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[Federal Register Volume 77, Number 116 (Friday, June 15, 2012)]
[Proposed Rules]
[Pages 35892-35897]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14654]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 3 and 23

RIN 3038-AD66

Dual and Multiple Associations of Persons Associated With Swap 
Dealers, Major Swap Participants and Other Commission Registrants

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing regulations that would make clear that each swap dealer 
(SD), major swap participant (MSP), and other Commission registrant 
with whom an associated person (AP) is associated is required to 
supervise the AP and is jointly and severally responsible for the 
activities of the AP with respect to customers common to it and any 
other SD, MSP or other Commission registrant (Proposal).

DATES: Comments must be received on or before August 14, 2012.

ADDRESSES: You may submit comments, identified by RIN 3038-AD66 and 
``Dual and Multiple Associations of Persons Associated with Swap 
Dealers, Major Swap Participants and other Commission Registrants,'' by 
any of the following methods:
     Agency Web Site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions on the Web site for 
submitting comments.
     Mail: Send to David A. Stawick, Secretary, Commodity 
Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581.
     Hand delivery/Courier: Same as Mail above.
     Federal eRulemaking Portal: http://www.regulations.gov/search/index.jsp. Follow the instructions for submitting comments.
    Please submit your comments using only one method. All comments 
must be submitted in English, or if not, accompanied by an English 
translation. Comments will be posted as received to www.cftc.gov and 
the information you submit will be publicly available. If, however, you 
submit information that ordinarily is exempt from disclosure under the 
Freedom of Information Act, you may submit a petition for confidential 
treatment of the exempt information according to the procedures set 
forth in Commission Regulation 145.9.\1\ The Commission reserves the 
right, but shall have no obligation, to review, pre-screen, filter, 
redact, refuse or remove any or all of your submission from 
www.cftc.gov that it may deem to be inappropriate for publication, such 
as obscene language. All submissions that have been redacted or removed 
that contain comments on the merits of the rulemaking will be retained 
in the public comment file and will be considered as required under the 
Administrative Procedure Act \2\ and other applicable laws, and may be 
accessible under the Freedom of Information Act.
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    \1\ Commission regulations referred to herein are found at 17 
CFR Ch. 1 (2011). They are accessible on the Commission's Web site, 
http://www.cftc.gov.
    \2\ 5 U.S.C. 500 et seq.

FOR FURTHER INFORMATION CONTACT: Israel J. Goodman, Attorney-Advisor, 
or Barbara S. Gold, Associate Director, Division of Swap Dealer and 
Intermediary Oversight, 1155 21st Street NW., Washington, DC 20581. 
Telephone number: 202-418-6700 and electronic mail: igoodman@cftc.gov 
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or bgold@cftc.gov.

SUPPLEMENTARY INFORMATION:

[[Page 35893]]

I. Introduction

A. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\3\ 
Section 731 of the Dodd-Frank Act amended the Commodity Exchange Act 
(CEA) \4\ by adding Section 4s, which, among other things, prohibits 
any person from acting as a ``swap dealer'' or ``major swap 
participant'' unless the person is registered with the Commission.\5\ 
To effectuate the Congressional directive that an SD or MSP apply for 
registration in such form and manner as prescribed by the 
Commission,\6\ on November 23, 2010, the Commission proposed 
regulations to establish a registration process for SDs and MSPs 
(Proposed Registration Regulations),\7\ and on January 19, 2012, the 
Commission adopted regulations that establish a registration process 
for SDs and MSPs (Final Registration Regulations).\8\
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    \3\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act also may be accessed on the Commission's Web site, 
http://www.cftc.gov.
    \4\ 7 U.S.C. 1 et seq.
    \5\ CEA Sections 4s(a).
    \6\ CEA Section 4s(b).
    \7\ 75 FR 71379.
    \8\ 77 FR 2613. Additionally, through a separate Notice and 
Order, the Commission delegated to the National Futures Association 
(NFA) the authority to perform the full range of registration 
functions with respect to SDs and MSPs. 77 FR 2708 (Jan. 19, 2012).
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    However, Section 731 did not direct the Commission to adopt 
regulations that provide for the registration of APs of SDs and 
MSPs.\9\ Thus, unlike APs of other Commission registrants, who are 
generally required to register with the Commission,\10\ APs of SDs and 
MSPs are not required to register as such.\11\ Although APs of SDs and 
MSPs are not subject to registration with the Commission, an SD or MSP 
is prohibited from permitting any person associated with it to effect 
or be involved in effecting swaps on its behalf if such person is 
subject to a statutory disqualification.\12\
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    \9\ See 77 FR at 2613 (noting that CEA Section 4s does not 
direct the Commission to adopt regulations that provide for the 
registration of APs of SDs or MSPs).
    \10\ See, e.g., CEA Section 4k and Commission Regulation 
3.12(a).
    \11\ As is the case for other categories of Commission 
registrants, the term ``associated person,'' when used with respect 
to an SD or MSP, means a natural person (as opposed to an entity, 
such as a partnership or corporation). See 77 FR 2614-15, whereby 
the Commission adopted in new Regulation 1.3(aa)(6) a definition of 
the term ``associated person'' of an SD or MSP to mean a natural 
person who is associated with an SD or MSP 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
    (ii) The supervision of any person or persons so engaged.
    \12\ See CEA Section 4s(b)(6) and Regulation 23.22(b).
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    The Commission adopted the Final Registration Regulations after 
considering the comments it received from the public on the Proposed 
Registration Regulations. One commenter recommended that the Commission 
expand the scope of the provisions on dual and multiple associations 
currently found in 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 [SD and/or MSP] or 
conducts swaps activity on behalf of a Swap Entity and is also 
registered as an AP of a different firm.'' \13\ When adopting the Final 
Registration Regulations, the Commission stated that ``[w]hile the 
Commission agrees with the commenter's recommendation, it anticipates 
promptly addressing this issue in a future rulemaking.'' \14\ The 
Proposal addresses this issue.
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    \13\ Comment letter from the National Futures Association at 
page 10 (Jan. 24, 2011).
    \14\ 77 FR at 2616.
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B. Regulation 3.12(f)

    Regulation 3.12 concerns the registration of those persons who must 
register as an AP of a Commission registrant. Regulation 3.12(c) 
provides that application is made through the filing of a Form 8-R, 
accompanied by a specified certification from the registrant who will 
be employing the AP--i.e., the AP's ``sponsor.'' The term ``sponsor'' 
is defined in Regulation 3.1(c) to mean ``the futures commission 
merchant, retail foreign exchange dealer, introducing broker, commodity 
trading advisor, commodity pool operator or leverage transaction 
merchant which makes the certification required by Sec.  3.12 of [Part 
3] for the registration of an associated person of such sponsor.''
    Regulation 3.12(f)(1)(i) permits dual and multiple associations of 
a person registered as an AP.\15\ Regulation 3.12(f)(1)(iii) provides 
that each sponsor of the AP is required to supervise the AP, and that 
each sponsor is jointly and severally responsible for the AP's 
activities with respect to any customers common to it and any other 
sponsor with which the AP is associated. The Commission adopted this 
joint and several responsibility provision in 1992 in connection with 
amendments to Regulation 3.12(f) that eliminated then-existing 
restrictions on dual and multiple associations in many 
circumstances.\16\ The provision was intended to address concerns that 
permitting dual and multiple associations would lead to situations 
where each sponsor might disclaim responsibility for the AP's 
activities--that is, that each sponsor would claim that the dually 
associated AP was not acting on its behalf but, rather, for the other 
sponsor, and therefore the other sponsor should be held responsible for 
the conduct in question.\17\
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    \15\ Section 3.12(f)(1)(i) provides that a person who is already 
registered as an AP in any capacity may become associated with 
another sponsor if the new sponsor files with the NFA a Form 8-R, as 
discussed below.
    \16\ 57 FR 23136 (June 2, 1992) (the 1992 Amendments). The 
Commission first adopted a prohibition on dual and multiple 
associations in 1980, with respect to APs of futures commission 
merchants (FCMs), explaining that it was necessary ``[i]n view of 
the obvious difficulties of supervision in such a situation and in 
view of the inherent possibilities for conflicts of interest that 
might arise if an AP were to have more than one sponsor.'' 45 FR 
80485, 80489 (Dec. 5, 1980) (footnote omitted).
    The Commission subsequently amended and broadened the scope of 
Regulation 3.12(f) such that, prior to the 1992 Amendments, 
Regulation 3.12(f) prohibited a person from associating as an AP 
with: (1) More than one FCM or more than one introducing broker 
(IB); (2) an FCM and an IB or a leverage transaction merchant (LTM); 
and (3) an IB and an LTM. Subject to certain exceptions, the 
regulations also prohibited a person from associating as an AP with: 
(1) An FCM and a commodity trading advisor (CTA); (2) an FCM and a 
commodity pool operator (CPO); (3) an IB and a CTA; and (4) an IB 
and a CPO. See 56 FR 37026, 37033 (Aug. 2, 1991). In proposing to 
eliminate most of these restrictions, the Commission explained that, 
in its experience, these regulations had been ``difficult to 
understand and follow, even for experienced practitioners'' and 
that, in certain cases, they could have perverse effects, such as 
limiting the choice of which FCM a customer could use to carry his 
managed account. Id. Moreover, the Commission explained, the 
concerns raised by dual and multiple associations could be better 
addressed through an alternative approach, as further discussed 
below. Id.
    \17\ See 56 FR at 37033; see, e.g., In Re Global Telecom, et 
al., [2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 30,143 
(CFTC Oct. 4, 2005) (holding an FCM liable for the activities of its 
APs who were also APs of a CTA, and noting that holding otherwise 
would ``bring about the very situation the rule is aimed at 
preventing--one in which a futures customer who contracts with two 
entities to receive two products or services is left with nobody 
minding the store'').
    In connection with the 1992 Amendments, the Commission also 
amended Regulation 3.12(f) to require that the new sponsor file with 
the NFA a Form 3-R signed by the AP's existing sponsor and that 
included, among other things, an acknowledgement by each sponsor 
that, in addition to each sponsor's responsibility to supervise the 
AP, each sponsor was jointly and severally responsible for the 
conduct of the AP with respect to customers common to it and any 
other sponsor. 57 FR at 23146. By signing the Form 3-R, each sponsor 
would make clear that it was aware of the new association and that 
it was jointly and severally responsible for the AP's conduct. Id. 
at 23141. As further discussed in Part II.B of this Federal Register 
release, the Commission subsequently amended Regulation 3.12(f) to 
eliminate the requirement for each sponsor to sign a Form 3-R and to 
specifically acknowledge joint and several responsibility therein.

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[[Page 35894]]

    However, and, as explained above, the Dodd-Frank Act does not 
direct the Commission to provide for--and, thus, the Commission has not 
adopted regulations requiring--the registration of APs of SDs and MSPs. 
As a result, the provisions of current Regulation 3.12(f)(1), which 
apply to a sponsoring registrant with respect to its APs who are 
required to register as such, do not apply to SDs and MSPs and their 
APs.

II. The Proposed Regulations

A. Proposed Regulations 3.12(f)(5) and 23.22(c)

    The Proposal would provide for dual and multiple associations of 
persons associated with SDs, MSPs and other Commission registrants 
(i.e., FCMs, retail foreign exchange dealers (RFEDs), IBs, CTAs, CPOs, 
and LTMs). Specifically, proposed Regulation 3.12(f)(5)(i)(A) would 
apply where a person associated as a registered AP of one or more 
(other) Commission registrants seeks to become associated as an AP of 
one or more SDs or MSPs; proposed Regulation 3.12(f)(5)(i)(B) would 
apply where a person associated as an AP of one or more SDs or MSPs 
seeks to become associated as a registered AP of one or more other 
Commission registrants; and proposed Regulation 23.22(c) would apply 
where a person associated as an AP of an SD or MSP seeks to become 
associated as an AP of one or more other SDs or MSPs.\18\ The Proposal 
would make clear that each SD, MSP and other Commission registrant with 
whom the AP is associated is required to supervise the AP and is 
jointly and severally responsible for the activities of the AP with 
respect to customers common to it and any other SD, MSP or other 
Commission registrant. These proposed regulations are based on the form 
and text of current Regulation 3.12(f)(1).\19\
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    \18\ Two separate regulations addressing dual and multiple 
associations of APs of SDs and MSPs are necessary because, as noted 
above, the term ``sponsor'' and the provisions of current Regulation 
3.12(f) do not, by their terms, apply to SDs and MSPs with respect 
to their APs (who are not subject to a registration requirement).
    \19\ Thus, for example, proposed Regulation 3.12(f)(5)(i)(B) 
provides that where an AP of an SD or MSP seeks to register an as AP 
of another Commission registrant, the new sponsor must meet the 
requirements of Regulation 3.60(b)(2)(i)(A) and (B), as is required 
of a new sponsor under current Regulation 3.12(f)(1). However, 
proposed Regulation 3.12(f)(5)(i)(A) provides that an SD or MSP 
seeking to associate with an already registered AP must meet the 
requirements of Regulation 3.60(b)(2)(i)(A), but not also the 
requirements of Regulation 3.60(b)(2)(i)(B). This is because the 
requirements of the former regulation concern specified adjudicatory 
proceedings which would be applicable to SDs and MSPs while the 
requirements of the latter regulation concern financial requirements 
which are not applicable to SDs and MSPs.
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B. Request for Comments

    The Commission requests comments on all aspects of the Proposal. In 
particular, the Commission is requesting comment on whether it should 
adopt a provision (in both Regulation 3.12(f)(5) and Regulation 
23.22(c)) that would provide a mechanism to notify SDs, MSPs and 
existing sponsors of registered APs when one of their APs seeks to 
become associated with another SD or MSP (or, in the case of an AP of 
an SD or MSP, seeks to register as an AP of another Commission 
registrant). These provisions would serve the purpose of putting any 
other SD, MSP or other registrant associated with the AP on notice that 
it is (or will become) subject to the supervisory and joint and several 
responsibility requirements of Regulation 3.12(f) that would be 
applicable to it as a result of the regulations proposed herein. Under 
current Regulation 3.12(f)(1), which does not address dual and multiple 
associations with SDs and MSPs, a person registered as an AP may become 
an AP of another sponsor if the new sponsor files a Form 8-R with NFA, 
and NFA, in turn, is required to notify any existing sponsor of the AP 
that the person has applied to become associated with another sponsor. 
Thus, the current regulations provide a mechanism through which 
sponsors are put on notice that their registered APs will subject them 
to additional supervisory and joint and several responsibility 
requirements under Regulation 3.12(f).\20\ Employment as an AP of an SD 
or MSP, however, does not require registration with the Commission and, 
thus, the filing of a Form 8-R with NFA. Therefore, NFA would not 
otherwise be aware of a particular person's current or planned 
association with an SD or MSP and would not be in a position to notify 
other SDs, MSPs or existing sponsors. To the extent commenters believe 
it is necessary to adopt regulations aimed at providing such notice, 
the Commission also is seeking comment specifically on how to do so. 
One potential mechanism would be to require any SD, MSP or other 
Commission registrant seeking to associate with an AP who is also 
associated with another SD or MSP to notify the other SD or MSP that 
the AP is or intends to become associated with the SD, MSP or other 
Commission registrant.
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    \20\ See 67 FR 38869 (June 6, 2002). The Commission adopted 
Regulation 3.12(f)(1)(ii) in 2002, in connection with other 
amendments to Regulation 3.12 to accommodate NFA's implementation of 
an online registration system. Prior to that time, a potential 
sponsor of an already registered AP was required to file a Form 3-R 
that included a certification signed by it and any existing sponsor 
acknowledging their supervisory obligations and their joint and 
several responsibility with respect to the AP's activities. In 
eliminating these requirements, the Commission explained that 
continuing to require a signature from each sponsor would result in 
unnecessary costs and delays under the new electronic filing system, 
and that the acknowledgment was not needed because Commission 
regulations make clear that each sponsor is required to supervise 
the AP and is jointly and severally responsible for his or her 
conduct. Instead, as adopted, Regulation 3.12(f)(1)(ii) requires NFA 
to notify existing sponsors of the AP of the application. Id. at 
38870-71.
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III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \21\ requires Federal 
agencies, in promulgating regulations, to consider the impact of those 
regulations on small entities. The Commission has previously 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its rules on small entities in 
accordance with the RFA.\22\ The Commission previously has determined 
that FCMs, registered CPOs,\23\ LTMs and RFEDs are not small entities 
for purposes of the RFA, and, thus, the requirements of the RFA do not 
apply to those entities.\24\ In addition, in connection with its 
adoption of the Final Registration Regulations, the Commission 
determined that SDs and MSPs are not small entities for purposes of the 
RFA.\25\ Therefore, the requirements of the RFA do not apply to SDs and 
MSPs. With respect to CTAs and IBs, the Commission previously has 
stated that it would evaluate within the context of a particular rule 
proposal whether all or some of the affected CTAs and IBs would be 
considered to be small entities and, if so, the economic impact on them 
of the particular regulation.\26\ The Commission notes that the 
Proposal would only impact,

[[Page 35895]]

potentially, registered CTAs and registered IBs,\27\ and the number of 
such impacted entities, if any, should likely be very small.\28\ 
Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies pursuant to 5 U.S.C. 605(b) that the Proposal will not have a 
significant economic impact on a substantial number of small entities.
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    \21\ 5 U.S.C. 601 et seq.
    \22\ 47 FR 18618 (Apr. 30, 1982).
    \23\ To the extent the Proposal (specifically, proposed 
Regulation 3.12(f)(5)) would have an impact on CPOs, it would only 
impact registered CPOs, since Regulation 3.12(f), by its terms, 
would not apply where an AP's new or existing association is with a 
person who is not registered with the Commission.
    \24\ See 47 FR at 18619-20 (discussing FCMs and CPOs); 54 FR 
19556, 19557 (May 8, 1989) (discussing LTMs); 75 FR 55410, 55416 
(Sept. 19, 2010) (discussing RFEDs).
    \25\ See 77 FR at 2620 (adopting the Final Registration 
Regulations).
    \26\ See 47 FR at 18619 (discussing CTAs); 48 FR 35248, 35276-77 
(Aug. 3, 1983) (discussing IBs).
    \27\ This is because, as noted above, Regulation 3.12(f) would 
not apply where an AP's new or existing association is with a person 
(e.g., a CTA or an IB) who is not registered with the Commission.
    \28\ See Amendments to Commodity Pool Operator and Commodity 
Trading Advisor Regulations Resulting from the Dodd-Frank Act, 76 FR 
11701, 11703 (Mar. 3, 2011) (noting with regard to RFA 
considerations that the regulations proposed therein would only 
impact registered CTAs). As of February 7, 2011, less than three 
percent of all registered APs (or less than 1500 APs) were 
associated on a dual or multiple basis with Commission registrants.
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B. Paperwork Reduction Act

    The Paperwork Reduction Act (PRA) \29\ imposes certain requirements 
on federal agencies (including the Commission) in connection with their 
conducting or sponsoring any collection of information as defined by 
the PRA. The Proposal would expressly obligate each SD, MSP and other 
Commission registrant to supervise their APs who have dual and multiple 
associations and make each SD, MSP and other Commission registrant 
jointly and severally responsible for the activities of such APs with 
respect to customers common to it and any other SD, MSP or other 
Commission registrant. The Proposal contains no provision that would 
impose a ``burden'' or ``collection of information'' as those terms are 
defined in the PRA.\30\
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    \29\ 44 U.S.C. 3501 et seq.
    \30\ See 44 U.S.C. 3502(2) and (3).
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C. Cost-Benefit Considerations

    In response to the Proposed Registration Regulations, a commenter 
requested that the Commission address ``situations in which an 
individual conducts swaps-related activity on behalf of more than one 
Swap Entity [SD and/or MSP] or conducts swaps activity on behalf of a 
Swap Entity and is also registered as an AP of a different firm.'' The 
Proposal addresses that issue, and in the following paragraphs, the 
Commission is considering the costs and benefits of the proposal in 
accordance with CEA section 15(a).\31\
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    \31\ 7 U.S.C. 19(a).
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    As described in the text above, the Commission is proposing to 
specify the responsibilities applicable with respect to dual and 
multiple associations of APs of SDs and MSPs, and particularly, that 
such associations are permitted, but that they implicate the joint and 
several supervisory and responsibility provisions applicable with 
respect to such associations under existing Regulation 3.12(f).
    As noted above, existing regulations addressing dual and multiple 
associations of APs do not address APs of SDs and MSPs and the 
obligations of those persons with whom they are associated concerning 
common customers. Thus, the primary benefits of the Proposal include 
the same benefits noted by the Commission when it adopted the 
supervisory and joint and several responsibility provisions under 
current Regulation 3.12(f), namely, the prevention of circumstances 
where an SD, MSP or other Commission registrant seeks to avoid 
responsibility for the activities of an AP who has dual or multiple 
associations by asserting the conduct in question was not within the 
purview of its supervisory responsibilities with respect to the AP. 
Therefore, the Commission believes the Proposal will provide protection 
to market participants and the public by ensuring that such APs will be 
adequately supervised, and those charged with supervising them will be 
held responsible for failing to do so. The Commission does not believe 
that compliance with the Proposal will impose any significant, new cost 
on SDs or MSPs but, as discussed below, the Commission seeks comment on 
the same, including the potential insurance and litigation costs 
associated with joint and several responsibility for APs of SDs and 
MSPs with dual and multiple associations.
Consideration of Costs and Benefits Relative to the Alternative of Not 
Taking Any Action
    Under current Commission regulations, SDs and MSPs are not subject 
to the joint supervisory and responsibility requirements applicable to 
other Commission registrants with respect to the activities of their 
APs who have dual or multiple associations.\32\ This current situation 
provides a reference point from which to compare the costs and benefits 
of the proposed regulations to the alternative of not taking any 
action--that is, where SDs and MSPs, though required to register, would 
not be subject to the supervisory or joint and several responsibility 
provisions under (proposed) Regulation 3.12(f) or Regulation 23.22(c), 
as applicable, for the activities of their APs that are also APs of 
other SDs, MSPs, or other Commission registrants.\33\ Under such a 
scenario, the costs to the public of inaction would, in qualitative 
terms, be that: (1) APs of SDs and MSPs that have dual or multiple 
associations would not be subject to the same regulatory regime as APs 
of other Commission registrants that have dual or multiple 
associations; and (2) SDs and MSPs (or other Commission registrants) 
employing an AP with dual or multiple associations would not be 
prevented from attempting to disclaim responsibility for the activities 
of the AP by asserting that the AP was not acting on its behalf, but 
rather on behalf of another SD or MSP with whom the AP was associated 
(with respect to their common customers). In contrast, the amendment to 
Regulation 3.12(f) and the adoption of Regulation 23.22(c) would yield 
a substantial if unquantifiable benefit to the public relative to 
inaction by preventing SDs, MSPs and other Commission registrants from 
seeking to avoid supervision of and responsibility for the activities 
of their APs who have dual or multiple associations with respect to the 
common customers of the SDs, MSPs and other Commission registrants.
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    \32\ As noted above, these requirements, which are set forth in 
existing Regulation 3.12(f)(1)(iii), apply to the activities of such 
APs with respect to the common customers of the APs' employing 
registrants.
    \33\ Similarly, and as noted above, these proposed requirements 
would apply to the activities of such APs with respect to the common 
customers of the APs' employing SDs, MSPs and/or other Commission 
registrants.
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 Section 15(a) Factors
    Section 15(a) specifies that the costs and benefits shall be 
evaluated in light of the following five broad areas of market and 
public concern: (1) Protection of market participants and the public; 
(2) efficiency, competitiveness, and financial integrity of the futures 
markets; (3) price discovery; (4) sound risk management practices; and 
(5) other public interest considerations.
    (1) The protection of market participants and the public.
    As discussed above, the Commission believes the Proposal will 
provide protection to market participants and the public by expressly 
obligating each SD, MSP or other Commission registrant to supervise its 
APs who have dual or multiple associations and by subjecting each SD, 
MSP and other Commission registrant to joint and several responsibility 
for the activities of such APs with respect to customers common to it 
and any other SD, MSP or other Commission registrants. More 
specifically, the Proposal will prevent SDs, MSPs and other Commission 
registrants from disclaiming responsibility for the activities of their

[[Page 35896]]

APs who have dual and multiple associations.
    (2) The efficiency, competitiveness, and financial integrity of the 
futures markets.
    The Commission does not expect the Proposal to have an impact on 
the efficiency, competitiveness and financial integrity of the futures 
market.
    (3) The market's price discovery functions.
    The Commission does not expect the Proposal to have an impact on 
the market's price discovery functions.
    (4) Sound risk management practices.
    The Commission does not expect the Proposal to have an impact on 
risk management practices by SDs, MSPs and other Commission 
registrants.
    (5) Other public interest considerations.
    The Commission has not identified any other public interest 
considerations in light of which it should consider the costs and 
benefits of the Proposal. The Commission specifically requests comment 
on its cost and benefit considerations of the Proposal, as discussed 
above.
    The Commission requests comment on all aspects of its proposed 
consideration of costs and benefits, including identification and 
assessment of any costs and benefits not discussed above, such as costs 
associated with determining if a potential AP is already associated 
with another SD, MSP or other Commission registrant. In addition, the 
Commission requests that commenters provide data and any other 
information or statistics that the commenters relied on to reach any 
conclusions on the Commission's proposed considerations of costs and 
benefits.

List of Subjects

17 CFR Part 3

    Associated persons, Brokers, Commodity futures, Customer 
protection, Major swap participants, Registration, Swap dealers.

17 CFR Part 23

    Associated persons, Commodity futures, Customer protection, Major 
swap participants, Registration, Reporting and recordkeeping 
requirements, Swap dealers.

    For the reasons presented above, the Commission proposes to amend 
Chapter I of Title 17 of the Code of Federal Regulations as follows:

PART 3--REGISTRATION

    1. The authority citation for part 3 continues 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).

    2. Section 3.12 is amended by adding new paragraph (f)(5) to read 
as follows:

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

* * * * *
    (f) * * *
    (5)(i)(A) A person who is already registered as an associated 
person in any capacity whose registration is not subject to conditions 
or restrictions may become associated as an associated person of a swap 
dealer or major swap participant if the swap dealer or major swap 
participant meets the requirements set forth in Sec.  3.60(b)(2)(i)(A) 
of this part.
    (B) A person who is already associated as an associated person of a 
swap dealer or major swap participant may become registered as an 
associated person of a futures commission merchant, retail foreign 
exchange dealer, introducing broker, commodity trading advisor, 
commodity pool operator, or leverage transaction merchant if the 
futures commission merchant, retail foreign exchange dealer, 
introducing broker, commodity trading advisor, commodity pool operator, 
or leverage transaction merchant with which the person intends to 
associate meets the requirements set forth in Sec.  3.60(b)(2)(i)(A) 
and (B) of this part.
    (ii) Each sponsor and each swap dealer and/or major swap 
participant with whom the person is associated shall supervise that 
associated person, and each sponsor and each swap dealer and/or major 
swap participant is jointly and severally responsible for the conduct 
of the associated person with respect to the:
    (A) Solicitation or acceptance of customer orders,
    (B) Solicitation of funds, securities or property for a 
participation in a commodity pool,
    (C) Solicitation of a client's or prospective client's 
discretionary account,
    (D) Solicitation or acceptance of leverage customers' orders for 
leverage transactions,
    (E) Solicitation or acceptance of swaps, and
    (F) Associated person's supervision of any person or persons 
engaged in any of the foregoing solicitations or acceptances, with 
respect to any customers common to it and any futures commission 
merchant, retail foreign exchange dealer, introducing broker, commodity 
trading advisor, commodity pool operator, leverage transaction 
merchant, swap dealer, or major swap participant with which the 
associated person is associated.
* * * * *

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

    3. The authority citation for Part 23 continues to read as follows:

    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).
    4. Section 23.22 is amended by adding paragraph (c) to read as 
follows:

Sec.  23.22  Associated persons of swap dealers and major swap 
participants.

* * * * *
    (c) Dual and multiple associations. (1) A person who is already 
associated as an associated person of a swap dealer or major swap 
participant may become associated as an associated person of another 
swap dealer or major swap participant if the other swap dealer or major 
swap participant meets the requirements set forth in Sec.  
3.60(b)(2)(i)(A) of this chapter.
    (2) Each swap dealer and major swap participant associated with 
such associated person shall supervise that associated person, and each 
swap dealer and major swap participant is jointly and severally 
responsible for the conduct of the associated person with respect to 
the:
    (i) Solicitation or acceptance of customer orders,
    (ii) Solicitation of funds, securities or property for a 
participation in a commodity pool,
    (iii) Solicitation of a client's or prospective client's 
discretionary account,
    (iv) Solicitation or acceptance of leverage customers' orders for 
leverage transactions,
    (v) Solicitation or acceptance of swaps, and
    (vi) Associated person's supervision of any person or persons 
engaged in any of the foregoing solicitations or acceptances, with 
respect to any customers common to it and any other swap dealer or 
major swap participant.

[[Page 35897]]

    Issued in Washington, DC, on June 11, 2012, by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2012-14654 Filed 6-14-12; 8:45 am]
BILLING CODE 6351-01-P
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