34042 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

1 17 CFR 240.15a–10, 240.15b11–1, and

240.15b11–2.

2 17 CFR 240.15b2–2.

3 17 CFR Part 248.

4Pub. L. No. 106–554, 114 Stat. 2763. Under

Exchange Act section 3(a)(55)(A), the term ‘‘security

future’’ is defined as a contract of sale for future

delivery of a single security or of a narrow-based

security index. 15 U.S.C. 78c(a)(55)(A). Under

Exchange Act section 3(a)(56), the term ‘‘security

futures product’’ is defined as a security future or

an option on a security future. 15 U.S.C. 78c(a)(56).

5See, e.g., Exchange Act section 3(a)(10), 15

U.S.C. 78c(a)(10).

6The term ‘‘security future’’ is defined in CEA

section 1a(31) (7 U.S.C. 1a(31)) as a contract of sale

for future delivery of a single security or of a

narrow-based security index. Under CEA section

1a(33) (7 U.S.C. 1a(33)), the term ‘‘security futures

product’’ is defined as a security future or an option

on a security future.

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 240, 248, and 249

[Release No. 34–44455; File No. S7–13–01]

RIN 3235–AI21

Registration of Broker-Dealers

Pursuant to Section 15(b)(11) of the

Securities Exchange Act of 1934

AGENCY: Securities and Exchange

Commission.

ACTION: Proposed rule.

SUMMARY: The Securities and Exchange

Commission (‘‘Commission’’) is

publishing for comment proposed rules

to implement certain provisions of the

Commodity Futures Modernization Act

of 2000 (‘‘CFMA’’). First, the

Commission is proposing amendments

to its broker-dealer registration

requirements and to Form BD. These

amendments would implement section

203 of the CFMA, which permits futures

commission merchants and introducing

brokers that are registered with the

Commodity Futures Trading

Commission (‘‘CFTC’’) to register as

broker-dealers for the limited purpose of

effecting transactions in certain security

futures products by filing a notice with

the Commission.

Second, the Commission is proposing

a conditional exemption from

registration under section 15(a) of the

Securities Exchange Act of 1934. The

proposed exemption would provide

guidance on the extent to which a

broker-dealer registered by notice may

trade security futures products. Under

the proposed exemption, a broker-dealer

registered by notice would be able to

trade any security futures products as

long as it did not become a member of

a registered national securities exchange

or national securities association.

Third, the Commission is proposing

amendments to Regulation S–P, which

was adopted under the Gramm-LeachBliley Act. These amendments would

revise certain provisions of Regulation

S–P in light of section 124 of the CFMA,

which makes the privacy provisions of

the Gramm-Leach-Bliley Act applicable

to activity regulated by the CFTC. These

amendments would also allow futures

commission merchants and introducing

brokers registered by notice with the

Commission as broker-dealers to comply

with Regulation S–P by complying with

the CFTC’s financial privacy rules.

DATES: Comments must be submitted on

or before July 26, 2001.

ADDRESSES: Interested persons should

submit three copies of their written

data, views, and opinions to Jonathan G.

Katz, Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609.

Comments also may be submitted

electronically at the following e-mail

address: rule-comments@sec.gov. All

comment letters should refer to File No.

S7–13–01; this file number should be

used on the subject line if e-mail is

used. Comment letters will be available

for public inspection and copying at the

Commission’s Public Reference Room,

450 Fifth Street, NW., Washington, DC

20549. Electronically submitted

comment letters will be posted on the

Commission’s website (http://

www.sec.gov). Personal identifying

information, such as names or e-mail

addresses, will not be edited from

electronic submission. Submit only

information that you wish to make

publicly available.

FOR FURTHER INFORMATION CONTACT:

Catherine McGuire, Chief Counsel,

Theodore R. Lazo, Special Counsel,

Brice D. Prince, Attorney, or Christina

K. McGlosson, Attorney, at 202/942–

0073, Office of Chief Counsel, Division

of Market Regulation, Securities and

Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549–1001.

SUPPLEMENTARY INFORMATION: The

Commission today is proposing Rules

15a–10, 15b11–1, and 15b11–2 under

the Securities Exchange Act of 1934

(‘‘Exchange Act’’),1 and amendments to

Rule 15b2–2 under the Exchange Act 2

and to Form BD to provide for the

registration by notice of certain brokerdealers for the limited purpose of

effecting transactions in certain security

futures products. In addition, the

Commission is proposing amendments

to Regulation S–P 3 in light of the

CFMA’s application of the privacy

provisions of the Gramm-Leach-Bliley

Act (‘‘GLBA’’) to the CFTC and its

regulated entities.

Table of Contents

I. Introduction

A. Security Futures Products

B. Privacy

II. Discussion of Proposed Rulemaking

A. Notice Registration of Broker-Dealers to

Conduct Business in Security Futures

Products

1. Proposed Rule 15b11–1 under the

Exchange Act: Procedure for Notice

Registration

2. Proposed Rule15b11–2 under the

Exchange Act: Procedure for Application

to Convert Registration

3. Proposed Rule 15a–10 under the

Exchange Act: Conditional Exemption

from Full Broker-Dealer Registration for

Security Futures Product Broker-Dealers

4. Proposed Revisions to Rule 15b2–2

under the Exchange Act: Inspection of

Newly Registered Brokers and Dealers

B. Proposed Amendments to Form BD

1. Amended Form BD

2. Interim Schedule to Form BD

C. Proposed Amendments to Regulation S–

P

III. General Request for Comments

IV. Paperwork Reduction Act Analysis

V. Costs and Benefits of the Proposed

Rulemaking

A. Proposals Related to Security Futures

Products

B. Proposed Amendments to Regulation S–

P

C. Costs and Benefits of the Proposed

Rulemaking

1. Costs and Benefits of Proposed Rules

15a–10, 15b–11, and 15b11–2, Proposed

Amendments to Form BD, and

Conforming Amendments to Rule 15b2–

2

a. Benefits

b. Costs

2. Costs and Benefits of the Proposed

Amendments to Regulation S–P

a. Benefits

b. Costs

D. Request for Comment.

VI. Consideration of the Burden on

Competition, Promotion of Efficiency,

and Capital Formation

VII. Regulatory Flexibility Act Certification

VIII. Statutory Basis

I. Introduction

A. Security Futures Products

The CFMA permits the trading of

security futures, i.e., futures contracts

on individual securities and on narrowbased security indexes.4 The CFMA

defines security futures both as

‘‘securities’’ under the federal securities

laws,5 and as futures contracts for

purposes of the Commodity Exchange

Act (‘‘CEA’’).6 Accordingly, the CFMA

establishes a regulatory framework

under which the Commission and the

CFTC have joint jurisdiction over the

intermediaries and markets that trade

security futures products.

Because they are subject to regulation

both as securities and as futures

contracts, security futures products

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34043

7See Exchange Act sections 6(g) and 15(b)(11) (15

U.S.C. 78f(g) and 78o(b)(11)) and CEA sections 5f

and 4f(a)(2) (7 U.S.C. 7b–1 and 6f(a)(2)).

8When used in this release, the terms ‘‘futures

commission merchant’’ and ‘‘introducing broker’’

have the meanings in CEA sections 1a(20) and

1a(23) (7 U.S.C. 1a(20) and 1a(23)), respectively.

9The term ‘‘alternative trading system’’ is defined

in section 300(a) of Regulation ATS (17 CFR

242.300(a)). 10 15 U.S.C. 78o(a)(1). Section 15(a)(1) provides

that a broker or dealer must be registered pursuant

to section 15(b) in order to ‘‘effect any transaction

in, or to induce or attempt to induce the purchase

or sale of, any security (other than an exempted

security or commerical paper, bankers’ acceptances,

or commercial bills) ....’’

11 17 CFR 240.15b2–2.

12 17 CFR part 248. See Securities Exchange Act

Release No. 42905 (June 22, 2000), 65 FR 40334.

13Exchange Act section 3(a)(10), 15 U.S.C.

78c(a)(10).

14See Exchange Act section 3(a)(4), 15 U.S.C.

78c(a)(4).

15See Exchange Act section 3(a)(5), 15 U.S.C.

78c(a)(5).

16 15 U.S.C. 78o(a).

17 15 U.S.C. 78o(b)(11).

18Exchange Act section 6(g) (15 U.S.C. 78f(g))

provides that designated contract markets and

derivatives transaction execution facilities that are

registered with the CFTC under CEA sections 5 and

5a (7 U.S.C. 7 and 7a), respectively, may register by

notice with the Commission to trade security

futures products as a Security Futures Product

Exchange. We have proposed rules to establish the

procedures for such notice registration. See

Securities Exchange Act Release No. 44279 (May 8,

2001), 66 FR 26978.

19Section 15(b)(11)(A) further states that the

written notice filed with the Commission must be

in such form and contain such information

concerning such broker or dealer and any persons

associated with such broker or dealer as the

Commission by rule, may prescribe as necessary or

appropriate in the public interest or for the

protection of investors.

20Form BD is filed with the Central Registration

Depository (‘‘CRD’’), which is operated and

maintained by the National Association of

Securities Dealers, Inc. (‘‘NASD’’). When a Form BD

is filed with the CRD, the information on the form

is entered into the CRD and then transmitted

electronically to the Commission. Even though

Form BD is not filed directly with the Commission,

it is considered a ‘‘report’’ filed with the

Commission for purposes of Exchange Act sections

15(b), 17(a), 18(a), 32(a) (15 U.S.C. 78o(b), 78q(a),

78r(a), 78ff(a)), and other applicable provisions of

the Exchange Act.

must be traded on trading facilities and

through intermediaries that are

registered with both the Commission

and the CFTC. In order to avoid

duplicative regulation, however, the

CFMA establishes a system of notice

registration under which trading

facilities and intermediaries that are

already registered with either the

Commission or the CFTC may register

with the other agency on an expedited

basis for the limited purpose of trading

security futures products. Specifically,

markets and intermediaries that are

registered with one agency may register

with the other by submitting a written

notice that is effective upon filing.7 A

‘‘notice registrant’’ is then subject to the

primary oversight by one agency, and is

exempted under the CFMA from all but

the core provisions of the laws

administered by the other agency.

Exchange Act section 15(b)(11)

provides for the notice registration of

broker-dealers for the limited purpose of

effecting transactions in certain security

futures products (‘‘Security Futures

Product Broker-Dealers’’). We are

proposing Rules 15b11–1, 15b11–2, and

15a–10 under the Exchange Act to

establish the procedure for notice

registration of Security Futures Product

Broker-Dealers. Proposed Rule 15b11–1

would provide the terms and conditions

under which futures commission

merchants and introducing brokers that

are registered with the CFTC

(collectively, ‘‘CFTC Registrants’’) could

use the notice registration provisions.8

In addition, Proposed Rule 15b11–1

would provide that a CFTC Registrant

eligible for notice registration must file

the notice on Form BD. Proposed Rule

15b11–2 would provide that a Security

Futures Product Broker-Dealer could

apply to become registered under

Exchange Act section 15(b)(1), and

therefore conduct business in securities

other than security futures products, by

filing an amendment to its Form BD.

Proposed Rule 15a–10 would permit

Security Futures Product Broker-Dealers

to trade security futures products

regardless of the market on which they

are listed or traded. Under the proposed

rule, a Security Futures Product BrokerDealer would be permitted, subject to

certain conditions, to act as a broker or

a dealer in security futures products

traded on any national securities

exchange, national securities

association, or alternative trading

system 9 without being subject to the

registration requirements of Exchange

Act section 15(a)(1).10

In addition, we are proposing

amendments to Form BD. The proposed

amendments would elicit information as

to whether Security Futures Product

Broker-Dealers satisfy the conditions for

notice registration. The proposed

amendments are also intended to inform

the Commission about all registered

broker-dealers’ activities in security

futures products.

We are also proposing to amend

Exchange Act Rule 15b2–2,11 which

provides that broker-dealers must be

inspected by a self-regulatory

organization within six months of

becoming registered. The proposed

amendment would provide an exception

from this requirement for Security

Futures Product Broker-Dealers.

B. Privacy

Section 124 of the CFMA amended

the CEA to provide that Title V of the

GLBA applies to the CFTC and certain

of the entities that it regulates. We

adopted Regulation S–P to implement

Title V of the GLBA in June 2000, before

the CFMA was enacted.12 As a result,

certain provisions of Regulation S–P do

not reflect section 124 of the CFMA,

which amended the CEA. In light of

these amendments, we are proposing

amendments to update Regulation S–P.

II. Discussion of Proposed Rulemaking

A. Notice Registration of Broker-Dealers

to Conduct Business in Security Futures

Products

Security futures are expressly defined

as securities under the Exchange Act.13

As a result, for purposes of the

Exchange Act, any person who is

engaged in the business of effecting

transactions in security futures products

for the account of another is a broker.14

Similarly, any person who is engaged in

the business of buying and selling

security futures products for the

person’s own account is a dealer.15 With

limited exceptions, brokers and dealers

are required by Exchange Act section

15(a) to register with the Commission.16

The CFMA amended the broker-dealer

registration requirements with respect to

certain security futures products by

adding section 15(b)(11) to the Exchange

Act.17 Section 15(b)(11)(A) provides that

a broker or dealer required to register

with the Commission only because it

effects transactions in security futures

products on an exchange registered

pursuant to Exchange Act section 6(g)

(‘‘Security Futures Product

Exchange’’)18 may register by filing a

written notice with the Commission.19

We are proposing Exchange Act Rules

15b11–1, 15b11–2, and 15a–10 to

establish the procedure for submitting

that notice to the Commission, and to

provide guidance on the extent to which

a Security Futures Product BrokerDealer may act as a broker or a dealer

in security futures products.

1. Proposed Rule 15b11–1 under the

Exchange Act: Procedure for Notice

Registration

Proposed Rule 15b11–1 would specify

how a CFTC Registrant could register

with the Commission by notice to effect

transactions in security futures

products. Specifically, the proposed

rule would provide that a CFTC

Registrant must file Form BD to become

a Security Futures Product BrokerDealer pursuant to Exchange Act section

15(b)(11)(A).20

Form BD is the uniform application

form for traditional broker-dealer

34044 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

21Form BD is the form filed by an applicant to

become registered pursuant to Exchange Act section

15(b)(1). See Exchange Act Rule 15b1–1, 17 CFR

240.15b1–1. In addition, intrastate nonbank

municipal securities dealers required to register

under section 15B(a) must file an application for

registration with the Commission on Form BD, as

must government securities brokers and dealers

required to register under Exchange Act section

15C(a). See Exchange Act Rules 15Ba2–2 and 15C2–

1, 17 CFR 240.15Ba2–2 and 240.15Ca2–1.

22See Exchange Act section 15(b)(11)(A)(ii), 15

U.S.C. 78o(b)(11)(A)(ii). However, an application for

notice registration will not take immediate effect if

it is subject to suspension or revocation under

Exchange Act section 15(b)(4). 15 U.S.C. 78o(b)(4).

In addition, under Rule 202.3(b)(1) of the

Commission’s Procedural Rules (17 CFR 202.3),

applications on Form BD that are not complete

‘‘may be returned with a request for correction or

held until corrected before being accepted as a

filing.’’

23Exchange Act section 15(b)(11)(B), 15 U.S.C.

78o(b)(11)(B). Specifically, a Security Futures

Product Broker-Dealer will be exempt from sections

8, 11, 15(c)(3), 15(c)(5), 15B, 15C, and 17(d)–(i) of

the Exchange Act (15 U.S.C. 78h, 78k, 78o(c)(3),

78o(c)(5), 78o–4, 78o–5, and 78q(d)(i)).

24As noted above, section 15(b)(11) provides that

notice registration is available only to brokerdealers that fall within the registration requirements

of section 15 by effecting transactions in security

futures products on a Security Futures Product

Exchange. CEA section 4d)(a)(1) (7 U.S.C. 6d(a)(1))

provides that futures commission merchants and

introducing brokers must be registered with the

CFTC before ‘‘soliciting orders or accepting orders

for the purchase or sale of any commodity for future

delivery, or involving any contracts of sale of any

commodity for future delivery, on or subject to the

rules of any contract market or derivatives

transaction execution facility.’’

25 15 U.S.C. 78o–3(k). Under section 15A(k), a

futures association registered under CEA section 17

(7 U.S.C. 21) will become a registered national

securities association for the limited purpose of

regulating the activity of members who are Security

Futures Product Broker-Dealers as long as the

limited purpose national securities association

implements certain rules and procedures. See

Exchange Act section 15A(k)(2)(A)–(D) (15 U.S.C.

78o–3(k)(2)(A)–(D)). Our subsequent discussion

refers specifically to the NFA, which is the only

organization currently eligible to become a limited

purpose national securities association. However,

the discussion would apply equally to any other

limited purpose national securities association.

26For example, Exchange Act Rules 3a43–1 and

3a44–1 (17 CFR 240.3a43–1 and 240.3a44–1) allow

futures commission merchants that are registered

with the CFTC to effect transactions in government

securities that are incidental to their futures-related

business without being considered government

securities brokers or government securities dealers.

As explained in more detail below, we are also

proposing Rule 15a–10 under the Exchange Act,

which would conditionally permit Security Futures

Product Broker-Dealers to trade security futures

products regardless of the market on which they are

listed or traded without having to register under

Exchange Act 15(b)(1) (15 U.S.C. 78o(b)(1)).

27As explained below, we are proposing to

amend Form BD in order to elicit the information

necessary to determine whether the broker-dealer

meets the conditions for notice registration.

28 In addition, Exchange Act section

15(b)(11(A)(iii) provides that the registration of a

Security Futures Product Broker-Dealer will be

suspended immediately if its membership with the

NFA is suspended.

29 17 CFR 240.15b3–1.

30The CFTC has issued a proposal to amend CEA

Rule 3.10 (17 CFR 3.10) to provide for the notice

registration of futures commission merchants and

introducing brokers. Notice Registration as a

Futures Commission Merchant or Introducing

Broker for Certain Securities Broker-Dealers, 66 FR

27476 (May 17, 2001). Under the CFTC’s proposal,

broker-dealers that are registered by notice with the

CFTC would not be subject to Rule 3.10(d), which

requires futures commission merchants and

introducing brokers to file annually updated

registration forms. We believe, however, that it is

appropriate for Security Futures Product BrokerDealers to keep the information in Form BD current.

In addition, we believe that requiring Security

Futures Product Broker Dealers to comply with

Exchange Act Rule 15b3–1 is consistent with our

authority under Exchange Act section 17(a) (15

U.S.C. 78q(a)) to prescribe reporting and

recordkeeping requirements for broker-dealers,

which is one of our sources of authority for rule

15b3–1.

31Broker-dealers registered under Exchange Act

section 15(b)(1) (15 U.S.C. 78o(b)(1)) are referred to

as ‘‘full broker-dealers.’’

32Alternatively, we could have required a

Security Futures Product Broker-Dealer to submit a

new Form BD and pursue a separate registration if

it chose to apply to become a full broker-dealer.

Because this alternative could be more costly and

time consuming for applicants, we are not

proposing to require it.

registration used by the Commission,

state securities regulators, and selfregulatory organizations.21 Form BD

requires an applicant to provide

information concerning the nature of its

business, as well as information

regarding its principals, controlling

persons, and employees. In addition,

Form BD is designed to permit the

Commission to determine whether the

applicant meets the statutory

requirements to engage in the securities

business.

Under Exchange Act section 15(b)(11),

however, Security Futures Product

Broker-Dealers will not be subject to the

same statutory requirements as other

applicants for broker-dealer registration.

In particular, a complete application for

notice registration will be effective upon

filing.22 In addition, a Security Futures

Product Broker-Dealer will be exempt

from certain provisions of the Exchange

Act with respect to transactions in

security futures products.23 In light of

this alternative registration and

regulatory scheme, section 15(b)(11)

provides several conditions for notice

registration. First, the Security Futures

Product Broker-Dealer must be

registered with the CFTC as a futures

commission merchant or as an

introducing broker.24 Second, the

Security Futures Product Broker-Dealer

must be a member of the National

Futures Association (‘‘NFA’’) or another

national securities association registered

pursuant to Exchange Act section

15A(k).25 Third, the Security Futures

Product Broker-Dealer must limit its

business in securities to security futures

products that are listed or traded on

Security Futures Product Exchanges,

except to the extent that it is permitted

to conduct business in other types of

securities without registering as a

broker-dealer.26 Proposed Rule 15b11–

1(b) would require a broker-dealer

registering by notice to indicate where

appropriate on Form BD that it meets

the conditions for notice registration.27

Under Exchange Act section

15(b)(11)(A)(iv), the registration of a

Security Futures Product Broker-Dealer

will terminate by operation of law if it

is no longer registered with the CFTC or

is no longer a member of the NFA.28 In

addition, Security Futures Product

Broker-Dealers will be subject to

Exchange Act Rule 15b3–1,29 which

requires a registered broker-dealer to

promptly file an amendment to its Form

BD if any of the information contained

in the form is or becomes inaccurate for

any reason.30 A Security Futures

Product Broker-Dealer would be

obligated under Rule 15b3–1 to amend

its Form BD if it no longer met the

statutory conditions for notice

registration.

We request comment on Proposed

Rule 15b11–1. Should CFTC Registrants

be permitted to register by notice as

Security Futures Product Broker-Dealers

on a form other than Form BD? Can the

Commission rely on information that

CTFC Registrants file with the CFTC

and the NFA if it needs information

regarding Security Futures Product

Broker-Dealers?

In addition, we note in general that

Security Futures Product Broker-Dealers

will be broker-dealers for purposes of

the Exchange Act. As a result, they will

be subject to the rules under the

Exchange Act that apply to brokerdealers except for rules adopted under

the sections of the Exchange Act from

which Security Futures Product BrokerDealers are exempted by Exchange Act

section 15(b)(11)(B). We invite

commenters to identify other rules that

should not be applicable to Security

Futures Product Broker-Dealers. Should

the Commission amend any of its rules

or use its exemptive authority to except

or exempt Security Futures Product

Broker-Dealers from any rule?

2. Proposed Rule 15b11–2 under the

Exchange Act: Procedure for

Application to Convert Registration

Proposed Rule 15b11–2 would permit

a Security Futures Product BrokerDealer to apply to become registered

under Exchange Act section 15(b)(1) by

filing an amendment to its Form BD.31

The proposed rule would specify how a

Security Futures Product Broker-Dealer

may apply to become a full brokerdealer.32 For example, a Security

Futures Product Broker-Dealer that

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34045

33As discussed below, we are proposing to

amend Form BD to add an item in which a Security

Futures Product Broker-Dealer could indicate that

it was amending its Form BD to apply for

registration as a full broker-dealer.

34Among other requirements, a full broker-dealer

must either be a member of national securities

association registered pursuant to Exchange Act

section 15A(a) (15 U.S.C. 78o–3(a)) or limit its

securities activities to a Registered National

Securities Exchange of which it is a member.

Exchange Act section 15(b)(8), 15 U.S.C. 78o(b)(8).

35 15 U.S.C. 78f(a).

36Exchange Act section 6(h)(1) provides that ‘‘[i]t

shall be unlawful for any person to effect

transactions in security futures products that are

not listed on a national securities exchange or a

national securities association registered pursuant

to section 15A(a).’’

37 7 U.S.C. 6f(a)(2).

38Specifically, CEA section 4f(a)(2)(A) provides

that a broker-dealer may register by notice with the

CFTC if it ‘‘limits its solicitation of orders,

acceptance of orders, or execution of orders, or

placing of orders on behalf of others involving any

contracts of sale of any commodity for future

delivery, on or subject to the rules of any contract

market or registered derivatives transaction

execution facility to security futures products.’’

39 15 U.S.C. 78f(b)(2).

40 15 U.S.C. 78o–3(b)(3).

41There are limited exceptions to sections 6(b)(2)

and 15A(b)(3). For example, Exchange Act sections

6(c)(2) and 15A(g)(2) (15 U.S.C. 78f(c)(2) and 78o–

3(g)(2)) permit Registered National Securities

Exchanges and national securities associations to

deny membership to any registered broker-dealer

that is subject to a ‘‘statutory disqualification,’’ as

defined in Exchange Act sections 3(a)(39) (15 U.S.C.

78c(a)(39)). In addition, Exchange Act section

6(c)(3)(A) (15 U.S.C. 78f(c)(3)(A) permits a

Registered National Securities Exchange to deny

membership to a registered broker-dealer that does

not meet the exchange’s standards for financial

responsibility or operational capability.

42The term ‘‘registered broker or dealer’’ is

defined (in relevant part) in Exchange Act section

3(a)(48) as ‘‘a broker or dealer registered or required

to register pursuant to section 15 or 15B of [the

Exchange Act]....’’ 15 U.S.C. 78c(a)(48).

43See CEA sections 5(d)(12) and 5a(d)(6) (7 U.S.C.

7(d)(12) and 7a(d)(6)).

44 In its capacity as a limited purpose national

securities association pursuant to Exchange Act

section 15A(k), the NFA will be exempt from

Exchange Act section 15A(b)(3). Under Exchange

Act section 6(h)(1), however, the NFA is not

permitted to list or trade security futures products.

wanted to conduct business in securities

other than security futures products

could amend its Form BD to indicate

that it planned to conduct additional

securities business. This amended Form

BD, therefore, would be an application

for registration to conduct business as a

full broker-dealer.33

Under Proposed Rule 15b11–2, the

amendment to Form BD would be

considered an application to become a

full broker-dealer. The notice

registration of a broker-dealer that filed

an application by amendment under

Proposed Rule 15b11–2 would remain

effective while its application to become

a full broker-dealer was pending.

However, the broker-dealer would not

be permitted to engage in securities

business other than that permitted

under section 15(b)(11) until it had

satisfied all of the conditions under

section 15(b) to become a full brokerdealer.34

Proposed Rule 15b11–2 would also

provide that when the broker-dealer’s

registration pursuant to section 15(b)(1)

became effective it would no longer be

a Security Futures Product BrokerDealer. Accordingly, the broker-dealer

would no longer be eligible for the

exemptions in section 15(b)(11)(B). As a

result, the broker-dealer would be

subject to all of the provisions of the

Exchange Act and the regulations

thereunder applicable to its activity,

including its activity in security futures

products. We request comment on

Proposed Rule 15b11–2.

3. Proposed Rule 15a–10 under the

Exchange Act: Conditional Exemption

from Full Broker-Dealer Registration for

Security Futures Product Broker-Dealers

Exchange Act section 15(b)(11)(A)

provides that notice registration is

available for ‘‘a broker or dealer

required to register only because it

effects transactions in security futures

products on an exchange registered

pursuant to section 6(g) [of the

Exchange Act] (emphasis added).’’

Accordingly, notice registration is

available to a CFTC registrant that

would meet the definition of a broker or

a dealer simply by effecting transactions

in security futures products on a

Security Futures Product Exchange.

We believe that the plain language of

section 15(b)(11)(A) of the Exchange Act

limits a Security Futures Product

Broker-Dealer to effecting transactions

in security futures products only on

Security Futures Products Exchanges.

Therefore, a Security Futures Product

Broker-Dealer must be registered

pursuant to Exchange Act section

15(b)(1) as a full broker-dealer in order

to effect transactions in security futures

products that are listed or traded on a

national securities exchange registered

pursuant to Exchange Act section 6(a)

(‘‘Registered National Securities

Exchange’’) 35 or on a national securities

association registered pursuant to

Exchange Act section 15A(a).36

We note that CEA section 4f(a)(2)37

permits a full broker-dealer that

registers by notice with the CFTC to

trade security futures products on any

designated contract market or

derivatives trading execution facility,

regardless of whether it is fully

registered or registered by notice with

the CFTC.38 However, we believe that

the two provisions were intentionally

worded in different fashions because of

the different regulatory structures for

markets and intermediaries under the

Exchange Act and the CEA.

In particular, we believe that these

two provisions are distinct because the

Exchange Act and the CEA provide

different standards with respect to the

ability of an intermediary to become a

member of a market or an exchange.

Specifically, Exchange Act section

6(b)(2) 39 provides that a Registered

National Securities Exchange must

permit any registered broker-dealer to

become a member of the exchange.

Similarly, Exchange Act section

15A(b)(3) 40 provides that the rules of a

national securities association must

permit any registered broker-dealer to

become a member of the association.41

A Security Futures Product BrokerDealer will be a registered broker-dealer

for purposes of the Exchange Act.42

Without the statutory limitation on their

activities, Registered National Securities

Exchanges and registered national

securities associations would be

required to permit Security Futures

Product Broker-Dealers (which are

exempt from significant portions of the

Exchange Act) to effect transactions in

security futures products as members.

In contrast, the CEA permits

designated contract markets and

derivatives transaction execution

facilities to set fitness standards for their

members and does not require them to

accept any specific type of person or

entity as a member.43 Accordingly, a

Security Futures Product Exchange may

deny membership to broker-dealers that

are registered by notice with the CFTC

(which are exempt from significant

portions of the CEA). In addition,

Exchange Act section 6(g)(4)(A)(i)

exempts Security Futures Product

Exchanges from the requirements of

Exchange Act section 6(b)(2).44

The CFMA’s system of joint

regulation of security futures products is

intended to prevent competitive

advantages from arising solely out of

differences between futures regulation

and securities regulation. We believe

that this concept is reflected in the fact

that the CFMA provides different

standards for CFTC Registrants that

register by notice with the Commission

than for broker-dealers that register by

notice with the CFTC. Regulatory

disparities would result if Security

Futures Product Broker-Dealers were

able to effect transactions in security

futures products as members of

Registered National Securities

Exchanges or registered national

securities associations along with fully

registered (and fully regulated) brokerdealers. We believe that the different

standards established by the CFMA for

34046 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

45 15 U.S.C. 78o–3(a).

46A Security Futures Product Broker-Dealer

relying on Proposed Rule 15a–10 could act in the

capacity of a futures commission merchant, but

would have to effect and clear the transactions

through a full broker-dealer.

47 17 CFR 240.15b2–2.

48Securities Exchange Act Release No. 18556

(March 10, 1982), 47 FR 11267.

49See CEA section 4g(a) (7 U.S.C. 6g(a)).

50Section 204 of the CFMA amended Exchange

Act section 17(b) to provide that the Commission

must notify the CFTC before it examines a Security

Futures Product Broker-Dealer. Section 17(b) also

requires the Commission to provide the CFTC with

any reports that the Commission prepares in

connection with an examination of a Security

Futures Product Broker-Dealer. In addition, section

17(b) specifically provides that Security Futures

Product Broker-Dealers are not subject to routine

periodic examinations by the Commission.

51 15 U.S.C. 78o(c)(3).

52See, e.g., Exchange Act Rule 15c3–1 (17 CFR

240.15c3–1) (Net capital requirements for brokers or

dealers).

53As noted above, Security Futures Product

Broker-Dealers are exempt from a number of

provisions of the Exchange Act. However, Security

Futures Product Broker-Dealers must limit their

securities business to security futures products and

to securities activities that do not require full

broker-dealer registration. See Exchange Act section

15(b)(11)(A) (15 U.S.C. 78o(b)(11)(A)).

notice registration of intermediaries

address this potential for regulatory

disparity.

However, we also believe that it

would be consistent with the purposes

of the CFMA for the Commission to

permit Security Futures Product BrokerDealers to trade security futures

products that are listed or traded on

Security Futures Product Exchanges as

well as on Registered National

Securities Exchanges, registered

national securities associations, or

alternative trading systems. The CFMA’s

regulatory scheme provides that

Security Futures Product Broker-Dealers

are subject to primary regulation by the

CFTC and regulation on core securities

law issues by the Commission. At the

same time, the CFMA preserves the

Commission’s primary regulatory

authority over broker-dealers that are

members of Registered National

Securities Exchanges and national

securities associations registered

pursuant to Exchange Act section

15A(a).45 In light of this regulatory

scheme, we believe that a Security

Futures Product Broker-Dealer that is

not a member of a Registered National

Securities Exchange or a registered

national securities association should be

permitted to effect transactions in any

type of security futures product. In

addition, we believe that permitting

Security Futures Product Broker-Dealers

to effect transactions in security futures

products traded on all markets should

promote competition. Accordingly, we

are proposing Exchange Act Rule 15a–

10 to conditionally permit Security

Futures Product Broker-Dealers to trade

in security futures products regardless

of the market on which the products are

listed or traded.

Specifically, Proposed Exchange Act

Rule 15a–10 would provide a

conditional exemption from the

registration requirements of Exchange

Act section 15(a)(1) for Security Futures

Product Broker-Dealers. However, the

exemption in Proposed Rule 15a–10

would not apply to a Security Futures

Product Broker-Dealer that became a

member of a Registered National

Securities Exchange or a registered

national securities association.

Accordingly, the proposed rule would

prevent a Security Futures Product

Broker-Dealer from effecting

transactions in security futures products

as a member of a Registered National

Securities Exchange or a registered

national securities association unless it

was a full broker-dealer. As a result,

Proposed Rule 15a–10 would permit

Security Futures Product Broker-Dealers

to effect transactions in security futures

products that are listed or traded on a

Registered National Securities

Exchange, on registered national

securities associations, or on alternative

trading systems by effecting the

transactions through a full brokerdealer.46

We request comment on Proposed

Rule 15a–10. Is it appropriate to permit

Security Futures Product Broker-Dealers

to effect transactions in security futures

products that are listed or traded on

Registered National Securities

Exchanges, registered national securities

associations, or alternative trading

systems?

4. Proposed Revisions to Rule 15b2–2

under the Exchange Act: Inspection of

Newly Registered Brokers and Dealers

Exchange Act section 15(b)(2)(C)

generally requires the Commission or a

self-regulatory organization to inspect a

newly registered broker-dealer within

six months of its registration. The

purpose of this inspection is to

determine whether the broker-dealer is

operating in conformity with the federal

securities laws. Exchange Act Rule

15b2–2 47 implements section

15(b)(2)(C).

In adopting Rule 15b2–2, we noted

that section 15(b)(2)(C) was added to the

Exchange Act because of concern over

the financial and operational difficulties

that new broker-dealers may encounter

in their early months of operation.48

Accordingly, Rule 15b2–2 contains an

exception for broker-dealers that were

already registered when the rule took

effect.

CFTC Registrants currently are and

will continue to be subject to

examinations by the CFTC.49 In

addition, the CFMA provides a specific

scheme for the examination of Security

Futures Product Broker-Dealers by the

Commission under which the

Commission consults with the CFTC

with respect to its examinations of

Security Futures Product BrokerDealers.50 Moreover, under the terms of

the CFMA the Commission generally

defers to the CFTC with respect to

financial and operational matters

involving Security Futures Product

Broker-Dealers. In particular, Exchange

Act section 15(b)(11)(B)(iii) exempts

Security Futures Product Broker-Dealers

from Exchange Act section 15(c)(3) 51

and the rules thereunder, which provide

the financial responsibility standards for

broker-dealers.52

In light of the statutory scheme of

joint regulation, we believe that it is not

necessary at this time to apply Rule

15b2–2 to Security Futures Product

Broker-Dealers. Accordingly, we are

proposing to amend Rule 15b2–2 to

provide that it does not apply to

Security Futures Product BrokerDealers.

We request comment on the proposed

amendments to Rule 15b2–2. Is it

appropriate to provide an exception

from the rule for Security Futures

Product Broker-Dealers?

B. Proposed Amendments to Form BD

1. Amended Form BD

We are proposing to amend Form BD

so that it may be used to provide notice

of registration as a broker-dealer by a

CFTC Registrant pursuant to Exchange

Act section 15(b)(11)(A). Specifically,

we are proposing to add new items 2E

through 2H. These items would require

a CFTC Registrant that is registering as

a broker-dealer by notice to indicate that

it is filing a notice registration, and to

indicate that it satisfies the statutory

conditions for notice registration.

Proposed items 2E through 2H would

also enable the Commission, other

regulators, and the public to identify

Security Futures Product Broker-Dealers

registering pursuant to section

15(b)(11)(A). This identification will

allow the Commission to determine the

Security Futures Product BrokerDealers’ compliance with other

applicable requirements.53 In addition,

we are proposing to add new Item 5B,

by which a Security Futures Product

Broker-Dealer can indicate that it is

applying to convert its registration

status to become a full broker-dealer.

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34047

54Current Item 12Z would be renumbered as Item

12AA.

55 Item 12 of Form BD requires broker-dealers to

indicate the types of business that account for (or

that they expect to account for) 1% or more of their

annual revenue from the securities or investment

advisory business.

56 17 CFR Part 248. See Securities Exchange Act

Release No. 42905 (June 22, 2000), 65 FR 40334.

57Specifically, section 504 of the GLBA does not

include the CFTC in the list of agencies required to

adopt financial privacy rules. In addition, section

509(2) of the GLBA does not include the CFTC in

the definition of the term ‘‘Federal functional

regulator. Moreover, section 509(3)(B) of the GLBA

specifically excludes from the definition of the term

‘‘financial institution’’ any person or entity with

respect to any financial activity that is subject to the

jurisdiction of the CFTC under the CEA.

58Specifically, section 124 of the CFMA added

section 5g to the CEA (7 U.S.C. 7b–2), which makes

Title V of the GLBA applicable to activity regulated

by the CFTC. CEA section 5g(a) provides that

notwithstanding section 509(3)(B) of the GLBA,

futures commission merchants, commodity trading

advisors, commodity pool operators and

introducing brokers subject to the jurisdiction of the

CFTC are to be treated as ‘‘financial institutions’’ for

purposes of Title V of the GLBA. CEA section 5g(b)

provides that the CFTC is to be treated as a ‘‘Federal

functional regulator’’ under section 509(2) of the

GLBA, and directs the CFTC to issue its own

financial privacy regulations under Title V of the

GLBA.

59Privacy of Customer Information, 66 FR 21236

(April 27, 2001) (‘‘CFTC Privacy Release’’).

60 17 CFR 248.3(m).

61 17 CFR 248.3(n).

62 17 CFR 248.2.

63See CFTC Privacy Release, 66 FR at 21252.

We are also proposing to amend Form

BD so that all broker-dealers may use it

to notify the Commission of their

security futures products activities.

Broker-dealers would notify the

Commission of their security futures

products activities by checking new

Item 12Z.54 Depending on the volume of

their business in security futures

products, broker-dealers already

registered with the Commission may

have to amend their Forms BD to

complete new Item 12Z. Specifically,

the proposed new item would require

both full broker-dealers and Security

Futures Product Broker-Dealers to

indicate that they are doing business in

securities futures products if that

business accounts for (or if they expect

it to account for) 1 percent or more of

their annual revenue.55 In addition to

these new items, we are also proposing

amendments to the instructions for

Form BD, which would describe the

procedure for becoming a Security

Futures Product Broker-Dealer. We

request comment on the proposed

amendments to Form BD.

2. Interim Schedule to Form BD

Form BD is filed with the CRD, which

is operated and maintained by the

NASD. Our staff has consulted with the

staff of the NASD regarding the general

need to amend Form BD in order to

provide for notice registration. We

understand that amending Form BD will

require programming and systems

changes to the CRD, and that it is

possible that the NASD may not be able

to complete the necessary programming

and systems changes before August 21,

2001, the earliest date on which trading

in security futures products may begin.

We recognize, however, that we must

have a process for notice registration

established by August 21, 2001.

As a result, we anticipate that it may

be necessary to adopt an interim form of

notice under section 15(b)(11) until the

appropriate amendments to Form BD

can be incorporated into the CRD.

Currently, we expect that if we do have

to adopt an interim form of notice, it

would be an interim schedule to the

current Form BD. A CFTC Registrant

that wanted to become a Security

Futures Product Broker-Dealer would

therefore file both the existing Form BD

and the interim schedule. We further

expect that the interim schedule would

contain items and questions

substantially similar to the questions

and items that we are proposing to

incorporate into Form BD.

C. Proposed Amendments to Regulation

S–P

Title V of the GLBA directed the

Commission and certain other federal

agencies to adopt rules regarding the

disclosure of customers’ personal

financial information by the financial

institutions subject to the agencies’

respective jurisdictions. Under this

authority, we adopted Regulation S–P,

which generally requires broker-dealers,

investment companies, and registered

investment advisers to: (1) Notify

customers of their privacy policies and

practices; (2) describe the conditions

under which they may disclose

customer information to nonaffiliated

third parties; and (3) provide a method

for their customers to prevent such

disclosure of that information.56 Title V

does not apply to the CFTC or any of its

regulated entities.57

As a result of the CFMA, however,

some of the entities that the CFTC

regulates are now subject to Title V of

the GLBA.58 Accordingly, the CFTC has

adopted its own set of financial privacy

rules.59 Because we adopted Regulation

S–P before the CFMA was enacted,

certain of its provisions do not include

the CFTC or its regulated entities.

Therefore, we are proposing to update

Regulation S–P.

Specifically, we are proposing to

amend the definition of the term

‘‘Federal functional regulator’’ in

section 248.3(m) of Regulation S–P 60 to

add the CFTC to the list of regulators

contained in the current definition. We

are also proposing to amend the

definition of the term ‘‘financial

institution’’ in section 248.3(n) of

Regulation S–P 61 to eliminate the

exclusion for persons or entities with

respect to financial activities subject to

the jurisdiction of the CFTC under the

CEA.

In addition, we are proposing to

amend section 248.2 of Regulation S–

P 62 to provide that Security Futures

Product Broker-Dealers subject to and in

compliance with the CFTC’s financial

privacy rules would also be in

compliance with Regulation S–P. This

proposed amendment to Regulation S–

P would mirror a similar provision in

the financial privacy rules that the

CFTC has adopted.63

III. General Request for Comments

Any interested person wishing to

submit comments on Proposed Rules

15a–10, 15b11–1, and 15b11–2, and the

proposed amendments to Rule 15b2–2,

Form BD, and Regulation S–P is

requested to do so. In addition to the

specific requests for comment

throughout the release, we request

comments on all aspects of the proposal.

Further, we invite comment on other

matters that might have an effect on the

proposals contained in this release.

IV. Paperwork Reduction Act Analysis

Certain provisions of our proposals

regarding notice registration of brokerdealers contain ‘‘collection of

information’’ requirements within the

meaning of the Paperwork Reduction

Act of 1995 (44 U.S.C. section 3501 et

seq.) (‘‘PRA’’). The Commission has

submitted the proposal to the Office of

Management and Budget (‘‘OMB’’) for

review in accordance with the PRA

requirements in effect at this time. The

title for this collection of information:

‘‘Application for Registration as a

Broker or Dealer,’’ which the

Commission is proposing to amend,

contains a currently approved collection

of information under OMB control

number 3235–0012. The information

required by Form BD is mandatory and

the responses are not kept confidential.

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 proposed amendments to Form

BD are intended to provide the

Commission with information about

Security Futures Product BrokerDealers, particularly with respect to

34048 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

64The Commission uses the information

disclosed by applicants in Form BD to: (i)

Determine whether broker-dealer applicants meet

the standards for registration set forth in the

provisions of the Exchange Act; (ii) develop and

maintain a central information resource where

members of the public may obtain relevant, current

information about broker-dealers, municipal

securities dealers, and government securities

brokers or government securities dealers, and where

the Commission and other securities regulators may

obtain information for investigatory purposes; and

(iii) develop statistical information concerning

broker-dealers, municipal securities dealers, and

government securities brokers or government

securities dealers.

65 15 U.S.C. 78o(b)(11).

66These estimates are based on conversations

between Commission staff and CFTC staff.

67Securities Exchange Act Release No. 41594

(July 2, 1999), 64 FR 37586.

68Securities Exchange Act Release No. 41594

(July 2, 1999), 64 FR 37586.

69Securities Exchange Act Release No. 41594

(July 2, 1999), 64 FR 37586.

their satisfaction of the statutory

conditions for notice registration. The

proposed amendments are also intended

to elicit specific information about the

activities of broker-dealers regarding

security futures products.64 In addition

the Commission and self-regulatory

organizations use the information in

Form BD for investigatory purposes.

Moreover, members of the public use

the information in Form BD to obtain

relevant, up-to-date information about

broker-dealers.

As discussed above, the proposed

amendments to Form BD are primarily

intended to implement Exchange Act

section 15(b)(11).65 Specifically, the

proposed amendments would provide a

mechanism for futures commission

merchants and introducing brokers that

are registered with the CFTC to register

by notice with the Commission as

broker-dealers in order to effect

transactions in security futures

products.

There are approximately 200 futures

commission merchants registered with

the CFTC; Commission staff estimates

that 89 of those are also full brokerdealers. In addition, there are

approximately 1,610 introducing

brokers registered with the CFTC;

Commission staff estimates that 322 of

those are also full broker-dealers.66

Therefore, the Commission staff

estimates that approximately 1,399

futures commission merchants and

introducing brokers ((200–89 futures

commission merchants) + (1610–322

introducing brokers)) may potentially

become Security Futures Product

Broker-Dealers.

We have previously estimated that the

average time necessary to complete the

initial Form BD is approximately 2.75

hours.67 The time necessary to complete

Form BD will vary depending on the

nature and complexity of the Security

Futures Product Broker-Dealer’s

business. However, we believe that it

will take less time for a Security Futures

Product Broker-Dealer to complete Form

BD than it does for an applicant for

registration as a full broker-dealer

because Security Futures Product

Broker-Dealers are already required to

submit registration information to the

CFTC on Form 7–R that is substantially

similar to the information required by

Form BD. As a result, a Security Futures

Product Broker-Dealer should be able to

complete Form BD in large part by

transposing information that already

appears on its Form 7–R. Accordingly,

we estimate that the average time

necessary to complete Form BD by a

Security Futures Product Broker-Dealer

will be 2 hours. Therefore, we estimate

that total annual burden hours for all

Security Futures Product Broker-Dealers

filing Form BD is 2,798 hours (2.0 hours

× 1399 potential registrants).

Security Futures Product BrokerDealers will be required to file

amendments to Form BD when

information originally reported on Form

BD changes or becomes inaccurate. We

have previously estimated that the

average time necessary to complete an

amendment to Form BD is

approximately 20 minutes.68 For fiscal

year 2000, the Commission received

approximately 26,000 amendments from

a potential total of approximately 8,000

registered broker-dealers. Assuming

approximately 1,399 new broker-dealers

as a result of notice registration, the

number of registered broker-dealers

would increase by approximately 17.5%

from 8,000 to 9,399. Accordingly, we

estimate that there will be 17.5% more

amendments to Form BD, or 4,550

(26,000 amendments × 17.5%), as a

result of notice registration. Therefore,

we estimate that the total annual burden

hours for filing Form BD amendments

by broker-dealers registered by notice is

1,501 (4550 amendments per year × 0.33

hours per amendment).

In 1999, we estimated that the total

annual cost burden to registered brokerdealers for filing Form BD and Form BD

amendments was approximately

$195,000.69 Providing for an annual

inflation rate of approximately 3%, we

currently estimate that the annual cost

to registered broker-dealers for filing

Form BD and Form BD amendments is

approximately $206,876. As noted

above, we estimate that the number of

registered broker-dealers will increase

by approximately 17.5% as a result of

notice registration. We believe that the

cost burden for broker-dealers registered

by notice should be the same as it is for

full broker-dealers. Accordingly, we

estimate that the annual cost for filing

Form BD and Form BD amendments

will be approximately 17.5% of the

current annual cost. As a result, we

estimate that the total annual cost

burden for filing Form BD and Form BD

amendments by Security Futures

Product Broker-Dealers will be

approximately $36,203 ($206,876 ×

17.5%).

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

the Commission solicits comments to—

(i) Evaluate whether the proposed

collections of information are necessary

for the proper performance of the

functions of the agency, including

whether the information shall have

practical utility; (ii) Evaluate the

accuracy of the agency’s estimate of the

burden of the proposed collections of

information; (iii) Enhance the quality,

utility, and clarity of the information to

be collected; (iv) Minimize the burden

of the collections of information on

those who are to respond, including

through the use of automated collection

techniques or other forms of information

technology.

Persons desiring to submit comments

on the collection of information

requirements proposed above should

direct them to the following persons: (1)

Desk Officer for the Securities and

Exchange Commission, Office of

Information and Regulatory Affairs,

Office of Management and Budget,

Room 10102, New Executive Office

Building, Washington, DC 20503; and

Jonathan G. Katz, Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609 with reference to File No. S7–13–

01. OMB is required to make a decision

concerning the collections of

information between 30 and 60 days

after publication, so a comment to OMB

is best assured of having its full effect

if OMB receives it within 30 days of

publication. The Commission has

submitted the proposed collections of

information to OMB for approval.

Requests for the materials submitted to

OMB by the Commission with regard to

these collections of information should

be in writing, refer to File No. S7–13–

01, and be submitted to the Securities

and Exchange Commission, Records

Management, Office of Filings and

Information Services, 450 Fifth Street,

NW, Washington, DC 20549.

V. Costs and Benefits of the Proposed

Rulemaking

The Commission is considering the

costs and benefits of Proposed Rules

15a–10, 15b11–1, and 15b11–2, and the

proposed amendments to Form BD, Rule

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34049

70Pub. L. No. 106–554, Appendix E, 114 Stat.

2763.

71 15 U.S.c. 78o(b)(11)(A).

72 17 CFR 240.15b2–2.

73 7 U.S.C. 7b–2. Section 5g was added to the CEA

by the CFMA.

74 15 U.S.C. 78o(b)(11)(A).

75 15 U.S.C. 78o(b)(1).

76 15 U.S.C. 78o(a)(1).

15b2–2 and Regulation S–P. We are

sensitive to the costs and benefits that

might arise from compliance with our

rules and amendments, and we

understand that some of the proposals

we are announcing today will impose

costs on some persons or entities. The

majority of our proposals, however, are

necessary to implement provisions of

the CFMA.70 We believe that these

proposals will not impose any

significant costs other than those that

result from compliance with the CFMA.

A. Proposals Related to Security Futures

Products

We are proposing Exchange Act Rules

15b11–1 and 15b11–2 and amendments

to Form BD to prescribe the

requirements for futures commission

merchants and introducing brokers that

are registered with the CFTC to register

as broker-dealers pursuant to Exchange

Act section 15(b)(11)(A) 71 in order to

effect transactions in security futures

products. We are also proposing

Exchange Act Rule 15a–10 to provide

Security Futures Product Broker-Dealers

with a conditional exemption from

registration as full broker-dealers

pursuant to Exchange Act section

15(a)(1). In addition, we are proposing

conforming amendments to Exchange

Act Rule 15b–2.72

The proposed rules, form

amendments, and conforming

amendments respond to the mandate of

the CFMA which, among other things,

requires the Commission to prescribe,

by rule, the process for notice

registration to be used by Security

Futures Product Broker-Dealers. Our

proposals relating to security futures

products are being made primarily

pursuant to Exchange Act section

15(b)(11), which was added to the

Exchange Act by the CFMA.

B. Proposed Amendments to Regulation

S–P

We are proposing amendments to

update Regulation S–P to make it

consistent with CEA section 5g.73

Specifically, we are proposing to amend

the definitions of the terms ‘‘Federal

functional regulator’’ and ‘‘financial

institution.’’ In addition, we are

proposing to amend Regulation S–P to

provide that Security Futures Product

Broker-Dealers may comply with

Regulation S–P by complying with the

CFTC’s financial privacy rules.

C. Costs and Benefits of the Proposed

Rulemaking

1. Costs and Benefits of Proposed Rules

15a–10, 15b11–1, and 15b11–2,

Proposed Amendments to Form BD, and

Conforming Amendments to Rule 15b2–

2

We are proposing Rule 15b11–1 to set

forth the information that a registered

futures commission merchant or

introducing broker (collectively, ‘‘CFTC

Registrants’’) must submit to register as

a Security Futures Product BrokerDealer. Proposed Rule 15b11–1 would

require a CFTC Registrant registering as

a Security Futures Product BrokerDealer pursuant to Exchange Act section

15(b)(11)(A) 74 to file Form BD with the

Commission. Proposed Rule 15b11–2

would allow a Security Futures Product

Broker-Dealer to apply to become

registered as a full broker-dealer

pursuant to Exchange Act section

15(b)(1) 75 by filing an amendment to its

existing Form BD. The proposed

amendments to Form BD would

conform the form to Proposed Rules

15b11–1 and 15b11–2. Proposed Rule

15a–10 would conditionally permit

Security Futures Product Broker-Dealers

to effect transactions in security futures

products regardless of where they are

listed or traded without being subject to

the registration requirements of

Exchange Act section 15(a)(1).76 The

proposed amendments to Rule 15b2–2

would provide an exception for Security

Futures Product Broker-Dealers from the

requirements of that rule.

a. Benefits. Proposed Rule 15b11–1

provides for an expedited filing process

for a CFTC Registrant to become

registered with the Commission as a

Security Futures Product Broker-Dealer.

A Form BD submitted by a CFTC

Registrant as a notice of registration as

a Security Futures Product BrokerDealer will not require approval from

the Commission. In addition, the

information that a CFTC Registrant will

be required to submit on Form BD will

be substantially similar to the

information it must submit on its

registration form with the CFTC.

Therefore, we expect that it will take

less time for a CFTC Registrant to

complete Form BD than it would for a

broker-dealer filing an initial

application to become registered

pursuant to section 15(b)(1). Proposed

Rule 15b11–2 would permit a Security

Futures Product Broker-Dealer to apply

for registration as a full broker-dealer by

filing an amended Form BD with the

Commission, rather than having to

prepare a new Form BD. As a result, the

proposed rule should simplify the

registration process for Security Futures

Product Broker-Dealers that want to

become full broker-dealers. In addition,

Proposed Rules 15b11–1 and 15b11–2

would provide us with the information

that we need to ensure that Security

Futures Product Broker-Dealers meet the

statutory conditions for notice

registration.

Proposed Rule 15a–10 would

conditionally exempt Security Futures

Product Broker-Dealers from the

statutory requirement that they register

as full broker-dealers in order to effect

transactions in security futures products

that are listed or traded on a national

securities exchange or a national

securities association. This exemption

would relieve Security Futures Product

Broker-Dealers from a statutory limit on

their ability to effect transactions in

security futures products under their

notice registrations. In addition, we are

proposing an exception for Security

Futures Product Broker-Dealers from the

requirement in Rule 15b2–2 that they be

inspected within 6 months of becoming

registered. These proposals should

increase the types of business that

Security Futures Product Broker-Dealers

may engage in under their notice

registrations and reduce their regulatory

burdens.

In addition, our proposals regarding

security futures products will provide

us with information about Security

Futures Product Broker-Dealers that we

believe is crucial to know about any

broker-dealer. This information should

in turn enhance our ability to oversee

Security Futures Product Broker-Dealers

that effect transactions in security

futures products, which is critical to the

continued integrity of our markets. We

believe that our oversight of trading

activities in security futures products, in

conjunction with that of the CFTC,

should benefit the public and the

markets generally by helping to prevent

fraud and manipulation.

b. Costs. Proposed Rules 15b11–1 and

15b11–2 and the proposed amendments

to Form BD would require CFTC

Registrants to gather the information to

file with the Commission in order to

become Security Futures Product

Broker-Dealers. However, CFTC

Registrants are already required to

provide most of the information

required by Form BD to the CFTC on

Form 7–R. In addition, Security Futures

Product Broker-Dealers would be

required to file amendments to Form BD

when information originally reported on

Form BD changes or becomes

inaccurate. While the proposed rules

34050 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

77This proposed amendment to Regulation S–P

would mirror a similar provision in the financial

privacy rules that the CFTC has adopted. See

Privacy of Customer Information, 66 FR 21236

(April 27, 2001). 78 15 U.S.C. 78c(f). 79 15 U.S.C. 78w(a).

only address the process for notice

registration, a CFTC Registrant that

decides to effect transactions in security

futures products will, of course, have

expenses associated with being

registered as a broker-dealer.

Full broker-dealers that are currently

registered with the Commission would

have to amend Form BD if they engaged

in business in security futures products

that accounted for (or that they expected

to account for) 1% or more of their

annual revenue. However, those broker

dealers would have to amend their

forms simply to indicate that they were

engaged in that activity.

We believe that the proposed rules

and the proposed amendments to Form

BD have been designed to minimize

costs and should not result in

significant costs to any person or entity.

In addition, CFTC Registrants and full

broker-dealers would only be subject to

the proposals if they choose to engage

in business in security futures products.

2. Costs and Benefits of the Proposed

Amendments to Regulation S–P

We are proposing amendments to

Regulation S–P to update it in light of

amendments that the CFMA made to the

CEA. Specifically, the CFMA added

section 5g to the CEA to make the

privacy provisions of Title V of the

Gramm-Leach-Bliley Act (‘‘GLBA’’)

applicable to certain activity regulated

by the CFTC. We adopted Regulation S–

P pursuant to Title V of the GLBA and

before the CFMA was enacted. We are

proposing to amend the definition of the

term ‘‘Federal functional regulator’’ in

section 248.3(m) of Regulation S–P to

add the CFTC to the list of regulators

contained in the current definition. We

are also proposing to amend the

definition of the term ‘‘financial

institution’’ in section 248.3(n) of

Regulation S–P to eliminate the

exclusion relating to the CFTC and its

regulated entities. In addition, we are

proposing to amend section 248.2 of

Regulation S–P to provide that Security

Futures Product Broker-Dealers may

comply with Regulation S–P by

complying with the CFTC’s financial

privacy rules.77

a. Benefits. The proposed

amendments to Regulation S–P would

clarify its application and reduce

uncertainty that might result if the

definitions of the terms ‘‘federal

financial regulator’’ and ‘‘financial

institution’’ in Regulation S–P were not

amended in light of section 5g of the

CEA. Moreover, the proposed

amendments should benefit Security

Futures Product Broker-Dealers by

making it clear that they will be in

compliance with Regulation S–P if the

comply with the CFTC’s financial

privacy rules.

b. Costs. The proposed amendments

would not affect the operation of

Regulation S–P or impose any new

requirements on any person or entity.

As a result, we believe that the proposed

amendments to Regulation S–P would

not result in any additional costs to any

person or entity.

D. Request for Comment

To assist us in our evaluation of the

costs and benefits, we request comment

on the estimated costs and benefits that

might result from Proposed Rules 15a–

10, 15b11–1, and 15b11–2, and the

proposed amendments to Form BD, Rule

15b2–2 and Regulation S–P. In addition,

we request that commenters provide

analysis and data relating to the

anticipated costs and benefits associated

with our proposals, including any other

costs and benefits that have not been

considered here. In order to fully

evaluate the costs and benefits

associated with our proposals, we

request that commenters’ estimates of

the costs and benefits of the proposals

be accompanied by specific empirical

data supporting the estimates.

VI. Consideration of the Burden on

Competition, Promotion of Efficiency,

and Capital Formation

Section 3(f) of the Exchange Act 78

requires the Commission, when

engaging in a rulemaking requiring the

Commission to consider or determine

whether an action is necessary or

appropriate in the public interest, to

consider also whether the action will

promote efficiency, competition, and

capital formation. Proposed Rules

15b11–1 and 15b11–2, the proposed

amendments to Rule 15b2–2, and the

proposed amendments to Form BD

would provide CFTC Registrants with

an expedited process to register with the

Commission, which we preliminarily

believe would serve as an efficient and

cost-effective means for those entities to

meet their registration obligations with

respect to security futures products. In

addition, Proposed Rule 15a–10 should

improve the efficiency of the

marketplace by providing CFTC

Registrants the ability to effect

transactions in security futures products

on all markets on which the products

are listed and traded. We believe that

the rule is designed to bolster investor

confidence by increasing competition in

the markets for security futures

products, and to ensure that all

qualified market participants have the

opportunity to participate in those

markets. This should promote market

efficiency, competition and capital

formation.

Our proposal to amend Regulation S–

P should promote efficiency by

providing that Security Futures Product

Broker-Dealers will have to comply with

the financial privacy rules of only their

primary regulator. Because the only

purpose of the proposed amendments is

to update Regulation S–P in light of the

CFMA, we preliminarily believe that

our proposals will not adversely affect

capital formation.

Section 23(a)(2) of the Exchange

Act 79 requires the Commission, in

making rules under the Exchange Act, to

consider the impact that any such rule

would have on competition. In addition,

section 23(a)(2) prohibits the

Commission from adopting any rule that

would impose a burden on competition

not necessary or appropriate in

furtherance of the purposes of the

Exchange Act. The proposed rules and

amendments that we are announcing

today, which implement provisions of

the CFMA, would apply equally to all

affected entities. The proposals also

would provide the mechanism for

Security Futures Product Broker-Dealers

to enter the new market for security

futures products. All CFTC Registrants

that intend to effect transactions in

security futures products would use the

same procedures to register by notice

with the Commission, and the

conditions for notice registration would

apply equally to all CFTC Registrants. In

addition, the proposals would permit

Security Futures Product Broker-Dealers

to effect transactions in security futures

products regardless of the market on

which the products are listed or traded,

thereby allowing them to compete

evenly with full broker-dealers. As a

result, we preliminarily believe that the

proposals would not create any

anticompetitive effects and in fact

should promote competition. Moreover,

the proposed amendments to Regulation

S–P would not impact competition

because their only purpose is to update

Regulation S–P in light of the CFMA.

The Commission requests comment

on whether the proposed amendments

are expected to promote efficiency,

competition, and capital formation.

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34051

80 5 U.S.C. 603(a).

81 5 U.S.C. 605(b).

82 15 U.S.C. 78o(a), 78o(b), 78o–4(a)(2), 78o–

5(a)(2), and 78w(a).

83 15 U.S.C. 6804. 84 15 U.S.C. 78q and 78w(a).

VII. Regulatory Flexibility Act

Certification

Section 3(a) of the Regulatory

Flexibility Act 80 requires the

Commission to undertake an initial

regulatory flexibility analysis of the

effects of proposed rules and rule

amendments on small entities, unless

the Chairman certifies that the rules and

rule amendments, if adopted, would not

have a significant economic impact on

a substantial number of small entities.81

Proposed Rules 15b11–1, 15b11–2 and

15a–10, the proposed amendments to

Rule 15b2–2, and the proposed

amendments to Form BD would apply

to CFTC Registrants (including small

introducing brokers) that choose to

effect transactions in security futures

products. The Commission believes that

some small entities could be affected by

the proposals, but that the proposals

would not have a significant economic

impact on a substantial number of small

entities.

The proposed amendments to

Regulation S–P would apply to Security

Futures Product Broker-Dealers. The

proposed amendments would not affect

the operation of Regulation S–P or

impose any new requirements on any

entity. As a result, the Commission

believes that the proposed amendments

would not have a significant economic

impact on a substantial number of small

entities.

The Acting Chairman has certified

that the proposed rules and

amendments, if adopted, would not

have a significant economic impact on

a substantial number of small entities. A

copy of the certification is attached as

Appendix A.

For purposes of the Small Business

Regulatory Enforcement Fairness Act of

1996, the Commission is also requesting

information regarding the potential

impact of the proposed rules and rule

amendments on the economy on an

annual basis. Commenters should

provide empirical data to support their

views.

VIII. Statutory Basis

The Commission is proposing Rules

15a–10, 15b11–1, and 15b11–2 under

the Exchange Act and amendments to

Rule 15b2–2 and to Form BD under the

Exchange Act, pursuant to the Exchange

Act, particularly sections 15(a), 15(b),

and 23(a).82 The Commission is

proposing amendments to Regulation S–

P pursuant to section 504 of the GLBA 83

and Exchange Act sections 17 and

23(a).84

List of Subjects

17 CFR Part 240

Brokers, Confidential business

information, Fraud, Reporting and

recordkeeping requirements, Securities.

17 CFR Part 248

Brokers, Consumer protection,

Investment companies, Privacy,

Reporting and recordkeeping

requirements, Securities.

17 CFR Part 249

Brokers, Reporting and recordkeeping

requirements, Securities.

Text of Proposed New Rules and

Amendments

In accordance with the foregoing,

Title 17, Chapter II of the Code of

Federal Regulations is proposed to be

amended as follows:

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

1. The authority citation for part 240

continues to read in part as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,

77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j–1,

78k, 78k–1, 78l, 78m, 78n, 78o, 78p, 78q, 78s,

78u–5, 78w, 78x, 78ll, 78mm, 79q, 79t, 80a–

20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4

and 80b–11, unless otherwise noted.

* * * * *

2. By adding § 240.15a–10 to read as

follows:

§ 240.15a–10 Exemption of certain brokers

or dealers with respect to security futures

products.

(a) A broker or dealer that is registered

by notice with the Commission

pursuant to section 15(b)(11)(A) of the

Act (15 U.S.C. 78o(b)(11)(A)) will be

exempt from the registration

requirement of section 15(a)(1) of the

Act (15 U.S.C. 78o(a)(1)) solely to act as

a broker or a dealer in security futures

products.

(b) The exemption in paragraph (a) of

this section is not available to any

broker or dealer that is:

(1) A member of a national securities

exchange registered pursuant to section

6(a) of the Act (15 U.S.C. 78f(a)); or

(2) A member of a national securities

association registered pursuant to

section 15A(a) of the Act (15 U.S.C.

78o–3(a)).

3. By amending § 240.15b2–2 by:

a. At the end of paragraph (e)(2),

removing the word ‘‘or’’;

b. At the end of paragraph (e)(3),

removing the period and in its place

adding ‘‘; or’’; and

c. Adding paragraph (e)(4).

The addition reads as follows:

§ 240.15b2–2 Inspection of newly

registered brokers and dealers.

* * * * *

(e) * * *

(4) The member is registered with the

Commission pursuant to section

15(b)(11)(A) of the Act (15 U.S.C.

78o(b)(11)(A)).

4. By adding §§ 240.15b11–1 and

240.15b11–2 before the undesignated

center heading ‘‘Rules Relating to Overthe-Counter Markets’’ to read as follows:

§ 240.15b11–1 Registration by notice of

security futures product broker-dealers.

(a) A broker or dealer may register by

notice pursuant to section 15(b)(11)(A)

of the Act (15 U.S.C. 78o(b)(11)(A)) if it:

(1) Is registered with the Commodity

Futures Trading Commission as a

futures commission merchant or an

introducing broker, as those terms are

defined in the Commodity Exchange Act

(7 U.S.C. 1, et seq.), respectively;

(2) Is a member of the National

Futures Association or another national

securities association registered under

section 15A(k) of the Act (15 U.S.C.

78o–3(k));

(3) Is not a member of a national

securities exchange registered pursuant

to section 6(a) of the Act (15 U.S.C.

78f(a)) or of the National Association of

Securities Dealers, Inc. or another

national securities association registered

pursuant to section 15A(a) of the Act (15

U.S.C. 78o–3(a)); and

(4) Is not required to register as a

broker or dealer in connection with

transactions in securities other than

security futures products.

(b) A broker or dealer registering by

notice pursuant to section 15(b)(11)(A)

of the Act (15 U.S.C. 78o(b)(11)(A)) must

file Form BD (17 CFR 249.501) with the

Central Registration Depository

(operated by the National Association of

Securities Dealers, Inc.) in accordance

with the instructions to the form. A

broker or dealer registering by notice

pursuant to this section must indicate

where appropriate on Form BD that it

satisfies all of the conditions in

paragraph (a) of this section.

(c) An application for registration by

notice that is filed on Form BD (17 CFR

249.501) with the Central Registration

Depository pursuant to this section will

be considered a ‘‘report’’ filed with the

Commission for purposes of sections

15(b), 17(a), 18(a), 32(a) (15 U.S.C.

78o(b), 78q(a), 78r(a), 78ff(a)) and other

applicable provisions of the Act.

34052 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

§ 240.15b11–2 Conversion of notice

registration of security futures product

broker-dealers.

(a) A broker or dealer registered by

notice pursuant to section 15(b)(11)(A)

of the Act (15 U.S.C. 78o(b)(11)(A)) may

apply for registration pursuant to

section 15(b)(1) of the Act (15 U.S.C.

78o(b)(1)) by filing an amendment to

Form BD (17 CFR 249.501) with the

Central Registration Depository

(operated by the National Association of

Securities Dealers, Inc.) and indicating

where appropriate on Form BD that it is

making such an application.

(b) The registration by notice of a

broker or dealer that applies for

registration pursuant to paragraph (a) of

this section will remain in effect until

the broker or dealer has satisfied all of

the requirements for registration under

section 15(b)(1) of the Act (15 U.S.C.

78o(b)(1)). The broker or dealer may not

effect transactions in securities except

as permitted by section 15(b)(11) of the

Act (15 U.S.C. 78o(b)(11)) and

§§ 240.3a43–1, 240.3a44–1 and 240.15a–

10 until:

(1) The Commission issues an order

granting the registration of the broker or

dealer;

(2) The broker or dealer has been

approved for membership in a national

securities exchange registered under

section 6(a) of the Act (15 U.S.C. 78f(a))

or a national securities association

registered under section 15A(a) of the

Act (15 U.S.C. 78o–3(a)); and

(3) The broker or dealer has satisfied

any other conditions necessary to make

its registration effective.

(c) When the registration of the broker

or dealer pursuant to section 15(b)(1) of

the Act (15 U.S.C. 78o(b)(1)) has become

effective, the broker or dealer will no

longer be registered pursuant to section

15(b)(11)(A) of the Act (15 U.S.C.

78o(b)(11)(A)) and will be subject to all

provisions of the Act and regulations

thereunder applicable to it, including

with respect to its activity in security

futures products.

PART 248—REGULATION S–P:

PRIVACY OF CONSUMER FINANCIAL

INFORMATION

5. The authority citation for Part 248

continues to read as follows:

Authority: 15 U.S.C. 6801–6809; 15 U.S.C.

78q, 78w, 80a–30(a), 80a–37, 80b–4, and

80b–11.

6. By amending § 248.2 by designating

the current text as paragraph (a) and

adding paragraph (b) to read as follows:

§ 248.2 Rule of construction.

* * * * *

(b) Substituted Compliance with

CFTC Financial Privacy Rules by

Futures Commission Merchants and

Introducing Brokers. Any futures

commission merchant or introducing

broker (as those terms are defined in the

Commodity Exchange Act (7 U.S.C. 1, et

seq.)) registered by notice with the

Commission for the purpose of

conducting business in security futures

products pursuant to section

15(b)(11)(A) of the Securities Exchange

Act of 1934 (15 U.S.C. 78o(b)(11)(A))

that is subject to and in compliance

with the financial privacy rules of the

Commodity Futures Trading

Commission (17 CFR part 160) will be

deemed to be in compliance with this

part.

7. By amending § 248.3 by:

a. At the end of paragraph (m)(5),

removing the word ‘‘and’;

b. At the end of paragraph (m)(6),

removing the period and in its place

adding ‘‘; and’;

c. Adding paragraph (m)(7);

d. Removing paragraph (n)(2)(i); and

e. Redesignating paragraphs (n)(2)(ii)

and (n)(2)(iii) as paragraphs (n)(2)(i) and

(n)(2)(ii).

The addition reads as follows:

§ 248.3 Definitions.

* * * * *

(m) * * *

(7) The Commodity Futures Trading

Commission.

* * * * *

PART 249—FORMS, SECURITIES

EXCHANGE ACT OF 1934

8. The authority citation for part 249

continues to read in part as follows:

Authority: 15 U.S.C. 78a, et seq., unless

otherwise noted.

* * * * *

9. By revising Form BD (referenced in

§ 249.501) to read as set forth in

appendix B below:

Note: Form BD does not and the revisions

will not appear in the Code of Federal

Regulations. Revised Form BD is attached as

appendix B to this document.

By the Commission.

Dated: June 20, 2001.

Margaret H. McFarland,

Deputy Secretary.

Appendix A

Note: Appendix A to the preamble will not

appear in the Code of Federal Regulations.

Regulatory Flexibility Act Certification

I, Laura S. Unger, Acting Chairman of the

Securities and Exchange Commission

(‘‘Commission’’), hereby certify pursuant to 5

U.S.C. 605(b) that Proposed Rules 15b11–1,

15b11–2, and 15a–10 under the Securities

Exchange Act of 1934 (‘‘Exchange Act’’), the

proposed amendments to Rule 15b2–2 under

the Exchange Act, the proposed amendments

to Form BD, and the proposed amendments

to Regulation S–P, would not, if adopted,

have a significant economic impact on a

substantial number of small entities.

Proposed Rules 15b11–1, 15b11–2, and 15a–

10, and the proposed amendments to Form

BD would permit futures commission

merchants and introducing brokers registered

with the Commodity Futures Trading

Commission (‘‘CFTC Registrants’’) to register

with the Commission by notice as brokerdealers for the purpose of effecting

transactions in security futures products

(‘‘Security Futures Product Broker-Dealers’’).

Proposed Rule 15b11–1 would provide that

a CFTC Registrant must file its notice of

registration as a Security Futures Product

Broker-Dealer on Form BD. Proposed Rule

15b11–2 would provide that a notice

registrant broker-dealer could apply under

section 15(b)(1) of the Exchange Act to

become registered as a full broker-dealer by

filing an amendment to its Form BD.

Proposed Rule 15a–10 would provide

Security Futures Product Broker-Dealers with

an exemption from section 15(a)(1) of the

Exchange Act that would conditionally

permit them to effect transactions in security

futures products regardless of the market on

which they are listed or traded. The proposed

amendment to Rule 15b2–2 would provide

an exception for Security Futures Product

Broker-Dealers from the requirement that

broker-dealers be inspected by a selfregulatory organization within six months of

becoming registered. The proposed

amendments to Form BD would conform the

form to Proposed Rules 15b11–1 and 15b11–

2 and would provide information about all

registered broker-dealers’ activities in

security futures products. The only impact of

these proposals would be on broker-dealers,

futures commission merchants, and

introducing brokers that choose to do

business in security futures products. In

addition, the only requirement of the

proposals would be to provide information.

Accordingly the proposals, if adopted, would

not have a significant economic impact on a

substantial number of small entities.

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34053

The proposed amendments to Regulation

S–P would revise the definitions of the terms

‘‘Federal functional regulator’’ and ‘‘financial

institution,’’ in accordance with section 124

of the CFMA. In addition, the proposed

amendments to Regulation S–P would

provide that a notice registrant broker-dealer

could comply with Regulation S–P by

complying with the CFTC’s financial privacy

rules. The proposed amendments to

Regulation S–P would not have any effect on

the operation of Regulation S–P or impose

any new requirements on any entity.

Accordingly the proposed amendments to

Regulation S–P, if adopted, would not have

a significant economic impact on a

substantial number of small entities.

Dated: June 19, 2001.

Laura S. Unger,

Acting Chairman, Appendix B.

BILLING CODE 8010–01–P

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Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34059

34060 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34061

34062 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34063

34064 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34065

34066 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34067

34068 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34069

34070 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34071

34072 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34073

34074 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34075

34076 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34077

34078 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34079

34080 Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules

Federal Register / Vol. 66, No. 123 / Tuesday, June 26, 2001 / Proposed Rules 34081

[FR Doc. 01–15978 Filed 6–25–01; 8:45 am]

BILLING CODE 8010–01–C