Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Federal Register / Vol. 75, No.
211 / Tuesday, November 2, 2010 / Proposed Rules 67277
positions in all physical commodity interest in each market. Only then is the SUMMARY: The Commodity Futures
futures traded on DCMs and uses it for Commission able to properly consider Trading Commission (Commission or
market surveillance purposes, including the size of each market and calibrate a CFTC) is proposing rules to implement
position limit enforcement. With today’s limit that is appropriate for each market. new statutory provisions enacted by
proposed rule, we would have an Currently, the Commission does not Title VII of the Dodd-Frank Wall Street
analogous reporting system for swaps. have complete data and will not have Reform and Consumer Protection Act.
The proposal would require position complete data until swap data These proposed rules apply to the
reports on economically equivalent repositories are up and running and all review of swaps by the Commission to
swaps from clearing organizations, their swap market data is reported to swap determine whether the swaps are
members and swap dealers. This will data repositories or to the Commission. required to be cleared.
enable the CFTC to receive such data I believe that, optimistically, the earliest DATES: Submit comments on or before
until swap data repositories are in this reporting can happen will be by the January 3, 2011.
operation and capable of fulfilling the end of 2011. Again that is an optimistic
Commission’s need for this information. estimate. ADDRESSES: You may submit comments,
Because of the 180 and 270 day identified by RIN number, by any of the
Concurring Statement of Commissioner following methods:
Jill E. Sommers requirements in Dodd-Frank, as we sit
here today, the Commission is • Agency Web Site, via its Comments
Relating to the Commission’s Proposal tentatively planning a November 30 Online process: http://
on Position Reports for Physical public meeting to vote on proposed comments.cftc.gov. Follow the
Commodity Swaps and Swaptions speculative position limits for exempt instructions for submitting comments
October 19, 2010 and agricultural commodities. Mind through the Web site.
you, by November 30 the Commission • Mail: David A. Stawick, Secretary of
I support this proposal to receive will not have garnered any data from the the Commission, Commodity Futures
daily position reports for physical proposed rule we are discussing today, Trading Commission, Three Lafayette
commodity swaps and swaptions because it, or some modified version of Centre, 1155 21st Street, NW.,
because I believe it furthers our it, probably will not be effective in final Washington, DC 20581.
continued effort to expand transparency form by November 30. In addition, by
into swap markets and because I believe • Hand Delivery/Courier: Same as
November 30, swap data repositories mail above.
it is critical that the Commission receive
will still be at least one year away from • Federal eRulemaking Portal: http://
this information as soon as possible. I
operating. Even if the proposed rule we www.regulations.gov. Follow the
recognize that this proposal is a
are discussing today were effective by instructions for submitting comments.
precursor to the Commission moving
November 30, it will not provide
forward with a proposal on the All comments must be submitted in
complete information sufficient to
imposition of position limits. That said, English, or if not, accompanied by an
impose position limits.
my vote in support of this proposal Under these circumstances, when English translation. Comments will be
today should not in any way be considering the imposition of aggregate posted as received to http://
interpreted as expressing support for position limits on exempt and www.cftc.gov. You should submit only
moving forward with the imposition of agricultural commodities, I believe the information that you wish to make
position limits by the deadlines set forth Commission should find that imposing available publicly. If you wish the
in Dodd-Frank. such limits is not appropriate in the Commission to consider information
In July and August 2009, the that may be exempt from disclosure
absence of full and complete data and
Commission held three public hearings under the Freedom of Information Act,
analysis on the open interest in each
to discuss imposition of position limits a petition for confidential treatment of
market. I believe it is a mistake to
in energy markets. Five months later, in the exempt information may be
interpret the arbitrary 180 day and 270
January 2010, the Commission issued a submitted according to the established
day deadlines as somehow trumping the
proposed rule imposing position limits procedures in CFTC Regulation 145.9.1
requirement that the Commission make
in four enumerated energy contracts. I FOR FURTHER INFORMATION CONTACT:
an appropriateness determination before
had grave concerns about moving Eileen A. Donovan, Special Counsel,
imposing any position limits.
forward with position limits on those 202–418–5096, edonovan@cftc.gov,
This is an issue that I will be
four contracts, and accordingly voted Division of Clearing and Intermediary
following closely, and I look forward to
against the proposal. My grave concerns Oversight, Commodity Futures Trading
hearing the views of the public and
about moving forward with position Commission, Three Lafayette Centre,
market participants on this issue.
limits have not been eased, and in fact, 1155 21st Street, NW., Washington, DC
have only been heighted by certain [FR Doc. 2010–27538 Filed 11–1–10; 8:45 am]
20581.
provisions of Dodd-Frank. BILLING CODE 6351–01–P
Section 737 of Dodd-Frank states that SUPPLEMENTARY INFORMATION:
the Commission shall by rule, I. Background
regulation, or order establish limits on COMMODITY FUTURES TRADING
the amount of positions, as appropriate, COMMISSION On July 21, 2010, President Obama
that may be held by any person. This signed the Dodd-Frank Wall Street
17 CFR Parts 39 and 140
section requires the limits to be Reform and Consumer Protection Act
jlentini on DSKJ8SOYB1PROD with PROPOSALS
aggregated across markets and related RIN 3038–AD00 (Dodd-Frank Act).2 Title VII of the
products and to be imposed within 180
days for energy and metals contracts, Process for Review of Swaps for 1 Commission regulations referred to herein are
and 270 days for agricultural contracts. Mandatory Clearing found at 17 CFR Ch. 1.
2 See Dodd-Frank Wall Street Reform and
In my view, no position limit is AGENCY: Commodity Futures Trading Consumer Protection Act, Public Law 111–203, 124
appropriate if it is imposed without the Commission. Stat. 1376 (2010). The text of the Dodd-Frank Act
benefit of receiving and fully analyzing may be accessed at http://www.cftc.gov./
ACTION: Notice of proposed rulemaking.
complete data concerning the open LawRegulation/OTCDERIVATIVES/index.htm.
VerDate Mar<15>2010 20:58 Nov 01, 2010 Jkt 223001 PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 E:\FR\FM\02NOP1.SGM 02NOP1
67278 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
Dodd-Frank Act 3 amended the II. Proposed Regulations be able to maintain compliance with
Commodity Exchange Act (CEA) 4 to Section 5b(c)(2) of the CEA. This
A. Eligibility of a DCO To Clear Swaps
establish a comprehensive new provision is intended to satisfy the
regulatory framework for swaps and The Dodd-Frank Act requires the Dodd-Frank Act requirement that a
security-based swaps. The legislation Commission to determine, upon request swap submission be consistent with
was enacted to reduce risk, increase or its own motion, the initial eligibility Section 5b(c)(2).9 Regulation 39.5(b)(1)
transparency, and promote market or continuing qualification of a DCO to would require a DCO submitting a swap
integrity within the financial system by, clear a swap that it plans to accept for to be eligible to clear the swap under
among other things: (1) Providing for the clearing, under criteria, conditions, or Regulation 39.5(a) and, as noted above,
registration and comprehensive rules determined by the Commission. a DCO that seeks to be considered
regulation of swap dealers and major Such criteria, conditions, or rules must eligible to clear a swap must
swap participants; (2) imposing clearing consider the financial integrity of the demonstrate its ability to maintain
and trade execution requirements on DCO and any other factors that the compliance with the core principles in
standardized derivative products; (3) Commission determines to be Section 5b(c)(2). Therefore, a DCO
creating rigorous recordkeeping and appropriate.7 submitting a swap under Regulation
real-time reporting regimes; and (4) Under proposed Regulation 39.5(a), a 39.5(b) would have already
enhancing the Commission’s DCO would be presumed eligible to demonstrated pursuant to Regulation
rulemaking and enforcement authorities accept for clearing any swap that is 39.5(a) its ability to comply with
with respect to, among others, all within a group, category, type, or class Section 5b(c)(2). Accordingly, the
registered entities and intermediaries of swaps that the DCO already clears. Commission believes it is appropriate to
subject to the Commission’s oversight. However, such a presumption would be require only a statement to that effect in
Section 723(a)(3) of the Dodd-Frank subject to Commission review, and if the swap submission itself.
the Commission determines that the A DCO would also have to provide a
Act amends the CEA to provide that ‘‘it
swap is not within a group, category, statement that includes, but is not
shall be unlawful for any person to
type, or class of swaps that the DCO limited to, information that would assist
engage in a swap unless that person
already clears, the DCO would be the Commission in the quantitative and
submits such swap for clearing to a
required to request a determination by qualitative assessment of five specific
derivatives clearing organization
the Commission of its eligibility to clear factors that the Dodd-Frank Act requires
[(DCO)] that is registered under [the
the swap. A DCO that plans to accept for the Commission to take into account
CEA] or a [DCO] that is exempt from
clearing any swap that is not within a when reviewing a swap submission,10
registration under [the CEA] if the swap
group, category, type, or class of swaps and additional information that the
is required to be cleared.’’ 5 Section
that the DCO already clears also would Commission believes is needed for an
723(a)(3) requires the Commission to
be required to make such a request. effective review of the swap submission.
adopt rules for the review of a swap, or
To receive a determination of The proposed regulation would require
group, category, type, or class of swaps
eligibility to clear a swap, a DCO would the DCO to provide specific information
(collectively, ‘‘swaps’’) to make a
have to file a written request with the relating to product specifications;
determination as to whether the swaps
Commission that addresses its ability to participant eligibility standards; pricing
should be required to be cleared.
maintain compliance with the core sources, models, and procedures; 11 risk
In addition, Section 745(b) of the principles for DCOs set out in Section management procedures; measures of
Dodd-Frank Act amends the CEA to 5b(c)(2) of the CEA if it accepts the swap market liquidity and trading activity;
direct the Commission to prescribe for clearing, specifically: (1) The the effect of a clearing requirement on
criteria, conditions, or rules under sufficiency of its financial resources; the market for the swap; applicable
which the Commission will determine and (2) its ability to manage the risks rules, manuals, policies, or procedures;
the initial eligibility or the continuing associated with clearing the swap, and terms and trading conventions on
qualification of a DCO to clear swaps.6 especially if the Commission determines which the swap is currently traded.
Accordingly, the Commission is that the swap is required to be cleared. Finally, the swap submission would
proposing to adopt Regulation 39.5 to have to include a description of the
implement procedures for determining B. Submission of Swaps to the manner in which the DCO has provided
the eligibility of a DCO to clear swaps Commission for Review
9 See Section 2(h)(2)(D)(i) of the CEA, 7 U.S.C.
that it plans to accept for clearing; for The Dodd-Frank Act requires a DCO
2(h)(2)(D)(i).
DCOs submitting swaps to the that plans to accept a swap (or group, 10 See Section 2(h)(2)(D)(ii) of the CEA, 7 U.S.C.
Commission for review; for category, type, or class of swaps) for 2(h)(2)(D)(ii).
Commission-initiated reviews of swaps; clearing to submit the swap to the 11 This would include information about any
and for staying a clearing requirement Commission for review.8 Proposed price reference index used, such as the name of the
while the clearing of a swap is Regulation 39.5(b) sets out the process index, the source that calculates it, the methodology
used to calculate the price reference index and how
reviewed. for DCOs to follow, including what often it is calculated, and when and where it is
The Commission requests comment information a DCO must include in its published publicly. For example, the BBA LIBOR
on all aspects of the proposed rules, as submission to assist the Commission in 3-Month USD interest rate published by the British
its review. Bankers Association is calculated daily by Thomson
well as comment on the specific Reuters on behalf of BBA. The rate is published
provisions and issues highlighted in the First, the submission would have to daily at 11 a.m. London Time via data vendors like
discussion below. include a statement that the DCO is Reuters and Bloomberg, and is calculated using a
eligible to clear the swap and, if the survey of 16 major banks. The bank quotes are then
3 Pursuant to Section 701 of the Dodd-Frank Act, Commission determines that the swap is ranked in order, high four and bottom four
removed, and the remaining eight quotes are
Title VII may be cited as the ‘‘Wall Street required to be cleared, the DCO would averaged to determine the official 3-Month USD
Transparency and Accountability Act of 2010.’’ LIBOR fixing rate for that day. A DCO would be
4 7 U.S.C. 1 et seq. 7 See Section 5c(c)(5)(C)(iii)(II) of the CEA, 7
required to provide documentation of the index
5 See Section 2(h) of the CEA, 7 U.S.C. 2(h). U.S.C. 7a–2(c)(5)(C)(iii)(II). methodology and publication frequency or the
6 See Section 5c(c)(5)(C)(iii) of the CEA, 7 U.S.C. 8 See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C. relevant hyperlink if it is openly available on the
7a–2(c)(5)(C)(iii). 2(h)(2)(B)(i). Internet.
Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67279
notice of the submission to its members In making a determination that the swap information of the counterparty to the
and a summary of any opposition to the must be cleared, the Commission would swap; the terms of the swap subject to
submission expressed by members. The impose terms and conditions on the the clearing requirement; the name of
Dodd-Frank Act requires a DCO to requirement as appropriate. the DCO that clears the swap; a
provide notice of the submission to its description of the clearing arrangement;
C. Commission-Initiated Reviews of
members in a manner to be determined and a statement explaining why the
by the Commission.12 The Commission Swaps
swap should not be subject to a clearing
recognizes that a DCO typically has The Dodd-Frank Act requires the requirement.
established procedures for providing Commission on an ongoing basis to The Commission also would be able
notice to its members and believes it is review swaps that have not been to obtain additional information to
appropriate to allow the DCO to provide accepted for clearing by a DCO to make assist it in its review from the DCO that
notice of a swap submission in the same a determination as to whether the swaps clears the swap. The Commission would
manner. The submission to the should be required to be cleared.13 complete its review not later than 90
Commission also would have to include Under proposed Regulation 39.5(c), the days after issuance of the stay, unless
a summary of any opposition expressed Commission would use information the DCO that clears the swap agrees to
by members, which means that a DCO obtained pursuant to Commission an extension.
would be expected to notify members regulations 14 from swap data Upon completion of its review, the
before it makes its submission to the repositories, swap dealers, and major Commission could determine, subject to
Commission. The Commission invites swap participants, and any other any terms and conditions as the
comment on whether the regulation available information, in undertaking Commission determines to be
should prescribe a specific manner in such reviews. appropriate, that the swap must be
which a DCO must provide notice to its If no DCO has accepted for clearing a cleared, or that the clearing requirement
members, and whether the regulation particular swap, group, category, type, will not apply but clearing may
should prescribe a specific period of or class of swaps that the Commission continue on a non-mandatory basis.
time between the notice to members and finds would otherwise be subject to a
the submission to the Commission to clearing requirement, the Commission III. Technical Amendments
allow time for members to make their would, as required by the Dodd-Frank The Commission is proposing to
views on the submission known. Act,15 investigate the relevant facts and amend Regulation 140.94 17 to delegate
Upon receiving a DCO’s submission, circumstances and, within 30 days of authority to the Director of the Division
the Commission would begin its 90-day the completion of its investigation, issue of Clearing and Intermediary Oversight
review by posting the submission on the a public report containing the results of to consolidate or subdivide swap
Commission Web site for a 30-day the investigation. The Commission submissions as appropriate for review
public comment period, as required by would take such actions as it determines under proposed Regulation 39.5(b)(2)
the Dodd-Frank Act. The Commission to be necessary and in the public and to request information from a
invites comment regarding the interest, which may include establishing derivatives clearing organization in
appropriateness and sufficiency of margin or capital requirements for connection with the stay of a clearing
providing notice of the submission on parties to the swap, group, category, requirement under proposed Regulation
the Commission Web site as compared type, or class of swaps. 39.5(d)(3).
to publishing notice of the submission
D. Stay of Clearing Requirement IV. Related Matters
in the Federal Register. The review
would not begin until the submission After making a determination that a A. Regulatory Flexibility Act
was complete, as determined solely in swap (or group, category, type, or class The Regulatory Flexibility Act (RFA)
the discretion of the Commission. Due of swaps) is required to be cleared, the requires that agencies consider whether
to the relatively brief 90-day review Commission, on application of a the rules they propose will have a
period prescribed by the Dodd-Frank counterparty to a swap or on its own significant economic impact on a
Act, the Commission must be certain initiative, may stay the clearing substantial number of small entities
before it begins a review that it has the requirement until it completes a review and, if so, provide a regulatory
information it needs to reach an of the terms of the swap and the clearing flexibility analysis respecting the
appropriate determination. arrangement.16 Proposed Regulation impact.18 The rules proposed by the
The proposed regulation encourages a 39.5(d)(2) sets out the process for a Commission shall affect only DCOs. The
DCO to submit swaps to the counterparty to a swap to apply for a Commission has previously established
Commission, to the extent reasonable stay of the clearing requirement. certain definitions of ‘‘small entities’’ to
and practicable to do so, by group, A counterparty to a swap that wants be used by the Commission in
category, type, or class of swaps. The to apply for a stay of the clearing evaluating the impact of its regulations
Commission believes this will make the requirement for that swap would be on small entities in accordance with the
review process more efficient. The required to submit a written request to RFA.19 The Commission has previously
Commission would be able to the Secretary of the Commission that determined that DCOs are not small
consolidate multiple submissions from includes information that would assist entities for the purpose of the RFA.20
one DCO or subdivide a DCO’s the Commission in its review,
submission for review as appropriate. including: The identity and contact 17 See 75 FR 55410 (Sep. 10, 2010). The
The Commission would review the Commission previously proposed to amend
submission and make a determination 13 See Section 2(h)(2)(A) of the CEA, 7 U.S.C. Regulation 140.94 in connection with the proposal
as to whether the swap will be required 2(h)(2)(A). of Regulation 39.11 (75 FR 63113 (Oct. 14, 2010)).
14 The Commission intends to adopt such The Commission intends to place all delegations to
to be cleared not later than 90 days after the Director of the Division of Clearing and
regulations before any Commission reviews would
receiving the submission, unless the be initiated. Intermediary Oversight for Part 39 under this
submitting DCO agreed to an extension. 15 See Section 2(h)(4)(B) of the CEA, 7 U.S.C. regulation.
18 5 U.S.C. 601 et seq.
2(h)(4)(B).
12 See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C. 16 See Section 2(h)(3)(A) of the CEA, 7 U.S.C. 19 47 FR 18618 (Apr. 30, 1982).
2(h)(2)(B)(i). 2(h)(3)(A). 20 See 66 FR 45605, 45609 (August 29, 2001).
Accordingly, the Chairman, on behalf of burden in terms of hours would in the C. Cost-Benefit Analysis
the Commission, hereby certifies aggregate be 40 hours annually per
pursuant to 5 U.S.C. 605(b) that the Section 15(a) of the CEA 22 requires
respondent and 480 hours annually for
proposed rules will not have a the Commission to consider the costs
all respondents.
significant economic impact on a and benefits of its actions before issuing
Commission staff estimates that each a rulemaking under the CEA. By its
substantial number of small entities.
respondent could expend up to $4000 terms, Section 15(a) does not require the
B. Paperwork Reduction Act annually, based on an hourly wage rate Commission to quantify the costs and
An agency may not conduct or of $100, to comply with the proposed benefits of a rule or to determine
sponsor, and a person is not required to regulations. This would result in an whether the benefits of the rulemaking
respond to, a collection of information aggregated cost of $48,000 per annum outweigh its costs; rather, it requires
unless it displays a currently valid (12 respondents x $4000). The that the Commission ‘‘consider’’ the
control number. OMB has not yet Commission invites public comment on costs and benefits of its actions. Section
assigned a control number to the new the accuracy of its estimate regarding 15(a) further specifies that the costs and
collection. The Paperwork Reduction the collection requirements that would benefits shall be evaluated in light of
Act of 1995 (PRA) 21 imposes certain result from the proposed regulations. five broad areas of market and public
requirements on Federal agencies concern: (1) Protection of market
(including the Commission) in 2. Information Collection Comments participants and the public; (2)
connection with their conducting or efficiency, competitiveness, and
The Commission invites the public financial integrity of futures markets; (3)
sponsoring any collection of
and other federal agencies to comment price discovery; (4) sound risk
information as defined by the PRA. This
proposed rulemaking would result in on any aspect of the reporting and management practices; and (5) other
new collection of information recordkeeping burdens discussed above. public interest considerations. The
requirements within the meaning of the Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission may in its discretion give
PRA. The Commission therefore is Commission solicits comments in order greater weight to any one of the five
submitting this proposal to the Office of to: (i) Evaluate whether the proposed enumerated areas and could in its
Management and Budget (OMB) for collection of information is necessary discretion determine that,
review. If adopted, responses to this for the proper performance of the notwithstanding its costs, a particular
collection of information would be functions of the Commission, including rule is necessary or appropriate to
mandatory. The Commission will whether the information will have protect the public interest or to
protect proprietary information practical utility; (ii) evaluate the effectuate any of the provisions or
according to the Freedom of Information accuracy of the Commission’s estimate accomplish any of the purposes of the
Act and 17 CFR Part 145, ‘‘Commission of the burden of the proposed collection CEA.
Records and Information.’’ In addition, of information; (iii) determine whether Summary of proposed requirements.
section 8(a)(1) of the CEA strictly there are ways to enhance the quality, The proposed rule would implement
prohibits the Commission, unless utility, and clarity of the information to processes for determining the eligibility
specifically authorized by the CEA, from be collected; and (iv) minimize the of a DCO to clear swaps that it wishes
making public ‘‘data and information burden of the collection of information to accept for clearing; for DCOs
that would separately disclose the submitting swaps to the Commission for
on those who are to respond, including
business transactions or market review; for Commission-initiated
through the use of automated collection
positions of any person and trade reviews of swaps; and for staying a
techniques or other forms of information
secrets or names of customers.’’ The clearing requirement while the clearing
Commission is also required to protect technology.
of a swap is reviewed.
certain information contained in a Comments may be submitted directly
Costs. With respect to costs, the
government system of records according to the Office of Information and
Commission has determined that the
to the Privacy Act of 1974, 5 U.S.C. Regulatory Affairs, by fax at (202) 395–
rule results in minimal costs. The rule
552a. 6566 or by e-mail at
only requires DCOs and swap
1. Information Provided by Reporting OIRAsubmissions@omb.eop.gov. Please counterparties to provide sufficient
Entities/Persons provide the Commission with a copy of information for the Commission to carry
submitted comments so that all out its responsibilities under the Dodd-
The proposed regulations require each comments can be summarized and
respondent to file information with the Frank Act in an efficient manner. The
addressed in the final rule preamble. rule itself does not require the clearing
Commission on an occasional basis,
Refer to the Addresses section of this of any swap, so the Commission did not
which would result in one annual
notice of proposed rulemaking for consider the potential costs of
response per respondent. Commission
comment submission instructions to the mandatory clearing in its analysis.
staff estimates that each respondent
would expend 40 hours to prepare each Commission. A copy of the supporting Benefits. With respect to benefits, the
filing required under the proposed statements for the collections of Commission has determined that the
regulations, which was estimated based information discussed above may be rule will benefit the public by making
on the Commission’s prior experience obtained by visiting RegInfo.gov. OMB information publicly available and by
with DCOs and their preparation of is required to make a decision providing opportunity for comment.
concerning the collection of information The rule also takes into account the risk
filings for the Commission’s review.

Commission staff estimates that it between 30 and 60 days after management practices of a DCO in
would receive filings from up to 12 publication of this document in the making a determination on the DCO’s
respondents annually, which assumes Federal Register. Therefore, a comment eligibility to clear swaps. The rule itself
that each DCO would make an average is best assured of having its full effect does not require the clearing of any
of one filing per year. Accordingly the if OMB receives it within 30 days of swap, so the Commission did not
publication.
21 44 U.S.C. 3501 et seq. 22 7 U.S.C. 19(a).
Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67281
consider the potential benefits of (ii) The derivative clearing treatment of customer and swap
mandatory clearing in its analysis. organization’s ability to manage the counterparty positions, funds, and
Public Comment. The Commission risks associated with clearing the swap, property;
invites public comment on its cost- especially if the Commission determines (iii) Product specifications, including
benefit considerations. Commenters are that the swap is required to be cleared. copies of any standardized legal
also invited to submit any data or other (b) Swap submissions. (1) A documentation, generally accepted
information that they may have derivatives clearing organization shall contract terms, standard practices for
quantifying or qualifying the costs and submit to the Commission each swap, or managing any life cycle events
benefits of the proposal with their any group, category, type, or class of associated with the swap, and the extent
comment letters. swaps that it plans to accept for to which the swap is electronically
clearing. The derivatives clearing confirmable;
List of Subjects (iv) Participant eligibility standards, if
organization making the submission
17 CFR Part 39 must be eligible under paragraph (a) of different from the derivatives clearing
Business and industry, Commodity this section to accept for clearing the organization’s general participant
futures, Reporting and recordkeeping submitted swap, or group, category, eligibility standards;
type, or class of swaps. (v) Pricing sources, models, and
requirements.
(2) A derivatives clearing organization procedures, demonstrating an ability to
17 CFR Part 140 shall submit swaps to the Commission, obtain sufficient price data to measure
Authority delegations (Government to the extent reasonable and practicable credit exposures in a timely and
agencies), Conflict of interests, to do so, by group, category, type, or accurate manner, including any
Organization and functions class of swaps. The Commission may in agreements with clearing members to
(Government agencies). its reasonable discretion consolidate provide price data and copies of
For the reasons stated in the multiple submissions from one executed agreements with third-party
preamble, the Commission proposes to derivatives clearing organization or price vendors, and information about
amend 17 CFR parts 39 and 140 as subdivide a derivatives clearing any price reference index used, such as
follows: organization’s submission as the name of the index, the source that
appropriate for review. calculates it, the methodology used to
PART 39—DERIVATIVES CLEARING (3) The submission shall be filed calculate the price reference index and
ORGANIZATIONS electronically with the Secretary of the how often it is calculated, and when
Commission and shall include: and where it is published publicly;
1. The authority citation for part 39 is (i) A statement that the derivatives (vi) Risk management procedures,
revised to read as follows: clearing organization is eligible to including measurement and monitoring
Authority: 7 U.S.C. 7a–1 as amended by accept the swap, or group, category, of credit exposures, initial and variation
Pub. L. 111–203, 124 Stat. 1376. type, or class of swaps for clearing and, margin methodology, methodologies for
2. Redesignate §§ 39.5 through 39.7 as if the Commission determines that the stress testing and back testing,
§§ 39.6 through 39.8 and add new § 39.5 swap, or group, category, type, or class settlement procedures, default
to read as follows: of swaps is required to be cleared, the management procedures, and an
derivatives clearing organization will be independent validation of the scalability
§ 39.5 Review of swaps for Commission able to maintain compliance with of the derivatives clearing organization’s
determination on clearing requirement.
section 5b(c)(2) of the Act; risk management policies, systems, and
(a) Eligibility to clear swaps. (1) A (ii) A statement that includes, but is procedures, including the margin
derivatives clearing organization shall not limited to, information regarding the methodology, settlement procedures,
be presumed eligible to accept for swap, or group, category, type, or class and default management procedures;
clearing any swap that is within a of swaps that is sufficient to provide the (vii) Measures of market liquidity and
group, category, type, or class of swaps Commission a reasonable basis to make trading activity, including information
that the derivatives clearing a quantitative and qualitative on the sources of such measures;
organization already clears. Such assessment of the following factors: (viii) An analysis of the effect of a
presumption of eligibility, however, is (A) The existence of significant clearing requirement on the market for
subject to review by the Commission. outstanding notional exposures, trading the group, category, type, or class of
(2) A derivatives clearing organization liquidity, and adequate pricing data; swaps, both domestically and globally,
that wishes to accept for clearing any (B) The availability of rule framework, including the potential effect on market
swap that is not within a group, capacity, operational expertise and liquidity, trading activity, use of swaps
category, type, or class of swaps that the resources, and credit support by direct and indirect market
derivatives clearing organization already infrastructure to clear the contract on participants, and any potential market
clears shall request a determination by terms that are consistent with the disruption;
the Commission of the derivatives material terms and trading conventions (ix) Applicable rules, manuals,
clearing organization’s eligibility to on which the contract is then traded; policies, or procedures;
clear such a swap before accepting the (C) The effect on the mitigation of (x) Terms and trading conventions on
swap for clearing. The request, which systemic risk, taking into account the which the swap is currently traded;
shall be filed electronically with the size of the market for such contract and (xi) A description of the manner in
Secretary of the Commission, shall the resources of the DCO available to which the derivatives clearing
address the derivatives clearing clear the contract; organization has provided notice of the
organization’s ability, if it accepts the (D) The effect on competition, submission to its members and a
swap for clearing, to maintain including appropriate fees and charges summary of any opposition to the
compliance with section 5b(c)(2) of the applied to clearing; and submission expressed by the members.
Act, specifically: (E) The existence of reasonable legal A copy of the notice to members shall
(i) The sufficiency of the derivatives certainty in the event of the insolvency be included with the submission.
clearing organization’s financial of the relevant DCO or one or more of (4) The submission will be made
resources; and its clearing members with regard to the available to the public and posted on
the Commission Web site for a 30-day Commission, on application of a (6) All functions reserved to the
public comment period. A derivatives counterparty to a swap or on its own Commission in §§ 39.5(b)(2) and (d)(3)
clearing organization that wishes to initiative, may stay the clearing of this chapter; and
request confidential treatment for requirement until the Commission (7) All functions reserved to the
portions of its submission may do so in completes a review of the terms of the Commission in §§ 39.11 (b)(1)(vi),
accordance with the procedures set out swap, or group, category, type, or class (b)(2)(ii), (c)(1), (c)(2), (f)(1), and (f)(4) of
in § 145.9(d). of swaps and the clearing arrangement. this chapter.
(5) The Commission will review the (2) A counterparty to a swap that * * * * *
submission and determine whether the wishes to apply for a stay of the clearing Issued in Washington, DC, on October 26,
swap, or group, category, type, or class requirement for that swap shall submit 2010, by the Commission.
of swaps described in the submission is a written request to the Secretary of the David A. Stawick,
required to be cleared. The Commission Commission that includes: Secretary of the Commission.
will make its determination not later (i) The identity and contact
than 90 days after a complete information of the counterparty to the Note: The following attachment will not
submission has been received, unless swap; appear in the Code of Federal Regulations:
the submitting derivatives clearing (ii) The terms of the swap subject to
organization agrees to an extension. The Statement of Chairman Gary Gensler
the clearing requirement;
determination of when such submission Process for Review of Swaps for
(iii) The name of the derivatives Mandatory Clearing October 26, 2010
is complete shall be at the sole clearing organization clearing the swap;
discretion of the Commission. In making (iv) A description of the clearing I support the proposed rulemaking to
a determination that a clearing arrangement; and establish a process for the review and
requirement shall apply, the designation of swaps for mandatory
(v) A statement explaining why the
Commission may require such terms clearing. One of the primary goals of the
swap should not be subject to a clearing
and conditions to the requirement as the Dodd-Frank Act was to lower risk by
requirement.
Commission determines to be requiring standardized swaps to be
(3) A derivatives clearing organization
appropriate. centrally cleared. The process set out in
(c) Commission-initiated reviews. (1) that has accepted for clearing a swap, or
group, category, type, or class of swaps the proposed rule is consistent with the
The Commission on an ongoing basis Congressional requirement that
will review swaps that have not been that is subject to a stay of the clearing
requirement shall provide any derivatives clearing organizations
accepted for clearing by a derivatives (DCOs) be eligible to clear the swaps
clearing organization to make a information requested by the
Commission in the course of its review. and that before a swap becomes subject
determination as to whether the swaps to mandatory clearing the public get to
should be required to be cleared. In (4) The Commission will complete its
review not later than 90 days after provide input on the contract or class of
undertaking such reviews, the contracts. Though we have until July to
Commission will use information issuance of the stay, unless the
derivatives clearing organization that finalize this rulemaking, it is my hope
obtained pursuant to Commission that we can finish by April. This would
regulations from swap data repositories, clears the swap, or group, category,
type, or class of swaps agrees to an allow us to begin reviewing the
swap dealers, and major swap contracts that are already being cleared
participants, and any other available extension.
by DCOs and under Dodd-Frank have
information. (5) Upon completion of its review, the
already been deemed submitted to the
(2) Notice regarding any Commission may:
Commission for consideration.
determination made under paragraph (i) Determine, subject to any terms
and conditions as the Commission [FR Doc. 2010–27532 Filed 11–1–10; 8:45 am]
(c)(1) of this section will be posted on
the Commission Web site for a 30-day determines to be appropriate, that the BILLING CODE 6351–01–P
public comment period. swap, or group, category, type, or class

(3) If no derivatives clearing of swaps must be cleared; or
(ii) Determine that the clearing COMMODITY FUTURES TRADING
organization has accepted for clearing a COMMISSION
particular swap, group, category, type, requirement will not apply to the swap,
or class of swaps that the Commission or group, category, type, or class of 17 CFR Part 40
finds would otherwise be subject to a swaps, but clearing may continue on a
clearing requirement, the Commission non-mandatory basis. RIN 3038–AD07
will: Provisions Common to Registered
(i) Investigate the relevant facts and PART 140—ORGANIZATION,
FUNCTIONS, AND PROCEDURES OF Entities
circumstances;
(ii) Within 30 days of the completion THE COMMISSION AGENCY: Commodity Futures Trading
of its investigation, issue a public report 3. The authority citation for part 140 Commission.
containing the results of the continues to read as follows: ACTION: Notice of proposed rulemaking.
investigation; and
(iii) Take such actions as the Authority: 7 U.S.C. 2 and 12a. SUMMARY: The Commodity Futures
Commission determines to be necessary 4. In § 140.94, revise paragraph (a)(5) Trading Commission (‘‘Commission’’ or
and in the public interest, which may and add new paragraphs (a)(6) and (a)(7) ‘‘CFTC’’) is proposing rules to
include requiring the retaining of to read as follows: implement new statutory provisions
adequate margin or capital by parties to enacted under Title VII of the Dodd-
the swap, group, category, type, or class § 140.94 Delegation of authority to the Frank Wall Street Reform and Consumer
of swaps. Director of the Division of Clearing and Protection Act (‘‘Dodd-Frank Act’’) and
(d) Stay of clearing requirement. (1) Intermediary Oversight. amend existing rules affected by the
After making a determination that a (a) * * * passage of the Dodd-Frank Act. These
swap, or group, category, type, or class (5) All functions reserved to the proposed rules apply to designated
of swaps is required to be cleared, the Commission in § 5.14 of this chapter; contract markets (‘‘DCMs’’), derivatives

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

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Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

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Federal Register / Vol. 75, No.

211 / Tuesday, November 2, 2010 / Proposed Rules 67277

2(h)(2)(B)(i). 2(h)(3)(A). 20 See 66 FR 45605, 45609 (August 29, 2001).

filings for the Commission’s review.

public comment period. swap, or group, category, type, or class

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