Federal Register, Volume 81 Issue 7 (Tuesday, January 12, 2016)

[Federal Register Volume 81, Number 7 (Tuesday, January 12, 2016)]

[Proposed Rules]

[Pages 1359-1364]

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

[FR Doc No: 2016-00045]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 3

RIN 3038-AE16

Alternative to Fingerprinting Requirement for Foreign Natural

Persons

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

———————————————————————–

SUMMARY: The Commodity Futures Trading Commission (“Commission” or

“CFTC”) is proposing to amend existing Commission regulations to

establish an alternative to fingerprinting to evaluate the fitness of

natural persons who are required to submit fingerprints under the

Commission’s regulations and who have not resided in the United States

since reaching 18 years of age (“Proposal”).

DATES: Comments must be received on or before February 11, 2016.

ADDRESSES: You may submit comments, identified by RIN 3038-AE16, by any

of the following methods:

Agency Web site: Via its Comments Online process: http://comments.cftc.gov. Follow the instructions on the Web site for

submitting comments.

Mail: Send to Christopher Kirkpatrick, Secretary,

Commodity Futures Trading Commission, 1155 21st Street NW., Washington,

DC 20581.

Hand delivery/Courier: Same as Mail above.

Federal eRulemaking Portal: at http://www.regulations.gov/. Follow the 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

http://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,1 a petition for confidential treatment of the exempt

information may be submitted according to the procedures set forth in

Sec. 145.9 of the Commission’s regulations.2

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1 5 U.S.C. 552.

2 Commission regulations referred to herein are found at 17

CFR chapter. 1. Commission regulations are accessible on the

Commission’s Web site, http://www.cftc.gov.

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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 http://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: Katherine Driscoll, Associate Chief

Counsel, 202-418-5544, [email protected]; Jacob Chachkin, Special

Counsel, 202-418-5496, [email protected]; or Adam Kezsbom, Special

Counsel, 202-418-5372, [email protected], Division of Swap Dealer and

Intermediary Oversight, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

Subject to certain exceptions and exclusions, persons engaging in

specified activities involving commodity interests 3 are required

pursuant to the Commodity Exchange Act (“CEA” or “Act”) and/or

Commission regulations 4 to register with the Commission in certain

registration categories. These include registration as a futures

commission merchant (“FCM”), retail foreign exchange dealer

(“RFED”), introducing broker (“IB”), commodity pool operator

(“CPO”), commodity trading advisor (“CTA”), swap dealer (“SD”),

major

[[Page 1360]]

swap participant (“MSP”), leverage transaction merchant (“LTM”),

floor broker (“FB”), and floor trader (“FT”).5 One of the

critically important functions of registration is to allow the

Commission to ensure that all futures and swaps industry professionals

who deal with the public meet minimum standards of fitness and

competency.6 The fitness investigations that are part of the

registration process permit the Commission and/or its delegatees to (a)

uncover past misconduct that may disqualify an individual or entity

from registration and (b) help determine if such persons have disclosed

all matters required to be disclosed in their applications to become

registered with the Commission.7

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3 A commodity interest is (1) any contract for the purchase or

sale of a commodity for future delivery; (2) any contract, agreement

or transaction subject to a Commission regulation under section 4c

or 19 of the Commodity Exchange Act; (3) any contract, agreement or

transaction subject to Commission jurisdiction under section 2(c)(2)

of such Act; and (4) Any swap as defined in such Act, by the

Commission, or jointly by the Commission and the Securities and

Exchange Commission. 17 CFR 1.3(yy).

4 See, e.g., Commission regulation 3.4(a). 17 CFR 3.4(a).

5 For the definitions of these registration categories (other

than RFED), see Section 1a of the CEA and Commission regulation 1.3.

7 U.S.C. 1a and 17 CFR 1.3. For the definition of RFED, see

Commission regulation 5.1(h). 17 CFR 5.1(h).

6 See, e.g., Commodity Futures Trading Comm’n, Division of

Clearing and Intermediary Oversight, Public Report on the

Registration Program of the National Futures Association, June 2010,

at 1 (citing H.R. REP. NO. 97-565(I), at 48 (1982), reprinted in

1982 U.S.C.C.A.N. 3871, 3897-3899).

7 See http://www.nfa.futures.org/NFA-registration/index.HTML

(last visited Dec. 22, 2015), stating that “[t]he primary purposes

of registration are to screen an applicant’s fitness to engage in

business as a futures professional and to identify those individuals

and organizations whose activities are subject to federal

regulation.”

Pursuant to Commission regulation 3.60, the Commission may,

subject to some limitations, deny, grant with conditions, suspend,

revoke, or restrict registration to an applicant if the Commission

alleges and is prepared to prove that the registrant or applicant is

subject to one or more of the statutory disqualifications set forth

in section 8a(2), 8a(3) or 8a(4) of the Act. 17 CFR 3.60. Sections

8a(2) and 8a(3) of the Act contain an extensive list of matters that

provide grounds for refusing or conditioning an applicant’s

registration, including, without limitation, felony convictions,

commodities or securities law violations, bars or other adverse

actions taken by financial regulators, and willfully omitting to

state any material fact in an application. See 7 U.S.C. 12a(2) and

(3). See also Interpretative Statement With Respect to Section

8a(2)(C) and (E) and Section 8a(3)(J) and (M) of the Commodity

Exchange Act, Appendix A to part 3 of the Commission’s regulations.

—————————————————————————

Pursuant to the registration process for determining a registrant’s

fitness in part 3 of the Commission’s regulations, natural persons 8

that wish to be principals 9 or associated persons 10 of Commission

registrants, or who are responsible for entry of orders from an FB’s or

FT’s own account, are required to submit their fingerprints 11 (the

“Fingerprinting Requirement”).12

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8 As used herein, the terms “natural person” and

“individual” have the same meaning.

9 See the definition of principal in Commission regulation

3.1(a). 17 CFR 3.1(a).

10 An “associated person” is any natural person who is

associated in certain capacities with an FCM, RFED, IB, CPO, CTA,

SD, MSP, or LTM. 17 CFR 1.3(aa).

11 Currently, the Commission may, directly or indirectly,

require fingerprinting pursuant to Commission regulations

3.10(a)(2); 3.11(a)(1); 3.12(c)(3), d(2), f(3), or (i)(3);

3.40(a)(1), (a)(2), or (b); 3.44(a)(5) or (c); or 3.46(a)(3). 17 CFR

3.10(a)(2); 3.11(a)(1); 3.12(c)(3), d(2), f(3), and (i)(3);

3.40(a)(1), (a)(2), and (b); 3.44(a)(5) and (c); and 3.46(a)(3).

12 In support of its initial promulgation of the

fingerprinting requirements, the Commission stated that these

requirements “are necessary to permit improvements in the

Commission’s background checking of applicants for registration, to

permit positive identification of certain individuals with common

names, to reduce the number of applications filed by individuals who

are unfit for registration, and to facilitate fitness reviews of

registrants on a spot and periodic basis.” See Revision of

Registration Regulations; Final Rules; Designation of New Part, 45

FR 80485, 80485 (Dec. 5, 1980).

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The Commission has delegated to National Futures Association

(“NFA”), a registered futures association under Section 17 of the

CEA, the registration functions set forth in subparts A, B, and C of

part 3 of the Commission’s regulations, including the collection and

review of a completed Form 8-R 13 and related fingerprint submissions

from each natural person completing a Form 8-R.14 NFA, working with

law enforcement agencies, uses these fingerprints to conduct background

checks on these natural persons to assist in determining their fitness.

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13 Generally, Form 8-R is the Commission’s application for

natural persons that are associated persons or principals of a

registrant.

14 See 17 CFR 3.2(a).

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In December 2012, the Commission’s Division of Swap Dealer and

Intermediary Oversight (“DSIO”), in response to concerns raised by

industry participants that the Fingerprinting Requirement was unduly

burdensome to foreign natural persons and after considering those

concerns in light of the continued need to evaluate the fitness of

those persons, issued a no-action letter, CFTC Staff Letter No. 12-

49.15 CFTC Staff Letter No. 12-49 provides an alternative to

complying with the Fingerprinting Requirement for principals of LTMs,

FCMs, RFEDs, IBs, CPOs, CTAs, SDs, and MSPs that have not resided in

the United States since reaching 18 years of age. Subject to certain

conditions specified in the letter, DSIO staff stated that it would not

recommend that the Commission commence an enforcement action against

any such firm based solely upon that firm’s failure to submit with its

registration application a fingerprint card for each such principal.

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15 CFTC Staff Letter No. 12-49 (Dec. 11, 2012), available at

http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-49.pdf.

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To rely on the relief provided in CFTC Staff Letter No. 12-49, DSIO

staff required that any such firm submit, for each principal, either a

fingerprint card (as required under Commission regulation 3.10(a)(2))

or a certification, signed by a person with authority to bind such

firm, stating that: (1) A reasonable criminal history background check

using a reputable commercial service had been conducted; (2) such

criminal history background check did not reveal any matters that

constitute a disqualification under Sections 8a(2) or 8a(3) of the

CEA,16 other than those disclosed; and (3) such firm would maintain,

in accordance with Commission regulation 1.31, records documenting that

such criminal history background check was performed and the results of

such background check.17

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16 7 U.S.C. 12a(2) and (3).

17 CFTC Staff Letter No. 12-49, at 2.

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After issuing CFTC Staff Letter No. 12-49, DSIO staff issued

similar no-action relief from the Fingerprinting Requirement for

associated persons of FCMs, RFEDs, IBs, CTAs, CPOs, and LTMs that have

not resided in the United States since reaching 18 years of age in CFTC

Staff Letter No. 13-29 18 (CFTC Staff Letter No. 13-29, together with

CFTC Staff Letter No. 12-49, are the “DSIO No-Action Letters” and the

relief provided by such letters is the “DSIO No-Action Relief”).

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18 CFTC Staff Letter No. 13-29 (Jun. 21, 2013), available at

http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-29.pdf.

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II. Proposal

The Commission is proposing to amend the Fingerprinting Requirement

by adding a new sub-section (e) to the existing list of exemptions from

the Fingerprinting Requirement in Sec. 3.21 19 to codify and clarify

the DSIO No-Action Relief.

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19 Commission regulation 3.21 provides exemptions to the

Fingerprinting Requirement, subject to certain conditions, for

persons whose fingerprints have recently been identified and

processed by the Federal Bureau of Investigation, for persons whose

application for initial registration with the Commission in any

capacity was recently granted, for persons that have a current Form

8-R on file with the Commission or NFA, and for principals that are

outside directors. 17 CFR 3.21.

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This Proposal differs from the DSIO No-Action Relief. First, this

Proposal would extend the relief to certain natural persons connected

to FBs and FTs. Second, the Proposal would include all requirements to

provide a fingerprint card under Part 3 of the Commission’s

regulations, whereas the DSIO No-Action Relief is more limited.20 As

a result, this Proposal broadens the availability of the alternative to

fingerprinting provided in

[[Page 1361]]

the DSIO No-Action Letters; however, the Commission believes that the

rationale for providing the alternative to fingerprinting described

above is equally applicable to natural persons connected to FBs and FTs

and to all other requirements to provide a fingerprint card under Part

3 of the Commission’s regulations, as explained further below.

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20 The DSIO No-Action Letters provide an alternative solely to

the requirements of Commission regulations 3.10(a)(2) and

3.12(c)(3). See DSIO No-Action Letters.

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Proposed sub-section (e)(2) of Sec. 3.21 would provide that the

obligation to provide a fingerprint card for a Foreign Natural Person

under part 3 of the Commission’s regulations would be deemed satisfied

for a Certifying Firm (each, as defined below) if: (a) Such Certifying

Firm causes a criminal history background check of such Foreign Natural

Person to be performed; (b) such criminal history background check does

not reveal any matters that constitute a disqualification under

Sections 8a(2) or 8a(3) of the CEA,21 other than those disclosed to

NFA; and (c) a person authorized by such Certifying Firm submits, in

reliance on such criminal history background check, a certification by

such Certifying Firm to NFA.

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21 7 U.S.C. 12a(2) and (3).

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The certification must: (i) State that the conditions described

above have been satisfied; and (ii) be signed by a person authorized by

such Certifying Firm to make such certification. In addition, each

criminal history background check must: (a) Be of a type that would

reveal all matters listed under Sections 8a(2)(D) or 8a(3)(D), (E), or

(H) of the CEA 22 relating to the Foreign Natural Person and (b) be

completed not more than one calendar year prior to the date that such

Certifying Firm submits the certification to NFA described in the

proposed rule.

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22 7 U.S.C. 12a(2)(D) and 12a(3)(D), (E), and (H). These

provisions of Sections 8a(2) and (3) of the CEA generally relate to

criminal convictions.

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In terms of definitions, proposed paragraph 3.21(e)(1)(i) would

define Foreign Natural Person, solely for purposes of paragraph (e), as

any natural person who has not resided in the United States since

reaching the age of 18 years. Also, proposed paragraph 3.21(e)(1)(ii)

would define Certifying Firm, also solely for purposes of paragraph

(e), with respect to natural persons acting in certain specified

capacities in relation to the firm.

By way of recordkeeping, proposed paragraph 3.21(e)(3) would

require that the Certifying Firm maintain, in accordance with

Commission regulation 1.31, records documenting each criminal history

background check and the results thereof.

The Commission believes the proposal, in providing certainly to

market participants by way of Commission regulation, will make the

commodity interest markets it oversees more liquid, competitive, and

accessible by enabling Foreign Natural Persons to demonstrate that they

meet the minimum standards for fitness and competency without undue

burden. The alternative to fingerprinting proposed will remove an

impediment to participation in United States’ markets by persons

located outside of the United States while also ensuring the continued

protection of market participants and the public. Further, the

Commission believes that, by providing an alternative for persons

outside the United States, this Proposal is consistent with the

principles of international comity.

As discussed above, in an attempt to provide greater clarity to

market participants, this Proposal is slightly different than the DSIO

No-Action Letters. In particular, where the No-Action Relief required

that “a reasonable criminal history background check using a reputable

commercial service” be performed, this Proposal does not include the

terms “reasonable” or “reputable.” Instead, this Proposal requires

that the background check meet the objective standard described above,

which relies on the clearly-stated matters under Sections 8a(2)(D) and

8a(3)(D), (E), and (H) of the CEA. The Commission believes that using

such an objective standard (one that does not require a market

participant to make a subjective determination of what is

“reasonable” or “reputable” for purposes of the alternative)

furthers its goal of providing certainty to market participants while

allowing the Commission to continue to ensure the fitness of its

registrants.

If adopted, the proposed rule would supersede the DSIO No-Action

Letters without prejudice to those who are relying on either of the

DSIO No-Action Letters and have satisfied the requirements thereof

prior to the date hereof.

III. Request for Comments

The Commission requests comment generally on all aspects of this

Proposal. In particular, the Commission requests comment on the

following:

1. Should the Commission promulgate a final rule in relation to

this Proposal to provide an alternative to the Fingerprinting

Requirement for Foreign Natural Persons?

2. Please describe the burdens that Foreign Natural Persons face in

complying with the Fingerprinting Requirement. How are these burdens

different from those faced by natural persons that are not Foreign

Natural Persons?

3. Is the criminal history background check as set forth in the

Proposal sufficient to reveal the existence of all matters listed under

Sections 8a(2)(D) or 8a(3)(D), (E), or (H) of the CEA, if any such

matter existed? If not, please provide specific additional or

alternative requirements for the criminal history background check.

4. This Proposal is limited to Foreign Natural Persons (i.e.,

individuals who have not resided in the United States since reaching 18

years of age). Should the Commission use another measure to determine

whether an individual should be eligible for the proposed alternative

to the Fingerprinting Requirement?

5. This Proposal requires that a background check be completed not

more than one calendar year prior to the date of a Certifying Firm’s

related certification. Should the Commission require that the

background check be completed within a different period?

6. Are persons eligible for the DSIO No-Action Relief currently

availing themselves of that alternative to the Fingerprinting

Requirement? To the extent that such persons are not, please provide

reasons as to why they are not.

7. Are there any other matters that the Commission should consider

in determining whether to adopt this Proposal?

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”) 23 requires Federal

agencies, in promulgating regulations, to consider whether the rules

they propose will have a significant economic impact on a substantial

number of small entities and, if so, to provide a regulatory

flexibility analysis regarding the economic impact on those entities.

This Proposal would affect certain FCMs, RFEDs, IBs, CPOs, CTAs, SDs,

MSPs, LTMs, FBs, and FTs that wish to take advantage of the alternative

to fingerprinting to evaluate the fitness of their Foreign Natural

Persons for which fingerprints must be submitted to NFA.24 The

Commission has previously determined that FCMs, RFEDS, CPOs, SDs, MSPs,

and LTMs are not small

[[Page 1362]]

entities for purposes of the RFA.25 Therefore, the requirements of

the RFA do not apply to those entities. With respect to CTAs, FBs, FTs,

and IBs, the Commission has found it appropriate to consider whether

such registrants should be deemed small entities for purposes of the

RFA on a case-by-case basis, in the context of the particular

Commission regulation at issue.26 As certain of these registrants may

be small entities for purposes of the RFA, the Commission considered

whether this rulemaking would have a significant economic impact on

such registrants. This Proposal will solely provide an optional

alternative to complying with the Fingerprinting Requirement, which

already applies to such registrants, and would, therefore, not impose

any new regulatory obligations on affected registrants. This Proposal

is not expected to impose any new burdens on market participants.

Rather, to the extent that this Proposal provides an alternative means

to comply with the Fingerprinting Requirement and is elected by a

market participant, the Commission believes it is reasonable to infer

that the alternative is less burdensome to such participant. The

Commission does not, therefore, expect small entities to incur any

additional costs as a result of this Proposal. Consequently, the

Commission finds that no significant economic impact on small entities

will result from this Proposal.

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23 5 U.S.C. 601 et seq.

24 This Proposal will also directly affect certain of such

individuals; however, the Commission has noted that the RFA, by its

terms, does not apply to individuals. See 48 FR 14933, 14954 n.115

(Apr. 6, 1983). Therefore, no analysis on the economic impact of

this rule on individuals is provided.

25 See Policy Statement and Establishment of Definitions of

“Small Entities” for Purposes of the Regulatory Flexibility Act,

47 FR 18618 (Apr. 30, 1982) (FCMs and CPOs); Leverage Transactions,

54 FR 41068 (Oct. 5, 1989) (LTMs); Regulation of Off-Exchange Retail

Foreign Exchange Transactions and Intermediaries, 75 FR 55410, 55416

(Sept. 10, 2010) (RFEDs); and Registration of Swap Dealers and Major

Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (SDs and MSPs).

26 See 47 FR at 18620 (CTAs and FBs); Registration of Floor

Traders; Mandatory Ethics Training for Registrants; Suspension of

Registrants Charged With Felonies, 58 FR 19575, 19588 (Apr. 15,

1993) (FTs); and Introducing Brokers and Associated Persons of

Introducing Brokers, Commodity Trading Advisors and Commodity Pool

Operators; Registration and Other Regulatory Requirements, 48 FR

35248, 35276 (Aug. 3, 1983) (IBs).

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Accordingly, the Chairman, on behalf of the Commission, hereby

certifies pursuant to 5 U.S.C. 605(b) that this Proposal will not have

a significant economic impact on a substantial number of small

entities.

B. Paperwork Reduction Act

1. Background

The Paperwork Reduction Act of 1995 (“PRA”) 27 imposes certain

requirements on Federal agencies (including the Commission) in

connection with conducting or sponsoring any collection of information

as defined by the PRA. This Proposal would result in a collection of

information within the meaning of the PRA, as discussed below. The

Commission therefore is submitting this Proposal to the Office of

Management and Budget (“OMB”) for review.

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27 44 U.S.C. 3501 et seq.

—————————————————————————

This Proposal contains collections of information for which the

Commission has previously received control numbers from OMB. The titles

for these collections of information are “Commodity Pool Operators and

Commodity Trading Advisors: Amendments to Compliance Obligations, OMB

control number 3038-0023” 28 and “Registration of Swap Dealers and

Major Swap Participants, OMB control number 3038-0072.” 29

—————————————————————————

28 See OMB Control No. 3038-0023, http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0023# (last visited

Dec. 22, 2015). The collection is being retitled “Registration

Under the Commodity Exchange Act.”

29 See OMB Control No. 3038-0072, http://www.reginfo.gov/public/do/PRAOMBHistory?ombControlNumber=3038-0072# (last visited

Dec. 22, 2015).

—————————————————————————

The responses to these collections of information are mandatory. 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 issued by OMB.

The collection of information in this Proposal would provide an

optional alternative to complying with the Fingerprinting Requirement

(as described above). Eligible persons would have the option to elect

the certification process, but no obligation to do so. For this reason,

except to the extent that the Commission is amending the subject OMB

control numbers for PRA purposes to reflect the alternative

certification process, this Proposal is not expected to impose any new

burdens on market participants. Rather, to the extent that this

Proposal provides an alternative means to comply with the

Fingerprinting Requirement and is elected by market participants, it is

reasonable for the Commission to infer that the alternative is less

burdensome to such participants.

2. Revisions to Collections 3038-0023 and 3038-0072

Collections 3038-0023 and 3038-0072 are currently in force with

their control numbers having been provided by OMB.

As discussed above, this Proposal would add a new exemption that

would incorporate an alternative to fingerprinting to evaluate the

fitness of certain Foreign Natural Persons. In order to qualify for

this alternative, the Certifying Firm must take the steps required

pursuant to this Proposal, including submitting the required

certification to NFA and maintaining records of the criminal history

background check and the results thereof. Requiring such actions would

result in revisions to collections 3038-0023 and 3038-0072. Therefore,

the Commission proposes to revise each of collections 3038-0023 and

3038-0072.

The Commission understands that NFA has received approximately 110

requests in each of 2014 and 2015 from market participants asking to

avail themselves of the DSIO No-Action Relief. However, as discussed

above, the relief provided by this Proposal is broader than the DSIO

No-Action relief in that it extends the relief to certain natural

persons connected to FBs and FTs. Therefore, the Commission estimates

that Certifying Firms will submit 200 certifications per year to take

advantage of the alternative provided in this Proposal.

As of November 23, 2015, there were (i) 9,259 Commission-registered

FCMs, RFEDs, IBs, CPOs, CTAs, LTMs, FBs, and FTs and (ii) 103

Commission-registered SDs and MSPs, making an aggregate total of 9,362

registrants.30 Of these registrants, SDs and MSPs make up

approximately 1% and the other registrants make up approximately 99%.

Based on the assumption that there is an equal distribution of

certifications among the Certifying Firms eligible to provide them, the

Commission estimates that approximately 198 31 FCMs, RFEDs, IBs,

CPOs, CTAs, LTMs, FBs, and FTs and 2 32 SDs and MSPs will submit the

required certification.

—————————————————————————

30 These numbers are slightly overstated, as certain

registrants are registered as SDs or MSPs and as an FCM, RFED, IB,

CPO, CTA, LTM, FB, or FT.

31 198 was calculated by multiplying the number of estimated

requests per year (200) by the proportion of registrants discussed

above that are FCMs, RFEDs, IBs, CPOs, CTAs, LTMs, FBs, or FTs

(approximately 99%).

32 2 was calculated by multiplying the number of estimated

requests per year (200) by the proportion of registrants discussed

above that are SDs or MSPs (approximately 1%).

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a. Estimated Additional Hour Burden for Collection 3038-0023

Collection 3038-0023 relates to collections of information from

FCMs, RFEDs, IBs, CPOs, CTAs, LTMs, FBs, and FTs. Based on the above,

the estimated additional hour burden for collection 3038-0023 of 495

hours is calculated as follows:

Number of registrants: 198.

[[Page 1363]]

Frequency of collection: As needed.

Estimated annual responses per registrant: 1.

Estimated aggregate number of annual responses: 198.

Estimated annual hour burden per registrant: 2.5.33

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33 This collection’s burdens are restricted to (i) registrants

providing necessary information to commercial service provider(s) to

conduct a criminal history background check for a Foreign Natural

Person; (ii) registrants preparing and submitting the certification

described herein; and (iii) registrants maintaining, in accordance

with Commission regulation 1.31, records documenting that the

criminal history background check was completed and the results

thereof. To the extent that a market participant instead elects to

conduct the background check internally, it is reasonable for the

Commission to infer that doing so is less burdensome to such

participant.

—————————————————————————

Estimated aggregate annual hour burden: 495 (198 registrants x 2.5

hours per registrant).

b. Estimated Additional Hour Burden for Collection 3038-0072

Collection 3038-0072 relates to collections of information from SDs

and MSPs. Based on the above, the estimated additional hour burden for

collection 3038-0072 of 5 hours is calculated as follows:

Number of registrants: 2.

Frequency of collection: As needed.

Estimated annual responses per registrant: 1.

Estimated aggregate number of annual responses: 2.

Estimated annual hour burden per registrant: 2.5.34

—————————————————————————

34 See n.33, supra.

—————————————————————————

Estimated aggregate annual hour burden: 5 (2 registrants x 2.5

hours per registrant).

3. Information Collection Comments

The Commission invites the public and other Federal agencies to

comment on any aspect of the proposed information collection

requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the

Commission solicits comments in order to: (1) Evaluate whether the

proposed collection of information is necessary for the proper

performance of the functions of the Commission, including whether the

information will have practical utility; (2) evaluate the accuracy of

the Commission’s estimate of the burden of the proposed collection of

information; (3) determine whether there are ways to enhance the

quality, utility, and clarity of the information to be collected; and

(4) minimize the burden of the collection of information on those who

are to respond, including through the use of automated collection

techniques or other forms of information technology.

Comments may be submitted directly to the Office of Information and

Regulatory Affairs, by fax at (202) 395-6566, or by email at

[email protected]. Please provide the Commission with a copy

of submitted comments so that all comments can be summarized and

addressed in the final rule preamble. Refer to the ADDRESSES section of

this notice of proposed rulemaking for comment submission instructions

to the Commission. A copy of the supporting statements for the

collection of information discussed above may be obtained by visiting

http://RegInfo.gov. OMB is required to make a decision concerning the

collection of information between 30 and 60 days after publication of

this document in the Federal Register. Therefore, a comment is best

assured of having its full effect if OMB receives it within 30 days of

publication.

C. Cost-Benefit Considerations

Section 15(a) of the Act 35 requires the Commission to consider

the costs and benefits of its actions before issuing a regulation under

the Act. Section 15(a) further specifies that the costs and benefits

shall be evaluated in light of the following five broad areas of market

and public concern: (i) Protection of market participants and the

public; (ii) efficiency, competitiveness and financial integrity of

futures markets; (iii) price discovery; (iv) sound risk management

practices; and (v) other public interest considerations. The Commission

considers the costs and benefits resulting from its discretionary

determinations with respect to the Section 15(a) considerations.

—————————————————————————

35 7 U.S.C. 19(a).

—————————————————————————

1. Costs

a. Costs to FCMs, RFEDs, IBs, CPOs, CTAs, SDs, MSPs, LTMs, FBs, FTs,

Associated Persons, and Other Foreign Natural Persons

Because this Proposal will solely provide an optional alternative

to complying with the Fingerprinting Requirement, which alternative no

FCM, RFED, IB, CPO, CTA, SD, MSP, LTM, FB, FT, associated person, or

other Foreign Natural Person is required to elect, the Commission

believes that this Proposal will not impose any costs on such persons.

b. Other Costs

Because the amendment to Commission regulation will allow FCMs,

RFEDs, IBs, CPOs, CTAs, SDs, MSPs, LTMs, FBs, and FTs to submit,

subject to the terms and conditions herein, a certification in lieu of

a fingerprint card for Foreign Natural Persons, NFA will need to

develop a process to review and retain such certifications and consider

amending its applications and/or other forms to reflect the

availability of this exception from the Fingerprinting Requirement. The

Commission expects that the costs of such activities will not be

significant.

2. Benefits

The Commission believes that, by establishing an alternative method

for evaluating the fitness of Foreign Natural Persons for whom a

fingerprint card must currently be submitted, this Proposal would help

keep the United States’ commodity interest markets accessible and

competitive with other markets around the world by removing an

impediment to participation in United States’ markets by persons

located outside of the United States while also ensuring the continued

protection of market participants and the public. Further, the

Commission believes that, by providing an alternative for persons

outside the United States, this Proposal is consistent with the

principles of international comity.

3. Section 15(a) Factors

Section 15(a) of the CEA requires the Commission to consider the

costs and benefits of its actions before promulgating a regulation

under the CEA or issuing certain orders. 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: (i) Protection of market

participants and the public; (ii) efficiency, competitiveness, and

financial integrity of futures markets; (iii) price discovery; (iv)

sound risk management practices; and (v) other public interest

considerations.

i. Protection of Market Participants and the Public

This Proposal will continue to protect the public by ensuring that

persons who are currently subject to the Fingerprinting Requirement,

whether or not they reside in the United States, must have their

fitness reviewed through the completion of a background check.

ii. Efficiency, Competitiveness, and Financial Integrity of Markets

This Proposal may increase the efficiency and competitiveness of

the markets by encouraging more participation in United States markets

by persons located outside of the United States. The Commission does

not believe that the integrity of financial

[[Page 1364]]

markets would be harmed, because this proposal requires that the

background check meet the objective standards which rely on the

clearly-stated matters under Sections 8a(2)(D) and 8a(3)(D), (E), and

(H) of the CEA.

iii. Price Discovery

The Commission generally believes that providing an alternative

means of ensuring the fitness of a person who resides outside the

United States for purposes of Commission registration, by reducing the

burden that the Fingerprinting Requirement could impose on such

persons, could reduce impediments to transact on a cross-border basis.

iv. Sound Risk Management Practices

As explained above, one of the critically important functions of

registration is to allow the Commission to ensure that all futures and

swaps industry professionals who deal with the public meet minimum

standards of fitness and competency.36 The fitness investigations

that are part of the registration process permit the Commission and/or

its delegatees to (a) uncover past misconduct that may disqualify an

individual or entity from registration and (b) help determine if such

persons have disclosed all matters required to be disclosed in their

applications to become registered with the Commission.37 Having

futures and swaps market participants that are not subject to any of

the matters that would lead to a disqualification of registration under

Sections 8a(2) or (3) of the CEA is one way to help ensure that a

Commission registrant will not be a risk to its customers or to the

market in general.

—————————————————————————

36 See n.6, supra.

37 See n.7, supra.

—————————————————————————

v. Other Public Interest Considerations

The Commission believes that, by providing an alternative for

persons outside the United States, this Proposal is consistent with the

principles of international comity.

vi. Request for Comments

The Commission invites public comment on its cost-benefit

considerations, including the Section 15(a) factors described above.

Commenters are also invited to submit any data or other information

that they may have quantifying or qualifying the costs and benefits of

this Proposal with their comment letters.

List of Subjects in 17 CFR Part 3

Associated persons, Brokers, Commodity futures, Commodity pool

operators, Commodity trading advisors, Customer protection,

Fingerprinting, Foreign exchange, Futures commission merchants,

Introducing brokers, Leverage transaction merchants, Leverage

transactions, Major swap participants, Principals, Registration,

Reporting and recordkeeping requirements, Retail foreign exchange

dealers, Swap dealers, Swaps.

For the reasons set forth in the preamble, the Commodity Futures

Trading Commission proposes to amend part 3 as follows:

PART 3–REGISTRATION

0

1. The authority citation for part 3 continues to read as follows:

Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1,

6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12,

12a, 13b, 13c, 16a, 18, 19, 21, 23.

0

2. In Sec. 3.21, add paragraph (e) to read as follows:

Sec. 3.21 Exemption from fingerprinting requirement in certain cases.

* * * * *

(e) Foreign Natural Persons. (1) For purposes of this paragraph

(e):

(i) The term foreign natural person means any natural person who

has not resided in the United States since reaching the age of 18

years.

(ii) The term certifying firm means:

(A) For any natural person that is a principal or associated person

of a futures commission merchant, retail foreign exchange dealer, swap

dealer, major swap participant, introducing broker, commodity pool

operator, commodity trading advisor, leverage transaction merchant,

floor broker, or floor trader, such futures commission merchant, retail

foreign exchange dealer, swap dealer, major swap participant,

introducing broker, commodity pool operator, commodity trading advisor,

leverage transaction merchant, floor broker, or floor trader; and

(B) For any natural person that is responsible for, or directs, the

entry of orders from a floor broker’s or floor trader’s own account,

such floor broker or floor trader.

(2) Any obligation in this part to provide a fingerprint card for a

foreign natural person shall be deemed satisfied with respect to a

certifying firm if:

(i) Such certifying firm causes a criminal history background check

of such foreign natural person to be performed; and

(ii) The criminal history background check:

(A) Is of a type that would reveal all matters listed under

Sections 8a(2)(D) or 8a(3)(D), (E), or (H) of the Act relating to such

foreign natural person;

(B) Does not reveal any matters that constitute a disqualification

under Sections 8a(2) or 8a(3) of the Act, other than those disclosed to

the National Futures Association; and

(C) Is completed not more than one calendar year prior to the date

that such certifying firm submits the certification described in

paragraph (e)(2)(iii) of this section;

(iii) A person authorized by such certifying firm submits, in

reliance on such criminal history background check, a certification by

such certifying firm to the National Futures Association, that:

(A) States that the conditions of paragraphs (e)(2)(i) and (ii) of

this section have been satisfied; and

(B) Is signed by a person authorized by such certifying firm to

make such certification.

(3) The certifying firm shall maintain, in accordance with Sec.

1.31 of this chapter, records documenting that the criminal history

background check performed pursuant to paragraph (e)(2)(i) of this

section was completed and the results thereof.

Issued in Washington, DC, on January 4, 2016, by the Commission.

Robert N. Sidman,

Deputy Secretary of the Commission.

Note: The following appendix will not appear in the Code of

Federal Regulations.

Appendix to Alternative to Fingerprinting Requirement for Foreign

Natural Persons–Commission Voting Summary

On this matter, Chairman Massad and Commissioners Bowen and

Giancarlo voted in the affirmative. No Commissioner voted in the

negative.

[FR Doc. 2016-00045 Filed 1-11-16; 8:45 am]

BILLING CODE 6351-01-P

 

Last Updated: January 12, 2016