67282 Federal Register / Vol. 75, No.

211 / Tuesday, November 2, 2010 / Proposed Rules

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
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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

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67283

clearing organizations (‘‘DCOs’’), swap applicable laws, and may be accessible time reporting regimes; and (4)
execution facilities (‘‘SEFs’’) and swap under the Freedom of Information Act. enhancing the Commission’s
data repositories (‘‘SDRs’’). The FOR FURTHER INFORMATION CONTACT: rulemaking and enforcement authorities
proposed rules implement the new Bella Rozenberg, Special Counsel, with respect to, among others, all
statutory framework for certification and Division of Market Oversight (‘‘DMO’’), registered entities and intermediaries
approval for new products, new rules at 202–418–5119 or subject to the Commission’s oversight.
and rule amendments submitted to the [email protected], Riva Spear Section 745 of the Dodd-Frank Act
Commission by registered entities. Adriance, Associate Director for Market amends Section 5c of the Act to provide
Furthermore, the proposed rules Review, DMO at 202–418–5494 or for new rule, rule amendment and
prohibit event contracts based on [email protected], in each case, also at product certification and approval
certain excluded commodities, establish the Commodity Futures Trading procedures, which are applicable to
special procedures for certain rule Commission, Three Lafayette Centre, DCMs and DCOs, as well as new
changes proposed by systemically 1155 21st Street, NW., Washington, DC registered entities, SEFs and SDRs.5
important derivatives clearing 20581. Section 745 of the Dodd-Frank Act also
organizations (‘‘SIDCOs’’), and provide SUPPLEMENTARY INFORMATION: authorizes the Commission to prohibit
for the tolling of review periods for the listing of event contracts based on
certain novel derivative products Table of Contents
certain excluded commodities if such
pending the resolution of jurisdictional I. Background contracts involve one or more activities
determinations. II. The Proposed Amendments to Part 40 of
the Commission’s Regulations enumerated in the Dodd-Frank Act.
DATES: Submit comments on or before Furthermore, Section 745 of the Dodd-
a. Definitions
January 3, 2011. b. Listing and accepting products for Frank Act authorizes the Commission to
ADDRESSES: You may submit comments, trading or clearing by certification prohibit contracts based on similar
identified by RIN number, by any of the c. Voluntary submission of new products activities if they are determined by rule
following methods: for Commission review and approval or regulation to be contrary to the public
• Agency Web site, via its Comments d. Amendments to terms or conditions of interest. Section 806(e)(1) of the Dodd-
enumerated agricultural contracts
Online process: http:// Frank Act requires that a SIDCO 6
e. Voluntary submission of rules for
comments.cftc.gov. Follow the Commission review and approval provide the Commission with 60 days
instructions for submitting comments f. Self-certification of rules advance notice of any proposed changes
through the Web site. g. Delegations to rules, procedures or operations that
• Mail: David A. Stawick, Secretary of h. Availability of public information could materially affect the nature or
the Commission, Commodity Futures i. Special certification procedures for level of risk presented by a SIDCO.
Trading Commission, Three Lafayette submission of rules by systemically Finally, the Commission proposes to toll
Centre, 1155 21st Street, NW., important derivatives clearing
organizations
the review period of novel derivative
Washington, DC 20581 j. Review of event contracts based on products pending a determination as to
• Hand Delivery/Courier: Same as certain excluded commodities whether the Commission or the
mail above. k. Tolling of review period pending Securities and Exchange Commission
• Federal eRulemaking Portal: http:// jurisdictional determination (‘‘SEC’’) has jurisdiction over novel
www.regulations.gov. Follow III. Related Matters derivative products.
instructions for submitting comments. a. Regulatory Flexibility Act
b. Paperwork Reduction Act The Commission proposes a number
All comments must be submitted in of changes in order to enhance its ability
English, or if not, accompanied by an c. Cost Benefit Analysis
to administer the Act, as amended,
English translation. Comments will be I. Background ensure consistency with various new
posted as received to http:// On July 21, 2010, President Obama requirements of the Dodd-Frank Act and
www.cftc.gov. You should submit only signed the Dodd-Frank Act.2 Title VII of clarify the regulatory obligations
information that you wish to make the Dodd-Frank Act 3 amended the imposed on market participants.
available publicly. If you wish the Commodity Exchange Act (‘‘Act’’) 4 to Specifically, the Commission proposes
Commission to consider information establish a comprehensive new to amend sections 40.1 through 40.8 and
that is exempt from disclosure under the regulatory framework for swaps and adopt new sections 40.10 through
Freedom of Information Act, a petition security-based swaps. The legislation 40.12 7 to amend the definitions,
for confidential treatment of the exempt was enacted to reduce risk, increase establish certification and approval
information may be submitted according transparency, and promote market procedures for the rules and products of
to the procedures established in CFTC integrity within the financial system by, registered entities, including SIDCOs,
Regulation 145.9.1 The Commission among other things: (1) Providing for the prohibit event contracts based on
reserves the right, but shall have no registration and comprehensive certain excluded commodities, and
obligation, to review, pre-screen, filter, regulation of swap dealers and major codify statutory requirements relating to
redact, refuse or remove any or all of swap participants; (2) imposing clearing tolling of the review period pending
your submission from http:// and trade execution requirements on SEC and CFTC jurisdictional
www.cftc.gov that it may deem to be standardized derivative products; (3) determinations.
inappropriate for publication, such as creating robust recordkeeping and real-
obscene language. All submissions that 5 The Dodd-Frank Act created new registered
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have been redacted or removed that 2 See Dodd-Frank Wall Street Reform and entities, including SEFs and SDRs. Issues related to
contain comments on the merits of the Consumer Protection Act, Public Law 111–203, 124 the regulation of these entities will be addressed in
rulemaking will be retained in the Stat. 1376 (2010). The text of the Dodd-Frank Act other rulemakings issued by the Commission.
public comment file and will be may be accessed at http://www.cftc.gov/ 6 A SIDCO is a DCO that has been designated as
LawRegulation/OTCDERIVATIVES/index.htm. a systemically important financial market utility by
considered as required under the 3 Pursuant to Section 701 of the Dodd-Frank Act, the Financial Stability Oversight Council pursuant
Administrative Procedure Act and other Title VII may be cited as the ‘‘Wall Street to Section 804 of the Dodd-Frank Act.
Transparency and Accountability Act of 2010.’’ 7 Commission regulations referred to herein are
1 17 CFR 145.9. 4 7 U.S.C. 1 et seq. found at 17 CFR 1.

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 67284 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

Although Section 745 of the Dodd- appropriate as Section 736 of the Dodd- entities provide, only if requested by
Frank Act does not provide a statutory Frank Act amends Section 8a(7) of the Commission staff, additional
deadline for promulgation of final rules, Act to permit the Commission to alter or information relating to whether the
Part 40 of the Commission’s regulations supplement the rules of a registered contract meets the requirements of the
currently is inconsistent with certain entity by issuing rules, regulations or Act or the Commission’s regulations or
provisions of Section 745. In addition, orders regarding margin requirements. policies thereunder.
since, as noted, the Dodd-Frank Act By necessity, such action requires the Further, the Act permits registered
created new registered entities, SEFs Commission to be able to review a entities to list for trading only those
and SDRs, the rule certification DCO’s rules ‘‘relating to the setting of products that are not susceptible to
procedures for these new registered levels of margin’’ in the first instance, manipulation and have appropriate
entities must be in place by the time even though the Commission itself is position limitations or position
these entities begin operating. not authorized to ‘‘set specific margin accountability for speculators. To assist
Therefore, Part 40 should be amended amounts’’ under Section 8(a)(7). Finally, registered entities in demonstrating
by July 15, 2011, the date when relevant the Commission proposes to revise the compliance with these Core Principles
provisions of the Dodd-Frank Act definition of ‘‘terms and conditions’’ to and to better ensure the integrity of
become effective. add a new paragraph (j)(15) to include certified products, the Commission
The Commission requests comment specific information relating to swaps proposes two amendments to § 40.2.
on all aspects of the proposed rules, as proposed to be cleared by a DCO. By The Commission proposes to amend
well as comment on the specific supplementing other provisions of § 40.2 to require registered entities to
provisions and issues highlighted in the paragraph (j) that are relevant to swaps, include in their submission
discussion below. the Commission seeks to clarify the documentation relied on to establish the
types of information that may basis for compliance with the applicable
II. The Proposed Amendments to Part differentiate swaps from futures provisions of the Act and the
40 of the Commission’s Regulations contracts. These include, for example, Commission’s regulations thereunder,
a. Section 40.1 Definitions the following: notional value; relevant including the Core Principles for
dates, tenor, and day count conventions; registered entities. The proposed
To implement the requirements of the stub, premium, or initial cash flow
Dodd-Frank Act and to ensure the amendments to § 40.2 will increase the
components; and payment and reset timeliness and efficiency of Commission
Commission’s ability to administer Part frequency.
40, the Commission proposes a number review. The Commission has always
of amendments to the definitions found b. Section 40.2 Listing and accepting required that registered entities have
in § 40.1. The Commission proposes to products for trading or clearing by evidence supporting their certification
add definitions for ‘‘dormant swap certification of compliance with the Act available for
execution facilities’’ and ‘‘dormant swap Commission review.9
Section 5c(c) of the Act permits Based on these experiences, the
data repositories’’ to provide consistency registered entities to list for trading or Commission proposes to amend
with the extant § 40.1definitions for accept for clearing any new product by § 40.2(a) to require a registered entity to
dormant DCMs and dormant DCOs. providing to the Commission a written include in its submission any
Also, the Commission proposes to certification that the new product, rule, documentation relied on to establish the
delete the definition of a ‘‘dormant or rule amendment complies with the basis for compliance with the Act and
derivatives trading execution facility’’ Act and Commission regulations. Under the Commission’s regulations
since this entity was eliminated by the current § 40.2, prior to listing or thereunder, including the applicable
Dodd-Frank Act. accepting products for trading or
Further, the Commission proposes to Core Principles. For DCM and SEF
clearing by certification, the submissions of new products and
revise the definition of ‘‘emergency’’ to Commission requires, among other
include an occurrence or circumstance product amendments, the Commission
things, that registered entities provide expects submissions to include
that threatens the timely collection and the terms and conditions of their
payment of funds in connection with documentation demonstrating that the
products and certify that submitted product is not readily susceptible to
clearing and settlement by a derivatives products comply with the Act and
clearing organization. In addition, the manipulation (Core Principle 3 for
Commission regulations. The
Commission proposes to incorporate Commission also requires that registered 9 For instance, in January 2006, when the
references to swap transactions where Commission issued Technical and Clarifying
appropriate to ensure consistency in provision did not retain any reference to margin Amendments to Rules for Exempt Markets,
application of Part 40 to both current rules. However, Section 8(a)(7) was not amended by Derivatives Transaction Execution Facilities and
and new registered entities. The the CFMA, and retained a provision that allowed Designated Contract Markets, and Procedural
the Commission to alter or supplement the rules of Changes for Derivatives Clearing Organization
Commission also proposes to delete the a registered entity, except for rules relating to ‘‘the Registration Applications, it required DCMs to
existing restriction on Commission setting of levels of margin,’’ thereby creating provide documentation demonstrating compliance
review of rules relating to margin levels uncertainty as to whether registered entities could with the Act and the Commission’s regulations. It
currently included in the definition of adopt or change margin rules without certifying expressly stated, ‘‘DCMs are responsible in the first
those rules to the Commission. Because there was instance, and the Commission is ultimately
rule.8 The restriction is no longer no indication that Congress intended to alter the responsible in its oversight role, for assuring that
special status of rules relating to the setting of DCM products and rules comply with applicable
8 The restriction in the current regulations reflects margin levels, the Commission resolved this designation criteria and Core Principles. When a
an ambiguity in the Act as modified by the ambiguity by excluding the setting of margin levels DCM self-certifies a product or rule, it is, in effect,
jlentini on DSKJ8SOYB1PROD with PROPOSALS

Commodity Futures Modernization Act (‘‘CFMA’’). from the definition of ‘‘rule.’’ Section 8(a)(7)(D) now pledging that the product or rule does meet those
Prior to enactment of the CFMA in 2000, Section permits the Commission to require the changes with standards. Assuming the DCM is acting in good
5a(a)(12)(A) of the Act required that all changes to respect to margin requirements provided that the faith, it must have some reasonable basis for making
contract terms and conditions be submitted to the Commission’s rules, regulations or orders (i) are that pledge * * * [and therefore] * * * when
Commission for approval ‘‘except those rules limited to protecting the financial integrity of a reasonable questions arise, it should not be
relating to the setting of levels of margin.’’ In DCO, (ii) are designed for risk management burdensome for a DCM to share information
Section 113 of the CFMA, Congress removed purposes to protect the financial integrity of regarding the reasonable basis underlying the new
Section 5a(a)(12)(A), allowing registered entities to transactions, and (iii) do not set specific margin product or a rule with the Commission or its staff.’’
amend their rules by self-certification. The new amounts. See 71 FR 1956 (Jan. 12, 2006).

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67285

DCMs and SEFs) and that associated participants to receive prompt notice of or condition of a contract with open
position limits or position new rules filed with the Commission. interest that is based on an agricultural
accountability provisions are necessary commodity enumerated in Section 1a(9)
c. Section 40.3 Voluntary submission
and appropriate (Core Principle 5 for of the Act, must be approved by the
of new products for Commission review
DCMs and Core Principle 4 for SEFs). Commission prior to implementation. A
and approval
Proposed §§ 40.3, 40.5, and 40.6 contain finding of materiality is, by statute, at
a similar requirement for submission of Although the Dodd-Frank Act does the reasonable discretion of the
new products, rules and rule not specifically require that the Commission. Through prior rulemaking,
amendments. Commission amend § 40.3, the the Commission has enumerated several
The Commission believes that before Commission believes that the rule categories in § 40.4(b) that are
self-certifying that a new contract amendments described below are deemed not to be material for purposes
complies with the Act and the necessary to enhance the Commission’s of Section 5c(c)(2)(B) of the Act and
Commission’s regulations, a registered ability to administer the Act. Similar to thus not subject to prior approval. The
entity should conduct an appropriate its proposed amendments to § 40.2, Commission has separately enumerated
due diligence review to support that described above, the Commission several categories of registered entities’
assertion. Furthermore, the Commission proposes to amend § 40.3 to require rules in § 40.6(d) that need not be
believes that any such review should DCMs, DCOs, and SEFs to include with approved by, or certified with, the
generate some form of documentation at their requests for new product approval Commission prior to implementation.
the registered entity substantiating the all documentation relied upon to Exchange rules that come within these
review, including information used and determine that the new product categories typically are limited in scope
sources consulted to reach the complies with applicable Core and are implemented under enabling
conclusion supporting self-certification. Principles. rules that have already been approved
Therefore, the Commission believes that In addition, similar to proposed by, or certified with, the Commission.
the inclusion of such information in the § 40.2(a)(3)(vi), proposed § 40.3(a)(9) Since there is substantial overlap
self-certified submission itself should requires registered entities to submit a between the categories of rules deemed
not be burdensome for registered written statement that they have not to be material under § 40.4(b) and
entities that are conducting appropriate undertaken a due diligence review of the categories of rules enumerated in
due diligence reviews before making the legal conditions, including § 40.6(d), the Commission proposes to
such submissions. conditions relating to contractual and amend § 40.4(b) to refer to § 40.6(d) for
Further, the Commission proposes a intellectual property rights, that may the purpose of identifying rules that are
new § 40.2 requirement that registered affect the trading of the product. These deemed by the Commission not to be
entities examine potential legal issues additional requirements should material under Section 5c(c)(2)(B) of the
associated with the listing of products expedite Commission review. Moreover, Act. Such rules would qualify for
and include certain representations with parallel to proposed §§ 40.2(a)(3)(vii) implementation under § 40.6 without
their submissions. The reason for these and 40.6(a)(2), proposed § 40.3(a)(10) prior approval or certification.
requirements is that certain commodity requires a registered entity to certify that In addition, the Commission proposes
futures and option products are based the registered entity has posted a copy to clarify that changes in trading hours
on measures or linked to information of the pending product certification in § 40.4(b)(3) and changes required to
that may be subject to bona fide submission on the registered entity’s comply with an order of an adjudicative
intellectual property rights claims. Web site at the time of the filing. As or regulatory body in § 40.4(b)(4), while
Commodity futures and option mentioned above, this will allow market not material for purposes of Section
contracts, such as those based on participants to receive prompt notice of 5c(c)(2)(B) of the Act, must be
emission credits, can also be based on pending requests for product approval. implemented through a prior certified
underlying markets that are constructs Also, to provide the overall consistency submission under § 40.6(a) because of
of Federal or state regulations. In these with the requirements of the Dodd- their potential effects on the operations
and other circumstances, the Frank Act, proposed § 40.3(d)(1) of a DCM.
Commission has an interest in verifying authorizes the Commission to extend
that registered entities have an adequate e. Section 40.5 Voluntary submission
the review period if the product raises of rules for Commission review and
understanding of the legal conditions novel or complex issues.
and constraints that may have a material approval
Finally, the Commission notes that
impact on the trading of these types of the standard for review and approval for Section 745 of the Dodd-Frank Act
products. Accordingly, the Commission new products remains unchanged; that establishes a new standard for the
proposes to add § 40.2(a)(3)(vi) to is, the Commission shall approve a new review of new rules or rule
require that certified product product unless the terms and conditions amendments. That standard, as codified
submissions be accompanied by a of such product would violate the Act in proposed § 40.5(b), requires the
written statement verifying that the or the Commission’s regulations Commission to approve a new rule or
registered entity has undertaken a due thereunder. rule amendment unless the rule or rule
diligence review of the legal conditions, amendment is inconsistent with the Act
including conditions relating to d. Section 40.4 Amendments to terms or the Commission’s regulations
contractual and intellectual property or conditions of enumerated agricultural promulgated thereunder. In determining
rights, that may affect the trading of the products whether a rule is inconsistent with the
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product underlying the contract. The Commission proposes a number Act, the Commission may also consider,
Finally, the Commission proposes in of technical amendments to clarify for example, whether the new rule or
§ 40.2(a)(3)(vii) to require a registered existing regulatory obligations imposed rule amendment potentially disrupts
entity to certify that the registered entity on the DCMs that trade contracts based market integrity, or increases systemic
has posted a copy of the pending on an agricultural commodity listed in risk.
product certification submission on the Section 1a(9) of the Act. The Commission also proposes
registered entity’s Web site at the time Pursuant to Section 5c(c)(2)(B) of the amendments to the information required
of the filing. This will permit market Act, rules that materially change a term to be submitted when requesting

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 67286 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

approval of amendments to the terms business days, that it is staying the Proposed § 40.6(c)(1) stays the
and conditions of a product under certification pursuant to § 40.6(c). certification of a rule if the Commission
§ 40.5. Consistent with § 40.2 and § 40.3, Parallel to proposed § 40.5(a), determines that the new rule or rule
the Commission proposes to amend proposed § 40.6(a) requires a registered amendment presents novel or complex
§ 40.5(a)(7) to require a registered entity entity to certify that the registered entity issues, is certified with an inadequate
submitting an amendment of a product’s has posted a copy of the pending explanation, or is potentially
terms and conditions to include with its product certification submission on the inconsistent with the Act or the
submission the documentation relied registered entity’s Web site at the time Commission’s regulations thereunder.
upon to establish the basis for of the filing. This will permit market Once the Commission issues a
compliance with the Act and the participants to receive prompt notice of notification of stay to the registered
Commission’s regulations thereunder, new rules or rule amendments filed entity, the Commission will have 90
including the applicable Core with the Commission. The Commission days to conduct a review. The rule will
Principles. intends to continue its current practice be certified upon expiration of the 90-
Additionally, similar to of publishing the self-certified rules on day review period unless the
§§ 40.2(a)(3)(vii), 40.3(a)(10) and 40.6 its Web site. Commission objects to the certification.
(a)(2), the Commission proposes in Further, in proposed § 40.6(a)(6), the If the Commission decides to lift the
§ 40.5(a)(6) to require registered entities Commission clarifies the distinction stay prior to the expiration of the 90-day
to certify that the registered entity has between rules that establish standards review period, the Commission will
posted a copy of the pending product and authorize appropriate parties to notify the registered entity of its action.
certification submission on the respond to an emergency—which must The Commission also notes that the
registered entity’s Web site at the time be submitted to the Commission prior to new stay provision in proposed
of the filing. This will permit market implementation—and rules that § 40.6(c)(1) is distinct from the stay
participants to receive prompt notice of implement a response to a particular provision presently in effect under
new requests for approval filed with the emergency—which, in certain current § 40.6(b), which the Commission
Commission. The Commission intends circumstances, may be submitted to the proposes to move to § 40.6(c)(4). The
to continue its current practice of Commission after implementation. latter provision, which implements
publishing all requests for Commission Commission authority under section
Similar to §§ 40.2, 40.3 and 40.5,
review and approval on its Web site. 8a(7) of the Act, permits the
proposed § 40.6(a)(7)(v) requires that
Finally, proposed § 40.5(a)(11) requires Commission to stay the effectiveness of
amendments to the terms and
registered entities, in connection with a rule or rule amendment that already
conditions of a product be accompanied
the submission of a request for changes has been implemented pursuant to the
by documentation relied upon to
to a product’s terms or conditions, to self-certification procedures in § 40.6(a).
establish the basis for compliance with
submit a written statement that they Conversely, the new stay provision in
the Act and the regulations thereunder,
have undertaken a due diligence review proposed § 40.6(c)(1), pursuant to the
including the applicable Core
of the legal conditions, including Commission’s new authority in Section
Principles.
conditions relating to contractual and 745 of the Dodd-Frank Act, authorizes a
intellectual property rights, that may As is proposed for §§ 40.2, 40.3 and stay of the certification itself and would
affect the trading of the product, similar 40.5 and discussed above, the be issued during the review process,
to the statement required in §§ 40.2 and Commission proposes to amend thereby possibly preventing the certified
40.3. § 40.6(a)(7)(viii) to require registered rule or rule amendment from ever
entities to include with their becoming effective in the first instance.
f. Section 40.6 Self-certification of certification of any changes to a A stay of a rule certification may be
rules product’s terms and conditions, a appropriate, for example, where a
Section 745 of the Dodd-Frank Act written statement that they have registered entity certifies a rule that
amended Section 5c(c) of the Act to undertaken a due diligence review of raises unique issues not previously
include a new 10-day certification legal conditions relating to futures or reviewed by Commission staff. In
review period for all rules and rule options trading based on the underlying addition, the Commission believes that
amendments submitted to the product or instrument. new rules or rule amendments may raise
Commission by registered entities and Under proposed § 40.6(b), a new rule a number of complex issues if they
to permit the Commission to stay the or rule amendment will become appear to have a material impact on the
certification of rules or rule effective ten business days after the futures market or the underlying cash
amendments that, among other things, certified rule or rule amendment is market. Thus such rules are more likely
present novel or complex issues that received by the Commission, unless the to be subject to an extended review
require additional time to analyze. The Commission notifies the registered period to allow the Commission to
Commission proposes to codify these entity that it is staying the certification. adequately identify and address
new certification provisions in § 40.6, as Generally, a DCM seeking to adopt a complex regulatory issues. For example,
follows. program (such as a program to address the Commission may need more than
To implement the amended conflicts of interest), which is in ten business days to determine whether
procedures for self-certification of rules substance the same as a program a proposed market maker incentive
described in Section 745 of the Dodd- previously approved by the program appropriately encourages
Frank Act, the Commission proposes in Commission, or an exchange seeking to market liquidity and does not have
change a rule establishing trading hours
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§ 40.6(a)(3) to require registered entities unnecessary anticompetitive effects.

to submit self-certifications at least ten or seeking to modify the terms and Staff might also need more than ten
business days before the projected conditions of a listed contract for which business days to analyze whether
effective date. A rule certification will it has provided sufficient evidence of deliverable supplies of an underlying
become effective ten business days after compliance with Core Principles, may commodity are sufficient to support a
the Commission receives the self-certify and, without Commission proposed change to a spot month
certification, unless the Commission action, implement the proposed rule or speculative position limit on a physical-
notifies the registered entity, within 10 rule amendment after ten business days. delivery contract. The above mentioned

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67287

examples of submissions often raise a will notify the public and establish a with respect to a SIDCO’s proposed
number of complex issues that may timeline to implement new electronic change in rules, procedures or
require an extended review period. filing procedures. operations that could materially affect
Proposed § 40.6(c)(2) provides for a The Commission proposes several the nature or level of risks presented by
30-day public comment period, within amendments to § 40.6(d). Specifically, the SIDCO. This includes a
the 90-day review period, whenever the the Commission proposes to permit determination that the proposed change
Commission determines to stay a new registered entities to implement is consistent with the Act and the
rule or rule amendment and take it reductions to a contract’s minimum tick Commission’s regulations, and the
under further review. Under proposed size without approval by or certification purposes of the Dodd-Frank Act and any
§ 40.6(c)(2), the Commission would to the Commission, in order to maintain applicable rules, orders or standards
provide notice of the comment period consistency between §§ 40.4(b) and prescribed under Section 805(a) of the
by posting the notice and the new rule 40.6(d). The Commission in proposed Dodd-Frank Act.
or rule amendment submission on the § 40.6(d)(2)(v), requires that fee changes
Commission’s Web site.10 associated with market making or other h. Section 40.8 Availability of public
The Commission believes that incentive programs be submitted for information
publication of the notice of the 30-day Commission review under § 40.6(a). This section describes information
comment period on the Commission’s Finally, the Commission also proposes that the Commission will make public
Web site, www.cftc.gov, will provide the that changes to the terms of all options, and provides for procedures for
public and market participants with the including options on agricultural requesting confidential treatment of part
timely opportunity to comment on new products, options on futures, and 40 submissions to the Commission. The
rules or rule amendment submissions. options on physicals, that relate to the Commission proposes to retain
The Commission routinely uses its Web strike price listing procedures, strike reference to an electronic trading facility
site to disseminate information price intervals, and the listing of strike on which significant price discovery
regarding Commission activities and price on a discretionary basis, be contracts are traded or executed in
industry filings.11 Web site publication implemented without certification or § 40.8 until July 20, 2012. Although the
would facilitate public comment while notice under § 40.6(d)(3). Dodd-Frank Act eliminated these
allowing Commission staff adequate entities, they are allowed to continue
time to assess comments and complete g. Section 40.7 Delegations
operation until July 20, 2012, pursuant
a substantive analysis within the To ensure that the review process is to grandfather relief issued by the
statutory 90-day time frame. Finally, the conducted in an efficient manner, the Commission.12
Commission anticipates enhancements Commission proposes to amend § 40.7 In addition, the Commission proposes
to its Web site publication procedures to to delegate to the Director of the to amend § 40.8 to include new
promptly inform interested members of Division of Clearing and Intermediary registered entities, SEFs and SDRs.
the public of stayed rules through email Oversight and, separately, to the Confidential treatment requests will be
notifications on the Commission’s Web Director of the Division of Market considered pursuant to part 145 of the
site. Oversight, after consultation with the Commission’s regulations.13
The Commission is also exploring the General Counsel or the General
possibility of having registered entities Counsel’s designee, the authority to i. Section 40.10 Special certification
file rule certifications, as well as other extend the review of new contracts, procedures for submission of rules by
types of submissions, through a portal rules and rule amendments submitted to systemically important derivatives
located at www.cftc.gov. The the Commission pursuant to § 40.3(d) clearing organizations
Commission believes that allowing and § 40.5(d) and the authority to stay To implement the provisions of
registered entities to file rule the certification of new rules or rule Section 806(e) of the Dodd-Frank Act,
certifications in this manner will amendments pursuant to § 40.6(c), when proposed § 40.10(a) would require a
simplify the filing process and also the submission raises novel or complex SIDCO to provide the Commission with
provide the public with close to real- issues that require additional time to advance notice of any proposed change
time access to new rules and rule analyze, is of major economic to its rules, procedures or operations
amendments submitted to the significance or is potentially that could ‘‘materially affect the nature
Commission for review. The inconsistent with the Act or or level of risks’’ presented by the
Commission is determining the Commission Regulations. SIDCO. The SIDCO would be required
technological requirements necessary to Furthermore, the Commission to provide the notice not less than 60
implement this filing process. Once the proposes to delegate to the Director of days in advance of the proposed change.
Commission has formulated a process the Division of Clearing and Submission of proposed changes would
for submitting certifications through the Intermediary Oversight and, separately, be subject to the filing requirements of
Commission’s Web site, the Commission to the Director of the Division of Market § 40.6(a)(1), as well as the Web site
Oversight the authority to stay or to publication requirements under
10 It is the Commission’s intention to promptly
extend the review of new products, new § 40.6(a)(2). In addition to providing
post the notice and new rule or rule amendment in rules and rule amendments pursuant to
order to commence the public comment period as
information required under § 40.6(a)(7),
soon as possible within the 90-day review period. § 40.3 (d) or § 40.5(d) or § 40.6(c), when the notice would have to describe the
This will maximize the amount of time after the the submission is incomplete or nature of the change, the expected
comment period closes for the submitter to respond accompanied by an inadequate effects on risks to the SIDCO, its
to public comments and possibly revise its
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proposed rule or rule amendment and for the

explanation. clearing members, and the market, and
Commission to thoroughly consider the issues Finally, proposed § 40.7(a)(1)(iii) how the SIDCO planned to manage
raised by the new rule or rule amendment. delegates to the Director of the Division those risks. Under proposed 40.10(a)(2),
11 In addition, the Commission’s Web site of Clearing and Intermediary Oversight concurrent with providing the
provides a link for signing up to receive press or the Director’s designee, subject to the
releases issued by the Office of Public Affairs. This
Commission with the advance notice or
service enables members of the public to be
concurrence of the General Counsel or
apprised of the opening of comment periods in a the General Counsel’s designee, all 12 See 75 FR 56513 (Sept. 16, 2010).
timely manner. determinations under proposed § 40.10 13 17 CFR part 145.

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 67288 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

any request or other information related materiality threshold makes the existing Proposed § 40.10(g) would permit a
to the advance notice, the SIDCO would list of non-material changes less SIDCO to implement a proposed change
be required to provide the Board of meaningful for purposes of § 40.10. The prior to the expiration of the review
Governors of the Federal Reserve Commission believes that any further period if it received a notification in
System with a copy of such notice, refinement of what might be considered writing from the Commission that the
request or other information. non-material for purposes of § 40.10 Commission does not object to the
Under proposed § 40.10(b), changes would have to be appropriately proposed change and authorizes the
that could materially affect the nature or circumscribed so as to be specific SIDCO to implement the change. Such
level of risks would be defined as those enough to provide useful guidance for authorization may be subject to
as to which there is a reasonable SIDCOs, while remaining broad enough conditions imposed by the Commission.
possibility that the changes could so as not to inappropriately limit the Proposed § 40.10(h) would permit a
substantially affect the performance of types of changes that the Commission SIDCO to implement a change without
essential clearing and settlement would consider material and subject to providing 60 days advance notice to the
functions or the overall nature or level the procedures of § 40.10. Commission if the SIDCO determined
of risk presented by the SIDCO. Such Under proposed § 40.10(c), the that an emergency exists and immediate
changes could include, but would not Commission may require a SIDCO to implementation of the change was
be limited to, changes that materially provide further information to assess the necessary for the SIDCO to continue to
affect financial resources, participant nature or level of any risks associated provide its services in a safe and sound
and product eligibility, risk with the proposed change and the manner. The SIDCO would be required
management (including matters relating sufficiency of any proposed risk to notify the Commission of the
to margin and stress testing), daily or management technique. emergency change as soon as
intraday settlement procedures, default Further, under proposed § 40.10(d), practicable, but no later than 24 hours
procedures, system safeguards (business within 60 days from the date the after implementation of the change. The
continuity and disaster recovery), and Commission received a notice of a notification must provide the
governance. Materiality would be proposed change, the Commission information required in an advance
determined on a case-by-case basis. If a would inform a SIDCO if it objects to notice, as well as describe the nature of
SIDCO were to determine that a the proposed change on the grounds the emergency and explain why the
proposed change was not material and that the change is not consistent with emergency change was necessary for the
it did not file an advance notice, but the the Act or the Commission’s regulations, SIDCO to continue to provide its
Commission determined that the change or the purposes of the Dodd-Frank Act services in a safe and sound manner.
was material, the Commission could or any applicable rules, orders, or Under the proposed regulation, the
require the SIDCO to withdraw the standards prescribed under Section Commission could require modification
proposed change and provide advance 805(a) of the Dodd-Frank Act. If the or rescission of the emergency change if
notice pursuant to § 40.10. Commission were to require further the Commission determined that the
The Commission requests comment information, the Commission would change was not consistent with the Act
on the proposed materiality standard in have an additional 60 days after the date or the Commission’s regulations or the
general and, more specifically, whether the Commission received the requested purposes of the Dodd-Frank Act, or any
another approach to defining materiality information, to inform the SIDCO of any applicable rules, orders, or standards
would be more effective. The objection to the proposed change. The prescribed under section 805(a) of the
Commission further requests comment Commission may ask for additional Dodd-Frank Act.
on whether, as an alternative to the information more than once. In such Finally, the Commission requests
proposed approach, the standard in case, the review period would be comment on whether there are any
proposed paragraph (b) should set forth extended 60 days from the date that the substantive changes to rules,
examples of changes that would be information pertaining to the last procedures, or operations that should
considered to be non-material and could request was received. not be permitted to be adopted under
be treated in accordance with the Proposed § 40.10(e) would allow a emergency circumstances without prior
provisions of § 40.6. The Commission SIDCO to implement a proposed rule notice to the Commission. For example,
solicits recommendations regarding change if the review period lapsed should there be restrictions on a
what types of changes might be without Commission action. SIDCO’s ability to demand significantly
identified as non-material. At a Proposed § 40.10(f) would allow the higher assessments from clearing
minimum, the Commission would Commission, during the 60-day review members on an emergency basis?
consider deeming to be non-material period, to extend the review period for
an additional 60 days if the proposed j. Section 40.11 Review of event
changes those listed in § 40.6(c) contracts based on certain excluded
(proposed to be redesignated as change raised novel or complex issues.
For example, if the Commission does commodities
§ 40.6(d)) and that are relevant to
SIDCOs.14 The Commission notes that not request additional information but Section 745(b) of the Dodd-Frank Act
while this list of non-material changes extends the review period 60 days upon authorizes the Commission to prohibit
is useful in the broader context of all receiving the advance notice, the the listing, trading, or clearing of
rule changes that could be submitted maximum review period would be 120 agreements, contracts, transactions or
under the certification procedures of days after receipt of the advance notice. swaps that are based upon an
§ 40.6, the fact that the Dodd-Frank Act On the other hand, if the Commission occurrence, extent of a concurrence, or
contingency (other than a change in the
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and § 40.10 already establish a requests and obtains additional

information 30 days after receiving the price, rate, value, or level of a
14 Non-material changes include, for example, notice and then extends the review commodity not described in Section
corrections of typographical errors, renumbering, period 60 days in order to consider 1a(19)(i) of the Act) that is beyond the
periodic updates to identifying information about complex or novel issues, then the control of the parties to the relevant
approved entities and other such non-substantive
revisions of a product’s terms and conditions that
Commission would have a maximum of contract, agreement, or transaction and
have no effect on the economic characteristics of 150 days to reach a determination after associated with financial, commercial,
the product. See § 40.6(c)(2)(i). receipt of the advance notice. or economic consequence, as defined in

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67289

Section 1a(19)(iv) of the Act, if the judicial review of a jurisdictional and made available to registered entities
contract involves terrorism, determination, proposed § 40.12 stays in the near future. The Commission is
assassination, war, gaming, an activity the challenged order, as well as the seeking the public’s view on whether
that is unlawful under any Federal or review period for the product, until the automated submission of rules, rule
State law, or any similar activity that the United States Court of Appeals for the amendments, and products might be
Commission determines, by rule or District of Columbia Circuit issues a facilitated by a Web site portal
regulation, to be contrary to the public final determination pursuant to Section dedicated to this purpose.
interest. 718(b) of the Dodd-Frank Act, or until
Pursuant to this authority, the there is resolution of an appeal of that III. Related Matters
Commission proposes new § 40.11(a)(1) determination. The submission review a. Regulatory Flexibility Act
to prohibit the listing, trading, or period will resume only upon a finding
clearing of any above mentioned that the Commission has jurisdiction The Regulatory Flexibility Act
agreements, contracts, transactions or over the submission. (‘‘RFA’’) 15 requires that agencies
swaps. In addition, the Commission consider whether the rules they propose
proposes new § 40.11(a)(2) to prohibit l. Revision of Appendices to Part 40 will have a significant economic impact
the listing, trading, or clearing of any The Commission proposes to revise on a substantial number of small entities
agreements, contracts, transactions or the appendices to Part 40 to clarify the and, if so, provide a regulatory
swaps involving activities similar to new regulatory requirements and to flexibility analysis respecting the
those enumerated in § 40.11(a)(1) and provide consistency with the overall impact.16 The proposed rules detailed in
that the Commission determines, by rule requirements of the Act, as amended by this release would require DCOs, DCMs,
or regulation, to be contrary to the the Dodd-Frank Act. The present SEFs and SDRs to submit to the
public interest. content of Appendix A relates solely to Commission, before they become
If during the review process for a the listing of certain futures contracts by effective, new products, new rules, and
product submitted under § 40.2 or DCMs and not to the listing of contracts rule amendments, with a self-
§ 40.3, the Commission determines that by registered entities generally. certification that the rules comply with
such product may involve an activity Accordingly, the Commission proposes the Act and Commission regulations.
that is enumerated in § 40.11(a), the to delete the content of Appendix A, The requirements for the self-
Commission will request that the currently titled ‘‘Guideline No. 1,’’ from certification are not complex, and may
registered entity suspend the listing or part 40. The substance of the appendix be satisfied by the completion of a cover
trading of the contract and will conduct will be incorporated into part 38 as part sheet with a detailed explanation of the
a 90-day review to determine whether of a separate rulemaking. filing. These self-certification rules will
the product violates § 40.11(a). Upon In addition, the Commission proposes not impose a significant economic
completion of its review, the to move and incorporate the current impact on any entity.
Commission will issue an order, as language in Appendix B, currently Moreover, the Commission previously
required by Section 745(b) of the Dodd- titled, ‘‘Schedule of Fees,’’ into determined that DCOs and DCMs are
Frank Act, finding either that the Appendix A. The Commission proposes not ‘‘small entities’’ for purposes of the
product violates or does not violate the to reserve Appendix B for a future RFA.17 The Commission has not
prohibitions in proposed § 40.11(a). rulemaking. Appendix C remains determined whether SEFs and SDRs,
reserved. new registered entities created by the
k. Section 40.12 Tolling of review The Commission proposes minor
period pending jurisdictional Dodd-Frank Act, are small entities. The
amendments to the submission cover
determination Dodd-Frank Act defines an SDR to mean
sheet and instructions provided in
any person that collects and maintains
Under Section 718(a) of the Dodd- Appendix D to part 40. The proposed
information or records with respect to
Frank Act, a registered entity certifying, submission cover sheet has been
modified to include SEFs and SDRs. transactions or positions in, or the terms
submitting for approval, or otherwise
The amended cover sheet will be posted and conditions of, swaps entered into by
filing a proposal to list a product having
on the Commission’s Web site upon third parties for the purpose of
elements of both a security and a
publication of the final rules. The providing a centralized recordkeeping
derivative may provide notice of its
Commission also proposes to amend the facility for swaps. The Dodd Frank Act
proposal both to the Commission and
instructions in Appendix D to clarify defines a SEF to mean a trading system
the Securities and Exchange
that registered entities must describe the or platform in which multiple
Commission. However, under Section
substance of the submission with participants have the ability to execute
718(a)(1)(B) of the Dodd-Frank Act, if
enough specificity to characterize all or trade swaps by accepting bids and
the registered entity chooses not to
material aspects of the filing. A offers made by multiple participants in
provide such notice, then the
description of the submission should the facility or system, through any
Commission must notify the Securities
allow a party reading it to ascertain the means of interstate commerce, including
and Exchange Commission of the
subject and effect of the submission. For any trading facility that facilitates the
submission and accompany such notice
example, a description of ‘‘Market execution of swaps between persons
with a copy of the registered entity’s
Regulation Advisory’’ does not provide and is not a DCM.18
complete filing if it determines that the
proposal has elements of both securities the reader with sufficient information to
15 5 U.S.C. 601 et seq.
and futures. If either Commission understand what the particular 16 5 U.S.C. 601 et seq.
Advisory addresses or its effect, thereby
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requests a jurisdictional determination 17 47 FR 18618, 18619 (April 30, 1982) and 66 FR

pursuant to Section 718 of the Dodd- rendering the description less useful. A 45604, 45609 (August 29, 2001).
Frank Act, the Commission will toll the clear and informative description will 18 See Section 721 of the Dodd-Frank Act. The

applicable product certification or facilitate and expedite the posting of the Commission anticipates proposing regulations that
approval review period until the submission on the Commission’s Web would further specify those entities that must
register as a SEF. The Commission does not believe
issuance of a final determination order. site. As noted above, the Commission is that such proposals would alter its determination
If the Commission or the Securities exploring whether an electronic that a SEF is not a ‘‘small entity’’ for purposes of
and Exchange Commission seeks submission system can be established the RFA.

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 67290 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

The Commission previously The Commission will protect require registered entities to state that
determined that DCMs and DCOs are proprietary information according to the they posted a copy of the certification or
not ‘‘small entities’’ for purposes of the Freedom of Information Act and 17 CFR request for approval on the registered
RFA. The Commission’s reasoning part 145, ‘‘Commission Records and entity’s Web site at the time of the filing
included the fact that the Commission Information.’’ In addition, section 8(a)(1) with the Commission.
designates a contract market or a DCO of the Act strictly prohibits the Estimated number of respondents: 45.
only when the entity meets specific Commission, unless specifically Annual responses by each
criteria, including the expenditure of authorized by the Act, from making respondent: 120.
sufficient resources to establish and public ‘‘data and information that would Estimated average hours per response:
maintain adequate self-regulatory separately disclose the business 2.52.
programs. Likewise, the Commission transactions or market positions of any Aggregate annual reporting burden:
will register an entity such as a SEF or person and trade secrets or names of 13,608.
an SDR only after the entity has met a customers.’’ The Commission also is
Proposed § 40.10 requires SIDCOs to
number of criteria, including the required to protect certain information
provide to the Commission 60 days
expenditure of sufficient resources to contained in a government system of
advance notice of proposed changes to
establish and maintain an adequate self- records according to the Privacy Act of
rules, procedures or operations that
regulatory program.19 Because SEFs and 1974, 5 U.S.C. 552a.
could materially affect the nature or
SDRs will be required to demonstrate 1. Information Provided by Reporting level of risks presented by the SIDCO.
compliance with Core Principles, many Entities/Persons Estimated number of respondents: 4.
of which are similar to those applicable
The proposed rules require DCMs, Annual responses by each
to DCMs and DCOs, the Commission
DCOs, and new registered entities, SEFs respondent: 2.
hereby determines that SEFs and SDRs Estimated average hours per response:
are not ‘‘small entities’’ for the purposes and SDRs, to collect and submit to the
Commission new rules, amended rules 5.
of the RFA. Aggregate annual reporting burden:
Accordingly, the Chairman, on behalf and new products pursuant to the
procedures outlined in proposed 40.
of the Commission, hereby certifies
pursuant to 5 U.S.C. § 605(b) that the §§ 40.2, 40.3, 40.5, 40.6, 40.10, and Proposed § 40.12 requires registered
proposed rules will not have a 40.12. The Commission proposes these entities to provide notice to the
information collection requirements in Commission and the Securities and
significant impact on a substantial
order to give effect to various notice, Exchange Commission when certifying,
number of small entities. The
rule certification, and rule approval submitting for approval, or otherwise
Commission invites the public to
provisions of the Dodd-Frank Act. filing a proposal to list a product having
comment on all aspects of this The Commission estimated the
Regulatory Flexibility Analysis. elements of both a security and a
proposed information collection derivative.
b. Paperwork Reduction Act burdens on registered entities below.
These estimates account for (1) the Estimated number of respondents: 17.
The Commission may not conduct or Annual responses by each
number of respondents; (2) the number
sponsor, and a registered entity is not respondent: 34.
of responses required of each
required to respond to, a collection of Estimated average hours per response:
respondent; (3) the average hours
information unless it displays a 2.52.
required to produce each response; and
currently valid Office of Management Aggregate annual reporting burden:
(4) the aggregate annual reporting
and Budget (‘‘OMB’’) control number. burden. The Commission estimates that 1,456.
Proposed amendments to §§ 40.2, 40.3, the aggregate effect of proposed §§ 40.2, The Commission invites public
40.5 and 40.6 will impose new 40.3, 40.5, 40.6, 40.10, and 40.12 will be comment on the accuracy of its estimate
information collection requirements to increase the overall information of the collection requirements that
within the meaning of the Paperwork collection burden on registered entities would result from the proposed
Reduction Act 20 on registered entities, by approximately 8,300 hours per year, regulations.
as will new proposed §§ 40.10 and resulting mostly from the preparation of
40.12. Accordingly, the Commission has materials to be filed with the 2. Information Collection Comments
requested that OMB approve and assign Commission in connection with the The Commission invites the public
a new control number for the proposed listing of products or the certification or and other federal agencies to comment
collections of information. In approval of rules and rule amendments. on the information collection
connection with its request, the The Commission estimates that there requirements proposed in this notice.
Commission has submitted this notice will be 70 designated or registered Pursuant to 44 U.S.C. 3506(c)(2)(B), the
of proposed rulemaking along with entities that would be required to file Commission solicits comments to: (1)
supporting documentation for OMB’s documentation with the Commission on Evaluate whether the proposed
review in accordance with 44 U.S.C. a periodic basis. collections of information are necessary
3507(d) and 5 CFR 1320.11. The title for Proposed §§ 40.5 and 40.6 require for the proper performance of the
this collection of information is Part 40, each registered entity to comply with functions of the Commission, including
Provisions Common to Registered new certification and approval whether the information will have
Entities, OMB control number 3038– requirements when seeking to practical utility; (2) evaluate the
D07. If adopted, responses to this new implement new rules or rule accuracy of the estimated burden of the
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collection of information will be amendments, including changes to proposed information collection

mandatory. product terms or conditions. In requirements, including the degree to
addition, to ensure that market which the methodology and the
19 See Core Principle 2 applicable to SEFs under
participants are promptly notified of assumptions that the Commission
Section 733 of the Dodd-Frank Act and Core
Principles 1–3 applicable to SDRs under Section product and rule submissions to the employed were valid; (3) determine
728 of the Dodd-Frank Act. Commission, proposed §§ 40.2(a)(3)(vii), whether there are ways to enhance the
20 44 U.S.C. 3501 et seq. 40.3(a)(10), 40.5(a)(6), and 40.6(a)(2) quality, utility, or clarity of the

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67291

information proposed to be collected; As discussed above, the proposed requirements of the Dodd-Frank Act in
and (4) minimize the burden of the regulations require registered entities, order to protect market participants and
proposed collections of information on including DCMs, SEFs, DCOs, and to ensure the continued competitiveness
DCMs, SEFs, DCOs, and SDRs, for SDRs, to comply with new certification and financial integrity of the futures and
example through implementation of an and approval procedures when derivative markets.
electronic rule and product submission submitting products and rules for The Commission invites public
system. Commission review. These procedures comment on its cost-benefit
Comments may be submitted directly are mandatory pursuant to the Dodd- considerations. Commenters are also
to the Office of Information and Frank Act. The Commission has invited to submit any data or other
Regulatory Affairs, by fax at (202) 395– determined that the costs associated information that they may have
6566 or by e-mail at with the self-certification and quantifying or qualifying the costs and
[email protected]. Please submission for Commission review of benefits of the proposal with their
provide the Commission with a copy of new products, new rules, and rule comment letters.
submitted comments so that they can be amendments will not negatively affect
summarized and addressed in the final the efficiency, competitiveness, and List of Subjects in 17 CFR Part 40
rule. Refer to the Addresses section of financial integrity of the futures and Commodity futures, Contract markets,
this notice of proposed rulemaking for swaps markets, particularly because of Designation application, Reporting and
comment submission instructions to the the time limits that Congress has recordkeeping requirements, Swap
Commission. A copy of the supporting imposed on Commission review. The execution facility, Swap data repository,
statements for the collections of Commission will have 10 days to review Systemically important derivatives
information discussed above may be new products, new rules, and rule clearing organization, Rule approval,
obtained by visiting RegInfo.gov. OMB amendments, and only 90 days if it Rule certification, Review of certain
is required to make a decision stays a rule to issue a rule approval or event contracts.
concerning the collection of information disapproval. In light of the foregoing, and pursuant
between 30 and 60 days after The Commission believes that the to authority in the Act, and, in
publication of this release. benefits of the rulemaking are particular, Sections 3, 5, 5c(c) and 8a(5)
Consequently, a comment to OMB is significant. The Commission’s of the Act, the Commission hereby
best assured of receiving full certification and approval procedures proposes to revise Part 40 of Title 17 of
consideration only if received by OMB ensure that registered entities do not the Code of Federal Regulations to read
(and the Commission) within 30 days of enact rules that may be anticompetitive, as follows:
publication of this notice of proposed unfair to market participants, or
rulemaking. otherwise detrimental to the public PART 40—PROVISIONS COMMON TO
interest. In addition, the special REGISTERED ENTITIES
c. Cost-Benefit Analysis
certification procedures for SIDCOs and
Sec.
Section 15(a) of the Act requires the certain event contracts implement 40.1 Definitions.
Commission to consider the costs and Section 745 of the Dodd-Frank Act and 40.2 Listing and accepting products for
benefits of its actions before issuing new ensure that the Commission has trading or clearing by certification.
regulations or orders.21 By its terms, adequate time and information to 40.3 Voluntary submission of new products
Section 15(a) does not require the analyze the registered entity’s proposal for Commission review and approval.
Commission to quantify the costs and and to consider the broader implications 40.4 Amendments to terms or conditions of
benefits of a new regulation or to of permitting the entity to implement enumerated agricultural products.
determine whether the benefits of the the rule or list the product. The SIDCO 40.5 Voluntary submission of rules for
proposed regulation outweigh its costs. Commission review and approval.
notice requirement, in particular, may
40.6 Self-certification of rules.
Rather, Section 15(a) requires the be crucially important to the 40.7 Delegations.
Commission to ‘‘consider the costs and Commission’s oversight of sound risk 40.8 Availability of public information.
benefits’’ of its proposed regulation. management practices and to its efforts 40.9 Corporate governance [Reserved]
Section 15(a) further specifies that costs to mitigate systemic risks, whereas the 40.10 Special certification procedures for
and benefits shall be evaluated in light proposed event contract provisions, submission of rules by systemically
of five broad areas of market and public consistent with the intent of Congress, important derivatives clearing
concern: (1) Protection of market prevent individuals from speculating on organizations.
participants and the public; (2) activities that are harmful to national 40.11 Review of event contracts based on
efficiency, competitiveness, and certain excluded commodities.
security and potentially detrimental to
40.12 Tolling of review period pending
financial integrity of futures markets; (3) the stability of the futures markets and jurisdictional determination.
price discovery; (4) sound risk their price discovery function. Finally, Appendix A to Part 40—Schedule of Fees
management practices; and (5) other the Commission’s notice requirements Appendix B to Part 40—[Reserved]
public interest considerations. In with respect to the submission of novel Appendix C to Part 40—[Reserved]
conducting its analysis, the Commission derivative products promote Appendix D to Part 40—Submission Cover
may, in its discretion, give greater cooperation between the Commission Sheet and Instructions
weight to any one of the five and the SEC and facilitate more effective Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and
enumerated areas and it may determine and less duplicative regulation of 12, as amended by Titles VII and VIII of the
that, notwithstanding its costs, a registered entities. Dodd-Frank Wall Street Reform and
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particular rule is necessary to protect For these reasons, the Commission Consumer Protection Act, Pub. L. 111–203,
the public interest or to effectuate any believes that the certification and 124 Stat. 1376 (2010).
of the provisions or to accomplish any approval procedures proposed in this § 40.1 Definitions.
of the purposes of the Act.22 notice are needed to fulfill the
As used in this part:
21 7U.S.C. 19(a). v. Peck, 751 F.2d 1336 (DC Cir. 1985) (noting that
(a) Business day means the intraday
22 See,e.g., Fisherman’s Doc Co-op., Inc v. Brown, an agency has discretion to weigh factors in period of time starting at the business
75 F.3d 164 (4th Cir. 1996); Center for Auto Safety undertaking cost-benefit analysis). hour of 8:15 a.m. and ending at the

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 67292 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

business hour of 4:45 p.m.; business organization shall be considered to be impact on trading or clearing and
hour means any hour between 8:15 a.m. dormant if its initial and original settlement; and
and 4:45 p.m.. Business day and Commission order of registration was (5) Any other circumstance which
business hour are Eastern Standard issued within the preceding 36 may have a severe, adverse effect upon
Time or Eastern Daylight Savings Time, complete calendar months. the functioning of a registered entity.
whichever is currently in effect in (e) Dormant swap data repository (i) Rule means any constitutional
Washington, DC, on all days except means any registered swap data provision, article of incorporation,
Saturdays, Sundays and federal repository on which no data has resided bylaw, rule, regulation, resolution,
holidays in Washington, DC. for a period of twelve consecutive interpretation, stated policy, terms and
(b) Dormant contract or dormant calendar months, preceding the most conditions, trading protocol, agreement
product means: recent calendar month. or instrument corresponding thereto,
(1) Any agreement, contract, (f) Dormant swap execution facility including those that authorize a
transaction, instrument, swap or any means any swap execution facility on response or establish standards for
such commodity futures or option which no trading has occurred for a responding to a specific emergency, in
contract with respect to all future or period of twelve consecutive calendar whatever form adopted, and any
option expiries, listed on a designated months, preceding the first day of the amendment or addition thereto or repeal
contract market, a swap execution most recent calendar month; provided, thereof, made or issued by a registered
facility or cleared by a registered however, no swap execution facility entity or by the governing board thereof
derivatives clearing organization, that shall be considered to be dormant if its or any committee thereof.
has no open interest and in which no initial and original Commission order of (j) Terms and conditions means any
trading has occurred for a period of registration was issued within the definition of the trading unit or the
twelve complete calendar months preceding 36 consecutive calendar specific commodity underlying a swap
following a certification to, or approval months. or a contract for the future delivery of
by, the Commission; provided, however, (g) Dormant rule means: a commodity or commodity option
that no contract or instrument under contract, specification of cash
(1) Any registered entity rule which
this paragraph (b)(1) initially and settlement or delivery standards and
remains unimplemented for twelve
originally certified to, or approved by, procedures, and establishment of
consecutive calendar months following
the Commission within the preceding
a certification with, or an approval by, buyers’ and sellers’ rights and
36 complete calendar months shall be
the Commission; or obligations under the swap or contract.
considered to be dormant; or
(2) Any commodity futures or option (2) Any rule or rule amendment of a Whenever possible, all proposed swap
contract, swap or other agreement, dormant designated contract market, or contract terms and conditions should
contract, transaction or instrument of a dormant swap execution facility, conform to industry standards or those
dormant designated contract market, dormant swap data repository or terms and conditions adopted by
swap execution facility or a dormant dormant derivatives clearing comparable contracts. Terms and
derivatives clearing organization; or organization. conditions include provisions relating
(3) Any commodity futures or option (h) Emergency means any occurrence to the following:
contract or other agreement, contract, or circumstance that, in the opinion of (1) Quality and other standards that
swap, transaction or instrument not the governing board of a registered define the commodity or instrument
otherwise dormant that a designated entity, or a person or persons duly underlying the contract;
contract market, a swap execution authorized to issue such an opinion on (2) Quantity standards or other
facility or a derivatives clearing behalf of the governing board of a provisions related to swap or contract
organization self-declares through registered entity under circumstances size;
certification to be dormant. and pursuant to procedures that are (3) Any applicable premiums or
(c) Dormant designated contract specified by rule, requires immediate discounts for delivery of nonpar
market means any designated contract action and threatens or may threaten products;
market on which no trading has such things as the fair and orderly (4) Trading hours, trading months and
occurred during the period of twelve trading in, or the liquidation of or the listing of swaps or contracts;
consecutive calendar months, preceding delivery pursuant to, any agreements, (5) The pricing basis, minimum price
the first day of the most recent calendar contracts, swaps or transactions or the fluctuations, and maximum price
month; provided, however, no timely collection and payment of funds fluctuations;
designated contract market shall be in connection with clearing and (6) Any price limits, trading halts, or
considered to be dormant if its initial settlement by a derivatives clearing circuit breaker provisions, and
and original Commission order of organization, including: procedures for the establishment of
designation was issued within the (1) Any manipulative or attempted daily settlement prices;
preceding 36 consecutive calendar manipulative activity; (7) Position limits, position
months. (2) Any actual, attempted, or accountability standards, and position
(d) Dormant derivatives clearing threatened corner, squeeze, congestion, reporting requirements;
organization means any derivatives or undue concentration of positions; (8) Delivery points and locational
clearing organization registered (3) Any circumstances which may price differentials;
pursuant to Section 5b of the Act that materially affect the performance of (9) Delivery standards and
has not accepted for clearing any agreements, contracts, swaps or procedures, including fees related to
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agreement, contract or transaction that transactions, including failure of the delivery or the delivery process;
is required or permitted to be cleared by payment system or the bankruptcy or alternatives to delivery and applicable
a derivatives clearing organization insolvency of any participant; penalties or sanctions for failure to
under Sections 5b(a) and 5b(b) of the (4) Any action taken by any perform;
Act, respectively, for a period of twelve governmental body, or any other (10) If cash settled; the definition,
complete calendar months; provided, registered entity, board of trade, market composition, calculation and revision of
however, no derivatives clearing or facility which may have a direct the cash settlement price or index;

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67293

(11) Payment or collection of (i) A copy of the submission cover § 40.3 Voluntary submission of new
commodity option premiums or sheet in accordance with the products for Commission review and
margins; instructions in Appendix D to this part; approval.
(12) Option exercise price, if it is (ii) A copy of the product’s rules, (a) Request for approval. Pursuant to
constant, and method for calculating the including all rules related to its terms Section 5c(c) of the Act, a designated
exercise price, if it is variable; and conditions, or the rules establishing contract market, a swap execution
(13) Threshold prices for an option the terms and conditions of the listed facility, or a derivatives clearing
contract, the existence of which is product that make it acceptable for organization may request that the
contingent upon those prices; clearing; Commission approve a new or dormant
(14) Any restrictions or requirements (iii) The intended listing date; product prior to listing the product for
for exercising an option; and trading or clearing, or if a product was
(iv) A certification by the designated initially submitted under § 40.2 of this
(15) With respect to swaps cleared by
contract market, the swap execution part, subsequent to listing the product
a derivatives clearing organization,
facility, or the derivatives clearing for trading or clearing. A submission
specifications including but not limited
organization that the product to be requesting approval shall:
to:
(i) Notional values; listed complies with the Act and (1) Be filed electronically with the
(ii) Relevant dates, tenor, and day Commission regulations thereunder; Secretary of the Commission at
count conventions; (v) The documentation relied on to [email protected], and with the
(iii) Index; establish the basis for compliance with regional office of the Commission
(iv) Relevant prices, rates or coupons; the applicable provisions of the Act and having local jurisdiction over the
(v) Currency; the Commission’s regulations registered entity in a format specified by
(vi) Stub, premium, or initial cash thereunder, including the Core the Secretary of the Commission;
flow components along with subsequent Principles; (2) Include a copy of the submission
life cycle events; (vi) A written statement verifying that cover sheet in accordance with the
(vii) Payment and reset frequency; the registered entity has undertaken a instructions in Appendix D to this part;
(viii) Business calendars; due diligence review of the legal (3) Include a copy of the rules that set
(ix) Accrual type; and conditions, including conditions that forth the contract’s terms and
(x) Spread or points. relate to contractual and intellectual conditions;
property rights, which may materially (4) Include the documentation relied
§ 40.2 Listing and accepting products for on to establish the basis for compliance
trading or clearing by certification.
affect the trading of the product;
(vii) Certification that the registered with the applicable provisions of the
(a) A designated contract market or a Act and the Commission’s regulations
entity posted a notice of pending
swap execution facility must comply thereunder, including the Core
product certification with the
with the submission requirements of Principles;
Commission and a copy of the
this section prior to listing a product for (5) Describe any agreements or
submission, concurrent with the filing
trading that has not been approved contracts entered into with other parties
of a submission with the Commission,
under § 40.3 of this part or that remains that enable the registered entity to carry
on the registered entity’s Web site.
dormant subsequent to being submitted out its responsibilities;
Information which the registered entity
under this section or approved under (6) Include the certifications required
seeks to keep confidential may be
§ 40.3 of this part. A derivatives clearing in § 41.22 for product approval of a
redacted from the documents published
organization must comply with the commodity that is a security future or a
on the registered entity’s Web site, but
submission requirements of this section security futures product as defined in
must be republished consistent with any
prior to accepting for clearing a product Sections 1a(44) or 1a(45) of the Act,
determination made pursuant to
that is not listed or traded on a respectively, and, if applicable, include
§ 40.8(c)(4);
designated contract market, derivatives the notice required in § 40.12(a) for the
clearing organization or a swap (viii) A request for confidential
listing of novel derivative products;
execution facility and has not been treatment, if appropriate, as permitted (7) Include, if appropriate, a request
approved for clearing under § 40.3 or under § 40.8. for confidential treatment as permitted
§ 40.5 of this part or that remains (b) Additional information. If under § 40.8;
dormant subsequent to being submitted requested by Commission staff, a (8) Include the filing fee required
under this section or approved under registered entity shall provide any under Appendix A to this part;
§ 40.5 of this part. A submission shall additional evidence, information or data (9) Include a written statement
comply with the following conditions: that demonstrates that the contract verifying that the registered entity has
(1) The designated contract market, or meets, initially or on a continuing basis, undertaken a due diligence review of
the swap execution facility, or the all of the requirements of the Act and the legal conditions, including
derivatives clearing organization has the Commission’s regulations and conditions relating to contractual and
filed its submission electronically in a policies thereunder. intellectual property rights, that may
format specified by the Secretary of the (c) Stay. The Commission may stay materially affect the trading of the
Commission with the Secretary of the the listing of a contract pursuant to product;
Commission at [email protected], paragraph (a) of this section during the (10) Certify that the registered entity
and with the relevant branch chief at the pendency of Commission proceedings posted a notice of pending request for
for filing a false certification or during approval of new product with the
jlentini on DSKJ8SOYB1PROD with PROPOSALS

regional office having local jurisdiction

over the registered entity; the pendency of a petition to alter or Commission and a copy of the
(2) The Commission has received the amend the contract terms and submission, concurrent with the filing
submission at its headquarters by the conditions pursuant to Section 8a(7) of of a submission with the Commission,
open of business on the business day the Act. The decision to stay the listing on the registered entity’s Web site.
preceding the product’s listing or of a contract in such circumstances shall Information which the registered entity
acceptance for clearing; and not be delegable to any employee of the seeks to keep confidential may be
(3) The submission includes: Commission. redacted from the documents published

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 67294 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

on the registered entity’s Web site, but Commission’s regulations, including the (i) The text of which has been
must be republished consistent with any form or content requirements of submitted for review at least ten
determination made pursuant to paragraph (a) of this section, that the business days prior to its
§ 40.8(c)(4); product violates, appears to violate or implementation and that has been
(11) Include, if requested by potentially violates but which cannot be labeled ‘‘Non-Material Agricultural Rule
Commission staff, additional evidence, ascertained from the submission. Change;’’
information or data demonstrating that (f) Effect of non-approval. (1) (ii) For which the designated contract
the contract meets, initially or on a Notification to a registered entity under market has provided an explanation as
continuing basis, all of the requirements paragraph (e) of this section of the to why it considers the rule ‘‘non-
of the Act, or other requirements for Commission’s determination not to material,’’ and any other information
designation or registration under the Act approve a product does not prejudice that may be beneficial to the
or the Commission’s regulations or the entity from subsequently submitting Commission in analyzing the merits of
policies thereunder. The registered a revised version of the product for the entity’s claim of non-materiality;
entity shall submit the requested Commission approval or from and
information by the open of business on submitting the product as initially (iii) With respect to which the
the date that is two business days from proposed pursuant to a supplemented Commission has not notified the
the date of request by Commission staff. submission. contract market during the review
(b) Standard for review and approval. (2) Notification to a registered entity period that the rule appears to require
The Commission shall approve a new under paragraph (e) of this section of the or does require prior approval under
product unless the terms and conditions Commission’s refusal to approve a this section, may be implemented
of the product violate the Act or the product shall be presumptive evidence without prior approval if implemented
Commission’s regulations. that the entity may not truthfully certify under the procedures of § 40.6(a).
(c) Forty-five day review. All products under § 40.2 that the same, or
submitted for Commission approval substantially the same, product does not § 40.5 Voluntary submission of rules for
under this paragraph shall be deemed Commission review and approval.
violate the Act or the Commission’s
approved by the Commission 45 days regulations thereunder. (a) Request for approval of rules.
after receipt by the Commission, or at Pursuant to Section 5c(c) of the Act, a
the conclusion of an extended period as § 40.4 Amendments to terms or conditions registered entity may request that the
provided under paragraph (d) of this of enumerated agricultural products. Commission approve a new rule, rule
section, unless notified otherwise (a) Notwithstanding the provisions of amendment or dormant rule prior to
within the applicable period, if: this part, a designated contract market implementation of the rule, or if the
(1) The submission complies with the must submit for Commission approval request was initially submitted under
requirements of paragraph (a) of this under the procedures of § 40.5, prior to §§ 40.2 or 40.6 of this part, subsequent
section; and its implementation, any rule or dormant to implementation of the rule. A request
(2) The submitting entity does not rule that, for a delivery month having for approval shall:
amend the terms or conditions of the open interest, would materially change (1) Be filed electronically with the
product or supplement the request for a term or condition, as defined in Secretary of the Commission at
approval, except as requested by the § 40.1(j), of a contract for future delivery [email protected], and with the
Commission or for correction of in an agricultural commodity regional office of the Commission
typographical errors, renumbering or enumerated in Section 1a(9) of the Act, having local jurisdiction over the
other non-substantive revisions, during or of an option on such a contract or registered entity in a format specified by
that period. Any voluntary, substantive commodity. the Secretary of the Commission;
amendment by the submitting entity (b) The following rules or rule (2) Include a copy of the submission
will be treated as a new submission amendments are not material and cover sheet in accordance with the
under this section. should not be submitted under this instructions in Appendix D to this part;
(d) Extension of time. The section: (3) Set forth the text of the rule or rule
Commission may extend the 45 day (1) Changes that are enumerated in amendment (in the case of a rule
review period in paragraph (c) of this § 40.6(d)(2) may be implemented amendment, deletions and additions
section for: without prior approval or certification if must be indicated);
(1) An additional 45 days, if the implemented pursuant to the (4) Describe the proposed effective
product raises novel or complex issues notification procedures of § 40.6(d); date of the rule or rule amendment and
that require additional time for review (2) Changes that are enumerated in any action taken or anticipated to be
in which case, the Commission shall § 40.6(d)(3)(ii) may be implemented taken to adopt the proposed rule by the
notify the registered entity within the without prior approval or certification registered entity or by its governing
initial 45 day review period and shall or notification as permitted pursuant to board or by any committee thereof, and
briefly describe the nature of the § 40.6(d)(3); cite the rules of the entity that authorize
specific issues for which additional time (3) Changes in trading hours may be the adoption of the proposed rule;
for review is required; or implemented without prior approval if (5) Explain the operation, purpose,
(2) Any extended review period to implemented pursuant to the and effect of the proposed rule,
which the registered entity agrees in procedures of § 40.6(a); including, as applicable, a description
writing. (4) Changes required to comply with of the anticipated benefits to market
(e) Notice of non-approval. The
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a binding order of a court of competent participants or others, any potential

Commission at any time during its jurisdiction, or a rule, regulation or anticompetitive effects on market
review under this section may notify the order of the Commission or of another participants or others, and how the rule
registered entity that it will not, or is federal regulatory authority, may be fits into the registered entity’s
unable to, approve the product. This implemented without prior approval if framework of self-regulation;
notification will briefly specify the implemented pursuant to the (6) Certify that the registered entity
nature of the issues raised and the procedures of § 40.6(a); or posted a notice of pending rule with the
specific provision of the Act or the (5) Any other rule: Commission and a copy of the

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67295

submission, concurrent with the filing after receipt by the Commission, or at version of the proposed rule or rule
of a submission with the Commission, the conclusion of such extended period amendment for Commission review and
on the registered entity’s Web site. as provided under paragraph (d) of this approval or from submitting the new
Information which the registered entity section, unless the registered entity is rule or rule amendment as initially
seeks to keep confidential may be notified otherwise within the applicable proposed in a supplemented
redacted from the documents published period, if: submission; the revised submission will
on the registered entity’s Web site but (i) The submission complies with the be reviewed without prejudice.
must be republished consistent with any requirements of paragraph (a) of this (2) Notification to a registered entity
determination made pursuant to section; under paragraph (e) of this section of the
§ 40.8(c)(4); (ii) The registered entity does not Commission’s determination not to
(7) Include the documentation relied amend the proposed rule or supplement approve a proposed rule or rule
on to establish the basis for compliance the submission, except as requested by amendment of a registered entity shall
with the applicable provisions of the the Commission, during the pendency be presumptive evidence that the entity
Act and the Commission’s regulations of the review period other than for may not truthfully certify that the same,
thereunder, including the Core correction of typographical errors, or substantially the same, proposed rule
Principles; renumbering or other non-substantive or rule amendment under § 40.6(a) of
(8) Provide additional information revisions. Any amendment or this section.
which may be beneficial to the supplementation not requested by the
(g) Expedited approval.
Commission in analyzing the new rule Commission will be treated as the
Notwithstanding the provisions of
or rule amendment. If a proposed rule submission of a new filing under this
paragraph (c) of this section, changes to
affects, directly or indirectly, the section.
(2) The Commission shall commence a proposed rule or a rule amendment,
application of any other rule of the
the review period in paragraph (c) of including changes to terms and
registered entity, the pertinent text of
this section for a compliant submission conditions of a product that are
any such rule must be set forth and the
under § 40.4(b)(5) ten business days consistent with the Act and Commission
anticipated effect described;
after its receipt. regulations and with standards
(9) Describe briefly any substantive
(d) Commencement and extension of approved or established by the
opposing views expressed to the
time for review. The Commission may Commission may be approved by the
registered entity by governing board or
further extend the review period in Commission at such time and under
committee members, members of the
paragraph (c) of this section for any such conditions as the Commission
entity or market participants with
approval request for: shall specify in the written notification,
respect to the new rule or rule
(1) An additional 45 days, if the provided, however, that the
amendment that were not incorporated
proposed rule raises novel or complex Commission may, at any time, alter or
into the new rule or rule amendment;
(10) Identify any Commission issues that require additional time for revoke the applicability of such a notice
regulation that the Commission may review or is of major economic to any particular product or rule
need to amend, or sections of the Act or significance, the submission is amendment.
the Commission’s regulations that the incomplete or the requestor does not § 40.6 Self-certification of rules.
Commission may need to interpret, in respond completely to Commission
questions in a timely manner, in which (a) Required certification. A registered
order to approve the new rule or rule
case, the Commission shall notify the entity shall comply with the following
amendment. To the extent that such an
submitting registered entity within the conditions prior to implementing any
amendment or interpretation is
initial forty-five day review period and rule that has not obtained Commission
necessary to accommodate a new rule or
shall briefly describe the nature of the approval under § 40.5 of this part, that
rule amendment, the submission should
specific issues for which additional time remains dormant subsequent to being
include a reasoned analysis supporting
for review shall be required; or submitted under this section or
the amendment to the Commission’s
(2) Any period, beyond the additional approved under § 40.5 of this part, or
regulation or the interpretation;
(11) Include, for all products, a 45 days provided in § 40.5(d)(1), to that is submitted under § 40.10 of this
written statement verifying that the which the registered entity agrees in part, except as otherwise provided by
registered entity has undertaken a due writing. § 40.10(a):
diligence review of the legal conditions, (e) Notice of non-approval. Any time (1) The registered entity has filed its
including conditions relating to during its review under this section, the submission electronically in a format
contractual and intellectual property Commission may notify the registered specified by the Secretary of the
rights, which may materially affect the entity that it will not, or is unable to, Commission with the Secretary of the
trading of such product or products, if approve the new rule or rule Commission at [email protected]
the proposed rule specifically relates to amendment. This notification will and with the relevant branch chief at the
one or more listed products; briefly specify the nature of the issues regional office having local jurisdiction
(12) As appropriate, include a request raised and the specific provision of the over the registered entity.
for confidential treatment as permitted Act or the Commission’s regulations, (2) The registered entity has provided
under the procedures of § 40.8; including the form or content a certification that the registered entity
(b) Standard for review and approval. requirements of this section, with which posted a notice of pending certification
The Commission shall approve a new the new rule or rule amendment is with the Commission and a copy of the
jlentini on DSKJ8SOYB1PROD with PROPOSALS

rule or rule amendment unless the rule inconsistent or appears to be submission, concurrent with the filing
or rule amendment is inconsistent with inconsistent with the Act or the of a submission with the Commission,
the Act or the Commission’s regulations. Commission’s regulations. on the registered entity’s Web site.
(c) Forty-five day review. (1) All rules (f) Effect of non-approval. (1) Information that the registered entity
submitted for Commission approval Notification to a registered entity under seeks to keep confidential may be
under paragraph (a) of this section shall paragraph (e) of this section does not redacted from the documents published
be deemed approved by the Commission prevent the registered entity from on the registered entity’s Web site, but
under section 5c(c) of the Act 45 days subsequently submitting a revised it must be republished consistent with

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 67296 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

any determination made pursuant to (vii) As appropriate, a request for effective, pursuant to the certification, at
§ 40.8(c)(4). confidential treatment pursuant to the the expiration of the 90-day review
(3) The Commission has received the procedures provided in § 40.8; period described in paragraph (c)(1) of
submission at its headquarters not later (viii) For amendments to a product’s this section unless the Commission
than the open of business on the terms or conditions, a written statement withdraws the stay prior to that time, or
business day that is 10 business days certifying that the registered entity has the Commission notifies the registered
prior to the registered entity’s undertaken a due diligence review of entity during the 90-day time period
implementation of the rule or rule the legal conditions, including that it objects to the proposed
amendment. conditions relating to contractual and certification on the grounds that the
(4) The Commission has not stayed intellectual property rights, that may proposed rule or rule amendment is
the submission pursuant to § 40.6(c). materially affect the trading of the inconsistent with the Act or the
(5) The rule or rule amendment is not product. Commission’s regulations.
a rule or rule amendment of a (8) The registered entity shall provide, (4) Stay of effectiveness of rules or
designated contract market that if requested by Commission staff, rule amendments already implemented.
materially changes a term or condition additional evidence, information or data The Commission may stay the
of a contract for future delivery of an that may be beneficial to the effectiveness of an implemented rule
agricultural commodity enumerated in Commission in conducting a due during the pendency of Commission
section 1a(4) of the Act or an option on diligence assessment of the filing and proceedings for filing a false
such a contract or commodity in a the registered entity’s compliance with certification or during the pendency of
delivery month having open interest; any of the requirements of the Act or the a petition to alter or amend the rule
(6) Emergency rule certifications. (i) Commission’s regulations or policies pursuant to section 8a(7) of the Act. The
New rules or rule amendments that thereunder. decision to stay the effectiveness of a
(b) Review by the Commission. The rule in such circumstances shall not be
establish standards for responding to an
Commission shall have 10 business days delegable to any employee of the
emergency must be submitted pursuant
to review the new rule or rule Commission.
to § 40.6(a);
amendment before the new rule or rule (d) Notification of rule amendments.
(ii) Rules or rule amendments amendment is deemed certified and can Notwithstanding the rule certification
implemented under procedures of the be made effective, unless the requirement of Section 5c(c)(1) of the
governing board to respond to an Commission notifies the registered Act and paragraph (a) of this section, a
emergency as defined in § 40.1, shall, if entity during the 10-business day registered entity may place the
practicable, be filed with the review period that it intends to issue a following rules or rule amendments into
Commission prior to the stay of the certification under paragraph effect on the following business day
implementation or, if not practicable, be (c) of this section. without certification to the Commission
filed with the Commission at the earliest (c) Stay—(1) Stay of certification of if the following conditions are met:
possible time after implementation, but new rule or rule amendment. The (1) The registered entity provides to
in no event more than twenty-four hours Commission may stay the certification the Commission at least weekly a
after implementation; and of a new rule or rule amendment summary notice of all rule amendments
(7) The rule submission shall include: submitted pursuant to paragraph (a) of made effective pursuant to this
(i) A copy of the submission cover this section by issuing a notification paragraph during the preceding week.
sheet in accordance with the informing the registered entity that the Such notice must be labeled ‘‘Weekly
instructions in Appendix D to this part Commission is staying the certification Notification of Rule Amendments’’ and
(in the case of a rule or rule amendment of the rule or rule amendment on the need not be filed for weeks during
that responds to an emergency, grounds that the new rule or rule which no such actions have been taken.
‘‘Emergency Rule Certification’’ should amendment presents novel or complex One copy of each such submission shall
be noted in the Description section of issues that require additional time to be furnished electronically in a format
the submission coversheet); analyze, the rule is accompanied by an specified by the Secretary of the
(ii) The text of the rule (in the case of inadequate explanation or the rule is Commission; and
a rule amendment, deletions and potentially inconsistent with the Act or (2) The rule governs:
additions must be indicated); the Commission’s regulations (i) Non-substantive revisions.
(iii) The date of intended thereunder. The Commission will have Corrections of typographical errors,
implementation; 90 days from the date of the notification renumbering, periodic routine updates
(iv) A certification by the registered to conduct the review. The decision to to identifying information about
entity that the rule complies with the stay the certification of a rule in such approved entities and other such non-
Act and the Commission’s regulations circumstances shall be delegable substantive revisions of a product’s
thereunder; pursuant to § 40.7 of this part. terms and conditions that have no effect
(v) The documentation relied on to (2) Public comment. The Commission on the economic characteristics of the
establish the basis for compliance with shall provide a 30-day comment period, product;
the applicable provisions of the Act and within the 90-day period while the stay (ii) Delivery standards set by third
the Commission’s regulations is in effect as described in paragraph parties. Changes to grades or standards
thereunder, including the Core (c)(1) of this section. The Commission of commodities deliverable on a product
Principles; shall publish a notice of the 30-day that are established by an independent
(vi) A brief explanation of any third party and that are incorporated by
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comment period on the Commission

substantive opposing views expressed to Web site. Comments from the public reference as product terms, provided
the registered entity by governing board shall be submitted as specified in that that the grade or standard is not
or committee members, members of the notice. established, selected or calculated solely
entity or market participants, that were (3) Expiration of a stay of certification for use in connection with futures or
not incorporated into the rule, or a of new rule or rule amendment. A new option trading and such changes do not
statement that no such opposing views rule or rule amendment subject to a stay affect deliverable supplies or the pricing
were expressed; pursuant to paragraph (c) shall become basis for the product;

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(iii) Index products. Routine changes Commission if the following conditions daily reporting requirements of § 16.01
in the composition, computation, or are met: of this chapter, the initial listing of
method of selection of component (i) The registered entity maintains trading months which are within the
entities of an index (other than routine documentation regarding all changes to currently established cycle of trading
changes to securities indexes to the rules; and months.
extent that such changes are not (ii) The rule governs:
described in paragraph (d)(3)(ii)(F) of (A) Transfer of membership or § 40.7 Delegations.
this section) referenced and defined in ownership. Procedures and forms for the (a) Procedural matters. (1) The
the product’s terms, that do not affect purchase, sale or transfer of membership Commission hereby delegates, until it
the pricing basis of the index, which are or ownership, but not including orders otherwise, to the Director of the
made by an independent third party qualifications for membership or Division of Clearing and Intermediary
whose business relates to the collection ownership, any right or obligation of Oversight and, separately, to the
or dissemination of price information membership or ownership or dues or Director of the Division of Market
and which was not formed solely for the assessments; Oversight, to be exercised by either
purpose of compiling an index for use (B) Administrative procedures. The Director, as appropriate, or by such
in connection with a futures or option organization and administrative employees of the Commission that
product; procedures of a registered entity either Director may designate from time
(iv) Option contract terms. Changes to governing bodies such as a Board of to time, the following authorities, with
option contract rules, which may Directors, Officers and Committees, but the concurrence of the General Counsel
qualify for implementation without not voting requirements, Board of or the General Counsel’s delegate:
notice pursuant to paragraph Directors or Committee composition (i) To request, pursuant to § 40.3(c)(2)
(d)(3)(ii)(G) of this section, relating to requirements or procedures, decision or § 40.5(c)(1)(B) of this part, that the
the strike price listing procedures, strike making procedures, use or disclosure of registered entity requesting approval
price intervals, and the listing of strike material non-public information gained amend the proposed product, rule or
prices on a discretionary basis; through the performance of official rule amendment, or supplement the
(v) Fees. Fees or fee changes, other duties, or requirements relating to submission to the Commission;
than fees or fee changes associated with conflicts of interest; (ii) To notify the registered entity,
market making or trading incentive (C) Administration. The routine, daily pursuant to § 40.3(e) or § 40.5(e) of this
programs, that: administration, direction and control of part, that the Commission is not
(A) Total $1.00 or more per contract, employees, requirements relating to approving, or is unable to approve, the
and gratuity and similar funds, but not proposed product, rule or rule
(B) Are established by an independent guaranty, reserves, or similar funds; amendment;
third party or are unrelated to delivery, declaration of holidays, and changes to (iii) To make all determinations
trading, clearing or dispute resolution. facilities housing the market, trading reserved to the Commission in § 40.10.
(vi) Survey lists. Changes to lists of floor or trading area; (2) The Commission hereby delegates,
banks, brokers, dealers, or other entities (D) Standards of decorum. Standards until it orders otherwise, to the Director
that provide price or cash market of decorum or attire or similar of the Division of Clearing and
information to an independent third provisions relating to admission to the Intermediary Oversight and, separately,
party and that are incorporated by floor, badges, or visitors, but not the to the Director of the Division of Market
reference as product terms; establishment of penalties for violations Oversight, to be exercised by either
(vii) Approved brands. Changes in of such rules; and Director, as appropriate, or by such
lists of approved brands or markings (E) Fees. Fees or fee changes, other employees of the Commission that
pursuant to previously certified or than fees or fee changes associated with either Director may designate from time
Commission approved standards or market making or trading incentive to time, the following authorities, after
criteria; programs, that: consultation with the Office of General
(viii) Delivery facilities and delivery (1) Are less than $1.00; or Counsel or the General Counsel’s
service providers. Changes in lists of (2) Relate to matters such as dues, delegate to notify a registered entity:
approved delivery facilities and delivery badges, telecommunication services, (i) Pursuant to § 40.3(d) of this part,
service providers (including weigh booth space, real time quotations, that the time for review of the
masters, assayers, and inspectors) at a historical information, publications, submission has been extended because
delivery location, pursuant to software licenses or other matters that the product raises novel or complex
previously certified or Commission are administrative in nature. issues that require additional time for
approved standards or criteria; (F) Securities indexes. Routine review;
(ix) Trading months. The initial changes to the composition, (ii) Pursuant to § 40.5(d) of this part,
listing of trading months, which may computation or method of security that the time for review of the
qualify for implementation without selection of an index that is referenced submission has been extended because
notice pursuant to (d)(3)(ii)(H) of this and defined in the product’s rules, and the proposed rule or rule amendment
section, within the currently established which is made by an independent third raises novel or complex issues that
cycle of trading months; or party. require additional time for review or is
(x) Minimum tick. Reductions in the (G) Option contract terms. For of major economic significance;
minimum price fluctuation (or ‘‘tick’’). registered entities that are in (iii) Pursuant to § 40.6(c) of this part,
(3) Notification of rule amendments
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compliance with the daily reporting that the proposed rule or rule
not required. Notwithstanding the rule requirements of § 16.01 of this chapter, amendment has been stayed because
certification requirements of section changes to option contract rules relating there exist novel or complex issues that
5c(c)(1) of the Act and paragraph (a) of to the strike price listing procedures, require additional time to analyze, or
this section, a registered entity may strike price intervals, and the listing of there is potential inconsistency with the
place the following rules or rule strike prices on a discretionary basis. Act or the Commission’s regulations.
amendments into effect without (H) Trading months. For registered (3) The Commission hereby delegates,
certification or notice to the entities that are in compliance with the until it orders otherwise, to the Director

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 67298 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

of the Division of Clearing and the Commission; daily settlement (c) A registered entity’s filing of new
Intermediary Oversight and, separately, prices; clearing position limits; products pursuant to the self-
to the Director of the Division of Market requirements or procedures for certification procedures of § 40.2 of this
Oversight, to be exercised by either governance of a registered entity; part, new products for Commission
Director, as appropriate, or by such procedures for transfer trades; trading review and approval pursuant to § 40.3
employees of the Commission that hours; minimum price fluctuations; and of this part, new rules and rule
either Director may designate from time maximum price limit and trading amendments for Commission review
to time, the authority to notify a suspension provisions; and approval pursuant to § 40.4 or
registered entity, pursuant to § 40.3(d) (2) Reflect routine modifications that § 40.5 of this part, and new rules and
or § 40.5(d) of this part, that the time for are required or anticipated by the terms rule amendments pursuant to the self-
review of the submission has been of the rule of a registered entity; certification procedures of § 40.6 and
extended, or that a rule certified (3) Establish or amend speculative
pursuant to § 40.6(c) has been stayed, § 40.10 of this part shall be treated as
limits or position accountability public information unless accompanied
because the submission is incomplete or provisions that are in compliance with
provides an inadequate explanation. by a request for confidential treatment.
the requirements of the Act and the
(4) Emergency rules. The Commission If a registered entity files a request for
Commission’s regulations;
hereby delegates to the Director of the confidential treatment, the following
(4) Are in substance the same as a rule
Division of Market Oversight and, procedures shall apply:
of the same or another registered entity
separately, to the Director of the which has been approved previously by (1) A detailed written justification of
Division of Clearing and Intermediary the Commission pursuant to section the confidential treatment request must
Oversight, to be exercised by either 5c(c)(3) of the Act; be filed simultaneously with the request
Director, as appropriate, or by such for confidential treatment. The form and
(5) Are consistent with a specific,
other employee or employees of the content of the detailed written
stated policy or interpretation of the
Commission that either Director may
Commission; or justification shall be governed by
designate from time to time, authority to
(6) Relate to the listing of additional § 145.9 of this chapter;
receive notification of emergency rules
under § 40.6(a)(6)(ii) of this part. trading months of approved contracts. (2) All material for which confidential
(5) The Commission hereby delegates (c) Notwithstanding the provisions of treatment is requested must be
to the Director of the Division of Market this section, the Director of the Division segregated in an Appendix to the
Oversight, to be exercised by the of Clearing and Intermediary Oversight submission;
Director or by such employees of the and, separately, the Director of the
Division of Market Oversight may (3) The submission itself must
Commission that the Director may
submit to the Commission for its indicate that material has been
designate from time to time, with the
consideration any matter that has been segregated and, as appropriate, an
concurrence of the General Counsel or
the General Counsel’s delegate, the delegated pursuant to this section. additional redacted version provided;
authority to determine whether a rule (d) Nothing in this section shall be (4) Commission staff may make an
change submitted by a designated deemed to prohibit the Commission, at initial determination with respect to the
contract market for a materiality its election, from exercising any of the request for confidential treatment
determination under § 40.4(b)(5) of this authority delegated pursuant to this without regard to whether a request for
part is not material (in which case it section. the information has been sought under
may be reported pursuant to the the Freedom of Information Act;
§ 40.8 Availability of public information.
provisions of § 40.6(d) of this part), or is
(a) The following sections of all (5) All requests for confidential
material, in which case he or she shall
applications to become a designated treatment shall be subject to the process
notify the registered entity that the rule
change must be submitted for the contract market, a swap execution provided by § 145.9 of this chapter.
Commission’s prior approval. facility, a derivatives clearing (6) A submitter of information under
(b) Approval authority. The organization, or a swap data repository this part may appeal an adverse
Commission hereby delegates, until it shall be made publicly available: decision by staff to the Commission’s
orders otherwise, to the Director of the Transmittal letter, proposed rules, the Office of General Counsel. The form and
Division of Clearing and Intermediary applicant’s regulatory compliance content of such appeal shall be
Oversight and, separately, to the narrative, documents establishing the governed by § 145.9(g) of this chapter.
Director of the Division of Market applicant’s legal status, documents
Oversight, to be exercised by either setting forth the applicant’s corporate (7) The grant of any part of a request
Director, as appropriate, or by such and governance structure, and any other for confidential treatment under this
employees of the Commission that part of the application not covered by a section may be reconsidered if a
either Director may designate from time request for confidential treatment. subsequent request under the Freedom
to time, with the concurrence of the (b) The following submissions of Information Act is made for the
General Counsel or the General provided by an electronic trading information
Counsel’s delegate, the authority to facility on which significant price (d) Commission staff will not consider
approve, pursuant to section 5c(c)(3) of discovery contracts are traded or confidential treatment requests for
the Act and § 40.5 of this part, rules or executed will be public: Rulebook, the information that is required to be made
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rule amendments of a registered entity facility’s regulatory compliance chart, public under Section 5(d)(7) of the Act.
that: documents establishing the facility’s The terms and conditions of a product
(1) Relate to, but do not substantially legal status, documents setting forth the submitted to the Commission pursuant
change, the quantity, quality, or other facility’s governance structure, and any to § 40.2, § 40.3 or § 40.5 of this part
delivery specifications, procedures, or other parts of the submissions not
shall be made publicly available at the
obligations for delivery, cash settlement, covered by a request for confidential
time of submission.
or exercise under an agreement, contract treatment (§ 40.8(b) will be removed on
or transaction approved for trading by July 20, 2012).

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67299

§ 40.9 Corporate Governance [Reserved] proposed change is not material and important derivatives clearing
therefore does not file an advance notice organization may implement a change
§ 40.10 Special certification procedures for
submission of rules by systemically
under this § 40.10, but the Commission in less than 60 days from the date the
important derivatives clearing determines that the change is material, Commission receives the notice of
organizations. the Commission may require the proposed change or the date the
(a) Advance notice. A registered systemically important derivatives Commission receives any further
derivatives clearing organization that clearing organization to withdraw the information it has requested, if the
has been designated by the Financial proposed change and provide notice Commission notifies the systemically
Stability Oversight Council as a pursuant to this section. important derivatives clearing
(c) Further information. The organization in writing that it does not
systemically important derivatives
Commission may require the object to the proposed change and
clearing organization shall provide
systemically important derivatives authorizes implementation of the
notice to the Commission not less than
clearing organization to provide any change on an earlier date, subject to any
60 days in advance of any proposed
further information necessary to assess conditions imposed by the Commission.
change to its rules, procedures, or
the effect the proposed change would (h) Emergency changes. A
operations that could materially affect
have on the nature or level of risks systemically important derivatives
the nature or level of risks presented by
associated with the systemically clearing organization may implement a
the systemically important derivatives
important derivatives clearing change that would otherwise require
clearing organization. A notice
organization’s payment, clearing, or advance notice under this section if it
submitted under this section shall be
settlement activities and the sufficiency determines that an emergency exists and
subject to the filing requirements of
of any proposed risk management immediate implementation of the
§ 40.6(a)(1) and the Web site publication
techniques. change is necessary for the systemically
requirements of § 40.6(a)(2). (d) Notice of objection. A systemically
(1) The notice of a proposed change important derivatives clearing
important derivatives clearing organization to continue to provide its
shall provide the information required organization shall not implement a
to be submitted under § 40.6(a)(7) and services in a safe and sound manner.
change to which the Commission has an (1) The systemically important
shall specifically describe: objection on the grounds that the
(i) The nature of the change and derivatives clearing organization shall
proposed change is not consistent with provide notice of any such emergency
expected effects on risks to the
the Act or the Commission’s regulations, change to the Commission as soon as
systemically important derivatives
or the purposes of the Dodd-Frank Act practicable, which shall be no later than
clearing organization, its clearing
or any applicable rules, orders, or 24 hours after implementation of the
members, or the market; and
standards prescribed under Section change.
(ii) How the systemically important
805(a) of the Dodd-Frank Act. The (2) The notice of an emergency change
derivatives clearing organization plans
Commission will notify the systemically shall:
to manage any identified risks.
important derivatives clearing
(2) Concurrent with providing the (i) Provide the information required
organization in writing of any objection
Commission with the advance notice or for advance notice as set forth in
regarding the proposed change within
any request or other information related paragraph (a) of this section;
60 days from the later of:
to the advance notice, the systemically (1) The date that the notice of the (ii) Describe the nature of the
important derivatives clearing proposed change was received; or emergency; and
organization shall provide the Board of (2) The date the Commission received (iii) Describe the reason the change
Governors of the Federal Reserve any further information it had requested was necessary for the systemically
System with a copy of such notice, for consideration of the notice. important derivatives clearing
request or other information. (e) Implementation of change absent organization to continue to provide its
(b) Materiality. The term ‘‘materially Commission objection. A systemically services in a safe and sound manner.
affect the nature or level of risks important derivatives clearing (3) The Commission may require
presented,’’ when used to qualify organization may implement a change if modification or rescission of the
determinations on a change to rules, it has not received an objection to the emergency change if it finds that the
procedures, or operations of a proposed change within 60 days from change is not consistent with the Act or
systemically important derivatives the later of: the Commission’s regulations, or the
clearing organization, means matters as (1) The date that the Commission purposes of the Dodd-Frank Act or any
to which there is a reasonable received the notice of proposed change; applicable rules, orders, or standards
possibility that the change could affect or prescribed under Section 805(a) of the
the performance of essential clearing (2) The date the Commission received Dodd-Frank Act.
and settlement functions or the overall any further information it had requested
nature or level of risk presented by the for consideration of the notice. § 40.11 Review of event contracts based
systemically important derivatives (f) Extended review. The Commission on certain excluded commodities.
clearing organization. Such changes may, during the 60-day review period, (a) Prohibition. A registered entity
may include, but are not limited to, extend the review period if the shall not list for trading or clearing on
changes that materially affect financial proposed change raises novel or or through the registered entity any of
resources, participant and product complex issues. A notification by the the following:
eligibility, risk management (including
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Commission pursuant to this paragraph (1) An agreement, contract,

matters relating to margin and stress will extend the review for an additional transaction, or swap based on an
testing), daily or intraday settlement 60 days. Any extension under this excluded commodity, as defined in
procedures, default procedures, system paragraph will extend the time periods Section 1a(19)(iv) of the Act, that
safeguards (business continuity and under paragraphs (d) and (e) of this involves, relates to, or references
disaster recovery), and governance. If a section for an additional 60 days. terrorism, assassination, war, gaming, or
systemically important derivatives (g) Change allowed earlier if notified an activity that is unlawful under any
clearing organization determines that a of no objection. A systemically State or Federal law; or

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 67300 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules

(2) An agreement, contract, means provided in each Commission’s Appendix A to Part 40—Schedule of
transaction, or swap based on an regulations. Fees
excluded commodity, as defined in (2) If concurrent notice is not (a) Applications for product approval. Each
Section 1a(19)(iv) of the Act, which provided pursuant to § 40.12(a)(1), the application for product approval under § 40.3
involves, relates to, or references an Commission shall notify the Securities must be accompanied by a check or money
activity that is similar to an activity and Exchange Commission of the order made payable to the Commodity
enumerated in § 40.11(a)(1) of this part, registered entity’s submission of a novel Futures Trading Commission in an amount to
and that the Commission determines, by derivative product and accompany such be determined annually by the Commission
rule or regulation, to be contrary to the notice with a copy of the submission. and published in the Federal Register.
public interest. (b) Checks and applications should be sent
The Commission shall determine
(b) [Reserved.] to the attention of the Office of the
whether a particular submission is a Secretariat, Commodity Futures Trading
(c) 90-day review and approval of novel derivative product requiring
certain event contracts. The Commission, Three Lafayette Centre, 1155
notice to the Securities and Exchange 21st Street, NW., Washington, DC 20581. No
Commission may determine, based Commission not later than five business checks or money orders may be accepted by
upon a review of the terms or conditions days subsequent to the date that the personnel other than those in the Office of
of a submission under § 40.2 or § 40.3, registered entity submits the product for the Secretariat.
that an agreement, contract, transaction, Commission review. (c) Failure to submit the fee with an
or swap based on an excluded application for product approval will result
(b) Tolling of review period. Upon
commodity, as defined in Section in return of the application. Fees will not be
receipt of a request for a jurisdictional returned after receipt.
1a(19)(iv) of the Act, which may
determination, pursuant to Section
involve, relate to, or reference an Appendix B to Part 40—[Reserved]
718(a)(2) of the Dodd-Frank Act, by the
activity enumerated in § 40.11(a)(1) or
Commission or the Securities and Appendix C to Part 40—[Reserved]
§ 40.11(a)(2), be subject to a 90-day
Exchange Commission, the product
review. The 90-day review shall Appendix D to Part 40—Submission
certification or the approval review
commence from the date the Cover Sheet and Instructions
period for the submitted agreement,
Commission notifies the registered
contract, transaction, or swap shall be (a) A properly completed submission cover
entity of a potential violation of sheet shall accompany all rule and product
tolled until a final determination order
§ 40.11(a). submissions submitted electronically by a
(1) The Commission shall request that is issued.
registered entity to the Secretary of the
a registered entity suspend the listing or (1) The Commission will provide the
Commodity Futures Trading Commission, at
trading of any agreement, contract, registered entity with a written notice of [email protected] in a format specified by
transaction, or swap based on an stay pending issuance of a final the Secretary of the Commission. A properly
excluded commodity, as defined in determination order by the Commission completed submission cover sheet shall
Section 1a(19)(iv) of the Act, which may or the Securities and Exchange include all of the following:
involve, relate to, or reference an Commission. 1. Identifier Code (optional)—A registered
activity enumerated in § 40.11(a)(1) or (2) The submission review period will entity Identifier Code at the top of the cover
resume upon the Commission’s or the sheet, if applicable. Such codes are
§ 40.11(a)(2), during the Commission’s commonly generated by registered entities to
90-day review period. The Commission Securities and Exchange Commission’s provide an identifier that is unique to each
shall post on the Web site a notification issuance of a final determination order filing (e.g., NYMEX Submission 03–116).
of the intent to carry out a 90-day finding that the Commission has 2. Date—The date of the filing.
review. jurisdiction over the submission. 3. Organization—The name of the
(2) Final determination. The (3) Determination order. A final organization filing the submission (e.g.,
Commission shall issue an order determination, for purposes of § 40.12(b) CBOT).
approving or disapproving an of this part, shall be a determination 4. Filing as a—Check in the appropriate
agreement, contract, transaction, or box indicating that the rule or product is
order issued by the Commission or the
swap that is subject to a 90-day review being submitted by a designated contract
Securities and Exchange Commission market (DCM), derivatives clearing
under § 40.11(c) no later than 90 days pursuant to Section 718(a)(3) of the organization (DCO), swap execution facility
subsequent to the date that the Dodd-Frank Act. (SEF), or swap data repository (SDR),
Commission commences review, or if (c) Judicial review of determination electronic trading facility with a significant
applicable, at the conclusion of such order. The filing of a petition by a price discovery contract (the term will be
extended period agreed to or requested complaining Commission, pursuant to removed on July 20, 2012).1
by the registered entity. Section 718(b) of the Dodd-Frank Act, 5. Type of Filing—An indication as to
whether the filing is a new rule, rule
§ 40.12 Tolling of review period pending shall operate as a stay of the agency amendment or new product. The registered
jurisdictional determination. order. entity should check the appropriate box to
(a) Notice of novel derivative (1) The stay shall remain in effect indicate the applicable category under that
products. (1) A registered entity until the date on which the United heading.
certifying, submitting for approval, or States Court of Appeals for the District 6. Rule Numbers—For rule filings, the rule
otherwise filing a proposal to list, trade, of Columbia Circuit issues a final number(s) being adopted or modified in the
determination pursuant to Section case of rule amendment filings.
or clear an agreement, contract, 7. Description—For rule or rule
transaction, or swap having elements of 718(b)(4) of the Dodd-Frank Act, or until
amendment filings a description of the new
such date that there is a final
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both a security and a derivative, rule or rule amendment, including a

including a contract for the sale of a disposition of an appeal of that discussion of its expected impact on the
commodity for future delivery, may determination.
provide notice of its proposal to the (2) The submission review period 1 Even though ECM–SPDC was eliminated by the

Commission and the Securities and shall resume upon issuance of a final Dodd-Frank Act, the Commission proposes to retain
references to this entity in the cover sheet since
Exchange Commission with a statement determination, as described in ECM may be allowed to operate until July 20, 2012,
that written notice has been provided to § 40.12(c)(1), that the Commission has pursuant to grandfather relief issued by the
both agencies through an appropriate jurisdiction over the submission. Commission. See 75 FR 56513 (Sept. 16, 2010).

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 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67301

registered entity, market participants, and the SUMMARY: The Dodd-Frank Wall Street [email protected], or Mark D. Higgins,
overall market. The narrative should describe Reform and Consumer Protection Act Counsel to the Director of Enforcement,
the substance of the submission with enough (the ‘‘Dodd-Frank Act’’) amends section 202–418–5864, [email protected],
specificity to characterize all material aspects 4c(a) of the Commodity Exchange Act Division of Enforcement, Commodity
of the filing.
(b) Other Requirements—A submission
(‘‘CEA’’) in section 747 to expressly Futures Trading Commission, Three
shall comply with all applicable filing prohibit certain trading practices Lafayette Centre, 1151 21st Street, NW.,
requirements for proposed rules, rule deemed disruptive of fair and equitable Washington, DC 20581.
amendments, or products. The filing of the trading. The Commodity Futures SUPPLEMENTARY INFORMATION:
submission cover sheet does not obviate the Trading Commission (‘‘Commission’’) is
registered entity’s responsibility to comply issuing this advance notice of proposed I. Background
with applicable filing requirements (e.g., rulemaking and request for public On July 21, 2010, President Obama
rules submitted for Commission approval comment to assist the Commission in signed the Dodd-Frank Wall Street
under § 40.5 must be accompanied by an promulgating such rules and regulations Reform and Consumer Protection Act
explanation of the purpose and effect of the
proposed rule along with a description of any
to meet the requirements of section 747. (‘‘Dodd-Frank Act’’).2 Title VII of the
substantive opposing views). DATES: Comments must be in writing Dodd-Frank Act 3 amended the
(c) Checking the box marked ‘‘confidential and received by January 3, 2011. Commodity Exchange Act (‘‘CEA’’) 4 to
treatment requested’’ on the Submission ADDRESSES: You may submit comments, establish a comprehensive new
Cover Sheet does not obviate the submitter’s identified by RIN number AD26, by any regulatory framework for swaps and
responsibility to comply with all applicable security-based swaps. The legislation
of the following methods:
requirements for requesting confidential was enacted to reduce risk, increase
treatment in § 40.8 and, where appropriate,
• Agency Web site, via its Comments
Online process: Comments may be transparency, and promote market
§ 145.9 of this chapter, and will not integrity within the financial system by,
substitute for notice or full compliance with submitted to: http://comments.cftc.gov.
such requirements. Follow the instructions for submitting among other things: (1) Providing for the
comments on the Web site. registration and comprehensive
Issued in Washington, DC, on October 26, regulation of swap dealers and major
2010, by the Commission. • Mail: David A. Stawick, Secretary of
the Commission, Commodity Futures swap participants; (2) imposing clearing
David A. Stawick, and trade execution requirements on
Trading Commission, Three Lafayette
Secretary of the Commission. standardized derivative products; (3)
Centre, 1155 21st Street, NW.,
Note: The following attachment will not Washington, DC 20581. creating robust recordkeeping and real-
appear in the Code of Federal Regulations. • Hand Delivery/Courier: Same as time reporting regimes; and (4)
mail above. enhancing the Commission’s
Statement of Chairman Gary Gensler • Federal eRulemaking Portal: http:// rulemaking and enforcement authorities
Provisions Common to Registered Entities www.regulations.gov. Follow the with respect to, among others, all
October 26, 2010 instructions for submitting comments. registered entities and intermediaries
I support the proposal to publish for All comments must be submitted in subject to the Commission’s oversight.
comment the proposed rule on the English, or if not, accompanied by an Section 747 of the Dodd-Frank Act
Commission’s process for certification and English translation. Comments will be amends section 4c(a) of the CEA to add
approval of rules and new products for a new section entitled ‘‘Disruptive
posted as received to http://
designated contract markets (DCMs), Practices.’’
derivatives clearing organizations (DCOs), www.cftc.gov. You should submit only
swap execution facilities (SEFs) and swap information that you wish to make II. Solicitation for Comments About
data repositories (SDRs). The Dodd-Frank Act available publicly. If you wish the Disruptive Practices Pursuant to Dodd-
establishes enhanced procedures for Commission to consider information Frank Act Section 747
Commission review and certification of new that is exempt from disclosure under the
rules, rule amendments and products. Freedom of Information Act, a petition In section 747 of the Dodd-Frank Act,
Today’s rule gives important procedural for confidential treatment of the exempt Congress amended the CEA to expressly
guidance to registered entities on how to information may be submitted according prohibit certain trading practices that it
comply with Congress’s mandate for the determined were disruptive of fair and
to the established procedures in CFTC
Commission’s review of new rules and equitable trading. Dodd-Frank section
products. Regulation 145.9.1
The Commission reserves the right, 747 amends section 4c(a) of the CEA to
[FR Doc. 2010–27533 Filed 11–1–10; 8:45 am]
but shall have no obligation, to review, make it unlawful for any person to
BILLING CODE 6351–01–P pre-screen, filter, redact, refuse or engage in any trading, practice, or
remove any or all of your submission conduct on or subject to the rules of a
from http://www.cftc.gov that it may registered entity that—
COMMODITY FUTURES TRADING deem to be inappropriate for (A) violates bids or offers;
COMMISSION publication, such as obscene language. (B) demonstrates intentional or
All submissions that have been redacted reckless disregard for the orderly
17 CFR Chapter I execution of transactions during the
or removed that contain comments on
RIN Number 3038–AD26 the merits of the rulemaking will be closing period; or
retained in the public comment file and (C) is, is of the character of, or is
Antidisruptive Practices Authority will be considered as required under the commonly known to the trade as,
Contained in the Dodd-Frank Wall Administrative Procedure Act and other
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2 See Dodd-Frank Wall Street Reform and

Street Reform and Consumer applicable laws, and may be accessible Consumer Protection Act, Public Law No. 111–203,
Protection Act under the Freedom of Information Act. 124 Stat. 1376 (2010). The text of the Dodd-Frank
FOR FURTHER INFORMATION CONTACT: Act may be accessed at http://www.cftc.gov./
AGENCY: Commodity Futures Trading LawRegulation/OTCDERIVATIVES/index.htm.
Commission. Robert Pease, Counsel to the Director of 3 Pursuant to Section 701 of the Dodd-Frank Act,

ACTION: Advance notice of proposed

Enforcement, 202–418–5863, Title VII may be cited as the ‘‘Wall Street
Transparency and Accountability Act of 2010.’’
rulemaking; request for comments. 1 17 CFR 145.9. 4 7 U.S.C. 1 et seq. (2006).

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