July 26, 2001

The Securities and Exchange Commission's Rule Proposal for Registration of Broker-Dealers Pursuant to Section 15(b)(11) of the Security Exchange Act

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Rulemaking:

Registration of Broker-Dealers Pursuant to Section 15(b)(11) of the Securities Exchange Act of 1934

Stated Purpose:

The Commission is proposing amendments to its broker-dealer registration requirements in order to implement certain provisions of the Commodity Futures Modernization Act of 2000

Summary of RSP Comment:

The Commodity Futures Modernization Act of 2000 (CFMA) amended the Commodity Exchange Act (CEA) to allow trading of futures contracts on individual equity securities and narrow-based indices of equity securities subject to joint regulation by the Commodity Futures Exchange Commission (CFTC) and the Securities and Exchange Commission (SEC). Section 203, "Regulatory Relief for Intermediaries Trading Security Futures Products" prescribes a mechanism by which registered intermediaries in either the futures or the securities markets can expeditiously attain the status of dual registrant with both the securities (the SEC) and the futures (the CFTC) regulators in order to avoid duplicative registration and reporting processes required of the respective regulators.

Despite the intent of the CFMA to expedite the registration process, the SEC has proposed a registration format that would result in time-consuming duplication of registration procedures for futures commission merchants and introducing brokers already duly registered with the CFTC. In addition, the proposed procedure denies these futures intermediaries the ability to obtain notice registration if their intention is to trade security futures products on a registered national securities exchange. The SEC proposes that futures registrants who intend to trade security futures products should register as full broker-dealers with the SEC subject to all the costs and regulations thereof, or otherwise effect and clear their transactions through a full broker-dealer registered on the securities exchange. By subjecting futures intermediaries to redundant and burdensome registration requirements, the proposal will increase their costs, those of their customers, and the public.