2017-08558. Adoption of Revised Registration Form 8-R

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Notice.

SUMMARY:

The Commodity Futures Trading Commission (the “Commission” or “CFTC”) is revising its Form 8-R, the application form that individuals must use to register with the Commission as an associated person of a registrant, floor broker, or floor trader, or to be listed as a principal of a registrant (collectively, “applicants”).

DATES:

Effective Date: The new, revised version of Form 8-R shall be effective (and the prior version shall cease to be effective) when the National Futures Association (“NFA”) makes the new, revised version of the Form 8-R available on the NFA Web site for use by individual applicants.

FOR FURTHER INFORMATION CONTACT:

Erik F. Remmler, Deputy Director, [phone], [e-mail]; Laura Gardy, Associate Director, [phone], [e-mail]; or August A. Imholtz III, Special Counsel, [phone], [e-mail], Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

Individuals acting in certain capacities in the markets regulated by the Commission must file a completed Form 8-R with NFA.^[1] These applicants include: Associated persons of futures commission merchants, retail foreign exchange dealers, introducing brokers, commodity trading advisors, commodity pool operators, and leverage transaction merchants; floor brokers; and floor traders.^[2] Additionally, any individual acting in the capacity as principal of a futures commission merchant, retail foreign exchange dealer, introducing broker, commodity trading advisor, commodity pool operator, swap dealer, major swap participant, floor trader or leverage transaction merchant also must file a completed Form 8-R.^[3] Lastly, individuals that enter orders for floor trader firms must file the Form 8-R as well.^[4] Individual applicants have been required to use Form 8-R since 1977.^[5]

Form 8-R requests information about the applicant that can be used to assess the applicant's fitness to engage in business as a derivatives professional. Form 8-R is a Commission form maintained and used primarily by the NFA. NFA is currently the only registered futures association authorized by the Commission in accordance with Section 17 of the Commodity Exchange Act (“Act”).^[6] Pursuant to Section 17(o) of the Act,^[7] Regulation 3.2,^[8] and a series of orders, the Commission delegated to NFA certain registration functions including, among other things, the processing of all Form 8-R filings.^[9] Since the first delegation to NFA in 1984, NFA has developed substantial expertise in registration matters, including reviewing and processing completed Forms 8-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 8-R.^[10]

II. Revisions To Commission Form 8-R

NFA has requested that the Commission make several changes to Form 8-R.^[11] Upon consideration of NFA's request, the Commission is revising and updating Form 8-R. In addition, the Commission is updating the Form 8-R Privacy Act and Paperwork Reduction Act Statements. The Form 8-R revisions are described below.^[12]

In the section titled “Sponsor Information and Registration Categories,” Form 8-R previously listed three categories of persons that could be associated with a sponsor: Associated persons, branch office managers, and principals.^[13] The revised Form 8-R includes a fourth category, floor trader order enterer. This addition addresses the Form 8-R filing requirement for employees of an entity that is a registered floor trader who execute swap transactions on a swap execution facility for the floor trader's own account.^[14] In connection with this change, the revised Form 8-R includes two newly defined terms: “Entity floor trader” and “floor trader order enterer.” “Entity floor trader” is defined as an entity that is “an applicant or registrant that filed a Form 7-R for registration as a floor trader.” ^[15] “Floor trader order enterer” is defined as “an individual responsible for entry of orders from an entity floor trader's own account.” ^[16]

In the section titled “Principal Information,” the prior version of Form 8-R contained a blank space in which an applicant entered a title. In the revised Form 8-R, the space is replaced with a menu of available titles.

In the “Fingerprint Card Information” section, revised Form 8-R adds two new questions. One new question addresses new requirements and exemptions thereto contained in Commission Regulation 3.21(e) applicable to non-U.S. persons. A non-U.S. natural person may now claim an exemption under Commission Regulation 3.21(e) from the fingerprint submission requirement where the applicant otherwise underwent a qualifying criminal history background check.^[17] The other new question addresses the fingerprinting requirement exception for certain outside directors of registered firms.^[18]

The sections in Form 8-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 he or she may be subject to a statutory disqualification from registration.^[19] Among other things, these questions ask about the disciplinary history of “any entity of which you [the applicant] were a principal at the time the [potentially reportable] activities occurred.” The term “principal” as used in the Disciplinary History section of Form 8-R was sometimes understood by applicants to mean that only firms that were subject to Commission registration were relevant. The long-standing interpretation of the term “principal” as used in that context was not limited to the applicant's status as a principal only for Commission registrants, but also if the applicant served in one of the capacities included in the definition of “principal” for any firm. The definition of “principal” is revised to clarify this issue.^[20]

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 (or an entity of which the applicant was a principal) violated, or aided and abetted the violation of, any investment-related statutes or regulations, a potential statutory basis for refusing or conditioning registration.^[21] The new question directs the applicant to disclose whether he or she has ever been found to have failed to supervise another person's activities under any investment-related statute or regulation.^[22] The new question is intended to ensure complete disclosure of conduct that may result in a refusal or limitation on registration.

In the section titled “Disciplinary Information—Financial Disclosures,” the Commission revised Question J, which asked whether the applicant has “currently failed to comply with any order to pay any futures-related civil monetary penalties, restitution amounts, disgorgement amounts, reparation amounts or arbitration awards.” As revised, Question J now inquires whether the applicant “failed to pay any arbitration awards involving CFTC-regulated products, CFTC civil monetary penalties, CFTC restitution amounts, CFTC disgorgement amounts, or CFTC reparation amounts.” The revision is designed to clarify that this question is not limited solely to unpaid monetary awards related to futures contracts, but also includes unpaid awards related to all products subject to the jurisdiction of the Commission.

Lastly, NFA is simplifying the process by which it requests supplemental information and documentation regarding the applicant's criminal, regulatory, financial, or employment disclosures. The prior version of Form 8-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 8-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.

A revised version of Form 8-R that incorporates the changes discussed above, as well as other non-substantive changes, is attached as Appendix A to this Notice.

III. Related Matters

Paperwork Reduction Act. Recordkeeping or information collection requirements under the Paperwork Reduction Act (“PRA”) related to Form 8-R exist under current law. The titles for the existing information collections are “Registration Under the Commodity Exchange Act,” 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 8-R may modify the existing recordkeeping or information collection requirements under the PRA. To ensure compliance with the PRA, the Commission will publish in the Federal Register a separate notice and request for comment on the amended PRA burden associated with the revised Form 8-R.^[23] 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 by the Commission on April, 24 2017, in Washington, DC.

Robert N. Sidman,

Deputy Secretary of the Commission.

Note:

The following appendices will not appear in the Code of Federal Regulations.

Appendices to Adoption of Revised Registration Form 8-R

Appendix 1—Commission Voting Summary

On this matter, Acting Chairman Giancarlo and Commissioner Bowen voted in the affirmative. No Commissioner voted in the negative.

Appendix A—Individual Application (Form 8-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.  17 CFR 3.1(a); 3.10(a)(2); 3.11(a)(1). While “principal” is not technically a registration class and principals do not apply for registration, for purposes of this Notice, the Form 8-R filings by principals will be referred to with the other Form 8-R filings as “registration applications.”

4.  17 CFR 3.11(a)(1).

5.  Revision of Registration Forms and Amendment of Related Rules, 42 FR 23988 (May 11, 1977) (Form 8-R replaced Forms 2-R, 4-R and 94).

6.  7 U.S.C. 21 (2012).

7.  7 U.S.C. 21(o) (2012).

8.  17 CFR 3.2.

9.  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 Authority, 51 FR 34490 (Sept. 29, 1986) (floor brokers); 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).

10.  Registration of Intermediaries, 67 FR 38869 (June 6, 2002). The transition to an online registration system has permitted greater efficiencies, including allowing individuals to update their existing Forms 8-R instead of completing a separate Form 3-R. To that end, in 2012, the Commission eliminated the requirement that registrants and individuals use Form 3-R to update information in their existing Form 7-R or 8-R, and provided that an update to a registrant's online Form 7-R or 8-R would automatically create a record of changes equivalent to a completed Form 3-R. Registration of Intermediaries, 77 FR 51898 (Aug. 28, 2012); see also, Registration of Intermediaries, 76 FR 12888, 12891 (proposed Mar. 9, 2011).

11.  Request from NFA to CFTC, dated Sept. 8, 2016, as amended on Oct. 31, 2016. Both communications are on file with the Commission.

12.  This Notice describes the substantive changes to Form 8-R. The Commission also is making a number of minor, non-substantive, or technical changes to Form 8-R that are not described herein.

13.  Associated persons and principals must file Form 8-R. 17 CFR 1.3(aa), 3.1(a), 3.10(a) and 3.12. Branch Office Manager is a category that NFA utilizes to ensure proper oversight of branch offices. See NFA Interpretive Notice 9002, Registration Requirements; Branch Offices (Staff, Sept. 6, 1985; revised July 1, 2000; Dec. 9, 2005; and Sept. 30, 2010).

14.  17 CFR 1.3(ggg)(6)(iv), 3.11(a)(1). Commission Regulation 3.11(a)(1) was amended in 2012 to require individuals that enter swap orders for the account of an entity floor trader to file a Form 8-R. 77 FR 51898. These individuals are required to file a Form 8-R, but are not required to register with the Commission in any specified capacity. Since 2012, NFA has required these individuals to file a separate, paper version of the Form 8-R titled Floor Trader Order Enterer Application. The revisions to the Form 8-R discussed in this paragraph result from combining the pre-existing, electronic Form 8-R with the paper version for floor trader order enterers.

15.  Entities that act as market participants or intermediaries must use the Commission Form 7-R to register with the Commission. 17 CFR 3.10 and 3.11.

16.  The revised Form 8-R includes additional conforming changes to incorporate entity floor traders and floor trader order enterers as appropriate.

17.  17 CFR 3.21(e); Alternative to Fingerprinting Requirements for Foreign Natural Persons, 81 FR 18743 (Apr. 1, 2016).

18.  17 CFR 3.21(c) (permitting an outside director to indicate that he or she will file the appropriate notice required by Commission Regulation 3.21(c) instead of supplying his or her fingerprints).

19.  See 7 U.S.C. 12a(2) and (3) (2012).

20.  A provision was added to the definition of “principal” that states, “[f]or the purpose of answering Questions A, B, C, D, E, F, G, I and K of the Disciplinary History sections, principal also means an individual described in [paragraphs] (1), (2) or (4) above with respect to any entity whether or not the entity is an applicant, registrant, or a person required to be registered under the Act.”

21.  7 U.S.C. 12(a)(3).

22.  See 7 U.S.C. 12(a)(3)(C).

23.  The notice and request for comment on the amended PRA burden will also address reassigning from Form 3-R to Form 8-R the PRA burden associated with providing updated information on Form 8-R.