80 FR 79390 - Self-Regulatory Organizations; National Futures Association; Notice of Filing and Immediate Effectiveness of Proposed Change to the Interpretive Notice to NFA Compliance Rules 2-7 and 2-24 and Registration Rule 401: Proficiency Requirements for SFPs

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 244 (December 21, 2015)

[Federal Register Volume 80, Number 244 (Monday, December 21, 2015)]
[Notices]
[Pages 79390-79392]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-31931]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76644; File No. SR-NFA-2015-01]


Self-Regulatory Organizations; National Futures Association; 
Notice of Filing and Immediate Effectiveness of Proposed Change to the 
Interpretive Notice to NFA Compliance Rules 2-7 and 2-24 and 
Registration Rule 401: Proficiency Requirements for SFPs

December 15, 2015.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Exchange Act''),\1\ and Rule 19b-7 under the Exchange Act,\2\ notice 
is hereby given that on December 3, 2015, National Futures Association 
(``NFA'') filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change described in Items I, II, and 
III below, which Items have been prepared by NFA. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons. NFA also filed this proposed rule change on 
December 3, 2015 with the Commodity Futures Trading Commission 
(``CFTC'').
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
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    NFA, on December 3, 2015, requested that the CFTC make a 
determination that review of the proposed rule change of NFA is not 
necessary.
    The CFTC has not yet made such a determination.

[[Page 79391]]

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The amendments to the Interpretive Notice entitled ``NFA Compliance 
Rules 2-7 and 2-24 and Registration Rule 401: Proficiency Requirements 
for Security Futures Products'' (``Notice'') make permanent the 
provision permitting registrants to qualify to engage in securities 
futures activities by completing a training program.
    The text of the Interpretive Notice is available on NFA's Web site 
at www.nfa.futures.org, the Commission's Web site at www.sec.gov, the 
self-regulatory organization's office, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NFA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NFA has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Section 15A(k) of the Exchange Act \3\ makes NFA a national 
securities association for the limited purpose of regulating the 
activities of NFA Members (``Members'') who are registered as brokers 
or dealers under Section 15(b)(11) of the Exchange Act.\4\ NFA's Notice 
entitled: ``NFA Compliance Rules 2-7 and 2-24 and Registration Rule 
401: Proficiency Requirements for Security Futures Products'' applies 
to all Members who meet the criteria in the Interpretive Notice and 
could apply to Members registered under Section 15(b)(11) of the 
Exchange Act.
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    \3\ 15 U.S.C. 78o-3(k).
    \4\ 15 U.S.C. 78o(b)(11).
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    The Commodity Futures Modernization Act of 2000 amended the 
Securities Exchange Act of 1934 to require NFA to ``have rules that 
ensure that members and natural persons associated with members meet 
such standards of training, experience and competence necessary to 
effect transactions in security futures products and are tested for 
their knowledge of securities and securities futures products.'' In 
2001, NFA and FINRA (then NASD) adopted temporary relief allowing 
registrants to qualify to engage in security futures activities by 
completing a training program rather than taking a proficiency exam, 
which NFA codified in the Notice. That relief has been extended four 
times and is currently set to expire on December 31, 2015.
    NFA and FINRA proposed the four prior extensions, and the CFTC and 
SEC agreed to them, because of the relatively low trading volume in 
security futures products (``SFP'') and the relatively few registrants 
engaging in security futures activities. These characteristics made the 
imposition of a qualifications exam an inefficient option, and the same 
reasons are equally compelling today.
    In 2002 NFA, FINRA and the Institute for Financial Markets 
partnered together to develop a free web-based training program 
consisting of a series of modules intended to satisfy the training 
requirement (``SRO Training Modules''). From 2002 through May 2015, 
15,216 individuals have completed the SRO Training Modules. Of this 
number, 10,108 individuals are registered with FINRA (including joint 
registrants) and 5,108 individuals are registered only with the CFTC. 
Most of these individuals took the SRO Training Modules in the first 
couple of years after SFPs began trading, and traffic has decreased 
since then. In 2014, only 180 registered individuals completed the SRO 
Training Modules (162 CFTC-only registrants). This compares with the 
approximately 4,000 people who took the Series 3 exam last year.
    Additionally, SFP volume is low. In 2014, U.S. futures exchanges 
traded approximately 3.9 billion contracts, while SFP volume was just 
over 8 million--approximately 0.21% of the total. Given the limited 
interest in these products, NFA believes that implementing a testing 
requirement does not appear to be the most practical solution at this 
time.
    Given the continued low number of registrants engaging in 
securities futures activities and the low SFP volume, NFA's Board of 
Directors at its August 20, 2015 meeting authorized NFA's Executive 
Committee to approve amendments to NFA's Interpretive Notice regarding 
proficiency requirements for SFPs to make permanent the provision 
permitting registrants to satisfy their proficiency requirement through 
training and eliminating the sunset provision. NFA's Executive 
Committee, as authorized by the Board of Directors, approved the 
amendments on October 15, 2015. NFA's Board of Directors ratified the 
Executive Committee's action at it November 19, 2015 meeting. The 
amendments also emphasize that the training must be completed before 
any individual registrant engages in activities involving SFPs. NFA, in 
coordination with FINRA, will continue to monitor the security futures 
volume and the number of persons taking the SRO Training modules, as 
well as any disciplinary matters involving SFPs, in considering whether 
a proficiency test should be developed at a later date.
    Amendments to the Interpretive Notice regarding NFA Compliance 
Rules 2-7 and 2-24 and Registration Rule 401: Proficiency Requirements 
for Security Futures Products were previously filed with the SEC in SR-
NFA-2002-04, Exchange Act Release No. 34-46502 (Sep. 16, 2002), 67 FR 
59587 (Sep. 23, 2002); SR-NFA-2003-03, Exchange Act Release No. 34-
47825 (May 9, 2003), 68 FR 27128 (Mar. 19, 2002); SR-NFA-2003-04, 
Exchange Act Release No. 34-49054 (Jan. 12, 2004), 69 FR 2806, (Jan. 
20, 2004); SR-NFA-2007-07, Exchange Act Release 34-57142 (Jan. 14, 
2008), 73 FR 3502 (Jan. 18, 2008); SR-NFA-2009-02, Exchange Act Release 
34-61284 (Jan. 4, 2010), 75 FR 1431 (Jan. 11, 2010) and SR-NFA-2014-01, 
Exchange Act Release No. 34-71976 (April 21, 2014), 79 FR 23028 (April 
25, 2014).
2. Statutory Basis
    The rule change is authorized by, and consistent with, Section 
15A(k)(2)(D) of the Exchange Act.\5\ That Section requires NFA to 
``have rules that ensure that members and natural persons associated 
with members meet such standards of training, experience, and 
competence necessary to effect transactions in SFPs and are tested for 
their knowledge of securities and securities futures products.'' 
Although the proposal makes permanent the relief from having to take an 
exam to engage in securities futures activities, the proposal still 
requires individual registrants to complete training before entering 
into any activities.
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    \5\ 15 U.S.C. 78o-3(k)(2)(D).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will have little or no impact on 
competition. The proposed Interpretive Notice does not impose new 
requirements on Members, but rather makes permanent the provision 
permitting registrants to qualify to engage in security futures

[[Page 79392]]

activities by completing a training program.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    NFA did not publish the rule change to the membership for comment. 
NFA did not receive comment letters concerning the rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change is not effective because the CFTC has not 
yet determined that review of the proposed rule change is not 
necessary.
    At any time within 60 days of the date of effectiveness of the 
proposed rule change, the Commission, after consultation with the CFTC, 
may summarily temporarily suspend the proposed rule change and require 
that the proposed rule change be refiled in accordance with the 
provisions of Section 19(b)(1) of the Exchange Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NFA-2015-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NFA-2015-01. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of NFA. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NFA-2015-01, and should be 
submitted on or before January 11, 2016.
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    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-31931 Filed 12-18-15; 8:45 am]
BILLING CODE 8011-01-P