Commission.
ACTION: Notice and order; delegation of
authority.
AGENCY:
The Commodity Futures
Trading Commission (‘‘Commission’’ or
SUMMARY:
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]]>Agencies
[Federal Register Volume 83, Number 9 (Friday, January 12, 2018)]
[Rules and Regulations]
[Pages 1538-1548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00467]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 3 and 9
RIN 3038-AE15
Technical Amendments to Rules on Registration and Review of
Exchange Disciplinary, Access Denial, or Other Adverse Actions
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is adopting certain amendments to its rules that,
respectively, govern registration of intermediaries and relate to the
Commission's review of exchange disciplinary, access denial, or other
adverse actions. Generally speaking, these amendments are technical in
nature. The amendments to both areas of the rules integrate existing
advisory guidance. The amendments to the rules on review of exchange
disciplinary, access denial, or other adverse actions also incorporate
swap execution facilities (``SEFs'') and update provisions currently
applicable to designated contract markets (``DCMs''). These final rules
also remove numerous outdated cross-references, and add citations to
applicable parallel provisions contained in other Commission
regulations pertaining to SEFs and DCMs. Additionally, the final rules
address the publication of final disciplinary and access denial actions
taken by the SEFs and DCMs on their exchange websites.
DATES: This final rule is effective March 13, 2018.
FOR FURTHER INFORMATION CONTACT: Rachel Berdansky, Deputy Director,
202-418-5429 or [email protected]; David Steinberg, Associate
Director, 202-418-5102 or [email protected]; Division of Market
Oversight, Commodity Futures Trading Commission, Three Lafayette
Centre, 1151 21st Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Description of Part 9
B. DCM Final Rules and Part 8 Removal
C. SEF Final Rules
II. Summary of the Proposal
A. Amendments to Part 9: Rules Relating to Review of Exchange
Disciplinary, Access Denial or Other Adverse Actions
B. Amendment to Regulation 3.31: Deficiencies, Inaccuracies, and
Changes To Be Reported
III. Comments on the Proposal
IV. Final Rules and Notice and Order
A. Final Rules
B. Deletion of References to Commission Form 3-R
C. Notice and Order
V. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
C. Cost-Benefit Considerations
D. Antitrust Considerations
[[Page 1539]]
I. Background
A. Description of Part 9
On December 20, 1978, the Commission adopted part 9 rules relating
to the Commission's review of exchange disciplinary, access denial, or
other adverse actions.\1\ These rules detail the process and procedures
for Commission review, including the appellate process in cases where a
person applies to the Commission for review. The rules also address the
procedures and standards governing filing and service, motions, and
settlement; the process that exchanges must follow in providing notice
of the final disciplinary action to the subject of the action and to
the Commission; and the publication of such notice. As discussed below,
DCMs and SEFs are already required to comply with the part 9
regulations.
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\1\ 43 FR 59343 (Dec. 20, 1978).
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B. DCM Final Rules and Part 8 Removal
In June 2012, the Commission adopted final regulations for DCMs
(``DCM Final Rules'').\2\ Commission regulation 38.2 of the DCM Final
Rules provides that DCMs ``shall comply with all applicable regulations
under Title 17 of the Code of Federal Regulations,'' except for certain
exempt provisions.\3\ Part 9 applies to DCMs by defining ``exchange''
in Commission regulation 9.2(c) for purposes of the rules as ``any
board of trade which has been designated as a contract market.'' \4\
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\2\ Core Principles and Other Requirements for Designated
Contract Markets, 77 FR 36612 (June 19, 2012).
\3\ Id. at 36697; 17 CFR 38.2. Part 9 is not included in the
list of exempt provisions.
\4\ 17 CFR 9.2(c).
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Additionally, in the DCM Final Rules, the Commission adopted
regulations in Subpart N--Disciplinary Procedures of part 38 to amend
the disciplinary procedures applicable to DCMs.\5\ Several of the
regulations adopted in subpart N of part 38 are similar to the text of
the disciplinary procedures found in former part 8--exchange procedures
for disciplinary, summary, and membership denial actions.\6\ The
Commission removed part 8 from the regulations in order to avoid any
confusion from having two sets of disciplinary procedures for DCMs.\7\
As a result of this removal, the current part 9 rules, which contain
cross-references to part 8 throughout, are being updated in the final
rules to instead cite to parallel provisions now contained in part 37
for SEFs and part 38 for DCMs.
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\5\ 17 CFR 38.700 through 38.712.
\6\ 43 FR 41950 (Sept. 19, 1978); 17 CFR 38.700 through 38.712.
For example, part 8 contained regulations 8.05 (Enforcement staff);
8.08 (Disciplinary committee); and 8.20 (Final decision). Subpart N
of part 38 has corresponding provisions: 38.701 (Enforcement staff);
38.702 (Disciplinary panels); and 38.709 (Final decisions).
\7\ Although Commission regulation 38.2 of the DCM Final Rules
specifies that DCMs are not required to comply with part 8, the
Commission removed part 8 to avoid any confusion resulting from the
regulations containing two sets of exchange disciplinary procedures
as part of the Adaptation of Regulations to Incorporate Swaps
Rulemaking. 17 CFR 38.2; and removal of part 8 at 77 FR 66304 (Nov.
2, 2012).
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C. SEF Final Rules
On June 4, 2013, the Commission adopted new rules in part 37 for
SEFs (``SEF Final Rules'').\8\ In regulation 37.2 of the SEF Final
Rules, the Commission specified that SEFs shall comply with the
requirements of part 9.\9\ Accordingly, for clarity purposes, the final
rules amend certain part 9 definitions and language which have not yet
been addressed, to integrate them into the post-Dodd-Frank regulatory
regime.
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\8\ Core Principles and Other Requirements for Swap Execution
Facilities, 78 FR 33476 (June 4, 2013).
\9\ See id. 33479; 17 CFR 37.2.
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II. Summary of the Proposal
A. Amendments to Part 9: Rules Relating to Review of Exchange
Disciplinary, Access Denial or Other Adverse Actions
On January 23, 2017, the Commission published a Notice of Proposed
Rulemaking (``NPRM'' or ``Proposal'') to amend certain part 3 and part
9 rules.\10\ As discussed in the NPRM, most of the amendments are
purely ministerial--for instance, some of the proposed changes updated
definitions in Commission regulation 9.2 to conform them to the
Commodity Exchange Act (``CEA'' or ``Act'') as amended by the Dodd-
Frank Act as well as other sections of the Commission's
regulations.\11\
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\10\ 82 FR 7738 (Jan. 23, 2017).
\11\ Id. at 7740.
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The Commission proposed to amend the definitions of four terms in
regulation 9.2. First, the Commission proposed to amend the definition
of ``disciplinary action'' by removing the reference to ``member of an
exchange'' and inserting ``person'' in its place.\12\ The Commission
explained in the NPRM that it is necessary to expand the ``disciplinary
action'' definition to account for instances where an exchange imposes
sanctions against a person that is not a member of the exchange.\13\
The proposed language to include ``person'' in the ``disciplinary
action'' definition is consistent with the statutory language found in
Core Principle 2 for DCMs and section 8c(b) of the CEA, as amended by
the Dodd-Frank Act.\14\ Second, the Commission proposed to amend the
definition of ``exchange'' in regulation 9.2(c) to include SEFs. This
change makes it clear that the Commission has the discretion to review
adverse actions imposed by a SEF and clarify that SEFs are subject to
all of the part 9 requirements.\15\ Third, the Commission proposed to
amend regulation 9.2(f) to expand the definition of ``member of an
exchange'' to include any person who has trading privileges on an
exchange. This change is necessary to conform the part 9 definition of
``member'' to the meaning set forth in section 1a(34) of the CEA and in
1.3(q) of the Commission's regulations.\16\ Fourth, the Commission
proposed to amend the definition of ``summary action'' in regulation
9.2(k) by adding references to part 37 for SEFs and replacing the part
8 references with the relevant provisions from part 38.\17\
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\12\ The Commission also proposed to amend the disciplinary
action definition by removing the reference to regulation 8.03(i).
\13\ 82 FR 7741 (Jan. 23, 2017).
\14\ Section 735 of the Dodd-Frank Act amends section 5 of the
CEA, including DCM Core Principle 2. Paragraph (B)--Capacity of
Contract Market--of Core Principle 2 specifically requires that the
board of trade shall have the capacity to detect, investigate, and
apply appropriate sanctions to any person that violates any rule of
the contract market. Section 8c(b) of the CEA, 7 U.S.C. 12c(b),
provides that the Commission may, in its discretion and in
accordance with such standards and procedures as it deems
appropriate, review any decision by an exchange whereby a person is
suspended, expelled, disciplined, or denied access to the exchange.
In addition, section 8c(b) of the CEA provides that the Commission
may, in its discretion and upon application of any person who is
adversely affected by any other exchange action, review such action.
\15\ Id. The Commission notes that regulation 37.2 requires,
among other things, that a SEF shall comply with the part 9
regulations. 17 CFR 37.2. Additionally, footnote 40 of the SEF Final
Rules states ``the term `exchange' used in part 9 of the
Commission's regulations should be interpreted to include a SEF for
purposes of applying the requirements of part 9 to a SEF.'' 78 FR
33476, 33479 (June 4, 2013).
\16\ Section 1a(34) of the CEA provides that the term ``member''
means, among other things, an individual, association, partnership,
corporation, or trust having trading privileges on the registered
entity. See also 17 CFR 1.3(q). By amending the definition of
``member of an exchange'' to include all persons with trading
privileges, the Commission is clarifying that the appellate process
and Commission review, as defined in part 9, applies to all persons
with trading privileges.
\17\ Specifically, the proposed definition of ``summary action''
means a disciplinary action resulting in the imposition of a penalty
on a person for violation of rules of the exchange permitted under
the provisions of part 37, appendix B, Core Principle 2, section
(a)(10)(vi) or part 38, appendix B, Core Principle 13, section
(a)(4) (penalty for impeding progress of hearing); part 37, appendix
B, Core Principle 2, section (a)(14) or part 38, appendix B, Core
Principle 13, section (a)(7) (emergency disciplinary actions); part
37, appendix B, Core Principle 2, section (a)(13) (summary fines for
violations of rules regarding timely submission of records); or part
38, appendix B, Core Principle 13, section (a)(6) (summary fines for
violations of rules regarding timely submission of records, decorum,
or other similar activities).
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[[Page 1540]]
The Commission also proposed to amend regulation 9.11(a) to remove
the requirement that an exchange provide written notice to the
Commission of a final disciplinary action or access denial action and
replace it with a requirement to provide notice to the National Futures
Association (``NFA''). As explained in the NPRM, the Commission
delegated authority to the NFA in 1999 to receive and process exchange
disciplinary and access denial information (``Part 9 Delegation'').\18\
Consequently, the NFA currently serves as the official custodian of
records for exchange disciplinary filings. The Commission noted in the
NPRM that it intends to amend the Part 9 Delegation order, consistent
with the requirement that exchanges provide exchange disciplinary and
access denial information to the NFA.\19\ In 1999, concurrent with the
Part 9 Delegation, the Commission also published an advisory permitting
exchanges to file Sec. 9.11 notices with the Commission or the NFA
(``Part 9 Advisory'').\20\ The Commission proposed to codify the Part 9
Advisory and formally replace the regulation 9.11 requirement that
written notice be provided to the Commission by amending Sec. 9.11 to
require that notice be provided to the NFA via the NFA's BASIC system
and eliminate the option of filing the notice with the Commission.
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\18\ 82 FR 7741 (Jan. 23, 2017). The NFA created the Background
Affiliation Status Information Center (``BASIC'') system through
which the public can access information pertaining to the types of
violations committed, penalties imposed, the effective date of the
action, and, in some cases, the text from the exchange's decision.
\19\ Id.
\20\ 64 FR 39915 (July 23, 1999) (``Part 9 Advisory'').
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The Commission proposed an amendment to regulation 9.11(b)(3)(ii)
by adding the type of product (as applicable) involved in the adverse
action as an additional element required to be included in the contents
of the notice. The Commission stated in the NPRM that requiring
exchanges to provide this information in the Sec. 9.11 notice will
provide the Commission, market participants, the public, and other
exchanges with greater transparency concerning where market abuses
originate and whether the abuses are concentrated among certain product
types.\21\ The Commission also proposed to amend regulation
9.11(b)(3)(ii) by codifying the clarification contained in the Part 9
Advisory that an exchange indicate in its notice of disciplinary or
access denial actions whether the violation underlying the notice
resulted in financial harm to any customers.\22\
---------------------------------------------------------------------------
\21\ For example, a product trading on a DCM might be specified
as a July 2016 Eurodollar future; while a product trading on a SEF
may be a CDX North American High Yield Series 26 5 year.
\22\ 64 FR 39917 (July 23, 1999).
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The Commission also proposed to amend regulation 9.11(c) by
deleting instructions for filing notice with the Commission and
replacing them with instructions for filing notice with the NFA given
the proposed changes to regulation 9.11(a) discussed above. The NPRM
provided that filing of the notice with the NFA is accomplished when an
authorized exchange employee verifies the accuracy of the information
entered into BASIC.
The Commission proposed to amend regulation 9.11(d), which sets
forth the effect of delivery and filing by mail, by deleting
instructions related to filing notices with the Commission by mail
since proposed regulation 9.11(c) calls for notice filings to be made
to the NFA via BASIC instead of with the Commission by mail.
Pursuant to Commission regulation 9.12(b), an exchange that
determines that a disciplinary action will become effective prior to
the expiration of 15 days after written notice to the person that is
the subject of such action must provide notification in writing either
personally or by telegram or other means of written telecommunication.
The exchange also must immediately notify the Commission by telegram or
other means of written telecommunication. The Commission proposed to
modernize regulation 9.12(b) by replacing references to ``telegram or
other means of written telecommunication'' with the term ``email'' and
provide a Commission email address for Commission notification.
Commission regulation 9.13 provides that whenever an exchange
suspends, expels or otherwise disciplines, or denies any person access
to the exchange, it must make its findings public by disclosing at
least the information contained in the Commission regulation 9.11(b)
notice. An exchange also must make such findings public as soon as the
disciplinary action or access denial action becomes effective by
posting a notice in a conspicuous place on its premises. As noted in
the NPRM, posting a notice of disciplinary action on the premises of an
exchange does little to publicize the action.\23\ Accordingly, the
Commission proposed to modernize regulation 9.13 by requiring the
notice to be posted on an exchange's website to which its members,
market participants, and the public regularly have access.\24\ The
Commission also proposed to amend regulation 9.13 by requiring the
notice to be maintained and readily available on an exchange's
website.\25\ As a result, the existing requirement to maintain and make
available for public inspection a record of the information contained
in the disciplinary or access denial notice would be eliminated.
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\23\ 82 FR 7743 (Jan. 23, 2017).
\24\ The Commission noted in the NPRM that many DCMs have
already adopted more modern methods to publicize notices of
disciplinary action. 82 FR 7743 (Jan. 23, 2017). For example, the
CME Group DCMs (Chicago Board of Trade (``CBOT''), Chicago
Mercantile Exchange (``CME''), Commodity Exchange, Inc.,
(``COMEX''), and New York Mercantile Exchange, Inc. (``NYMEX'')) and
ICE Futures U.S. notify subscribers of exchange disciplinary
postings via email. The Commission also noted that the amendment
generally tracks the Securities and Exchange Commission's (``SEC'')
standards for Release of Disciplinary Complaints, Decisions and
Other Information in Financial Industry Regulatory Authority, Inc.
(``FINRA'') Rule 8313, in which FINRA, with SEC approval, has
established its standard for releasing to the public a copy of FINRA
issued disciplinary complaints, decisions, and other disciplinary
information. See FINRA Rule 8313 ``Release of Disciplinary
Complaints, Decisions and Other Information,'' available at https://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3892. See also SEC Release
No. 34-69825; File No. SR-FINRA-2013-018 (June 21, 2013).
\25\ Some DCMs currently maintain records of disciplinary action
on their websites. For example, CBOE Futures Exchange, LLC maintains
a disciplinary decision database on its website that allows the
public to review disciplinary decisions dating back to 2012. The
Commission notes that in the securities industry, the New York Stock
Exchange maintains disciplinary notices as far back as 1972.
---------------------------------------------------------------------------
The Commission also noted in the NPRM that it anticipates that upon
the effective date of the final part 9 rules, it will include links on
its SmartCheck website to each exchange's website for posting notice of
disciplinary action or access denial action.\26\
---------------------------------------------------------------------------
\26\ 82 FR 7743 (Jan. 23, 2017). In November 2014, the CFTC
launched the SmartCheck website. It connects investors to tools to
check the registration, license, and disciplinary history of certain
financial professionals. This collection of tools allows the
responsible investor to confirm the credentials of investment
professionals, uncover any past disciplinary history, and stay ahead
of scam artists with news and alerts.
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B. Amendment to Regulation 3.31: Deficiencies, Inaccuracies, and
Changes To Be Reported
Pursuant to Commission regulation 3.31, an applicant or registrant
as a futures commission merchant (``FCM''), retail foreign exchange
dealer (``RFED''), swap dealer (``SD''), major swap participant
(``MSP''), commodity trading advisor (``CTA''), commodity pool operator
(``CPO''), introducing broker
[[Page 1541]]
(``IB''), or floor trader (``FT'') that is a non-natural person or
leverage transaction merchant (``LTM'') must promptly correct any
deficiency or inaccuracy in Form 7-R or Form 8-R which has rendered the
information contained therein non-current or inaccurate. These
corrections must be made in accordance with the instructions of each
form to create a Form 3-R record of such change.
In 1999, concurrent with the Part 9 Delegation and Part 9 Advisory,
the Commission issued an advisory pertaining to part 3 of the
Commission's regulations (``Part 3 Advisory''). The Part 3 Advisory
relieves registrants and applicants for registrant status from filing
the Form 3-R if the information to be reported is solely the result of
an exchange disciplinary or access denial action.\27\ In 2012, the
Commission eliminated the requirement that registrants and individuals
use Form 3-R to update their existing Form 7-R or 8-R and provided that
an update to a registrant's online Form 7-R or 8-R would automatically
create a record of changes equivalent to a completed Form 3-R.\28\ The
Commission proposed to codify the Part 3 Advisory by amending
regulation 3.31(a)(1) with language that relieves applicants or
registrants from the obligation to update their Form 7-R or 8-R if the
information to be reported is solely the result of an exchange
disciplinary or access denial action.
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\27\ The Part 3 Advisory also explains that the Commission has:
(1) Permitted exchanges (via the Part 9 Advisory) to file either
electronic or written Sec. 9.11 notices with the NFA instead of the
Commission and (2) delegated to the NFA (via the Part 9 Delegation)
the duty to receive and process exchange disciplinary and access
denial action information filed by the exchanges in accordance with
Commission regulation 9.11. The Commission further explained that,
as a result of the Part 9 Advisory and Part 9 Delegation, the NFA
possesses the exchange disciplinary and access denial action
information that registrants and applicants for registrant status
would otherwise be required to include in Form 3-R. Therefore, to
avoid duplicative reporting, the Part 3 Advisory advises all
individuals and entities subject to Commission regulation 3.31 that
they are relieved from Commission regulation 3.31 reporting
obligations resulting from an exchange disciplinary or access denial
action and reported by an exchange pursuant to a Sec. 9.11 notice.
64 FR 39912 (July 23, 1999).
\28\ 77 FR 51898 (Aug. 28, 2012).
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III. Comments on the Proposal
The comment period for the Proposal ended on March 24, 2017. The
Commission received one comment letter.\29\ The Minneapolis Grain
Exchange (``MGEX'') generally supported the Proposal while offering
some suggestions for certain provisions. MGEX agreed with the
Commission's general approach to modernize permitted methods of
communication. For example, MGEX cited the language in proposed
regulation 9.11(c) that would require an exchange only to verify that
information entered into NFA's BASIC system instead of mailing a notice
to the Commission as a positive change. MGEX also favorably cited
proposed regulation 9.12(b) that would permit an exchange to email
notice of an early effective date of disciplinary action instead of
mailing it or by telegram. MGEX noted these changes reduce burdens and
suggested that the Commission make similar changes to proposed
regulations 9.11(c) and (d) to allow an exchange to email a
disciplinary or access denial notice to the person subject to the
action.
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\29\ See https://comments.cftc.gov/PublicComments/CommentList.aspx?id=1776.
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MGEX agreed that an exchange should publish notices of certain
disciplinary actions on its website. However, MGEX requested that an
exchange have flexibility regarding how it fulfills this obligation. In
particular, MGEX requested that regulation 9.13 be amended to ensure
that an exchange has flexibility over the format, style, and location
of the notice on its website, as well as any ancillary website relating
to the publication of such notices. MGEX stated that an exchange should
be able to archive notices on its website after a reasonable period of
time. MGEX noted that archived notices should be accessible, but an
exchange should have discretion to maintain them separately on its
website. In addition, MGEX indicated that there may be situations where
removing a notice from its website would be appropriate and exchanges
should be provided with this discretion. In support of its position,
MGEX stated that the regulatory environment or exchange rules could
change over time such that certain notices no longer provide
educational or informative value. MGEX commented that having notices
that are predicated on antiquated rules may actually confuse members,
market participants, or the public. Finally, MGEX requested guidance
that regulation 9.13 will be limited to disciplinary actions that were
finalized after the effective date of any final rulemaking.
IV. Final Rules and Notice and Order
A. Final Rules
The Commission, in consideration of the MGEX comment, is adopting
the part 9 rules as proposed subject to the minor modifications
described below. The Commission agrees with MGEX's suggestion to amend
regulations 9.11(c) and (d) to allow an exchange to use email as a
permitted method of delivering notice of the disciplinary or access
denial action to the person subject to the action. Accordingly, the
Commission is modifying 9.11(c) to allow delivery of the notice to the
person's last known email address. The Commission is also amending
9.11(d) to provide that delivery of the disciplinary notice will be
complete upon transmission of the email.
The Commission also agrees with MGEX that an exchange should have
flexibility over the format, style, and location of the notice on its
website including any indexing or search functionality. The Commission
believes that adopting the rule as proposed provides sufficient
flexibility for exchanges in this regard, although the Commission notes
that an exchange must ensure that access to all disciplinary notices
remain readily accessible regardless of whether the exchange decides to
archive notices after a reasonable period of time.
In response to MGEX's comment requesting that exchanges should be
given discretion in certain situations to remove a disciplinary notice
from its website, the Commission acknowledges MGEX's concern that the
regulatory environment or exchange rules could change over time and
having notices that are predicated on antiquated rules may confuse
members, market participants, or the public. However, the Commission
believes that all disciplinary and access denial notices must be
maintained on the exchange's website without the possibility of
removal. Access to information regarding all exchange disciplinary and
access denial actions provides valuable guidance and information to
exchange members, market participants, and the public regardless of
whether the regulatory environment or an exchange rule has changed. For
example, the notices allow customers to consider member firms' and
traders' disciplinary histories when considering whether to engage in
business with them. This includes conduct by firms and traders that
violated an exchange rule at the time the rule was in effect. The final
rule also enables customers to consider an exchange's propensity to
sanction firms and traders for rule violations when considering whether
to trade on the exchange. In the limited circumstances where an
exchange believes that a disciplinary notice may confuse its members,
market participants, or the public as a result of a regulatory
environment or exchange rule change, an exchange could address this
concern by posting an attachment to
[[Page 1542]]
the disciplinary notice that explains the nature of any such change.
The Commission agrees with MGEX that the rulemaking should not be
applied retroactively to final exchange disciplinary actions.
Therefore, exchanges only will be required to publish disciplinary
actions that are finalized after the effective date of the final rules.
As discussed above, the Commission proposed to amend regulation
9.2(f) to expand the definition of ``member of an exchange'' to include
any person who has trading privileges on an exchange. The Commission
explained that this change is necessary to conform the part 9
definition of ``member'' to the meaning set forth in section 1a(34) of
the CEA and in 1.3(q) of the Commission's regulations. The Commission
is adopting the amendment to regulation 9.2(f) as proposed. The
Commission notes that 9.2(f)(1) preserves the prior definition of
``member of an exchange,'' while the inclusion of ``any person who has
trading privileges on an exchange'' under 9.2(f)(2) conforms the
``member of an exchange'' definition with the meaning set forth in
section 1a(34)(B) of the CEA and regulation 1.3(q)(1)(ii).
The Commission is also adopting the amendment to regulation
3.31(a)(1) as proposed. Therefore, the final rule relieves applicants
and registrants from the obligation to update their Form 7-R or 8-R if
the information to be reported is solely the result of an exchange
disciplinary or access denial action.
B. Deletion of References to Commission Form 3-R
The Commission is making an additional technical change to
regulation 3.31. As reflected in the amended text of the rule, the
Commission is eliminating the references to Form 3-R from subsections
(a)(1), (a)(3), (b), and (c)(1) of regulation 3.31 by deleting from
these subsections the phrase ``to create a Form 3-R record of change.''
\30\ The Commission no longer requires market participants to use the
Form 3-R.\31\ Additionally, by separate Notice, the Commission formally
proposed to cancel the Form 3-R and transfer the administrative burdens
associated with that form to Forms 7-R and 8-R.\32\ Accordingly, the
Commission is updating regulation 3.31 to reflect the retirement of
Form 3-R. For these same reasons, the Commission is making a similar
technical change to regulation 3.11. As reflected in the amended text
of the rule, the Commission is deleting the reference to Form 3-R from
subsection (b) of regulation 3.11. The Commission notes that these
changes to regulations 3.11 and 3.31 are purely technical and do not
affect the obligations of the individuals and entities subject to these
rules.
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\30\ The phrase being deleted from subsection (a)(1) of
regulation 3.31 is ``to create a Form 3-R record of such change.''
\31\ Registration of Intermediaries, 77 FR 51898 (Aug. 28,
2012).
\32\ Agency Information Collection Activities: Proposed
Collection Revision, Comment Request: Adoption of Revised
Registration Form 8-R and Cancellation of Form 3-R, 82 FR 19663,
19664 (Apr. 28, 2017).
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C. Notice and Order
In a separate document published elsewhere in this issue of the
Federal Register, the Commission issued an updated Notice and Order to
replace the Part 9 Delegation from 1999 regarding the specific duties
delegated by the Commission to the NFA for receiving and processing
exchange disciplinary and access denial information. Among other
things, the Notice and Order is being updated to account for the
amendment to regulation 9.11(a) that will require exchanges to file
disciplinary and access denial actions with the NFA. As discussed
above, prior to this amendment, exchanges were only encouraged to file
the notifications with the NFA, but not required. In addition, the
updated Notice and Order includes SEFs now filing the required notices
with the NFA as SEFs did not exist when the Commission issued the Part
9 Delegation and Advisory in 1999.
Consistent with the Part 9 Delegation, the updated Notice and Order
delegates to the NFA the authority to perform the following functions:
(1) To process exchange disciplinary information filed by an exchange
or the Commission in the BASIC system; (2) to provide the Commission
with access to a Management Report summarizing all recent exchange
disciplinary information and to provide the Commission with the
capability to generate standardized reports on the BASIC system; (3) to
assist the Commission in enforcing exchange compliance with regulation
9.11 filing requirements; and (4) to serve as the official custodian of
a database containing records of all exchange disciplinary and access
denial actions filed with the NFA for inclusion in the BASIC system.
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires federal agencies,
in promulgating rules, to consider the impact of those rules on small
entities.\33\ The Commission did not receive any comments with respect
to the RFA. The part 9 rules adopted herein will affect all SEFs and
DCMs. The Commission previously established certain definitions of
``small entities'' to be used by the Commission in evaluating the
impact of its regulations on small entities in accordance with the
RFA.\34\ The Commission previously determined that DCMs and SEFs are
not small entities for purposes of the RFA.\35\
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\33\ 5 U.S.C. 601 et seq.
\34\ See 47 FR 18618 through 18621 (Apr. 30, 1982).
\35\ See 47 FR 18618, 18619 (Apr. 30, 1982) (DCMs); 78 FR 33548
(June 4, 2013) (SEFs).
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The part 3 rules adopted herein will affect certain applicant or
registrant FCMs, RFEDs, SDs, MSPs, CTAs, CPOs, IBs, FTs who are non-
natural persons, and LTMs who will no longer have to file a Form 7-R or
8-R if the information to be reported is solely the result of an
exchange disciplinary or access denial action. The Commission
previously determined that FCMs, RFEDs, SDs, MSPs, CPOs, and LTMs are
not small entities for purposes of the RFA.\36\ Therefore, the
requirements of the RFA do not apply to those entities. With respect to
CTAs, FTs, and IBs, the Commission has found it appropriate to consider
whether such registrants should be deemed small entities for purposes
of the RFA on a case-by-case basis, in the context of the particular
Commission regulation at issue.\37\ As certain of these registrants may
be small entities for purposes of the RFA, the Commission has
considered whether the final rules will have a significant impact on
these registrants.
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\36\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618 (Apr. 30, 1982) (FCMs and CPOs); Leverage Transactions,
54 FR 41068 (Oct. 5, 1989) (LTMs); Regulation of Off-Exchange Retail
Foreign Exchange Transactions and Intermediaries, 75 FR 55410, 55416
(Sept. 10, 2010) (RFEDs); and Registration of Swap Dealers and Major
Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs and MSPs).
\37\ See 47 FR 18620 (Apr. 30, 1982) (CTAs); Registration of
Floor Traders; Mandatory Ethics Training for Registrants; Suspension
of Registrants Charged With Felonies, 58 FR 19575, 19588 (Apr. 15,
1993) (FTs); and Introducing Brokers and Associated Persons of
Introducing Brokers, Commodity Trading Advisors and Commodity Pool
Operators; Registration and Other Regulatory Requirements, 48 FR
35248, 35276 (Aug. 3, 1983) (IBs).
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The amendment to Commission regulation 3.31 is not substantive in
nature. In 1999, the Commission published the Part 3 Advisory which
relieved all applicants and registrants from filing a Form 3-R if the
information to be reported is solely the result of an exchange
disciplinary or
[[Page 1543]]
access denial action.\38\ Beyond conforming the regulation to an
established agency policy provided for in the Part 3 Advisory, the
conforming amendments to regulation 3.31 will not affect the current
processes or impose any new costs on small entities. The final rule
codifies the filing relief set forth in the Part 3 Advisory and will
not impose any new regulatory obligations on any registrant, including
CTAs, FTs, and IBs.
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\38\ 64 FR 39912 (July 23, 1999).
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The Commission does not, therefore, expect small entities to incur
any additional costs as a result of the final rules. Consequently, the
Commission finds that no significant economic impact on small entities
will result from the final rules.
Accordingly, the Chairman, on behalf of the Commission pursuant to
5 U.S.C. 605(b), certifies that the final rules will not have a
significant economic impact on a substantial number of small entities.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') 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.\39\ 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 issued
by the Office of Management and Budget (``OMB''). The final rules
contain provisions that qualify as collections of information, for
which the Commission has already sought and obtained control numbers
from the OMB. The titles for these collections of information are
``Part 38--Core Principles and Other Requirements for Designated
Contract Markets'' (OMB Control Number 3038-0052) and ``Part 37--Core
Principles and Other Requirements for Swap Execution Facilities'' (OMB
Control Number 3038-0074).
---------------------------------------------------------------------------
\39\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
As explained in the NPRM, the Commission did not seek to amend
information collections 3038-0052 or 3038-0074 because the Commission
believes that the rule modifications proposed would not impose any new
information collection requirements that require approval from OMB
under the PRA.\40\ The Commission invited public comment on the
accuracy of its determination that no additional recordkeeping or
information collection requirements or changes to existing collection
requirements would result from the Proposal.\41\ The Commission did not
receive any such comments. Accordingly, the Commission believes the
final rules will not impact the current burden estimates for
collections 3038-0052 and 3038-0074. The Commission will nevertheless,
by separate action, publish in the Federal Register a notice and
request for comment on the additional elements to be included as part
of exchange notices, and submit to OMB an information collection
request to amend the relevant information collection, in accordance
with 44 U.S.C. 3506(c)(2)(A) and 5 CFR 1320.8(d). As noted previously,
by separate Notice published in the Federal Register, the Commission
provided notice that the Form 3-R was being cancelled, and that the PRA
burdens associated with Form 3-R under collections 3038-0023 and 3038-
0072 were being reassigned to Forms 7-R and 8-R.\42\
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\40\ 82 FR 7745-46 (Jan. 23, 2017).
\41\ For collection 3038-0052, see OMB Control No. 3038-0052,
available at https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber= 3038-0052. For collection 3038-0074,
see OMB Control No. 3038-0074, available at https://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber= 3038-0074.
\42\ 82 FR 19663 (Apr. 28, 2017).
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C. Cost-Benefit Considerations
1. Introduction
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 certain orders.\43\ Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
financial integrity of the markets; (3) price discovery; (4) sound risk
management practices; and (5) other public interest considerations. The
Commission considers the costs and benefits resulting from its
discretionary determinations with respect to the section 15(a) factors.
---------------------------------------------------------------------------
\43\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
The Commission considers the costs and benefits associated with the
final rules, including updating the pre-existing regulatory framework
to incorporate SEFs, removing references to part 8 of the Commission's
regulations, and revising the reporting and notice requirements for
DCMs and SEFs. The Commission compares the costs and benefits of this
rulemaking against a baseline of the status quo, the current
requirements under part 3 and part 9. As explained in the NPRM, and as
adopted, the rules are primarily technical in nature that clarify the
obligations under the current rules and generally do not impose any new
costs on DCMs, SEFs, or market participants.\44\ Regulation
9.11(b)(3)(ii) will require the exchanges to specify in the
disciplinary notices the product involved in the disciplinary action
and whether the rule violation resulted in financial harm to any
customers. The Commission acknowledges that these additional elements
in the disciplinary notices may result in additional costs, but any
such costs would be de minimis. Accordingly, the Commission addresses
below the costs associated with Commission regulation 9.13 requirement
for DCMs and SEFs to publish and maintain disciplinary notices on their
respective websites.
---------------------------------------------------------------------------
\44\ 82 FR 7746 (Jan. 23, 2017).
---------------------------------------------------------------------------
In the Proposal, the Commission sought comment concerning all
aspects of the costs and benefits. The Commission did not receive any
comments that specifically addressed the Cost-Benefit Considerations
section of the Proposal. However, MGEX commented that the proposed
amendment to regulation 9.11(c) that would allow an exchange to only
have to verify that information has been entered into NFA BASIC instead
of mailing a notice to the Commission, and the amendment to 9.12(b)
that would permit an exchange to satisfy its obligations to deliver
notice of the disciplinary or access denial action by email reduces the
burden to exchanges, albeit in nominal ways. As discussed above, the
Commission is amending regulations 9.11(c) and (d) to allow exchanges
to satisfy their delivery obligations of the disciplinary or access
denial action to the person subject to the action by email.
Finally, in light of NFA's role and experience in performing
registration functions on behalf of the Commission and as the custodian
of related records (including exchange disciplinary filings), the
Commission believes that it is appropriate to remove the requirement
that an exchange provide written notice to the Commission of a final
disciplinary action or access denial action and replace it with a
requirement to provide notice to the NFA. NFA performs registration
processing functions with respect to applicants and registrants and an
individual's or firm's disciplinary history is a factor that must be
considered in any fitness determination. Delegating to the NFA the
responsibility for processing such filings and generating reports with
the
[[Page 1544]]
information amassed, should ensure that the NFA has the necessary
information to continue to make appropriate registration
determinations. The Commission also believes this delegation will
enhance efficiency by permitting the Commission to carry out its
statutory responsibilities under the CEA, while also freeing up
Commission resources to be directed to other parts of its regulatory
mandate.
2. Commission Regulation 9.13--Publication of Notice
Commission regulation 9.13 requires all DCMs and SEFs to maintain
and make readily accessible final notices of exchange disciplinary and
access denial actions on their websites.\45\ This new requirement
replaces the existing requirement in Commission regulation 9.13 that
exchanges publish the notice in a conspicuous place on the exchange's
premises.
---------------------------------------------------------------------------
\45\ 17 CFR 9.13.
---------------------------------------------------------------------------
a. Costs
The Commission continues to believe that requiring exchanges to
post final disciplinary and access denial notices to their websites
will slightly increase the costs for DCMs and SEFs. The Commission
notes that the additional costs incurred by DCMs and SEFs will be
offset in part due to the amendment in Commission regulation 9.13 that
removes the requirement of posting disciplinary and access denial
notices on the premises of the respective DCM or SEF. In order to
estimate the additional costs, the Commission queried the NFA's BASIC
system to determine the total number of disciplinary and access denial
actions filed by DCMs and SEFs in 2016.\46\
---------------------------------------------------------------------------
\46\ The Commission's cost estimates in the NPRM were based on
the 452 disciplinary and access denial actions filed by DCMs in
2015. Because SEFs did not post any such actions with BASIC in 2015,
the cost estimates for SEFs were based on the disciplinary and
access denial actions filed by DCMs in 2015, excluding the four DCMs
with the largest number of reported disciplinary and access denial
actions. The Commission explained that the average number of
disciplinary and access denial actions by the other 11 DCMs provide
a more appropriate comparison with respect to estimating the number
of actions filed by SEFs annually. This average resulted in an
estimate of eight disciplinary and access denial actions filed in
BASIC for each SEF annually. The Commission noted that as the SEFs
mature, in terms of the number of participants and volume, the
number of disciplinary and access denial actions may increase
accordingly. 82 FR 7746 (Jan. 23, 2017).
---------------------------------------------------------------------------
Total number of reported disciplinary and access denial actions in
BASIC by all DCMs: 296.
Total number of reported disciplinary and access denial actions in
BASIC by all SEFs: 15.
The total number of exchange disciplinary and access denial actions
per year for all DCMs and SEFs is estimated to be 311 (296 actions for
DCMs plus 15 actions for SEFs equals 311 total actions per year). The
Commission anticipates each DCM and SEF will spend an additional 15
minutes per disciplinary notice to post on the exchange's website above
the current requirement of posting the notice on the exchange's
premises. Accordingly, the aggregate new burden of Commission
regulation 9.13 is estimated to be 77.75 hours per year for the 15 DCMs
and 24 SEFs (15 minutes multiplied by 311 anticipated actions per year
equals 77.75 burden hours).
The Commission expects that a compliance officer employed by the
exchange will post the disciplinary or access denial action notices to
the exchange website. According to recent Bureau of Labor Statistics
National Occupational Employment and Wage Estimates, the mean hourly
wage of an employee under occupation code 13-1041, ``Compliance
Officers,'' that is employed by the ``Securities and Commodity
Exchanges'' industry is $46.01. Because DCMs and SEFs can be large,
specialized entities that may engage employees with wages above the
mean, the Commission has conservatively chosen to use a mean hourly
wage of $50 per hour.\47\ Accordingly, the burden associated with
posting the disciplinary notices on exchange websites is approximately
$3,887.50 per year for all of the 15 DCMs and 24 SEFs, ($50 multiplied
by the anticipated 77.75 burden hours equals $3,887.50 per year).\48\
---------------------------------------------------------------------------
\47\ Bureau of Labor Statistics, Occupational Employment and
Wages: 13-1041 Compliance Officers, (May 2014), available at https://www.bls.gov/oes/current/oes131041.htm.
\48\ As noted in the NPRM, the Commission acknowledges that
requiring exchanges to post final notices of disciplinary and access
denial actions on their websites may necessitate additional
bandwidth. The Commission anticipates that any increased costs due
to added bandwidth will be insignificant in its calculation of the
total annual burden associated with the final rules. 82 FR 7747
(Jan. 23, 2017).
---------------------------------------------------------------------------
b. Benefits
The Commission continues to believe that greater access to
information regarding exchange disciplinary and access denial actions
provides valuable guidance and information to exchange members, market
participants, and the public. Releasing disciplinary information to the
public serves to deter and prevent future misconduct and to improve
overall compliance standards in the futures and swaps industry. It also
allows customers to consider member firms' and traders' disciplinary
histories when considering whether to engage in business with them. In
addition, firms may use such information to educate their traders and
associated persons as to compliance matters, highlighting potential
violations and related sanctions. Further, any firm or individual
facing allegations of rule violations may access existing disciplinary
decisions to gain greater insight on related facts and sanctions. The
Commission believes that the added deterrence of publishing
disciplinary notices on exchange websites and the enhanced
investigative and educational benefits of making such information
public will ultimately decrease the incidents of wrongdoing and market
abuses which benefits both market participants and the general public.
c. Section 15(a) Factors
As noted above, section 15(a) of the CEA requires the Commission to
consider the effects of its actions in light of the following five
factors:
(1) Protection of market participants and the public. The
Commission believes that market participants and the public will
benefit from the ministerial and conforming amendments since they
eliminate obsolete, vestigial provisions and references that otherwise
could be construed to give rise to confusing inconsistencies between
the Commission's regulations and the provisions of the CEA.
Furthermore, the Commission believes that the amendment to regulation
9.13, which requires exchanges to publish notice of final disciplinary
and access denial actions on exchange websites, increases transparency
of exchange disciplinary actions and serves as a deterrence of future
market abuses. These enhancements allow for operational efficiencies in
oversight, increased deterrence from market abuses, and greater
transparency of the exchange disciplinary process. Therefore, the
Commission anticipates that the amendment to regulation 9.13 will
result in improved protection of market participants and the public.
(2) The efficiency, competitiveness, and financial integrity of the
markets. The requirement that exchanges publish disciplinary notices
and access denial actions on their websites is intended to improve the
operational efficiency and financial integrity of the futures and swaps
markets by enabling the public and those who access an exchange website
to be made aware of any disciplinary and access denial actions imposed
by the exchange. By publishing
[[Page 1545]]
the notice on the exchange's website, the Commission believes that the
efficiency and financial integrity of the markets will be bolstered by
the deterrent effect achieved by posting the notice in a publicly
accessible medium.
(3) Price discovery. The Commission did not identify any impact on
price discovery as a result of the proposed regulations, and did not
believe there would be one, but sought comment as to any potential
impact. The Commission did not receive any comments on this issue.
Accordingly, the Commission believes that the final regulations will
not impact price discovery.
(4) Sound risk management practices. The Commission did not
identify any impact on sound risk management practices as a result of
the proposed regulations, and did not believe there would be one, but
sought comment as to any potential impact. The Commission did not
receive any comments on this issue. Accordingly, the Commission
believes that the final regulations will not impact sound risk
management practices.
(5) Other public interest considerations. The Commission has not
identified any other public interest considerations.
D. Antitrust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA in issuing any order or adopting any Commission
rule or regulation. The Commission does not anticipate that the
amendments adopted herein would promote or result in anticompetitive
consequences or behavior.
List of Subjects
17 CFR Part 3
Administrative practice and procedure, Brokers, Commodity futures,
Major swap participants, Reporting and recordkeeping requirements, Swap
dealers.
17 CFR Part 9
Administrative practice and procedure, Commodity exchanges,
Commodity futures.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR chapter I as follows:
PART 3--REGISTRATION
0
1. The authority citation for part 3 is revised to read as follows:
Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1,
6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12,
12a, 13b, 13c, 16a, 18, 19, 21, and 23.
0
2. In Sec. 3.11, revise paragraph (b) to read as follows:
Sec. 3.11 Registration of floor brokers and floor traders.
* * * * *
(b) Duration of registration. A person registered as a floor broker
or floor trader in accordance with paragraph (a) of this section, and
whose registration has neither been revoked nor withdrawn, will
continue to be so registered unless such person's trading privileges on
all contract markets and swap execution facilities have ceased:
Provided, that if a floor broker or floor trader whose trading
privileges on all contract markets and swap execution facilities have
ceased for reasons unrelated to any Commission action or any contract
market or swap execution facility disciplinary proceeding and whose
registration is not revoked, suspended or withdrawn is granted trading
privileges as a floor broker or floor trader, respectively, by any
contract market or swap execution facility where such person held such
privileges within the preceding sixty days, such registration as a
floor broker or floor trader, respectively, shall be deemed to continue
and no new Form 7-R, Form 8-R or change to Form 7-R or Form 8-R need be
filed solely on the basis of the resumption of trading privileges. A
floor broker or floor trader is prohibited from engaging in activities
requiring registration under the Act or from representing such person
to be a registrant under the Act or the representative or agent of any
registrant during the pendency of any suspension of such registration
or of all such trading privileges. Each contract market and swap
execution facility that has granted trading privileges to a person who
is registered, or has applied for registration, as a floor broker or
floor trader, must provide notice in accordance with Sec. 3.31(d)
after such person's trading privileges on such contract market or swap
execution facility have ceased.
* * * * *
0
3. In Sec. 3.31, revise paragraphs (a)(1), (a)(3)(i), (b), and (c)(1)
to read as follows:
Sec. 3.31 Deficiencies, inaccuracies, and changes, to be reported.
(a)(1) Each applicant or registrant as a futures commission
merchant, retail foreign exchange dealer, swap dealer, major swap
participant, commodity trading advisor, commodity pool operator,
introducing broker, floor trader that is a non-natural person or
leverage transaction merchant shall, in accordance with the
instructions thereto, promptly correct any deficiency or inaccuracy in
Form 7-R or Form 8-R that no longer renders accurate and current the
information contained therein, with the exception of any change that
requires withdrawal from registration under Sec. 3.33 or any change
resulting from an exchange disciplinary or access denial action. Each
such correction shall be prepared and filed in accordance with the
instructions thereto.
* * * * *
(3) * * *
(i) If the new principal is not a natural person, the registrant
shall update such Form 7-R.
* * * * *
(b) Each applicant or registrant as a floor broker, floor trader or
associated person, and each principal of a futures commission merchant,
retail foreign exchange dealer, swap dealer, major swap participant,
commodity trading advisor, commodity pool operator, introducing broker,
floor trader that is a non-natural person, or leverage transaction
merchant must, in accordance with the instructions thereto, promptly
correct any deficiency or inaccuracy in the Form 8-R or supplemental
statement thereto.
(c)(1) After the filing of a Form 8-R or updating a Form 8-R by or
on behalf of any person for the purpose of permitting that person to be
an associated person of a futures commission merchant, retail foreign
exchange dealer, commodity trading advisor, commodity pool operator,
introducing broker, or a leverage transaction merchant, that futures
commission merchant, retail foreign exchange dealer, commodity trading
advisor, commodity pool operator, introducing broker or leverage
transaction merchant must, within thirty days after the occurrence of
either of the following, file a notice thereof with the National
Futures Association indicating:
(i) The failure of that person to become associated with the
futures commission merchant, retail foreign exchange dealer, commodity
trading advisor, commodity pool operator, introducing broker, or
leverage transaction merchant, and the reasons therefor; or
(ii) The termination of the association of the associated person
with the futures commission merchant, retail foreign exchange dealer,
commodity trading advisor, commodity pool operator,
[[Page 1546]]
introducing broker, or leverage transaction merchant, and the reasons
therefor.
* * * * *
PART 9--RULES RELATING TO REVIEW OF EXCHANGE DISCIPLINARY, ACCESS
DENIAL OR OTHER ADVERSE ACTIONS
0
4. The authority citation for part 9 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b-1, 6c, 7, 7a-2, 7b-3, 8, 9, 9a,
12, 12a, 12c, 13b, 16a, 18, 19, and 21.
0
5. In Sec. 9.1, revise paragraphs (b) and (c) to read as follows:
Sec. 9.1 Scope of rules.
* * * * *
(b) Matters excluded. This part does not apply to and the
Commission will not accept notices of appeal, or petitions for stay
pending review, of:
(1) Any arbitration proceeding, regardless of whether the
proceeding involved a controversy between members of an exchange;
(2) Except as provided in Sec. Sec. 9.11(a), (b)(3)(i) through
(v), and (c), and 9.12(a) and 9.13 (concerning the notice, effective
date and publication of a disciplinary or access denial action), any
summary action permitted under the provisions of part 37, appendix B,
Core Principle 2, paragraph (a)(13) of this chapter or part 38,
appendix B, Core Principle 13, paragraph (a)(6) of this chapter
imposing a minor penalty for the violation of exchange rules relating
to decorum or attire, or relating to the timely submission of accurate
records required for clearing or verifying each day's transactions or
other similar activities; and
(3) Any exchange action arising from a claim, grievance, or dispute
involving cash market transactions which are not a part of, or directly
connected with, any transaction for the purchase, sale, delivery or
exercise of a commodity for future delivery, a commodity option, or a
swap.
(4) The Commission will, upon its own motion or upon motion filed
pursuant to Sec. 9.21(b), promptly notify the appellant and the
exchange that it will not accept the notice of appeal or petition for
stay of matters specified in this paragraph. The determination to
decline to accept a notice of appeal will be without prejudice to the
appellant's right to seek alternate forms of relief that may be
available in any other forum.
(c) Applicability of these part 9 rules. Unless otherwise ordered,
these rules will apply in their entirety to all appeals, and matters
relating thereto.
0
6. In Sec. 9.2, revise paragraphs (b), (c), (f), and (k) to read as
follows:
Sec. 9.2 Definitions.
* * * * *
(b) Disciplinary action means any suspension, expulsion or other
penalty imposed on a person by an exchange for violations of rules of
the exchange, including summary actions.
(c) Exchange means a swap execution facility or any board of trade
which has been designated as a contract market.
* * * * *
(f) Member of an exchange means:
(1) Any person who is admitted to membership or has been granted
membership privileges on an exchange; any employee, officer, partner,
director or affiliate of such member or person with membership
privileges including any associated person; and any other person under
the supervision or control of such member or person with membership
privileges; or
(2) Any person who has trading privileges on an exchange.
* * * * *
(k) Summary action means a disciplinary action resulting in the
imposition of a penalty on a person for violation of rules of the
exchange permitted under the provisions of part 37, appendix B, Core
Principle 2, paragraph (a)(10)(vi) of this chapter or part 38, appendix
B, Core Principle 13, paragraph (a)(4) of this chapter (penalty for
impeding progress of hearing); part 37, appendix B, Core Principle 2,
paragraph (a)(14) of this chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(7) of this chapter (emergency disciplinary
actions); part 37, appendix B, Core Principle 2, paragraph (a)(13) of
this chapter (summary fines for violations of rules regarding timely
submission of records); or part 38, appendix B, Core Principle 13,
paragraph (a)(6) of this chapter (summary fines for violations of rules
regarding timely submission of records, decorum, or other similar
activities).
0
7. Revise Sec. 9.3 to read as follows:
Sec. 9.3 Provisions referenced.
Except as otherwise provided in this part, the following provisions
of the Commission's rules relating to reparations contained in part 12
of this chapter apply to this part: Sec. 12.3 (Business address;
hours); Sec. 12.5 (Computation of time); Sec. 12.6 (Extensions of
time; adjournments; postponements); Sec. 12.7 (Ex parte communications
in reparation proceedings); and Sec. 12.12 (Signature).
0
8. In Sec. 9.4, revise paragraphs (a), (b), and (c) to read as
follows:
Sec. 9.4 Filing and service; official docket.
(a) Filing with the Proceedings Clerk; proof of filing; proof of
service. Any document that is required by this part to be filed with
the Proceedings Clerk must be filed by delivering it in person or by
mail to: Proceedings Clerk, Office of Proceedings, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street NW,
Washington, DC 20581. To be timely filed under this part, a document
must be delivered or mailed to the Proceedings Clerk within the time
prescribed for filing. A party must use a means of filing which is at
least as expeditious as that used in serving that document upon the
other parties. Proof of filing must be made by attaching to the
document for filing a statement of service as provided in Sec.
10.12(a)(6) of this chapter.
(b) Formalities of filing--(1) Number of copies. Unless otherwise
specifically provided, an original and one conformed copy of all
documents filed with the Commission in accordance with the provisions
of this part must be filed with the Proceedings Clerk.
(2) Title page. All documents filed with the Proceedings Clerk must
include at the head thereof, or on a title page, the name of the
Commission, the title of the proceeding, the docket number (if one has
been assigned by the Proceedings Clerk), the subject of the particular
document and the name of the person on whose behalf the document is
being filed.
(3) Paper, spacing, type. All documents filed with the Proceedings
Clerk must be typewritten, must be on one grade of good white paper no
less than 8 or more than 8\1/2\ inches wide and no less than 10\1/2\ or
more than 11\1/2\ inches long, and must be bound on the top only. They
must be double-spaced, except for long quotations (3 or more lines) and
footnotes which should be single-spaced.
(4) Signature. The original copy of all papers must be signed in
ink by the person filing the same or by his or her duly authorized
agent or attorney.
(c) Service--(1) General requirements. All documents filed with the
Proceedings Clerk must, at or before the time of filing, be served upon
all parties. A party must use a means of service which is at least as
expeditious as that used in filing that document with the Proceedings
Clerk. One copy of all motions, petitions or applications made in the
course of the proceeding, all notices of appeal, all briefs, and
letters to the Commission or an employee thereof must be served by a
party upon all other parties.
[[Page 1547]]
(2) Manner of service. Service may be either personal or by mail.
Service by mail is complete upon deposit of the document in the mail.
Where service is effected by mail, the time within which the person
served may respond thereto will be increased by three days.
(3) Designation of person to receive service. The first document
filed in a proceeding by or on behalf of any party must state on the
first page the name and postal address of the person who is authorized
to receive service for the party of all documents filed in the
proceeding. Thereafter, service of documents must be made upon the
person authorized unless service on a different authorized person or on
the party himself or herself is ordered by the Commission, or unless
pursuant to Sec. 9.8 the person authorized is changed by the party
upon due notice to all other parties. Parties must file and serve
notification of any changes in the information provided pursuant to
this subparagraph as soon as practicable after the change occurs.
* * * * *
0
9. In Sec. 9.8, revise paragraph (a)(1) to read as follows:
Sec. 9.8 Practice before the Commission.
(a) * * *
(1) By non-attorneys. An individual may appear pro se (on his or
her own behalf); a general partner may represent the partnership; a
bona fide officer of a corporation, trust or association may represent
the corporation, trust or association.
* * * * *
0
10. In Sec. 9.9, revise paragraphs (b)(3) and (4) to read as follows:
Sec. 9.9 Waiver of rules; delegation of authority.
* * * * *
(b) * * *
(3) The General Counsel, or his or her designee, may submit to the
Commission for its consideration any matter which has been delegated
pursuant to paragraph (b)(1) of this section.
(4) Nothing in this section will be deemed to prohibit the
Commission, at its election, from exercising the authority delegated to
the General Counsel, or his or her designee, under this section.
0
11. Revise Sec. 9.11 to read as follows:
Sec. 9.11 Form, contents and delivery of notice of disciplinary or
access denial action.
(a) When required. Whenever an exchange decision pursuant to which
a disciplinary action or access denial action is to be imposed has
become final, the exchange must, within thirty days thereafter, provide
written notice of such action to the person against whom the action was
taken and notice to the National Futures Association (``NFA'') through
the NFA's Background Affiliation Status Information Center (``BASIC'')
system: Provided, That a designated contract market is not required to
notify the NFA of any summary action, as permitted under the provisions
of part 38, appendix B, Core Principle 13, paragraph (a)(6) of this
chapter, which results in the imposition of minor penalties for the
violation of exchange rules relating to decorum or attire. No final
disciplinary or access denial action may be made effective by the
exchange except as provided in Sec. 9.12.
(b) Contents of notice. For purposes of this part:
(1) The written notice of a disciplinary action or access denial
action provided to the person against whom the action was taken by a
designated contract market must be a copy of a written decision which
accords with:
(i) Part 38, appendix B, Core Principle 13, paragraph (a)(3) of
this chapter in the case of settlement offers;
(ii) Section 38.708 of this chapter in the case of decisions; or
(iii) Part 38, appendix B, Core Principle 13, paragraph (a)(5)(iv)
of this chapter in the case of appeal decisions (including copies of
any materials incorporated by reference) or other written notice which
must include items listed in paragraphs (b)(3)(i)--(vi) of this
section.
(2) The written notice of a disciplinary action or access denial
action provided to the person against whom the action was taken by a
swap execution facility must be a copy of a written decision which
accords with:
(i) Part 37, appendix B, Core Principle 2, paragraph (a)(9) of this
chapter in the case of settlement offers;
(ii) Section 37.206(d) of this chapter in the case of decisions; or
(iii) Part 37, appendix B, Core Principle 2, paragraph (a)(11)(iv)
of this chapter in the case of appeal decisions (including copies of
any materials incorporated by reference) or other written notice which
must include items listed in paragraphs (b)(3)(i) through (vi) of this
section.
(3) The notice of a disciplinary action or access denial action
provided to the NFA must include only the items listed in the following
paragraphs (b)(3)(i) through (v):
(i) The name of the person against whom the disciplinary action or
access denial action was taken;
(ii) A statement of the reasons for the disciplinary action or
access denial action, detailing the exchange product which was
involved, as applicable, and whether the violation that resulted in the
action also resulted in financial harm to any customers together with a
listing of any rules which the person who was the subject of the
disciplinary action or access denial action was charged with having
violated or which otherwise serve as the basis of the exchange action;
(iii) A statement of the conclusions and findings made by the
exchange with regard to each rule violation charged or, in the event of
settlement, a statement specifying those rule violations which the
exchange has reason to believe were committed;
(iv) The terms of the disciplinary action or access denial action;
(v) The date on which the action was taken and the date the
exchange intends to make the disciplinary or access denial action
effective; and
(vi) Except as otherwise provided in Sec. 9.1(b), a statement
informing the party subject to the disciplinary action or access denial
action of the availability of Commission review of the exchange action
pursuant to section 8c of the Act and this part.
(c) Delivery and filing of the notice. Delivery of the notice must
be made personally to the person who was the subject of the
disciplinary action or access denial action, by mail to such person at
that person's last known address, or by email to the person's last
known email address. Filing of the notice with the NFA is accomplished
when an authorized exchange employee verifies the accuracy of the
information entered into BASIC.
(d) Effect of delivery by mail or email. Delivery by mail to the
person disciplined or denied access will be complete upon deposit in
the mail of a properly addressed and postpaid document. Where delivery
to the person disciplined or denied access is effected by such mail,
the time within which a notice of appeal or petition for stay may be
filed will be increased by three days. Delivery by email will be
complete upon transmission of the email.
(e) Certification. Copies of the notice and the submission of any
additional information provided pursuant to this section must be
certified as true and correct by a duly authorized officer, agent or
employee of the exchange. Notice filed with the NFA is deemed certified
when an authorized exchange employee verifies the accuracy of the
information entered into BASIC.
0
12. Revise Sec. 9.12 to read as follows:
[[Page 1548]]
Sec. 9.12 Effective date of disciplinary or access denial action.
(a) Effective date. Any disciplinary or access denial action taken
by an exchange will not become effective until at least fifteen days
after the written notice prescribed by Sec. 9.11 is delivered to the
person disciplined or denied access; Provided, however, That the
exchange may cause a disciplinary action to become effective prior to
that time if:
(1) As permitted by part 37, appendix B, Core Principle 2,
paragraph (a)(14) of this chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(7) of this chapter (emergency disciplinary
actions), the exchange reasonably believes, and so states in its
written decision, that immediate action is necessary to protect the
best interests of the marketplace; or
(2) As permitted by part 37, appendix B, Core Principle 2,
paragraph (a)(10)(vi) of this chapter or part 38, appendix B, Core
Principle 13, paragraph (a)(4) of this chapter (hearings), the exchange
determines, and so states in its written decision, that the actions of
a person who is within the exchange's jurisdiction has impeded the
progress of a disciplinary hearing; or
(3) As permitted by part 37, appendix B, Core Principle 2,
paragraph (a)(13) of this chapter (summary fines for violations of
rules regarding timely submission of records) or part 38, appendix B,
Core Principle 13, paragraph (a)(6) of this chapter (summary fines for
violations of rules regarding timely submission of records, decorum, or
other similar activities), the exchange determines that a person has
violated exchange rules relating to decorum or attire, or timely
submission of accurate records required for clearing or verifying each
day's transactions or other similar activities; or
(4) The person against whom the action is taken has consented to
the penalty to be imposed and to the timing of its effectiveness.
(b) Notice of early effective date. If the exchange determines in
accordance with paragraph (a)(1) of this section that a disciplinary
action will become effective prior to the expiration of fifteen days
after written notice thereof, it must notify the person disciplined in
writing, either personally or by email to the person's last known email
address, stating the reasons for the determination. The exchange must
also immediately notify the Commission by email to [email protected].
Where notice is delivered by email, the time within which the person so
notified may file a petition for stay pursuant to Sec. 9.24(a)(2) will
be increased by one day.
0
13. Revise Sec. 9.13 to read as follows:
Sec. 9.13 Publication of notice.
Whenever an exchange suspends, expels or otherwise disciplines, or
denies any person access to the exchange, it must make public its
findings by disclosing at least the information contained in the notice
required by Sec. 9.11(b). An exchange must make such findings public
as soon as the disciplinary action or access denial action becomes
effective in accordance with the provisions of Sec. 9.12 by posting a
notice on its website to which its members and the public regularly
have access. Such notice must be maintained and readily available on
the exchange's website.
0
14. In Sec. 9.24, revise paragraph (a)(2) to read as follows:
Sec. 9.24 Petition for stay pending review.
(a) * * *
(2) Within ten days after a notice of summary action has been
delivered in accordance with Sec. 9.12(b) to a person who is the
subject of a summary action permitted by part 37, appendix B, Core
Principle 2, paragraph (a)(14) of this chapter or part 38, appendix B,
Core Principle 13, paragraph (a)(7) of this chapter (emergency
disciplinary actions), that person may petition the Commission to stay
the effectiveness of the summary action pending completion of the
exchange proceeding.
* * * * *
0
15. Revise Sec. 9.31 to read as follows:
Sec. 9.31 Commission review of disciplinary or access denial action
on its own motion.
(a) Request for additional information. Where a person disciplined
or denied access has not appealed the exchange decision to the
Commission, upon review of the notice specified in Sec. 9.11, the
Division of Market Oversight or the Division of Swap Dealer and
Intermediary Oversight may request that the exchange file with the
Division the record of the exchange proceeding, or designated portions
of the record, a brief statement of the evidence and testimony adduced
to support the exchange's findings that a rule or rules of the exchange
were violated and such recordings, transcripts and other documents
applicable to the particular exchange proceeding as the Division may
specify. The exchange must promptly advise the person who is the
subject of the disciplinary or access denial action of the Division's
request. Within thirty days after service of the Division's request,
the exchange must file the information requested with the Division in
the manner requested by the Division and, upon request, deliver that
information to the person who is the subject of the disciplinary or
access denial action. Delivery to the person who is the subject of the
disciplinary or access denial action must be in the manner prescribed
by Sec. 9.11(c). A person subject to the disciplinary action or access
denial action requesting a copy of the information furnished to the
Division must, if the exchange rules so provide, agree to pay the
exchange reasonable fees for printing the copy.
(b) Review on motion of the Commission. The Commission may
institute review of an exchange disciplinary or access denial action on
its own motion. Other than in extraordinary circumstances, such review
will be initiated within 180 days after the NFA has received the notice
of exchange action provided for in Sec. 9.11. If the Commission should
institute review on its own motion, it will issue an order permitting
the person who is the subject of the disciplinary or access denial
action an opportunity to file an appropriate submission, and the
exchange an opportunity to file a reply thereto.
Issued in Washington, DC, on January 9, 2018, by the Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Technical Amendments to Rules on Registration and Review of
Exchange Disciplinary, Access Denial or Other Adverse Actions--
Commission Voting Summary
On this matter, Chairman Giancarlo and Commissioners Quintenz
and Behnam voted in the affirmative. No Commissioner voted in the
negative.
[FR Doc. 2018-00467 Filed 1-11-18; 8:45 am]
BILLING CODE 6351-01-P
