Federal Register, Volume 78 Issue 67 (Monday, April 8, 2013)[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]

[Proposed Rules]

[Pages 20848-20849]

From the Federal Register Online via the Government Printing Office [www.gpo.gov]

[FR Doc No: 2013-07538]

[[Page 20848]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 23

RIN 3038-AE00

Swap Dealers and Major Swap Participants; Clerical or Ministerial

Employees

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

is proposing to amend its regulations (Proposal) to clarify certain

responsibilities of a swap dealer (SD) or major swap participant (MSP)

regarding its employees who solicit, accept or effect swaps in a

clerical or ministerial capacity.

DATES: Comments must be received on or before June 7, 2013.

ADDRESSES: You may submit comments, identified by RIN number 3038-AE00,

by any of the following methods:

Agency Web site: http://www.cftc.gov.

Mail: Secretary of the Commission, Commodity Futures

Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,

Washington, DC 20581.

Hand Delivery/Courier: Same as Mail, above.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow instructions for submitting comments.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

www.cftc.gov. You should submit only information that you wish to make

available publicly. If you wish the Commission to consider information

that is exempt from disclosure under the Freedom of Information Act, a

petition for confidential treatment of the exempt information may be

submitted according to the procedure established in CFTC Regulation

145.9.1

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1 The Commission’s regulations are found at 17 CFR Ch. I

(2012) and can be accessed through the Commission’s Web site,

www.cftc.gov.

_____________________________________-

The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse or remove any or all of your

submission from www.cftc.gov that it may deem to be inappropriate for

publication, such as obscene language. All submissions that have been

redacted or removed that contain comments on the merits of the

rulemaking will be retained in the public comment file and will be

considered as required under the Administrative Procedure Act and other

applicable laws, and may be accessible under the Freedom of Information

Act.

FOR FURTHER INFORMATION CONTACT: Christopher W. Cummings, Special

Counsel, (202) 418-6700, [email protected], or Barbara S. Gold,

Associate Director, (202) 418-6700, [email protected], Division of Swap

Dealer and Intermediary Oversight, Commodity Futures Trading

Commission, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act

(Dodd-Frank Act) 2 was signed into law July 21, 2010. The Dodd-Frank

Act amended the Commodity Exchange Act (CEA or Act) 3 to require the

registration of SDs and MSPs, and to establish a comprehensive new

regulatory framework for swaps. One such amendment was new CEA Section

4s(b)(6), which states: that except to the extent otherwise

specifically provided by rule, regulation, or order, it shall be

unlawful for a swap dealer or a major swap participant to permit any

person associated with a swap dealer or a major swap participant who is

subject to a statutory disqualification to effect or be involved in

effecting swaps on behalf of the swap dealer or major swap participant,

if the swap dealer or major swap participant knew, or in the exercise

of reasonable care should have known, of the statutory disqualification

[“Prohibition”].

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2 See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

Dodd-Frank Act can also be accessed through the Commission’s Web

site.

3 7 U.S.C. 1 et seq. The CEA also can be accessed through the

Commission’s Web site.

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A related amendment that the Dodd-Frank Act made was to add a

definition of “associated person of a swap dealer or major swap

participant” in new CEA Section 1a(4), which states that the term

“associated person of a swap dealer or major swap participant” means

a person who is associated with a swap dealer or major swap participant

as a partner, officer, employee, or agent (or any person occupying a

similar status or performing similar functions), in any capacity that

involves the solicitation or acceptance of swaps; or the supervision of

any person or persons so engaged. Other than for purposes of CEA

section 4s(b)(6), the term “associated person of a swap dealer or

major swap participant” does not include any person associated with a

swap dealer or major swap participant the functions of which are solely

clerical or ministerial.

Thus, except to the extent that the Commission specifically

provided by rule, regulation, or order, an SD or MSP would be subject

to the prohibition against permitting a person associated with the SD

or MSP (including a person employed in a clerical or ministerial

capacity) to effect or be involved in effecting swaps if the associated

person were subject to a statutory disqualification.

On January 19, 2012, the Commission published in the Federal

Register regulations that provide for the registration of SDs and

MSPs.4 Among these new regulations were Regulation 1.3(aa)(6), which

amended the existing definition of “associated person” in the

Commission’s regulations to include associated persons of SDs and MSPs,

and Regulation 23.22, which incorporated the prohibition set forth in

CEA Section 4s(b)(6). Specifically, Regulation 1.3(aa)(6) (17 CFR

1.3(aa)(6) provides that the term “associated person” means any

natural person who is associated in any of the following capacities

with a swap dealer or major swap participant as a partner, officer,

employee, agent (or any natural person occupying a similar status or

performing similar functions), in any capacity that involves the

solicitation or acceptance of swaps (other than in a clerical or

ministerial capacity); or the supervision of any person or persons so

engaged.

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4 See 77 FR 2613 (Jan. 19, 2012).

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The exclusion in Regulation 1.3(aa)(6) from the definition of

associated person of an SD or MSP for persons who act in a clerical or

ministerial capacity is consistent with the definition (and exclusion

for clerical or ministerial activity) in the other provisions in

Regulation 1.3(aa) that define the term “associated person” in the

context of other Commission registrants.5

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5 See also CEA Section 4k(1), which excludes from associated

person registration a person who, in a clerical or ministerial

capacity, solicits or accept customer orders for a futures

commission merchant or an introducing broker.

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II. The Proposal

Regulation 23.22, by its terms, applies to an associated person of

an SD or MSP “as defined in section 1a(4) of the Act and [Regulation]

1.3(aa).” Because Regulation 1.3(aa)(6) contains a general exclusion

from the associated person definition for a person employed in a

clerical or ministerial capacity, and the exclusion in CEA Section

1a(4) must be read in conjunction with CEA Section 4s(b)(6), the

National Futures

[[Page 20849]]

Association (NFA) 6 has recommended that the Commission clarify that

the prohibition in CEA Section 4s(b)(6) does not bar association with

an SD or MSP by employees who are employed in a clerical or ministerial

capacity.

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6 Letter from Thomas W. Sexton, Senior Vice President and

General Counsel, NFA, to Gary Barnett, Director of the Division of

Swap Dealer and Intermediary Oversight, dated November 12, 2012. NFA

is a registered futures association (and the sole association so

registered) under CEA Section 17.

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In light of NFA’s recommendation, and in accordance with the

language in CEA Section 4s(b)(6) that qualifies the Prohibition

(“Except to the extent otherwise specifically provided by rule,

regulation, or order”), the Commission is proposing to amend paragraph

(a) of Regulation 23.22 to clarify that the Prohibition does not apply

to an individual employed by an SD or MSP in a clerical or ministerial

capacity.7

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7 In this regard, the Commission notes that pursuant to this

authority in CEA Section 4s(b)(6), it previously adopted an

exception from the Prohibition for a person already listed as a

principal of, or already registered as an associated person of,

another Commission registrant, notwithstanding a statutory

disqualification. See Regulation 23.22(b), proviso.

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III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) 8 requires that agencies, in

proposing regulations, consider the impact of those regulations on

small businesses.9 The Commission previously has determined that SDs

and MSPs are not “small entities” for RFA purposes.10 Moreover, as

is explained below, if adopted, the Proposal will not have a

significant economic impact on any person who would be affected

thereby, because it will not impose any additional operational

requirements or otherwise direct or confine the activities of affected

persons. Accordingly, the Chairman hereby certifies pursuant to 5

U.S.C. 605(b) that the Proposal will not have a significant economic

impact on a substantial number of small entities.

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8 5 U.S.C. 601 et seq. (2006).

9 By its terms, the RFA does not apply to “individuals.” See

48 FR 14933, n. 115 (Apr. 6, 1983).

10 See 77 FR 2613, 2620 (Jan. 19, 2012).

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B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) 11 imposes certain

requirements on Federal agencies (including the Commission) in

connection with their conducting or sponsoring any collection of

information as defined by the PRA. The Commission believes that the

Proposal will not impose new recordkeeping or information collection

requirements that require approval by the Office of Management and

Budget under 44 U.S.C. 3501, et seq. Accordingly, the PRA does not

apply to this rulemaking.

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11 44 U.S.C. 3501 et seq.

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C. Cost-Benefit Considerations

CEA Section 15(a) requires the Commission to consider the costs and

benefits of its actions before issuing a rulemaking under the CEA. CEA

Section 15(a) further specifies that the costs and benefits shall be

evaluated in light of five broad areas of market and public concern:

(1) Protection of market participants and the public; (2) efficiency,

competitiveness and financial integrity of futures markets; (3) price

discovery; (4) sound risk management practices; and (5) other public

interest considerations. The Commission considers the costs and

benefits resulting from its discretionary determinations with respect

to the Section 15(a) factors.

Summary of the Proposal. As is explained above, the Proposal would

make a clarifying change to the text of one of the Commission’s

regulations that were adopted to reflect changes made to the CEA by the

Dodd-Frank Act, by specifying that the prohibition against an SD or MSP

permitting a statutorily disqualified person to associate with it does

not include a person employed in a clerical or ministerial capacity.

Costs. With respect to costs, the Commission believes that the

Proposal will not impose any costs. This is because the Proposal would

clarify that an SD or MSP need not consider whether CEA section

4s(b)(6) applies to employees performing clerical or ministerial

duties. Thus the Commission proposes that there will be little (if any)

costs to persons who will be affected by the Proposal.

Benefits. With respect to benefits, the Commission proposes that

the Proposal will benefit SDs and MSPs by reducing the search costs

associated with determining whether a clerical or ministerial employee

is statutorily disqualified. This, in turn, mitigates the cost of

compliance with CEA Section 4s(b)(6).

Public Comment. The Commission invites public comment on its cost-

benefit considerations. Commenters are also invited to submit any data

or other information that they may have quantifying or qualifying the

costs and benefits of the Proposal with their comment letters.

List of Subjects in 17 CFR Part 23

Associated persons, Commodity futures, Major swap participants,

Ministerial or clerical employees, Registration, Statutory

disqualification, Swap dealers, Swaps.

For the reasons presented above, the Commission hereby proposes to

amend chapter I of title 17 of the Code of Federal Regulations as

follows:

PART 23–SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

0

1. The authority citation for part 23 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,

9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, and 21.

0

2. Section 23.22 is amended by revising the section heading and

paragraph (a) to read as follows:

Sec. 23.22 Prohibition against statutory disqualification in the case

of an associated person of a swap dealer or major swap participant.

(a) Definition. For purposes of this section, the term “person”

means an “associated person of a swap dealer or major swap

participant” as defined in section 1a(4) of the Act and Sec.

1.3(aa)(6) of this chapter, but does not include an individual employed

in a clerical or ministerial capacity.

* * * * *

Issued in Washington, DC, on March 27, 2013, by the Commission.

Christopher J. Kirkpatrick,

Deputy Secretary of the Commission.

[FR Doc. 2013-07538 Filed 4-5-13; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: April 8, 2013