July 26, 2001
Via Electronic Mail and U.S. Mail
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D. C. 20549-0609
Re: File No. S7-13-01
Release No. 34-44455 - Registration of Broker-Dealers Pursuant to
Section 15(b)(11) of the Securities Exchange Act of 1934 - 66 Fed.
Reg. 34042 (June 26, 2001)
Dear Mr. Katz:
National Futures Association ("NFA") welcomes the opportunity to submit the following comments in response to the Securities and Exchange Commission's ("Commission") proposed rules on notice registration of brokers and dealers ("BDs") by Futures Commission Merchants ("FCMs") and Introducing Brokers ("IBs") registered with the Commodity Futures Trading Commission ("CFTC").
Proposed Rule 15b-11 implements Section 15(b)(11) of the Securities Exchange Act of 1934. The proposed rule provides for notice registration as BDs with the Commission of CFTC registrants that are required to register with the Commission solely because they engage in security futures activities. It requires that the CFTC registrant seeking notice registration as a BD must file a completed Form BD which the Commission also proposes to amend to accommodate the requirements specific to notice BD registration. NFA urges the Commission to reconsider requiring the use of the Form BD to register as a notice BD and to instead require the filing of a simplified form similar to the form that NFA has designed for use by BDs seeking notice registration with the CFTC.
The CFTC has delegated to NFA the responsibility and authority to register all firms and individuals in the futures industry. NFA expects that the CFTC will delegate similar responsibility and authority to NFA regarding notice registrations of BDs in the futures industry. In anticipation of that delegation of authority, NFA has developed a single-page form designed to collect the information necessary to determine that a BD is qualified to notice register with the CFTC. If additional information is needed in the future, NFA would obtain that information from the National Association of Securities Dealers, Inc.'s ("NASD") Central Registration Depository ("CRD").1 NFA suggests that the Commission adopt a similar approach.
Section 15(b)(11) was enacted as part of the Commodity Futures Modernization Act of 2000 ("CMFA"). The notice registration provisions are designed to avoid unnecessary duplication where firms have already undergone a fitness examination. This is reflective of Congress' overall approach to the regulation of entities involved with security futures products. For example, Section 204 of the CMFA mandates cooperation between the Commission and CFTC regarding financial examinations of entities subject to regulation by both agencies. Like Section 204, the notice registration provisions reflect Congress' intent to reduce unnecessary regulatory burdens by avoiding duplicative regulation. Requiring notice BD registrants to file the entire Form BD is inconsistent with this regulatory approach and will impose an unnecessary and unjustified burden on notice BD registrants. NFA already maintains substantially the same information in its databases that the Form BD calls for and that information is readily available to the Commission should it determine that it requires additional information.2
Proposed Rule 15a-10 contains a provision that prohibits notice BDs from being members of fully-registered national securities exchanges and fully-registered national securities associations. As the Commission recognizes in its release, the joint regulatory scheme in the CFMA was designed to ensure that neither the securities industry nor the futures industry has a competitive advantage "arising solely out of differences between futures regulation and securities regulation." 66 Fed. Reg. 34045. Since notice FCMs and IBs may be members of fully-registered contract markets and derivatives transaction execution facilities ("DTEFs"), the prohibition in proposed Rule 15a-10 would create the very regulatory disparity that the CFMA is designed to avoid. In particular, notice BDs would be at a competitive disadvantage to fully-registered BDs based on where they can be members, and notice contract markets and DTEFs would be at a competitive disadvantage to fully-registered contract markets and DTEFs based on who can become members. Therefore, NFA respectfully asks the Commission to reconsider the membership prohibition.
NFA appreciates this opportunity to present our views to the Commission on its proposed Rules. If you have any questions about this letter, please telephone me at (312) 781-1390 at your convenience.
Daniel J. Roth
Senior Executive Vice President
and General Counsel
cc: Securities and Exchange Commission
Honorable Laura S. Unger, Acting Chairman
Honorable Issac C. Hunt, Jr.
Commodity Futures Trading Commission
Honorable James E. Newsome, Acting Chairman
Honorable Barbara Pedersen Holum
Honorable David D. Spears
Honorable Thomas J. Erickson
|1||NFA has direct electronic access to the CRD pursuant to an agreement with the NASD.|
|2||NFA would grant the SEC and, if necessary, the NASD and NASD Regulation, Inc., direct, electronic access to NFA's comparable Membership, Registration and Receivables System ("MRRS") on request.|