80 FR 55022 - Membership in a Registered Futures Association
COMMODITY FUTURES TRADING COMMISSION Federal Register Volume 80, Issue 177 (September 14, 2015)
Federal Register Volume 80, Issue 177 (September 14, 2015)
| Page Range | 55022-55029 | |
| FR Document | 2015-23046 |
[Federal Register Volume 80, Number 177 (Monday, September 14, 2015)] [Rules and Regulations] [Pages 55022-55029] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-23046] ======================================================================= ----------------------------------------------------------------------- COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 170 RIN 3038-AE09 Membership in a Registered Futures Association AGENCY: Commodity Futures Trading Commission. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: The Commodity Futures Trading Commission (``Commission'' or ``CFTC'') is adopting a new rule (``Final Rule'') to require that all persons registered with the Commission as introducing brokers (``IB''), commodity pool operators (``CPO''), or commodity trading advisors (``CTA''), subject to an exception for those persons who are exempt from registration as a CTA pursuant to a particular provision of the Commission's regulations, must, in each case, become and remain a member of at least one registered futures association (``RFA''). DATES: The Final Rule will become effective November 13, 2015. All persons subject to the Final Rule must comply with the Final Rule by not later than December 31, 2015. FOR FURTHER INFORMATION CONTACT: Katherine Driscoll, Associate Chief [[Page 55023]] Counsel, 202-418-5544, [email protected]; or Jacob Chachkin, Special Counsel, 202-418-5496, [email protected], Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Background Part 170 of the Commission's regulations relates to RFAs. An RFA is an association of persons registered with the Commission as such pursuant to Section 17 of the Commodity Exchange Act (``CEA'' or ``Act'').\1\ Subject to Commission oversight, RFAs serve a vital self- regulatory role by functioning as frontline regulators of their members (which members also remain subject to Commission oversight). --------------------------------------------------------------------------- \1\ 7 U.S.C. 21. --------------------------------------------------------------------------- An RFA cannot enforce its rules over Commission registrants who are not members of the RFA.\2\ As such, the Commission promulgated regulations 170.15 and 170.16 to require each registered futures commission merchant (``FCM''), and each registered swap dealer (``SD'') and major swap participant (``MSP''), respectively, to be an RFA member, subject to an exception for certain notice registered securities brokers or dealers.\3\ Because the National Futures Association (``NFA'') was the only RFA under Section 17(a) of the CEA \4\ at the time Sec. 170.15 and Sec. 170.16, respectively, were promulgated, these registered FCMs, SDs, and MSPs were required to be NFA members and, thus, were subject to NFA's rules. The Commission did not promulgate regulations requiring other Commission registrants, including IBs,\5\ CPOs,\6\ and CTAs,\7\ to be members of an RFA. One of the NFA rules to which NFA members are subject, however, is NFA's Bylaw 1101. NFA Bylaw 1101 requires that, generally, no NFA member may ``carry an account, accept an order or handle a transaction in commodity futures contracts'' for, or on behalf of, any non-member of NFA that is required to be registered with the Commission as, among other things, an IB, CPO, or CTA.\8\ Accordingly, any IB, CPO, or CTA required to be registered with the Commission that desires to conduct business with respect to commodity futures contracts directly with an FCM that is an NFA member must also become an NFA member, and derivatively, must ensure that it only conducts such business with those IBs, CPOs, or CTAs that also are NFA members. Therefore, Sec. 170.15, at the time it was promulgated, operated in conjunction with NFA Bylaw 1101 ``to assure essentially complete NFA membership from the universe of commodity professionals: [FCMs, CPOs, CTAs, and IBs].'' \9\ --------------------------------------------------------------------------- \2\ Those Commission registrants that are not RFA members are nevertheless subject to the rules and regulations of the Commission. See 7 U.S.C. 21(e), which specifies that any person registered under the CEA, who is not an RFA member, ``in addition to the other requirements and obligations of [the CEA] and the regulations thereunder shall be subject to such other rules and regulations as the Commission may find necessary to protect the public interest and promote just and equitable principles of trade.'' \3\ 17 CFR 170.15 and 170.16. See also Registration of Swap Dealers and Major Swap Participants, 77 FR 2613 (Jan. 19, 2012). \4\ 7 U.S.C. 21(a). NFA remains the only RFA under Section 17(a) of the CEA and is also a self-regulatory organization (``SRO''). Per Commission regulation 1.3(ee), SROs are designated contract markets, swap execution facilities, and registered futures associations. 17 CFR 1.3(ee). Certain SROs maintain and update, among other things, a standardized audit program and coordinate audit and financial statement surveillance activities over certain types of firms that are members of more than one SRO. See 17 CFR 1.52. \5\ IB is defined, subject to certain exclusions and additions, in CEA Section 1a(31) as any person (except an individual who elects to be and is registered as an associated person of a futures commission merchant) (i) who (I) is engaged in soliciting or in accepting orders for (aa) the purchase or sale of any commodity for future delivery, security futures product, or swap; (bb) any agreement, contract, or transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i); (cc) any commodity option authorized under Section 4c; or (dd) any leverage transaction authorized under Section 19; and (II) does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom; or (ii) who is registered with the Commission as an IB. 7 U.S.C. 1a(31). IB is further defined, subject to certain exclusions and additions, in Commission regulation 1.3(mm) as (1) Any person who, for compensation or profit, whether direct or indirect: (i) Is engaged in soliciting or in accepting orders (other than in a clerical capacity) for the purchase or sale of any commodity for future delivery, security futures product, or swap; any agreement, contract or transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i) of the Act; any commodity option transaction authorized under Section 4c; or any leverage transaction authorized under Section 19; or who is registered with the Commission as an IB; and (ii) Does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom. 17 CFR 1.3(mm). IBs are subject to registration with the Commission under CEA Section 4d(g) and Commission regulation 3.4(a). 7 U.S.C. 6d(g) and 17 CFR 3.4(a). \6\ CPO is defined, subject to certain exclusions and additions, in CEA Section 1a(11) as any person (i) engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests, including any (I) commodity for future delivery, security futures product, or swap; (II) agreement, contract, or transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i); (III) commodity option authorized under Section 4c; or (IV) leverage transaction authorized under Section 19; or (ii) who is registered with the Commission as a CPO. 7 U.S.C. 1a(11). CPO is further defined, subject to certain exclusions and additions, in Commission regulation 1.3(cc) as any person engaged in a business which is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests, including any commodity for future delivery, security futures product, or swap; any agreement, contract or transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i) of the Act; any commodity option authorized under Section 4c of the Act; any leverage transaction authorized under Section 19 of the Act; or any person who is registered with the Commission as a CPO, but does not include such persons not within the intent of the definition as the Commission may specify by rule or regulation or by order. 17 CFR 1.3(cc). CPOs are subject to registration with the Commission under CEA Section 4m and Commission regulation 3.4(a). 7 U.S.C. 6m and 17 CFR 3.4(a). \7\ CTA is defined, subject to certain exclusions and additions, in CEA Section 1(a)(12) as any person who (i) for compensation or profit, engages in the business of advising others, either directly or through publications, writings, or electronic media, as to the value of or the advisability of trading in (I) any contract of sale of a commodity for future delivery, security futures product, or swap; (II) any agreement, contract, or transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i); (III) any commodity option authorized under Section 4c; or (IV) any leverage transaction authorized under Section 19; (ii) for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to in clause (i); (iii) is registered with the Commission as a CTA; or (iv) the Commission, by rule or regulation, may include if the Commission determines that the rule or regulation will effectuate the purposes of the Act. 7 U.S.C. 1a(12). CTA is further defined, subject to certain exclusions and additions, in Commission regulation 1.3(bb) as any person who, for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media, as to the value of or the advisability of trading in any contract of sale of a commodity for future delivery, security futures product, or swap; any agreement, contract or transaction described in Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i) of the Act; any commodity option authorized under Section 4c of the Act; any leverage transaction authorized under Section 19 of the Act; any person registered with the Commission as a CTA; or any person, who, for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the foregoing. 17 CFR 1.3(bb). CTAs are subject to registration with the Commission under CEA Section 4m and Commission regulation 3.4(a). 7 U.S.C. 6m and 17 CFR 3.4(a). \8\ NFA Bylaw 1101 is available at: http://www.nfa.futures.org/nfamanual/NFAManual.aspx?RuleID=BYLAW%201101&Section=3. \9\ Futures Associations: Futures Commission Merchants: Mandatory Membership, 48 FR 26304, 26306 and n.22 (June 7, 1983). --------------------------------------------------------------------------- Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'') amended the [[Page 55024]] CEA to establish a comprehensive new regulatory framework for swaps and security-based swaps.\10\ The new regulatory framework provides that, among other things, persons that engage in regulated activity with respect to swaps will be required to register with the Commission as IBs, CPOs, or CTAs, as appropriate. Because of these definitional amendments, the intersection of Sec. 170.15 and NFA Bylaw 1101 no longer assures NFA membership for IBs, CPOs, or CTAs that are required to register with the Commission because, as noted above, NFA Bylaw 1101 relates only to commodity futures contracts.\11\ --------------------------------------------------------------------------- \10\ Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010). \11\ For example, as noted in the Proposal, currently Commission-registered CTAs, CPOs, and IBs engaging solely in swap- related activities are not captured by the intersection of Sec. 170.15 and NFA Bylaw 1101 and, thus, are not required to be NFA members. As such, these registrants, to the extent that they have not voluntarily become NFA members, are not being supervised in the same manner as Commission registrants engaging in similar activities relating to commodity futures contracts, which registrants are effectively required to be NFA members. --------------------------------------------------------------------------- II. Proposed Rule On November 8, 2013, the Commission proposed to amend part 170 by adding Sec. 170.17, which would, if adopted, have required each IB, CPO, and CTA registered with the Commission to become and remain a member of at least one RFA (``Proposal'').\12\ --------------------------------------------------------------------------- \12\ See Membership in a Registered Futures Association, 78 FR 67078 (Nov. 8, 2013). --------------------------------------------------------------------------- In the Proposal, the Commission specifically solicited comments regarding, among other things, the impact of the Proposal on CTAs that are registered with the Commission despite being eligible to rely on the exemption from registration set forth in Commission regulation 4.14(a)(9) (``Sec. 4.14(a)(9) Exempted CTAs'').\13\ Regulation 4.14(a)(9) provides that a person is not required to register with the Commission as a CTA if it does not: (i) Direct any client accounts; or (ii) provide commodity trading advice based on, or tailored to, the commodity interest or cash market positions or other circumstances or characteristics of particular clients.\14\ When the Commission promulgated regulation 4.14(a)(9), it stated that ``[a] CTA exempt under rule 4.14(a)(9) that wishes to apply for registration or retain its current registration may do so.'' \15\ Therefore, CTAs that may avail themselves of the exemption from registration in regulation 4.14(a)(9) may be currently registered with the Commission and may so register in the future. --------------------------------------------------------------------------- \13\ 78 FR 67080 (Nov. 8, 2013). \14\ 17 CFR 4.14(a)(9). This exemption from CTA registration generally pertains to persons only providing advice to the general public, such as in a newsletter, and not to specific clients. \15\ See Exemption from Registration as a Commodity Trading Advisor, 65 FR 12938, 12941 (March 10, 2000). --------------------------------------------------------------------------- The comment period for the Proposal ended on January 7, 2014.\16\ The Commission received two substantive comments in response to the Proposal \17\ and, in consideration of those comments, is adopting the Proposal subject to certain changes, as noted below. --------------------------------------------------------------------------- \16\ The Proposal inaccurately stated the comment period ended on January 17, 2014. To reflect the accurate date, the Federal Register published a correction that the comment period ended on January 7, 2014. See 78 FR 67985 (Nov. 13, 2013). Nonetheless, the Commission considered all comments received by January 17, 2014. \17\ See http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1424. --------------------------------------------------------------------------- III. Summary of Comments In response to the Proposal, the Commission received two substantive comments, one from NFA and one from James W. Lovely, Esq. (``Lovely'').\18\ Both comments related to the impact of the Proposal on CTAs. No comments were received in response to the CPO and IB aspects of the Proposal. --------------------------------------------------------------------------- \18\ NFA Comment Letter and James Lovely, Esq. Comment Letter. --------------------------------------------------------------------------- A. NFA Comment NFA supported the Proposal as an appropriate and effective way to require IBs, CPOs, and CTAs engaging in swaps activities that otherwise are not captured by the intersection of NFA Bylaw 1101 or NFA Compliance Rule 2-36 \19\ to become and remain NFA members, and comply with the applicable NFA requirements. However, NFA recommended that the Commission exclude Sec. 4.14(a)(9) Exempted CTAs from the Proposal. In support of its position, NFA stated that its existing rules focus primarily on an intermediary's conduct with respect to clients and thus have little applicability to CTAs that do not direct client accounts or otherwise exercise discretion (i.e., Sec. 4.14(a)(9) Exempted CTAs). --------------------------------------------------------------------------- \19\ Clause (d) of NFA Compliance Rule 2-36 applies to forex transactions and requires that no NFA member carry a forex account for, accept a forex order or account from, handle a forex transaction for or on behalf of, receive compensation (directly or indirectly) for forex transactions from, or pay compensation (directly or indirectly) for forex transactions to any non-member of NFA, or suspended member, that is required to be registered with the Commission as, among other things, an FCM, IB, CPO, or CTA in connection with its forex activities. NFA Compliance Rule 2-36 is available at: http://www.nfa.futures.org/nfamanual/NFAManual.aspx?RuleID=RULE%202-36&Section=4. --------------------------------------------------------------------------- B. Lovely Comment Conversely, Lovely generally stated that the Proposal ``while well- intentioned, is ill-founded in many respects'' and argued that the costs associated with further requiring registered CTAs to become and remain RFA members would be disproportionate to any regulatory benefit. Lovely discussed those CTAs that register with the Commission even though they may not be required to so register (e.g., because they may avail themselves of a registration exception or exclusion provided under Commission regulation 4.14(a) or Sections 1a(12)(B) or 4m(1) of the CEA, respectively). According to Lovely, these CTAs register for legal comfort in light of the ``practical ambiguities around concepts [related to CTA registration requirements] such as `solely incidental', `principal business or profession', `holding out' and `tailored advice''' but do not have to become NFA members, so long as such CTAs do not manage or exercise discretion over customer accounts or funds.\20\ He argues that these CTAs' voluntary registration benefits the CFTC and that such persons will likely deregister if the Commission adopts the Proposal.\21\ --------------------------------------------------------------------------- \20\ Presumably Lovely means that such CTAs would not be captured by the intersection of Sec. 170.15 and NFA Bylaw 1101. \21\ In this regard, Lovely also asserted that if the Commission adopts the Proposal, the First Amendment rights of these CTAs could be jeopardized, and, in some cases, such CTAs may drop their CFTC registration entirely ``in reliance on . . . [their] commercial free speech rights under the U.S. Constitution.'' --------------------------------------------------------------------------- Lovely further stated that the CFTC ``significantly underestimates the cost of NFA [membership]'' for these CTAs who are not currently required to become NFA members. He noted that most of such CTAs ``have only incidental involvement with commodity interests'' and, if required to become NFA members, ``would need to retain external legal counsel or compliance consultants to try to ascertain [which NFA rules] apply to their activities and, if so, how to comply with the same.'' Notwithstanding that Lovely argues that many NFA rules are not applicable to such CTAs,\22\ he estimates that ``external [[Page 55025]] legal and compliance assistance . . . could easily cost [such a CTA] $15,000.00 to $20,000.00 per year.'' --------------------------------------------------------------------------- \22\ Lovely provided a non-exhaustive list of what he believes to be inapposite NFA member rules including rules regarding: (1) Account opening, risk disclosure and trading authority; (2) bunched orders and order allocation; (3) suitability or churning security futures products; (4) CTA program and performance disclosure for managed accounts or pools; (5) solicitation and execution of customer orders; (6) disaster recovery protocols (other than in connection with CFTC mandated record retention); (7) trading programs, performance and related promotional materials; (8) anti- money laundering; and (9) quarterly reporting of assets under management, trading programs, performance, carrying brokers and the like. --------------------------------------------------------------------------- IV. Final Rule The Commission, in consideration of the comments received by it on the Proposal, is adopting the Proposal but excluding Sec. 4.14(a)(9) Exempted CTAs from the Final Rule.\23\ The Final Rule will help ensure the integrity of the swaps and futures market and its participants by subjecting all registered IBs, CPOs, and CTAs, except for Sec. 4.14(a)(9) Exempted CTAs, to NFA's developed set of rules and oversight capabilities.\24\ As such, the Commission believes that the markets are better served, and the public better protected, by having persons subject to the requirements of the Final Rule become RFA members.\25\ --------------------------------------------------------------------------- \23\ Notwithstanding this exclusion, if a person is a Sec. 4.14(a)(9) Exempted CTA and registered as an IB or CPO, then such person shall still be subject to the requirements of the Final Rule in its capacity as a registered IB or CPO, as the case may be. \24\ The Commission notes that, as a result of the Final Rule, any person not required to register, and not registered, with the CFTC would not subsequently become subject to any NFA-imposed requirement unless such person voluntarily elects to become so registered. Any adverse financial, commercial, or other impact, including the potential chilling effect on free speech, which could result from the Final Rule for such CTAs, could be avoided simply by relying on the proper regulatory exclusion or exemption without having to even incur the cost of filing a notice with the CFTC or NFA. \25\ This is consistent with the Commission's rationale for Sec. 170.15; that there should be essentially complete NFA membership from the universe of commodity professionals. See supra at n.10. --------------------------------------------------------------------------- After considering the comments, the Commission is persuaded by Lovely and NFA that NFA's rules have little applicability to Sec. 4.14(a)(9) Exempted CTAs and, thus, there would be little benefit from requiring Sec. 4.14(a)(9) Exempted CTAs to become and remain RFA members. The Commission, however, is not persuaded that other registered CTAs, regardless of whether such CTAs are required to register with the Commission, should be excluded from the requirements of the Final Rule. Any registered CTA that does not meet the requirements of Sec. 4.14(a)(9) would, by definition, be engaged in either (i) directing client accounts, or (ii) providing commodity trading advice based on, or tailored to, the commodity interest or cash market positions or other circumstances or characteristics of particular clients. As noted above, and consistent with Sec. 170.15, the Commission believes that RFA supervision of registered CTAs engaging in these activities is beneficial to the markets and the clients of such CTAs. In addition, the Commission believes that Lovely's cost estimates are very high for retaining advisors in relation to NFA's rules. Assuming a CTA was to contact an attorney familiar with Commission regulations and NFA rules applicable to CTAs, the Commission believes that determining which NFA rules are applicable to such a CTA would be a routine task that would not take a substantial amount of time.\26\ --------------------------------------------------------------------------- \26\ As noted above, Lovely himself refers to many of these rules as ``inapposite.'' Such a description belies Lovely's argument that any substantial legal review would be required to determine whether NFA rules would apply to one of the CTAs about which Lovely comments. Moreover, the Commission believes the costs of compliance review in subsequent years would be significantly less than the initial review costs, because it is likely that only the changes to NFA rules that took place during the prior year would need to be considered. --------------------------------------------------------------------------- Furthermore, with respect to those CTAs that opt into CFTC registration to avoid making determinations as to their activities in relation to their eligibility for the exceptions or exclusions from the CTA registration requirements noted in Lovely's comments, such persons should review available guidance from the Commission and consult with their advisors and Commission staff, as necessary, to determine if registration is required.\27\ --------------------------------------------------------------------------- \27\ The Commission notes that it is not of the view that making such a definitive determination is impossible or exceedingly difficult, as Lovely's comment suggests. However, the Commission does recognize that, once this determination has been made, and depending on the determination, a Commission registrant may need time to review and possibly reorganize its business in order to ensure its compliance with NFA's rules or undertake the deregistration process, as the case may be. Therefore, the Commission is providing the extended compliance period described in the DATES section above. --------------------------------------------------------------------------- In support of the Final Rule, Section 4p of the CEA authorizes the Commission to ``specify by rules and regulations appropriate standards with respect to training, experience, and such other qualifications as the Commission finds necessary or desirable to insure the fitness of persons required to be registered with the Commission.'' \28\ --------------------------------------------------------------------------- \28\ 7 U.S.C. 6p. Also, Section 8a(5) of the CEA authorizes the Commission ``to make and promulgate such rules and regulations as, in the judgment of the Commission, are reasonably necessary to effectuate any of the provisions or to accomplish any of the purposes'' of the CEA. --------------------------------------------------------------------------- The Final Rule also provides a means for assuring that the purpose of Section 17(m) of the CEA,\29\ allowing for compulsory RFA membership, is achieved.\30\ The Commission believes that the Final Rule is reasonably necessary and desirable to effectuate comprehensive and effective market oversight by NFA in its capacity as an SRO. As the only RFA, NFA serves as the frontline regulator of its members, subject to Commission oversight. Without such mandatory membership in NFA or another RFA, effective implementation of the programs required by Section 17 of the CEA and NFA's self-regulatory programs could be impeded.\31\ --------------------------------------------------------------------------- \29\ 7 U.S.C. 21(m). \30\ See Futures Associations: Futures Commission Merchants: Mandatory Membership, 48 FR 26304 (June 7, 1983). \31\ The Commission notes that in addition to the authority discussed herein, as noted previously, CPOs and CTAs are subject to registration with the Commission under Section 4m of the CEA, and IBs are subject to such registration under Section 4d(g) of the CEA. 7 U.S.C. 6m and 6d(g). --------------------------------------------------------------------------- In summary, by mandating RFA membership by each registered IB, CPO, and CTA, except Sec. 4.14(a)(9) Exempted CTAs, the Final Rule enables the Commission to further ensure the fitness, and provide for direct NFA oversight, of these Commission registrants. V. Administrative Compliance A. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (``PRA'') \32\ 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. An agency may not conduct or sponsor, and a registered entity is not required to respond to, a collection of information unless it displays a currently valid control number by the Office of Management and Budget (``OMB''). --------------------------------------------------------------------------- \32\ 44 U.S.C. 3501 et seq. --------------------------------------------------------------------------- In connection with the Proposal, the Commission anticipated that, if adopted, the Final Rule would simply require an amendment to the number of respondents included in OMB Collection 3038-0023.\33\ The basis for this preliminary finding was that, at the time of the Proposal, NFA had indicated that certain CPOs, CTAs, and IBs were registered with the Commission, but not NFA members. Therefore, because registration and membership require the filing of Form 7-R, the Commission initially believed these respondents' paperwork burden would have been affected by the Proposal. --------------------------------------------------------------------------- \33\ See OMB Control No. 3038-0023, http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0023. --------------------------------------------------------------------------- As discussed above, the Final Rule does not require IBs, CPOs, or CTAs to [[Page 55026]] register with the Commission. Rather, the Final Rule only requires that certain of such persons that register with the Commission become and remain an NFA member. To indicate NFA membership an applicant needs to ``check a box'' on Form 7-R.\34\ Current OMB Collection 3038-0023 captures the burdens associated with the registration process for these persons, including the filing of and updating of Form 7-R for registration purposes. Therefore, to comply with the Final Rule, such registrants that are not NFA members, would be required to ``check-the- box'' on Form 7-R indicating their status as an NFA member. --------------------------------------------------------------------------- \34\ The Commission has designated NFA to receive Form 7-R submissions on its behalf. The Commission notes that application for NFA membership is incorporated in Form 7-R. --------------------------------------------------------------------------- Accordingly, because the burden associated with updating Form 7-R is currently captured in OMB Collection 3038-0023, and those persons who are directly impacted by the Final Rule are either currently registered with the Commission (i.e., have already filed a Form 7-R) or will be required to file a Form 7-R in connection with their registration with the Commission, no adjustment is necessary to take into account the number of Commission registrants who will have to become NFA members as a result of the Final Rule. Further, the Commission believes the additional burden of ``checking the box'' on Form 7-R to be non-substantive. Therefore, upon further review and for the reasons stated above, the Final Rule does not require amending existing OMB Collection 3038-0023.\35\ --------------------------------------------------------------------------- \35\ The Commission further believes that many Commission registrants' recordkeeping obligations associated with preparing for an NFA audit are already covered by other OMB control numbers. For example, Sec. Sec. 4.23 and 4.33 of the Commission's regulations are recordkeeping requirements associated with registered CPOs and CTAs, respectively, which are covered by OMB control number 3038- 0005. --------------------------------------------------------------------------- B. Regulatory Flexibility Act The Regulatory Flexibility Act \36\ requires federal agencies, in promulgating regulations, to consider the impact of those regulations on small entities. In the Proposal, the Commission certified that the Proposal would not have a significant economic impact on a substantial number of small entities. --------------------------------------------------------------------------- \36\ 5 U.S.C. 601 et seq. --------------------------------------------------------------------------- 1. CPOs The Commission has previously determined that CPOs are not small entities for purposes of the Regulatory Flexibility Act.\37\ Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the Final Rule will not have a significant economic impact on a substantial number of small entities with respect to CPOs. --------------------------------------------------------------------------- \37\ Policy Statement and Establishment of Definitions of ``Small Entities'' for Purposes of the Regulatory Flexibility Act, 47 FR 18618, 18619 (Apr. 30, 1982). --------------------------------------------------------------------------- 2. IBs and CTAs The Commission has previously determined to evaluate within the context of a particular rule proposal whether all or some IBs or CTAs should be considered to be small entities and, if so, to analyze the economic impact on them of any such rule.\38\ --------------------------------------------------------------------------- \38\ See, with respect to CTAs, 47 FR at 18620 (Apr. 30, 1982); and see, with respect to IBs, Introducing Brokers and Associated Persons of Introducing Brokers, Commodity Trading Advisors and Commodity Pool Operators; Registration and Other Regulatory Requirements, 48 FR 35276 (Aug. 3, 1983). --------------------------------------------------------------------------- Since there may be some small entities that are IBs or CTAs and would be required to become NFA members, the Commission has considered whether this rulemaking would have a significant economic impact on these entities. The Final Rule requires all IBs and CTAs, except Sec. 4.14(a)(9) Exempt CTAs, who register with the Commission to become RFA members. This would require such IBs and CTAs to pay membership dues, ``check a box'' on Form 7-R, and ensure that they are prepared for an NFA audit.\39\ As noted in the Proposal, the Commission is of the view that any costs associated with preparing for an audit by the NFA should not be substantially different from, or significantly exceed, the costs associated with preparing for an audit by the Commission, which every registered person would already be responsible to do.\40\ Moreover, because the Final Rule only pertains to Commission Registrants, any audit related costs incident to NFA membership would be negligible, and should not have a significant economic impact on IBs or CTAs that may be small entities. The Commission also stated its preliminary belief that NFA membership would impose few additional compliance costs on affected entities, because these entities are already subject to the majority of regulations that NFA enforces, whether or not they are NFA members. The Commission specifically requested comment on any additional compliance costs beyond those an entity would face as a result of it being registered with the Commission. --------------------------------------------------------------------------- \39\ See 78 FR 67083 (Nov. 8, 2013). As stated in the booklet titled ``NFA Regulatory Requirements: For FCMs, IBs, CPOs, and CTAs,'' NFA audits have two major objectives: (1) To determine whether the firm is maintaining records in accordance with NFA rules and applicable CFTC regulations; and (2) to ensure that the firm is being operated in a professional manner and that customers are protected against unscrupulous activities and fraudulent or high- pressure sales practices. \40\ As noted above, the Commission believes that many of the recordkeeping obligations associated with preparing for an NFA audit are already required for Commission registrants. Moreover, given the average periodicity for NFA audits, the magnitude of annual audit- related costs is limited. --------------------------------------------------------------------------- a. Comments on Costs to CTAs In response to the Proposal, a comment from Lovely stated that most CTAs that opt into CFTC registration and do not manage or exercise discretion over customer accounts or funds are ``small or one-person operations or may have only incidental involvement with commodity interests.'' Further, Lovely asserts that, although many of NFA's rules are not relevant to such CTAs, the Commission understates the cost of required NFA membership, including that the costs to these CTAs of reviewing and complying with such rules would be approximately $15,000 to $20,000 annually. As discussed above, the Commission believes that Lovely's compliance cost estimates are very high. Rather, the Commission believes that the costs faced by a CTA would, at most, be approximately $2,950 in the first year and $1,476 in subsequent years.\41\ The Commission does not believe that these amounts plus the $750 membership dues required of all NFA members that are CTAs, results in an unreasonable burden on any CTAs (including those that may be small entities under the Regulatory Flexibility Act).\42\ Further, as [[Page 55027]] discussed above, Sec. 4.14(a)(9) Exempted CTAs (i.e., those CTAs that neither manage nor exercise discretion over customer accounts or funds and that do provide clients advice described in Sec. 4.14(a)(9)(ii)) will not be required to become or remain RFA members pursuant to the Final Rule and, thus, will not face any compliance costs from the Final Rule. --------------------------------------------------------------------------- \41\ This estimate is based on the following labor estimates for this determination: for the first year, 6 hours of an attorney; in subsequent years, 3 hours of an attorney, in each case at approximately $492.21/hour. The estimate of the hourly cost is from the Securities Industry and Financial Markets Association's Report on Management and Professional Earnings in the Securities Industry-- 2013, modified by CFTC staff to account for an 1800-hour work-year and multiplied by 5.35 to account for firm size, employee benefits, and overhead. The Commission believes that the use of this multiplier is appropriate here because the Commission is assuming that persons retain outside advisors to assist in complying with NFA rules. The Commission rounds to two significant digits. \42\ Assuming that IBs would face similar compliance costs as CTAs, the Commission does not believe that these costs result in an unreasonable burden on any IBs (including those that may be small entities under the Regulatory Flexibility Act). Further, as of June 30, 2015, all registered IBs that are not members of NFA are pending withdrawal of their Commission registration. Accordingly, the Commission believes that no currently registered IBs will be impacted by this rule. The Commission also notes that, pursuant to Section 17(d) of the Act, each CTA or IB that is registered with the Commission, but not an RFA member is required to ``. . . pay to the Commission such reasonable fees and charges [established by the Commission] as may be necessary to defray the costs of additional regulatory duties required to be performed by the Commission because such person is not a member of an [RFA].'' 7 U.S.C. 21(d). The Commission has not yet established any such fees or charges, but noted in the release for Sec. 170.15 that these charges are likely to be greater than the costs attendant to RFA membership. See 48 FR at 26311. --------------------------------------------------------------------------- b. Commission Determination Accordingly, for the reasons stated above, the Commission believes that the Final Rule will not have a significant economic impact on a substantial number of small entities. Therefore, the Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the Final Rule being published today by this Federal Register release will not have a significant economic impact on a substantial number of small entities. C. Considerations of Costs and Benefits Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing an order. Section 15(a) further specifies that the costs and benefits shall be evaluated in light of the following five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors. 1. Background As discussed above, the Dodd-Frank Act amended the CEA to establish a comprehensive new regulatory framework for swaps markets and, in doing so, required IBs, CPOs, and CTAs acting in relation to swaps to register with the Commission. These newly registered persons, however, are not currently required to become NFA members because, as discussed above, they are not captured by the intersection of Sec. 170.15 and NFA Bylaw 1101. NFA cannot enforce its rules over Commission registrants who do not become NFA members, including IBs, CPOs, and CTAs active solely in relation to swap transactions, which are not currently required to become NFA members. Thus, the Final Rule requires registered IBs, CPOs, and CTAs, except Sec. 4.14(a)(9) Exempted CTAs, to become NFA members similarly to how Sec. 170.15 presently requires FCMs to become NFA members and how Sec. 170.16 requires the same of SDs and MSPs. In conjunction with Sec. Sec. 170.15 and 170.16, the Commission is intending to create an oversight regime that ensures more consistent treatment of its registered intermediaries. The Commission believes that the Final Rule is reasonably necessary to ensure the fitness and comprehensive regulation and appropriate oversight of such persons. In assessing the costs and benefits of the Final Rule, the Commission employs a status quo baseline. The Commission analyzes the cost and benefit to those registered persons that, but for the Final Rule, would not have to become RFA members. As of June 30, 2015, the following numbers of Commission registered IBs, CPOs, and CTAs (registered in the below categories) were not NFA members (``Non-member Registrants''): \43\ --------------------------------------------------------------------------- \43\ See NFA's daily directory of CFTC Registrants and Members available at: http://www.nfa.futures.org/NFA-registration/NFA-directories.HTML. ------------------------------------------------------------------------ Non-member Registration category registrants ------------------------------------------------------------------------ IB only................................................. 21 CPO only................................................ 61 CTA only................................................ 573 IB & CPO................................................ 1 IB & CTA................................................ 2 CTA & CPO............................................... 41 FCM & CPO............................................... 1 --------------- Total............................................... 700 ------------------------------------------------------------------------ Of these Non-member Registrants, however, approximately 138 are pending withdrawal of their Commission registration. The Commission is assuming that these Non-member Registrants will withdraw their registration and, thus, will not be impacted by the Final Rule. In addition, only approximately one percent of the Non-member Registrants registered solely as CTAs reported to the Commission in the most recent reporting cycle that they had directed client accounts.\44\ As such, the Commission believes that many of the Non-member Registrants registered solely as CTAs will be Sec. 4.14(a)(9) Exempted CTAs and, thus, will not be required to comply with the Final Rule.\45\ Accordingly, the Commission estimates that 296 \46\ persons registered with the CFTC as a CPO, CTA, or IB will be required to become and remain NFA members as a result of the Final Rule.\47\ \44\ The Commission is assuming that all Non-member Registrants registered solely as CTAs have reported to the Commission the amount of assets they have directed, if any. \45\ For purposes of its analysis, the Commission is assuming that approximately half of the 573 Non-member Registrants registered solely as CTAs (286 Non-member Registrants) will be Sec. 4.14(a)(9) Exempted CTAs and will not be required to comply with the Final Rule, and 20 of these 286 Non-member Registrants will be pending withdrawal of their Commission registration. \46\ To arrive at the estimate, the 700 figure was reduced by the sum of (i) 138 (the Non-member Registrants whose withdrawal from Commission registration is pending) and (ii) 266 (the Non-member Registrants that the Commission assumes will be Sec. 4.14(a)(9) Exempted CTAs net of those pending withdrawal, as described above). \47\ For purposes of assessing the costs of this rule, the Commission is assuming that no Non-member Registrant is, absent the Final Rule, required to be an NFA member. --------------------------------------------------------------------------- Because at this time the Commission cannot reasonably estimate the number of Non-member Registrants that may deregister with the Commission as a result of the Final Rule, the Commission is assuming that no Non-member Registrants will deregister as a result of the Final Rule. The Commission believes that this will lead to an overstatement of the compliance costs relating to the Final Rule. 2. Costs a. Costs to IBs, CPOs, and CTAs As discussed above, the process for a Non-member Registrant to become an NFA member amounts to checking a box on the CFTC registration form and updating some contact information. Thus, the Commission believes the cost of filing for membership to be non-substantive.\48\ --------------------------------------------------------------------------- \48\ See Form 7-R, http://www.nfa.futures.org/NFA-registration/templates-and-forms/form7-r.HTML. Applications forms for NFA membership and Associate membership are incorporated in Forms 7-R and 8-R. See NFA Membership and Dues, http://www.nfa.futures.org/NFA-registration/NFA-membership-and-dues.HTML. --------------------------------------------------------------------------- Affected persons are also subject to certain membership fees. NFA imposes initial membership dues and annual membership dues for IBs, CPOs, and CTAs. Currently, such initial membership dues are $750 for the first year, and the annual dues to maintain membership are $750 per year [[Page 55028]] thereafter.\49\ Thus, the 296 affected Non-member Registrants, in the aggregate, will incur an initial and ongoing annual registration/ membership cost of approximately $222,000.\50\ --------------------------------------------------------------------------- \49\ See NFA Membership and Dues, http://www.nfa.futures.org/NFA-registration/NFA-membership-and-dues.HTML. \50\ To arrive at the monetary estimate, the 296 figure was multiplied by the $750.00 per-person annual membership dues. --------------------------------------------------------------------------- The Commission agrees with Lovely that the Final Rule will also impose certain compliance costs on affected Non-member Registrants. However, as noted above, the Commission believes that, given the existing requirements imposed on such registrants, the compliance costs of becoming an NFA member and complying with NFA's rules (including preparing for an audit by NFA) will be partially offset by the costs already incurred by these registrants (i.e., the costs associated with complying with Commission regulations and preparing for examinations by the Commission). In that regard, as discussed above, the Commission disagrees with Lovely's cost estimates and estimates that an affected registrant may, at most, face additional compliance costs of approximately $2,950 initially and $1,476 in subsequent years, equating to an industry total of $873,200 in the first year and $436,896 in subsequent years,\51\ plus the indirect costs of the periodic audits. The Commission cannot reasonably provide an exact estimate of these costs due to the idiosyncratic nature of the indirect costs incurred.\52\ --------------------------------------------------------------------------- \51\ To arrive at the monetary estimate, the 296 figure was multiplied by the estimated per-person compliance costs. \52\ The Commission also considered that, in addition to the Non-member Registrants discussed above, the Final Rule will cause future persons registering with the Commission as IBs, CPOs, and CTAs because of their activities in relation to swaps to incur additional costs similar to those described above. The Commission expects that many persons will apply for registration under the Commission's swaps market regime in such capacities, but the Commission is not able to accurately estimate the exact number of new Commission registrants that will do so and, thus, be affected by the Final Rule. --------------------------------------------------------------------------- b. Other Market Costs In addition to the direct costs to Commission Registrants, the Commission considered other costs to the markets of the Final Rule. In particular, the Commission considered the impact the Final Rule will have on IBs, CPOs, and CTAs (i) election to not register with the Commission and (ii) optional deregistration, in each case, where such persons are not required to be registered with the Commission. Further, the Commission considered that the requirements of the Final Rule may cause fewer persons to elect to become IBs, CPOs, and CTAs because of the added burden of being an RFA member. The Commission is unable to estimate accurately how many IBs, CPOs, and CTAs will deregister with the Commission or elect not to so register in the future, or how many persons will choose to not become such an intermediary, in each case, as a result of the Final Rule. Further, the Commission believes that if a market participant has chosen not to register with the Commission, the costs incurred by that participant for not registering would be less than the costs that would have been incurred to register. Otherwise, the market participant would likely have chosen to register instead. However, the Commission cannot make a more accurate determination of costs beyond this overestimate without knowing more specifics about a particular market participant. c. Consideration of the Proposal as an Alternative to the Final Rule The Commission believes the costs in a. and b. above, respectively, are reduced from those that would have resulted had the Proposal been adopted without modification (the Proposal would have required each registered IB, CPO, and CTA, without exception, to become and remain a member of an RFA), because the Commission has excepted Sec. 4.14(a)(9) Exempted CTAs from the requirements of the Final Rule. This exclusion limits the Commission's ability to oversee these persons through delegation to an RFA; however, the Commission has determined that this reduction in the Commission's oversight abilities is reasonable in light of the burden that the Proposal would otherwise impose on Sec. 4.14(a)(9) Exempted CTAs and the markets. The Commission further notes that, as discussed above, Sec. 4.14(a)(9) Exempted CTAs that are not RFA members are still subject to the Commission's rules and regulations. 3. Benefits The Final Rule enables the Commission to (i) carry out its obligations pursuant to Section 17 of the CEA to delegate certain oversight responsibility for intermediaries, including IBs, CPOs, and CTAs, to an RFA, and (ii) ensure the fitness of its registrants as described under Section 4p of the CEA. The Commission believes that by requiring RFA membership, the Final Rule results in a more efficient deployment of agency resources which would otherwise have to be used to oversee these registrants who would, without the Final Rule, not be overseen by an RFA. Further, the Commission believes that the Final Rule enables NFA to apply its experience as a SRO to oversee and ensure the fitness of all registered IBs, CPOs, and CTAs, except Sec. 4.14(a)(9) Exempt CTAs. The markets and the public will benefit from NFA's developed set of rules and oversight capabilities to ensure the integrity of the swaps market and its participants. 4. Section 15(a) Factors The Commission requested comment on all aspects of the Section 15(a) factors. Except as discussed above, the Commission did not receive any comments relating to costs and benefits of the Final Rule. Section 15(a) of the CEA requires the Commission to consider the effects of its actions in light of the following five factors: a. Protection of Market Participants and the Public The Final Rule will protect the public by ensuring that registered IBs, CPOs, and CTAs, except Sec. 4.14(a)(9) Exempt CTAs, are subject to the same level of comprehensive NFA oversight. b. Efficiency, Competitiveness, and Financial Integrity of Markets The Final Rule ensures that all registered IBs, CPOs, and CTAs, except Sec. 4.14(a)(9) Exempt CTAs, are subject to a similar level of oversight and regulatory responsibility. In so doing, the Commission believes the integrity of markets is enhanced. Furthermore, the Commission also believes that the Final Rule will promote public confidence in the integrity of derivatives markets by ensuring consistent and adequate regulation and oversight of registered IBs, CPOs, and CTAs, except Sec. 4.14(a)(9) Exempt CTAs. c. Price Discovery The Commission has not identified an impact on price discovery as a result of the Final Rule. d. Sound Risk Management The Commission has not identified an impact on the risk management decisions of market participants as a result of the Final Rule. e. Other Public Interest Considerations The Commission has not identified an impact on other public interest considerations as a result of the Final Rule. List of Subjects in 17 CFR Part 170 Authority delegations (Government agencies), Commodity futures, Membership in a Registered Futures [[Page 55029]] Association, Reporting and recordkeeping requirements. For the reasons stated in the preamble, the Commodity Futures Trading Commission amends 17 CFR part 170 as set forth below: PART 170--REGISTERED FUTURES ASSOCIATIONS 0 1. The authority citation for part 170 is revised to read as follows: Authority: 7 U.S.C. 6d, 6m, 6p, 6s, 12a, and 21. 0 2. Add Sec. 170.17 to read as follows: Sec. 170.17 Introducing brokers, commodity pool operators, and commodity trading advisors. Each person registered as an introducing broker, commodity pool operator, or commodity trading advisor must become and remain a member of at least one futures association that is registered under Section 17 of the Act and that provides for the membership therein of introducing brokers, commodity pool operators, or commodity trading advisors, as the case may be, unless no such futures association is so registered; provided, however that a person registered as a commodity trading advisor shall not be required to become or remain a member of such a futures association, solely in respect of its registration as a commodity trading advisor, if such person is eligible for the exemption from registration as such pursuant to Sec. 4.14(a)(9) of this chapter. Issued in Washington, DC, on September 9, 2015, 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 Membership in a Registered Futures Association--Commission Voting Summary On this matter, Chairman Massad and Commissioners Bowen and Giancarlo voted in the affirmative. No Commissioner voted in the negative. [FR Doc. 2015-23046 Filed 9-11-15; 8:45 am] BILLING CODE 6351-01-P
![55022 Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Rules and Regulations
procurement. It also authorizes where it appears in paragraph (b) and (3) In the estimation of the contracting
contracting officers to restrict adding the word ‘‘underrepresentation’’ officer, the award can be made at a fair
competition or award sole source in its place. and reasonable price.
contracts or orders to eligible WOSBs * * * * *
for certain Federal contracts or orders in ■ 6. Amend § 127.503 as follows:
■ a. Revise the section heading; ■ 7. Revise § 127.507 to read as follows:
industries in which SBA determines
that WOSBs are substantially ■ b. Revise paragraph (a) subject § 127.507 Are there EDWOSB and WOSB
underrepresented in Federal heading and paragraph (b) subject contracting opportunities at or below the
procurement and has waived the heading; simplified acquisition threshold?
economically disadvantaged ■ c. Redesignate paragraphs (c), (d), (e) If the requirement is valued at or
requirement. and (f) as paragraphs (e), (f), (g) and (h); below the simplified acquisition
and threshold, the contracting officer may
■ 3. Amend § 127.102 by revising the
■ d. Add new paragraphs (c) and (d). set aside the requirement or award the
definitions of the terms ‘‘EDWOSB
The revisions and additions read as requirement on a sole source basis as set
requirement’’, ‘‘Substantial
follows: forth in § 127.503.
underrepresentation’’,
‘‘Underrepresentation’’, and ‘‘WOSB ■ 8. Revise § 127.600 to read as follows:
§ 127.503 When is a contracting officer
requirement’’ to read as follows: authorized to restrict competition or award § 127.600 Who may protest the status of a
§ 127.102 What are the definitions of the a sole source contract or order under this concern as an EDWOSB or WOSB?
terms used in this part? part? (a) For sole source procurements. SBA
* * * * * (a) Competition restricted to or the contracting officer may protest
EDWOSB requirement means a EDWOSBs. * * * the proposed awardee’s EDWOSB or
Federal requirement for services or (b) Competition restricted to WOSBs. WOSB status.
supplies for which a contracting officer * * * (b) For all other EDWOSB or WOSB
has restricted competition or awarded a requirements. An interested party may
(c) Sole source awards to EDWOSBs.
sole source contract or order to eligible protest the apparent successful offeror’s
For requirements in industries
EDWOSBs, including Multiple Award EDWOSB or WOSB status.
designated by SBA as underrepresented
Contracts, partial set-asides, reserves, pursuant to § 127.501, a contracting Maria Contreras-Sweet,
sole source awards, and orders set aside officer may issue a sole source award to Administrator.
for EDWOSBs issued against a Multiple an EDWOSB when the contacting officer [FR Doc. 2015–22927 Filed 9–11–15; 8:45 am]
Award Contract. determines that: BILLING CODE 8025–01–P
* * * * * (1) The EDWOSB is a responsible
Substantial underrepresentation is contractor with respect to performance
determined by a study using a reliable of the requirement and the contracting COMMODITY FUTURES TRADING
and relevant methodology. officer does not have a reasonable COMMISSION
* * * * * expectation that 2 or more EDWOSBs
Underrepresentation is determined by will submit offers; 17 CFR Part 170
a study using a reliable and relevant (2) The anticipated award price of the
methodology. RIN 3038–AE09
contract (including options) will not
* * * * * exceed $6,500,000 in the case of a Membership in a Registered Futures
WOSB requirement means a Federal contract assigned a North American Association
requirement for services or supplies for Industry Classification System (NAICS)
which a contracting officer has code for manufacturing, or $4,000,000 AGENCY: Commodity Futures Trading
restricted competition or awarded a sole in the case of any other contract Commission.
source contract or order to eligible opportunity; and ACTION: Final rule.
WOSBs, including Multiple Award (3) In the estimation of the contracting
Contracts, partial set-asides, reserves, SUMMARY: The Commodity Futures
officer, the award can be made at a fair Trading Commission (‘‘Commission’’ or
sole source awards, and orders set aside and reasonable price.
for WOSBs issued against a Multiple ‘‘CFTC’’) is adopting a new rule (‘‘Final
(d) Sole source awards to WOSBs. For Rule’’) to require that all persons
Award Contract.
requirements in industries designated registered with the Commission as
■ 4. Revise § 127.500 to read as follows: by SBA as substantially introducing brokers (‘‘IB’’), commodity
§ 127.500 In what industries is a underrepresented pursuant to § 127.501, pool operators (‘‘CPO’’), or commodity
contracting officer authorized to restrict a contracting officer may issue a sole trading advisors (‘‘CTA’’), subject to an
competition or make a sole source award source award to a WOSB when the exception for those persons who are
under this part? contacting officer determines that: exempt from registration as a CTA
A contracting officer may restrict (1) The WOSB is a responsible pursuant to a particular provision of the
competition or make a sole source contractor with respect to performance Commission’s regulations, must, in each
award under this part only in those of the requirement and the contracting case, become and remain a member of
industries in which SBA has officer does not have a reasonable at least one registered futures
determined that WOSBs are expectation that 2 or more WOSBs will association (‘‘RFA’’).
underrepresented or substantially submit offers; DATES: The Final Rule will become
tkelley on DSK3SPTVN1PROD with RULES
underrepresented in Federal (2) The anticipated award price of the effective November 13, 2015. All
procurement, as specified in § 127.501. contract (including options) will not persons subject to the Final Rule must
exceed $6,500,000 in the case of a comply with the Final Rule by not later
§ 127.501 [Amended] than December 31, 2015.
contract assigned a NAICS code for
■5. Amend § 127.501 by removing the manufacturing, or $4,000,000 in the case FOR FURTHER INFORMATION CONTACT:
word ‘‘disparity’’ in the two places of any other contract opportunity; and Katherine Driscoll, Associate Chief
VerDate Sep<11>2014 16:26 Sep 11, 2015 Jkt 235001 PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 E:\FR\FM\14SER1.SGM 14SER1](https://thefederalregister.org/doc/80_FR_55199/page/1.svg)
![Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Rules and Regulations 55023
Counsel, 202–418–5544, kdriscoll@ CPOs,6 and CTAs,7 to be members of an RFA. One of the NFA rules to which
cftc.gov; or Jacob Chachkin, Special NFA members are subject, however, is
Counsel, 202–418–5496, jchachkin@ registered as an associated person of a futures NFA’s Bylaw 1101. NFA Bylaw 1101
cftc.gov, Division of Swap Dealer and commission merchant) (i) who (I) is engaged in requires that, generally, no NFA
soliciting or in accepting orders for (aa) the
Intermediary Oversight, Commodity purchase or sale of any commodity for future member may ‘‘carry an account, accept
Futures Trading Commission, Three delivery, security futures product, or swap; (bb) any an order or handle a transaction in
Lafayette Centre, 1155 21st Street NW., agreement, contract, or transaction described in commodity futures contracts’’ for, or on
Washington, DC 20581. Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i); (cc) any behalf of, any non-member of NFA that
commodity option authorized under Section 4c; or
SUPPLEMENTARY INFORMATION: (dd) any leverage transaction authorized under is required to be registered with the
Section 19; and (II) does not accept any money, Commission as, among other things, an
I. Background securities, or property (or extend credit in lieu IB, CPO, or CTA.8 Accordingly, any IB,
Part 170 of the Commission’s thereof) to margin, guarantee, or secure any trades
or contracts that result or may result therefrom; or
CPO, or CTA required to be registered
regulations relates to RFAs. An RFA is (ii) who is registered with the Commission as an IB. with the Commission that desires to
an association of persons registered with 7 U.S.C. 1a(31). conduct business with respect to
the Commission as such pursuant to IB is further defined, subject to certain exclusions commodity futures contracts directly
Section 17 of the Commodity Exchange and additions, in Commission regulation 1.3(mm)
as (1) Any person who, for compensation or profit,
with an FCM that is an NFA member
Act (‘‘CEA’’ or ‘‘Act’’).1 Subject to whether direct or indirect: (i) Is engaged in must also become an NFA member, and
Commission oversight, RFAs serve a soliciting or in accepting orders (other than in a derivatively, must ensure that it only
vital self-regulatory role by functioning clerical capacity) for the purchase or sale of any conducts such business with those IBs,
as frontline regulators of their members commodity for future delivery, security futures
product, or swap; any agreement, contract or
CPOs, or CTAs that also are NFA
(which members also remain subject to transaction described in Section 2(c)(2)(C)(i) or members. Therefore, § 170.15, at the
Commission oversight). Section 2(c)(2)(D)(i) of the Act; any commodity time it was promulgated, operated in
An RFA cannot enforce its rules over option transaction authorized under Section 4c; or conjunction with NFA Bylaw 1101 ‘‘to
Commission registrants who are not any leverage transaction authorized under Section
19; or who is registered with the Commission as an assure essentially complete NFA
members of the RFA.2 As such, the IB; and (ii) Does not accept any money, securities, membership from the universe of
Commission promulgated regulations or property (or extend credit in lieu thereof) to commodity professionals: [FCMs, CPOs,
170.15 and 170.16 to require each margin, guarantee, or secure any trades or contracts CTAs, and IBs].’’ 9
registered futures commission merchant that result or may result therefrom. 17 CFR
1.3(mm). Title VII of the Dodd-Frank Wall
(‘‘FCM’’), and each registered swap Street Reform and Consumer Protection
IBs are subject to registration with the
dealer (‘‘SD’’) and major swap Commission under CEA Section 4d(g) and Act (‘‘Dodd-Frank Act’’) amended the
participant (‘‘MSP’’), respectively, to be Commission regulation 3.4(a). 7 U.S.C. 6d(g) and 17
an RFA member, subject to an exception CFR 3.4(a). person who (i) for compensation or profit, engages
6 CPO is defined, subject to certain exclusions
for certain notice registered securities in the business of advising others, either directly or
and additions, in CEA Section 1a(11) as any person through publications, writings, or electronic media,
brokers or dealers.3 Because the (i) engaged in a business that is of the nature of a as to the value of or the advisability of trading in
National Futures Association (‘‘NFA’’) commodity pool, investment trust, syndicate, or (I) any contract of sale of a commodity for future
was the only RFA under Section 17(a) similar form of enterprise, and who, in connection delivery, security futures product, or swap; (II) any
of the CEA 4 at the time § 170.15 and therewith, solicits, accepts, or receives from others, agreement, contract, or transaction described in
funds, securities, or property, either directly or
§ 170.16, respectively, were through capital contributions, the sale of stock or
Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i); (III) any
promulgated, these registered FCMs, commodity option authorized under Section 4c; or
other forms of securities, or otherwise, for the (IV) any leverage transaction authorized under
SDs, and MSPs were required to be NFA purpose of trading in commodity interests, Section 19; (ii) for compensation or profit, and as
members and, thus, were subject to including any (I) commodity for future delivery, part of a regular business, issues or promulgates
security futures product, or swap; (II) agreement,
NFA’s rules. The Commission did not contract, or transaction described in Section
analyses or reports concerning any of the activities
promulgate regulations requiring other referred to in clause (i); (iii) is registered with the
2(c)(2)(C)(i) or Section 2(c)(2)(D)(i); (III) commodity
Commission as a CTA; or (iv) the Commission, by
Commission registrants, including IBs,5 option authorized under Section 4c; or (IV) leverage
rule or regulation, may include if the Commission
transaction authorized under Section 19; or (ii) who
determines that the rule or regulation will effectuate
is registered with the Commission as a CPO. 7
17 U.S.C. 21. the purposes of the Act. 7 U.S.C. 1a(12).
2 Those
U.S.C. 1a(11).
Commission registrants that are not RFA CTA is further defined, subject to certain
CPO is further defined, subject to certain
members are nevertheless subject to the rules and exclusions and additions, in Commission regulation
exclusions and additions, in Commission regulation
regulations of the Commission. See 7 U.S.C. 21(e), 1.3(bb) as any person who, for compensation or
1.3(cc) as any person engaged in a business which
which specifies that any person registered under is of the nature of a commodity pool, investment profit, engages in the business of advising others,
the CEA, who is not an RFA member, ‘‘in addition trust, syndicate, or similar form of enterprise, and either directly or through publications, writings or
to the other requirements and obligations of [the who, in connection therewith, solicits, accepts, or electronic media, as to the value of or the
CEA] and the regulations thereunder shall be receives from others, funds, securities, or property, advisability of trading in any contract of sale of a
subject to such other rules and regulations as the either directly or through capital contributions, the commodity for future delivery, security futures
Commission may find necessary to protect the sale of stock or other forms of securities, or product, or swap; any agreement, contract or
public interest and promote just and equitable otherwise, for the purpose of trading in commodity transaction described in Section 2(c)(2)(C)(i) or
principles of trade.’’ interests, including any commodity for future Section 2(c)(2)(D)(i) of the Act; any commodity
3 17 CFR 170.15 and 170.16. See also Registration
delivery, security futures product, or swap; any option authorized under Section 4c of the Act; any
of Swap Dealers and Major Swap Participants, 77 agreement, contract or transaction described in leverage transaction authorized under Section 19 of
FR 2613 (Jan. 19, 2012). Section 2(c)(2)(C)(i) or Section 2(c)(2)(D)(i) of the the Act; any person registered with the Commission
4 7 U.S.C. 21(a). NFA remains the only RFA under Act; any commodity option authorized under as a CTA; or any person, who, for compensation or
Section 17(a) of the CEA and is also a self- Section 4c of the Act; any leverage transaction profit, and as part of a regular business, issues or
regulatory organization (‘‘SRO’’). Per Commission authorized under Section 19 of the Act; or any promulgates analyses or reports concerning any of
regulation 1.3(ee), SROs are designated contract person who is registered with the Commission as the foregoing. 17 CFR 1.3(bb).
markets, swap execution facilities, and registered a CPO, but does not include such persons not CTAs are subject to registration with the
futures associations. 17 CFR 1.3(ee). Certain SROs within the intent of the definition as the Commission under CEA Section 4m and
Commission regulation 3.4(a). 7 U.S.C. 6m and 17
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maintain and update, among other things, a Commission may specify by rule or regulation or by
standardized audit program and coordinate audit order. 17 CFR 1.3(cc). CFR 3.4(a).
and financial statement surveillance activities over CPOs are subject to registration with the 8 NFA Bylaw 1101 is available at: http://www.nfa.
certain types of firms that are members of more than Commission under CEA Section 4m and futures.org/nfamanual/NFAManual.aspx?RuleID=
one SRO. See 17 CFR 1.52. Commission regulation 3.4(a). 7 U.S.C. 6m and 17 BYLAW%201101&Section=3.
5 IB is defined, subject to certain exclusions and CFR 3.4(a). 9 Futures Associations: Futures Commission
additions, in CEA Section 1a(31) as any person 7 CTA is defined, subject to certain exclusions Merchants: Mandatory Membership, 48 FR 26304,
(except an individual who elects to be and is and additions, in CEA Section 1(a)(12) as any 26306 and n.22 (June 7, 1983).
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![55024 Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Rules and Regulations
CEA to establish a comprehensive new current registration may do so.’’ 15 to CTAs that do not direct client
regulatory framework for swaps and Therefore, CTAs that may avail accounts or otherwise exercise
security-based swaps.10 The new themselves of the exemption from discretion (i.e., § 4.14(a)(9) Exempted
regulatory framework provides that, registration in regulation 4.14(a)(9) may CTAs).
among other things, persons that engage be currently registered with the B. Lovely Comment
in regulated activity with respect to Commission and may so register in the
swaps will be required to register with future. Conversely, Lovely generally stated
the Commission as IBs, CPOs, or CTAs, The comment period for the Proposal that the Proposal ‘‘while well-
as appropriate. Because of these ended on January 7, 2014.16 The intentioned, is ill-founded in many
definitional amendments, the Commission received two substantive respects’’ and argued that the costs
intersection of § 170.15 and NFA Bylaw comments in response to the Proposal 17 associated with further requiring
1101 no longer assures NFA and, in consideration of those registered CTAs to become and remain
membership for IBs, CPOs, or CTAs that comments, is adopting the Proposal RFA members would be
are required to register with the subject to certain changes, as noted disproportionate to any regulatory
Commission because, as noted above, below. benefit.
NFA Bylaw 1101 relates only to Lovely discussed those CTAs that
III. Summary of Comments register with the Commission even
commodity futures contracts.11
In response to the Proposal, the though they may not be required to so
II. Proposed Rule Commission received two substantive register (e.g., because they may avail
On November 8, 2013, the comments, one from NFA and one from themselves of a registration exception or
Commission proposed to amend part James W. Lovely, Esq. (‘‘Lovely’’).18 exclusion provided under Commission
170 by adding § 170.17, which would, if Both comments related to the impact of regulation 4.14(a) or Sections 1a(12)(B)
adopted, have required each IB, CPO, the Proposal on CTAs. No comments or 4m(1) of the CEA, respectively).
and CTA registered with the were received in response to the CPO According to Lovely, these CTAs
Commission to become and remain a and IB aspects of the Proposal. register for legal comfort in light of the
member of at least one RFA ‘‘practical ambiguities around concepts
A. NFA Comment [related to CTA registration
(‘‘Proposal’’).12
In the Proposal, the Commission NFA supported the Proposal as an requirements] such as ‘solely
specifically solicited comments appropriate and effective way to require incidental’, ‘principal business or
regarding, among other things, the IBs, CPOs, and CTAs engaging in swaps profession’, ‘holding out’ and ‘tailored
impact of the Proposal on CTAs that are activities that otherwise are not advice’’’ but do not have to become NFA
registered with the Commission despite captured by the intersection of NFA members, so long as such CTAs do not
Bylaw 1101 or NFA Compliance Rule 2– manage or exercise discretion over
being eligible to rely on the exemption
36 19 to become and remain NFA customer accounts or funds.20 He argues
from registration set forth in
members, and comply with the that these CTAs’ voluntary registration
Commission regulation 4.14(a)(9)
applicable NFA requirements. However, benefits the CFTC and that such persons
(‘‘§ 4.14(a)(9) Exempted CTAs’’).13
NFA recommended that the will likely deregister if the Commission
Regulation 4.14(a)(9) provides that a
Commission exclude § 4.14(a)(9) adopts the Proposal.21
person is not required to register with Lovely further stated that the CFTC
the Commission as a CTA if it does not: Exempted CTAs from the Proposal. In
support of its position, NFA stated that ‘‘significantly underestimates the cost of
(i) Direct any client accounts; or (ii) NFA [membership]’’ for these CTAs
provide commodity trading advice its existing rules focus primarily on an
intermediary’s conduct with respect to who are not currently required to
based on, or tailored to, the commodity become NFA members. He noted that
interest or cash market positions or clients and thus have little applicability
most of such CTAs ‘‘have only
other circumstances or characteristics of incidental involvement with commodity
15 See Exemption from Registration as a
particular clients.14 When the interests’’ and, if required to become
Commodity Trading Advisor, 65 FR 12938, 12941
Commission promulgated regulation (March 10, 2000). NFA members, ‘‘would need to retain
4.14(a)(9), it stated that ‘‘[a] CTA exempt 16 The Proposal inaccurately stated the comment
external legal counsel or compliance
under rule 4.14(a)(9) that wishes to period ended on January 17, 2014. To reflect the
consultants to try to ascertain [which
apply for registration or retain its accurate date, the Federal Register published a
correction that the comment period ended on NFA rules] apply to their activities and,
January 7, 2014. See 78 FR 67985 (Nov. 13, 2013). if so, how to comply with the same.’’
10 Dodd-Frank Wall Street Reform and Consumer
Nonetheless, the Commission considered all Notwithstanding that Lovely argues that
Protection Act, Pub. L. 111–203, 124 Stat. 1376 comments received by January 17, 2014.
(2010). 17 See http://comments.cftc.gov/PublicComments/
many NFA rules are not applicable to
11 For example, as noted in the Proposal,
CommentList.aspx?id=1424. such CTAs,22 he estimates that ‘‘external
currently Commission-registered CTAs, CPOs, and 18 NFA Comment Letter and James Lovely, Esq.
IBs engaging solely in swap-related activities are Comment Letter. 20 Presumably Lovely means that such CTAs
not captured by the intersection of § 170.15 and 19 Clause (d) of NFA Compliance Rule 2–36 would not be captured by the intersection of
NFA Bylaw 1101 and, thus, are not required to be applies to forex transactions and requires that no § 170.15 and NFA Bylaw 1101.
NFA members. As such, these registrants, to the NFA member carry a forex account for, accept a 21 In this regard, Lovely also asserted that if the
extent that they have not voluntarily become NFA forex order or account from, handle a forex Commission adopts the Proposal, the First
members, are not being supervised in the same transaction for or on behalf of, receive Amendment rights of these CTAs could be
manner as Commission registrants engaging in compensation (directly or indirectly) for forex jeopardized, and, in some cases, such CTAs may
similar activities relating to commodity futures transactions from, or pay compensation (directly or drop their CFTC registration entirely ‘‘in reliance on
contracts, which registrants are effectively required indirectly) for forex transactions to any non- . . . [their] commercial free speech rights under the
to be NFA members.
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member of NFA, or suspended member, that is U.S. Constitution.’’
12 See Membership in a Registered Futures
required to be registered with the Commission as, 22 Lovely provided a non-exhaustive list of what
Association, 78 FR 67078 (Nov. 8, 2013). among other things, an FCM, IB, CPO, or CTA in he believes to be inapposite NFA member rules
13 78 FR 67080 (Nov. 8, 2013).
connection with its forex activities. NFA including rules regarding: (1) Account opening, risk
14 17 CFR 4.14(a)(9). This exemption from CTA Compliance Rule 2–36 is available at: http:// disclosure and trading authority; (2) bunched orders
registration generally pertains to persons only www.nfa.futures.org/nfamanual/ and order allocation; (3) suitability or churning
providing advice to the general public, such as in NFAManual.aspx?RuleID=RULE%202– security futures products; (4) CTA program and
a newsletter, and not to specific clients. 36&Section=4. performance disclosure for managed accounts or
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![Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Rules and Regulations 55025
legal and compliance assistance . . . other circumstances or characteristics of compulsory RFA membership, is
could easily cost [such a CTA] particular clients. As noted above, and achieved.30 The Commission believes
$15,000.00 to $20,000.00 per year.’’ consistent with § 170.15, the that the Final Rule is reasonably
Commission believes that RFA necessary and desirable to effectuate
IV. Final Rule
supervision of registered CTAs engaging comprehensive and effective market
The Commission, in consideration of in these activities is beneficial to the oversight by NFA in its capacity as an
the comments received by it on the markets and the clients of such CTAs. SRO. As the only RFA, NFA serves as
Proposal, is adopting the Proposal but In addition, the Commission believes the frontline regulator of its members,
excluding § 4.14(a)(9) Exempted CTAs that Lovely’s cost estimates are very subject to Commission oversight.
from the Final Rule.23 The Final Rule high for retaining advisors in relation to Without such mandatory membership in
will help ensure the integrity of the NFA’s rules. Assuming a CTA was to NFA or another RFA, effective
swaps and futures market and its contact an attorney familiar with implementation of the programs
participants by subjecting all registered Commission regulations and NFA rules required by Section 17 of the CEA and
IBs, CPOs, and CTAs, except for applicable to CTAs, the Commission NFA’s self-regulatory programs could be
§ 4.14(a)(9) Exempted CTAs, to NFA’s believes that determining which NFA impeded.31
developed set of rules and oversight rules are applicable to such a CTA In summary, by mandating RFA
capabilities.24 As such, the Commission would be a routine task that would not membership by each registered IB, CPO,
believes that the markets are better take a substantial amount of time.26 and CTA, except § 4.14(a)(9) Exempted
served, and the public better protected, Furthermore, with respect to those CTAs, the Final Rule enables the
by having persons subject to the CTAs that opt into CFTC registration to Commission to further ensure the
requirements of the Final Rule become avoid making determinations as to their fitness, and provide for direct NFA
RFA members.25 activities in relation to their eligibility oversight, of these Commission
After considering the comments, the for the exceptions or exclusions from registrants.
Commission is persuaded by Lovely and the CTA registration requirements noted
NFA that NFA’s rules have little in Lovely’s comments, such persons V. Administrative Compliance
applicability to § 4.14(a)(9) Exempted should review available guidance from A. Paperwork Reduction Act
CTAs and, thus, there would be little the Commission and consult with their The Paperwork Reduction Act of 1995
benefit from requiring § 4.14(a)(9) advisors and Commission staff, as (‘‘PRA’’) 32 imposes certain
Exempted CTAs to become and remain necessary, to determine if registration is requirements on Federal agencies,
RFA members. required.27
The Commission, however, is not including the Commission, in
In support of the Final Rule, Section
persuaded that other registered CTAs, connection with their conducting or
4p of the CEA authorizes the
regardless of whether such CTAs are sponsoring any collection of
Commission to ‘‘specify by rules and
required to register with the information, as defined by the PRA. An
regulations appropriate standards with
Commission, should be excluded from agency may not conduct or sponsor, and
respect to training, experience, and such
the requirements of the Final Rule. Any a registered entity is not required to
other qualifications as the Commission
registered CTA that does not meet the respond to, a collection of information
finds necessary or desirable to insure
requirements of § 4.14(a)(9) would, by unless it displays a currently valid
the fitness of persons required to be
definition, be engaged in either (i) control number by the Office of
registered with the Commission.’’ 28
directing client accounts, or (ii) Management and Budget (‘‘OMB’’).
The Final Rule also provides a means
In connection with the Proposal, the
providing commodity trading advice for assuring that the purpose of Section
Commission anticipated that, if
based on, or tailored to, the commodity 17(m) of the CEA,29 allowing for
adopted, the Final Rule would simply
interest or cash market positions or
26 As noted above, Lovely himself refers to many
require an amendment to the number of
of these rules as ‘‘inapposite.’’ Such a description respondents included in OMB
pools; (5) solicitation and execution of customer
orders; (6) disaster recovery protocols (other than in belies Lovely’s argument that any substantial legal Collection 3038–0023.33 The basis for
connection with CFTC mandated record retention); review would be required to determine whether this preliminary finding was that, at the
(7) trading programs, performance and related NFA rules would apply to one of the CTAs about time of the Proposal, NFA had indicated
promotional materials; (8) anti-money laundering; which Lovely comments.
and (9) quarterly reporting of assets under Moreover, the Commission believes the costs of
that certain CPOs, CTAs, and IBs were
management, trading programs, performance, compliance review in subsequent years would be registered with the Commission, but not
carrying brokers and the like. significantly less than the initial review costs, NFA members. Therefore, because
23 Notwithstanding this exclusion, if a person is because it is likely that only the changes to NFA registration and membership require the
a § 4.14(a)(9) Exempted CTA and registered as an rules that took place during the prior year would
need to be considered.
filing of Form 7–R, the Commission
IB or CPO, then such person shall still be subject
to the requirements of the Final Rule in its capacity 27 The Commission notes that it is not of the view initially believed these respondents’
as a registered IB or CPO, as the case may be. that making such a definitive determination is paperwork burden would have been
24 The Commission notes that, as a result of the impossible or exceedingly difficult, as Lovely’s affected by the Proposal.
Final Rule, any person not required to register, and comment suggests. However, the Commission does As discussed above, the Final Rule
not registered, with the CFTC would not recognize that, once this determination has been
made, and depending on the determination, a does not require IBs, CPOs, or CTAs to
subsequently become subject to any NFA-imposed
requirement unless such person voluntarily elects Commission registrant may need time to review and
to become so registered. Any adverse financial, possibly reorganize its business in order to ensure 30 See Futures Associations: Futures Commission
commercial, or other impact, including the its compliance with NFA’s rules or undertake the Merchants: Mandatory Membership, 48 FR 26304
potential chilling effect on free speech, which could deregistration process, as the case may be. (June 7, 1983).
result from the Final Rule for such CTAs, could be Therefore, the Commission is providing the 31 The Commission notes that in addition to the
avoided simply by relying on the proper regulatory extended compliance period described in the DATES authority discussed herein, as noted previously,
section above.
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exclusion or exemption without having to even CPOs and CTAs are subject to registration with the
incur the cost of filing a notice with the CFTC or 28 7 U.S.C. 6p. Also, Section 8a(5) of the CEA Commission under Section 4m of the CEA, and IBs
NFA. authorizes the Commission ‘‘to make and are subject to such registration under Section 4d(g)
25 This is consistent with the Commission’s promulgate such rules and regulations as, in the of the CEA. 7 U.S.C. 6m and 6d(g).
rationale for § 170.15; that there should be judgment of the Commission, are reasonably 32 44 U.S.C. 3501 et seq.
essentially complete NFA membership from the necessary to effectuate any of the provisions or to 33 See OMB Control No. 3038–0023, http://
universe of commodity professionals. See supra at accomplish any of the purposes’’ of the CEA. www.reginfo.gov/public/do/
n.10. 29 7 U.S.C. 21(m). PRAOMBHistory?ombControlNumber=3038-0023.
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![Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Rules and Regulations 55027
discussed above, § 4.14(a)(9) Exempted they are not captured by the intersection client accounts.44 As such, the
CTAs (i.e., those CTAs that neither of § 170.15 and NFA Bylaw 1101. Commission believes that many of the
manage nor exercise discretion over NFA cannot enforce its rules over Non-member Registrants registered
customer accounts or funds and that do Commission registrants who do not solely as CTAs will be § 4.14(a)(9)
provide clients advice described in become NFA members, including IBs, Exempted CTAs and, thus, will not be
§ 4.14(a)(9)(ii)) will not be required to CPOs, and CTAs active solely in relation required to comply with the Final
become or remain RFA members to swap transactions, which are not Rule.45 Accordingly, the Commission
pursuant to the Final Rule and, thus, currently required to become NFA estimates that 296 46 persons registered
will not face any compliance costs from members. Thus, the Final Rule requires with the CFTC as a CPO, CTA, or IB will
the Final Rule. registered IBs, CPOs, and CTAs, except be required to become and remain NFA
b. Commission Determination § 4.14(a)(9) Exempted CTAs, to become members as a result of the Final Rule.47
NFA members similarly to how § 170.15 Because at this time the Commission
Accordingly, for the reasons stated presently requires FCMs to become NFA cannot reasonably estimate the number
above, the Commission believes that the members and how § 170.16 requires the of Non-member Registrants that may
Final Rule will not have a significant same of SDs and MSPs. In conjunction deregister with the Commission as a
economic impact on a substantial with §§ 170.15 and 170.16, the result of the Final Rule, the Commission
number of small entities. Therefore, the Commission is intending to create an is assuming that no Non-member
Chairman, on behalf of the Commission, oversight regime that ensures more Registrants will deregister as a result of
hereby certifies, pursuant to 5 U.S.C. consistent treatment of its registered the Final Rule. The Commission
605(b), that the Final Rule being intermediaries. The Commission believes that this will lead to an
published today by this Federal believes that the Final Rule is overstatement of the compliance costs
Register release will not have a reasonably necessary to ensure the relating to the Final Rule.
significant economic impact on a fitness and comprehensive regulation
substantial number of small entities. and appropriate oversight of such 2. Costs
C. Considerations of Costs and Benefits persons. a. Costs to IBs, CPOs, and CTAs
Section 15(a) of the CEA requires the In assessing the costs and benefits of
As discussed above, the process for a
Commission to consider the costs and the Final Rule, the Commission employs
Non-member Registrant to become an
benefits of its actions before a status quo baseline. The Commission
NFA member amounts to checking a box
promulgating a regulation under the analyzes the cost and benefit to those
on the CFTC registration form and
CEA or issuing an order. Section 15(a) registered persons that, but for the Final
updating some contact information.
further specifies that the costs and Rule, would not have to become RFA
Thus, the Commission believes the cost
benefits shall be evaluated in light of the members. As of June 30, 2015, the
of filing for membership to be non-
following five broad areas of market and following numbers of Commission
substantive.48
public concern: (1) Protection of market registered IBs, CPOs, and CTAs
participants and the public; (2) (registered in the below categories) were Affected persons are also subject to
efficiency, competitiveness, and not NFA members (‘‘Non-member certain membership fees. NFA imposes
financial integrity of futures markets; (3) Registrants’’): 43 initial membership dues and annual
price discovery; (4) sound risk membership dues for IBs, CPOs, and
management practices; and (5) other Registration category Non-member CTAs. Currently, such initial
registrants membership dues are $750 for the first
public interest considerations. The
Commission considers the costs and year, and the annual dues to maintain
IB only ................................... 21 membership are $750 per year
benefits resulting from its discretionary CPO only .............................. 61
determinations with respect to the CTA only ............................... 573
44 The Commission is assuming that all Non-
section 15(a) factors. IB & CPO .............................. 1
member Registrants registered solely as CTAs have
IB & CTA .............................. 2
1. Background CTA & CPO .......................... 41
reported to the Commission the amount of assets
they have directed, if any.
As discussed above, the Dodd-Frank FCM & CPO ......................... 1 45 For purposes of its analysis, the Commission is
Act amended the CEA to establish a assuming that approximately half of the 573 Non-
comprehensive new regulatory Total ............................... 700 member Registrants registered solely as CTAs (286
Non-member Registrants) will be § 4.14(a)(9)
framework for swaps markets and, in Exempted CTAs and will not be required to comply
doing so, required IBs, CPOs, and CTAs Of these Non-member Registrants, with the Final Rule, and 20 of these 286 Non-
acting in relation to swaps to register however, approximately 138 are member Registrants will be pending withdrawal of
with the Commission. These newly pending withdrawal of their their Commission registration.
46 To arrive at the estimate, the 700 figure was
registered persons, however, are not Commission registration. The
reduced by the sum of (i) 138 (the Non-member
currently required to become NFA Commission is assuming that these Non- Registrants whose withdrawal from Commission
members because, as discussed above, member Registrants will withdraw their registration is pending) and (ii) 266 (the Non-
registration and, thus, will not be member Registrants that the Commission assumes
The Commission also notes that, pursuant to impacted by the Final Rule. In addition, will be § 4.14(a)(9) Exempted CTAs net of those
Section 17(d) of the Act, each CTA or IB that is pending withdrawal, as described above).
only approximately one percent of the 47 For purposes of assessing the costs of this rule,
registered with the Commission, but not an RFA
member is required to ‘‘. . . pay to the Commission Non-member Registrants registered the Commission is assuming that no Non-member
such reasonable fees and charges [established by the solely as CTAs reported to the Registrant is, absent the Final Rule, required to be
tkelley on DSK3SPTVN1PROD with RULES
Commission] as may be necessary to defray the Commission in the most recent an NFA member.
costs of additional regulatory duties required to be reporting cycle that they had directed 48 See Form 7–R, http://www.nfa.futures.org/
performed by the Commission because such person NFA-registration/templates-and-forms/form7-
is not a member of an [RFA].’’ 7 U.S.C. 21(d). The r.HTML. Applications forms for NFA membership
Commission has not yet established any such fees 43 See NFA’s daily directory of CFTC Registrants and Associate membership are incorporated in
or charges, but noted in the release for § 170.15 that and Members available at: http:// Forms 7–R and 8–R. See NFA Membership and
these charges are likely to be greater than the costs www.nfa.futures.org/NFA-registration/NFA- Dues, http://www.nfa.futures.org/NFA-registration/
attendant to RFA membership. See 48 FR at 26311. directories.HTML. NFA-membership-and-dues.HTML.
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![Federal Register / Vol. 80, No. 177 / Monday, September 14, 2015 / Rules and Regulations 55029
Association, Reporting and DEPARTMENT OF LABOR effective date of January 1, 2015. The
recordkeeping requirements. Department has not begun enforcement
Wage and Hour Division of the Final Rule both because of its
For the reasons stated in the time-limited non-enforcement policy, 79
preamble, the Commodity Futures 29 CFR Part 552 FR 60974 (October 9, 2014), and because
Trading Commission amends 17 CFR it is a party to a federal lawsuit
part 170 as set forth below: RIN 1235–AA05
regarding the amended regulations in
Application of the Fair Labor which the U.S. District Court for the
PART 170—REGISTERED FUTURES District of Columbia issued opinions
Standards Act to Domestic Service;
ASSOCIATIONS and orders vacating the rule’s major
Announcement of 30-Day Period of
Non-Enforcement provisions. Home Care Ass’n of Am. v.
■ 1. The authority citation for part 170 Weil, 76 F. Supp. 3d 138 (D.D.C. 2014);
is revised to read as follows: AGENCY: Wage and Hour Division, Home Care Ass’n of Am. v. Weil, 78 F.
Authority: 7 U.S.C. 6d, 6m, 6p, 6s, 12a,
Department of Labor. Supp. 3d 123 (D.D.C. 2015). On August
and 21. ACTION: Policy statement. 21, 2015, the U.S. Court of Appeals for
the District of Columbia Circuit reversed
SUMMARY: The Department of Labor’s the district court’s judgment. Home Care
■ 2. Add § 170.17 to read as follows:
(Department) Final Rule amending Ass’n of America v. Weil, . . . F.3d
§ 170.17 Introducing brokers, commodity regulations regarding domestic service . . . , No. 15–5018, 2015 WL 4978980
pool operators, and commodity trading employment, which extends Fair Labor (D.C. Cir. Aug. 21, 2015). The Court of
advisors. Standards Act (FLSA) protections to Appeals opinion will become effective
most home care workers, had an when that court issues a mandate
Each person registered as an
effective date of January 1, 2015. The directing the district court to enter a
introducing broker, commodity pool Department has not begun enforcement
operator, or commodity trading advisor new judgment in favor of the
of the Final Rule both because of its Department. Although it is not yet
must become and remain a member of previously announced time-limited non- known on what date the mandate will
at least one futures association that is enforcement policy and because it is a issue, the Department will not bring
registered under Section 17 of the Act party to a federal lawsuit regarding the enforcement actions against any
and that provides for the membership amended regulations. The U.S. Court of employer for violations of FLSA
therein of introducing brokers, Appeals for the District of Columbia obligations resulting from the amended
commodity pool operators, or issued an opinion in that case in favor domestic service regulations for 30 days
commodity trading advisors, as the case of the Department on August 21, 2015. after the date the mandate issues.
may be, unless no such futures The Department will not bring This 30-day non-enforcement policy
association is so registered; provided, enforcement actions against any does not replace or affect the timeline of
however that a person registered as a employer for violations of FLSA the Department’s existing time-limited
commodity trading advisor shall not be obligations resulting from the amended non-enforcement policy announced in
required to become or remain a member domestic service regulations for 30 days October 2014. 79 FR 60974. Under that
of such a futures association, solely in after the date the Court of Appeals policy, through December 31, 2015, the
respect of its registration as a issues a mandate making its opinion Department will exercise prosecutorial
commodity trading advisor, if such effective. discretion in determining whether to
person is eligible for the exemption DATES: This policy statement was signed bring enforcement actions, with
from registration as such pursuant to on September 9, 2015. particular consideration given to the
§ 4.14(a)(9) of this chapter. extent to which States and other entities
FOR FURTHER INFORMATION CONTACT: have made good faith efforts to bring
Issued in Washington, DC, on September 9, Mary Ziegler, Assistant Administrator, their home care programs into
2015, by the Commission. Office of Policy, U.S. Department of compliance with the FLSA since the
Christopher J. Kirkpatrick, Labor, Wage and Hour Division, 200 promulgation of the Final Rule. The
Constitution Avenue NW., Room S– Department will also continue to
Secretary of the Commission.
3502, FP Building, Washington, DC provide intensive technical assistance to
Note: The following appendix will not 20210; telephone: (202) 343–5940 (this the regulated community, as it has since
appear in the Code of Federal Regulations. is not a toll-free number), email: promulgation of the Final Rule.
HomeCare@dol.gov. Copies of this
Appendix to Membership in a Policy Statement may be obtained in II. Regulatory Requirements
Registered Futures Association— alternative formats (Large Print, Braille, This Policy Statement is guidance
Commission Voting Summary Audio Tape, or Disc), upon request, by articulating considerations relevant to
calling (202) 693–0675 (not a toll-free the Department’s exercise of its
On this matter, Chairman Massad and number). TTY/TTD callers may dial toll-
Commissioners Bowen and Giancarlo voted
enforcement authority under the FLSA.
free (877) 889–5627 to obtain It is therefore exempt from the notice-
in the affirmative. No Commissioner voted in
information or request materials in and-comment rulemaking requirements
the negative.
alternative formats. under the Administrative Procedure Act
[FR Doc. 2015–23046 Filed 9–11–15; 8:45 am]
SUPPLEMENTARY INFORMATION: pursuant to 5 U.S.C. 553(b).
BILLING CODE 6351–01–P Because no notice of proposed
I. 30-Day Non-Enforcement Period After rulemaking is required, the Regulatory
tkelley on DSK3SPTVN1PROD with RULES
Mandate Issues Flexibility Act does not require an
The Department’s Final Rule initial or final regulatory flexibility
amending regulations regarding analysis. 5 U.S.C. 603(a), 604(a). The
domestic service employment, 78 FR Department has determined that this
60454, which extends FLSA protections guidance does not impose any new or
to most home care workers, had an revise any existing recordkeeping,
VerDate Sep<11>2014 16:26 Sep 11, 2015 Jkt 235001 PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 E:\FR\FM\14SER1.SGM 14SER1](https://thefederalregister.org/doc/80_FR_55199/page/8.svg)
Document Created: 2018-02-26 10:14:54
Document Modified: 2018-02-26 10:14:54
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Final rule. | |
| Dates | The Final Rule will become effective November 13, 2015. All persons subject to the Final Rule must comply with the Final Rule by not later than December 31, 2015. | |
| Contact | Katherine Driscoll, Associate Chief Counsel, 202-418-5544, [email protected]; or Jacob Chachkin, Special Counsel, 202-418-5496, [email protected], Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581. | |
| FR Citation | 80 FR 55022 | |
| RIN Number | 3038-AE09 | |
| CFR Associated | Authority Delegations (government Agencies); Commodity Futures; Membership in A Registered Futures Association and Reporting and Recordkeeping Requirements |
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