[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Proposed Rules]
[Pages 12888-12896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4799]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3

RIN 3038-AD50


Registration of Intermediaries

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission) hereby 
proposes regulations to further implement new statutory provisions 
enacted by Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) regarding registration of 
intermediaries. Specifically, the Commission proposes certain 
conforming amendments to the Commission's regulations regarding the 
registration of intermediaries, consistent with other Commission 
rulemakings issued pursuant to the Dodd-Frank Act; and other 
modernizing and technical amendments to the regulations.

DATES: Comments must be received on or before May 9, 2011.

ADDRESSES: You may submit comments, identified by RIN 3038-AD50 and 
Part 3, by any of the following methods:
    <bullet> Agency Web site, http://www.cftc.gov, via its Comments 
Online process at http://comments.cftc.gov. Follow the instructions for 
submitting comments through the Web site.
    <bullet> Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    <bullet> Hand Delivery/Courier: same as mail above.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
http://www.cftc.gov. You should submit only information that you wish 
to make available publicly. If you wish the Commission to consider 
information that you believe is exempt from disclosure under the 
Freedom of Information Act, a petition for confidential treatment of 
the exempt information may be submitted according to the procedures 
established in Sec.  145.9.\1\
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    \1\ Commission regulations referred to herein are found at 17 
CFR Ch. 1 (2010), as amended by 75 FR 55409, Sep. 23, 2010, and may 
be accessed on the Commission's Web site.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from http://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Andrew Chapin, Associate Director, 
Division of Clearing and Intermediary Oversight, (202) 418-5465, 
<a href="/cdn-cgi/l/email-protection#80e1e3e8e1f0e9eec0e3e6f4e3aee7eff6"><span class="__cf_email__" data-cfemail="6302000b02130a0d23000517004d040c15">[email protected]</span></a>; or Claire Noakes, Attorney Advisor, Division of 
Clearing and Intermediary Oversight, (202) 418-5444, <a href="/cdn-cgi/l/email-protection#a1c2cfcec0cac4d2e1c2c7d5c28fc6ced7"><span class="__cf_email__" data-cfemail="fe9d90919f959b8dbe9d988a9dd0999188">[email protected]</span></a>; 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\2\ 
Title VII of the Dodd-Frank Act amended the Commodity Exchange Act 
(CEA) \3\ to establish a comprehensive new regulatory framework to 
reduce risk, increase transparency, and promote market integrity within 
the financial system by, among other things: (1) Providing for the 
registration and comprehensive regulation of swap dealers (SDs) and 
major swap participants (MSPs); (2) imposing clearing and trade 
execution requirements on standardized derivative products; (3) 
creating rigorous recordkeeping and real-time reporting regimes; and 
(4) enhancing the Commission's rulemaking and enforcement authorities 
with respect to all registered entities and intermediaries subject to 
the Commission's oversight. The regulations in this proposal concern 
conforming, modernizing and technical

[[Page 12889]]

amendments to part 3 governing the registration of intermediaries.
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    \2\ See Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376 
(2010). The text of the Dodd-Frank Act may be accessed at: http://www.cftc.gov/ucm/groups/public/swaps/documents/file/hr4173_enrolledbill.pdf.
    \3\ 7 U.S.C. 1 et seq.
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II. Proposed Regulations

    The Commission's existing registration process for futures, 
commodity options and retail foreign exchange intermediaries, their 
associated persons (APs), and floor traders and floor brokers is set 
forth in part 3. Currently, part 3 does not address SDs and MSPs, nor 
does it reference a swap execution facility (SEF).\4\ The Commission 
recently published two other notices of proposed rulemaking that would 
apply certain provisions of part 3 to SDs and MSPs.\5\ This proposal 
would amend further part 3 to conform the regulations regarding 
registration by incorporating references to SDs, MSPs and SEFs where 
appropriate. The Commission expects to harmonize any distinctions 
between this proposal and the other rulemakings in the order that they 
become final. Therefore, this proposal does not contain the changes to 
part 3 proposed elsewhere; it is intended to work in conjunction with 
these other proposed rulemakings.
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    \4\ Section 1(a)(50) of the CEA generally provides that a SEF is 
a trading system or platform in which multiple participants have the 
ability to execute or trade swaps by accepting bids and offers made 
by multiple participants in the facility or system.
    \5\ 75 FR 70881, Nov. 19, 2010; 75 FR 71379, Nov. 23, 2010.
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A. Conforming Amendments

    Some of the proposed amendments involve substantive changes to 
existing regulations because of the particular attributes or 
characteristics of SDs, MSPs and SEFs. Other proposed amendments to 
part 3 consist entirely of adding references, where appropriate, to 
SDs, MSPs and SEFs in existing regulations, based on the fact that the 
Commission has not decided to issue regulations that impose a 
registration requirement on floor brokers and floor traders that solely 
engage in swaps activity. As a result, SEFs were not added alongside 
the term designated contract market if the provision was only 
addressing registration activities of floor brokers and floor traders. 
SDs and MSPs were not added if the provision was only addressing 
registration activities of APs, because at this time the Commission has 
not decided to issue regulations requiring registration of APs of SDs 
and MSPs.\6\
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    \6\ See 75 FR at 71380, Nov. 23, 2010.
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    Specific section-by-section proposed revisions follow.
1. Section 3.1--Definitions
    Current Sec.  3.1(a) sets forth the definition of a principal, and 
Sec.  3.1(a)(3) carves out from the definition of principal certain 
persons that have made capital contributions in the form of 
subordinated debt to a registrant, including unaffiliated banks 
operating in the U.S. and U.S. branches of foreign banks. The 
Commission is proposing to clarify the carve-out by referencing terms 
defined elsewhere in federal regulations. More specifically, the 
proposal would tie the carve-out to the definitions of ``foreign bank'' 
and ``office of a foreign bank'' currently used by the Board of 
Governors of the Federal Reserve System under regulation K\7\ for 
foreign banking organizations.
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    \7\ See generally 12 CFR 211.
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    Currently, any foreign bank that had made capital contributions in 
the form of subordinated debt would be included within the definition 
of principal.\8\ In response to the likelihood that foreign-domiciled 
persons with capital contributions from foreign banks might register as 
SDs, the Commission is proposing to expand the carve-out. The proposed 
expansion would cover any foreign bank itself that currently operates 
an office licensed in the U.S. In so doing, the Commission would be 
relying on the approval process of the office by the Board of Governors 
of the Federal Reserve System as a proxy for discerning whether the 
foreign bank itself is otherwise regulated. The Commission specifically 
seeks comments on whether this provision is warranted to ensure uniform 
listing of principals by domestic and foreign-domiciled registrants, 
and whether the expansion would ensure that the list of principals 
remains a meaningful reflection of the persons who actually exercise 
control over the registrant's regulated activities.
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    \8\ In the Commission's initial proposal of this exemption, the 
Commission was concerned with whether the bank was ``otherwise 
regulated,'' but did not attempt to determine whether any foreign 
bank qualified as such. See 56 FR 37026, 37031, Aug. 2, 1991.
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2. Section 3.10--Registration of Futures Commission Merchants, Retail 
Foreign Exchange Dealers, Introducing Brokers, Commodity Trading 
Advisors, Commodity Pool Operators and Leverage Transaction Merchants. 
Section 3.12--Registration of Associated Persons of Futures Commission 
Merchants, Retail Foreign Exchange Dealers, Introducing Brokers, 
Commodity Trading Advisors, Commodity Pool Operators and Leverage 
Transaction Merchants
    Current Sec.  3.10(c) generally sets forth exemptions from 
registration for certain persons. The Commission is proposing to add an 
exemption from registration in new paragraph (c)(5) to clarify that an 
individual employed by either an SD or a MSP and acting as its AP is 
not required separately to register as an SD or MSP, respectively, 
solely arising out of their activities as an AP. The Commission 
specifically seeks comment as to whether this exemption is necessary to 
clarify the registration responsibilities of employees, in light of the 
current absence of a registration requirement as an AP of an SD or a 
MSP, and in light of the proposed definition requiring persons who 
engage in certain activities to register as an SD or MSP.\9\
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    \9\ See 75 FR 80173, Dec. 21, 2010.
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    The Commission also is proposing to amend Sec.  3.12(h)(1)(i) to 
provide that a person is not required to register as an AP in any 
capacity if he or she is registered in one of the other enumerated 
categories, including an SD or MSP. The Commission specifically seeks 
comment as to whether this exemption is necessary, in light of the 
improbability that an individual, rather than an entity, would register 
as an SD or MSP.
    Section 3.10(c)(2) and (3) also currently provide exemptions from 
registration as a futures commission merchant for foreign brokers and 
other foreign intermediaries conducting activities in commodity 
interest transactions on designated contract markets solely on behalf 
of customers located outside the U.S. The Commission is proposing to 
expand the exemption to commodity interest transactions made on or 
subject to the rules of an SEF. The Commission is proposing this 
expansion to create uniformity in treatment of commodity interest 
transactions that do not involve a U.S. customer, regardless of whether 
the transaction is made on a designated contract market or an SEF. 
Additionally, the Commission seeks comment as to whether it should 
expand the existing

[[Page 12890]]

exemption from registration to foreign brokers and other foreign 
intermediaries that execute a bilateral swap transaction and 
voluntarily clear it on a derivatives clearing organization on an 
omnibus basis. Further, the Commission seeks comment as to whether such 
an exemption should distinguish between bilateral swap transactions 
that occur within the U.S., or those that occur abroad.
3. Derivatives Transaction Execution Facilities
    The Dodd-Frank Act abolished derivatives transaction execution 
facilities as a market category. Additionally, no derivatives 
transaction execution facility has ever registered with the Commission. 
Therefore, that term is proposed to be deleted from Sec. Sec.  3.2(c), 
3.2(c)(2), 3.10(a)(3)(i)(A), 3.10(c)(2)(i), 3.10(c)(3)(i), 
3.10(c)(4)(ii) and (iv), 3.11(a)(2) and (3), 3.11(b), 3.31(d), 
3.40(a)(2)(iv), 3.42(a)(6), and 3.46(a)(8).

B. Modernization and Technical Amendments

    The Commission proposes to make certain modernization and technical 
amendments to part 3. These are discussed below.
1. Section 3.1--Definitions
    Section 3.1(a)(2) defines a principal to include persons who exceed 
a threshold for equity ownership. As a technical matter, the Commission 
is proposing to harmonize the references to outstanding classes of 
securities in Sec.  3.1(a)(2)(i) and (ii) to refer to ``outstanding 
shares of any class of equity securities, other than non-voting 
securities'' throughout. This term should address any existing 
ambiguity related to calculations involving authorized but unissued 
securities, or debt securities. Also, the Commission is proposing to 
move the concept of indirect owners found in the definition of 
beneficial ownership in Sec.  3.1(d) to Sec.  3.1(a)(4) to serve as a 
backstop to the requirement to list indirect owners in Sec.  3.1(a)(2).
2. Section 3.31--Deficiencies, Inaccuracies, and Changes To Be 
Reported. Section 3.33--Withdrawal from Registration
    Current Sec.  3.31 sets forth procedural requirements for a 
registrant to update and/or correct information previously provided to 
the Commission and the National Futures Association (NFA). Among other 
goals, the purpose of the registration process is to ensure that 
principals are subject to proper fitness checks prior to the registrant 
engaging in regulated activities. Historically, the Commission required 
re-registration upon a change in a registrant's name, a change in its 
form of organization,\10\ or a change in its control, with limited 
exemptions.\11\ In practice, however, re-registering creates a new NFA 
identification number, which disassociates past disciplinary 
information connected to the previous NFA identification number with 
the re-registered entity's new NFA identification number. A member of 
the public would need to take additional steps to uncover the 
disciplinary information associated with the previous entity's NFA 
identification number by researching whether any principals of the new 
entity were also principals of the old entity. Also, re-registration 
could disrupt the continuity of business of a registrant if a 
background check is not completed before a principal is added.
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    \10\ In 1979, Sec.  1.15 stated, ``a new registration shall be 
required in the event of a change: (a) In the name of the 
registrant; (b) In the form of organization of the registrant * * 
*.''
    \11\ See, e.g., 57 FR 23136, 23142, Jun. 2, 1992, requiring 
written certifications that control remains the same after a 
reorganization in order to avoid re-registration, or requiring a 
corporate resolution prohibiting a new director from exercising 
control until NFA could complete its background check in order to 
avoid re-registration.
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    The Commission recognizes that the rules no longer explicitly 
require re-registration in response to changes in a registrant's name, 
its form of organization, or its control. Instead, NFA determines 
whether a firm must re-register, subject to certain safe-harbors from 
re-registration in Sec.  3.31(a)(2) and (3). For example, current Sec.  
3.31(a)(2) permits firms to avoid re-registration after a change to the 
form of the organization if the successor organization consents to be 
liable for all obligations of the predecessor organization, and (a)(3) 
permits firms to avoid re-registration, despite the addition of a new 
principal. Otherwise, these exemptions do not address what happens when 
a firm changes both its form of organization and some of its 
principals, such as during a merger.
    The Commission seeks to improve the transparency and predictability 
of the re-registration requirements in expectation of an influx of new 
registrants. Therefore, the Commission is proposing to amend Sec.  
3.31(a) to explicitly address additional scenarios. Proposed Sec.  
3.31(a)(2) restates an existing requirement to re-register if a sole 
proprietorship is involved, in recognition of the unique attributes of 
the sole proprietor name type under NFA's online registration system. 
Proposed Sec.  3.31(a)(3) requires re-registration in the event of a 
change in name or form of organization, but preserves the existing safe 
harbor if there is no change in principal and the registrant wishes to 
consent to liability for its predecessor organization. Proposed Sec.  
3.31(a)(4) preserves the existing safe harbor from re-registration for 
additions of a new principal. Proposed Sec.  3.31(a)(5), however, 
requires re-registration if a registrant changes its legal name or its 
form of the organization and adds a principal.
    Currently, a registration is tied to an entity's legal name that is 
registered with a state, and that denotes information about its form of 
organization. The Commission believes it is appropriate to connect the 
NFA identification number to that name and form of organization. It is 
unavoidable that members of the public will need to take an additional 
step to acquire information about a previous registrant by researching 
shared principals, because an entity that is a bad actor could still 
voluntarily withdraw its registration to obtain a new NFA 
identification number and disassociate itself from past disciplinary 
actions. The Commission specifically requests comment on whether the 
additional transparency under the new provisions of Sec.  3.31 is 
beneficial and necessary to fulfill the Commission's mandate to protect 
customers, and whether the existing safe harbors from re-registration 
should be maintained.
    Also, the Commission is proposing to amend Sec.  3.33(a) to compel 
a registrant to request a withdrawal of its registration at the same 
time it files articles of dissolution or a certificate of cancellation. 
For example, if a partnership decides to wind-up its affairs and cancel 
its partnership statement with the state, it must request withdrawal 
from registration at least contemporaneously with, or on a voluntary 
basis prior to, it canceling its partnership statement.
3. Consolidation of Existing Regulations
    The Commission is also proposing that several provisions of part 3 
should be consolidated to streamline the regulations. None of these 
proposals create new regulatory requirements. First, the Commission 
proposes to move the delegation provision found in Sec.  3.12(g) into 
Sec.  3.75, ``Delegation and reservation of authority.'' Second, the 
Commission is proposing to amend Sec.  3.11 to add a new paragraph (c) 
to replace the existing exemption from registration as a floor trader 
for registered floor brokers that was previously found in Sec.  3.4(a). 
Similarly, proposed Sec.  3.21, ``Exemption from fingerprinting 
requirement in certain

[[Page 12891]]

cases,'' contains an exemption from submitting fingerprint cards for 
persons who have a current form 8-R on file, which would replace the 
same exemption found in Sec. Sec.  3.31(a)(3) and 3.44(a)(5). In both 
cases, the regulations permitted a principal that was moving between 
registrants to dispense with the fingerprint card filing requirement. 
The proposed rules consolidate this exemption with the other exemptions 
in Sec.  3.21.
4. Registration Forms
    The Commission also is proposing to amend certain provisions to 
update several references to the forms used during the registration 
process. For example, certain provisions in part 3 refer to a 
registrant's use of the form 3-R. However, under NFA's online 
registration system, a registrant cannot presently fill out a form 3-R, 
either electronically or on paper. Instead, a registrant can update its 
existing form 7-R or form 8-R, and a record of those changes will be 
automatically created by NFA and designated as the registrant's 
completed form 3-R. For clarity, the Commission is proposing to 
reference the distinction between actually filing out a form and 
creating a record of changes to another form in proposed Sec. Sec.  
3.11(b), 3.31(a)(1), 3.31(b), and 3.31(c)(1). Elsewhere, Sec. Sec.  
3.42(a)(8) and 3.46(a)(10) refer to a numerical list of items on forms 
7-R and 8-R, but these forms no longer contain numbers associated with 
the particular questions. The Commission therefore is proposing to 
amend these regulations to instead reference the failure to disclose 
relevant disciplinary history information, or the failure to disclose 
an event leading to a required disclosure. These proposals do not 
create any new regulatory requirement, but merely clarify existing 
obligations.

C. Corrections

    As published, the regulations contain vestigial definitions, 
outdated cross-references to other regulations, and typographical 
errors that are in need of clarification or updating. The Commission is 
proposing to amend the following: Sec. Sec.  3.1(e), 3.11(b), 
3.10(c)(4)(iii), 3.12(b), 3.12(c), 3.12(h)(1)(ii), 3.13(d)(2), 
3.21(a)(1-2), 3.21(b)(1)-(2), 3.21(c)(4)(iii), 3.22(b), 3.30(b), 
3.42(a), 3.44(a)(5), 3.46(a), and 3.46(a)(6) to address such errors.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') was adopted to address the 
concerns that government regulations may have a significant and/or 
disproportionate effect on small businesses. To mitigate this risk, the 
RFA requires agencies to conduct an initial and final regulatory 
flexibility analysis for each rule of general applicability for which 
the agency issues a general notice of proposed rulemaking.\12\ These 
analyses must describe the impact of the proposed rule on small 
entities, including a statement of the objectives and the legal bases 
for the rulemaking; an estimate of the number of small entities to be 
affected; identification of Federal rules that may duplicate, overlap, 
or conflict with the proposed rules; and a description of any 
significant alternatives to the proposed rule that would minimize any 
significant impacts on small entities.\13\
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    \12\ 5 U.S.C. 601 et seq.
    \13\ 5 U.S.C. 603, 604.
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    The proposed rules will amend existing rules in part 3 regarding 
the registration of intermediaries consistent with other Commission 
rulemakings issued pursuant to the Dodd-Frank Act. The proposed rules 
also will make other technical and modernizing amendments to part 3.
    The rules proposed by the Commission shall affect only FCMs, 
introducing brokers, commodity trading advisors, commodity pool 
operators, SDs and MSPs, and the rules will impose no new significant 
obligations on any of these entities. Therefore, the Commission has 
determined that the proposed rules will not create a significant 
economic impact on a substantial number of small entities. Accordingly, 
the Chairman, on behalf of the Commission, hereby certifies pursuant to 
5 U.S.C. 605(b) that the proposed rules will not have a significant 
impact on a substantial number of small entities.

B. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA), an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid control 
number.\14\ The proposed rules will not impose any new recordkeeping or 
information collection requirements, or other collections of 
information that require approval of the Office of Management and 
Budget under the PRA. The Commission invites public comment on the 
accuracy of its estimate that no additional information collection 
requirements or changes to existing collection requirements would 
result from the rules proposed herein.
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    \14\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis

    Section 15(a) of the CEA \15\ requires the Commission to consider 
the costs and benefits of its actions before issuing new rules under 
the Act. By its terms, it does not require the Commission to quantify 
the costs and benefits of new rules or to determine whether the 
benefits of the proposed rules outweigh their costs; it requires the 
Commission to ``consider'' the cost and benefits of its actions. 
Section 15(a) of the CEA further specifies that the costs and benefits 
of the proposed rules shall be evaluated in light of five broad areas 
of market and public concern: (1) Protection of market participants and 
the public; (2) efficiency, competitiveness, and financial integrity of 
the futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations. The Commission 
may, in its discretion, give greater weight to any one of the five 
enumerated areas of concern and may, in its discretion, determine that, 
notwithstanding its costs, a particular rule is necessary or 
appropriate to protect the public interest or to effectuate any of the 
provisions or to accomplish any of the purposes of the CEA.
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    \15\ 7 U.S.C. 19(a).
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    The proposed rules would amend existing rules in part 3 regarding 
the registration of intermediaries to ensure that the Commission's 
current rules are consistent with other Commission rulemakings issued 
pursuant to the Dodd-Frank Act. The proposed rules also would make 
other technical and modernizing amendments to part 3. As these rules 
impose no new significant obligations, the Commission does not 
anticipate that they will result in either costs or benefits in light 
of the five areas of concern enumerated in Sec.  15(a) of the CEA. The 
substantive proposed rulemakings with which this rulemaking is 
associated have addressed the costs and benefits of the proposals, as 
required by Sec.  15(a) of the CEA.
    The Commission invites public comment on its cost-benefit 
considerations. Commenters also are invited to submit any data or other 
information that they may have quantifying or qualifying the costs.

List of Subjects in 17 CFR Part 3

    Administrative practice and procedure, Brokers, Commodity futures, 
Major swap participants, Reporting and recordkeeping requirements, Swap 
dealers.


[[Page 12892]]


    For the reasons stated in the preamble, the Commission proposes to 
amend 17 CFR part 3 as follows:

PART 3--REGISTRATION

Authority and Issuance

    1. The authority citation for part 3 is revised to read as follows:

    Authority:  5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 
6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 
12a, 13b, 13c, 16a, 18, 19, 21, 23.

    2. Amend Sec.  3.1 by revising paragraph (a) introductory text, 
(a)(2), and (a)(3), adding paragraph (a)(4), and removing and reserving 
paragraphs (d) and (e) to read as follows:


Sec.  3.1  Definitions.

    (a) Principal. Principal means, with respect to an entity that is 
an applicant for registration, a registrant or a person required to be 
registered under the Act or these regulations:
* * * * *
    (2)(i) Any individual who directly or indirectly, through 
agreement, holding company, nominee, trust or otherwise, is the owner 
of ten percent or more of the outstanding shares of any class of equity 
securities, other than non-voting securities, is entitled to vote or 
has the power to sell or direct the sale of ten percent or more of the 
outstanding shares of any class of equity securities, other than non-
voting securities, or is entitled to receive ten percent or more of the 
profits of the entity; or
    (ii) Any person other than an individual that is the direct owner 
of ten percent or more of the outstanding shares of any class of equity 
securities, other than non-voting securities; or
    (3) Any person that has contributed ten percent or more of the 
capital of the entity, provided, however, that if such capital 
contribution consists of subordinated debt contributed by either
    (i) An unaffiliated bank insured by the Federal Deposit Insurance 
Corporation,
    (ii) An unaffiliated ``foreign bank,'' as defined in 12 CFR 
211.21(n) that currently operates an ``office of a foreign bank,'' as 
defined in 12 CFR 211.21(t), which is licensed under 12 CFR 211.24(a),
    (iii) Such unaffiliated office of a foreign bank that is licensed, 
or
    (iv) An insurance company subject to regulation by any State, such 
bank, foreign bank, office of a foreign bank, or insurance company will 
not be deemed to be a principal for purposes of this section, provided 
such debt is not guaranteed by another party not listed as a principal.
    (4) Any individual who, directly or indirectly, creates or uses a 
trust, proxy, power of attorney, pooling arrangement or any other 
contract, arrangement, or device with the purpose or effect of 
divesting such person of direct or indirect ownership of an equity 
security of the entity, other than a non-voting security, or preventing 
the vesting of such ownership, or of avoiding making a contribution of 
ten percent or more of the capital of the entity, as part of a plan or 
scheme to evade being deemed a principal of the entity, shall be deemed 
to be a principal of the entity.
* * * * *
    (d) [Reserved.]
    (e) [Reserved.]
* * * * *
    3. Amend Sec.  3.2 by revising paragraphs (c) introductory text and 
(c)(2) to read as follows:


Sec.  3.2  Registration processing by the National Futures Association; 
notification and duration of registration.

* * * * *
    (c) The National Futures Association shall notify the registrant, 
or the sponsor in the case of an applicant for registration as an 
associated person, and each designated contract market that has granted 
the applicant trading privileges in the case of an applicant for 
registration as a floor broker or floor trader, if registration has 
been granted under the Act.
* * * * *
    (2) If an applicant for registration as a floor broker or floor 
trader receives a temporary license in accordance with Sec.  3.40, the 
National Futures Association shall notify the designated contract 
market that has granted the applicant trading privileges that only a 
temporary license has been granted.
* * * * *
    4. Amend Sec.  3.10 by revising paragraphs (a)(3)(i)(A), (c)(2)(i), 
(c)(3)(i), (c)(4)(ii), (c)(4)(iii), and (c)(3)(iv) and add paragraph 
(c)(5) to read as follows:


Sec.  3.10  Registration of futures commission merchants, introducing 
brokers, commodity trading advisors, commodity pool operators and 
leverage transaction merchants.

    (a) * * *
    (3) * * *
    (i) * * *
    (A) The broker or dealer limits its solicitation of orders, 
acceptance of orders, or execution of orders, or placing of orders on 
behalf of others involving any contracts of sale of any commodity for 
future delivery, on or subject to the rules of any contract market, to 
security futures products as defined in section 1a(44) of the Act;
* * * * *
    (c) * * *
    (2)(i) A foreign broker, as defined in Sec.  1.3(xx) of this 
chapter, is not required to register as a futures commission merchant 
if it submits any commodity interest transactions executed on or 
subject to the rules of designated contract market or swap execution 
facility for clearing on an omnibus basis through a futures commission 
merchant registered in accordance with section 4d of the Act.
* * * * *
    (3)(i) A person located outside the United States, its territories 
or possessions engaged in the activity of: An introducing broker, as 
defined in Sec.  1.3(mm) of this chapter; a commodity trading advisor, 
as defined in Sec.  1.3(bb) of this chapter; or a commodity pool 
operator, as defined in Sec.  1.3(cc) of this chapter, in connection 
with any commodity interest transaction made on or subject to the rules 
of any designated contract market or swap execution facility only on 
behalf of persons located outside the United States, its territories or 
possessions, is not required to register in such capacity provided that 
any such commodity interest transaction executed on or subject to the 
rules of designated contract market or swap execution facility is 
submitted for clearing through a futures commission merchant registered 
in accordance with section 4d of the Act.
* * * * *
    (4) * * *
    (ii) Such a person introduces, on a fully-disclosed basis in 
accordance with Sec.  1.57 of this chapter, any institutional customer, 
as defined in Sec.  1.3(g) of this chapter, to a registered futures 
commission merchant for the purpose of trading on a designated contract 
market;
    (iii) Such person's affiliated futures commission merchant has 
filed with the National Futures Association (Attn: Vice President, 
Compliance) an acknowledgement that the affiliated futures commission 
merchant will be jointly and severally liable for any violations of the 
Act or the Commission's regulations committed by such person in 
connection with those introducing activities, whether or not the 
affiliated futures commission merchant submits for clearing any trades 
resulting from those introducing activities; and
    (iv) Such person does not solicit any person located in the United 
States, its territories or possessions for trading on a designated 
contract market, nor does such person handle the customer funds of any 
person located in the United States, its territories or possessions for

[[Page 12893]]

the purpose of trading on any designated contract market.
* * * * *
    (5) An associated person of a swap dealer or an associated person 
of a major swap participant, as defined in 1a(4) of the Act, is not 
required to register as a swap dealer or major swap participant, 
respectively, solely as a consequence of being an associated person of 
a swap dealer, or an associated person of a major swap participant.
* * * * *
    5. Amend Sec.  3.11 by revising paragraphs (a)(2), (a)(3) and (b) 
and adding paragraph (c) to read as follows:


Sec.  3.11  Registration of floor brokers and floor traders.

    (a) * * *
    (2) An applicant for registration as a floor broker or floor trader 
will not be registered or issued a temporary license as a floor broker 
or floor trader unless the applicant has been granted trading 
privileges by a board of trade designated as a contract market by the 
Commission.
    (3) When the Commission or the National Futures Association 
determines that an applicant for registration as a floor broker or 
floor trader is not disqualified from such registration or temporary 
license, the National Futures Association will notify the applicant and 
any contract market that has granted the applicant trading privileges 
that the applicant's registration or temporary license as a floor 
broker or floor trader is granted.
    (b) Duration of registration. A person registered as a floor broker 
or floor trader in accordance with paragraph (a) of this section, and 
whose registration has neither been revoked nor withdrawn, will 
continue to be so registered unless such person's trading privileges on 
all contract markets have ceased: Provided, that if a floor broker or 
floor trader whose trading privileges on all contract markets have 
ceased for reasons unrelated to any Commission action or any contract 
market disciplinary proceeding and whose registration is not revoked, 
suspended or withdrawn is granted trading privileges as a floor broker 
or floor trader, respectively, by any contract market where he held 
such privileges within the preceding sixty days, such registration as a 
floor broker or floor trader, respectively, shall be deemed to continue 
and no new Form 8-R or Form 3-R record of a change to Form 8-R need be 
filed solely on the basis of the resumption of trading privileges. A 
floor broker or floor trader is prohibited from engaging in activities 
requiring registration under the Act or from representing himself to be 
a registrant under the Act or the representative or agent of any 
registrant during the pendency of any suspension of such registration 
or of all such trading privileges. Each contract market that has 
granted trading privileges to a person who is registered, or has 
applied for registration, as a floor broker or floor trader, must 
provide notice in accordance with Sec.  3.31(d) after such person's 
trading privileges on such contract market have ceased.
    (c) Exceptions. (1) A registered floor broker need not also 
register as a floor trader in order to engage in activity as a floor 
trader.
    (2) [Reserved]
    6. Amend Sec.  3.12 by revising paragraphs (b), (c), (g) and (h) to 
read as follows:


Sec.  3.12  Registration of associated persons of futures commission 
merchants, retail foreign exchange dealers, introducing brokers, 
commodity trading advisors, commodity pool operators and leverage 
transaction merchants.

* * * * *
    (b) Duration of registration. A person registered in accordance 
with paragraphs (c), (d), (f), or (i) of this section and whose 
registration has not been revoked will continue to be so registered 
until the revocation or withdrawal of the registration of each of the 
registrant's sponsors, or until the cessation of the association of the 
registrant with each of his sponsors. Such person will be prohibited 
from engaging in activities requiring registration under the Act or 
from representing himself to be a registrant under the Act or the 
representative or agent of any registrant during the pendency of any 
suspension of his or his sponsor's registration. Each of the 
registrant's sponsors must file a notice in accordance with Sec.  
3.31(c) reporting the termination of the association of the associated 
person.
    (c) Application for registration. Except as otherwise provided in 
paragraphs (d), (f), and (i) of this section, application for 
registration as an associated person in any capacity must be on Form 8-
R, completed and filed in accordance with the instructions thereto.
* * * * *
    (g) Petitions for exemption. Any person adversely affected by the 
operation of this section may file a petition with the Secretary of the 
Commission, which petition must set forth with particularity, the 
reasons why that person believes that an applicant should be exempted 
from the requirements of this section and why such an exemption would 
not be contrary to the public interest and the purposes of the 
provision from which exemption is sought. The petition will be granted 
or denied by the Commission on the basis of the papers filed. The 
Commission may grant such a petition if it finds that the exemption is 
not contrary to the public interest and the purposes of the provision 
from which exemption is sought. The petition may be granted subject to 
such terms and conditions as the Commission may find appropriate.
    (h) Exemption from registration. (1) A person is not required to 
register as an associated person in any capacity if that person is:
    (i) Registered under the Act as a futures commission merchant, 
retail foreign exchange dealer, swap dealer, major swap participant, 
floor broker, or as an introducing broker;
    (ii) Engaged in the solicitation of funds, securities, or property 
for a participation in a commodity pool, or the supervision of any 
person or persons so engaged, pursuant to registration with the 
Financial Industry Regulatory Authority as a registered representative, 
registered principal, limited representative or limited principal, and 
that person does not engage in any other activity subject to regulation 
by the Commission;
* * * * *
    7. Amend Sec.  3.13 by revising paragraph (d)(2) to read as 
follows:


Sec.  3.13  Registration of agricultural trade option merchants and 
their associated persons.

* * * * *
    (d) * * *
    (2) Applicants for registration as an associated person of an 
agricultural trade option merchant must meet the following conditions. 
Such persons must:
* * * * *
    8. Amend Sec.  3.21 by revising paragraphs (a)(1), (a)(2), (b)(1), 
(b)(2), (b)(3), and (c)(4)(iii), and add paragraph (a)(3) to read as 
follows:


Sec.  3.21  Exemption from fingerprinting requirement in certain cases.

    (a) * * *
    (1) A legible, accurate and complete photocopy of a fingerprint 
card that has been submitted to the Federal Bureau of Investigation for 
identification and appropriate processing and of each report, record, 
and notation made available by the Federal Bureau of Investigation with 
respect to that fingerprint card if such identification and processing 
has been completed satisfactorily by the Federal Bureau of 
Investigation not more than ninety days

[[Page 12894]]

prior to the filing with the National Futures Association of the 
photocopy;
    (2) A statement that such person's application for initial 
registration in any capacity was granted within the preceding ninety 
days, provided that the provisions of paragraph (a)(2) of this section 
shall not be applicable to any person who, by Commission rule, 
regulation, or order, was not required to file a fingerprint card in 
connection with such application for initial registration; or
    (3) A statement that such person has a current Form 8-R on file 
with the Commission or the National Futures Association.
    (b) * * *
    (1) With respect to the fingerprints of an associated person: An 
officer, if the sponsor is a corporation; a general partner, if a 
partnership; or the sole proprietor, if a sole proprietorship;
    (2) With respect to fingerprints of a floor broker or floor trader: 
The applicant for registration; or
    (3) With respect to the fingerprints of a principal: An officer, if 
the futures commission merchant, retail foreign exchange dealer, swap 
dealer, major swap participant, commodity trading advisor, commodity 
pool operator, introducing broker, or leverage transaction merchant 
with which the principal will be affiliated is a corporation; a general 
partner, if a partnership; or the sole proprietor, if a sole 
proprietorship.
    (c) * * *
    (4) * * *
    (iii) The internal controls used to ensure that the outside 
director for whom exemption under paragraph (c) of this section is 
sought does not have access to the keeping, handling or processing of 
the items described in paragraphs (c)(2)(i) and (c)(2)(ii) of this 
section; and
* * * * *
    9. Amend Sec.  3.22 by revising paragraph (b) to read as follows:


Sec.  3.22  Supplemental filings.

* * * * *
    (b) That the person, or any individual who, based upon his or her 
relationship with that person is required to file a Form 8-R in 
accordance with the requirements of this part, as applicable, must, 
within such period of time as the Commission or the National Futures 
Association may specify, complete and file with the Commission or the 
National Futures Association a current Form 7-R, or if appropriate, a 
Form 8-R, in accordance with the instructions thereto.
* * * * *
    10. Amend Sec.  3.30 by revising paragraph (b) to read as follows:


Sec.  3.30  Current address for purpose of delivery of communications 
from the Commission or the National Futures Association.

* * * * *
    (b) Each registrant, while registered and for two years after 
termination of registration, and each principal, while affiliated and 
for two years after termination of affiliation, must notify in writing 
the National Futures Association of any change of the address on the 
application for registration, biographical supplement, or other address 
filed with the National Futures Association for the purpose of 
receiving communications from the Commission or the National Futures 
Association. Failure to file a required response to any communication 
sent to the latest such address filed with the National Futures 
Association that is caused by a failure to notify in writing the 
National Futures Association of an address change may result in an 
order of default and award of claimed monetary damages or other 
appropriate order in any National Futures Association or Commission 
proceeding, including a reparation proceeding brought under part 12 of 
this chapter.
    11. Amend Sec.  3.31 by revising paragraphs (a), (b), (c)(1) 
introductory text and (d) to read as follows:


Sec.  3.31  Deficiencies, inaccuracies, and changes to be reported.

    (a)(1) Each applicant or registrant as a futures commission 
merchant, retail foreign exchange dealer, commodity trading advisor, 
commodity pool operator, introducing broker, or leverage transaction 
merchant shall, in accordance with the instructions thereto, promptly 
correct any deficiency or inaccuracy in Form 7-R or Form 8-R that no 
longer renders accurate and current the information contained therein, 
with the exception of any change that requires withdrawal from 
registration under Sec.  3.33. Each such correction shall be prepared 
and filed in accordance with the instructions thereto to create a Form 
3-R record of such change.
    (2) Where the deficiency or inaccuracy is created by a change in 
the ``form of organization'' field on Form 7-R from or to a sole 
proprietorship, the registrant must request withdrawal from 
registration in accordance with Sec.  3.33.
    (3) Where the deficiency or inaccuracy is created by a change in 
the ``firm name'' field, if a non-natural person, or the ``form of 
organization'' field on Form 7-R, the registrant must request 
withdrawal from registration in accordance with Sec.  3.33; provided, 
however, that if there is no addition of a new principal, the 
registrant may instead update its Form 7-R to create a Form 3-R record 
of change, which is deemed in such circumstance to include a consent 
that the new legal entity shall be liable for all obligations of the 
pre-existing organization under the Act, and the rules, regulations, or 
orders that have been promulgated thereunder.
    (4) Where the deficiency or inaccuracy is created by the addition 
of a new principal not listed on the registrant's application for 
registration (or amendment of such application prior to the granting of 
registration), and there is no change in firm name or form of 
organization:
    (i) If the new principal is not a natural person, the registrant 
shall update such Form 7-R to create a Form 3-R record of change.
    (ii) If the new principal is a natural person, the registrant shall 
file a Form 8-R, completed in accordance with the instructions thereto 
and executed by such person who is a principal of the registrant and 
who was not listed on the registrant's initial application for 
registration or any amendment thereto.
    (5) Where the deficiency or inaccuracy is created by the addition 
of a new principal not listed on the registrant's application for 
registration (or amendment of such application prior to the granting of 
registration), and there is a change in the ``firm name'' field, if a 
non-natural person, or the ``form of organization'' field on the 
registrant's Form 7-R, the registrant must request withdrawal from 
registration in accordance with Sec.  3.33.
    (b) Each applicant or registrant as a floor broker, floor trader or 
associated person, and each principal of a futures commission merchant, 
retail foreign exchange dealer, commodity trading advisor, commodity 
pool operator, introducing broker, or leverage transaction merchant 
must, in accordance with the instructions thereto, promptly correct any 
deficiency or inaccuracy in the Form 8-R or supplemental statement 
thereto to create a Form 3-R record of change.
    (c)(1) After the filing of a Form 8-R or updating a Form 8-R to 
create a Form 3-R record of change by or on behalf of any person for 
the purpose of permitting that person to be an associated person of a 
futures commission merchant, retail foreign exchange dealer, commodity 
trading advisor, commodity pool operator, introducing broker, or a 
leverage transaction merchant, that futures commission merchant, retail 
foreign exchange dealer, commodity

[[Page 12895]]

trading advisor, commodity pool operator, introducing broker or 
leverage transaction merchant must, within thirty days after the 
occurrence of either of the following, file a notice thereof with the 
National Futures Association indicating:
* * * * *
    (d) Each contract market that has granted trading privileges to a 
person who is registered, has received a temporary license, or has 
applied for registration as a floor broker or floor trader, must notify 
the National Futures Association within sixty days after such person 
has ceased having trading privileges on such contract market.
* * * * *
    12. Amend Sec.  3.33 by revising paragraph (a) introductory text to 
read as follows:


Sec.  3.33  Withdrawal from registration.

    (a) A futures commission merchant, retail foreign exchange dealer, 
introducing broker, commodity trading advisor, commodity pool operator, 
or leverage transaction merchant must request that its registration be 
withdrawn upon filing articles (or a certificate) of dissolution (or 
cancellation), and upon notice of any involuntary dissolution initiated 
by a third-party. A futures commission merchant, retail foreign 
exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator, leverage transaction merchant, floor broker or 
floor trader may request that its registration be withdrawn in 
accordance with the requirements of this section if:
* * * * *
    13. Amend Sec.  3.40 by revising paragraph (a)(2)(iv) to read as 
follows:


Sec.  3.40  Temporary licensing of applicants for associated person, 
floor broker or floor trader registration.

    (a) * * *
    (2) * * *
    (iv) Evidence that the applicant has been granted trading 
privileges by a contract market that has filed with the National 
Futures Association a certification signed by its chief operating 
officer with respect to the review of an applicant's employment, credit 
and other history in connection with the granting of trading 
privileges.
* * * * *
    14. Amend Sec.  3.42 by revising paragraphs (a) introductory text, 
(a)(6), and (a)(8) to read as follows:


Sec.  3.42  Termination.

    (a) A temporary license issued pursuant to Sec.  3.40 shall 
terminate:
* * * * *
    (6) Immediately upon failure to comply with an award in an 
arbitration proceeding conducted pursuant to the rules of a designated 
contract market or registered futures association within the time 
specified in section 10(g) of the National Futures Association's Code 
of Arbitration or the comparable time period specified in the rules of 
a contract market or other appropriate arbitration forum.
* * * * *
    (8) Immediately upon notice to the applicant and the applicant's 
sponsor or the contract market that has granted the applicant trading 
privileges that:
    (i) The applicant failed to disclose relevant disciplinary history 
information on the applicant's Form 8-R; or
    (ii) An event has occurred leading to a required disclosure on the 
applicant's Form 8-R.
* * * * *
    15. Amend Sec.  3.44 by revising paragraph (a)(5) to read as 
follows:


Sec.  3.44  Temporary licensing of applicants for guaranteed 
introducing broker registration.

    (a) * * *
    (5) The fingerprints of the applicant, if a sole proprietor, and of 
each principal (including each branch office manager) thereof on 
fingerprint cards provided by the National Futures Association for that 
purpose.
* * * * *
    16. Amend Sec.  3.46 by revising paragraph (a) introductory text, 
(a)(6), (a)(8), and (a)(10) to read as follows:


Sec.  3.46  Termination.

    (a) A temporary license issued pursuant to Sec.  3.44 shall 
terminate:
* * * * *
    (6) Immediately upon failure to comply with an order to pay a civil 
monetary penalty, restitution, or disgorgement within the time 
permitted under section 6(e), 6b, or 6c(d) of the Act;
* * * * *
    (8) Immediately upon failure to comply with an award in an 
arbitration proceeding conducted pursuant to the rules of a designated 
contract market, swap execution facility, or registered futures 
association within the time specified in section 10(g) of the National 
Futures Association's Code of Arbitration or the comparable time period 
specified in the rules of a designated contract market, swap execution 
facility, or other appropriate arbitration forum.
* * * * *
    (10) Immediately upon notice to the applicant and the guarantor 
futures commission merchant that:
    (i) The applicant or any principal (including any branch officer 
manager) failed to disclose relevant disciplinary history information 
on the applicant's Form 7-R or on a principal's Form 8-R; or
    (ii) An event has occurred leading to a required disclosure on the 
applicant's Form 7-R or on a principal's Form 8-R.
* * * * *
    17. Amend Sec.  3.75 by revising paragraph (a) to read as follows:


Sec.  3.75  Delegation and reservation of authority.

    (a) The Commission hereby delegates, until such time as it orders 
otherwise, to the Director of the Division of Clearing and Intermediary 
Oversight or his designee the authority to grant or deny requests filed 
pursuant to Sec.  3.12(g). The Director of the Division of Clearing and 
Intermediary Oversight may submit to the Commission for its 
consideration any matter which has been delegated to him pursuant to 
Sec.  3.12(g). The Commission hereby delegates, until such time as it 
orders otherwise, the authority to perform all functions specified in 
subparts B through D to the persons authorized to perform them 
thereunder.
* * * * *

    Issued in Washington, DC, on February 24, 2011, by the 
Commission.
David A. Stawick,
Secretary of the Commission.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Registration of Intermediaries--Commission Voting Summary 
and Statements of Commissioners

Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn, 
Sommers, Chilton and O'Malia voted in the affirmative; no 
Commissioner voted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

    I support the proposed rulemaking that will amend certain 
provisions of Part 3 of the Commission's regulations regarding the 
registration of intermediaries. The proposed amendments are 
necessary to conform existing regulations to the new requirements in 
the Dodd-Frank Act. The proposed rulemaking would amend Part 3 to 
ensure that the registration process applies to new categories of 
registrants, such as swap dealers and major swap participants. The 
proposed

[[Page 12896]]

amendments also will modernize existing provisions that will apply 
to all Commission registrants.

[FR Doc. 2011-4799 Filed 3-8-11; 8:45 am]
BILLING CODE 6351-01-P


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