Proposed Rules on "Associated Persons" of Swap Dealers and Major Swap Participants Issued by CFTC | Practical Law

Proposed Rules on "Associated Persons" of Swap Dealers and Major Swap Participants Issued by CFTC | Practical Law

The CFTC proposed rules under the Dodd-Frank Act regarding associated persons (APs) of swap dealers (SDs), major swap participants (MSPs) and other CFTC registrants. APs are officers, employees and agents who solicit or accept swaps on behalf of SDs or MSPs.

Proposed Rules on "Associated Persons" of Swap Dealers and Major Swap Participants Issued by CFTC

by PLC Finance
Published on 21 Jun 2012 • USA (National/Federal)
The CFTC proposed rules under the Dodd-Frank Act regarding associated persons (APs) of swap dealers (SDs), major swap participants (MSPs) and other CFTC registrants. APs are officers, employees and agents who solicit or accept swaps on behalf of SDs or MSPs.
On June 11, 2012, the CFTC issued proposed rules that would impose liability on swap dealers (SDs), major swap participants (MSPs) and other CFTC registrants for certain actions of their "associated persons" (APs). APs are natural persons who are associated with an SD, MSP or other CFTC registrant as a partner, officer, employee or agent (or any natural person with a similar status or function) in a capacity that involves either:
  • The solicitation or acceptance of swaps (other than in a clerical or ministerial capacity).
  • The supervision of any person so engaged.
Unlike APs of other CFTC registrants, APs of SDs and MSPs are not required to register with the CFTC under the Dodd-Frank Act. However, Dodd-Frank provides that only registered APs may serve as APs for more than one entity, known as dual and multiple association. The proposed rules would also allow dual and multiple associations of unregistered APs with SDs, MSPs and other CFTC registrants such as:
  • Futures commission merchants (FCMs).
  • Retail foreign exchange dealers (RFEDs).
  • Introducing brokers (IBs).
  • Commodity trading advisors (CTAs).
  • Commodity pool operators (CPOs).
  • Leverage transaction merchants (LTMs).
The rules would require these entities to supervise the AP and be jointly and severally responsible for the AP's activities with respect to customers common to it and any other SD, MSP or other CFTC registrant. The proposed rules would apply in situations where a natural person is:
  • An AP of one or more SDs or MSPs who is seeking to become a registered AP of one or more other CFTC registrants.
  • An AP of an SD or MSP who is seeking to become an AP of one or more other SDs or MSPs.
  • A registered AP of one or more non-SD, non-MSP CFTC registrants who is seeking to become an AP of one or more SDs or MSPs.
The proposed rules would require all SDs, MSPs and other CFTC registrants to:
  • Supervise the AP.
  • Be jointly and severally responsible for the activities of the AP with respect to customers common to it and any other SD, MSP or other CFTC registrant.
The CFTC is accepting comments on the proposed rules until August 14, 2012.
For information on which entities are SDs and MSPs under Title VII of the Dodd-Frank Act, see Practice Note, The Dodd-Frank Act: Is Your Client a Swap Dealer or Major Swap Participant? Breakdown of Final Dodd-Frank Definitional Rulemaking.
To learn more about the regulation of SDs and MSPs, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Requirements for Swap Dealers and Major Swap Participants (MSPs).