1148 Federal Register / Vol. 72, No. 6 / Wednesday, January 10, 2007 / Rules and Regulations 

level of the Nassif Building at the DOT 

street address stated in the ADDRESSES

section. Comments will be available in 

the AD docket shortly after the Docket 

Management System receives them. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. Subtitle VII, 

Aviation Programs, describes in more 

detail the scope of the Agency’s 

authority. 

We are issuing this rulemaking under 

the authority described in subtitle VII, 

part A, subpart III, section 44701, 

‘‘General requirements.’’ Under that 

section, Congress charges the FAA with 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce. This regulation 

is within the scope of that authority 

because it addresses an unsafe condition 

that is likely to exist or develop on 

products identified in this rulemaking 

action. 

Regulatory Findings 

We have determined that this AD will 

not have federalism implications under 

Executive Order 13132. This AD will 

not have a substantial direct effect on 

the States, on the relationship between 

the national government and the States, 

or on the distribution of power and 

responsibilities among the various 

levels of government. 

The FAA has determined that this 

regulation is an emergency regulation 

that must be issued immediately to 

correct an unsafe condition in aircraft, 

and that it is not a ‘‘significant 

regulatory action’’ under Executive 

Order 12866. It has been determined 

further that this action involves an 

emergency regulation under DOT 

Regulatory Policies and Procedures (44 

FR 11034, February 26, 1979). If this 

emergency regulation is later deemed 

significant under DOT Regulatory 

Policies and Procedures, we will 

prepare a final regulatory evaluation 

and place it in the AD Docket. See the 

ADDRESSES section for a location to 

examine the regulatory evaluation, if 

filed. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Safety. 

Adoption of the Amendment 

■ Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA amends 14 CFR part 39 as 

follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive (AD): 

2006–20–14 Empresa Brasileira de 

Aeronautica S.A. (EMBRAER): 

Amendment 39–14878. Docket No. 

FAA–2007–26797; Directorate Identifier 

2006–NM–195–AD. 

Effective Date 

(a) This AD becomes effective January 16, 

2007, to all persons except those persons to 

whom it was made immediately effective by 

AD 2006–20–14, issued on October 10, 2006, 

which contained the requirements of this 

amendment. 

Affected ADs 

(b) None. 

Applicability 

(c) This AD applies to EMBRAER Model 

ERJ 170–100 LR, –100 STD, –100 SE, –100 

SU, –200 STD, –200 LR, and –200 SU 

airplanes, and Model ERJ 190–100 STD, –100 

LR, and –100 IGW airplanes; certificated in 

any category; as identified in EMBRAER 

Service Bulletins SB No. 170–52–0029 and 

SB No. 190–52–0011, both dated August 21, 

2006. 

Unsafe Condition 

(d) This AD results from a report indicating 

that this equipment is defective. We are 

issuing this AD to prevent failure of this 

equipment, which could jeopardize flight 

safety. 

Compliance 

(e) You are responsible for having the 

actions required by this AD performed within 

the compliance times specified, unless the 

actions have already been done. 

Transfer of Airplane and Requirement To 

Inform New Operator of This AD 

(f) When an operator of an affected airplane 

sells or otherwise transfers the airplane to 

another operator, the new operator must be 

informed of this AD in a manner consistent 

with the procedures found in 49 CFR part 15. 

Replacement 

(g) Within 60 days after the effective date 

of this AD, modify the flight deck door 

electronic equipment in accordance with a 

method approved by the Manager, 

International Branch, ANM–116, Transport 

Airplane Directorate, FAA. Doing all actions 

in the Accomplishment Instructions of the 

applicable EMBRAER service bulletin 

identified in Table 1 of this AD is one 

approved method; except where the 

applicable service bulletin specifies to send 

the removed flight deck door electronic 

equipment to the manufacturer in paragraph 

3.C., that action is not necessary. 

TABLE 1.—SERVICE BULLETINS

For model—

EMBRAER 

service 

bulletin—

(1) ERJ 170 airplanes ........ 170–52–0029, 

dated August 

21, 2006. 

(2) ERJ 190 airplanes ........ 190–52–0011, 

dated August 

21, 2006. 

Parts Installation 

(h) As of the effective date of this AD, no 

person may install on any airplane any 

cockpit door control panel identified in 

paragraph 1.A. of the applicable service 

bulletin in Table 1 of this AD. 

Alternative Methods of Compliance 

(AMOCs) 

(i)(1) The Manager, International Branch, 

ANM–116, Transport Airplane Directorate, 

FAA, has the authority to approve AMOCs 

for this AD, if requested in accordance with 

the procedures found in 14 CFR 39.19. 

(2) Before using any AMOC approved in 

accordance with § 39.19 on any airplane to 

which the AMOC applies, notify the 

appropriate principal inspector in the FAA 

Flight Standards Certificate Holding District 

Office. 

Issued in Renton, Washington, on 

December 21, 2006. 

Ali Bahrami, 

Manager, Transport Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. E7–147 Filed 1–9–07; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038—AC27 

Limitations on Withdrawals of Equity 

Capital 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’) is 

amending its regulations to provide that 

the Commission may, by written order, 

temporarily prohibit a futures 

commission merchant (‘‘FCM’’) from 

carrying out equity withdrawal 

transactions that would reduce excess 

adjusted net capital by 30 percent or 

more. The proposed orders would be 

based on the Commission’s 

determination that such withdrawal 

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Federal Register / Vol. 72, No. 6 / Wednesday, January 10, 2007 / Rules and Regulations 1149 

1See 71 FR 57451 (September 29, 2006). 

2The JAC is a committee formed by U.S. 

commodity futures and options exchanges and the 

National Futures Association to coordinate audit 

and financial surveillance activities of FCMs. 

3The comment letters are available for inspection 

and copying at the Commission’s Washington office 

in its public reading room, Room 4072, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. The telephone number for 

the public reading room is (202) 418–5025. The 

comment letters are also available on the 

Commission’s public Web site, at http:// 

www.cftc.gov/foia/comment06/foi06-007_1.htm. 

4The Commission has revised other regulations 

to reflect the development of limited liability 

companies (‘‘LLCs’’). See, e.g. 69 FR 49784, 49793–

4 (August 12, 2004). The amendments adopted in 

2004 related to the management of LLCs, in order 

to determine persons with appropriate signature 

authority to file financial reports for the FCM or IB. 

5Commission regulations cited in this release 

may be found at 17 CFR Ch. I (2006). Generally 

speaking, Regulation 1.17(e) prohibits equity 

withdrawal transactions if such withdrawals would 

reduce the firm’s adjusted net capital to less than 

120 percent of its minimum adjusted net capital 

requirement under Regulation 1.17(a)(1). Such 

transactions also are prohibited if they would result 

in less than the minimum amount of equity 

required under Regulation 1.17(d), which provides 

that FCMs and IBs must maintain a debt-equity 

ratio of at least 30 percent equity. 

6Commission Regulation 1.17(f) requires, and in 

other circumstances permits, FCMs and IBs to 

consolidate the assets and liabilities of their 

subsidiaries and/or affiliates in a single 

computation of adjusted net capital for the FCM or 

IB and its consolidated entities. 

7Regulation 1.17(e) specifically requires the firm 

to combine the amount of the subject equity 

withdrawal transaction with any of the following 

that are scheduled to occur within six months after 

the subject withdrawal: any other proposed equity 

withdrawal; any payments under satisfactory 

subordination agreements under Regulation 1.17(h); 

and any payments of the liabilities identified in 

Regulation 1.17(c)(4)(vi). 

8Section 4f(b) of the Commodity Exchange Act 

(‘‘Act’’) authorizes the Commission, by regulation, 

to impose minimum financial and related reporting 

requirements on FCMs and IBs. The Act is codified 

at 7 U.S.C. 1 et seq. (2000), and Section 4f(b) of the 

Act is codified at 7 U.S.C. 6f(b). 9 68 FR 40835, 40836 (July 9, 2003) (Minimum 

Financial and Related Reporting Requirements for 

Futures Commission Merchants and Introducing 

Brokers). 10Section 4d of the Act is codified at 7 U.S.C. 6d 

(2000). 11The term ‘‘foreign futures and foreign options 

secured amount’’ is defined in Regulation 1.3(rr). 12Regulation 1.12(g) applies only to FCMs and 

not IBs. 

transactions could be detrimental to the 

financial integrity of FCMs or could 

adversely affect their ability to meet 

customer obligations. The proposed 

amendments also would provide that an 

FCM may file with the Commission a 

petition for rescission of an order 

temporarily prohibiting equity 

withdrawals from the FCM. 

DATES: Effective March 12, 2007. 

FOR FURTHER INFORMATION CONTACT: 

Thomas J. Smith, Deputy Director and 

Chief Accountant, at (202) 418–5430, or 

Thelma Diaz, Special Counsel, at (202) 

418–5137, Division of Clearing and 

Intermediary Oversight, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. Electronic mail: 

tsmith@cftc.gov or tdiaz@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

The Commission issued a release with 

proposed amendments to Part 1 of the 

Commission’s regulations in September 

of 2006, as published for notice and 

comment in the Federal Register (the 

‘‘Proposing Release’’).1 The Commission 

received comment letters from the Joint 

Audit Committee (‘‘JAC’’) 2 and two 

designated contracts markets, the 

Chicago Mercantile Exchange, Inc. and 

the Minneapolis Grain Exchange.3 All of 

the commenters endorsed the proposed 

amendments to Regulation 1.17(g), 

which would provide for Commission 

orders that temporarily restrict equity 

capital withdrawals from FCMs if the 

Commission finds that such 

withdrawals may be detrimental to the 

financial integrity of the FCM or may 

unduly jeopardize its ability to meet 

customer obligations or other liabilities 

that may cause a significant impact on 

the markets. The Proposing Release also 

included other proposed amendments to 

Regulations 1.12 and 1.17, which would 

update these regulations by adding 

references to ‘‘limited liability 

companies’’ and ‘‘limited liability 

company members.’’ 4 For the reasons 

discussed below, the Commission is 

adopting each of these amendments as 

proposed in the Proposing Release. 

II. Background 

Commission Regulation 1.17(e) 

prohibits all equity withdrawal 

transactions that would reduce the 

adjusted net capital of FCMs or 

introducing brokers (‘‘IBs’’) beyond the 

amounts permitted by the regulation.5

The transactions affected by the 

regulation include any withdrawals 

made by the action of a stockholder or 

partner or by redemption or repurchase 

of shares of stock by ‘‘consolidated 

entities’’,6 dividend payments or similar 

distributions, or through unsecured 

advances or loans made to stockholders, 

partners, sole proprietors, or employees. 

When determining the effect of the 

proposed equity withdrawal transaction 

on the firm’s capital, the firm also must 

take into account other pending equity 

withdrawal transactions and scheduled 

liability payments that will reduce its 

capital within six months after the 

subject equity withdrawal transaction.7

The proposed equity withdrawal 

transaction is prohibited if, when added 

together with such other planned capital 

reductions, it would result in capital 

levels that are less than required by 

Regulation 1.17(e). 

The purpose of these equity 

withdrawal restrictions is to help 

preserve and enhance the required 

compliance by FCMs and IBs with the 

minimum financial requirements set 

forth in the Commission’s regulations.8

As the Commission has explained 

elsewhere, the Commission’s minimum 

financial requirements protect 

customers and other market participants 

by requiring FCMs and IBs to maintain 

minimum levels of liquid assets in 

excess of their liabilities to finance their 

business activities.9 Moreover, pursuant 

to Section 4d of the Act,10 FCMs are 

required to segregate from their own 

assets all money, securities, and other 

property held for customers as margin 

for their commodity futures and option 

contracts, as well as any gains accruing 

to customers from their open futures 

and option positions. Part 30 of the 

Commission’s regulations also calls for 

FCMs to set aside funds, called the 

‘‘foreign futures and foreign options 

secured amount’’, to help protect the 

funds of U.S. customers trading on nonU.S. futures markets.11 In the event of a 

shortfall in the Section 4d segregated 

funds or the Part 30 secured funds that 

an FCM must hold, the Commission’s 

minimum net capital requirements 

provide protection to customers by 

requiring each FCM to maintain a 

minimum level of assets that are readily 

available to be contributed in the event 

of a shortfall in the customer funds. The 

minimum capital requirements also 

protect customers and market 

participants by ensuring that an FCM 

remains solvent while waiting for 

margin calls to be met. 

As an additional measure to ensure 

capital compliance by FCMs, 

Commission Regulation 1.12(g)(2) 

requires each FCM to provide notice to 

the Commission of certain equity 

withdrawal transactions.12 In particular, 

Regulation 1.12(g)(2) requires each FCM 

to provide notice at least two business 

days prior to an action to withdraw 

equity from the FCM, or a subsidiary or 

affiliate consolidated pursuant to 

Regulation 1.17(f), if the equity 

withdrawal transaction would cause, on 

a net basis, a reduction in the FCM’s 

excess adjusted net capital of 30 percent 

or more. In response to the receipt of 

such a notice, Regulation 1.12(g)(3) 

provides that the Director of the 

Commission’s Division of Clearing and 

Intermediary Oversight (‘‘Division’’), or 

the Director’s designee, may require that 

the FCM provide, within three business 

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1150 Federal Register / Vol. 72, No. 6 / Wednesday, January 10, 2007 / Rules and Regulations 

13Regulation 1.12(g)(2) also provides that the 

Commission may require the FCM to cause a 

Material Affiliated Person, as that term is defined 

in Commission Regulation 1.14(a)(2), to respond to 

requests for information from the Division Director. 

14The provisions of this regulation originally 

were included among several proposals made by 

the Commission in 1994 in response to the financial 

difficulties experienced by certain FCMs operating 

within holding company structures. These 

proposals were intended to provide the 

Commission with access to information concerning 

the activities of FCM affiliates whose activities were 

reasonably likely to have a material impact on the 

financial or operational condition of the FCM. The 

Commission subsequently determined, in response 

to the recommendations of several commenters, that 

the notice requirements in Regulation 1.12(g) 

should be applied broadly to all FCMs, and not just 

to those subject to reporting requirements with 

respect to their material affiliates. See, generally, 59 

FR 9689, 9690–9691 (March 1, 1994) (Risk 

Assessment for Holding Company Systems). 

15 61 FR 19177, 19180 (May 1, 1996). 

16A copy of the SEC order, dated October 13, 

2005, may be accessed electronically at http:// 

www.sec.gov/rules/other/34-52606.pdf. 

17This SEC regulation also provides that an order 

temporarily prohibiting the withdrawal of capital 

shall be rescinded if, sometime after a hearing that 

is to be held within two business days from the date 

of the request in writing by the broker or dealer, the 

SEC determines that the restriction on capital 

withdrawal should not remain in effect. See 17 CFR 

240.15c3–1(e)(3)(ii). 

18 55 FR 34027, 34030 (August 15, 1990) 

(proposing amendments to SEC Regulation 15c3–1 

regarding withdrawals of equity capital). 

19Paragraph (g) of Regulation 1.17 currently is 

reserved. 

20 In the years since the Commission last adopted 

rule amendments addressing equity withdrawal 

transactions, the amount of funds that FCMs are 

days from the date of the request or such 

shorter period as the Director or 

designee may specify, such other 

information as the Director or designee 

determines to be necessary based upon 

market conditions, reports provided by 

the FCM, or other available 

information.13

When first proposing the notification 

provision eventually adopted as 

Regulation 1.12(g)(2), the Commission 

noted that it could serve as ‘‘early 

warning’’ of impending financial 

difficulties at an FCM or at its holding 

company.14 The only consequence that 

the regulation expressly contemplates as 

a result of the warning is that the 

Commission may require additional 

information from the FCM, with the 

response to be provided in a period of 

three days or less, as directed by the 

Commission. At the time that 

Regulation 1.2(g)(2) was adopted, the 

Commission determined that it was not 

necessary to adopt additional 

limitations within the Commission’s 

regulations on equity withdrawal 

transactions.15

However, the recent precipitous 

decline of a large FCM holding company 

has confirmed that expedited action 

may be necessary to protect FCM capital 

in the face of increasing financial 

pressures experienced by its parent and/ 

or affiliated entities. In this recent 

example, the FCM registrant was part of 

a complex organizational group 

consisting of several layers of holding 

companies and their subsidiaries. In 

October of 2005, the parent company for 

the group announced that its chief 

executive officer had been placed on 

leave, and that its financial statements 

for the years 2002 through 2005 should 

not be relied upon. The next day, 

federal authorities charged the chief 

executive officer with securities fraud, 

and on the following day the holding 

company declared that certain liquidity 

difficulties were causing it to impose a 

15-day moratorium for the activities of 

a nonregulated subsidiary. According to 

prior financial filings of the holding 

company, this nonregulated subsidiary 

had been responsible for a material 

portion of the holding company’s 

business. 

In response to these foregoing events, 

the Securities and Exchange 

Commission (‘‘SEC’’) issued an order to 

temporarily restrict withdrawals of 

capital from two other subsidiaries of 

the holding company, which were 

registered as securities broker-dealers.16

In issuing the order, the SEC cited to its 

regulation, 17 CFR 240.15c3–1(e)(3)(i), 

which provides that the SEC may by 

order restrict, for a period up to twenty 

business days, any withdrawal by the 

broker or dealer of equity capital or 

unsecured loan or advance to a 

stockholder, partner, sole proprietor, 

employee or affiliate, if (1) such 

withdrawal, advance or loan when 

aggregated with all other withdrawals, 

advances or loans on a net basis during 

a 30 calendar day period, exceeds 30 

percent of the broker or dealer’s excess 

net capital; and (2) the SEC, based on 

the facts and information available, 

concludes that the withdrawal, advance 

or loan may be detrimental to the 

financial integrity of the broker or 

dealer, or may unduly jeopardize the 

broker or dealer’s ability to repay its 

customer claims or other liabilities that 

may cause a significant impact on the 

markets or expose the customers or 

creditors of the broker or dealer to loss 

without taking into account the 

application of the Securities Investor 

Protection Act.17 As described by the 

SEC, § 240.15c3–1(e)(3)(i) enables the 

SEC and its staff to examine further the 

financial condition of the broker-dealer, 

so as to determine whether, and under 

what circumstances, to permit the 

withdrawal, entirely or partially, or to 

prohibit the withdrawal for additional 

periods by issuing subsequent orders, 

with terms that are no longer than 

twenty business days.18

III. Amendments to Regulations 1.12 

and 1.17 

As proposed in the Proposing Release, 

the Commission is adding a new 

paragraph (g) to Regulation 1.17, which 

will enhance the Commission’s ability, 

in the face of fast-developing events, to 

impose temporary restrictions on the 

flow of capital from an FCM to its 

holding company and other affiliated 

entities, as appropriate.19 It is 

imperative that the Commission have 

the option to consider requiring such 

temporary delays of equity withdrawals 

whenever urgent circumstances so 

require. Under the amended regulation, 

the Commission may issue a written 

order to impose temporary restrictions 

on equity withdrawals for a period of up 

to twenty business days, and the 

Commission may continue to make the 

restrictions effective against the FCM by 

issuing subsequent orders, each with a 

term of no more than twenty business 

days. The order would restrict any 

withdrawal by the FCM of equity 

capital, or any unsecured advance or 

loan to a stockholder, partner, limited 

liability company member, sole 

proprietor, employee or affiliate, if: 

(i) Such withdrawal, advance or loan, 

when aggregated with all other 

withdrawals, advances or loans during a 

30 calendar day period from the FCM, 

or from a subsidiary or affiliate of the 

FCM consolidated pursuant to § 1.17(f), 

would cause a net reduction in the 

FCM’s excess adjusted net capital of 30 

percent or more; and 

(ii) The Commission has concluded, 

in light of available facts and 

circumstances, that such withdrawal, 

advance or loan may be detrimental to 

the financial integrity of the FCM, or 

may unduly jeopardize its ability to 

meet customer obligations or other 

liabilities that may cause a significant 

impact on the markets. 

During the periods that such orders 

are effective, Commission staff may 

evaluate the effect of the proposed 

withdrawals on the continuing 

adequacy of customer safeguards at the 

firm, including the continuing adequacy 

of the firm’s liquid assets, in light of the 

most current information available from 

the FCM concerning its operations and 

those of its holding company and 

affiliates. These amendments to 

Regulation 1.17 may therefore serve to 

further enhance the security of customer 

funds and the overall financial integrity 

of the futures markets.20

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Federal Register / Vol. 72, No. 6 / Wednesday, January 10, 2007 / Rules and Regulations 1151 

required to hold as segregated funds has more than 

doubled. As of August 31, 1995, FCMs were 

required to hold approximately $25 billion as 

segregated funds, and $6 billion as secured funds. 

As of December 31, 2005, the amount that FCMs 

were required to hold as segregated funds had 

increased to over $95 billion, and the amount 

required to be held as secured funds had grown to 

almost $25 billion. 

21 71 FR at 57452. 

22 44 U.S.C. 3507(d). 

23 71 FR at 57453. 24 71 FR at 5745. 

The Commission also is amending 

Regulation 1.17(g)(2) to provide that an 

FCM may file a written petition with the 

Commission to request rescission of an 

order temporarily restricting equity 

withdrawals from the FCM. The 

Commission will notify the FCM in 

writing that its petition for rescission 

had been denied, or, if the Commission 

determined that the order should not 

remain in effect, the order would be 

rescinded. The petition filed by the 

FCM must specify the facts and 

circumstances supporting its request for 

rescission. 

Finally, the Commission is also 

amending Commission Regulations 

1.12(g)(2), 1.17(d)(1), and 1.17(e), as 

proposed in the Proposing Release. 

These regulations include references to 

FCMs and IBs that are organized as 

corporations, partnerships, or sole 

proprietorships, but currently lack a 

specific reference to firms organized as 

limited liability companies. By 

including applicable references for 

limited liability companies and their 

members, the amended regulations 

modernize the provisions of Regulations 

1.12 and 1.17. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’), 5 U.S.C. 601 et seq., requires 

that agencies, when amending their 

rules, consider the impact of those 

amendments on small businesses. The 

Commission included in the Proposing 

Release a certification from the 

Chairman that these rules would not 

have a significant economic impact on 

a substantial number of small entities.21

The Commission received no comments 

on the certification. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 22 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. As 

noted in the Proposing Release,23 these 

amended regulations do not require a 

new collection of information on the 

part of the entities that are subject to the 

amended regulations. 

C. Cost-Benefit Analysis 

Section 15(a) of the Act 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) as amended does 

not require the Commission to quantify 

the costs and benefits of a new 

regulation or to determine whether the 

benefits of the regulation outweigh its 

costs. Rather, Section 15(a) simply 

requires the Commission to ‘‘consider 

the costs and benefits’’ of its action. 

Section 15(a) of the Act further 

specifies that costs and benefits shall be 

evaluated in light of five broad areas of 

market and public concern: Protection 

of market participants and the public; 

efficiency, competitiveness, and 

financial integrity of futures markets; 

price discovery; sound risk management 

practices; and other public interest 

considerations. Accordingly, the 

Commission could in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

regulation was 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 amended Regulation 1.17(g) 

enables the Commission to issue orders 

temporarily restricting certain equity 

withdrawal transactions in 

circumstances that pose significant 

concerns for the financial condition of 

FCMs. The Commission has considered 

the costs and benefits of the amended 

regulation in light of the specific 

provisions of Section 15(a) of the Act, as 

follows: 

1. Protection of market participants 

and the public. Under the amended 

Regulation 1.17(g), the Commission 

would be able, in exceptional 

circumstances, to temporarily delay 

certain withdrawals of FCM equity by 

their owners and other insiders, which 

would contribute to the benefit of 

ensuring that eligible FCMs can meet 

their financial obligations to customers 

and other market participants. 

2. Efficiency and competition. The 

amended regulations should have no 

effect, from the standpoint of imposing 

costs or creating benefits, on the 

efficiency and competition of the 

futures markets. 

3. Financial integrity of futures 

markets and price discovery. Amended 

Regulation 1.17(g) contributes to the 

financial integrity of futures markets by 

helping to confirm and preserve the 

capital of FCM registrants. The amended 

regulations should have no effect, from 

the standpoint of imposing costs or 

creating benefits, on the price discovery 

function of such markets. 

4. Sound risk management practices. 

In order to avoid application of 

amended Regulation 1.17(g), FCMs may 

enhance existing risk management 

practices relating to the risks that 

practices of FCM affiliates may pose to 

the ability of FCMs to meet their 

obligations to customers and other 

participants in the futures markets. 

5. Other public interest 

considerations. The amendments to 

Regulations 1.12(g), 1.17(d)(1) and 

1.17(e), which add references to limited 

liability company members and their 

capital contributions, help modernize 

the Commission’s regulations by taking 

into consideration new forms of 

business organizations used by FCMs 

and IBs. 

The Commission invited, but did not 

receive, public comment on its 

application of the cost-benefit 

provision.24 After considering these 

factors, the Commission has determined 

to issue this final rule. 

List of Subjects in 17 CFR Part 1 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements. 

■ Accordingly, 17 CFR Chapter I is 

hereby amended as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 

continues to read as follows: 

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

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

6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 13a–1, 

16, 16a, 19, 21, 23, and 24, as amended by 

the Commodity Futures Modernization Act of 

2000, Appendix E of Pub. L. No. 106–554, 

114 Stat. 2763 (2000). 

■ 2. Section 1.12 is amended by revising 

paragraph (g)(2) to read as follows: 

§ 1.12 Maintenance of minimum financial 

requirements by futures commission 

merchants and introducing brokers. 

* * * * * 

(g) * * * 

(2) If equity capital of the futures 

commission merchant or a subsidiary or 

affiliate of the futures commission 

merchant consolidated pursuant to 

§ 1.17(f) (or 17 CFR 240.15c3–1e) would 

be withdrawn by action of a stockholder 

or a partner or a limited liability 

company member or by redemption or 

repurchase of shares of stock by any of 

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1152 Federal Register / Vol. 72, No. 6 / Wednesday, January 10, 2007 / Rules and Regulations 

the consolidated entities or through the 

payment of dividends or any similar 

distribution, or an unsecured advance or 

loan would be made to a stockholder, 

partner, sole proprietor, limited liability 

company member, employee or affiliate, 

such that the withdrawal, advance or 

loan would cause, on a net basis, a 

reduction in excess adjusted net capital 

(or, if the futures commission merchant 

is qualified to use the filing option 

available under § 1.10(h), excess net 

capital as defined in the rules of the 

Securities and Exchange Commission) 

of 30 percent or more, notice must be 

provided at least two business days 

prior to the withdrawal, advance or loan 

that would cause the reduction: 

Provided, however, That the provisions 

of paragraphs (g)(1) and (g)(2) of this 

section do not apply to any futures or 

securities transaction in the ordinary 

course of business between a futures 

commission merchant and any affiliate 

where the futures commission merchant 

makes payment to or on behalf of such 

affiliate for such transaction and then 

receives payment from such affiliate for 

such transaction within two business 

days from the date of the transaction. 

* * * * * 

■ 3. Section 1.17 is amended by revising 

paragraph (d)(1) introductory text; 

adding paragraph (d)(1)(ii)(D); revising 

paragraph (e) introductory text; and 

adding paragraph (g), to read as follows: 

§ 1.17 Minimum financial requirements for 

futures commission merchants and 

introducing brokers. 

* * * * * 

(d) * * * 

(1) Equity capital means a satisfactory 

subordination agreement entered into by 

a partner or stockholder or limited 

liability company member which has an 

initial term of at least 3 years and has 

a remaining term of not less than 12 

months if: 

* * * * * 

(ii) * * * 

(D) In the case of a limited liability 

company, the sum of its capital 

accounts of limited liability company 

members, and unrealized profit and 

loss. 

* * * * * 

(e) No equity capital of the applicant 

or registrant or a subsidiary’s or 

affiliate’s equity capital consolidated 

pursuant to paragraph (f) of this section, 

whether in the form of capital 

contributions by partners (including 

amounts in the commodities, options 

and securities trading accounts of 

partners which are treated as equity 

capital but excluding amounts in such 

trading accounts which are not equity 

capital and excluding balances in 

limited partners’ capital accounts in 

excess of their stated capital 

contributions), par or stated value of 

capital stock, paid-in capital in excess of 

par or stated value, retained earnings or 

other capital accounts, may be 

withdrawn by action of a stockholder or 

partner or limited liability company 

member or by redemption or repurchase 

of shares of stock by any of the 

consolidated entities or through the 

payment of dividends or any similar 

distribution, nor may any unsecured 

advance or loan be made to a 

stockholder, partner, sole proprietor, 

limited liability company member, or 

employee if, after giving effect thereto 

and to any other such withdrawals, 

advances, or loans and any payments of 

payment obligations (as defined in 

paragraph (h) of this section) under 

satisfactory subordination agreements 

and any payments of liabilities excluded 

pursuant to paragraph (c)(4)(vi) of this 

section which are scheduled to occur 

within six months following such 

withdrawal, advance or loan: 

* * * * * 

(g)(1) The Commission may by order 

restrict, for a period up to twenty 

business days, any withdrawal by a 

futures commission merchant of equity 

capital, or any unsecured advance or 

loan to a stockholder, partner, limited 

liability company member, sole 

proprietor, employee or affiliate, if: 

(i) Such withdrawal, advance or loan 

would cause, when aggregated with all 

other withdrawals, advances or loans 

during a 30 calendar day period from 

the futures commission merchant or a 

subsidiary or affiliate of the futures 

commission merchant consolidated 

pursuant to § 1.17(f) (or 17 CFR 

240.15c3–1e), a net reduction in excess 

adjusted net capital (or, if the futures 

commission merchant is qualified to use 

the filing option available under 

§ 1.10(h), excess net capital as defined 

in the rules of the Securities and 

Exchange Commission) of 30 percent or 

more, and 

(ii) The Commission, based on the 

facts and information available, 

concludes that any such withdrawal, 

advance or loan may be detrimental to 

the financial integrity of the futures 

commission merchant, or may unduly 

jeopardize its ability to meet customer 

obligations or other liabilities that may 

cause a significant impact on the 

markets. 

(2) The futures commission merchant 

may file with the Secretary of the 

Commission a written petition to 

request rescission of the order issued 

under paragraph (g)(1) of this section. 

The petition filed by the futures 

commission merchant must specify the 

facts and circumstances supporting its 

request for rescission. The Commission 

shall respond in writing to deny the 

futures commission merchant’s petition 

for rescission, or, if the Commission 

determines that the order issued under 

paragraph (g)(1) of this section should 

not remain in effect, the order shall be 

rescinded. 

* * * * * 

Issued in Washington, DC, on January 5, 

2007 by the Commission. 

Eileen Donovan, 

Acting Secretary of the Commission. 

[FR Doc. E7–173 Filed 1–9–07; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 35 

[Docket No. RM06–4–001; Order No. 679–

A] 

Promoting Transmission Investment 

Through Pricing Reform 

Issued December 22, 2006. 

AGENCY: Federal Energy Regulatory 

Commission, DOE. 

ACTION: Final rule; order on rehearing. 

SUMMARY: In this order on rehearing, the 

Federal Energy Regulatory Commission 

(Commission) reaffirms its 

determinations in part and grants 

rehearing in part of Promoting 

Transmission Investment through 

Pricing Reform, Order No. 679. Order 

No. 679 amended Commission 

regulations to establish incentive-based 

(including performance-based) rate 

treatments for the transmission of 

electric energy in interstate commerce 

by public utilities for the purpose of 

benefiting consumers by ensuring 

reliability and reducing the cost of 

delivered power by reducing 

transmission congestion. 

DATES: Effective Date: This final rule 

and order on rehearing will be effective 

on February 9, 2007. 

FOR FURTHER INFORMATION CONTACT: 

Jeffrey Hitchings (Technical 

Information), Office of Energy Markets 

and Reliability, Federal Energy 

Regulatory Commission, 888 First 

Street, NE., Washington, DC 20426, 

202–502–6042. 

Andre Goodson (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

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