This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

2613 

Vol. 77, No. 12 

Thursday, January 19, 2012 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed through the Commission’s Web 

site, http://www.cftc.gov/. 2Pursuant to Dodd-Frank Act section 701, Title 

VII may be cited as the ‘‘Wall Street Transparency 

and Accountability Act of 2010.’’ 3 7 U.S.C. 1 et seq. (2006). The CEA and 

Commission regulations issued thereunder 

similarly can be accessed through the Commission’s 

Web site. 4 75 FR 71379 (Nov. 23, 2010). 

5See, respectively, CEA sections 1a(49), 1a(33) 

and 1a(4). 

6See 75 FR 80174 (Dec. 21, 2010). 

7Sections 4s(a) and 4s(b) were added to the CEA 

by Dodd-Frank Act section 731. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 3, 23, and 170 

RIN 3038–AC95 

Registration of Swap Dealers and 

Major Swap Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rules. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is adopting regulations under the 

Commodity Exchange Act (Act or CEA) 

that establish the process for the 

registration of swap dealers (SDs) and 

major swap participants (MSPs, and 

collectively with SDs, Swaps Entities) 

and that require Swaps Entities to 

become and remain members of a 

registered futures association (RFA). 

The Commission is also adopting 

regulations that define an ‘‘associated 

person’’ of an SD or MSP as a natural 

person and that implement the 

prohibition on a Swaps Entity 

permitting an associated person who is 

statutorily disqualified from registration 

from effecting or being involved in 

effecting swaps on behalf of the Swaps 

Entity. The Commission is adopting 

these regulations in accordance with 

section 4s of the CEA, which was 

recently added to the CEA by the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act). 

DATES: Effective March 19, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Barbara S. Gold, Associate Director, 

Christopher W. Cummings, Special 

Counsel, or Elizabeth Miller, AttorneyAdvisor, Division of Swap Dealer and 

Intermediary Oversight, 1155 21st Street 

NW., Washington, DC 20581. Telephone 

number: (202) 418–6700 and electronic 

mail: bgold@cftc.gov, 

ccummings@cftc.gov or 

emiller@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

A. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act.1 Title VII of 

the Dodd-Frank Act 2 amended the 

CEA 3 to establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The goal of this 

legislation was 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 SDs and MSPs; (2) 

imposing clearing and trade execution 

requirements on standardized 

derivatives products; (3) creating robust 

recordkeeping and real-time reporting 

regimes; and (4) enhancing the 

Commission’s rulemaking and 

enforcement authorities with respect to, 

among others, all registered entities and 

intermediaries subject to the oversight 

of the Commission. The regulations the 

Commission is adopting today concern 

the registration of SDs and MSPs, as 

required by CEA section 4s(a). As is 

discussed below, these final regulations 

are based in large part on the 

Commission’s proposed registration 

regulations for SDs and MSPs 

(Proposal).4

In furtherance of the foregoing 

legislative goals, Dodd-Frank Act 

section 721(a) amended the definitions 

of various existing terms in the CEA and 

added definitions of numerous new 

terms to the CEA, including definitions 

of the new terms ‘‘swap dealer,’’ ‘‘major 

swap participant,’’ and ‘‘associated 

person of a swap dealer or major swap 

participant.’’ 5 Section 712(d)(1) of the 

Dodd-Frank Act directed the 

Commission and the Securities and 

Exchange Commission (SEC), in 

consultation with the Board of 

Governors of the Federal Reserve 

System, to further define the terms 

‘‘swap dealer’’ and ‘‘major swap 

participant’’ (Entities Definitional 

Regulations).6 The instant rulemaking 

will apply to SDs and MSPs as defined 

in the CEA and as further defined by the 

Commission. 

B. Statutory Registration Requirements 

for SDs and MSPs 

CEA sections 4s(a) and 4s(b) 7

provide, in pertinent part, for the 

registration of SDs and MSPs as follows: 

(a) REGISTRATION.— 

(1) SWAP DEALERS.—It shall be 

unlawful for any person to act as a swap 

dealer unless the person is registered as 

a swap dealer with the Commission. 

(2) MAJOR SWAP PARTICIPANTS.— 

It shall be unlawful for any person to act 

as a major swap participant unless the 

person is registered as a major swap 

participant with the Commission. 

(b) REQUIREMENTS.— 

(1) IN GENERAL.—A person shall 

register as a swap dealer or major swap 

participant by filing a registration 

application with the Commission. 

(2) CONTENTS.— 

(A) IN GENERAL.—The application 

shall be made in such form and manner 

as prescribed by the Commission, and 

shall contain such information, as the 

Commission considers necessary 

concerning the business in which the 

applicant is or will be engaged. 

CEA section 4s does not direct the 

Commission to adopt rules that provide 

for the registration of associated persons 

of SDs or MSPs. However, CEA section 

4s(b)(6) makes it unlawful for a Swaps 

Entity to permit a person to associate 

with it if the person is subject to a 

statutory disqualification, as follows: 

Except to the extent otherwise specifically 

provided by rule, regulation, or order, it shall 

be unlawful for a swap dealer or major swap 

participant to permit any person associated 

with a swap dealer or major swap participant 

who is subject to a statutory disqualification 

to effect or be involved in effecting swaps on 

behalf of the swap dealer or major swap 

participant, if the swap dealer or major swap 

participant knew, or in the exercise of 

reasonable care should have known, of the 

statutory disqualification. 

For the purpose of the regulations it is 

adopting today, and specifically 

Regulation 23.22, the Commission 


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2614 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 

8See 75 FR 71379, 71380. The Commission did 

not receive any comments in response to this aspect 

of the Proposal. See Part II of this Federal Register 

release, which discusses the comments the 

Commission received on the Proposal. 

9CEA sections 4s(e) through (k), respectively, 

added to the CEA by Dodd-Frank Act section 731. 

10CEA section 4s(l), added to the CEA by DoddFrank Act section 724(c). 

11See 76 FR 23732 (Apr. 28, 2011), 76 FR 27802 

(May 12, 2011) (section 4s(e)—Capital and Margin); 

75 FR 76666 (Dec. 9, 2010) (section 4s(f)—Reporting 

and Recordkeeping, and section 4s(g)—Daily 

Trading Records); 75 FR 80638 (Dec. 22, 2010), 75 

FR 71391 (Nov. 23, 2010) (section 4s(h)—Business 

Conduct Standards); 75 FR 81519 (Dec. 28, 2010), 

76 FR 6708 (Feb. 8, 2011), 76 FR 6715 (Feb. 8, 2011) 

(section 4s(i)—Documentation Standards); 75 FR 

71397 (Nov. 23, 2010) (section 4s(j)—Duties); 75 FR 

70881 (Nov. 19, 2010) (section 4s(k)—Designation 

of Chief Compliance Officer); 75 FR 75162 (Dec. 2, 

2010), 75 FR 75432 (Dec. 2, 2010), (section 4s(l)— 

Segregation Requirements for Uncleared Swaps). 

12Specifically, the prohibition against Federal 

assistance to Swaps Entities is set forth in DoddFrank Act section 716(a), as follows: 

(a) PROHIBITION ON FEDERAL ASSISTANCE.— 

Notwithstanding any other provision of law 

(including regulations), no Federal assistance may 

be provided to any swaps entity with respect to any 

swap, security-based swap, or other activity of the 

swaps entity. 

Dodd-Frank Act section 716(d) carves out certain 

swaps activities of an IDI that is an SD, and 

therefore a ‘‘swaps entity,’’ from the prohibition 

against ‘‘Federal assistance.’’ In particular, the 

prohibition against Federal assistance does not 

apply to the extent the IDI SD engages in: (1) 

Hedging and other risk-mitigating activities of the 

IDI; or (2) acting as an SD for swaps and securitybased swaps involving rates (e.g., interest rate 

swaps) or reference assets that are permissible 

investments. Engaging in non-cleared credit default 

swaps, however, would subject an IDI SD to the 

prohibition against Federal assistance. 

13Section 716(c) provides for the Push-Out 

Affiliate exception as follows: 

(c) AFFILIATES OF INSURED DEPOSITORY 

INSTITUTIONS.—The prohibition on Federal 

assistance contained in subsection (a) does not 

apply to and shall not prevent an insured 

depository institution from having or establishing 

an affiliate which is a swaps entity, as long as such 

insured depository institution is part of a bank 

holding company, or savings and loan holding 

company, that is supervised by the Federal Reserve 

and such swaps entity affiliate complies with 

sections 23A and 23B of the Federal Reserve Act 

and such other requirements as the Commodity 

Futures Trading Commission * * * may determine 

to be necessary and appropriate. 

14See 75 FR 71379, 71380–81. The Commission 

did not receive any comments on its statement in 

the Proposal. 

15Part 3 of the Commission’s regulations governs 

the registration of intermediaries and certain market 

participants under the CEA. 

16See 75 FR at 71385. 

17See 75 FR at 71381. 

18See 75 FR at 71381–82. 

19See 75 FR at 71382–71383. 

20The comments the Commission received on the 

Proposal are currently available on the 

Commission’s Web site. 

intends that, as proposed, a statutory 

disqualification is a disqualification 

under CEA section 8a(2) or 8a(3).8 These 

CEA sections contain an extensive list of 

matters that constitute grounds pursuant 

to which the Commission may refuse to 

register a person, including, without 

limitation, felony convictions, 

commodities or securities law 

violations, and bars or other adverse 

actions taken by financial regulators. 

CEA section 4s further directs the 

Commission to provide for the 

regulation of SDs and MSPs with 

respect to, among others, the following 

areas: Capital and margin, reporting and 

recordkeeping, daily trading records, 

business conduct standards, 

documentation standards, duties, 

designation of chief compliance officer,9

and, with respect to uncleared swaps, 

segregation 10 (collectively, Section 4s 

Requirements). The Commission is 

addressing the Section 4s Requirements 

through other rulemakings (Section 4s 

Implementing Regulations) separate and 

apart from the instant rulemaking, 

which concerns the registration process 

for Swaps Entities.11 Certain issues 

relevant to the Section 4s Implementing 

Regulations—i.e., the timing of their 

adoption and the initial demonstration 

of compliance with them by SDs and 

MSPs—nonetheless have an impact on 

the registration process for Swaps 

Entities, which is discussed below in 

Part II of this Federal Register release. 

Additionally, Dodd-Frank Act section 

716 prohibits an insured depository 

institution (IDI) from receiving Federal 

assistance if it is also an SD that engages 

in swaps activities that are not covered 

by the exclusion in section 716(d).12

Under Dodd-Frank Act section 716(c), 

an IDI can retain its access to Federal 

assistance if it transfers covered 

activities to a non-IDI affiliate (a PushOut Affiliate) that is an SD or MSP, if 

the affiliate complies with the 

requirements of section 716(c), 

including such requirements as the 

Commission may establish.13 The PushOut Affiliate, however, would not have 

access to Federal assistance. The 

Commission did not include in the 

Proposal any specific Push-Out Affiliate 

requirements, and as it stated in the 

Proposal, the Commission intends that 

any Push-Out Affiliate that comes 

within the statutory definition of an SD 

or an MSP be subject to registration and 

regulation as an SD or as an MSP, as the 

case may be.14

C. The Proposal 

To fulfill the statutory mandates 

contained in CEA sections 4s(a) and 

4s(b), the Commission proposed 

amendments to existing Regulations 3.2, 

3.4, 3.10, 3.21, 3.30, 3.31 and 3.33 15 and 

new Regulations 23.21, 23.22 and 

170.16, to, respectively, establish the 

registration process for SDs and MSPs; 

incorporate the statutory prohibition on 

SDs and MSPs permitting an associated 

person to effect or be involved in 

effecting swaps on their behalf; and 

require SDs and MSPs to become and 

remain members of an RFA. 

In the section-by-section analysis of 

the regulations contained in the 

Proposal, the Commission specifically 

requested comment on whether it 

should restrict the definition of an 

associated person of a Swaps Entity to 

a natural person, and how to best 

implement the statutory disqualification 

prohibition in CEA section 4s(b)(6).16

Elsewhere, the Commission requested 

comment on the concept of a 

provisional registration process for SDs 

and MSPs that would be responsive to 

a phased implementation of the Entities 

Definitional Regulations and the section 

4s Implementing Regulations,17 and on 

the allocation of responsibilities among 

the Commission and one or more RFAs 

attendant to the oversight of the 

activities of Swaps Entities generally.18

Finally, the Commission requested 

comment on the application of 

extraterritorial issues to the registration 

requirements it proposed for Swaps 

Entities.19

II. Comments 20 and Responses 

A. In General 

The Commission received numerous 

comments on the Proposal. Commenters 

include domestic banks, foreign banks, 

companies engaged in various energy 

businesses, trade and public interest 

associations (energy, international 

banking, securities, and swaps), the 

National Futures Association (NFA, 

currently the only RFA), and both 

United States (U.S.) and foreign citizens. 

The Commission received several 

requests for clarification on and 

enhancements to its contemplated 

registration process for Swaps Entities, 

and the final regulations adopted today 

do contain some revisions to the 

Proposal. In consideration of the 

comments received, the Commission is 

adopting the Proposal mainly in the 

form as issued, with specific changes as 

discussed below. 

B. Restricting Associated Persons to 

Natural Persons 

As stated in the Proposal: 

The term ‘‘associated person’’ in the 

context of existing Commission registrants is 

not defined in the CEA. That term is defined 

in the Commission’s regulations. 

Specifically, Regulation 1.3(aa) provides that 

‘‘[T]his term [i.e., associated person] means 

any natural person who is associated with’’, 

e.g., [a futures commission merchant] * * * 

in any capacity that involves solicitation or 

the supervision of any person or persons so 

engaged (emphasis added). ‘‘Associated 


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Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 2615 

21 75 FR at 71385 (footnote omitted). 

22This action supersedes the prior proposal of the 

Commission to define the term ‘‘associated person 

of a swap dealer or major swap participant’’ in a 

new Regulation 1.3(zz). See 76 FR 33066, 33067 

(June 7, 2011). However, for the purpose of adding 

the ‘‘Exemption from fingerprinting requirement in 

certain cases’’ provided for in Regulation 3.21(c) 

with respect to outside directors of an applicant for 

registration as an SD or MSP, the Commission has 

employed the term ‘‘transactions involving 

‘commodity interests,’ as that term is defined in 

§ 1.3(yy)’’—which regulation the Commission has 

proposed to revise to include ‘‘[a]ny swap as 

defined in the Act, the Commission’s regulations, 

a Commission order or interpretation, or a joint 

interpretation or order issued by the Commission 

and the Securities and Exchange Commission.’’ See 

76 FR at 33069, 33086. 

23Comment letter from the National Futures 

Association (Jan. 24, 2011) (NFA Comment Letter). 

24 Id. 

25See, e.g., CEA section 4k, which requires the 

registration of associated persons of FCMs, IBs, 

CPOs, and CTAs, and Regulation 3.10(a)(2), which 

requires each natural person who is a principal of 

an applicant for registration to file a fingerprint 

card. 

26 In addition to the registration categories 

included in the comment, the Commission has 

included in this exception any person listed as a 

principal or registered as an associated person of an 

LTM. Although there currently is no registered 

LTM, the CEA and Commission regulations issued 

thereunder provide for an LTM registration 

Continued 

person’’ has typically referred to a 

salesperson of a registrant. Thus, a 

corporation, partnership or other legal entity 

has never been considered an associated 

person. The use of the term ‘‘natural person’’ 

in the current associated person definition is 

intended to distinguish between the rights 

and responsibilities of persons acting as 

associated persons of a registrant and persons 

acting as IBs. However, in the absence of any 

language in the Dodd-Frank Act restricting 

associated persons of swaps entities to 

natural persons, the Commission is not 

proposing such a definition. The Commission 

nonetheless requests comment on whether it 

should by regulation in fact restrict 

associated persons of swaps entities to 

natural persons.21

The comments the Commission 

received in response to this request 

were unanimous in their support of 

such a restriction. The Commission is 

amending Regulation 1.3(aa) to include 

in the ‘‘associated person’’ definition 

provided for thereunder a natural 

person associated with an SD or MSP as 

a partner, officer, employee or agent (or 

functionally similar role) in a capacity 

that involves the solicitation or 

acceptance of swaps, or the supervision 

of persons so engaged. Specifically, this 

definition is now found in new 

Regulation 1.3(aa)(6).22

C. Effect of Statutory Disqualification 

The Commission proposed the 

adoption of new Regulation 23.22 to 

implement the statutory prohibition in 

CEA section 4s(b)(6) against an SD or 

MSP permitting a person associated 

with it who is subject to a statutory 

disqualification to effect or be involved 

in effecting swaps on behalf of the SD 

or MSP, if the SD or MSP ‘‘knows, or in 

the exercise of reasonable care should 

know, of the statutory disqualification.’’ 

In the proposed regulation, paragraph 

(a) defined the term ‘‘person’’ as a 

shorthand substitute for the statutory 

term ‘‘associated person of a swap 

dealer or major swap participant,’’ and 

paragraph (b) restated the statutory 

prohibition without exception. The 

Commission proposed that an SD or 

MSP would be responsible for ensuring 

that its associated persons are not 

subject to a statutory disqualification. 

The Commission also requested 

comment on implementing the statutory 

prohibition. 

The Commission in its request 

focused on how an SD or MSP could 

conduct background checks or 

otherwise fulfill the requirement to 

ensure that persons subject to a 

statutory disqualification would not 

effect or be involved in effecting swaps 

on its behalf. The sole comment that the 

Commission received on this issue 

expressed the view that the Commission 

allow, but not require, Swaps Entities to 

use NFA for this vetting purpose.23 The 

Commission agrees with this comment. 

It believes that Swaps Entities should be 

free to work with and through the 

service provider of their choice to obtain 

information as to whether a prospective 

associated person is subject to a 

statutory disqualification—and NFA 

could qualify to be such a service 

provider. Accordingly, the Commission 

has not adopted any requirement that 

Swaps Entities must, and may only, 

employ NFA to fulfill their obligation 

under CEA section 4s(b)(6). This same 

commenter suggested that if NFA 

performed the background check, ‘‘then 

it would constitute a safe harbor for the 

firm if the individual is subject to a 

statutory disqualification but NFA 

previously notified the firm that the 

person is not subject to one.’’ The 

Commission is not authorizing such a 

safe harbor. 

One commenter on the 

implementation of the statutory 

prohibition 24 recommended that, 

contrary to the Proposal, the 

Commission adopt an exception to the 

association prohibition in Regulation 

23.22(b) for any person listed as a 

principal or registered as an associated 

person of a futures commission 

merchant (FCM), retail foreign exchange 

dealer (RFED), introducing broker (IB), 

commodity pool operator (CPO), or 

commodity trading advisor (CTA)— 

notwithstanding that such person may 

be subject to a statutory disqualification 

under CEA section 8a(2) or 8a(3).25 This 

commenter noted that, pursuant to the 

authority the Commission has delegated 

to NFA to exercise its registration 

responsibilities in the futures markets, 

NFA has permitted a person to be listed 

as a principal or registered as an 

associated person where NFA, in its 

discretion, has determined that the 

incident giving rise to a statutory 

disqualification is insufficiently serious, 

recent, or otherwise relevant to 

evaluating the person’s fitness. Where 

this has occurred and the person now 

finds himself to be an associated person 

of an SD or MSP, the commenter 

explained that absent an exception as 

provided for in the introductory text of 

CEA section 4s(b)(6), an anomalous 

result would ensue. 

The statutory prohibition in CEA 

section 4s(b)(6) applies ‘‘except to the 

extent otherwise specifically provided 

by rule, regulation, or order.’’ The 

Commission recognizes that if it did not 

provide an exception as suggested, a 

person could be permitted to direct 

futures-related activities or solicit 

futures-related business with members 

of the retail public—e.g., as, 

respectively, a principal or associated 

person of an FCM or CPO—but that 

same person would be barred from 

soliciting, accepting, or otherwise 

effecting or being involved in effecting 

swaps transactions with significantly 

more sophisticated clients as an 

associated person of an SD or MSP. On 

the other hand, adopting the requested 

exception could result in persons to 

whom the Dodd-Frank Act affords 

heightened protections engaging in 

transactions marketed by associated 

persons of an SD or MSP subject to a 

statutory disqualification. Even though 

the Commission did not propose such 

an exception, it believes that the 

commenter’s recommendation has 

merit. The Commission therefore is 

adopting the commenter’s 

recommendation that Regulation 

23.22(b) include both the general 

prohibition against an SD or MSP 

permitting any person associated with it 

who is subject to a statutory 

disqualification to effect or be involved 

in effecting swaps on behalf of the SD 

or MSP and an exception to the 

prohibition for any person subject to a 

statutory disqualification who is already 

listed as a principal, registered as an 

associated person of another registrant 

(i.e., an FCM, RFED, IB, CPO, CTA, or 

leverage transaction merchant (LTM)), 

or registered as a floor broker (FB) or 

floor trader (FT).26


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2616 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 

category. The Commission also has included in this 

exception any person registered as an FB or FT 

because, as a natural person and like an associated 

person of a registrant other than an SD or MSP, it 

must submit a Form 8–R in connection with 

applying for registration. 

27NFA Comment Letter. 

28See generally 75 FR at 71379, 71381. 

29Comment letter from the International Swaps 

and Derivatives Association, Inc. (Jan. 24, 2011) 

(ISDA Comment Letter). Another commenter 

advocated delaying effectiveness of the Section 4s 

Implementing Regulations until at least 60 days 

after the registration process regulations and the 

Entities Definitional Regulations became effective. 

Comment letter from the Securities Industry and 

Financial Markets Association (Jan. 18, 2011) 

(SIFMA Comment Letter). 

30Comment letter from Hunton and Williams, 

LLP, on behalf of the Working Group of Commercial 

Energy Firms (Jan. 24, 2011) (WGCEF Comment 

Letter). 

31 In response to a comment received, the 

Commission has clarified in Regulation 

3.10(a)(1)(v)(C)(1) when a person may apply to be 

registered as an SD or MSP and in Regulations 

3.10(a)(1)(v)(C)(2) and 3.10(a)(1)(v)(C)(3) when a 

person must apply to be registered as an SM or 

MSP. See NFA Comment Letter. 

32See 76 FR 42508, 42509 and 42524 (July 19, 

2011). 33So that the text of the registration regulations 

accurately reflects the impact of the Effective Date 

Release on phased implementation and the 

provisional registration process, the Commission is 

adopting certain definitions, and is incorporating 

those definitions into the registration process 

regulations it is adopting today. Specifically, new 

Regulation 3.1(f) defines the term ‘‘Section 4s 

Implementing Regulation’’ to mean ‘‘a regulation 

the Commission issues pursuant to section 4s(e), 

4s(f), 4s(h), 4s(i), 4s(j), 4s(k), or 4s(l) of the Act,’’ and 

new Regulation 3.1(g) defines the term ‘‘Swap 

Definitional Regulation’’ to mean ‘‘a regulation the 

Commission issues to further define the term ‘swap 

dealer,’ ‘major swap participant’ or ‘swap’ in 

section 1a(49), 1a(33) or 1a(47) of the Act, 

respectively, pursuant to the Dodd-Frank Wall 

Street Reform and Consumer Protection Act.’’ These 

terms are employed in such registration process 

regulations as Regulation 3.2(c)(3)(i) (pertaining to 

provisional registration) and 3.10(a)(1)(v) 

(pertaining to applying for registration as an SD or 

MSP). 

34NFA Comment Letter. 

The same commenter also 

recommended that the Commission 

expand Regulation 3.12(f), or adopt a 

new regulation, ‘‘to address the 

situations in which an individual 

conducts swaps-related activity on 

behalf of more than one Swap Entity or 

conducts swaps activity on behalf of a 

Swap Entity and is also registered as an 

AP of a different firm.’’ 27 Regulation 

3.12(f) currently provides for the 

reporting of dual and multiple 

associations of a person registered as an 

associated person with, and sponsored 

by, two or more Commission registrants. 

It provides, among other things, that 

each sponsor registrant is jointly and 

severally liable for the conduct of that 

associated person in specified 

circumstances. While the Commission 

agrees with the commenter’s 

recommendation, it anticipates 

promptly addressing this issue in a 

future rulemaking. 

D. Phased Implementation 28

The Commission proposed a 

provisional registration process for SDs 

and MSPs that would take into account, 

through phased implementation, the 

strong likelihood that the Commission 

would adopt the Section 4s 

Implementing Regulations subsequent 

to issuing the registration process 

regulations for SDs and MSPs. As the 

Commission explained in the Proposal, 

phased implementation is aimed at 

preserving the ‘‘continuity of the 

business operations of existing swaps 

entities, and to avoid undue market 

disruption,’’ by permitting applicants to 

continue swaps activities pending 

confirmation of initial compliance with 

the Section 4s Implementing 

Regulations and notification of 

registration. In addition, the final 

regulations make clear that provisional 

registration will be granted upon filing 

of the application and any 

documentation required under the 

applicable Section 4s Implementing 

Regulation—and not upon NFA’s review 

and approval of the documentation. 

Several commenters stressed the need 

for phased implementation over 

extended periods of time so that SDs 

and MSPs can come into compliance 

after evaluating the need, e.g., to 

restructure operations, re-document 

client agreements as a result of new 

organizational structures or new 

regulatory requirements, or upgrade 

systems. One commenter recommended 

that the Commission postpone the 

effective date of the registration process 

rulemaking until sometime after the 

Commission had adopted all of the 

Section 4s Implementing Regulations.29

Another commenter opined that, owing 

to business continuity concerns, a 

reasonable transition period for a firm 

not previously subject to regulation 

would be ‘‘a one year period for such 

firm to (i) determine whether it is [an 

SD or MSP] and (ii) register with the 

Commission.’’ 30 It suggested a ‘‘roll off’’ 

period that would enable a putative 

Swaps Entity to fall outside the SD or 

MSP definition and thus not be subject 

to the requirement to register as an SD 

or MSP if enough of the Swaps Entity’s 

legacy swaps expired. The commenter 

also estimated ‘‘that it might take up to 

as much as two years in addition to the 

suggested one year registration period 

for such firms to complete the steps 

necessary to comply with all of the 

requirements necessary for registration 

as [an SD or MSP].’’ 

The Commission believes that the 

provisional registration process adopted 

today is consistent with the incremental 

staging requested by commenters. Thus, 

the Commission is declining to extend 

the effectiveness of any Section 4s 

Implementing Regulation today. 

Moreover, to provide the maximum 

amount of processing time, so that 

applicants for SD or MSP registration 

can be registered at the earliest possible 

date, and in the absence of any 

comments to the contrary, the 

Commission has adopted, as proposed, 

Regulation 3.10(a)(1)(v), which permits 

applicants to begin the registration 

process in advance of the effective date 

of the requirement to register as an SD 

or MSP.31

In the Proposal, the Commission 

provided for provisional registration 

with reference to the Dodd-Frank Act’s 

general statutory effective date of July 

16, 2011, and CEA section 4s(b), which 

requires the Commission to issue 

regulations providing for the registration 

of Swaps Entities not later than one year 

after the enactment of the Dodd-Frank 

Act, or July 21, 2011. After issuing the 

Proposal, the Commission issued 

effective date clarification of, as well as 

specific exemptive relief from 

compliance with, numerous provisions 

of the Dodd-Frank Act (Effective Date 

Release).32 The Effective Date Release 

explained that many Dodd-Frank Act 

provisions require rulemakings to 

implement them, including the 

registration mandate in CEA section 

4s(a) and other Section 4s 

Requirements, and that pursuant to 

Dodd-Frank Act section 754, those 

provisions would not be effective until 

60 days after the publication of those 

implementing final regulations (e.g., for 

the registration mandate, this Federal 

Register release). Dates 

notwithstanding, for the reasons stated 

in the Proposal and above, the 

Commission continues to believe that 

provisional registration is appropriate 

and consistent with the Effective Date 

Release.33

Moreover, in response to a commenter 

requesting clarification on provisional 

registration 34 and as is reflected in the 

amended heading of Regulation 3.2— 

which now reads ‘‘Registration 

processing by the National Futures 

Association; notification and duration of 

registration; provisional registration’’ 

(emphasis supplied)—the Commission 

has adopted in new Regulation 3.2(c)(3) 

the exact terms pursuant to which NFA 

will notify an applicant for SD or MSP 

registration that it is provisionally 

registered, the continuing obligations of 

a provisional registrant with respect to 

providing documentation of compliance 

with each Section 4s Implementing 


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35See also Regulation 3.10(a)(1)(v)(D). 

36See 75 FR at 71387. 

37The process for registration as an FB or FT 

commences with the filing of a Form 8–R, which 

reflects the fact that FBs and FTs are natural 

persons. 

Further with respect to Regulation 3.10, the 

Commission notes that paragraphs (a)(1)(iii) and 

(a)(1)(iv) were inadvertently dropped from the 

regulation in connection with the adoption of the 

regulatory program of the Commission for RFEDs. 

See 75 FR 55410, 55424 (Sep. 10, 2010). By this 

Federal Register release, the Commission is 

returning paragraphs (a)(1)(iii) and (a)(1)(iv) to 

Regulation 3.10 in the form and text identical to 

that which existed prior to this unintentional 

deletion. 

38NFA Comment Letter. 

39See Regulation 3.10(a)(1)(ii), which requires 

applicants for registration as an FCM or IB to 

accompany their Form 7–R with a Form 1–FR–FCM 

or Form 1–FR–IB, respectively. 

40As the Commission has stated previously, it 

‘‘will strive to ensure that current practices will not 

be unduly disrupted during the transition to the 

new regulatory regime.’’ Effective Date for Swap 

Regulation, 76 FR 42508, 42513 (July 19, 2011). 

Further, the Commission has determined that ‘‘the 

interdependencies of the various rulemakings will 

be a consideration in determining the 

implementation date for each final rule,’’ and that 

such determinations will be informed by the 

Commission’s further consideration of these issues, 

including public comments. Id. 

Thus, for example, to determine with which 

Section 4s Implementing Regulations an applicant 

must demonstrate compliance as part of the 

registration process, the applicant should look to 

the Section 4s Implementing Regulations 

themselves to determine precisely when 

compliance is required for each. For example, the 

Section 4s Implementing Regulations for External 

Business Conduct Standards require compliance on 

the later of 180 days after the effective date of those 

regulations or the date on which swap dealers or 

major swap participants are required to apply for 

registration pursuant to Regulation 3.10. 

41NFA and WGCEF Comment Letters. 

42NFA Comment Letter. 

43This provision was found in proposed 

Regulation 3.10(a)(1)(v)(D)(2). 

44New Regulation 3.10(a)(1)(v)(E), formerly 

proposed Regulation 3.10(a)(1)(v)(D)(3), addresses 

the effect on the applicable swap documentation of 

the SD or MSP. Broadly stated, as proposed and as 

adopted, this regulation provides that ‘‘unless 

specifically reserved in the applicable swap 

documentation,’’ any withdrawal, cessation or 

revocation of registration does not affect the terms 

of any swap transaction to which the applicant is 

a party entered into prior to receiving notice that 

it is deficient in its compliance with the applicable 

Section 4s Implementing Regulation. See CEA 

section 22(a)(5), added by Dodd-Frank Act section 

739, which states: 

EFFECT ON SWAPS.—Unless specifically 

reserved in the applicable swap, neither the 

enactment of the Wall Street Transparency and 

Accountability Act of 2010, nor any requirement 

under that Act or an amendment made by that Act, 

shall constitute a termination event, force majeure, 

illegality, increased costs, regulatory change, or 

similar event under a swap (including any related 

credit support arrangement) that would permit a 

party to terminate, renegotiate, modify, amend, or 

supplement 1 or more transactions under the swap. 

45See, e.g., CEA sections 8a(2) and 8a(3) and 

generally Part 3 of the Commission’s regulations. 

Regulation,35 and the terms pursuant to 

which a provisional registrant will 

become registered with the Commission. 

The Commission believes this 

clarification provides necessary specific 

details on provisional registration and 

the transition of a provisional registrant 

into a registered SD or MSP. 

The Commission proposed in 

Regulation 3.2(c)(3) to require NFA to 

notify the applicant for SD or MSP 

registration ‘‘that it is provisionally 

registered pending completion of a 

fitness review by the National Futures 

Association.’’ 36 However, in light of the 

purpose of provisional registration, 

along with the authority the 

Commission today intends to delegate to 

NFA by notice and order (Notice and 

Order)—e.g., the authority to conduct 

proceedings to deny the registration of 

an applicant for registration as an SD or 

MSP—the Commission has determined 

not to adopt any such delay with respect 

to the notification by NFA to the 

applicant that it is provisionally 

registered. 

As proposed and as adopted, 

Regulation 3.10(a)(1)(i) provides that 

application for registration as an SD or 

MSP will commence with the filing of 

a Form 7–R with NFA—which is also 

how, under Regulation 3.10(a)(1)(i), the 

registration process commences for 

applicants for registration as an FCM, 

RFED, IB, CPO, CTA, or LTM.37 In this 

regard, the Commission notes that, as 

proposed, Regulation 3.10(a)(1)(v)(B) 

provides that the commencement of the 

registration process by an SD or MSP 

authorizes the Commission to conduct 

on-site inspection of the applicant to 

determine compliance with the Section 

4s Implementing Regulations applicable 

to it. The Commission received no 

comment on the inspection authority 

proposed in Regulation 3.10(a)(1)(v)(B). 

The Commission also proposed to 

require applicants for registration as an 

SD or MSP ‘‘to demonstrate 

compliance’’ with such of the Section 4s 

Implementing Regulations in effect at 

the time of their application. At the 

suggestion of a commenter, the 

Commission has adopted in Regulation 

3.10(a)(1)(v)(A) the requirement that the 

Form 7–R must be accompanied by 

‘‘such documentation as may be 

required to demonstrate compliance’’ 

with each applicable Section 4s 

Implementing Regulation.38 The 

Commission believes that the addition 

of this phrase brings the registration 

application requirement for SDs and 

MSPs in line with existing requirements 

for applicants for registration in other 

categories—such as applicants for 

registration as an FCM or IB, who must 

accompany their Form 7–R with 

specified documentation that 

demonstrates their compliance with the 

financial requirements they must meet 

to become registered.39 And, as 

proposed and as adopted, Regulation 

3.10(a)(1)(v)(A) provides that for the 

purpose of this regulation, ‘‘the term 

‘compliance’ includes the term ‘the 

ability to comply,’ to the extent that a 

particular Section 4s Implementing 

Regulation may require demonstration 

of the ability to comply with a 

requirement thereunder.’’ 40

Two commenters asked the 

Commission what documentation is 

required of an applicant for SD or MSP 

registration.41 One of these commenters 

suggested that the documentation 

required to demonstrate compliance 

with the regulations the Commission 

adopts to implement the business 

conduct standards required by CEA 

section 4s(h) might consist of written 

policies and procedures.42 Or, as the 

Commission notes, the documentation 

required to demonstrate compliance 

with the regulations the Commission 

adopts to implement the capital 

requirements of CEA section 4s(e) might 

be a financial form specifically designed 

for this purpose. The Commission 

anticipates that these questions will be 

considered in connection with its 

adoption of the relevant Section 4s 

Implementing Regulations. 

The regulations the Commission 

proposed and is adopting also address, 

in Regulation 3.10(a)(1)(v)(D)(1), the 

situation where an applicant for 

registration as an SD or MSP to whom 

NFA has provided notification of 

provisional registration subsequently 

fails to demonstrate compliance with a 

Section 4s Implementing Regulation— 

i.e., that NFA ‘‘will notify the applicant 

that its application is deficient, 

whereupon the applicant must 

withdraw its registration application, it 

must not engage in any new activity as 

a swap dealer or major swap participant, 

as the case may be, and the applicant 

shall cease to be provisionally 

registered.’’ 43 The Commission 

proposed a 30-day period—subject to 

extension at the discretion of the 

Commission—within which the 

applicant would be required to cure the 

deficiency. Upon further consideration, 

the Commission has adopted in the final 

regulation a 90-day cure period.44

Further, Regulation 3.10(a)(1)(v)(D)(2) 

makes clear that the provisions of 

Regulation 3.10(a)(1)(v)(D)(1) 

supplement, and are in addition to, the 

other activities in which NFA engages 

under the Act and Commission 

regulations in connection with 

processing an application for 

registration as an SD or MSP.45


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2618 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 

46NFA Comment Letter. 

47Regulation 3.1 defines the term ‘‘principal’’ to 

mean, when referring to an applicant for 

registration, a registrant or a person required to be 

registered under the CEA or Commission 

regulations, to include officers, directors, and 

persons who own ten percent or more of the 

outstanding shares of the applicant or registrant. 

48For example, this is the procedure that NFA 

follows with respect to applicants for registration as 

an FCM or IB, who must file a Form 7–R, a Form 

8–R for each natural person principal, and specified 

financial documents. 

49See CEA sections 8a(2) and 8a(3). 

50These forms can be accessed through NFA’s 

Web site, http://www.nfa.futures.org/. 

51SIFMA Comment Letter. 

52See generally 75 FR 71379 at 71381–82. 

53See generally 75 FR at 71385. 

54 Id. 

55Comment letter from the New England Fuel 

Institute and the Petroleum Marketers Association 

of America (Jan. 18, 2011) (NEFI/PMAA Comment 

Letter). 

56The Proposal specifically provided: 

Option number one would involve the 

Commission being directly responsible for ensuring 

compliance by swaps entities with all requirements 

applicable to them under the CEA and Commission 

regulations. Option number two would involve 

NFA (or any other association that may 

subsequently be registered as a futures association) 

being responsible for ensuring compliance, subject 

to Commission oversight. Option number three 

would involve certain compliance oversight 

activities being performed by the Commission and 

others being delegated to NFA (or a subsequently 

registered futures association). The Commission 

requests comment on these options. In the case of 

option number three, commenters should specify 

which oversight activities should be performed by 

the Commission and which should be delegated to, 

or performed by NFA (or another registered futures 

association). 

75 FR at 71382. 

57Comment letter from Better Markets, Inc. (Jan. 

24, 2011) (Better Markets Comment Letter). 58 Id. (emphasis in original). 59 ISDA Comment Letter. 60NFA and WGCEF Comment Letters. 61NFA Comment Letter. 

To address comments requesting 

clarification of the effect of provisional 

registration on the general registration 

process for SDs and MSPs,46 the 

Commission notes that, as is stated in 

Part II.E below, the Commission intends 

to issue the Notice and Order that 

delegates to NFA the authority to 

perform the full range of registration 

functions with respect to applicants for 

registration, and persons registered, as 

an SD or MSP. Currently, persons who 

apply for registration must file a Form 

7–R, and a Form 8–R and fingerprint 

card for each principal of the applicant 

who is a natural person,47 accompanied 

by such documentation as may be 

required to demonstrate compliance 

with applicable regulatory 

requirements. NFA subsequently 

reviews these materials in advance of 

granting registration.48 This, then, is the 

course of action the Commission 

intends that NFA will follow upon 

notification to an applicant for 

registration as an SD or MSP that it is 

provisionally registered. 

In this regard, the Commission 

expects that NFA will promptly perform 

these reviews and, as the Commission 

intends to state in the Notice and Order, 

NFA will be required to perform these 

registration processing functions in 

accordance with the standards 

established by the CEA and the 

Commission’s regulations and to follow 

the same procedures with respect to 

recordkeeping, disclosure and tracking 

of fitness investigations and adverse 

action proceedings concerning SDs and 

MSPs as it must follow in cases 

involving other registrants. Thus, for 

example, notwithstanding that it has 

notified an applicant for registration as 

an SD or MSP that it is provisionally 

registered, NFA may subsequently take 

an action to deny the registration 

application based on the statutory 

disqualification of one of the applicant’s 

principals.49 In this regard, the 

Commission notes that the Form 7–R 

specifies disclosures that must be made 

concerning an applicant’s criminal, 

regulatory and disciplinary histories, 

and that Form 8–R additionally requires 

these disclosures for each of the 

applicant’s principals.50

Another commenter requested that 

the Commission consider separate sets 

of regulations for SDs and MSPs.51 The 

Commission has considered the reasons 

set forth in the comment and continues 

to believe that applicants for SD or MSP 

registration should be subject to the 

same registration requirements for the 

purpose of commencing the registration 

process—i.e., the filing of the Form 7– 

R by the applicant. 

E. Allocation of Responsibilities 52 and 

RFA Membership and Oversight 53

As part of its efforts to bring SDs and 

MSPs into the existing regulatory 

framework for futures intermediaries, 

the Commission proposed Regulation 

170.16, which would require each 

person registered as an SD or MSP to 

become and remain a member of an 

RFA. As the Commission noted, FCMs 

are subject to the RFA membership 

requirement.54 Currently, NFA is the 

sole RFA. The Commission received 

general comments in favor of the 

membership requirement, that claimed 

such a requirement would provide the 

Commission with flexibility in 

overseeing the operations and activities 

of Swaps Entities.55 After consideration 

of the foregoing, the Commission is 

adopting Regulation 170.16 as proposed. 

The Commission also requested 

comment on who should be responsible 

for determining initial and ongoing 

compliance by Swaps Entities with 

respect to the Section 4s Implementing 

Regulations and all other applicable 

requirements. The Commission 

suggested three alternatives: no 

delegation to any person, full delegation 

to NFA (or any association that may be 

subsequently registered as a futures 

association), and partial delegation to 

NFA (or any subsequent RFA).56

One commenter favored no 

delegation, arguing that ‘‘[t]he 

fundamental duty to determine initial 

and continuing compliance to qualify 

for registration is entrusted to and must 

remain with the CFTC.’’ 57 This 

commenter nevertheless acknowledged 

that confirmation and oversight of 

compliance with functions involving 

reporting and recordkeeping, daily 

trading records, swap documentation 

structure, designation of chief 

compliance officer, and filing of annual 

compliance reports could be delegated 

to NFA if the Commission determined 

that ‘‘material efficiencies’’ could be 

achieved. But, confirmation and 

oversight of compliance with 

requirements relating to, among other 

functions, capital and margin 

requirements, business conduct 

standards and monitoring of trading and 

risk management were viewed by this 

commenter as requiring ‘‘involvement 

that is focused, decisive and utterly free 

from even the appearance of influence 

brought to bear by SDs and MSPs’’—and 

therefore, this commenter claimed, 

should be retained by the 

Commission.58 Another commenter 

observed that until the enactment of the 

Dodd-Frank Act, NFA had been the selfregulatory organization (SRO) for the 

futures industry exclusively, and 

advanced that NFA would need to 

develop new capabilities to serve as an 

effective SRO for the swaps industry.59

Other commenters favored full 

delegation to NFA, based on NFA’s 

historical performance of the 

registration and fitness review 

functions, as well as confirming its 

members’ compliance with regulatory 

requirements.60

Another commenter requested that if 

the Commission adopted the partial 

delegation model, it clearly define the 

responsibilities delegated to NFA, and, 

in this regard, asked that the 

Commission clarify certain of its 

registration process proposals.61 It 

recommended that ‘‘the Commission 

delegate to NFA not only the authority 

to process Swap[s] Entity registration 

applications and conduct background 

checks but also to conduct adverse 

registration proceedings.’’ This 


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Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 2619 

62The Commission previously has authorized 

NFA to perform the full range of registration 

functions with regard to persons who must register 

under the CEA, including granting applications for 

registration; enabling withdrawals; and conducting 

proceedings to deny, condition, suspend, restrict or 

revoke the registration of existing registrants or 

applicants for registration in each category. See 48 

FR 15940 (Apr. 13, 1983); 48 FR 35158 (Aug. 3, 

1983); 48 FR 51809 (Nov. 14, 1983); 49 FR 8226 

(Mar. 5, 1984); 49 FR 39593 (Oct. 9, 1984); 50 FR 

34885 (Aug. 28, 1985); and 75 FR 55310 (Sep. 10, 

2010). 

63The Commission intends that applicants for 

registration may seek confidential treatment of 

documentation submitted to demonstrate initial 

compliance with the Section 4s Implementing 

Regulations in accordance with the procedures set 

out in Regulation 145.9. This approach is consistent 

with that taken in other Dodd-Frank Act 

rulemakings. See, e.g., Process for Review of Swaps 

for Mandatory Clearing, 76 FR 44464, 44474 (July 

26, 2011) (adopting Regulation 39.5(b)(5) which 

allows a derivatives clearing organization to request 

confidential treatment under Regulation 145.9 for 

portions of its submissions to the Commission). 

64The Commission has adopted as proposed an 

amendment to Regulation 3.10(d) that subjects SD 

and MSP registrants to the requirement applicable 

to all other persons registered in accordance with 

Regulation 3.10 to annually review and update 

registration information with NFA. However, in 

light of its intent to delegate its full registration 

authority to NFA, the Commission has not adopted 

as proposed a further amendment to Regulation 

3.10(d) that would have required SD and MSP 

registrants to also file this updating registration 

information with the Commission. 

65Better Markets Comment Letter. 

66See, e.g., NFA Compliance Rule 2–13 for its 

member CPOs and CTAs, wherein NFA has adopted 

in large part the Part 4 regulations of the 

Commission, which govern the operations and 

activities of these categories of registrant. See also 

NFA Financial Requirements Rules for its member 

FCMs, RFEDs and IBs, whereby NFA has adopted 

rules that are the same as, or more stringent than, 

the financial requirements the Commission has 

adopted for these categories of registrant. 

67Section 17(j) further provides: 

If the Commission does not approve or institute 

disapproval proceedings with respect to any rule 

within one hundred and eighty days after receipt 

or within such longer period of time as the [RFA] 

may agree to, or if the Commission does not 

conclude a disapproval proceeding with respect to 

any rule within one year after receipt or within 

such longer period as the [RFA] may agree to, such 

rule may be made effective by the [RFA] until such 

time as the Commission disapproves such rule 

* * *. 

68See Letter to Robert K. Wilmouth, President, 

NFA, from Jean A. Webb, Secretary of the 

Commission, dated Dec. 4, 1997; Letter to Robert K. 

Wilmouth, President, NFA, from Jean A. Webb, 

Secretary of the Commission, dated Apr. 13, 2000. 

These letters are included in Appendix A to Part 

3 of the Commission’s regulations. 

commenter further requested that, in 

delegating ‘‘to NFA the responsibility to 

maintain records associated with 

processing Swap Entity registration 

applications * * * the Commission 

specify whether records filed with and 

maintained by NFA in connection with 

any background check * * * are 

considered Commission records.’’ 

In response to these comments, in 

recognition of NFA’s proven track 

record in performing analogous 

functions for all other Commission 

registrants, and consistent with past 

practice,62 including with respect to the 

newest registrant category of RFED, the 

Commission intends to delegate its full 

registration authority under the CEA 

and its regulations to NFA with respect 

to applicants for registration, and 

registrants, as an SD or MSP. 

Specifically, by the Notice and Order, 

the Commission intends to delegate to 

NFA the authority to take the following 

actions: (1) To process and grant 

applications for registration and 

withdrawals from registration of SDs 

and MSPs, and to notify applicants for 

registration as an SD or MSP of 

provisional registration; (2) in 

connection with processing and 

granting applications for registration of 

SDs and MSPs, to confirm initial 

compliance with applicable Section 4s 

Implementing Regulations; 63 (3) to 

conduct proceedings to deny, condition, 

suspend, restrict or revoke the 

registration of any SD or MSP or of any 

applicant for registration in either 

category; and (4) to maintain records 

regarding SDs and MSPs, and to serve 

as the official custodian of those 

Commission records.64 The Commission 

intends that the Notice and Order will 

further provide that nothing contained 

therein ‘‘shall affect the Commission’s 

authority to review the performance by 

NFA of Commission registration 

functions, to adopt and enforce 

regulations applicable to SDs and MSPs 

as Commission registrants, and to 

conduct on-site examinations of the 

operations and activities of SDs and 

MSPs as Commission registrants.’’ 

The Commission recognizes that the 

operations, activities and transactions 

engaged in by SDs and MSPs have not 

previously been subject to an extensive 

regulatory framework. Ideally, and as 

one commenter suggested, the 

Commission would retain direct 

responsibility, at least initially, for 

confirming compliance with the Section 

4s Implementing Regulations.65

However, in order to best allocate its 

resources, the Commission has 

determined to delegate to NFA the 

responsibility for the initial 

determination that an applicant for 

registration as an SD or MSP is in 

compliance with the Section 4s 

Implementing Regulations. 

Going forward, the Commission 

expects that NFA, as it has for its other 

members in connection with the 

discharge of its RFA responsibilities 

under CEA section 17, will adopt rules 

for its SD and MSP members that are the 

same as, or more stringent than, the 

Section 4s Implementing Regulations, 

and that NFA will engage in active 

oversight of its SD and MSP members to 

monitor and ensure compliance with 

those rules.66 In this regard, the 

Commission notes that CEA section 

17(j) requires an RFA—such as NFA— 

to submit to the Commission any new 

change in or addition to its rules and 

that the RFA— 

may make such rules effective ten days after 

receipt of such submission by the 

Commission unless, within the ten-day 

period, the registered futures association 

requests review and approval thereof by the 

Commission or the Commission notifies such 

registered futures association in writing of its 

determination to review such rules for 

approval. 

As for the standard of review to which 

RFA rules are subject, section 17(j) 

further provides that: 

The Commission shall approve such rules 

if such rules are determined by the 

Commission to be consistent with the 

requirements of this section and not 

otherwise in violation of this Act or the 

regulations issued pursuant to this Act, and 

the Commission shall disapprove, after 

appropriate notice and opportunity for 

hearing, any such rule which the 

Commission determines at any time to be 

inconsistent with the requirements of this 

section or in violation of this Act or the 

regulations issued pursuant to this Act.67

However, and consistent with the 

Notice and Order the Commission 

intends to issue, adoption by the 

Commission of Regulation 170.16 

requiring membership in an RFA by SD 

and MSP registrants and adoption by 

NFA of rules for its SD and MSP 

members does not affect the authority of 

the Commission to adopt and enforce 

regulations applicable to SDs and MSPs 

as Commission registrants and to 

conduct on-site examinations of the 

operations and activities of SDs and 

MSPs as Commission registrants. 

The Commission has, in the past, 

issued written guidance to NFA 

regarding the exercise of delegated 

authority.68 To the extent that a Section 

4s Implementing Regulation is not 

specific in this regard, the Commission 

anticipates providing written guidance 

to NFA on the criteria for, and manner 

of, determining that an applicant for SD 

or MSP registration has demonstrated its 

initial compliance with the regulation. 

F. Extraterritoriality 

As is noted above, in the Proposal, the 

Commission requested comment on the 

extraterritorial application of the SD and 

MSP registration requirements. The 

Commission has determined to limit 

this final rulemaking to the process of 

registration. Issues relating to which 


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2620 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 

69 5 U.S.C. 601 et seq. 

70 5 U.S.C. 601(2), 603, 604 and 605. 

71 75 FR 71379, 71385. 

72 47 FR 18618 (Apr. 30, 1982). 

73See CEA section 1a(49)(D). 

74 75 FR at 71385. 

75 Id. 

76 Id. 

77 Id. at 71385–86. 

78Comment letter from the National Rural 

Electric Cooperative Association, American Public 

Power Association, Large Public Power Council, 

Edison Electric Institute, and Electric Power Supply 

Association (June 3, 2011). 

79The Commission historically has evaluated on 

a case-by-case basis the economic impact of a 

particular regulatory proposal on IBs and CTAs to 

determine whether the regulatory proposal will 

have a significant economic effect on a substantial 

number of small entities. See, e.g., 76 FR 33066, 

33079 (June 7, 2011) (initial regulatory flexibility 

analysis conducted with respect to the possible 

economic effects of a proposal to require IBs, among 

others, to maintain records of certain oral 

communications). 

80See 48 FR 35248 (Aug. 3, 1983). 

81See 75 FR 55410, 55416 (Sep. 10, 2010). CEA 

section 2(c)(2) generally requires an RFED to 

maintain adjusted net capital equal to or in excess 

of $20,000.000. 

entities are SDs or MSPs and the 

substantive requirements applicable to 

them, including the extraterritorial 

application of such substantive 

requirements, are beyond the scope of 

this rulemaking. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (Reg 

Flex Act) requires federal agencies to 

consider the impact of its rules on 

‘‘small entities.’’ 69 A regulatory 

flexibility analysis or certification 

typically is required for ‘‘any rule for 

which the agency publishes a general 

notice of proposed rulemaking pursuant 

to’’ the notice-and-comment provisions 

of the Administrative Procedure Act, 5 

U.S.C. 553(b).70 As the Commission 

stated in the Proposal, it previously has 

established that certain entities subject 

to its jurisdiction are not small entities 

for purposes of complying with the Reg 

Flex Act. However, as the Commission 

also noted in the Proposal, SDs and 

MSPs are new categories of registrant for 

which the Commission had not 

previously addressed the question of 

whether such persons are small 

entities.71

In this regard, the Commission 

explained in the Proposal that it 

previously had determined that FCMs 

should not be considered to be small 

entities for purposes of the Reg Flex Act, 

based, in part, upon FCMs’ obligation to 

meet the minimum financial 

requirements established by the 

Commission to enhance the protection 

of customers’ segregated funds and 

protect the financial condition of FCMs 

generally.72 Like FCMs, SDs will be 

subject to minimum capital 

requirements, and are expected to be 

comprised of large firms. The 

Commission is statutorily required to 

exempt from designation as an SD those 

entities that engage in a de minimis 

quantity of swap dealing in connection 

with transactions with or on behalf of 

customers.73 Accordingly, for purposes 

of the Reg Flex Act for the Proposal and 

future rulemakings, the Commission 

proposed that SDs should not be 

considered small entities for essentially 

the same reasons that it had previously 

determined FCMs not to be small 

entities.74

The Commission further explained 

that it had also previously determined 

that large traders are not small entities 

for Reg Flex Act purposes, with the 

Commission considering the size of a 

trader’s position to be the only 

appropriate test for the purpose of large 

trader reporting.75 The Commission 

then noted that ‘‘MSPs maintain 

substantial positions in swaps, creating 

substantial counterparty exposure that 

could have serious adverse effects on 

the financial stability of the United 

States banking system or financial 

markets.’’ 76 Accordingly, for purposes 

of the Reg Flex Act for the Proposal and 

future rulemakings, the Commission 

also proposed that MSPs should not be 

considered to be small entities for 

essentially the same reasons that it 

previously had determined large traders 

not to be small entities.77

In response to the Proposal, one 

commenter, representing a number of 

market participants, submitted a 

comment related to the Reg Flex Act, 

stating that ‘‘[e]ach of the complex and 

interrelated regulations currently being 

proposed by the Commission has both 

an individual, and a cumulative, effect 

on [certain] small entities,’’ and that 

‘‘the vast majority of [our] members 

meet the definition of ‘small entities’ 

under the Small Business Regulatory 

Enforcement Fairness Act.’’.78 Thus, the 

commenter concluded that the 

Commission should conduct a 

regulatory flexibility analysis for each of 

its rulemakings under the Dodd-Frank 

Act, including this rulemaking 

applicable to the registration process for 

Swaps Entities. 

This commenter did not provide any 

information on how the Proposal may 

have a significant economic effect on a 

substantial number of small entities. 

Nonetheless, the Commission has 

reevaluated this rulemaking in light of 

the statements made to it by this 

commenter. After further consideration 

of those statements, the Commission has 

again determined that this final 

rulemaking, which is applicable to SDs 

and MSPs, will not have a significant 

economic effect on a substantial number 

of small businesses. 

In terms of affecting a substantial 

number of small entities, as is noted 

above, the Commission is statutorily 

required to exempt from designation as 

an SD those entities that engage in a de 

minimis quantity of swaps dealing. 

Thus, these exempted entities will not 

be required to register as an SD. 

Moreover, the Commission does not 

expect that the small entities identified 

by the commenter will be subject to 

registration with the Commission as an 

MSP. 

In terms of having a significant 

economic effect, in the experience of the 

Commission, complying with the 

registration process regulations has not 

had a significant economic effect on a 

substantial number of small entities. 

Notably, Regulation 3.10, containing the 

same registration requirements as those 

being issued today for SDs and MSPs, 

has been applicable to IBs and CTAs 79

without any known significant 

economic effects since 1983.80 Most 

recently, in connection with its 

adoption of substantively similar 

registration regulations for RFEDs, the 

Commission stated that, in light of 

Congressionally-mandated capital 

requirements, it would not define 

RFEDs as small entities for Reg Flex Act 

purposes.81 There is no indication, from 

the Commission’s experience or the 

information presented by the 

commenter, that the registration process 

requirements for Swaps Entities would 

have an effect on small entities that 

would be subject to those requirements, 

if any, that would be different than the 

effect the same registration process 

requirements have had historically on 

other Commission registrants that also 

may be small. 

Accordingly, for the reasons stated in 

the Proposal and the additional 

rationale provided above, the 

Commission continues to believe that 

the SD and MSP registration process 

rulemaking 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 regulations being 

published today by this Federal 

Register release will not have a 

significant economic impact on a 

substantial number of small entities. 


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82 44 U.S.C. 3501 et seq. 

83 5 U.S.C. 552. 

84 5 U.S.C. 552a. 85 75 FR at 71386. 86 ISDA Comment Letter. 

B. PaperworkReduction Act 

1. Introduction 

The Paperwork Reduction Act 

(PRA) 82 imposes certain requirements 

on federal agencies in connection with 

their conducting or sponsoring any 

collection of information as defined by 

the PRA. Certain provisions of these 

regulations will result in new collection 

of information requirements within the 

meaning of the 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. 

The Commission submitted the 

Proposal to the Office of Management 

and Budget (OMB) for review in 

accordance with 44 U.S.C. 3507(d) and 

5 CFR 1320.11. The Commission 

requested that OMB approve and assign 

a new control number for the collection 

of information covered by the Proposal. 

The title for this collection of 

information is ‘‘Registration of Swap 

Dealers and Major Swap Participants.’’ 

OMB has assigned OMB control number 

3038–0072 to the Information Collection 

Request (ICR) in connection with the 

Proposal, but OMB has not yet approved 

the ICR. The OMB control number will 

not appear in the active inventory until 

OMB grants approval. 

Under the regulations that the 

Commission is adopting today, Swaps 

Entities that must register with the 

Commission will be obligated to file, 

periodically review and update certain 

registration forms. Responses to the 

collection of information contained 

within these final regulations are 

mandatory, and the Commission will 

protect proprietary information 

according to the Freedom of Information 

Act 83 and Part 145 of the Commission’s 

regulations, ‘‘Commission Records and 

Information.’’ In addition, the 

Commission emphasizes that CEA 

section 8(a)(1) strictly prohibits the 

Commission, unless specifically 

authorized by the CEA, from 

‘‘publish[ing] data and information that 

would separately disclose the business 

transactions or market positions of any 

person and trade secrets or names of 

customers.’’ The Commission also is 

required to protect certain information 

contained in a government system of 

records pursuant to the Privacy Act of 

1974.84

In the Proposal, the Commission 

estimated that there would be 300 

‘‘Respondents/Affected Entities’’ 

(respondents) and that the ‘‘respondent 

burden for this collection is estimated to 

average 0.5 hours per response for the 

Form 7–R; 0.4 hours per response for 

the Form 8–R; 3 minutes per response 

for the Form 7–W; 6 minutes per 

response for the Form 8–T; and 3 

minutes per response for the Form 3– 

R.’’ 85 As is discussed previously in this 

Federal Register release, the 

Commission has modified from the 

Proposal certain of the regulations it is 

adopting today. The Commission 

believes that none of these 

modifications affect the burden 

estimates associated with the 

information collection that the 

Commission proposed. In response to 

comments received, the Commission 

has determined to increase the 

respondent burden hours estimated for 

Swaps Entities for each of the forms 

referenced above. The Commission is 

also decreasing the number of 

respondents to 125 from the Proposal’s 

estimate of 300. The following sections 

address and respond to comments 

received on the proposed burden 

estimates, explain the Commission’s 

reduction of the estimated number of 

respondents to this collection, discuss 

the registration fees included in this 

rulemaking, and list the revised burden 

hour estimates associated with this 

information collection and the final 

regulations adopted today. 

2. Responses to Comments Received 

The Commission invited the public 

and other federal agencies to comment 

on any aspect of the reporting and 

recordkeeping burdens discussed above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicited comments in 

order to: (1) Evaluate whether the 

proposed collection of information is 

necessary for the proper performance of 

the functions of the Commission, 

including whether the information will 

have practical utility; (2) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (3) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (4) minimize the 

burden of the collection of information 

on those who are able to respond, 

including through the use of automated 

collection techniques or other forms of 

information technology. 

OMB commented on the ICR in 

accordance with 5 CFR 1320.11(c), 

questioning the burden hours estimated, 

which appeared to OMB to be low. OMB 

stated that the Commission should 

consider the comments it received on 

the Proposal, if any, to determine if the 

burden hours estimated should be 

revised. 

The Commission received one other 

comment on its PRA discussion in the 

Proposal. This commenter stated in its 

letter that, ‘‘[a]lthough the Paperwork 

Reduction Act section of the release 

accompanying the Proposed Regulations 

(the ‘Release’) suggests that it will 

merely take a matter of minutes for 

Swaps Entities to complete the forms 

required by the Proposed Regulations, 

we are dubious that this is accurate.’’ 86

This commenter did not explain why it 

doubted the accuracy of the estimates, 

nor did it suggest alternative burden 

estimates. Nonetheless, the Commission 

has reviewed its PRA estimates in light 

of this comment, as well as the 

comment provided by OMB. For the 

following reasons, the Commission has 

determined to revise the burden hour 

estimates in the Proposal. 

Generally, these forms request only 

the information about an applicant and 

its principals necessary for the 

Commission to appropriately exercise 

its statutory registration and compliance 

oversight functions with respect to 

them. This information generally 

includes the names, addresses, location 

of records, regulatory and disciplinary 

histories, and other similarly 

straightforward matters—all of which 

should be in the possession of the 

applicant and readily available for the 

applicant to provide. However, some 

Swaps Entities may be unfamiliar with 

the current registration process and the 

Forms 7–R and 8–R that they must 

complete in order to apply for 

registration as an SD or MSP. 

The PRA estimates provided for these 

forms are averages that do not 

necessarily reflect the actual time to be 

expended by each and every person to 

complete the forms. The Commission’s 

estimates do not account significantly 

for the amount of time it would take to 

complete the regulatory and 

disciplinary history sections of Forms 

7–R and 8–R, which impose the greatest 

burden on persons completing the forms 

where the applicant SD or MSP 

(including a principal thereof) has an 

extensive criminal or disciplinary 

history. The Commission believes such 

SDs and MSPs will generally not be 

applying for registration in the first 

place because they will likely be 

disqualified from registration pursuant 

to CEA section 8a(2) or 8a(3). In 

addition, these forms will be completed 

in an online, user-friendly process 

developed by NFA, the Commission’s 

delegee pursuant to CEA section 8a(10), 

which process currently is used by all 


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87See, e.g., infra Regulation 23.22(b). 

88See supra pt. II.C for a detailed discussion of 

the prohibition in CEA section 4s(b)(6). 

89 75 FR at 71386. 

90CFTC, President’s Budget and Performance 

Plan Fiscal Year 2010, p. 13–14 (Feb. 2011), 

available at http://www.cftc.gov/ucm/groups/ 

public/@newsroom/documents/file/ 

cftcbudget2012.pdf. The estimated 140 SDs 

includes ‘‘[a]pproximately 80 global and regional 

banks currently known to offer swaps in the United 

States;’’ ‘‘[a]pproximately 40 non-bank swap dealers 

currently offering commodity and other swaps;’’ 

and ‘‘[a]pproximately 20 new potential market 

makers that wish to become swap dealers.’’ Id. 

91Letter from Thomas W. Sexton, Senior Vice 

President and General Counsel, NFA, to Gary 

Barnett, Director, Division of Swap Dealer and 

Intermediary Oversight, CFTC (Oct. 20, 2011) (NFA 

Cost Estimates Letter). 

92The number of MSPs is estimated to be quite 

small, at six or fewer. 

93See infra pt. III.C (discussing the costs and 

benefits of this rulemaking). 

other applicants for registration with the 

Commission. 

Moreover, in proposing and adopting 

regulations applicable to the registration 

of Swaps Entities, the Commission has 

made every effort to establish a process 

that is minimally disruptive to the swap 

markets and minimally burdensome to 

Swaps Entities. In so doing, and as it 

proposed, the Commission is 

incorporating the registration process 

for Swaps Entities into the existing 

regulatory scheme for all other 

Commission registrants under Part 3—as 

opposed to constructing a 

fundamentally new registration 

structure for Swaps Entities. While 

current registrants may be familiar with 

this scheme, some Swaps Entities will 

not have previously applied for 

registration with the Commission, and 

the revised burden estimates take the 

potential unfamiliarity of new 

applicants for registration into account. 

The forms that Swaps Entities will be 

required to complete are virtually 

identical to those forms that other 

Commission registrants must currently 

complete, including RFEDs, who 

became subject to the Commission’s 

registration requirements in 2010. There 

is, however, an additional requirement 

to which Swaps Entities will be subject 

in connection with completing the Form 

7–R. CEA section 4s(b)(6) prohibits a 

Swaps Entity, except to the extent 

otherwise provided by rule, regulation 

or order,87 from permitting a person 

associated with it who is subject to a 

statutory disqualification to effect or be 

involved in effecting swaps on the 

Swaps Entity’s behalf, if the Swaps 

Entity ‘‘knew, or in the exercise of 

reasonable care should have known, of 

the statutory disqualification.’’ 88 Form 

7–R incorporates CEA section 4s(b)(6) 

into the application for registration as 

an SD or MSP by explicitly quoting the 

statutory language and requiring the 

applicant to certify that ‘‘the applicant 

is and shall remain in compliance with 

section 4s(b)(6) of the Act.’’ Because of 

the additional time required to gather 

such background information on a 

Swaps Entity’s associated persons as is 

necessary to make that certification, the 

Commission believes an increase in the 

time required for the Swaps Entity to 

complete the Form 7–R is warranted. 

As part of the registration process, the 

regulations being adopted today require 

Swaps Entities to demonstrate initial 

compliance with the Section 4s 

Implementing Regulations as the 

Commission adopts these regulations in 

order to obtain registration. However, 

because the Section 4s Implementing 

Regulations are not yet final, and 

because they will be phased in over 

time after the Commission adopts the 

registration process regulations today, 

the Commission is unable to estimate 

burden hours in connection with 

producing or collecting the 

documentation required to demonstrate 

compliance with the Section 4s 

Implementing Regulations. 

Consequently, the PRA estimates for 

this registration process rulemaking 

only include time to be expended by 

applicants’ and registrants’ personnel to 

complete the forms, and do not include 

time to be expended to collect, produce 

or otherwise develop the documentation 

required to demonstrate compliance 

with the Section 4s Implementing 

Regulations. The Commission has 

estimated the burden hours associated 

with information collections in 

connection with the Section 4s 

Implementing Regulations in the 

rulemakings proposing those 

regulations, and those burden hours 

need not be replicated here. 

3. Reduction of the Estimated Number 

of Respondents 

In the Proposal, the Commission took 

‘‘a conservative approach’’ to 

calculating the burden hours of this 

information collection by estimating 

that as many as 300 persons would 

come within the SD or MSP definition 

and, thus, would be subject to 

registration with the Commission.89

Since the Proposal’s publication in 

November 2010, the Commission has 

met with industry participants and trade 

groups, discussed extensively the 

universe of potential registrants with 

NFA, and reviewed public information 

about potential SDs active in the market 

and certain trade groups. Over time, and 

as the Commission has gathered more 

information on the swap market and its 

participants, the estimate of the number 

of SDs and MSPs has decreased. In its 

FY 2012 budget drafted in February 

2011, the Commission estimated that 

140 SDs might register with the 

Commission.90 After recently receiving 

additional specific information from 

NFA on the regulatory program it is 

developing for SDs and MSPs,91

however, the Commission now believes 

that approximately 125 persons will 

come within the SD or MSP definition 

and, thus, be subject to registration with 

the Commission.92

4. Registration Fees 

The Commission is permitted to 

collect registration fees under CEA 

section 8a(1). These registration fees are 

established by NFA as the Commission’s 

delegee under CEA section 8a(10). NFA 

has not yet adopted, and the 

Commission has not yet approved, an 

NFA rule setting forth registration fees 

for SDs and MSPs, although NFA 

currently estimates that such Swaps 

Entity registration fee will be $15,000.93

At such time as the Section 4s 

Implementing Regulations are finalized 

and the NFA registration fees 

established under CEA section 8a(1) are 

approved, the Commission will revise 

the information collection for which it 

has sought approval. 

5. Revised Burden Hour Estimates for 

the Information Collection 

For the reasons outlined above, the 

Commission has determined to revise 

the burden hour estimates for this 

information collection as follows. The 

burden associated with the new 

regulations implementing the 

registration process for SDs and MSPs is 

estimated to be 629 hours, assuming 125 

respondents, which will result from: (1) 

Application for registration by SDs and 

MSPs and submission of required 

information on behalf of their respective 

principals; (2) initially, no withdrawals 

from registration by SDs or MSPs and a 

relatively small decrease in the number 

of their respective principals; and (3) 

initially, no reported corrections. 

Burden means the total time, effort, or 

financial resources expended by persons 

to generate, maintain, retain, disclose or 

provide information to or for a federal 

agency. 

The respondent burden for this 

collection is estimated to average 1 hour 

per response for the Form 7–R; 0.8 

hours per response for the Form 8–R; 

0.1 hours per response for the Form 7– 

W; 0.2 hours per response for the Form 

8–T; and 0.1 hours per response for the 

Form 3–R. These estimates include the 

time needed: To review instructions; to 


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94See 75 FR 71379 at 71386–87. 

95 Id. 

96NFA Cost Estimates Letter. 

97See supra pt. II.C. 

98The NFA Cost Estimates Letter explains that 

NFA will incur direct and indirect costs associated 

with employing staff to perform this review and 

confirmation, and that the registration fee estimate 

of $15,000 has been designed to offset a portion of 

the costs that NFA will incur in this regard. 

99See supra pt. III.B. 

develop, acquire, install, and utilize 

technology and systems for the purposes 

of collecting, validating, and verifying 

information, processing and 

maintaining information, and disclosing 

and providing information; to adjust the 

existing ways to comply with any 

previously applicable instructions and 

requirements; to train personnel to be 

able to respond to a collection of 

information; and to transmit or 

otherwise disclose the information. 

Form 7–R 

Respondents/Affected Entities: 125. 

Estimated number of responses: 125. 

Estimated total annual burden on 

respondents: 1 hour. 

Frequency of collection: On occasion 

and annually. 

Burden statement: 125 respondents × 

1 hour = 125 Burden Hours. 

Form 8–R 

Respondents/Affected Entities: 5 

principals per each of 125 SDs and 

MSPs. 

Estimated number of responses: 625. 

Estimated total annual burden on 

respondents: 0.8 hours. 

Frequency of collection: On occasion. 

Burden statement: 625 respondents × 

0.8 hours = 500 Burden Hours. 

Form 8–T 

Respondents/Affected Entities: 1 

principal per each of 20 SDs and MSPs. 

Estimated number of responses: 20. 

Estimated total annual burden on 

respondents: 0.2 hours. 

Frequency of collection: On occasion. 

Burden statement: 20 respondents × 

0.2 hours = 4 Burden Hours. 

C. Considerations of Costs and Benefits 

of the Rulemaking 

This final rulemaking implements 

provisions of the CEA, as amended by 

the Dodd-Frank Act, mandating the 

registration of Swaps Entities. CEA 

section 4s(a) makes it unlawful for a 

person to act as an SD or MSP unless 

it is registered with the Commission. 

CEA section 4s(b) requires an SD or 

MSP to apply for registration in 

accordance with such form and manner 

as the Commission may prescribe. To 

effectuate the Congressional directive, 

this final rulemaking: Details the 

registration process for SDs and MSPs; 

requires Swaps Entities to become and 

remain members of an RFA; and 

implements the prohibition against a 

Swaps Entity permitting a statutorily 

disqualified associated person from 

effecting or being involved in effecting 

swaps on behalf of the Swaps Entity. 

CEA section 15(a) requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating regulations. The 

Commission must evaluate costs and 

benefits 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 futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. 

Before adopting these registration 

process regulations for Swaps Entities, 

the Commission sought public comment 

on the Proposal, including comment on 

the costs and benefits of the Proposal.94

The Commission has considered all 

comments, and, in particular, 

reasonable alternatives suggested by 

commenters. In some instances, for the 

reasons discussed above, the 

Commission has adopted such 

alternatives or modifications to the 

proposed regulations where, in the 

Commission’s judgment, the alternative 

or modification accomplishes the same 

regulatory objective in a more effective 

manner. The Commission also 

specifically invited commenters to 

submit ‘‘any data or other information 

that they may have quantifying or 

qualifying the costs and benefits of the 

proposal with their comment letters.’’ 95

Other than estimates of registration fees 

and annual membership dues from NFA 

(currently the only RFA),96 the 

Commission did not receive any 

information quantifying or qualifying 

the costs or benefits of the proposed 

regulations relating to the registration 

process for Swaps Entities. The 

Commission did, however, receive 

general comments on the cost-benefit 

considerations of the rulemaking. These 

are addressed in the discussion below. 

1. Benefits of SD and MSP Registration 

Regulations 

The Commission believes that the 

benefits of this final rulemaking are 

considerable even if not quantifiable. 

Registration, as mandated by Congress 

in the Dodd-Frank Act, will enable the 

Commission to increase market integrity 

and protect market participants and the 

public by identifying the universe of 

SDs and MSPs subject to heightened 

regulatory requirements and oversight 

in connection with their swaps 

activities. This rulemaking identifies the 

process to commence registration by an 

SD or MSP, specifies the applicable 

registration forms, and explains how 

SDs and MSPs should apply for 

registration. The Commission believes 

that this final rulemaking’s specification 

of a registration process for SDs and 

MSPs administered by an RFA leverages 

the RFA’s existing expertise and 

economies of scale and scope. 

Further, and as is discussed above,97

the Commission is exercising its 

discretion under the Dodd-Frank Act to 

provide for an exception in Regulation 

23.22 from the prohibition against an SD 

or MSP permitting a person associated 

with it who is subject to a statutory 

disqualification to effect or be involved 

in effecting swaps on its behalf. In 

taking this action, the Commission is 

limiting the burden on SDs and MSPs 

with respect to their vetting of potential 

associated persons. 

2. Costs of SD and MSP Registration 

Regulations 

The Commission has identified and 

considered several costs associated with 

this rulemaking. First, an SD or MSP 

must pay fees to register with the 

Commission through NFA. Second, 

because this rulemaking requires a 

registrant to become and remain a 

member of an RFA—and NFA is 

currently the only RFA—Swaps Entities 

will incur the costs of annual NFA 

membership dues. Third, NFA is 

expected to incur expenses for 

executing the anticipated delegated 

registration process function on the 

Commission’s behalf and for monitoring 

compliance by its SD and MSP members 

with NFA rules.98 Fourth, Swaps 

Entities will incur costs when 

completing various CFTC registration 

forms that must be filed with NFA. 

The Commission is obligated to 

estimate the burden of and provide 

supporting statements for any collection 

of information it seeks to establish 

under considerations contained in the 

PRA, and seek approval of those 

requirements from OMB. Therefore, the 

estimated burden and support of the 

collection of information in this 

rulemaking, as well as consideration of 

the comments thereto, are discussed in 

the PRA section of this rulemaking as 

required by that statute.99 Registrants 

are required to update these forms when 

the information provided therein 

changes and to confirm these changes 

annually. 


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100The Commission estimated $500 for the SD/ 

MSP registration application fee in the Proposal, 

based on information NFA provided to staff upon 

request in connection with the development of the 

Proposal. See 75 FR at 71387. Since then, NFA 

significantly altered the registration fees it estimates 

it will be charging SD and MSP applicants, due to 

NFA’s expected review and confirmation of an SD 

or MSP’s initial compliance with each Section 4s 

Implementing Regulation prior to the SD or MSP 

becoming registered. NFA Cost Estimates Letter. 

101This amount is unchanged from the Proposal. 

See 75 FR at 71387. 

102NFA Cost Estimates Letter. 

103 Id. (stating that NFA will submit these 

proposed initial registration fees, and membership 

dues to the Commission for full review and 

approval). 

104These NFA requirements will be as strict as or 

stricter than the Section 4s Implementing 

Regulations, and like registration fees and 

membership dues, will be subject to Commission 

review and approval pursuant to CEA section 17(j). 

See supra pt. II.E. 

105For futures transactions, NFA collects a fee per 

transaction. Initially, NFA expected to collect a fee 

per transaction from its SD and MSP members to 

defray the costs of overseeing their operations and 

activities, an approach it is no longer pursuing. 

NFA Cost Estimates Letter. 

106NFA Cost Estimates Letter. In the Proposal, the 

Commission estimated for PRA purposes that as 

many as 250 SDs and 50 MSPs may register. See 

75 FR at 71386. Should there be more than 125 

Swaps Entities, NFA’s total annual costs for the 

regulatory program may exceed this estimate. NFA 

Cost Estimates Letter. 

107NFA Cost Estimates Letter. 

108One commenter wrote that ‘‘given the 

budgetary uncertainty faced by the Commission’’ 

the delegation to RFA-registration model provides 

the Commission with ‘‘flexibility’’ in its oversight 

of SDs and MSPs. NEFI/PMAA Comment Letter. 

109One commenter stated that SROs reduce the 

costs of regulation to the government and the 

taxpayer. ISDA Comment Letter. 

110NFA Cost Estimates Letter. 

a. Fees and Dues 

Based on current estimates from NFA, 

the Commission believes that SDs and 

MSPs will incur the following 

registration fees: (a) $15,000 per SD or 

MSP registration application, which 

will include the initial determination by 

NFA of compliance with the Section 4s 

Implementing Regulations; 100 and (b) 

$85 per person for processing 

fingerprints and background 

information for principals.101

Based on current estimates from NFA, 

the Commission believes that SDs and 

MSPs will incur annual NFA 

membership dues ranging from 

$125,000 to $1,000,000 per member, 

based upon the size and complexity of 

the firm’s swap business.102 The 

increase in the estimate of NFA 

membership dues is driven by two 

factors: First, the decision by NFA to 

recover costs for oversight of its SD and 

MSP members primarily through a 

membership dues structure, rather than 

assessing a fee on swap transactions 

similar to the fee NFA imposes on 

futures transactions; and second, NFA’s 

estimate of the annual cost of its 

regulatory program for Swaps Entities 

when that program is fully staffed and 

operational. It is possible that NFA’s 

estimates will change over time. 

Additionally, rules relating to 

membership dues must be approved by 

various NFA authorities, and, in 

accordance with CEA section 17(j), must 

be approved by the Commission. The 

Commission expects that NFA will 

submit these rules for full review and 

approval.103

b. NFA Expenses 

Concurrently with the adoption of 

these regulations, the Commission 

intends to issue the Notice and Order, 

whereby it will delegate to an RFA—i.e., 

NFA—its authority to register SDs and 

MSPs. Included in this delegation will 

be the authority to determine an 

applicant’s fitness for registration and 

initial compliance with the Section 4s 

Implementing Regulations as they relate 

to the applicant. Also, the Commission 

is adopting proposed Regulation 170.16 

to require that SDs and MSPs become 

and remain members of an RFA. As is 

stated above, NFA currently is the sole 

RFA. 

Consistent with the current regulatory 

practice for Commission registrants who 

are NFA members, NFA will be 

responsible for monitoring compliance 

with NFA rules applicable to its 

members who are SDs and MSPs.104

NFA therefore will incur overhead and 

direct costs on a continuing basis 

attributable to oversight activities to 

confirm SD and MSP compliance with 

applicable NFA rules in addition to 

performing registration processing 

functions.105 NFA’s currently estimated 

$15,000 application fee for registering 

SDs and MSPs does not include charges 

related to ongoing NFA oversight of its 

SD and MSP members for compliance 

with NFA rules—which, as is stated 

above, NFA expects to recover through 

the dues it will charge its SD and MSP 

members. 

NFA’s regulatory program for the 

oversight of Swaps Entities will entail 

significant costs. Based on an 

assumption of 125 SD and MSP 

members, NFA estimates that the annual 

cost of this regulatory program when it 

is fully staffed and operational in 

approximately three years will be 

approximately $35–$45 million.106 NFA 

has stated that ‘‘[i]n order to generate at 

least $35 million in revenue, [NFA has] 

preliminarily calculated that 

membership dues for SDs and MSPs 

could range between $125,000–$1 

million per Member firm based upon 

the size and complexity of the firm’s 

swaps business.’’107

By delegating the authority to perform 

the registration functions for SDs and 

MSPs to an RFA, the Commission will 

avoid the expense of establishing a new 

registration program within the agency 

and will provide a familiar and efficient 

means of implementing the statutory 

requirements for the registration of SDs 

and MSPs.108 Some SDs and MSPs will 

have previous experience with the 

registration process for futures 

intermediaries. The Commission 

believes that by delegating the 

registration process to an established 

RFA that already has similar oversight 

responsibilities for other persons 

registered with the Commission, the 

regulatory objectives of the Dodd-Frank 

Act can be achieved in a more costeffective manner. The Commission 

anticipates that delegating the authority 

to perform registration functions for SDs 

and MSPs to an RFA will avoid the 

costs associated with duplicating the 

systems, processes, and personnel of the 

RFA.109

Thus, the Commission believes that it 

will be more cost-effective for NFA to 

augment its current systems and 

processes to accommodate the new SD 

and MSP registrants than it would be for 

the Commission to build the same 

capabilities. The Commission further 

believes that the delegation of the 

authority to process SD and MSP 

registration applications to an RFA, 

with the imposition of fees on those 

persons who must register, is a prudent 

and effective approach. This model, 

currently employed in the futures 

context, has worked successfully for 

Commission registrants and the 

Commission for many years. While one 

of the commenters on the Proposal 

expressed concern about NFA’s current 

lack of swaps expertise, the Commission 

notes NFA’s recent efforts to develop 

expertise in this area (e.g., forming a 

Swap Dealer Advisory Committee in 

May 2010 110) and, accordingly, does not 

believe this concern merits a different 

conclusion. 

c. Registration of Foreign Swaps Entities 

The Commission received many 

comments on the Proposal from entities 

such as foreign banks and derivatives 

dealers arguing that several of the 

Commission’s proposed regulations, 

taken together, would require massive 

and potentially expensive internal 

reorganizations to comply with the new 

swaps regulatory regime. Some 

commenters predicted adverse 

consequences to the U.S. swaps markets 

if foreign entities were required to 

register as SDs or MSPs, such as 


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111These commenters did not quantify these 

costs. Further, the Commission is unable to estimate 

these costs, which it views as not directly related 

to the costs of the registration process regulations 

for SDs and MSPs. These costs are more costs of 

compliance with the Section 4s Implementing 

Regulations, which the Commission intends to 

address as it finalizes those regulations. 

112E.g., as a prerequisite to granting registration, 

NFA will confirm initial compliance by an 

applicant for registration as an SD or MSP with 

each Section 4s Implementing Regulation, and a 

Swaps Entity may not, subject to certain limited 

exceptions, permit a statutorily disqualified 

associated person to effect or be involved in 

effecting swaps on its behalf. 

decreased competition, reduced 

liquidity, an exodus of foreign-based 

market participants from the U.S. 

markets, rising costs for their U.S. 

customers, and increased systemic risk. 

Some argued that the Commission 

should defer to regulators in the home 

jurisdiction lest participants be subject 

to multiple and inconsistent regulatory 

burdens.111 Most of these comments 

address the question of which entities 

are SDs or MSPs, and the consequences 

of being required to register as such, 

rather than the costs of the registration 

process per se. 

The Commission generally does not 

believe that foreign-based Swaps 

Entities will bear higher costs associated 

with the registration process than U.S.- 

based Swaps Entities. The identified 

costs are fees to become registered 

under the CEA with the Commission 

and annual NFA membership dues. 

Many of these foreign-based 

commenters are already familiar with 

navigating various U.S. federal and state 

regulatory regimes in connection with 

their other lines of business, such as 

banking and insurance. Moreover, many 

of the commenters already have 

operations and capable personnel 

physically located in the U.S. To the 

extent that an SD or MSP has neither 

familiarity with other U.S. regulatory 

regimes nor personnel physically 

located in the U.S., the Commission 

believes that any potentially higher 

costs that may be incurred in 

connection with the registration process 

regulations by a foreign-based Swaps 

Entity are a necessary consequence of 

adequately regulating the U.S. swaps 

markets and ensuring a level playing 

field for all intermediaries involved in 

the U.S. swaps markets. 

3. Evaluation of Market and Public 

Interest Considerations in Light of CEA 

Section 15(a) 

(1) Protection of Market Participants and 

the Public 

The registration of Swaps Entities is a 

critical component of the 

comprehensive regulation of these 

persons. It is a statutory requirement 

that SDs and MSPs be registered. 

Notably, the registration process will 

serve to confirm initial compliance by 

an SD or MSP with the Section 4s 

Implementing Regulations. Moreover, 

attendant to applying for registration, 

SDs and MSPs, along with their 

principals, will be vetted, and those 

deemed unfit will be barred from 

registration. As a result, registration and 

the related requirements 112 of this final 

rulemaking will help protect the public 

by preventing those unfit to 

intermediate and participate in the 

swaps markets from registering in the 

first instance. 

Also, NFA provides an on-line, public 

database, the Background Affiliation 

Status Information Center (BASIC), with 

information on each registrant’s status 

and the status of the registrant’s 

principals. BASIC also provides 

additional information, such as 

regulatory actions taken by NFA or the 

Commission, with respect to a registrant 

or its principals. Access to this database 

provides all persons with important 

information about Commission 

registrants with whom they may seek to 

transact business. 

(2) Efficiency, Competitiveness, and the 

Financial Integrity of the Market 

Utilizing NFA’s existing registration 

expertise and resources promotes 

efficiency in that it employs NFA’s 

existing capabilities rather than 

requiring Commission investment (e.g., 

hiring staff and building a technological 

infrastructure to process applications) to 

build a new registration system. 

Similarly, because NFA is building 

upon its existing oversight 

infrastructure, it should incur fewer 

costs to oversee compliance relative to 

direct Commission oversight. While the 

Commission will continue to oversee 

the registration process, delegation of 

the performance of registration 

functions to an RFA will avoid the 

unnecessary diversion of limited agency 

resources from the Commission’s other 

responsibilities to protect the public. 

(3) Price Discovery 

The Commission has not identified 

any impact on price discovery through 

the registration provisions of this 

rulemaking. 

(4) Sound Risk Management Practices 

As is explained above, registration is 

a critical component within the DoddFrank Act regulatory regime to ensure 

the fitness of SDs and MSPs. In addition 

to disqualifying ineligible persons, it 

enhances market participants’ ability to 

make more informed counterparty 

selection decisions. In this way, it is 

consistent with sound risk management 

practices. 

(5) Other Public Interest Considerations 

CEA section 15 directs the 

Commission to consider in its costbenefit evaluation ‘‘other public interest 

considerations.’’ One such 

consideration is public confidence. As 

an element of a regulatory regime that 

establishes minimum participation 

standards, the Commission believes that 

the registration process will promote 

public confidence in swaps market 

integrity. 

List of Subjects 

17 CFR Part 1 

Brokers, Commodity futures, 

Definitions, Major swap participants, 

Swap dealers. 

17 CFR Part 3 

Customer protection, Licensing, Major 

swap participants, Registration, Swap 

dealers. 

17 CFR Part 23 

Associated persons, Major swap 

participants, Registration, Swap dealers. 

17 CFR Part 170 

Membership, Registered futures 

associations. 

For the reasons presented above, the 

Commission hereby amends Chapter I of 

Title 17 of the Code of Federal 

Regulations as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 is 

revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 2a, 5, 6, 6a, 6b, 

6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 

6p, 6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 

12, 12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, 

and 24, as amended by Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 

1376 (July 21, 2010). 

■ 2. In § 1.3, paragraph (aa)(6) is added 

to read as follows: 

§ 1.3 Definitions. 

* * * * * 

(aa) * * * 

(6) A swap dealer or major swap 

participant as a partner, officer, 

employee, agent (or any natural person 

occupying a similar status or performing 

similar functions), in any capacity that 

involves: 

(i) The solicitation or acceptance of 

swaps (other than in a clerical or 

ministerial capacity); or 


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2626 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 

(ii) The supervision of any person or 

persons so engaged. 

* * * * * 

PART 3—REGISTRATION 

■ 3. The authority citation for part 3 is 

revised to read as follows: 

Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 

2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 

6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 

18, 19, 21, and 23, as amended by Title VII 

of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111–203, 

124 Stat. 1376 (July 21, 2010). 

■ 4. Section 3.1 is amended by adding 

paragraphs (f) and (g) to read as follows: 

§ 3.1 Definitions. 

* * * * * 

(f) Section 4s Implementing 

Regulation. Section 4s Implementing 

Regulation means a regulation the 

Commission issues pursuant to section 

4s(e), 4s(f), 4s(h), 4s(i), 4s(j), 4s(k), or 

4s(l) of the Act. 

(g) Swap Definitional Regulation. 

Swap Definitional Regulation means a 

regulation the Commission issues to 

further define the term ‘‘swap dealer,’’ 

‘‘major swap participant’’ or ‘‘swap’’ in 

section 1a(49), 1a(33) or 1a(47) of the 

Act, respectively, pursuant to the DoddFrank Wall Street Reform and Consumer 

Protection Act. 

■ 5. Section 3.2 is amended by: 

■ a. Revising the section heading; and 

■ b. Adding paragraph (c)(3). 

The revision and addition read as 

follows: 

§ 3.2 Registration processing by the 

National Futures Association; notification 

and duration of registration; provisional 

registration. 

* * * * * 

(c) * * * 

(3)(i) If an applicant for registration as 

a swap dealer or major swap participant 

pursuant to § 3.10(a)(1)(v) files a Form 

7–R and a Form 8–R and fingerprint 

card for each natural person who is a 

principal of the applicant, accompanied 

by such documentation as may be 

required to demonstrate compliance 

with each of the Section 4s 

Implementing Regulations, as defined in 

§ 3.1(f), as are applicable to it, in 

accordance with the terms of the 

Section 4s Implementing Regulations, 

the National Futures Association shall 

notify the swap dealer or major swap 

participant, as the case may be, that it 

is provisionally registered. 

(ii) Subsequent to providing notice of 

provisional registration to an applicant 

for registration as a swap dealer or major 

swap participant, the National Futures 

Association shall determine whether the 

documentation submitted pursuant to 

§ 3.10(a)(1)(v) by the applicant 

demonstrates compliance with the 

Section 4s Implementing Regulation to 

which it pertains; Provided, that where 

the National Futures Association has 

notified the applicant that it is 

provisionally registered, the applicant 

must supplement its registration 

application by providing such 

documentation as may be required to 

demonstrate compliance with each 

Section 4s Implementing Regulation 

that the Commission issues subsequent 

to the date the National Futures 

Association notifies the applicant that it 

is provisionally registered. 

(iii) On and after the date on which 

the National Futures Association 

confirms that the applicant for 

registration as a swap dealer or major 

swap participant has demonstrated its 

initial compliance with the applicable 

requirements of each of the Section 4s 

Implementing Regulations and all other 

applicable registration requirements 

under the Act and Commission 

regulations, the provisional registration 

of the applicant shall cease and it shall 

be registered as a swap dealer or major 

swap participant, as the case may be. 

* * * * * 

■ 6. Section 3.4 is amended by revising 

paragraph (a) to read as follows: 

§ 3.4 Registration in one capacity not 

included in registration in any other 

capacity. 

(a) Except as may be otherwise 

provided in the Act or in any rule, 

regulation, or order of the Commission, 

each futures commission merchant, 

retail foreign exchange dealer, swap 

dealer, major swap participant, 

introducing broker, commodity pool 

operator, commodity trading advisor, 

leverage transaction merchant, floor 

broker, floor trader, and associated 

person (other than an associated person 

of a swap dealer or major swap 

participant) must register as such under 

the Act. Registration in one capacity 

under the Act shall not include 

registration in any other capacity; 

Provided, however, That a registered 

floor broker need not also register as a 

floor trader in order to engage in activity 

as a floor trader. 

* * * * * 

■ 7. Section 3.10 is amended by: 

■ a. Revising the section heading; 

■ b. Revising paragraph (a)(1)(i); 

■ c. Adding paragraphs (a)(1)(iii), (iv), 

and (v); and 

■ d. Revising paragraphs (b)(1) and (d). 

The additions and revisons read as 

follows: 

§ 3.10 Registration of futures commission 

merchants, retail foreign exchange dealers, 

introducing brokers, commodity trading 

advisors, commodity pool operators, swap 

dealers, major swap participants and 

leverage transaction merchants. 

(a) Application for registration. (1)(i) 

Except as provided in paragraph (a)(3) 

of this section, application for 

registration as a futures commission 

merchant, retail foreign exchange 

dealer, swap dealer, major swap 

participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant must be on Form 7–R, 

completed and filed with the National 

Futures Association in accordance with 

the instructions thereto. 

* * * * * 

(iii) Applicants for registration as a 

commodity pool operator must 

accompany their Form 7–R with the 

financial statements described in 

§ 4.13(c) of this chapter. 

(iv) Applicants for registration as a 

leverage transaction merchant must 

accompany their Form 7–R with a Form 

2–FR in accordance with the provisions 

of § 31.13 of this chapter. 

(v)(A) Applicants for registration as a 

swap dealer or major swap participant 

must accompany their Form 7–R with 

such documentation as may be required 

to demonstrate compliance with each 

Section 4s Implementing Regulation, as 

defined in § 3.1(f), applicable to them, 

in accordance with the terms of the 

Section 4s Implementing Regulation; 

Provided, however, that for the purposes 

of this paragraph (a)(1)(v) the term 

‘‘compliance’’ includes the term ‘‘the 

ability to comply,’’ to the extent that a 

particular Section 4s Implementing 

Regulation may require demonstration 

of the ability to comply with a 

requirement thereunder. 

(B) The filing of the Form 7–R and 

accompanying documentation by the 

applicant swap dealer or major swap 

participant authorizes the Commission 

to conduct on-site inspection of the 

applicant to determine compliance with 

the Section 4s Implementing 

Regulations applicable to it. 

(C)(1) At any time prior to the latest 

effective date of the Swap Definitional 

Regulations, defined in § 3.1(g), any 

person may apply to be registered as a 

swap dealer or major swap participant. 

(2) By no later than the latest effective 

date of the Swap Definitional 

Regulations, each person who is a swap 

dealer or major swap participant on that 

date must apply to be registered as a 

swap dealer or major swap participant, 

as the case may be. 

(3) From and after the latest effective 

date of the Swap Definitional 


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Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 2627 

Regulations, each person who intends to 

engage in business as a swap dealer or 

major swap participant must apply to be 

registered as a swap dealer or major 

swap participant, as the case may be. 

(D)(1) Where an applicant for 

registration as a swap dealer or major 

swap participant to whom the National 

Futures Association has provided notice 

of provisional registration under 

§ 3.2(c)(3) fails to demonstrate 

compliance with a Section 4s 

Implementing Regulation, the National 

Futures Association will notify the 

applicant that its application is 

deficient, whereupon the applicant 

must withdraw its registration 

application, it must not engage in any 

new activity as a swap dealer or major 

swap participant, as the case may be, 

and the applicant shall cease to be 

provisionally registered; Provided, that 

in the event the applicant fails to 

withdraw its registration application or 

cure the deficiency within 90 days 

following receipt of notice from the 

National Futures Association that its 

application is deficient, the application 

will be deemed withdrawn and 

thereupon its provisional registration 

shall cease; Provided further, that upon 

written request by the applicant 

submitted to the Commission, the 

Commission may in its discretion 

extend the time by which the applicant 

must cure the deficiency. 

(2) The provisions of the foregoing 

paragraph (a)(1)(v)(D)(1) of this section 

shall supplement and be in addition to 

any other activities in which the 

National Futures Association engages 

under the Act and Commission 

regulations in connection with 

processing an application for 

registration as a swap dealer or major 

swap participant. 

(E) Unless specifically reserved in the 

applicable swap documentation, no 

withdrawal, deemed withdrawal, 

cessation or revocation of registration as 

a swap dealer or major swap participant 

pursuant to paragraph (a)(1)(v), (b), or 

(d) of this section shall constitute a 

termination event, force majeure, an 

illegality, increased costs, a regulatory 

change, or a similar event under a swap 

(including any related credit support 

arrangement) that would permit a party 

to terminate, renegotiate, modify, amend 

or supplement one or more transactions 

under the swap. 

* * * * * 

(b) Duration of registration. (1) A 

person registered as a futures 

commission merchant, retail foreign 

exchange dealer, swap dealer, major 

swap participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant in accordance with paragraph 

(a) of this section will continue to be so 

registered until the effective date of any 

revocation or withdrawal of such 

registration. Upon effectiveness of any 

revocation or withdrawal of registration, 

such person will immediately be 

prohibited from engaging in new 

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. 

* * * * * 

(d) On a date to be established by the 

National Futures Association, and in 

accordance with procedures established 

by the National Futures Association, 

each registrant as a futures commission 

merchant, retail foreign exchange 

dealer, swap dealer, major swap 

participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant shall, on an annual basis, 

review and update registration 

information maintained with the 

National Futures Association. The 

failure to complete the review and 

update within thirty days following the 

date established by the National Futures 

Association shall be deemed to be a 

request for withdrawal from registration, 

which shall be processed in accordance 

with the provisions of § 3.33(f). 

* * * * * 

■ 8. Section 3.21 is amended by: 

■ a. Revising paragraph (c) introductory 

text and paragraph (c)(1)(iv); 

■ b. Adding paragraph (c)(1)(v); 

■ c. Revising paragraph (c)(2)(i); and 

■ d. Revising paragraph (c)(4)(i). 

The revisions and addition read as 

follows: 

§ 3.21 Exemption from fingerprinting 

requirement in certain cases. 

* * * * * 

(c) Outside directors. Any futures 

commission merchant, retail foreign 

exchange dealer, swap dealer, major 

swap participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant that has a principal who is a 

director but is not also an officer or 

employee of the firm may, in lieu of 

submitting a fingerprint card in 

accordance with the provisions of 

§§ 3.10(a)(2) and 3.31(a)(3), file a 

‘‘Notice Pursuant to Rule 3.21(c)’’ with 

the National Futures Association. Such 

notice shall state, if true, that such 

outside director: 

(1) * * * 

(iv) The solicitation of leverage 

customers’ orders for leverage 

transactions, 

(v) The solicitation or acceptance of a 

swap agreement; 

(2) * * * 

(i) Transactions involving 

‘‘commodity interests,’’ as that term is 

defined in § 1.3(yy); 

* * * * * 

(4) * * * 

(i) The name of the futures 

commission merchant, retail foreign 

exchange dealer, swap dealer, major 

swap participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, leverage transaction 

merchant, or applicant for registration 

in any of these capacities of which the 

person is an outside director; 

* * * * * 

■ 9. Section 3.30 is amended by revising 

paragraph (a) to read as follows: 

§ 3.30 Current address for purpose of 

delivery of communications from the 

Commission or the National Futures 

Association. 

(a) The address of each registrant, 

applicant for registration, and principal, 

as submitted on the application for 

registration (Form 7–R or Form 8–R) or 

as submitted on the biographical 

supplement (Form 8–R) shall be deemed 

to be the address for delivery to the 

registrant, applicant or principal for any 

communications from the Commission 

or the National Futures Association, 

including any summons, complaint, 

reparation claim, order, subpoena, 

special call, request for information, 

notice, and other written documents or 

correspondence, unless the registrant, 

applicant or principal specifies another 

address for this purpose: Provided, that 

the Commission or the National Futures 

Association may address any 

correspondence relating to a 

biographical supplement submitted for 

or on behalf of a principal to the futures 

commission merchant, retail foreign 

exchange dealer, swap dealer, major 

swap participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant with which the principal is 

affiliated and may address any 

correspondence relating to an associated 

person to the futures commission 

merchant, retail foreign exchange 

dealer, swap dealer, major swap 

participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant with which the associated 

person or the applicant for registration 

is or will be associated as an associated 

person. 

* * * * * 


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2628 Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 

■ 10. Section 3.31 is amended by 

revising paragraphs (a)(1), (b), and (c)(2) 

to read as follows: 

§ 3.31 Deficiencies, inaccuracies, and 

changes, to be reported. 

(a)(1) Each applicant or registrant as a 

futures commission merchant, retail 

foreign exchange dealer, swap dealer, 

major swap participant, introducing 

broker, commodity pool operator, 

commodity trading advisor, 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 which no longer renders accurate and 

current the information contained 

therein. Each such correction shall be 

made on Form 3–R and shall be 

prepared and filed in accordance with 

the instructions thereto. Provided, 

however, that where a registrant is 

reporting a change in the form of 

organization from or to a sole 

proprietorship, the registrant must file a 

Form 7–W regarding the pre-existing 

organization and a Form 7–R regarding 

the newly formed organization. 

* * * * * 

(b)(1) Each applicant for registration 

or registrant as a floor broker, floor 

trader or associated person, and each 

principal of a futures commission 

merchant, retail foreign exchange 

dealer, introducing broker, commodity 

pool operator, commodity trading 

advisor, 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 which renders no longer 

accurate and current the information 

contained in the Form 8–R or 

supplemental statement. Each such 

correction must be made on Form 3–R 

and must be prepared and filed in 

accordance with the instructions 

thereto. 

(2) Each applicant for registration or 

registrant as a swap dealer or major 

swap participant and each principal of 

a swap dealer or major swap participant, 

must, in accordance with the 

instructions thereto, promptly correct 

any deficiency or inaccuracy in the 

Form 8–R or supplemental statement 

thereto which renders no longer 

accurate and current the information 

contained in the Form 8–R or 

supplemental statement. Each such 

correction must be made on Form 3–R 

and must be prepared and filed in 

accordance with the instructions 

thereto. 

(c) * * * 

(2) Each person registered as, or 

applying for registration as, a futures 

commission merchant, retail foreign 

exchange dealer, swap dealer, major 

swap participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant must, within thirty days after 

the termination of the affiliation of a 

principal with the registrant or 

applicant, file a notice thereof with the 

National Futures Association. 

* * * * * 

■ 11. Section 3.33 is amended by: 

■ a. Revising paragraph (a) introductory 

text; 

■ b. Revising paragraph (b) introductory 

text and paragraphs (b)(6)(vi) and (vii); 

■ c. Adding paragraphs (b)(6)(viii) and 

(ix); and 

■ d. Revising paragraph (e). 

The revisions and additions to read as 

follows: 

§ 3.33 Withdrawal from registration. 

(a) A futures commission merchant, 

retail foreign exchange dealer, swap 

dealer, major swap participant, 

introducing broker, commodity pool 

operator, commodity trading advisor, 

leverage transaction merchant, floor 

broker or floor trader may request that 

its registration be withdrawn in 

accordance with the requirements of 

this section if: 

* * * * * 

(b) A request for withdrawal from 

registration as a futures commission 

merchant, retail foreign exchange 

dealer, swap dealer, major swap 

participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant must be made on Form 7–W, 

and a request for withdrawal from 

registration as a floor broker or floor 

trader must be made on Form 8–W, 

completed and filed with the National 

Futures Association in accordance with 

the instructions thereto. The request for 

withdrawal must be made by a person 

duly authorized by the registrant and 

must specify: 

* * * * * 

(6) * * * 

(vi) The nature and extent of any 

pending customer, retail forex customer, 

option customer, leverage customer, 

swap counterparty or commodity pool 

participant claims against the registrant, 

and, to the best of the registrant’s 

knowledge and belief, the nature and 

extent of any anticipated or threatened 

customer, option customer, leverage 

customer, swap counterparty or 

commodity pool participant claims 

against the registrant; 

(vii) In the case of a futures 

commission merchant or a retail foreign 

exchange dealer which is a party to a 

guarantee agreement, that all such 

agreements have been or will be 

terminated in accordance with the 

provisions of § 1.10(j) of this chapter not 

more than thirty days after the filing of 

the request for withdrawal from 

registration; 

(viii) In the case of a swap dealer, that 

the person will not engage in any new 

activity described in the definition of 

the term ‘‘swap dealer’’ in section 1a(49) 

of the Act, as such term may be further 

defined by the Commission; and 

(ix) In the case of a major swap 

participant, that the person will not 

engage in any new activity described in 

the definition of the term ‘‘major swap 

participant’’ in section 1a(33) of the Act, 

as such term may be further defined by 

the Commission. 

* * * * * 

(e) A request for withdrawal from 

registration as a futures commission 

merchant, retail foreign exchange 

dealer, swap dealer, major swap 

participant, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant on Form 7–W, and a request 

for withdrawal from registration as a 

floor broker or floor trader on Form 8– 

W, must be filed with the National 

Futures Association and a copy of such 

request must be sent by the National 

Futures Association within three 

business days of the receipt of such 

withdrawal request to the Commodity 

Futures Trading Commission, Division 

of Swap Dealer and Intermediary 

Oversight, Three Lafayette Centre, 1155 

21st Street NW., Washington, DC 20581. 

In addition, any floor broker or floor 

trader requesting withdrawal from 

registration must file a copy of his Form 

8–W with each contract market that has 

granted him trading privileges. Within 

three business days of any 

determination by the National Futures 

Association under § 3.10(d) to treat the 

failure by a registrant to file an annual 

Form 7–R as a request for withdrawal, 

the National Futures Association shall 

send the Commission notice of that 

determination. 

* * * * * 

■ 12. Part 23 is added to read as follows: 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

Subpart A—[Reserved] 

Sec. 

23.1–23.20 [Reserved] 

Subpart B—Registration 

23.21 Registration of swap dealers and 

major swap participants. 

23.22 Associated persons of swap dealers 

and major swap participants. 


EMCDONALD on DSK29S0YB1PROD with RULES
Federal Register / Vol. 77, No. 12 / Thursday, January 19, 2012 / Rules and Regulations 2629 

23.23–23.40 [Reserved] 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6p, 

6s, 9, 9a, 13b, 13c, 16a, 18, 19, 21 as amended 

by Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376 (July 21, 2010). 

Subpart A—Definitions 

§§ 23.1–23.20 [Reserved] 

Subpart B—Registration 

§ 23.21 Registration of swap dealers and 

major swap participants. 

(a) Each person who comes within the 

definition of the term ‘‘swap dealer’’ in 

section 1a(49) of the Act, as such term 

may be further defined by the 

Commission, is subject to the 

registration provisions under the Act 

and to part 3 of this chapter. 

(b) Each person who comes within the 

definition of the term ‘‘major swap 

participant’’ in section 1a(33) of the Act, 

as such term may be further defined by 

the Commission, is subject to the 

registration provisions under the Act 

and to part 3 of this chapter. 

(c) Each affiliate of an insured 

depository institution described in 

section 716(c) of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (Pub. L. 111–203 section 716(c), 124 

Stat. 1376 (2010)) is required to be 

registered as a swap dealer if the 

affiliate is a swap dealer or as a major 

swap participant if the affiliate is a 

major swap participant. 

§ 23.22 Associated persons of swap 

dealers and major swap participants. 

(a) Definition. For the purpose of this 

section, the term ‘‘person’’ means an 

‘‘associated person of a swap dealer or 

major swap participant’’ as defined in 

section 1a(4) of the Act and § 1.3(aa)(6). 

(b) Fitness. No swap dealer or major 

swap participant may permit a person 

who is subject to a statutory 

disqualification under section 8a(2) or 

8a(3) of the Act to effect or be involved 

in effecting swaps on behalf of the swap 

dealer or major swap participant, if the 

swap dealer or major swap participant 

knows, or in the exercise of reasonable 

care should know, of the statutory 

disqualification; Provided, however, that 

the prohibition set forth in this 

paragraph (b) shall not apply to any 

person listed as a principal or registered 

as an associated person of a futures 

commission merchant, retail foreign 

exchange dealer, introducing broker, 

commodity pool operator, commodity 

trading advisor, or leverage transaction 

merchant, or any person registered as a 

floor broker or floor trader, 

notwithstanding that the person is 

subject to a disqualification from 

registration under section 8a(2) or 8a(3) 

of the Act. 

§§ 23.23–23.40 [Reserved] 

PART 170—REGISTERED FUTURES 

ASSOCIATIONS 

■ 13. The authority citation for part 170 

continues to read as follows: 

Authority: 7 U.S.C. 6p, 12a and 21. 

■ 14. Section 170.16 is added to read as 

follows: 

§ 170.16 Swap dealers and major swap 

participants. 

Each person registered as a swap 

dealer or major swap participant must 

become and remain a member of at least 

one futures association that is registered 

under section 17 of the Act and that 

provides for the membership therein of 

such swap dealer or major swap 

participant, as the case may be, unless 

no such futures association is so 

registered. 

Issued in Washington, DC, on January 11, 

2012, 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 Swap 

Dealers and Major Swap Participants— 

Commission Voting Summary and 

Statements of Commissioners 

Appendix 1—Commission Voting Summary 

On this matter, Chairman Gensler and 

Commissioners Sommers, Chilton, O’Malia 

and Wetjen voted in the affirmative; no 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman Gary 

Gensler 

I support the final rule to establish a 

process for the registration of swap dealers 

and major swap participants. The rule 

implements the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (DoddFrank Act) mandate that these entities be 

subject to registration and regulation for their 

swaps business. Registration will enable the 

Commodity Futures Trading Commission to 

monitor swap dealers and major swap 

participants for compliance with the DoddFrank Act and Commission rulemakings. 

Through regulation of dealers, the 

Commission will be able to protect market 

participants and the public, as well as 

promote sound risk management practices. 

The final rule includes a requirement that 

swap dealers and major swap participants 

become members of a registered futures 

association, such as the National Futures 

Association (NFA). 

In addition, I support the order delegating 

to the NFA the authority to register swap 

dealers and major swap participants. This 

will help efficiently allocate resources and 

provide the Commission with flexibility. 

[FR Doc. 2012–792 Filed 1–18–12; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[Docket No. USCG–2011–0106] 

RIN 1625–AA08 

Special Local Regulations; Recurring 

Marine Events in the Fifth Coast Guard 

District 

AGENCY: Coast Guard, DHS. 

ACTION: Final rule. 

SUMMARY: The Coast Guard is revising 

the list of special local regulations 

established for recurring marine events 

at various locations within the 

geographic boundary of the Fifth Coast 

Guard District. This rule revises 33 CFR 

100.501 by adding 6 new annual 

recurring marine events and modifying 

event date(s) for 12 previously 

established locations within the 

geographic boundary of the Fifth Coast 

Guard District. This rule also deletes 4 

previously listed marine events and 

corresponding regulated areas that no 

longer occur. These regulations will 

apply to all events listed in the table 

attached to the regulation, and include 

events such as regattas, power boat races 

and marine parades. Special local 

regulations are established to provide 

for the safety of life on navigable waters 

during these events, reduce the Coast 

Guard’s administrative workload and 

expedite public notification of events. 

Entry into or movement within these 

proposed regulated areas during the 

enforcement periods is prohibited 

without approval of the appropriate 

Captain of the Port. 

DATES: This rule is effective February 

21, 2012. 

ADDRESSES: Comments and material 

received from the public, as well as 

documents mentioned in this preamble 

as being available in the docket, are part 

of docket USCG–2011–0106 and are 

available online by going to http:// 

www.regulations.gov, inserting USCG– 

2011–0106 in the ‘‘Keyword’’ box, and 

then clicking ‘‘Search.’’ This material is 

also available for inspection or copying 

at the Docket Management Facility (M– 

30), U.S. Department of Transportation, 

West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue SE., 

Washington, DC 20590, between 9 a.m. 


EMCDONALD on DSK29S0YB1PROD with RULES