|TO:||The Securities Exchange Commission|
|DATE:||July 6, 2001|
|RE:||File #: S7-13-01|
I would like to comment on the newly proposed legislation regarding security Futures Broker-Dealers, specifically the proposed amendments to Rule 15b2-2.
According to the proposed rules, a CFTC registrant could register with the Commission by notice to effect transactions in Security Futures Products. Accordingly, Form BD, the uniform application form for traditional broker-dealer registration1, must be filed with the SEC to become a Security Futures Product Broker-Dealer. Under the proposal, the Security Futures Product Dealer may also later become a full broker-dealer simply by amending their Form BD to indicate that they intend to be a registered broker-dealer. The Commission's proposed legislation would extremely minimize duplication of information provided by the broker-dealers and would expedite the filing process, both benefiting the Commission and the newly registered broker-dealers. The use of one uniform application would allow Security Futures Product Dealers in the future to submit an amendment instead of a full application to be a full broker-dealer, thus minimizing time and costs for both the Commission and the new registrant2.
Using the same application form also helps with the uniformity of information that the Commission needs to acquire from broker-dealers to ensure their compliance to the Securities Law. By having one form to register all broker-dealers, the Commission has an easier job differentiating between which broker-dealers are required a certain thing. They can easily determine what information still needs to be provided by the registrants.
I think that the implementation of this new legislation is beneficial to all parties involved with the exception of amending Rule 15b2-2.
The Commission has proposed to amend Rule 15b2-2 to create an exception for Security Futures Product Broker-Dealers to Section 15(b)(2)(C) of the Exchange Act. As it now stands, Section 15(b)(2)(C) requires that all newly registered broker-dealers must be inspected by the Commission or a self-regulatory organization within six months of registration. The purpose of this inspection is to determine whether the broker-dealer is operating in conformity with federal securities law.
To ensure that new inexperienced broker-dealers will comply with the securities law, the inspection should be necessary for all broker-dealers including Security Futures Product Broker-Dealers. The proposed rule is an exception for the Security Futures Product Broker-Dealers to not have to go through this exception. This exception should not be necessary because it does not create such a burden for the futures product broker-dealer to do anymore legwork than necessary and creates a safety net for the general public. The Commission or authorized self-regulatory organization can ensure that a newly registered broker dealer regardless of the type of security they deal with will be regulated in the same way.
The Commission suggests that since the registrants will already be subject to examinations by the CFTC and the Commission usually defers to CFTC with respect to the Security Futures Product Broker-Dealers, thus they do not need to make an exception themselves. On the contrary, by making the inspection in addition to other information acquired from other agencies, it will ensure greater compliance to the Securities laws, therefore creating a safer market for the public.
Even if the Commission decides that it did not need to inspect newly registered Security Futures Product Broker-Dealers, Section 15(b)(2)(C) as it stands already indicates that "...upon authorization and direction of the Commission, ...a self-regulatory association for which the broker or dealer is a member..." will be able to inspect these newly registered dealers on behalf of the Commission.
Another possible issue that the Commission may face by creating the exception is challenges by traditional broker-dealers who have to go through the inspection while there are exceptions for a special set of broker-dealers.
Bottom-line is that the proposed amendment is unnecessary and should not be implemented. Since under the Securities Act Section 2(a)(12), the Commission itself states that the term "dealer" means any person who engages either for all or part of his time directly or indirectly, as an agent, broker, or principal, the business of offering, buying, selling or otherwise dealing or trading in securities issued by another person. Security Futures Product broker-dealers fit under this category, and should conform to the registration requirements as it stands in the Act.
|1||The Commission, state securities regulators, and self-regulatory organizations all use form BD.|
|2||The Commission does not have to go thorough the same information again submitted by an already registered broker-dealer. They only need to examine the attached amendment. The broker-dealers also benefit because it saves them the time and the cost of duplicating the same information that has already been submitted.|