2019-04297. Revised Registration Form 7-R

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Notice of revised form.

SUMMARY:

The Commodity Futures Trading Commission (the “Commission” or “CFTC”) is revising its Form 7-R, the application form that entities must use to register with the Commission as a commodity pool operator, commodity trading advisor, introducing broker, floor trader firm, retail foreign exchange dealer, futures commission merchant, leverage transaction merchant, swap dealer, or major swap participant (collectively, “applicants”).

DATES:

Implementation date: The new, revised version of Form 7-R shall be implemented (and the prior version shall be superseded) as of the date upon which the National Futures Association (“NFA”) makes the new, revised version of the Form 7-R available on the NFA website for use by applicants.

FOR FURTHER INFORMATION CONTACT:

Matthew Kulkin, Director, 202-418-5213, [e-mail]; or Christopher Cummings, Special Counsel, 202-418-5445, [e-mail], Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

Entities that engage in certain specified business in the derivatives markets regulated by the Commission are required to register with the Commission by filing a completed Form 7-R with NFA.^[1] These applicants include: Futures commission merchants, retail foreign exchange dealers, introducing brokers, commodity trading advisors, commodity pool operators, leverage transaction merchants, swap dealers, major swap participants, and floor trader firms.^[2] Applicants have been required to use Form 7-R since 1977.^[3] In the past, Form 7-R also was used to register with NFA and to apply for NFA membership.

Form 7-R requests information about the applicant that can be used to assess the applicant's fitness to engage in business in the registration categories referenced above. Although Form 7-R is a Commission form, it is maintained and used primarily by the NFA.^[4] Pursuant to section 17(o) of the Commodity Exchange Act (“Act”),^[5] Regulation 3.2,^[6] and a series of orders, the Commission delegated to NFA certain registration functions including, among other things, the processing of all Form 7-R filings.^[7] Since the first delegation to NFA in 1983, NFA has developed substantial expertise in registration matters, including reviewing and processing completed Forms 7-R. In 2002, with the approval of the Commission, NFA transitioned from a paper-based registration system to an online registration system that utilizes, among other things, an electronic version of Form 7-R.^[8]

II. Revisions to Commission Form 7-R

NFA has requested that the Commission make several changes to Form 7-R.^[9] Upon consideration of NFA's request, the Commission is revising and updating Form 7-R. In addition, the Commission is updating the Form 7-R Privacy Act and Paperwork Reduction Act Statements. The Form 7-R revisions are described in this Notice.^[10]

First, revised Form 7-R incorporates new functionality throughout the form, consisting of hyperlinks to the text of the applicable provisions of the Act, Commission regulations, and NFA Rules, whenever those authorities are referenced in the form. Additionally, Form 7-R incorporates certain clarifying language where appropriate. For example, the term “futures” has been replaced with the term “derivatives” in several locations to more accurately reflect the full scope of the Commission's jurisdiction. Similarly, the reference to a failure “to pay an award issued in a futures-related arbitration” was replaced with the phrase “failure to pay an award related to a CFTC-related product.”

In the section titled “Location of Business Records,” revised Form 7-R no longer separately requests that non-U.S. applicants identify the non-U.S. address where their business records are located. Instead, both U.S. and non-U.S. applicants are required to comply only with the existing requirements of Form 7-R to identify the location of their business records, which remain unchanged, and, for non-U.S. applicants, to indicate that such records will be produced for inspection at NFA's offices, or at another physical location (not a post office box) within the U.S. that the applicant identifies.

In the section titled “Holding Company Information,” the revised Form 7-R requests additional information about any entity that is a principal (as defined in Form 7-R) of the applicant. Form 7-R previously required applicants to identify by name any entity that was a principal of the applicant. The revised Form 7-R requires that, for each entity that is principal of the applicant, the applicant must provide the entity's Federal EIN and the location where the entity is incorporated, organized, or established. This additional information is intended to ensure accurate identification of the entity, given that firms sometimes can have the same or similar names.

The sections in Form 7-R titled “Disciplinary Information—Criminal Disclosures,” “Disciplinary Information—Regulatory Disclosures,” and “Disciplinary Information—Financial Disclosures” contain a series of questions that inquire about the disciplinary history of the applicant. These questions are designed to identify and gather information that may reflect on the fitness of the applicant and whether the applicant may be subject to a statutory disqualification from registration.^[11] To this end, in the section titled “Disciplinary Information—Regulatory Disclosures,” a new question was added to existing Question E. Among other things, Question E inquires whether the applicant violated, or aided and abetted the violation of, any investment-related statutes or regulations, a potential statutory basis for refusing or conditioning registration.^[12] The new question directs the applicant to disclose whether it has ever been found to have “failed to supervise another person's activities under any investment-related statute or regulation.” ^[13] The new question is intended to ensure complete disclosure of conduct that may result in a refusal or limitation on registration.

Separately, NFA is simplifying the process by which it requests supplemental information and documentation regarding the applicant's criminal, regulatory, or financial disclosures. The prior version of Form 7-R requested that applicants provide a written explanation of the facts and circumstances regarding any such disclosures. Applicants were also separately requested to provide NFA with copies of pertinent documents associated with each disclosure. To consolidate and modernize this process, the revised Form 7-R allows applicants to complete a separate “Disclosure Matter Page” for each matter, instance, or event requiring disclosure and to simultaneously upload all pertinent documents associated with each disclosure. The Disclosure Matter Page provides applicants with an efficient and effective method of supplying the supplemental information and documentation that NFA requests in the normal course whenever an applicant responds affirmatively to any of the questions regarding criminal, regulatory or financial disclosures.

Lastly, questions that pertain only to NFA membership have been removed from the form. As noted above, in the past, Form 7-R functioned both as a registration form for the Commission and NFA, and as an application for NFA membership. To the extent that questions ask for information that is necessary for NFA membership but is not necessary for registration, those questions have been removed from the form and will appear in a separate application for NFA membership. Specifically, revised Form 7-R no longer contains: a series of questions that inquire whether the applicant will transact in retail off-exchange foreign currency, swap, futures, or options; a question that is directed to applicants that are registering in multiple capacities that asks them to select the capacity in which they intend to vote on NFA membership matters; the question that asks applicants that are applying to register as a futures commission merchant to indicate whether the applicant has “applied for membership at any United States commodity exchange;” a question that asks applicants that are applying for registration as a swap dealer or major swap participant to indicate whether the applicant is currently regulated by other U.S. regulators and to identify those regulators; and lastly, contact information for the applicant's Membership Contact, Accounting Contact, Assessment Fee Contact, Arbitration Contact, Compliance Contact, or Chief Compliance Officer Contact.

A revised version of Form 7-R that incorporates the changes discussed in this Notice, as well as other minor, non-substantive changes, is set forth in Appendix 2 to this Notice.

III. Related Matters

Paperwork Reduction Act

Recordkeeping or information collection requirements under the Paperwork Reduction Act (“PRA”) related to Form 7-R exist under current law. The titles for the existing information collections are “Registration Under the Commodity Exchange Act,” Office of Management and Budget (“OMB”) control number 3038-0023, and “Registration of Swap Dealers and Major Swap Participants,” OMB control number 3038-0072. The preliminary view of the Commission is that the revisions to Form 7-R may modify the existing recordkeeping or information collection requirements under the PRA. To ensure compliance with the PRA, the Commission, concurrently with this Notice, is publishing in the Federal Register a separate notice and request for comment on the amended PRA burden associated with the revised Form 7-R. The Commission also will submit to OMB an information collection request to amend the information collection, in accordance with 44 U.S.C. 3506(c)(2)(A) and 5 CFR 1320.8(d).

Issued in Washington, DC, on March 5, 2019, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.

Appendices to Notice of Revised Form—Commission Voting Summary and Revised Registration Form 7-R

Appendix 1—Commission Voting Summary

On this matter, Chairman Giancarlo and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.

Appendix 2—Revised Registration Form 7-R

Footnotes

1.  17 CFR 3.10(a)(2), 3.11(a), and 3.12(c).

2.  17 CFR 3.11(a); 3.12(c).

3.  Revision of Registration Forms and Amendment of Related Rules, 42 FR 23988 (May 11, 1977) (Form 7-R replaced Forms 1-R, 5-R and 6-R).

4.  NFA is currently the only registered futures association authorized by the Commission in accordance with section 17 of the Commodity Exchange Act.

5.  7 U.S.C. 21(o) (2012).

6.  17 CFR 3.2.

7.  See, e.g., Introducing Brokers and Associated Persons of Introducing Brokers; Authorization of National Futures Association to Perform Commission Registration Functions, 48 FR 35158 (Aug. 3, 1983); Performance of Registration Functions by National Futures Association, 49 FR 39593 (Oct. 9, 1984) (futures commission merchants, commodity pool operators, commodity trading advisors, and associated persons thereof); Performance of Registration Functions by National Futures Association; Delegation of Authorities; Performance of Registration Functions by National Futures Association with Respect to Floor Traders and Floor Brokers, 58 FR 19657 (Apr. 15, 1993); and Performance of Registration Functions by National Futures Association with Respect to Swap Dealers and Major Swap Participants, 77 FR 2708 (Jan. 19, 2012).

8.  Registration of Intermediaries, 67 FR 38869 (June 6, 2002).

9.  Request from NFA to CFTC, dated March 23, 2018. This communication is on file with the Commission.

10.  This Notice describes the technical changes to Form 7-R. The Commission also is making a number of minor, non-substantive changes to Form 7-R that are not described herein.

11.  See 7 U.S.C. 12(a) and (3) (2012).

12.  7 U.S.C. 12(a)(3).

13.  See 7 U.S.C. 12(a)(3)(C).