FR Doc 2010-31898[Federal Register: January 6, 2011 (Volume 76, Number 4)]

[Proposed Rules]

[Page 722-737]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr06ja11-9]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 37, 38, 39, and 40

RIN 3038-AD01

Governance Requirements for Derivatives Clearing Organizations,

Designated Contract Markets, and Swap Execution Facilities; Additional

Requirements Regarding the Mitigation of Conflicts of Interest

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (the “Commission”)

hereby proposes regulations to further implement new statutory

provisions enacted by Title VII of the Dodd-Frank Wall Street Reform

and Consumer Protection Act (“Dodd-Frank Act”). Specifically, the

Commission proposes certain substantive requirements on the resolution

of conflicts of interest, in order to further implement core principles

applicable to derivatives clearing organizations (“DCOs”), designated

contract markets (“DCMs”), and swap execution facilities (“SEFs”).

Such substantive requirements address reporting, transparency in

decision-making, and limitations on use or disclosure of non-public

information, among other things. For DCOs and DCMs, the Commission also

proposes regulations to implement core principles concerning governance

fitness standards and the composition of governing bodies. Finally, for

publicly-traded DCMs, the Commission proposes regulations to implement

the core principle on diversity of Boards of Directors.

The Commission welcomes comments on all aspects of the proposed

regulations.

DATES: Submit comments on or before March 7, 2011.

ADDRESSES: You may submit comments, identified by RIN 3038-AD01 number,

by any of the following methods:

Agency Web site, via its Comments Online process: http://

comments.cftc.gov. Follow the instructions for submitting comments

through the Web site.

Mail: David A. Stawick, Secretary of the Commission,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

Please submit your comments using only one method.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that you believe is exempt from disclosure under the

Freedom of Information Act, a petition for confidential treatment of

the exempt information may be submitted according to the procedures

established in Sec. 145.9 of the Commission’s Regulations.1

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1 17 CFR 145.9.

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The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse or remove any or all of your

submission from http://www.cftc.gov that it may deem to be

inappropriate for publication, such as obscene language. All

submissions that have been redacted or removed that contain comments on

the merits of the rulemaking will be retained in the public comment

file and will be considered as required under the Administrative

Procedure Act and other applicable laws, and may be accessible under

the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Nancy Liao Schnabel, Special Counsel,

Division of Clearing and Intermediary Oversight (DCIO), at 202-418-5344

or [email protected]; Lois Gregory, Assistant Deputy Director for

Market Review, the Division of Market Oversight (DMO), at 202-418-5569

or [email protected]; Alicia Lewis, Attorney-Advisor, DCIO, at 202-418-

5862 or [email protected]; Jordan O’Regan, Attorney-Advisor, DCIO, at

202-418-5984 or [email protected]; or Jolanta Sterbenz, Counsel, Office

of the General Counsel, at 202-418-6639 or [email protected]; in each

case, also at the Commodity Futures Trading Commission, Three Lafayette

Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

On July 21, 2010, President Obama signed the Dodd-Frank Act.2

Title VII of the Dodd-Frank Act 3 amended the Commodity Exchange Act

(“CEA”) 4 to establish a comprehensive new regulatory framework for

swaps and certain security-based swaps. The legislation was enacted to

reduce risk, increase transparency, and promote market integrity within

the financial system by, among other things: (i) Providing for the

registration and comprehensive regulation of swap dealers and major

swap participants; 5 (ii) imposing mandatory clearing and trade

execution requirements on clearable swap contracts; (iii) creating

robust recordkeeping and real-time reporting regimes; and (iv)

enhancing the rulemaking and enforcement authorities of the Commission

with respect to, among others, all registered entities and

intermediaries subject to the oversight of the Commission.

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2 See Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376

(2010). The text of the Dodd-Frank Act may be accessed at http://

www.cftc.gov./LawRegulation/OTCDERIVATIVES/index.htm.

3 Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

be cited as the “Wall Street Transparency and Accountability Act of

2010.”

4 7 U.S.C. 1 et seq.

5 In this release, the terms “swap dealer” and “major swap

participant” shall have the meanings set forth in Section 721(a) of

the Dodd-Frank Act, which added Sections 1a(49) and (33) of the CEA.

However, Section 721(c) of the Dodd-Frank Act directs the Commission

to promulgate rules to further define, among other terms, “swap

dealer” and “major swap participant.” The Commission is in the

process of this rulemaking. See, e.g., http://www.cftc.gov/

LawRegulation/DoddFrankAct/OTC_2_Definitions.html. The Commission

anticipates that such rulemaking will be completed by the statutory

deadline of July 15, 2011.

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In order to ensure the proper implementation of the comprehensive

new regulatory framework, the Dodd-Frank Act requires the Commission to

promulgate regulations regarding the mitigation of conflicts of

interest in the operation of certain DCOs, DCMs, and SEFs. On October

1, 2010, the Commission identified possible conflicts. Section II below

briefly summarizes these conflicts. To address these conflicts, the

Commission proposed 6 both (i) structural governance requirements 7

and (ii) limits on ownership of voting equity and exercise of voting

power 8 (the “Conflicts of Interest NPRM”).

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6 75 FR 63732 (Oct. 18, 2010).

7 According to the Conflicts of Interest NPRM: (i) Each DCO,

DCM, or SEF must have a Board of Directors with at least 35 percent,

but no less than two, public directors; (ii) each DCO, DCM, or SEF

must have a nominating committee with at least 51 percent public

directors; (iii) each DCO, DCM, or SEF must have one or more

disciplinary panels, with a public participant as chair; (iv) each

DCM or SEF must have (A) a regulatory oversight committee (“ROC”),

with all public directors, and (B) a membership or participation

committee, with 35 percent public directors; and each DCO must have

a risk management committee (“RMC”), with at least (A) 35 percent

public directors and (B) 10 percent customer representatives. See

generally 75 FR 63732 (Oct. 18, 2010).

8 According to the Conflicts of Interest NPRM, no DCM or SEF

member (and related persons) may (i) beneficially own more than 20

percent of any class of voting equity or (ii) directly or indirectly

vote an interest exceeding 20 percent of the voting power of any

class of equity.

A DCO may choose one of the following alternatives. Under the

first alternative, no individual member may beneficially own more

than 20 percent of any class of voting equity or directly or

indirectly vote an interest exceeding 20 percent of the voting power

of any class of equity. In addition, the enumerated entities,

whether or not they are DCO members, may not collectively own on a

beneficial basis more than 40 percent of any class of voting equity,

or directly or indirectly vote an interest exceeding 40 percent of

the voting power of any class of equity.

Under the second alternative, no DCO member or enumerated

entity, regardless of whether it is a DCO member, may own more than

five (5) percent of any class of voting equity or directly or

indirectly vote an interest exceeding five (5) percent of the voting

power of any class of equity. Notwithstanding the foregoing, the

Conflicts of Interest NPRM provides a procedure for the DCO to apply

for, and the Commission to grant, a waiver of the abovementioned

limits. See generally 75 FR 63732 (Oct. 18, 2010).

“Enumerated entities” are those entities listed in Section

726(a) of the Dodd-Frank Act and include: (i) Bank holding companies

with over $50,000,000,000 in total consolidated assets; (ii) a

nonbank financial company supervised by the Board of Governors of

the Federal Reserve System; (iii) an affiliate of (i) or (ii); (iv)

a swap dealer; (v) a major swap participant; or (vi) an associated

person of (iv) or (v).

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The Conflicts of Interest NPRM primarily aims to implement Sections

726 and 725(d) of the Dodd-Frank Act.9 However, the Commission drew

additional authority to propose the abovementioned requirements from

Sections 725(c),10 735(b),11 and 733 12 of the Dodd-Frank Act.

Together, such sections contain DCO, DCM, or SEF core principles that

require each such entity to (i) establish and enforce rules to minimize

conflicts of interest in its decision-making process and (ii) establish

a process for resolving such conflicts.13 This proposed rulemaking

(the “Governance NPRM”) aims to more fully implement such core

principles. Therefore, the Governance NPRM proposes the following

requirements, which complement those in the Conflicts of Interest NPRM:

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9 First, Section 726(a) of the Dodd-Frank Act specifically

empowers the Commission to adopt “numerical limits * * * on

control” or “voting rights” that enumerated entities may hold

with respect to such DCOs, DCMs, and SEFs. Second, Section 726(b) of

the Dodd-Frank Act directs the Commission to determine the manner in

which its rules may be deemed necessary or appropriate to improve

the governance of certain DCOs, DCMs, or SEFs or to mitigate

systemic risk, promote competition, or mitigate conflicts of

interest in connection with the interaction between swap dealers and

major swap participants, on the one hand, and such DCOs, DCMs, and

SEFs. Finally, Section 726(c) of the Dodd-Frank Act directs the

Commission to consider the manner in which its rules address

conflicts of interest in the abovementioned interaction arising from

equity ownership, voting structure, or other governance arrangements

of the relevant DCOs, DCMs, and SEFs.

Section 725(d) of the Dodd-Frank Act states: “[t]he Commodity

Futures Trading Commission shall adopt rules mitigating conflicts of

interest in connection with the conduct of business by a swap dealer

or a major swap participant with a derivatives clearing

organization, board of trade, or a swap execution facility that

clears or trades swaps in which the swap dealer or major swap

participant has a material debt or material equity investment.”

10 Section 725(c) of the Dodd-Frank Act amends Section 5b(c)

of the CEA to include new DCO Core Principle O (Governance Fitness

Standards), P (Conflicts of Interest), and Q (Composition of

Governing Boards). Together, such core principles empower the

Commission to develop performance standards for determining whether

a DCO has: (i) Governance arrangements that are transparent to

fulfill public interest requirements and to permit consideration of

the views of owners and participants; (ii) appropriate fitness

standards for directors, members, and others; (iii) rules to

minimize and resolve conflicts of interest in DCO decision-making;

and (iv) governing boards or committees that include market

participants.

11 Section 735(b) of the Dodd-Frank Act retains the existing

DCM core principle on conflicts of interest and governance fitness

standards, but (i) amends the existing DCM core principle on

composition of governing boards of contract markets to state:

“[t]he governance arrangements of the board of trade shall be

designed to permit consideration of the views of market

participants,” and (ii) adds a new DCM core principle on diversity

of the Board of Directors. Together, such core principles empower

the Commission to develop performance standards for determining

whether a DCM has: (i) Appropriate fitness standards for directors,

members, and others; (ii) rules to minimize conflicts of interest in

DCM decision-making; (iii) appropriate governance arrangements to

permit the Board of Directors to consider the views of market

participants; and (iv) rules, if the DCM is a publicly-traded

company, regarding the cultural diversity of the Board of Directors.

12 Section 733 of the Dodd-Frank Act includes SEF Core

Principle 12 (Conflicts of Interest) in new Section 5h of the CEA.

Such core principle empowers the Commission to establish performance

standards for determining whether a SEF has rules to minimize and

resolve conflicts of interest in SEF decision-making.

13 The conflicts of interest core principles are DCO Core

Principle P, DCM Core Principle 16, and SEF Core Principle 12. Such

core principles shall hereinafter be referred to as “Conflicts of

Interest Core Principles.”

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Each DCO must report to the Commission when its Board of

Directors rejects a recommendation from or supersedes an action of the

RMC; 14

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14 In addition, a DCO would be required to report to the

Commission when its RMC rejects a recommendation from or supersedes

an action of a subcommittee of the RMC.

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Each DCM or SEF must report to the Commission when its

Board of Directors rejects a recommendation from or supersedes an

action of the ROC or the Membership or Participation Committee; 15

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15 The proposed regulations would also require the ROC of a

DCM or SEF to prepare an annual report to the Board of Directors

assessing various components of the regulatory program of such DCM

or SEF.

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Each DCO, DCM, or SEF must:

[cir] Implement a regulatory program to identify, on an ongoing

basis, existing and potential conflicts of interest, as well as a

method for making fair and non-biased decisions in the event of such a

conflict;

[cir] Prescribe limits on the use or disclosure of non-public

information by owners, members of the Board of Directors, members of

any committee, officers or other employees; and

[cir] Make certain information on governance arrangements available

to the public and relevant authorities, including summaries of

significant decisions.

In addition to containing the Conflicts of Interest Core

Principles, Sections 725(c), 735(b), and 733 of the Dodd-Frank Act add

or amend DCO or DCM core principles on (i) governance fitness standards

and (ii) composition of the Board of Directors or other governing

bodies. Section 735(b) of the Dodd-Frank Act also adds a DCM core

principle on diversity of certain Boards of Directors. To implement

such core principles, the Governance NPRM proposes the following

requirements:

Each DCO or DCM must specify and enforce fitness standards

for its members, directors, members of any Disciplinary Panel or

Disciplinary Committee, persons with direct access, and certain

affiliates;

Each publicly-traded DCM must evaluate the breadth and

cultural diversity of its Board of Directors;

Each DCM must design and institute a process for

considering the range of opinions that market participants 16 hold

with respect to (i) the functioning of an existing market and (ii) new

rules or rule amendments; and

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16 In general, the Commission interprets the term “market

participants” to be more expansive than the term “member” (as

defined in Section 1a(34) of the CEA). Therefore, with respect to

DCMs, DCOs, and SEFs, the Commission construes the term “market

participants” to encompass customers of members (to the extent that

such customers do not fall within Section 1a(34) of the CEA).

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Each DCO must have 10 percent customer representation on

its Board of Directors, in lieu of having such representation on the

RMC (or the RMC Subcommittee). Alternatively, each DCO must have 10

percent customer representation on the RMC (or the RMC Subcommittee),

in lieu of having such representation on the DCO Board of

Directors.17

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17 As Section IV(c)(ii) below describes further, the

Commission is reconsidering that portion of the Conflicts of

Interest NPRM that requires 10 percent customer representation on

the RMC. The Commission notes that it has authority under both

Section 726 of the Dodd-Frank Act, as well as under DCO Core

Principles P (Conflicts of Interest) and Q (Composition of Governing

Boards) to adopt either a Board or RMC composition requirement.

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Sections 725(c), 735(b), and 733 explicitly authorize the

Commission to promulgate regulations implementing DCO, DCM, and SEF

core principles under Section 8a(5) of the CEA. Section 8a(5) of the

CEA states that “[t]he Commission is authorized * * * to make or

promulgate such rules and regulations as, in the judgment of the

Commission, are reasonably necessary to effectuate any of the

provisions or to accomplish any of the purposes of [the CEA].” The

requirements that the Governance NPRM proposes apply to all DCOs and

DCMs, regardless of whether they clear or list swap contracts or only

commodity futures or options.18

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18 As the Conflicts of Interest NPRM states:

In applying such requirements and limits, the Commission does

not propose to distinguish between DCMs and SEFs listing swap

contracts. As mentioned above, such DCMs and SEFs may experience

sustained competition with respect to the same swap contract, and

therefore would face the same pressures on self-regulation.

Additionally, the Commission does not propose to distinguish between

(i) DCMs listing swap contracts and (ii) DCMs listing only commodity

futures and options. As mentioned above, clearable swap contracts

may share sufficiently similar characteristics with certain

commodity futures and options as to compete with respect to

execution. Therefore, a DCM listing only commodity futures and

options may face competition from a SEF with fewer self-regulatory

requirements, in the same manner as a DCM listing swap contracts.

Given that the same conflicts of interest may concern both types of

DCM, it would appear that the same (i) structural governance

requirements and (ii) limits on the ownership of voting equity and

the exercise of voting power should apply.

In addition, the Commission does not propose to distinguish

between (i) DCOs clearing swap contracts and (ii) DCOs clearing only

commodity futures and options. Certain standardized swap contracts

have sufficiently similar risk profiles to commodity futures and

options that the Commission has, on occasion, permitted such

products to be commingled and margined within the segregated

customer account under Section 4d of the CEA. If the Commission

applied differential (i) structural governance requirements and (ii)

limits on the ownership of voting equity and the exercise of voting

power, the Commission risks creating an incentive for regulatory

arbitrage between the two types of DCO.

75 FR at 63737. The Commission has requested comment in the

Conflicts of Interest NPRM regarding this approach. The Commission

reiterates its request for comment in the context of the Governance

NPRM.

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The Governance NPRM reflects consultation with staff of the

following agencies: (i) The Securities and Exchange Commission (the

“SEC”); 19 (ii) the Board of Governors of the Federal Reserve;

(iii) the Office of the Comptroller of the Currency; (iv) the Federal

Deposit Insurance Corporation; and (v) the Treasury Department. The

Governance NPRM has been further informed by (i) the joint roundtable

that Commission and SEC staff conducted on August 20, 2010 (the

“Roundtable”) 20 and (ii) public comments posted to the Web site of

the Commission.21 Finally, mindful of the importance of international

harmonization,22 the Governance NPRM incorporates certain elements

of: (i) The Proposal for a Regulation of the European Parliament and of

the Council on OTC Derivatives, Central Counterparties, and Trade

Depositories (the “European Commission Proposal”); 23 and (ii) the

Recommendations for Central Counterparties, drafted by the Committee on

Payment and Settlement Systems of the Bank for International

Settlements and the Technical Committee of the International

Organization of Securities Commissions, dated November 2004 (the “CCP

Recommendations”).24

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19 Section 765 of the Dodd-Frank Act requires the SEC to

promulgate rules to mitigate conflicts of interest in the operation

of (i) a clearing agency that clears security-based swaps, (ii) a

security-based swap execution facility, or (iii) a national

securities exchange that posts or makes available for trading

security-based swaps. Core Principles for security-based swap

execution facilities are set forth in Section 763 of the Dodd-Frank

Act.

20 The transcript from the roundtable (the “Roundtable Tr.”)

is available at: http://www.cftc.gov/idc/groups/public/@newsroom/

documents/file/derivative9sub082010.pdf.

21 Such comments are available at: http://www.cftc.gov/

LawRegulation/DoddFrankAct/OTC_9_DCOGovernance.html.

22 Currently, the Commission regulates certain entities based

outside of the United States (e.g., LCH.Clearnet Limited and ICE

Clear Europe Limited, each of which is based in the United Kingdom).

23 COM(2010) 484/5.

24 The CCP Recommendations are available at: http://

www.bis.org/publ/cpss61.pdf.

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The Commission requests comment on all aspects of the Governance

NPRM.

II. Conflicts of Interest

As mentioned above, Title VII of the Dodd-Frank Act amended the CEA

to establish a comprehensive new framework for swaps and certain

security-based swaps. This framework imposes mandatory clearing and

trade execution requirements with respect to clearable swap contracts.

Some market participants, investor advocates, and academics have

expressed a concern that the enumerated entities have economic

incentives to minimize the number of swaps subject to mandatory

clearing and trading. They contend that control of a DCO by the

enumerated entities, whether through ownership or otherwise,

constitutes the primary means for keeping swap contracts out of the

mandatory clearing requirement, and therefore also out of the trading

requirement. A further contention is that sustained competition between

DCMs or SEFs may exacerbate certain structural conflicts of

interest.25

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25 This term is defined in 72 FR 6936 (Feb. 14, 2007), which

includes acceptable practices that the Commission previously adopted

for the DCM core principle on conflicts of interest.

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As the Conflicts of Interest NPRM further describes, the potential

conflicts of interest that the Commission has identified are: Conflicts

of interest that a DCO may confront when determining (i) whether a

product is capable of being cleared, (ii) the minimum criteria that an

entity must meet in order to become and remain a clearing member, and

(iii) whether a particular entity satisfies such criteria; and

conflicts of interest that a DCM or SEF may confront in balancing

advancement of commercial interests and fulfillment of self-regulatory

responsibilities.

In addition, the Commission has identified misuse or disclosure of

non-public information as a conflict of interest that a DCO, DCM, or

SEF may confront. Certain individuals (e.g., owners, members of the

Board of Directors, officers, or other employees) will be privy to non-

public information. Such non-public information could be used or

disclosed improperly (e.g., to the detriment of competitors), whether

advertently or inadvertently.

III. Mitigation of Conflicts of Interest

To more fully implement the Conflicts of Interest Core Principles,

the Commission proposes certain requirements related to (i) reporting,

(ii) identification and mitigation of conflicts of interest, (iii)

transparency of governance arrangements, and (iv) limitations on use or

disclosure of non-public information.

A. Reporting Requirements

1. DCOs, DCMs, and SEFs

As mentioned above, the Conflicts of Interest NPRM imposes specific

compositional requirements on the Boards of Directors and certain

committees of DCOs, DCMs, and SEFs. In order to facilitate the

responsibility of the Commission to oversee compliance with such

requirements, the Governance NPRM proposes to mandate that each DCO,

DCM, or SEF submit to the Commission within 30 days after each election

of its Board of Directors:

A list of all members of the Board of Directors, each

committee with a composition requirement (including any Executive

Committee 26), and each other

[[Page 725]]

committee that has the authority to amend or constrain the action of

the Board of Directors,

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26 The Conflicts of Interest NPRM defines “Executive

Committee” as a committee of the Board of Directors that may

exercise the authority delegated to it by the Board of Directors

with respect to the management of the company or organization. See

proposed Sec. 1.3(ccc). 75 FR at 63747.

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A description of the relationship, if any, between such

directors and the registered entity or the members of the registered

entity (and, in each case, any affiliates thereof),

The basis for any determination that a director qualifies

as a Public Director, and 27

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27 With respect to DCOs, the Commission also requires the

basis for any determination that a director qualifies as a customer

representative.

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A description of how the composition of the Board of

Directors and each of the abovementioned committees allows the

registered entity to comply with applicable core principles,

regulations, as well as to the rules of the registered entity.

2. DCOs

As the Conflict of Interest NPRM states:

swap clearing members at DCOs that currently clear large volumes of

swap contracts are exclusively enumerated entities. Some have argued

that the enumerated entities have an incentive to influence DCO risk

assessments regarding (i) whether a swap contract is capable of

being cleared, (ii) the appropriate membership criteria for a swap

clearing member, and (iii) whether a particular entity meets such

criteria. Therefore, the Commission must carefully consider the

composition of the Risk Management Committee, in order to achieve

(i) the increased clearing of swap contracts that the Dodd-Frank Act

contemplates without compromising (ii) DCO safety and soundness.28

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28 75 FR at 63740.

The Conflicts of Interest NPRM proposes to require each DCO to have

an RMC, with at least (i) 35 percent public directors and (ii) 10

percent customer representatives.29 If a DCO would like to have

greater clearing member participation in risk management, then it may

cause its RMC to delegate to a subcommittee (the “RMC Subcommittee”)

decisions implicating whether (i) a product is capable of being cleared

and (ii) particular entities or categories of entities are capable of

performing such clearing. After such delegation the RMC would be free

of any composition requirements.

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29 See Section IV(c)(ii) below on Commission reconsideration

of requiring customer representation on the RMC, rather than on the

DCO Board of Directors.

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In the abovementioned structure, the RMC Subcommittee reports to

the RMC, whereas the RMC reports to the DCO Board of Directors.

Therefore, a DCO governing body that is not subject to the same

compositional requirements as the RMC or the RMC Subcommittee may

reject a recommendation or supersede an action thereof.30 To enable

the Commission to determine whether such a rejection or supersession

originates from a conflict of interest, the Governance NPRM proposes to

require a DCO to submit a written report to the Commission, whenever

such a rejection or supersession occurs.31 Such report would detail,

among other things, the rationale for such rejection or supersession.

This requirement parallels the requirements for central counterparties

(“CCPs”) in the European Commission Proposal.32 The Commission

anticipates that such a reporting requirement may serve to deter

conflicts from arising in the first place.

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30 This observation would be true regardless of whether the

Commission ultimately requires customer representation on the RMC or

the DCO Board of Directors. However, the Commission requests comment

on whether the reporting requirement described herein should apply

to a DCO if the Commission requires the latter and not the former.

31 If, after examination, the Commission determines that such

rejection or supersession originates from a conflict of interest,

the Commission may find that the DCO regulatory program (as

referenced in Section III(b) herein) is non-compliant with DCO Core

Principle P. Upon making such a finding, the Commission may resort

to certain administrative remedies (e.g., pursuant to Section 5c(d)

of the CEA).

32 See Article 26(5) of the European Commission Proposal.

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3. DCMs or SEFs

The Conflicts of Interest NPRM emphasizes the importance of the ROC

and Membership or Participation Committees in ensuring that the DCM or

SEF does not prioritize commercial interests over self-regulatory

responsibilities, including restricting access or imposing burdens on

access in a discriminatory manner.33 As mentioned above, the

Conflicts of Interest NPRM proposes to require each DCM or SEF to have

(i) a ROC with all public directors and (ii) a Membership or

Participation Committee with 35 percent public directors. However, the

Conflicts of Interest NPRM contemplates that such ROC or Membership or

Participation Committee would report to the DCM or SEF Board of

Directors. As such DCM or SEF Board of Directors may not be subject to

the same composition requirements (or may not have the same members) as

the ROC or Membership or Participation Committee, the Governance NPRM

proposes to require a DCM or SEF to submit a written report to the

Commission whenever such Board of Directors rejects a recommendation of

the ROC or the Membership or Participation Committee or supersedes an

action. Such report would detail among other things, the rationale for

such action. The Commission believes that such a reporting requirement

would alert it to potential conflicts of interests, as well as deter

such conflicts from arising in the first place.

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33 75 FR 63741.

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In addition to the above, the Governance NPRM proposes to require

the ROC to prepare an annual report to the Board of Directors assessing

various components of the DCM or SEF regulatory program. Such a

requirement generally parallels current acceptable practices under DCM

Core Principle 15.34

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34 Such regulatory program is described further in section

III(b) herein. The Dodd-Frank Act has redesignated DCM Core

Principle 15 as DCM Core Principle 16, but has left the actual

language of the core principle substantively unchanged. See section

3(ii)(E) under Acceptable Practices for Core Principle 15 in

Appendix B to Part 38 of the Commission’s regulations.

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4. Questions 35

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35 See note 30 supra.

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The Commission requests comment on all aspects of the reporting

requirements. The Commission further requests comment on the questions

set forth below.

Pursuant to Article 31(2) of the European Commission

Proposal, if a CCP cannot manage, through structural or substantive

governance arrangements, conflicts of interest that may disadvantage a

specific member or customer, then that CCP must disclose to that member

(or customer, if known) the general nature or sources of such

conflicts. The CCP must make such disclosure before accepting new

transactions from the affected member, presumably so that such member

(or customer thereof) may choose to discontinue clearing with the CCP.

Should the Commission consider imposing a similar requirement on DCOs?

Why or why not?

If the Commission decides to impose a similar requirement

on DCOs, should the Commission extend such a requirement to cover DCMs

and SEFs? Why or why not?

B. Regulatory Program

The Governance NPRM proposes to require that, as part of its

regulatory program, each DCO, DCM, or SEF must establish, maintain, and

enforce written procedures to:

Identify, on an ongoing basis, existing and potential

conflicts of interest; and

[[Page 726]]

Make fair and non-biased decisions in the event of a

conflict of interest. Such procedures would include rules regarding the

recusal, when appropriate, of parties involved in the making of

decisions. The Chief Compliance Officer (for DCOs and SEFs), or the

Chief Regulatory Officer (for DCMs), shall, in consultation with the

Board of Directors of the entity or a senior officer of the entity,

resolve any conflicts of interest.

The Commission anticipates that the potential conflicts of interest

that each DCO, DCM, or SEF confronts may change as the swaps market

evolves under regulation. Consequently, the Commission believes that it

is appropriate to require a DCO, DCM, or SEF to have a regulatory

program to monitor existing and potential conflicts of interest on an

ongoing basis. The Commission intends to permit a DCO, DCM, or SEF to

contract with a third-party regulatory service provider to fulfill such

requirement, subject to Commission guidance generally applicable to

such contractual relationships.36

—————————————————————————

36 See “Trading Facilities, Intermediaries, and Clearing

Organizations; New Regulatory Framework; Final Rule,” 66 FR 42256,

42266 (August 10, 2001). Although the relevant discussion focuses on

DCMs, a similar logic would apply to DCOs. Further, pursuant to the

Dodd-Frank Act, the Commission is contemplating proposing

regulations regarding such contractual relationships.

—————————————————————————

To protect the integrity of trade execution and clearing, the

Commission believes that it is appropriate to require each DCO, DCM, or

SEF to have procedures, including recusal procedures, to make fair and

non-biased decisions in the event of a conflict of interest. Article

26(4) of the European Commission Proposal includes a similar recusal

requirement for CCP risk committees. Specifically, if the chairman of a

CCP risk committee determines that a member has an actual or potential

conflict of interest on a particular matter, that member would not be

allowed to vote on that matter.

1. Questions

The Commission requests comment on all aspects of the regulatory

program. The Commission further requests comment on the questions set

forth below:

As mentioned above, the Commission intends to permit a

DCO, DCM, or SEF to contract with a third-party regulatory service

provider (e.g., the National Futures Association) to implement the

abovementioned regulatory program. Would a third-party regulatory

service provider itself ever experience a conflict of interest from the

performance of its obligations under such a contract? If so, under what

circumstances?

Should the Commission propose any other substantive

requirements with respect to the decision-making process of a DCO, DCM,

or SEF?

C. Transparency Requirements

At the Roundtable, certain market participants emphasized that DCO

governance arrangements must be transparent to permit the Commission,

as well as the public, to (i) learn of decisions that have systemic

importance (e.g., whether a product is capable of being cleared), and

(ii) identify the governing bodies (e.g., the RMC) responsible for

making such decisions.37 Previously, when the Commission proposed

acceptable practices for current DCM Core Principle 15 (Conflicts of

Interest), the Commission recognized the value of transparency in

“maintaining market integrity and public trust.” 38 Such a

rationale would appear to also apply to DCOs and SEFs.39

—————————————————————————

37 See, e.g., Comments from Jason Kastner, Vice Chairman,

Swaps and Derivatives Markets Association (“I think that the issue

is making sure that the risk committees of these DCOs are

transparent, that you know who the membership is, that the decisions

that are taken about whether to permit new clearing members and

whether to permit new products to be listed are transparent and

readily appraisable, and so that everyone knows, you know, what’s

going on. * * * So this is an open hearing, right? There’s a public

record. There’s cameras. There’s recordings. The same type of

transparency should apply to DCO governance so that everyone is

clear about how decisions are taken and how they’re made and who’s

making them.”), Roundtable Tr. at 74-75; and Comments from Randy

Kroszner, Professor of Economics, Booth School of Business,

University of Chicago (“I think this gets back to the transparency

point, but I do think it’s extremely important to have people with

the knowledge, the wherewithal, and with their money on the line

having input into these risk-management decisions, and I think the

best way to ensure that is to ensure a very, very transparent

process so that outsiders can evaluate and provide the commentary

and the independent directors will have enough wherewithal, enough

knowledge to know what is going on.”), Roundtable Tr. 78-79.

38 71 FR 38741 (July 7, 2006) (which proposed the acceptable

practices for current DCM core principle 15) (“* * * the current

market environment mandates enhanced and transparent governance as

an essential business practice for maintaining market integrity and

public trust.”).

39 According to Section 4.13.3 of the CCP Recommendations,

“[g]overnance arrangements should be clearly specified and publicly

available.”

—————————————————————————

In light of the above, the Governance NPRM proposes to establish

minimum standards for the transparency of the governance arrangements

of each DCO, DCM, or SEF to relevant authorities (including the

Commission) as well as the public.40 These minimum standards 41

require each DCO, DCM, or SEF to:

—————————————————————————

40 The Commission intends to promulgate the transparency

requirements for DCMs and SEFs pursuant to its authority under DCM

Core Principle P, SEF Core Principle 12 (in each case, Conflicts of

Interest), and Section 8a(5) of the CEA. The Commission intends to

promulgate the transparency requirements for DCOs pursuant to its

authority under DCO Core Principle O (Governance Fitness Standards),

and Section 8a(5) of the CEA. This core principle requires that a

DCO establish governance arrangements that are transparent to, among

other things, fulfill public interest requirements. This core

principle is interrelated to DCO Core Principle P (Conflicts of

Interest), since transparency requirements enhance the ability of

the Commission to detect conflicts of interest, and may serve to

deter such conflicts. The Commission believes that it has the

authority to promulgate transparency requirements under either DCO

Core Principle O or P.

41 As Section III discusses in greater detail, the Commission

proposes to require DCOs and DCMs to meet additional standards

regarding the manner in which the Board of Directors considers the

opinions of market participants, among others.

—————————————————————————

Make available certain information to the public and

relevant authorities; 42

—————————————————————————

42 Such information includes (i) the charter (or mission

statement) of the registered entity; (ii) the charter (or mission

statement) of the Board of Directors and certain committees; (iii)

the Board of Directors nominations process for the registered

entity, as well as the process for assigning members of the Board of

Directors or other persons to certain committees; (iv) names of all

members of (a) the Board of Directors and (b) certain committees;

(v) the identities of all Public Directors (and with respect to a

DCO, all customer representatives); (vi) the lines of responsibility

and accountability for each operational unit of the registered

entity; and (vii) summaries of significant decisions implicating the

public interest.

—————————————————————————

Ensure that the information made available is current,

accurate, clear and readily accessible; and

Disclose summaries of certain significant decisions.

DCM, SEF, and DCO significant decisions involve those areas in

which conflicts of interest identified in Section II above may be most

manifest. With respect to a DCM or a SEF, significant decisions would

relate to access, membership, and disciplinary procedures. With respect

to a DCO, significant decisions would relate to open access,

membership, and the finding of products acceptable (or not acceptable)

for clearing. The Commission proposes to require that the DCO

specifically disclose whether (i) its Board of Directors has rejected a

recommendation or superseded an action of the RMC, or (ii) the RMC has

rejected a recommendation or superseded an action of the RMC

Subcommittee. The Commission does not intend the foregoing to require a

DCM, SEF, or DCO to disclose any “non-public information” (as

proposed Sec. 1.3(ggg) defines such term), including, without

limitation, minutes from meetings of its Board of Directors or

committees or information that it may have received on a confidential

basis from an applicant for membership.

[[Page 727]]

1. Questions

The Commission requests comment on all aspects of the transparency

requirements. The Commission further requests comment on the questions

set forth below.

Are the abovementioned proposals necessary or appropriate

to mitigate DCO, DCM, or SEF conflicts of interest or to ensure that

DCO governance arrangements are transparent to, among other things,

fulfill public interest requirements? If not, why not? What would be a

better alternative?

Should the Commission require that a DCO, DCM, or SEF make

available to the public and relevant authorities information other than

that identified above?

Has the Commission accurately identified DCO, DCM, or SEF

significant decisions? Should the Commission explicitly deem any other

DCO, DCM, or SEF decisions as significant? Conversely, should the

Commission deem any of the DCO, DCM, or SEF decisions that it has

identified to be not significant? Why?

Should the Commission permit a DCO, DCM, or SEF to keep

confidential any information identified above? If so, why?

D. Limitation on Use or Disclosure of Non-Public Information

1. Requirements

The Governance NPRM proposes to require each DCO, DCM, or SEF to

establish and maintain written policies and procedures on safeguarding

non-public information. These policies and procedures must, at a

minimum, preclude a DCO, DCM, or SEF owner, director, officer, or

employee from using or disclosing any non-public information gained

through their interest or position, absent prior written consent from

the DCO, DCM, or SEF, as applicable.43 The Commission intends for

such requirements to prohibit those in a position of power, either by

holding a certain position in the organization or through an ownership

interest, from leveraging such power to benefit, commercially or

otherwise, from non-public information.44 The Commission believes

that such leveraging would constitute a clear conflict of interest. The

Commission notes that such requirements comport with certain aspects of

the European Commission Proposal.45

—————————————————————————

43 The Commission recognizes that the disclosure of non-public

information may be necessary in certain instances, even without the

written consent of the DCO, DCM, or SEF. Such instances include if

disclosure is compelled by valid legal process (provided that the

individual or entity notifies the registered SDR) or required by a

regulatory authority.

44 For example, a DCO, DCM, or SEF member may use or disclose

non-public information (e.g., the possibility of disciplinary

action) to the detriment of its competitor.

45 See Article 26(4) of the European Commission Proposal

(stating that “[w]ithout prejudice to the right of competent

authorities to be duly informed, the members of the risk committee

shall be bound by confidentiality.”).

—————————————————————————

The Governance NPRM proposes to define “non-public information”

as any information that the DCO, DCM, or SEF owns or any information

that such entity otherwise deems confidential, such as intellectual

property belonging to (A) such registered entity or (B) a third party,

which property such registered entity receives on a confidential basis.

The Commission will not preclude a DCO, DCM, or SEF from adopting a

more expansive definition of “non-public information.”

2. Questions

The Commission requests comment on all aspects of the limitation on

use of non-public information. The Commission further requests comment

on the questions set forth below.

Are the abovementioned proposals necessary or appropriate

to mitigate DCO, DCM, and SEF conflicts of interests? If not, why not?

What would be a better alternative?

Has the Commission proposed an appropriate definition for

“non-public information”? If not, why not? What would be a better

alternative?

Should the Commission consider any other concerns

regarding the use of “non-public information”?

IV. Regulations Implementing Governance Core Principles

In addition to regulations more fully implementing the Conflicts of

Interest Core Principles, the Commission also proposes regulations

implementing DCO and DCM core principles on governance fitness and the

composition of governing boards. Further, the Commission proposes

regulations to implement the DCM core principle on diversity of certain

Boards of Directors.

A. Governance Fitness Standards

DCO Core Principle O,46 as added by Section 725(c) of the Dodd-

Frank Act, provides that each DCO shall (i) establish governance

arrangements that are transparent to fulfill public interest

requirements and to permit the consideration of the views of owners and

participants and (ii) establish and enforce appropriate fitness

standards for (A) directors, (B) members of any disciplinary committee,

(C) members of the DCO, (D) any other individual or entity with direct

access to the settlement or clearing activities of the DCO, and (E) any

party affiliated with any entity mentioned above. DCM Core Principle

15, as retained by Section 735(b) of the Dodd-Frank Act, provides that

a DCM shall establish and enforce appropriate fitness standards for (i)

directors, (ii) members of any disciplinary committee, (iii) members of

the DCM, (iv) any other person with direct access to the facility, and

(v) any person affiliated with any entity mentioned above.

—————————————————————————

46 7 U.S.C. 5b(c)(2)(O).

—————————————————————————

1. Fitness Requirements

To implement DCM Core Principle 15 and partially implement DCO Core

Principle O, the Governance NPRM proposes to require each DCM and DCO

to specify and enforce fitness standards for (i) directors, (ii)

members of any Disciplinary Panel,47 and (iii) members of the

Disciplinary Committee.48 These standards shall include, at a

minimum, (i) those bases for refusal to register a person under Section

8a(2) of the CEA,49 and (2) the absence of a significant history of

serious disciplinary offenses, such as those that would be

disqualifying under Sec. 1.63 of the Commission’s regulations.50

—————————————————————————

47 The Conflicts of Interest NPRM defines “Disciplinary

Panel” as a panel that shall be responsible for conducting

hearings, rendering decisions, and imposing sanctions with respect

to disciplinary matters. See proposed Sec. 40.9(c)(3)(i). 75 FR at

63752.

48 Section 1.63 of the Commission’s regulations defines

“Disciplinary Committee” as a person or committee of persons, or

any subcommittee thereof, that is authorized by a self-regulatory

organization to issue disciplinary charges, to conduct disciplinary

proceedings, to settle disciplinary charges, to impose disciplinary

sanctions or to hear appeals thereof. See 17 CFR 1.63.

49 7 U.S.C. 12(a)(2). Bases for refusal to register a person

under Section 8a(2) of the CEA include, among other things,

suspension or revocation of registration, certain court orders

prohibiting action in the capacity of a registrant under the CEA,

certain felony convictions, or findings of violation of the CEA or

certain other Federal statutes.

50 17 CFR 1.63. Such offenses include violations of certain

self-regulatory organization rules and violations of the CEA or the

Commission’s regulations thereunder.

—————————————————————————

Also, the Governance NPRM proposes to require each DCM and DCO to

specify and enforce fitness standards for (i) its members and

affiliates 51 thereof, (ii) persons with direct access to the DCM or,

in the case of a DCO, to its settlement and clearing activities, (iii)

natural persons who, directly or indirectly, own greater than ten

percent of any one class

[[Page 728]]

of equity interest in a DCM or DCO,52 and (v) parties affiliated with

(A) directors, (B) members of any Disciplinary Panel, and (C) members

of the Disciplinary Committee.53 At a minimum, such standards shall

include those bases for refusal to register a person under Section

8a(2) of the CEA.54

—————————————————————————

51 The Governance NPRM proposes to define “affiliate” as a

person that directly, or indirectly through one or more

intermediaries, controls, is controlled by, or is under common

control with, a registered entity.

52 This provision is a clarification of acceptable practices

under current DCM Core Principle 14.

53 Currently, the Governance NPRM does not propose to impose

any requirement on each DCM and DCO with respect to fitness

standards for affiliates of persons with direct access. Therefore,

under Section 5(d)(1)(B) of the CEA, as added by Section 735 of the

Dodd-Frank Act, each DCM has reasonable discretion in comporting

with DCM Core Principle 15 with respect to such affiliates. Also,

under Section 5b(c)(2)(A)(ii) of the CEA, as added by Section 725 of

the Dodd-Frank Act, each DCO retains similar discretion.

54 See note 49 supra.

—————————————————————————

Further, the Governance NPRM proposes to require each DCM and DCO

to collect and verify information that supports compliance with the

standards articulated above and provide that information to the

Commission annually.

The abovementioned proposals codify the acceptable practices under

current DCM Core Principle 14 (Governance Fitness Standards) and extend

such practices to DCOs.55 The Commission believes that such proposals

are appropriate to ensure the integrity of individuals and entities

specified above. Such integrity, in turn, allows DCMs and DCOs to

operate in the best interests of the public.56

—————————————————————————

55 DCM Core Principle 14 is redesignated as DCM Core Principle

15 under the Dodd-Frank Act.

56 DCMs facilitate the execution of, and DCOs provide clearing

for, “* * * transactions * * * affected with a national public

interest.” See Section 3(a) of the CEA, 7 U.S.C. 5.

—————————————————————————

In addition to the above, the Governance NPRM proposes to mandate

that members and certain other persons must agree to become subject to

the jurisdiction of the DCM or the DCO, as a condition of access. Such

a proposal ensures that a DCM or DCO, each of which has self-regulatory

responsibilities, would be able to appropriately discipline a member or

such other person for violation of DCM or DCO rules. The Commission

believes that a DCM or DCO must have the ability to exert such

discipline in order to ensure the fitness of members or such other

persons.

2. Questions

The Commission requests comment on all aspects of the governance

fitness standards. Specifically, the Commission requests comment on the

questions set forth below.

Are the abovementioned proposals necessary or appropriate

to implement DCM Core Principle 15 and DCO Core Principle O? If not,

why not? What would be a better alternative?

Should the Commission propose any minimum fitness

standards other than those specified above?

Is the Commission’s proposed definition of affiliate

appropriate? If not, why?

B. Transparency Requirements

As mentioned above, DCO Core Principle O 57 provides that each

DCO shall establish governance arrangements that are transparent to

fulfill public interest requirements.58 Section III(C) of the

Governance NPRM discusses proposals to implement such portion of the

core principle. However, DCO Core Principle O also provides that each

DCO shall establish governance arrangements that are transparent to

permit the consideration of the views of owners and participants. Such

language appears unique to DCOs. Hence, the Governance NPRM sets forth

the following additional proposals for DCOs:

—————————————————————————

57 7 U.S.C. 5b(c)(2)(O).

58 To comport with the European Commission Proposal, the

Commission has additionally interpreted DCO Core Principle O to

require governance arrangements that are well-defined and that

include a clear organizational structure with consistent lines of

responsibility and effective internal controls.

—————————————————————————

Each DCO shall make available to the public, as well as

relevant authorities (including the Commission), a description of the

manner in which its governance arrangements permit the consideration of

the views of owners (whether voting or non-voting) and its

participants, including, without limitation, clearing members and

customers;

Such description shall include, at a minimum:

[cir] The general method by which the DCO learns of the views of

owners (other than through the exercise of voting power) and

participants (other than through representation on the DCO Board of

Directors or any DCO committee); and

[cir] The manner in which the DCO considers such views.

1. Questions

The Commission requests comment on all aspects of the additional

proposals. Specifically, the Commission requests comment on the

questions set forth below.

Are such additional proposals necessary or appropriate to

implement DCO Core Principle O? If not, why not? What would be a better

alternative?

Should the Commission propose to require that each DCO

make available to the public, as well as relevant authorities,

information other than that identified above?

C. Composition of the Board of Directors

1. DCMs

DCM Core Principle 17,59 as amended by Section 735(b) of the

Dodd-Frank Act,60 provides that the governance arrangements of a DCM

shall be designed to permit consideration of the views of market

participants. To implement this provision, the Governance NPRM proposes

to require each DCM to design and institute a process for considering

the range of opinions that market participants hold with respect to (i)

the functioning of an existing market (including governance

arrangements) and (ii) new rules or rule amendments. The Commission

intends to permit each DCM to have the flexibility to determine the

process that is most appropriate for its market participants. The

Commission notes that one process by which a DCM may fulfill DCM Core

Principle 17 is to have market participants on its Board of Directors

(or other governing bodies). Regardless of the process that a DCM

chooses, the Governance NPRM requires the DCM to make a description of

such process available to the public and to relevant authorities

(including the Commission) as part of its compliance with the

transparency requirements described in Section III(C) above.61

—————————————————————————

59 7 U.S.C. 7(d)(17).

60 The Dodd-Frank Act redesignated DCM Core Principle 16

(Composition of Boards of Mutually Owned Contract Markets) as DCM

Core Principle 17 (Composition of Governing Boards of Contract

Markets), and amended the language of the core principle. Former DCM

Core Principle 16 stated: “In the case of a mutually owned contract

market, the board of trade shall ensure that the composition of the

governing board reflects market participants.” DCM Core Principle

17, as amended by the Dodd-Frank Act states that “[t]he governance

arrangements of the board of trade shall be designed to permit

consideration of the views of market participants.”

—————————————————————————

a. Questions.

The Commission requests comment on this proposal. Specifically, the

Commission requests comment on the questions set forth below.

Is the abovementioned proposal appropriate to implement

DCM Core Principle 17? What would be a better alternative? What are the

costs and benefits of the abovementioned proposals? What are the costs

and benefits of any alternative?

Does the Commission need to consider proposing any

additional requirements in order to implement DCM Core Principle 17?

What would be the costs and benefits of any such requirement?

[[Page 729]]

2. DCOs

DCO Core Principle Q, as added by Section 725(c) of the Dodd-Frank

Act, provides that each DCO shall ensure that the composition of the

governing board or committee of the DCO includes market participants.

In partial reliance on this core principle, the Conflicts of Interest

NPRM proposed requiring that the RMC (or the RMC Subcommittee) be

composed of at least 10 percent customer representatives. However,

based on comments that the Commission received on the Conflicts of

Interest NPRM,62 certain market participants would prefer that the

DCO Board of Directors, rather than the RMC, include customer

representation.63 Therefore, the Commission is reconsidering whether

requiring customer representation on the RMC or the DCO Board of

Directors would better implement both Section 726 of the Dodd-Frank Act

and DCO Core Principle Q. Preliminarily, the Commission is not inclined

to require customer representation on both the RMC and the DCO Board of

Directors, as the former reports to the latter. As members of the DCO

Board of Directors, customer representatives would have the opportunity

to (i) review recommendations and actions of the RMC, (ii) request the

rationale behind such recommendations and actions, and (iii) vote to

reject such recommendations and to supersede such actions.

—————————————————————————

62 The comment period for the Conflicts of Interest NPRM

closed on November 17, 2010. Comments are available at: http://

comments.cftc.gov/PublicComments/CommentList.aspx?id=861.

63 See, e.g., Comment from the Investment Company Institute,

dated November 17, 2010 (stating that “[t]he Commissions’ proposals

include provisions that would allow for industry representation on

board advisory committees. The CFTC proposal, for example,

specifically includes a requirement that 10 percent of the Risk

Management Committee of a swap entity be composed of customers of

clearing members who also routinely execute swap contracts and who

have experience in using pricing models for such contracts. We

strongly support investor representation on board advisory

committees. These committees are designed to facilitate meaningful

discussion on important issues before the board. Nevertheless, such

advisory committee representation should not be a substitute for

investor representation on the board itself. This is particularly

true in the developing swap markets where, at this time, investors

have access to only a handful of swap entities for clearing and

trading.”). C.f. Comment from BlackRock, dated November 15, 2010

(stating that ” [t]he essence of BlackRock’s comments is that buy-

side participants, like customers of clearing members, need

meaningful representation on the committees that make the critical

determinations on the core functions of the organization that impact

all of its participants. Such representation is more important than

fair representation on the Board of Directors because the governance

committees, such as the Risk Management Committee, will have

significant influence over the day-to-day affairs of DCOs. The

Proposing Release would charge the Risk Management Committee with

determining products eligible for clearing, setting standards and

requirements for initial and continuing clearing membership

eligibility, and advising the Board of Directors on the DCO’s risk

model and default procedures. See Proposed Rule 39.13(g)(1), 75 FR

at 63,750. In other words, decisions of the Risk Management

Committee will have profound and immediate impacts on all DCO

constituencies, including customers.”).

—————————————————————————

Based on the above, the Commission is proposing to require that a

DCO Board of Directors include at least 10 percent customer

representatives. However, in case the Commission decides to keep such

requirement at the RMC level, the Commission is alternatively re-

proposing that the RMC (or the RMC Subcommittee) be composed of at

least 10 percent customer representatives. As mentioned above, the

Commission is preliminarily anticipating that it would adopt only one

requirement on customer representation. The Commission is not

anticipating making a final decision regarding customer representation

until it finishes reviewing comments on the Governance NPRM.

a. Questions.

The Commission requests comment on all aspects of the

abovementioned proposal. Specifically, the Commission requests comment

on the questions set forth below.

Should the Commission require customer representation on

the DCO Board of Directors instead of the RMC (or RMC Subcommittee)?

Why or why not? What are the benefits and costs of such requirement?

Alternatively, should the Commission require customer

representation on the RMC (or the RMC Subcommittee) instead of the DCO

Board of Directors? Why or why not? What are the benefits and costs of

such requirement?

Should the Commission consider requiring customer

representation on both the DCO Board of Directors and the RMC? Why or

why not?

Alternatively, should the Commission consider requiring

customer representation on another committee, but neither the DCO Board

of Directors nor the RMC? Why or why not? Which committee would be most

appropriate? For example, the Nominating Committee?

What percentage or number of customer representatives

should the Commission require on the DCO Board of Directors? Should

such percentage be higher or lower than 10 percent? What should such

number be? What are the benefits and costs of each percentage or

number?

Alternatively, what percentage or number of customer

representatives should the Commission require on the RMC? Should such

percentage be higher or lower than 10 percent? What should such number

be? What are the benefits and costs of each percentage or number?

To the extent that the Commission requires customer

representatives on either the DCO Board of Directors or the RMC, should

the Commission consider imposing any additional requirement to ensure

that these representatives appropriately weigh the interests of all

customers, rather than just advocate on behalf of the entity to which

such representative belongs?

D. Diversity of DCM Board of Directors

DCM Core Principle 22, as added by Section 735(b) of the Dodd-Frank

Act, provides that a DCM, if a publicly-traded company, shall endeavor

to recruit individuals to serve on its Board of Directors and its other

decision-making bodies (as determined by the Commission) from among,

and to have the composition of the bodies reflect, a broad and

culturally diverse pool of qualified candidates.

To implement DCM Core Principle 22, the Governance NPRM proposes to

permit each publicly-traded DCM the flexibility to determine (i) the

standards by which a Board of Directors could be deemed broad and

culturally diverse, and (ii) the manner in which the DCM Board of

Directors meets that standard. The Governance NPRM proposes that each

such DCM make available its diversity standards to the public and

relevant authorities (including the Commission) as part of its

compliance with the transparency requirements described in Section

III(C) above. Further, the Governance NPRM proposes that each such DCM

provide the Commission with an annual certification of the manner in

which its Board of Directors meets its diversity standards. If such a

DCM concludes that its Board of Directors does not yet meet such

standards, then the Governance NPRM proposes that the DCM describe the

manner in which its Nominating Committee is structuring recruiting

efforts to meet such standards. The Commission is not currently

proposing diversity requirements for any other DCM decision-making

bodies. The Commission interprets DCM Core Principle 22 to apply only

to DCMs that are publicly-traded. This does not include DCMs that are

not publicly-traded but have one or more affiliates that are.

[[Page 730]]

1. Questions

The Commission requests comment on all aspects of the diversity

requirement. Specifically, should the Commission extend such

requirement to other DCM decision-making bodies? Why or why not? If the

Commission proposes to extend such requirement, which decision-making

bodies should it consider?

V. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) 64 requires that agencies

consider whether the regulations they propose will have a significant

economic impact on a substantial number of small entities and, if so,

provide a regulatory flexibility analysis respecting the impact.65

The proposed rules detailed in the Governance NPRM would only affect

DCOs, DCMs, and SEFs. The Commission has previously determined that

DCOs 66 and DCMs 67 are not “small entities” for purposes of the

RFA. In contrast, SEFs are a new category of registrant that the Dodd-

Frank Act created. Accordingly, the Commission has not addressed the

question of whether SEFs are, in fact, “small entities” for purposes

of the RFA.

—————————————————————————

64 5 U.S.C. 601 et seq.

65 Id.

66 66 FR 45604, 45609 (August 29, 2001).

67 47 FR 18618, 18619 (April 30, 1982).

—————————————————————————

The Dodd-Frank Act defines a SEF to mean “a trading system or

platform in which multiple participants have the ability to execute or

trade swaps by accepting bids and offers made by multiple participants

in the facility or system, through any means of interstate commerce,

including any trading facility that (A) facilitates the execution of

swaps between persons and (B) is not a designated contract market.”

68 The Commission hereby determines that SEFs not be considered

“small entities” for essentially the same reasons that DCMs and DCOs

have previously been determined not to be small entities. These reasons

include the fact that the Commission designates a contract market or

registers a derivatives clearing organization only when it meets

specific criteria including expenditure of sufficient resources to

establish and maintain adequate self-regulatory programs. Likewise, the

Commission will register an entity as a SEF only after it has met

specific criteria including the expenditure of sufficient resources to

establish and maintain an adequate self-regulatory program.69

Accordingly, the Commission does not expect the rules, as proposed

herein, to have a significant impact on a substantial number of small

entities. Therefore, the Chairman, on behalf of the Commission, hereby

certifies, pursuant to 5 U.S.C. 605(b), that the proposed amendments

will not have a significant economic impact on a substantial number of

small entities. The Commission invites the public to comment on whether

SEFs covered by these rules should be considered small entities for

purposes of the RFA.

—————————————————————————

68 See Section 721 of the Dodd-Frank Act. The Commission is

contemplating proposing regulations that would further specify those

entities that must register as a SEF. The Commission does not

believe that such proposals would alter its determination that a SEF

is not a “small entity” for purposes of the RFA.

69 See Core Principle 2 applicable to SEFs under Section 733

of the Dodd-Frank Act.

—————————————————————————

B. Paperwork Reduction Act

The Governance NPRM contains information collection requirements.

The Paperwork Reduction Act of 1995 (“PRA”) 70 imposes certain

requirements on Federal agencies (including the Commission) in

conducting or sponsoring any “collection of information” (as the PRA

defines such term). Pursuant to the PRA, the Commission has submitted

to the Director of the Office of Management and Budget (“OMB”), an

explanation, as well as details, of the information collection and

recordkeeping requirements which would be necessary to implement the

Governance NPRM.

—————————————————————————

70 44 U.S.C. 3501 et seq.

—————————————————————————

1. Information Provided by Reporting Entities/Persons

If the Governance NPRM is promulgated in final form, they would

require DCOs, DCMs, and new SEF registrants to collect and submit,

pursuant to parts 37 to 40 of the Commission’s regulations, certain

information to the Commission, which such regulations have never

previously required. For each such proposed requirement, set forth

below are estimates of: (i) The number of respondents; (ii) the number

of annual responses by each respondent; (iii) the average hours per

response; and (iv) the aggregate annual reporting burden (in hours as

well as dollars). New OMB control numbers will be assigned to these

proposed information collection requirements.

New Collection 3038-NEW

Sections 37.1201(b)(5) and 38.851(b)(5) of the Commission’s

regulations require each SEF and DCM, respectively, to provide to the

Commission on an annual basis a report assessing the regulatory program

of the SEF or DCM, including (i) the description of such program, (ii)

expenses, (iii) staffing and structure, (iv) certain disciplinary

matters, and (v) with respect to a SEF only, the performance of the

chief compliance officer (as referenced in Section 5(f)(15) of the

Act).

OMB Control Number 3038-NEW.

Estimated number of respondents: 51.

Annual responses by each respondent: 1.

Estimated average hours per response: 20.

Aggregate annual reporting burden in hours: 1,020.

Aggregate annual reporting burden in dollars: $121,125.00.

New Collection 3038-NEW

Sections 37.1201(d) and 38.851(d) of the Commission’s regulations

require a SEF and DCM, respectively, to submit a report to the

Commission detailing five items of information in the event that the

SEF or DCM Board of Directors rejects a recommendation or supersedes an

action of the Regulatory Oversight Committee or the Membership or

Participation Committee (or entity performing the functions of such

committee). Similarly, Sec. 39.25(b) of the Commission’s regulations

requires a DCO to submit a report to the Commission detailing five

items of information in the event that (i) the DCO Board of Directors

rejects a recommendation or supersedes an action of the RMC or (ii) the

RMC rejects a recommendation or supersedes an action of the RMC

Subcommittee.

OMB Control Number 3038-NEW

Estimated number of respondents: 70.

Annual responses by each respondent: 1.

Estimated average hours per response: 15.

Aggregate annual reporting burden in hours: 1,050.

Aggregate annual reporting burden in dollars: $124,688.

New Collection 3038-NEW

Sections 38.801(d) and 39.24(b)(4) of the Commission’s regulations

require each DCM and DCO, respectively, to provide to the Commission

information on an annual basis that supports compliance with certain

governance fitness standards.

OMB Control Number 3038-NEW

Estimated number of respondents: 35.

Annual responses by each respondent: 1.

Estimated average hours per response: 8.

Aggregate annual reporting burden in hours: 280.

Aggregate annual reporting burden in dollars: $33,250.00.

[[Page 731]]

New Collection 3038-NEW

Section 38.901(c) of the Commission’s regulations requires each DCM

to make available to the public and the Commission a description of its

process for considering the range of opinions that market participants

hold with respect to (i) the functioning of an existing market

(including governance arrangements) and (ii) new rules or rule

amendments. Section 39.24(a) of the Commission’s regulations requires

each DCO to make available to the public and to the relevant

authorities, including the Commission, a description of the manner in

which its governance arrangements permit the consideration of the views

of its owners, whether voting or non-voting, and its participants,

including, without limitation, clearing members and customers.

OMB Control Number 3038-NEW

Estimated number of respondents: 35.

Annual responses by each respondent: 1.

Estimated average hours per response: 15.

Aggregate annual reporting burden in hours: 525.

Aggregate annual reporting burden in dollars: $62,344.00.

New Collection 3038-NEW

Section 38.1151(d) of the Commission’s regulations requires each

DCM that is publicly listed on a domestic exchange to (i) make

available to the public and the Commission the standards by which its

Board of Directors shall be deemed broadly and culturally diverse, and

(ii) certify to the Commission on an annual basis whether and how its

Board of Directors has met certain diversity standards.

OMB Control Number 3038-NEW

Estimated number of respondents: 16.

Annual responses by each respondent: 1.

Estimated average hours per response: 15.

Aggregate annual reporting burden in hours: 240.

Aggregate annual reporting burden in dollars: $28,500.00.

New Collection 3038-NEW

Section 40.9(b) of the Commission’s regulations requires each DCO,

DCM, or SEF to submit to the Commission, within 30 days after the

election of the Board of Directors, (i) a list of all members of the

Board of Directors, each committee with a composition requirement

(including any Executive Committee), and each other committee with the

authority to amend or constrain the action of the Board of Directors,

(ii) a description of the relationship, if any, between such directors

and the registered entity or the members of the registered entity (and,

in each case, any affiliates thereof), (iii) the basis for any

determination that a director qualifies as a Public Director (and with

respect to DCOs only, as a customer representative), and (iv) a

description of how the composition of the Board of Directors and each

of the abovementioned committees allows the DCO, DCM, or SEF to comply

with applicable core principles, regulations, as well as to its rules.

OMB Control Number 3038-NEW

Estimated number of respondents: 70.

Annual responses by each respondent: 1.

Estimated average hours per response: 2.

Aggregate annual reporting burden in hours: 140.

Aggregate annual reporting burden in dollars: $16,625.00.

New Collection 3038-NEW

Section 40.9(d) of the Commission’s regulations requires each DCO,

DCM or SEF to make certain information regarding its governance

arrangements available to the public and the Commission on a current

basis.71

—————————————————————————

71 See note 42 supra.

—————————————————————————

OMB Control Number 3038-NEW

Estimated number of respondents: 70.

Annual responses by each respondent: 4.

Estimated average hours per response: 10.

Aggregate annual reporting burden in hours: 2,800.

Aggregate annual reporting burden in dollars: $332,500.

The Commission invites the public and other Federal agencies to

comment on any aspect of the proposed information collection

requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the

Commission will consider public comments on such proposed requirements

in:

Evaluating whether the proposed collections of information

are necessary for the proper performance of the functions of the

Commission, including whether the information will have a practical

use;

Evaluating the accuracy of the estimated burden of the

proposed information collection requirements, including the degree to

which the methodology and the assumptions that the Commission employed

were valid;

Enhancing the quality, utility, and clarity of the

information proposed to be collected; and

Minimizing the burden of the proposed information

collection requirements on DCOs, DCMs, and SEFs, including through the

use of appropriate automated, electronic, mechanical, or other

technological information collection techniques, e.g., permitting

electronic submission of responses.

Copies of the submission from the Commission to OMB are available

from the CFTC Clearance Officer, 1155 21st Street, NW., Washington, DC

20581, (202) 418-5160 or from http://RegInfo.gov. Organizations and

individuals desiring to submit comments on the proposed information

collection requirements should send those comments to the OMB Office of

Information and Regulatory Affairs at:

The Office of Information and Regulatory Affairs, Office

of Management and Budget, Room 10235, New Executive Office Building,

Washington, DC 20503, Attn: Desk Officer of the Commodity Futures

Trading Commission;

(202) 395-6566 (fax); or

[email protected] (e-mail).

2. Information Collection Comments

Please provide the Commission with a copy of submitted comments so

that all comments can be summarized and addressed in the final rule

preamble. Please refer to the ADDRESSES section of the Governance NPRM

for instructions on submitting comments to the Commission.

OMB is required to make a decision concerning the proposed

information collection requirements between thirty (30) and sixty (60)

days after publication of the Governance NPRM in the Federal Register.

Therefore, a comment to OMB is best assured of receiving full

consideration if OMB (as well as the Commission) receives it within

thirty (30) days of publication of the Governance NPRM.

C. Cost-Benefit Analysis

Section 15(a) of the CEA 72 requires that the Commission, before

promulgating a regulation or issuing an order, consider the costs and

benefits of its action. By its terms, section 15(a) of the CEA does not

require the Commission to quantify the costs and benefits of a new

regulation or to determine whether the benefits of the regulation

outweigh its costs. Rather, section 15(a) of the CEA simply requires

[[Page 732]]

the Commission to “consider the costs and benefits” of its action.

Section 15(a) of the CEA further specifies that costs and benefits

shall be evaluated in light of the following considerations: (1)

Protection of market participants and the public; (2) efficiency and

competition; (3) financial integrity of the futures markets and price

discovery; (4) sound risk management practices; and (5) other public

interest considerations. Accordingly, the Commission could in its

discretion, give greater weight to any one of the five considerations

and could determine that, notwithstanding its costs, a particular

regulation was necessary or appropriate to protect the public interest

or to effectuate any of the provisions or to accomplish any of the

purposes of the Act.

—————————————————————————

72 7 U.S.C. 19(a).

—————————————————————————

1. The Conflicts of Interest Core Principles: Proposed Regulations

a. Reporting.

As mentioned above, Sec. Sec. 37.1201(b)(5) and 38.851(b)(5) of

the Commission’s proposed regulations require each SEF and DCM,

respectively, to provide to the Commission an annual assessment report.

In addition, as mentioned above, Sec. Sec. 37.1201(d) and

38.851(d) of the Commission’s proposed regulations require a DCO, DCM,

or SEF, as appropriate, to submit a report to the Commission whenever

certain committees are overruled and Sec. 40.9(b) of the Commission’s

proposed regulations requires each DCO, DCM, or SEF to submit to the

Commission post-Board election information.

b. Transparency of Governance Arrangements.

As mentioned above, Sec. 40.9(d) of the Commission’s proposed

regulations requires each DCO, DCM or SEF to make certain information

regarding its governance arrangements available to the public and the

Commission on a current basis.

c. Identification and Mitigation of Conflicts of Interest.

Section 40.9(e) of the Commission’s proposed regulations require

each DCO, DCM, or SEF to establish, maintain, and enforce written

procedures to identify existing and potential conflicts of interest,

and to make decisions in the event of a conflict of interest. The

Commission recognizes that such requirements impose costs. Such costs

may be ameliorated to the extent that certain DCOs or DCMs may modify

existing practices to accommodate proposed Sec. 40.9(e).73

—————————————————————————

73 See, e.g., Rule 234 of the Chicago Mercantile Exchange

(“CME”) (Avoiding Conflicts of Interest in “Significant

Actions”), available at: http://www.cmegroup.com/rulebook/CME/I/2/

34.html.

—————————————————————————

d. Limitations on Use or Disclosure of Non-Public Information.

As more fully described above, Sec. 40.9(f) of the Commission’s

proposed regulations requires each DCO, DCM, or SEF to establish and

maintain written policies and procedures on safeguarding non-public

information. The Commission recognizes that such requirements impose

costs. Such costs may be ameliorated to the extent that certain DCOs or

DCMs may modify existing practices to accommodate proposed Sec.

40.9(f).74

—————————————————————————

74 See, e.g., CME Confidentiality Policy for Market Regulation

and Audit Departments, available at: http://www.cmegroup.com/market-

regulation/overview/files/confidentialitypolicy.pdf.

—————————————————————————

2. The Costs and Benefits of Regulations Implementing the Conflicts of

Interest Core Principles

As Section II herein mentions, a DCO may face conflicts of interest

resulting from control by enumerated entities. Such conflicts may have

detrimental effects on the public because they may impede the mandatory

clearing of swaps.75 Also, such conflicts may evidence less sound

risk management practices, as such conflicts may cause a DCO to make

decisions regarding, e.g., membership, based on the commercial

interests of certain clearing members, rather than on objective risk

criteria. Further, such conflicts may also have detrimental effects on

market participants, as well as on efficiency and competition, because

such conflicts may result in non-risk-based constraints on the number

of futures commission merchants available to clear swaps, which may

increase the price that certain market participants must bear in order

to obtain clearing. Finally, such conflicts may have detrimental

effects on price discovery because, by impeding the mandatory clearing

of swaps, they may also impede the trading of swaps on a SEF or DCM.

—————————————————————————

75 The Conflicts of Interest NPRM states: “The framers of the

Dodd-Frank Act observe that the clearing of swap contracts

constitutes a key means for managing systemic risk, because clearing

removes the type of interconnectedness between financial

institutions that contributed to the financial crisis resulting from

the failure and bankruptcy of firms such as Bear Stearns, Lehman

Brothers, and AIG.” 75 FR at 63736.

—————————————————————————

Section II also states that sustained competition between DCMs or

SEFs may exacerbate certain structural conflicts of interest. Such

structural conflicts may lead a DCM or SEF to prioritize commercial

interests over self-regulatory responsibilities, including restricting

access or imposing burdens on access in a discriminatory manner. Such

structural conflicts may have a detrimental effect on price discovery,

as prices are best discovered in a market with broad participation.

Broad participation generally results in higher liquidity. Because of

its effect on price discovery, such structural conflicts may also have

a detrimental effect on market participants, and ultimately, the

public. Certain market participants may face higher fees to access a

DCM or SEF. Others may not be able to access a DCM or SEF at all. To

the extent that such market participants are executing transactions to

hedge price risk (whether their own or those of end-users), increased

costs associated with a hedge (or the inability to execute a hedge) may

be passed on to consumers. Finally, such structural conflicts may have

a detrimental effect on efficiency and competition, as certain market

participants may be precluded from competing to execute at a lower

price for end-users.

As mentioned above, the Governance NPRM proposes substantive

requirements that, together with the proposals in the Conflicts of

Interest NPRM (i.e., structural governance requirements and limitations

on ownership of voting equity and the exercise of voting rights),

mitigate the conflicts of interest described in Section II, and

therefore, the detrimental effects resulting from such conflicts. The

Commission believes that the benefits of such mitigation exceed the

costs for DCOs, DCMs, and SEFs to implement the Governance NPRM. The

Commission welcomes comment on its determination.

3. Regulations Implementing DCM and DCO Core Principles

a. Governance Fitness.

As mentioned above, Sec. Sec. 38.801(d) and 39.24(b)(4) of the

Commission’s proposed regulations require each DCM and DCO,

respectively, to (i) specify and enforce fitness standards for

directors, members, and certain other persons, and (ii) provide to the

Commission information on an annual basis that supports compliance with

such standards. For DCMs, the proposed regulations are simply

codifications of current acceptable practices. Therefore, the proposed

regulations should impose minimal additional costs. For DCOs,

governance fitness standards are necessary to ensure sound risk

management practices, and therefore the protection of market

participants and the public. The proposed regulations should impose

minimal costs on DCOs.

Certain DCOs are divisions of DCMs, which means that they may

already apply current acceptable practices to

[[Page 733]]

their directors, members, and other persons. All DCOs are currently

subject to DCO Core Principle B,76 which requires each to have

“adequate * * * managerial resources to discharge the responsibilities

of a DCO.” Thus, the Commission preliminary believes that the benefits

of DCM and DCO governance fitness standards exceed the costs of such

standards. The Commission welcomes comment on its determination.

—————————————————————————

76 7 U.S.C. 7a-1(c)(B).

—————————————————————————

b. Composition of Governing Boards.

As mentioned above, Sec. 38.901(a) of the Commission’s proposed

regulations requires DCM governance arrangements to be designed to

permit consideration of the views of market participants.

Preliminarily, the Commission believes that such benefit exceeds any

costs associated with Sec. 38.901(c), which may be idiosyncratic to

each DCM. However, the Commission notes that it has specifically

requested comment on the costs and benefits of Sec. 38.901(c), as well

as any alternative thereto.

Core Principle Q requires each DCO to ensure that its governing

board or committee includes market participants. Section 39.26 of the

Commission’s proposed regulations requires each DCO Board of Directors

to include 10 percent representatives of customers. Preliminarily, the

Commission believes that the benefit of such customer representation

exceeds any cost associated with Sec. 39.26.77 However, the

Commission notes that it has specifically requested comment on the

costs and benefits of Sec. 39.26, as well as any alternative thereto.

—————————————————————————

77 For example, in addition to implementing DCO Core Principle

Q, certain comments on the Conflicts of Interest NPRM state that

customer representation on the DCO Board of Directors would be a

better method of ameliorating conflicts of interest under Section

726 of the Dodd-Frank Act. See note 63 supra. See generally, 75 FR

at 63746 (discussing the costs and benefits of the Conflicts of

Interest NPRM).

—————————————————————————

Alternatively, Sec. 39.13(g)(3)(i) of the Commission’s proposed

regulations requires each RMC (or RMC Subcommittee) to include 10

percent representatives of customers. As mentioned above, the Conflicts

of Interest NPRM had previously proposed such requirement. Therefore,

the costs and benefits of Sec. 39.13(g)(3)(i) have been addressed in

the Conflicts of Interest NPRM.78

—————————————————————————

78 See generally, 75 FR at 63746.

—————————————————————————

c. Regulation Implementing the DCM Core Principle on Diversity of

Certain Boards of Directors.

As mentioned above, DCM Core Principle 22, as added by Section

735(b) of the Dodd-Frank Act, provides that a DCM, if a publicly-traded

company, shall endeavor to recruit individuals to serve on its Board of

Directors and its other decision-making bodies (as determined by the

Commission) from among, and to have the composition of the bodies

reflect, a broad and culturally diverse pool of qualified candidates.

Section 38.1151(d) of the Commission’s proposed regulations affords

flexibility to each such DCM 79 to determine the standards by which a

Board of Directors may be deemed broadly and culturally diverse.

Further, such section requires the DCM to (i) make available to the

public and the Commission such standards, and (ii) certify to the

Commission on an annual basis whether and how its Board of Directors

has met certain standards. The benefit of cultural diversity on Boards

of Directors in enhancing the efficiency of organizations has been

recognized.80 Preliminarily, the Commission believes that the benefit

of Sec. 38.1151(d) exceeds its costs. The Commission welcomes comment

on its preliminary determination.

—————————————————————————

79 Currently, no such DCM exists.

80 For example, SEC Commissioner Luis Aguilar made the

following remarks at an SEC Open Meeting held on July 1, 2009:

Because of the importance of boards of directors, investors

increasingly care about how directors are appointed, and what their

background is. This is especially true as American businesses

increasingly compete in both a global environment, and in a domestic

marketplace that is, itself, increasingly diverse. In this ever more

challenging business environment, the ability to draw on a wide

range of viewpoints, backgrounds, skills, and experience is critical

to a company’s success.

It should be no surprise that studies indicate that diversity in

the boardroom can result in real value for companies–and for

shareholders. It also should be no surprise that many investors–

from individual investors to sophisticated institutions–have asked

the Commission to provide for disclosures about the diversity of

corporate boards and a company’s policies related to board

diversity.

Also, the SEC issued a rule on Proxy Disclosure Enhancements

which, among other things, requires public companies to disclose if

they have a formal policy to consider diversity with respect to

board nominees. See 74 FR 68334 (Dec. 16, 2009).

—————————————————————————

4. Conclusion

Accordingly, after considering the five factors specified in

Section 15(a) of the CEA, the Commission has determined to propose the

regulations set forth below. The Commission invites public comment on

its evaluation of the costs and benefits of all aspects of the

Governance NPRM.

List of Subjects

17 CFR Part 1

Brokers, Commodity futures, Consumer protection, Reporting and

recordkeeping requirements.

17 CFR Parts 37, 38 and 40

Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 39

Commodity futures, Consumer protection, Reporting and recordkeeping

requirements.

For the reasons stated in this release, the Commission proposes to

amend 17 CFR parts 1, 37, 38, 39, and 40 as follows:

PART 1–GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

1. The authority citation for part 1 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6h, 6i,

6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12c, 13a, 13a-1,

16, 16a, 19, 21, 23, and 24 as amended by Pub. L. 222-203, 124 Stat.

1376.

2. In Sec. 1.3, as proposed to be amended at 75 FR 63732, October

18, 2010, 75 FR 65586, October 26, 2010, 75 FR 77576, December 13,

2010, and 75 FR 80211, December 21, 2010, redesignate paragraphs (zz)

to (eee) as paragraphs (bbb) to (ggg), redesignate paragraphs (fff) to

(ggg) as (iii) to (jjj), add and reserve paragraph (zz), and add new

paragraphs (aaa) and (hhh) to read as follows:

* * * * *

(zz) [Reserved].

(aaa) Affiliate. The term “affiliate” means a person that

directly or indirectly through one or more intermediaries, controls, is

controlled by, or is under common control with, another person.

* * * * *

(hhh) Non-Public Information.

(1) This term means any information that a registered derivatives

clearing organization, a designated contract market, or a registered

swap execution facility owns or any information that such entity

otherwise deems confidential, such as intellectual property belonging

to:

(i) Such registered entity; or

(ii) A third party, which property such registered entity receives

on a confidential basis.

(2) Nothing in this paragraph shall preclude a registered entity

from adopting a definition of “non-public information” that is more

expansive than the definition in this paragraph.

* * * * *

PART 37–SWAP EXECUTION FACILITIES

3. The authority citation for part 37 continues to read as follows:

[[Page 734]]

Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a as

amended by Titles VII and VIII of Pub. L. 111-203, 124 Stat. 1376.

4. Section 37.19, as proposed at 75 FR 63747, October 18, 2010, is

redesignated as Sec. 37.1201 and amended by adding new paragraph

(b)(5), redesignating paragraph (d) as paragraph (e), adding new

paragraph (d), and revising newly designated paragraph (e)(1)

introductory text, to read as follows:

Sec. 37.19 Conflicts of Interest.

* * * * *

(b) * * *

(5) Annual Report. The Regulatory Oversight Committee shall prepare

an annual report assessing, for the Board of Directors and the

Commission, the regulatory program of the registered swap execution

facility. Such report shall:

(i) Describe the self-regulatory program;

(ii) Set forth the expenses of the regulatory program;

(iii) Describe the staffing and structure of the same;

(iv) Catalogue investigations and disciplinary actions taken during

the year; and

(v) Review the performance of disciplinary committees and panels,

as well as the performance of the Chief Compliance Officer (as

referenced in Section 5(f)(15) of the Act).

* * * * *

(d) Reporting to the Commission. In the event that the Board of

Directors of a registered swap execution facility rejects a

recommendation or supersedes an action of the Regulatory Oversight

Committee or the Membership or Participation Committee (or entity

performing the functions of such committee), the registered swap

execution facility shall submit a written report to the Commission

detailing:

(1) The recommendation or action of the Regulatory Oversight

Committee or the Membership or Participation Committee (or entity

performing the functions of such committee);

(2) The rationale for such recommendation or action;

(3) The rationale of the Board of Directors for rejecting such

recommendation or superseding such action; and

(4) The course of action that the Board of Directors decided to

take contrary to such recommendation or action.

(e) * * *

(1) Definitions. For purposes of this Sec. 37.1201(e):

* * * * *

PART 38–DESIGNATED CONTRACT MARKETS

5. The authority citation for part 38 continues to read as follows:

Authority: 7 U.S.C. 2, 4c, 6, 6a, 6d, 6e, 6f, 6g, 6i, 6j, 6k,

6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21 as amended by

Pub. L. 111-203, 124 Stat. 1376.

6. Add Sec. 38.801 to subpart P, as proposed at 75 FR 80612,

December 22, 2010, to read as follows:

Sec. 38.801 Governance Fitness Standards.

(a) General. The designated contract market shall establish and

enforce appropriate fitness standards for directors, members of any

disciplinary committee, members of the contract market, and any other

person with direct access to the facility (including any party

affiliated with any person described in this paragraph).

(b) Fitness Standards for Directors and Members of the Disciplinary

Panel and Disciplinary Committee. Each designated contract market must

specify and enforce fitness standards for directors, members of any

Disciplinary Panel (as defined in Sec. 1.3(bbb) of this chapter), and

members of the Disciplinary Committee (as defined in Sec. 1.63 of this

chapter). At a minimum, such standards shall include:

(1) Those bases for refusal to register a person under Section

8a(2) of the Act; and

(2) The absence of a significant history of serious disciplinary

offenses, such as those that would be disqualifying under Sec. 1.63 of

this chapter.

(c) Fitness Standards for Members, Persons with Direct Access, and

Certain Affiliates. Each designated contract market must specify and

enforce fitness standards for its members and affiliates thereof;

persons with direct access to the facility; natural persons who,

directly or indirectly, own greater than ten percent of any one class

of equity interest in a designated contract market; and parties

affiliated with the persons enumerated in paragraph (b) of this

section. At a minimum, such standards shall include those bases for

refusal to register a person under Section 8a(2) of the Act.

(d) Verification. Each designated contract market must collect and

verify information that supports compliance with the standards in

paragraphs (b) and (c) of this section and provide that information to

the Commission on an annual basis. Such information may take the form

of a certification based on verifiable information, an affidavit from

the general counsel of the designated contract market, registration

information, or other substantiating information.

(e) Jurisdiction. As a condition of access, members and non-member

market participants must agree to become subject to the jurisdiction of

the designated contract market.

7. In Sec. 38.851, as proposed at 75 FR 80612, December 22, 2010,

add new paragraph (b)(5) redesignate paragraph (d) as paragraph (e),

add new paragraph (d), and revise newly designated paragraph (e)(1)

introductory text, to read as follows:

Sec. 38.851 Conflicts of Interest.

* * * * *

(b) * * *

(5) Annual Report. The Regulatory Oversight Committee shall prepare

an annual report assessing, for the Board of Directors and the

Commission, the regulatory program of the designated contract market.

Such report shall:

(i) Describe the self-regulatory program;

(ii) Set forth the expenses of the regulatory program;

(iii) Describe the staffing and structure of the same;

(iv) Catalogue investigations and disciplinary actions taken during

the year; and

(v) Review the performance of disciplinary committees and panels.

* * * * *

(d) Reporting to the Commission. In the event that the Board of

Directors of a designated contract market rejects a recommendation or

supersedes an action of the Regulatory Oversight Committee or the

Membership or Participation Committee (or entity performing the

functions of such committee), the designated contract market shall

submit a written report to the Commission detailing:

(1) The recommendation or action of the Regulatory Oversight

Committee or the Membership or Participation Committee (or entity

performing the functions of such committee);

(2) The rationale for such recommendation or action;

(3) The rationale of the Board of Directors for rejecting such

recommendation or superseding such action; and

(4) The course of action that the Board of Directors decided to

take contrary to such recommendation or action.

(e) * * *

(1) Definitions. For purposes of this Sec. 38.851(e):

* * * * *

8. Add Sec. 38.901 to subpart R, as proposed at 75 FR 80612,

December 22, 2010, to read as follows:

[[Page 735]]

Sec. 38.901 Composition of governing boards of contract markets.

(a) General. The governance arrangements of each designated

contract market shall be designed to permit consideration of the views

of market participants.

(b) Notice. Each designated contract market shall design and

institute a process for considering the range of opinions that market

participants hold with respect to:

(1) The functioning of an existing market (including governance

arrangements) and

(2) New rules or rule amendments.

(c) Transparency. As part of its compliance with Sec. 40.9(d) of

this chapter, each designated contract market shall make available to

the public and to the relevant authorities, including the Commission, a

description of such process.

(1) Such description shall include, at a minimum:

(i) The manner in which the designated contract market obtains

opinions from market participants;

(ii) The manner in which the designated contract market considers

such opinions; and

(iii) A summary of the lines of responsibility and accountability

for considering such opinions, from the relevant operational unit to

the Board of Directors (and any committee thereof).

(2) Nothing in paragraph (c) of this section shall be construed to

constrain the Commission from requiring the designated contract market

to describe any other element of its process for obtaining a fair

understanding of the opinions of market participants.

9. Add Sec. 38.1151 to subpart W, as proposed at 75 FR 80612,

December 22, 2010, to read as follows:

Sec. 38.1151 Diversity of Board of Directors.

(a) General. A designated contract market, if publicly-listed on a

domestic exchange, shall endeavor to recruit individuals to serve on

its Board of Directors and its other decision-making bodies (as

determined by the Commission) from among, and to have the composition

of the bodies reflect, a broad and culturally diverse pool of qualified

candidates.

(b) Standards. Each such designated contract market shall

formulate, describe, and enforce the standards by which its Board of

Directors shall be deemed broadly and culturally diverse.

(c) Transparency. As part of its compliance with Sec. 40.9(d) of

this chapter, each such designated contract market shall make available

to the public and to the relevant authorities, including the

Commission, such standards.

(d) Annual Certification. (1) On an annual basis, each such

designated contract market shall certify to the Secretary of Commission

whether and how its Board of Directors has met such standards. If the

designated contract market determines that its Board of Directors has

failed to meet such standards, then the designated contract market must

describe the manner in which its Nominating Committee is endeavoring to

structure recruitment to meet such standards.

(2) Such certification shall be in the form of a letter or an

affidavit signed by the general counsel of the designated contract

market.

PART 39–DERIVATIVES CLEARING ORGANIZATIONS

10. Revise the authority citation for part 39 to read as follows:

Authority: 7 U.S.C. 2, 5, 6, 6d, 7a-1, 7a-2, and 7b as amended

by Pub. L. 111-123, 124 Stat. 1376.

11. Amend Sec. 39.13, as proposed at 75 FR 63750, October 18,

2010, by revising paragraph (g)(3)(i) to read as follows:

Sec. 39.13 Risk management.

* * * * *

(g) * * *

(3) * * *

(i) The Risk Management Committee shall be composed of at least

thirty-five percent Public Directors of a derivatives clearing

organization and at least ten percent representatives of customers. In

this context, a “customer” means any customer of a clearing member,

including, without limitation:

(A) Any “customer” or “commodity customer” within the meaning

of Sec. 1.3(k) of this chapter;

(B) Any “foreign futures or foreign options customer” within the

meaning of Sec. 30.1(c) of this chapter; and

(C) Any customer entering into a cleared swap (as defined in

Section 1a(7) of the Act).

* * * * *

12. Add Sec. 39.24 to read as follows:

Sec. 39.24 Governance Fitness Standards.

(a) Governance Arrangements.

(1) General.

(i) Each derivatives clearing organization shall establish

governance arrangements that are transparent:

(A) To fulfill public interest requirements; and

(B) To permit the consideration of the views of owners and

participants.

(ii) Each derivatives clearing organization shall establish

governance arrangements that are well-defined and include a clear

organizational structure with consistent lines of responsibility and

effective internal controls.

(2) Transparency. As part of its compliance with Sec. 40.9(d) of

this chapter, each derivatives clearing organization shall make

available to the public and to the relevant authorities, including the

Commission, a description of the manner in which its governance

arrangements permit the consideration of the views of its owners,

whether voting or non-voting, and its participants, including, without

limitation, clearing members and customers. Such description shall

include, at a minimum:

(i) The general method by which the derivatives clearing

organization learns of (A) the views of owners, other than through

their exercise of voting power, and (B) the views of participants,

other than through representation on the Board of Directors or any

committee of the derivatives clearing organization; and

(ii) The manner in which the derivatives clearing organization

considers such views.

(3) Construction. Nothing in paragraph (a)(2) of this section shall

be construed to constrain the Commission from requiring the derivatives

clearing organization to describe any other element of the manner in

which its governance arrangements permit the consideration of the views

of its owners and participants.

(b) Fitness Standards. (1) General. Each derivatives clearing

organization shall establish and enforce appropriate fitness standards

for directors, members of any disciplinary committee, members of the

derivatives clearing organization, any other individual or entity with

direct access to the settlement or clearing activities of the

derivatives clearing organization, and any party affiliated with any

individual or entity described in this paragraph.

(2) Fitness Standards for Directors and Members of the Disciplinary

Panel and Disciplinary Committee. Each derivatives clearing

organization must specify and enforce fitness standards for directors,

members of any Disciplinary Panel (as defined in Sec. 1.3(bbb) of this

chapter), and members of the Disciplinary Committee (as defined in

Sec. 1.63 of this chapter). At a minimum, such standards shall include

(i) those bases for refusal to register a person under Section 8a(2) of

the Act, and (ii) the absence of a significant history of serious

disciplinary offenses, such as those that would be disqualifying under

Sec. 1.63 of this chapter.

(3) Fitness Standards for Clearing Members, Persons with Direct

Access, and Certain Affiliates. Each derivatives clearing organization

must specify and enforce fitness standards for its clearing

[[Page 736]]

members and affiliates thereof; persons with direct access to its

settlement and clearing activities; natural persons who, directly or

indirectly, own greater than ten percent of any one class of equity

interest in the derivatives clearing organization; and parties

affiliated with the persons enumerated in paragraph (b)(2) of this

section. At a minimum, such standards shall include those bases for

refusal to register a person under Section 8a(2) of the Act.

(4) Verification. Each derivatives clearing organization must

collect and verify information that supports compliance with the

standards in paragraphs (b)(2) and (3) of this section, and provide

that information to the Commission on an annual basis. Such information

may take the form of a certification based on verifiable information,

an affidavit from the general counsel of the derivatives clearing

organization, registration information, or other substantiating

information.

(5) Jurisdiction. As a condition of access, clearing members and

other persons with direct access to the settlement and clearing

activities of a derivatives clearing organization must agree to become

subject to the jurisdiction of the derivatives clearing organization.

13. In Sec. 39.25, as proposed at 75 FR 63750, October 18, 2010,

redesignate paragraph (b) as paragraph (c), add new paragraph (b), and

revise newly designated paragraph (c)(1) introductory text to read as

follows:

Sec. 39.25 Conflicts of interest.

* * * * *

(b) Reporting to the Commission. In the event that:

(1) The Board of Directors of a derivatives clearing organization

rejects a recommendation or supersedes an action of the Risk Management

Committee, or

(2) The Risk Management Committee rejects a recommendation or

supersedes an action of its subcommittee (as described in Sec.

39.13(g)(5) of this part), the derivatives clearing organization shall

submit a written report to the Commission detailing:

(i) The recommendation or action of the Risk Management Committee

(or subcommittee thereof);

(ii) The rationale for such recommendation or action;

(iii) The rationale of the Board of Directors (or the Risk

Management Committee, if applicable) for rejecting such recommendation

or superseding such action; and

(iv) The course of action that the Board of Directors (or the Risk

Management Committee, if applicable) decided to take contrary to such

recommendation or action.

(c) * * *

(1) Definitions. For purposes of this Sec. 39.25(c):

* * * * *

14. Add Sec. 39.26 to read as follows:

Sec. 39.26 Composition of Governing Boards.

(a) General. (1) Each derivatives clearing organization shall

ensure that the composition of the governing board or committee of the

derivatives clearing organization includes market participants.

(2) Nothing in this section shall supersede any other section of

this part or any requirement applicable to a derivatives clearing

organization under Sec. 40.9 of this chapter.

(b) Composition Requirement. The Board of Directors of a

derivatives clearing organization shall be composed of at least ten

percent representatives of customers. In this context, a “customer”

means any customer of a clearing member, including, without limitation:

(1) Any “customer” or “commodity customer” within the meaning

of Sec. 1.3(k) of this chapter;

(2) Any “foreign futures or foreign options customer” within the

meaning of Sec. 30.1(c) of this chapter; or

(3) Any customer entering into a cleared swap (as defined in

Section 1a(7) of the Act).

PART 40–PROVISIONS COMMON TO REGISTERED ENTITIES

15. Revise the authority citation for part 40 to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8, and 12a, as amended

by Pub. L. 111-203, 124 Stat. 1376.

16. Revise the heading and add new paragraphs (b)(1)(iii), (d),

(e), and (f) to Sec. 40.9 as proposed at 75 FR 63751, October 18,

2010, to read as follows:

Sec. 40.9 Governance and conflicts of interest.

* * * * *

(b) * * *

(1) * * *

(iii) Each registered entity referenced in paragraph (b)(1)(i) of

the section must submit to the Commission, within thirty days after

each election of its Board of Directors:

(A) A list of all members of the Board of Directors, each committee

with a composition requirement (including any Executive Committee), and

each other committee that has the authority to amend or constrain

actions of the Board of Directors;

(B) A description of the relationship, if any, between such

directors and the registered entity or the members of the registered

entity (and, in each case, any affiliates thereof, as Sec. 1.3(aaa) of

defines such term); and

(C) The basis for any determination that a director qualifies as a

Public Director, and, for derivatives clearing organizations only, the

basis for any determination that a director qualifies as a

representative of customers; and

(D) A description of how the composition of the Board of Directors

and each of the committees allows the registered entity to comply with

applicable core principles, regulations, as well as the rules of the

registered entity.

* * * * *

(d) Transparency of Governance Arrangements. (1) Each registered

derivatives clearing organization, designated contract market, or

registered swap execution facility shall, at a minimum, make the

following information available to the public and relevant authorities,

including the Commission:

(i) The charter (or mission statement) of the registered entity;

(ii) The charter (or mission statement) of the registered entity’s

Board of Directors, each committee with a composition requirement

(including any Executive Committee), as well as each other committee

that has the authority to amend or constrain actions of the Board of

Directors;

(iii) The Board of Directors nomination process for the registered

entity, as well as the process for assigning members of the Board of

Directors or other persons to any committee referenced in paragraph

(d)(1)(ii) of this section;

(iv) For the Board of Directors and each committee referenced in

paragraph (d)(1)(ii) of this section, the names of all members;

(v) The identities of: all Public Directors; and with respect to a

registered derivatives clearing organization, all representatives of

customers;

(vi) The lines of responsibility and accountability for each

operational unit of the registered entity;

(vii) Summaries of significant decisions implicating the public

interest. Such significant decisions shall include:

(A) With respect to a designated contract market or a registered

swap execution facility, all decisions relating to access, membership,

and disciplinary procedures; and

(B) With respect to a derivatives clearing organization, all

decisions relating to open access (as described in

[[Page 737]]

Section 2(h)(1)(B) of the Act), membership (as described in Section

5(b)(c)(2)(C) of the Act), and the finding of products acceptable or

not acceptable for clearing. In describing such decisions, the

derivatives clearing organization shall specifically disclose whether:

(1) Its Board of Directors has rejected a recommendation or

superseded an action of the Risk Management Committee; or

(2) The Risk Management Committee has rejected a recommendation or

superseded an action of its subcommittee (as described in Sec.

39.13(g)(5) of this part).

(C) Nothing in the foregoing shall be construed as requiring a

designated contract market, a registered swap execution facility, or a

derivatives clearing organization to disclose any “non-public

information” (as Sec. 1.3(ggg) of this chapter defines such term),

including, without limitation, minutes from meetings of its Board of

Directors or committees and information that it may have received on a

confidential basis from an applicant for membership.

(2) The registered entity must ensure that the information

specified in paragraphs (d)(1)(i) to (vii) of this section is current,

accurate, clear, and readily accessible, for example, on its Web site.

The registered entity shall set forth such information in a language

commonly used in the commodity futures and swap markets and at least

one of the domestic language(s) of the jurisdiction in which the

registered entity is located.

(e) Regulatory Program. (1) As part of its regulatory program, each

registered derivatives clearing organization, designated contract

market, or registered swap execution facility must establish, maintain,

and enforce written procedures to:

(i) Identify, on an ongoing basis, existing and potential conflicts

of interest; and

(ii) Make fair and non-biased decisions in the event of a conflict

of interest. Such procedures shall include rules regarding the recusal,

in applicable circumstances, of parties involved in the making of

decisions. The Chief Compliance Officer of a registered derivatives

clearing organization or registered swap execution facility shall, in

consultation with the Board of Directors of the entity, an equivalent

body, or a senior officer of the entity, resolve any such conflicts of

interest.

(f) Limitations on Use or Disclosure of Non-Public Information. (1)

Each registered entity must establish and maintain written policies and

procedures on safeguarding non-public information gained through either

an ownership interest or through the performance of official duties

(including duties associated with self-regulatory or regulatory

purposes) by members of its Board of Directors, members of any

committee, or officers and other employees.

(2) Such policies and procedures shall comport, at a minimum, with

the following principles:

(i) No individual or entity described in paragraph (f)(1) of this

section shall use or disclose any non-public information, absent prior

written consent from the relevant registered entity. A registered

entity shall establish guidelines that specify the information that

must be included in the written consent.

(ii) No individual or entity described in paragraph (f)(1) of this

section shall, either during or after service with the relevant

registered entity:

(A) Use, directly or indirectly, information that the registered

entity deems to be non-public information; or

(B) Disclose non-public information to others, except:

(1) To others within the relevant registered entity or to outside

advisors thereof, provided that such advisors are subject to

confidentiality obligations, and that such disclosure is necessary for

the performance of official duties by the individual or entity;

(2) If required by regulatory authority; or

(3) If compelled to so by valid legal process, provided that the

individual or entity notifies the relevant registered entity.

Issued in Washington, DC, on December 9, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Note: The following appendices will not appear in the Code of

Federal Regulations.

Appendices to Governance Requirements for Derivatives Clearing

Organizations, Designated Contract Markets, and Swap Execution

Facilities; Additional Requirements Regarding the Mitigation of

Conflicts of Interest–Commission Voting Summary and Statements of

Commissioners

Appendix 1–Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Dunn,

Sommers, Chilton and O’Malia voted in the affirmative; no

Commissioners voted in the negative.

Appendix 2–Statement of Chairman Gary Gensler

I support the proposed rule on further governance and conflicts

of interest requirements for derivatives clearing organizations

(DCOs), designated contract markets (DCMs) and swap execution

facilities (SEFs). The proposed rule complements the conflicts of

interest provisions that the Commission proposed on October 1st by

keeping regulators up to date about the composition of boards, board

committees and ownership, promoting transparency in decision-making

and ensuring limitations on use or disclosure of non-public

information. The proposed rule also provides guidance to industry

and the public on appropriate minimum governance fitness standards

for DCOs and DCMs, as well as the manner in which market

participants must be heard or included in DCO or DCM governance

arrangements. The proposed rule would enhance the integrity of

clearing and trading and would increase public trust in the

facilities on which such important activities occur.

[FR Doc. 2010-31898 Filed 1-5-11; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: January 6, 2011