[Federal Register Volume 72, Number 13 (Monday, January 22, 2007)]
[Rules and Regulations]
[Pages 2614-2615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-805]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 170

RIN 3038-AC29


Membership in a Registered Futures Association

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') has amended its regulations to require that all persons 
registered with the Commission as futures commission merchants 
(``FCMs''), subject to an exception for certain notice-registered 
securities brokers or dealers (``BDs''), must become and remain members 
of at least one registered futures association (``RFA''). This action 
is consistent with the regulatory philosophy underlying the Commodity 
Futures Modernization Act of 2000 (``CFMA'').

DATES: Effective Date: February 21, 2007.

FOR FURTHER INFORMATION CONTACT: Helene D. Schroeder, Special Counsel, 
Compliance and Registration Section, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581, 
telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and 
electronic mail: <a href="/cdn-cgi/l/email-protection#6f071c0c071d000a0b0a1d2f0c091b0c41080019"><span class="__cf_email__" data-cfemail="38504b5b504a575d5c5d4a785b5e4c5b165f574e">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:

I. Background

A. Commission Regulation 170.15

    Commission Regulation 170.15 \1\ (``Regulation'') concerns 
membership by FCMs in an RFA. Section 17(p) of the Commodity Exchange 
Act (``Act'' or ``CEA'') requires each RFA to have a comprehensive 
program to audit the financial and sales practices of its members and 
their associated persons.\2\ Section 17(q) of the Act requires each RFA 
to establish such programs ``as soon as practicable but not later than 
September 30, 1985.'' Currently, the National Futures Association 
(``NFA'') is the sole RFA under Section 17(a) of the Act, and it is 
also a self-regulatory organization (``SRO'').
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    \1\ 17 CFR 170.15. The Commission's regulations can be accessed 
at http://www.access.gpo.gov/nara/cfr/waisidx--06/
17cfrvl--06.html.
    \2\ 7 U.S.C. 21(p). The Act can be accessed at http://www.access.gpo.gov/uscode/title7/chapter1_.html.
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    In adopting the Regulation, the Commission found that comprehensive 
and effective self-regulation and the avoidance of duplicative 
regulation would be enhanced by adoption of a regulation mandating 
membership in an RFA by each person required to be registered as an 
FCM. The Commission also found that the need to maintain these 
extensive programs for the comparatively small number of persons likely 
to remain subject solely to the Commission's direct regulation would be 
inefficient and duplicative of the self-regulatory functions for which 
NFA would be responsible.

B. The Commodity Futures Modernization Act of 2000

    In December 2000, the CFMA was enacted into law. Among other 
things, it revised the supervisory functions of the Commission. 
Specifically, the CFMA transformed the role of the CFTC from a front-
line regulator, with responsibility for direct supervision of the 
commodity futures markets and their participants and professionals, to 
an oversight agency.\3\
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    \3\ See 7 U.S.C. 5(b).
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C. The Proposal

    In light of the Commission's new oversight role and the policies 
and purposes of the Act, including the goals of effective self-
regulation and the avoidance of duplicative regulation, on November 1, 
2006, the Commission published in the Federal Register a proposed 
revision to the Regulation (``Proposal'').\4\ The Proposal would 
require that all persons that are registered with the Commission as an 
FCM, subject to an exception for persons that are notice-registered as 
BDs,\5\ and regardless of whether any such person is required to be 
registered as an FCM, must become and remain a member of at least one 
RFA. As the Commission explained in the Federal Register release 
announcing the Proposal (``Proposing Release''), the purpose of the 
Proposal was ``to ensure that all FCMs would come under direct

[[Page 2615]]

supervision of at least one SRO.'' \6\ The Commission invites 
interested persons to read the Proposing Release for a fuller 
discussion of the purpose of the amendment contained in the Proposal.
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    \4\ 71 FR 64171.
    \5\ Paragraph (b) of the Regulation, which the Commission did 
not propose to amend, provides an exception for persons registered 
as BDs with the Securities and Exchange Commission that are notice-
registered as FCMs in accordance with Commission Regulation 
3.10(a)(3).
    \6\ 71 FR at 64172.
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D. The Comments on the Proposal

    The Commission received two comment letters on the Proposal. One 
was from NFA, which expressed support for the amendment. The other was 
from legal counsel representing clients who would be affected by the 
Proposal in the event the Commission adopted it. This latter commenter 
requested that, in the event the Commission adopted the Proposal, the 
Commission make the amendment effective 60 days after publication in 
the Federal Register. The additional 30 days was requested ``in order 
to provide an orderly time for transition and permit sufficient time 
for registrants affected by the proposed amendment to determine their 
future course of action if the proposed amendment is approved.''
    In response, the Commission notes that, as an agency of the Federal 
Government, in adopting regulations, it is subject to the provisions of 
the Administrative Procedure Act. Among other things, this means that, 
in the absence of certain specified circumstances, the Commission may 
not make a substantive regulation effective earlier than 30 days before 
the regulation is published in the Federal Register.\7\ Thus, the 
Commission typically makes its substantive regulations effective 30 
days after the date on which the regulation is published in the Federal 
Register. With respect to the instant matter, the Commission believes 
that 30 days is sufficient time to achieve compliance with the amended 
regulation, given the reasons cited by the commenter. Accordingly, the 
Commission has determined to adopt the amendment to Regulation 
170.15(a) as proposed and to make the amendment effective 30 days after 
publication in the Federal Register.
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    \7\ See 5 U.S.C. 553(d).
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II. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act \8\ requires that agencies, in 
issuing regulations, consider the impact of those regulations on small 
businesses. The amended Regulation would affect persons that are 
registered as FCMs, even if they are not required to be so registered. 
The Commission has previously established certain definitions of 
``small entities'' to be used by the Commission in evaluating the 
impact of its regulations on such entities in accordance with the 
Regulatory Flexibility Act.\9\ The Commission previously determined 
that registered FCMs are not small entities for the purpose of the 
Regulatory Flexibility Act.\10\
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    \8\ 5 U.S.C. 601 et seq.
    \9\ 47 FR 18618 (Apr. 30, 1982).
    \10\ Id. at 18619.
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    The Commission did not receive any public comments relative to its 
analysis of the application of the Regulatory Flexibility Act to the 
Proposal.

B. Cost-Benefit Analysis

    Section 15(a) of the Act \11\ requires the Commission to consider 
the costs and benefits of its action before issuing a new regulation 
under the Act. By its terms, Section 15(a) does not require the 
Commission to quantify the costs and benefits of a new regulation or to 
determine whether the benefits of the proposed regulation outweigh its 
costs. Rather, Section 15(a) simply requires the Commission to 
``consider the costs and benefits'' of its action.
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    \11\ 7 U.S.C. 19(a).
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    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
(1) Protection of market participants and the public; (2) efficiency, 
competitiveness, and financial integrity of futures markets; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations. The Commission, in its discretion, can choose 
to give greater weight to any one of the five enumerated areas and 
determine that, notwithstanding its costs, a particular regulation is 
necessary or appropriate to protect the public interest or to 
effectuate any of the provisions or to accomplish any of the purposes 
of the Act.
    The Proposal contained an analysis of the Commission's 
consideration of these costs and benefits and solicited public comment 
thereon.\12\ The Commission did not receive any public comments 
relative to its cost-benefit analysis of the Proposal.
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    \12\ 71 FR at 64172-73.
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List of Subjects in 17 CFR Part 170

    Authority delegations (Government agencies), Commodity futures, 
Reporting and recordkeeping requirements.

0
For the reasons discussed in the preamble, the Commission hereby amends 
Chapter I of Title 17 of the Code of Federal Regulations as follows:

PART 170--REGISTERED FUTURES ASSOCIATIONS

0
1. The authority citation for part 170 continues to read as follows:

    Authority: 7 U.S.C. 6p, 12a and 21, as amended by the Commodity 
Futures Modernization Act of 2000, Appendix E of Pub. L. 106-554, 
114 Stat. 2763 (2000).


0
2. Section 170.15 is amended by revising paragraph (a) to read as 
follows:


Sec.  170.15  Futures commission merchants.

    (a) Except as provided in paragraph (b) of this section, each 
person registered as a futures commission merchant 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 futures commission merchant, unless no such futures 
association is so registered.
* * * * *

    Issued in Washington, DC, on January 16, 2007, by the 
Commission.
Eileen A. Donovan,
Acting Secretary of the Commission.
[FR Doc. E7-805 Filed 1-19-07; 8:45 am]
BILLING CODE 6351-01-P


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