2010-31131 | CFTC | Liberte News

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[Federal Register: December 15, 2010 (Volume 75, Number 240)]

[Proposed Rules]

[Page 78185-78197]

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

[DOCID:fr15de10-18]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 21, and 39

RIN 3038-AC98

Information Management Requirements for Derivatives Clearing

Organizations

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

———————————————————————–

SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

is proposing regulations to implement certain core principles for

derivatives clearing organizations (DCOs) as amended by Title VII of

the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-

Frank Act). The proposed regulations would establish standards for

compliance with DCO Core Principles J (Reporting), K (Recordkeeping), L

(Public Information), and M (Information Sharing). Additionally, the

Commission is proposing technical amendments to parts 1 and 21 in

connection with the proposed regulations. Finally, the Commission also

is proposing to delegate to the Director of the Division of Clearing

and Intermediary Oversight the Commission’s authority to perform

certain functions in connection with the proposed regulations.

DATES: Submit comments on or before February 14, 2011.

ADDRESSES: You may submit comments, identified by RIN number 3038-AC98,

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.

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. 145.9.1

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1 Commission regulations referred to herein are found at 17

CFR Ch. 1 (2010). They are accessible on the Commission’s Web site

at http://www.cftc.gov.

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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: Phyllis P. Dietz, Associate Director,

202-418-5449, [email protected], or Jacob Preiserowicz, Attorney-Advisor,

202-418-5432, [email protected], Division of Clearing and

Intermediary Oversight, Commodity Futures Trading Commission, Three

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

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

II. Proposed Regulations

A. Reporting Requirements

1. Information Required on a Daily Basis

2. Information Required on a Quarterly Basis

3. Information Required on an Annual Basis

4. Event-Specific Reporting

(a) Decrease in Financial Resources

[[Page 78186]]

(b) Decrease in Ownership Equity

(d) Change in Working Capital

(e) Intraday Initial Margin Call

(f) Delay in Collection of Initial Margin

(g) Management of Clearing Member Positions

(h) Change in Ownership or Corporate or Organizational Structure

(i) Change in Key Personnel

(j) Credit Facility Funding Arrangement Change

(k) Rule Enforcement

(l) Financial Condition and Events

5. Technical Amendments

B. Recordkeeping Requirements

C. Public Information

1. Availability of Information

2. Public Disclosure

D. Information Sharing

III. Effective Date

IV. Related Matters

A. Regulatory Flexibility Act

B. Paperwork Reduction Act

1. Information Provided by Reporting Entities/Persons

2. Information Collection Comments

C. Cost-Benefit Analysis

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 to

reduce risk, increase transparency, and promote market integrity within

the financial system by, among other things: (1) Providing for the

registration and comprehensive regulation of swap dealers and major

swap participants; (2) imposing clearing and trade execution

requirements on standardized derivative products; (3) creating rigorous

recordkeeping and real-time reporting regimes; and (4) enhancing the

Commission’s rulemaking and enforcement authorities with respect to all

registered entities and intermediaries subject to the Commission’s

oversight.

—————————————————————————

2 See Dodd-Frank Wall Street Reform and Consumer Protection

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.

—————————————————————————

Section 725(c) of the Dodd-Frank Act amended Section 5b(c)(2) of

the CEA, which sets forth core principles with which a DCO must comply

to be registered and to maintain registration as a DCO. The core

principles were added to the CEA by the Commodity Futures Modernization

Act of 2000 (CFMA).5 The Commission did not adopt implementing rules

and regulations, but instead promulgated guidance for DCOs on

compliance with the core principles.6 Under Section 5b(c)(2), as

amended by the Dodd-Frank Act, Congress expressly confirmed that the

Commission may adopt implementing rules and regulations pursuant to its

rulemaking authority under Section 8a(5) of the CEA.7 This rulemaking

is one of a series that will, in its entirety, propose regulations to

implement all 18 DCO core principles.8

—————————————————————————

5 See Commodity Futures Modernization Act of 2000, Public Law

106-554, 114 Stat. 2763 (2000).

6 See 17 CFR part 39, app. A.

7 See 7 U.S.C. 7a-1(c)(2). Section 8a(5) of the CEA authorizes

the Commission to promulgate such 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].” 7

U.S.C. 12a(5).

8 See 75 FR 63732 (Oct. 18, 2010) (proposing regulations to

implement Core Principle P (Conflicts of Interest); and 75 FR 63113

(Oct. 14, 2010) (proposing regulations to implement Core Principle B

(Financial Resources)). Concurrent with issuing this notice, the

Commission also is proposing regulations to implement Core

Principles A (Compliance), H (Rule Enforcement), N (Antitrust

Considerations), and R (Legal Risk). The Commission expects to issue

two additional notices of proposed rulemaking to implement DCO core

principles.

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The Commission continues to believe that, where possible, each DCO

should be afforded an appropriate level of discretion in determining

how to operate its business within the statutory framework. At the same

time, the Commission recognizes that specific bright-line regulations

may be necessary in order to facilitate DCO compliance with a given

core principle, and ultimately, to protect the integrity of the U.S.

clearing system. Accordingly, in developing the proposed regulations,

the Commission has endeavored to strike an appropriate balance between

establishing general prudential standards and prescriptive

requirements.

Core Principle J, Reporting, as amended by the Dodd-Frank Act,

requires a DCO to provide the Commission with all information that the

Commission determines to be necessary to conduct oversight of the

DCO.9 The Commission is proposing to adopt Sec. 39.19 to establish

requirements that a DCO will have to meet in order to comply with Core

Principle J.

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9 See Section 5b(c)(2)(J) of the CEA; 7 U.S.C. 7a-1(c)(2)(J).

Prior to amendment by the Dodd-Frank Act, Core Principle J provided

that “The [DCO] applicant shall provide to the Commission all

information necessary for the Commission to conduct the oversight

function of the applicant with respect to the activities of the

[DCO].”

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Core Principle K, Recordkeeping, as amended by the Dodd-Frank Act,

requires a DCO to maintain records of all activities related to the

business of the DCO as a DCO, in a form and manner that is acceptable

to the Commission and for a period of not less than 5 years.10 The

Commission is proposing to adopt Sec. 39.20 to establish requirements

that a DCO will have to meet in order to comply with Core Principle K.

—————————————————————————

10 See Section 5b(c)(2)(K) of the CEA; 7 U.S.C. 7a-1(c)(2)(K).

Prior to amendment by the Dodd-Frank Act, Core Principle K provided

that “The [DCO] applicant shall maintain records of all activities

related to the business of the applicant as a [DCO] in a form and

manner acceptable to the Commission for a period of 5 years.”

—————————————————————————

Core Principle L, Public Information, as amended by the Dodd-Frank

Act, requires a DCO to provide market participants sufficient

information to enable the market participants to identify and evaluate

accurately the risks and costs associated with using the DCO’s

services.11 A DCO is, more specifically, required to make available

to market participants information concerning the rules and operating

and default procedures governing its clearing and settlement systems

and also disclose publicly and to the Commission the terms and

conditions of each contract, agreement, and transaction cleared and

settled by the DCO, each clearing and other fee charged to members,12

the DCO’s margin-setting methodology, daily settlement prices, and

other matters relevant to participation in the DCO’s clearing and

settlement activities.13 The Commission is proposing to adopt Sec.

39.21 to establish requirements that a DCO will have to meet in order

to comply with Core Principle L.

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11 See Section 5b(c)(2)(L) of the CEA; 7 U.S.C. 7a-1(c)(2)(L).

12 The statutory language refers to fees charged to “members

and participants,” and the Commission interprets this phrase to

mean fees charged to “clearing members,” a term which it proposes

to define as “any person that has clearing privileges such that it

can process, clear and settle trades through a derivatives clearing

organization on behalf of itself or others. The derivatives clearing

organization need not be organized as a membership organization.”

The Commission is proposing to amend the definition of “clearing

member” in Sec. 1.3(c) of its regulations, as part of a separate

proposed rulemaking.

13 This core principle has been expanded greatly. Prior to

amendment by the Dodd-Frank Act, Core Principle L provided that

“The [DCO] applicant shall make information concerning the rules

and operating procedures governing the clearing and settlement

systems (including default procedures) available to market

participants.”

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Core Principle M, Information Sharing, as amended by the Dodd-Frank

Act, requires a DCO to enter into and abide by terms of each

appropriate and applicable domestic and international information-

sharing agreement and use relevant information obtained under such

agreements in carrying out its risk management program.14 The

[[Page 78187]]

Commission is proposing to adopt Sec. 39.22 to codify the statutory

requirement.

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14 See Section 5b(c)(2)(M) of the CEA, 7 U.S.C. 7a-1(c)(2)(M).

The Dodd-Frank Act made minor changes in the language of Core

Principle M, but did not make any substantive changes.

—————————————————————————

Section 805(a) of the Dodd-Frank Act allows the Commission to

prescribe regulations for those DCOs that the Financial Stability

Oversight Council has determined are systemically important financial

market utilities.15 The Commission is not proposing to adopt

additional or enhanced requirements for systemically important DCOs

(SIDCOs) in connection with the proposed rules to implement Core

Principles J, K, L and M. This is based on the Commission’s view that

rigorous information management requirements should apply equally to

all DCOs, regardless of their size or systemic importance.

—————————————————————————

15 Section 804 of the Dodd-Frank Act authorizes the Financial

Stability Oversight Council to designate financial market utilities

involved in clearing and settlement as “systemically important.”

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The Commission requests comment on all aspects of the proposed

rules, as well as comment on the specific provisions and issues

highlighted in the discussion below.

II. Proposed Regulations

A. Reporting Requirements

Proposed Sec. 39.19 would require certain reports to be made by

the DCO to the Commission: (1) On a periodic basis (daily, quarterly or

annually), (2) where the reporting requirement is triggered by the

occurrence of a significant event; and (3) upon request by the

Commission.16 Unless otherwise specified by the Commission or its

designee, each DCO would have to submit the information required by

this section to the Commission electronically and in a form and manner

prescribed by the Commission.

—————————————————————————

16 Requirements that certain information be submitted upon

request of the Commission are currently found in the Commission’s

regulations as paragraphs (a) and (b) of Sec. 39.5. 17 CFR 39.5.

See infra discussion of technical amendments regarding Sec. Sec.

39.5(a) and 39.5(b) at Section II.A.5. of this notice.

—————————————————————————

The Commission has determined that the information required by

proposed Sec. 39.19 would enable it to conduct more effective and more

streamlined financial oversight of a DCO. In this regard, obtaining the

required data would enhance the Commission’s ability to conduct a more

in-depth and timely analysis of a DCO’s activities, thereby enabling

the Commission to identify insipient problems and address them at an

earlier stage. This is particularly important in connection with a DCO

that clears swaps, in light of the increased risk that swaps may pose

to DCOs.17

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17 The Commission notes that DCOs may be subject to additional

reporting requirements that are not covered by Core Principle J and

therefore are not addressed in proposed Sec. 39.19, e.g.,

requirements for reporting to a swap data repository under proposed

part 45 of the Commission’s regulations.

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Unless otherwise specified by the Commission or its designee, any

stated time in these proposed regulations would be Central time for

information concerning DCOs located in that time zone, and Eastern time

for information concerning all other DCOs (including clearing

organizations registered as DCOs but located outside the United

States).18

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18 See proposed Sec. 39.19(b)(2).

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1. Information Required on a Daily Basis

Currently, the Commission receives initial margin data from

several, but not all DCOs and not necessarily on a daily basis. The

Commission receives variation margin data through the Shared Market

Information System (SHAMIS), which is maintained by The Clearing

Corporation, a subsidiary of IntercontinentalExchange, Inc. However,

the Commission has found it difficult to obtain a complete data set

from SHAMIS on a regular basis and in the necessary format. Moreover,

not all DCOs participate in SHAMIS. The Commission is therefore

proposing regulations that would require reporting by all DCOs on a

daily basis. By requiring both sets of data as well as intraday initial

margin calls 19 to be reported directly to the Commission, the

Commission would be better positioned to conduct risk surveillance

activities efficiently, to monitor the financial health of the DCO, and

to detect any unusual activity in a timely manner.

—————————————————————————

19 See infra discussion of proposed Regulation 39.19(c)(4)(v)

which would require intraday reporting of initial margin calls at

Section II.A.4.(e) of this notice.

—————————————————————————

Proposed Sec. 39.19(c)(1)(i) would require a DCO to report both

the initial margin requirement for each clearing member, by customer

origin and house origin,20 and the initial margin on deposit for each

clearing member, by origin. Proposed Sec. 39.19(c)(1)(ii) would

require a DCO to report the daily variation margin collected and paid

by the DCO. The report would separately list the mark-to-market amount

collected from or paid to each clearing member, by origin.21

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20 In a separate rulemaking, the Commission is proposing to

define the terms “customer account or customer origin” and “house

account or house origin” in proposed Sec. 39.1(b). “Customer

account or customer origin” would be defined as a clearing member’s

account held on behalf of customers, as defined in Sec. 1.3(k) of

the Commission’s regulations, and would clarify that a customer

account is also a futures account, as that term is defined by Sec.

1.3(vv). “House account or house origin” would be defined as a

clearing member’s combined proprietary accounts, as defined in Sec.

1.3(y).

21 This requirement would apply to options transactions only

to the extent a DCO uses futures-style margining for options.

—————————————————————————

Proposed Sec. 39.19(c)(1)(iii) would require the DCO to report all

other cash flows relating to clearing and settlement including, but not

limited to, option premiums and payments related to swaps such as

coupon amounts, collected from or paid to each clearing member, by

origin. This data, supplementing the initial margin and variation

margin data, would provide the Commission with a more complete picture

of the financial risk profile of the DCO and its clearing members.

Proposed Sec. 39.19(c)(1)(iv) would require a DCO to report the

end-of-day positions for each clearing member, by origin. Although the

Commission currently receives large trader reports that are essential

to an understanding of significant financial risk exposures, receipt of

the proposed reports directly from the DCO would facilitate the ability

of the Commission to evaluate the risk of each DCO as well as the

aggregate financial risk across all DCOs.

Proposed Sec. 39.19(c)(1) would require the report to be compiled

as of the end of each trading day and to be submitted to the Commission

by 10 a.m. the following business day. Although the proposed daily

reporting requirements would be new, the Commission notes that in the

ordinary course of a DCO conducting its clearing and settlement

business, the information required to be reported is already known or

is readily ascertainable by a DCO.

2. Information Required on a Quarterly Basis

The Commission recently proposed a new Sec. 39.11(f)(1) under

which, at the end of each fiscal quarter, or at any time upon

Commission request, a DCO would be required to report to the

Commission: (i) The amount of financial resources necessary to meet the

requirements set forth in the regulation; and (ii) the value of each

financial resource available to meet those requirements.22 The DCO

would have to include with the report its financial statements,

including the balance sheet, income statement, and statement of cash

flows of the DCO or its parent company. If one of the financial

resources a DCO is using to meet the regulation’s requirements is a

guaranty fund, the DCO would also have to report the value

[[Page 78188]]

of each individual clearing member’s guaranty fund deposit. Proposed

Sec. 39.11(f)(3) would require a DCO to provide the Commission with

sufficient documentation that explains both the methodology it used to

calculate its financial requirements and the basis for its

determinations regarding valuation and liquidity. The DCO also would

have to provide copies of any agreements establishing or amending a

credit facility, insurance coverage, or other arrangement that

evidences or otherwise supports its conclusions.

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22 See 75 FR 63113 (Oct. 14, 2010) (proposing DCO financial

resources requirements pursuant to Core Principle B).

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By this notice, the Commission is proposing a new Sec. 39.19(c)(2)

under which a DCO would be required to report its financial resources

in accordance with proposed Sec. 39.11(f). The Commission notes that

certain significant changes in financial resources would trigger

additional reporting requirements under proposed Sec.

39.19(c)(4)(i).23

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23 See infra discussion of proposed Sec. 39.19(c)(4)(i) at

Section II.A.4.(a) of this notice.

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3. Information Required on an Annual Basis

Proposed Sec. 39.19(c)(3)(i) would require a DCO’s chief

compliance officer to submit the annual compliance report required by

Section 725(b) of the Dodd-Frank Act 24 and proposed Sec. 39.10.25

The form and content of the annual compliance report would be codified

in proposed Sec. 39.10.

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24 Section 5b(i) of the CEA, 7 U.S.C. 7a-1(i).

25 Section 39.10 is being proposed in a separate notice of

proposed rulemaking.

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Proposed Sec. 39.19(c)(3)(ii) would require a DCO to provide the

Commission with audited year-end financial statements of the DCO, or if

there are no financial statements available for the DCO itself, the

consolidated audited year-end financial statements of the DCO’s parent

company.

Proposed Sec. 39.19(c)(3)(iii) would require a DCO to submit to

the Commission concurrently, the annual compliance report and audited

financial statements required by (c)(3)(i) and (ii), respectively, not

later than 90 days after the end of the DCO’s fiscal year. The DCO

would be able to request from the Commission an extension of time to

submit either report, provided the DCO’s failure to submit the report

in a timely manner could not be avoided without unreasonable effort or

expense. Extensions of the deadline would be granted at the discretion

of the Commission.

4. Event-Specific Reporting

(a) Decrease in Financial Resources

Proposed Sec. 39.19(c)(4)(i) would alert the Commission in a

timely manner of a significant decrease in the value of a DCO’s

financial resources and the reason for the decrease, e.g., whether such

a decrease is an indicator of inadequate financial resources or if it

is merely the result of a corresponding decrease in the margin

requirements of the DCO. A DCO would be required to report certain

decreases of the financial resources required to be maintained by

proposed Sec. 39.11(a) or, as applicable if the DCO is a SIDCO,

proposed Sec. 39.29(a): 26 (1) A 10 percent decrease from the total

value of the financial resources reported on the last quarterly report

submitted under proposed Sec. 39.11(f); or (2) a 10 percent decrease

from the total value of the financial resources as of the close of the

previous business day. Reporting a decrease from the last quarterly

report is intended to capture a situation where a DCO has a gradual

decrease of financial resources. Reporting a decrease from the previous

business day is intended to capture a situation where the DCO would

experience a sudden decrease in financial resources over a short period

of time. Although in such a situation the DCO may still have financial

resources on hand that are greater in value than what was reported on

the most recent quarterly report, the Commission believes that such a

rapid drop in the value of a DCO’s financial resources is a situation

that warrants notice to the Commission. The Commission invites comment

on possible alternatives regarding what would be considered a

significant drop in the value of financial resources and whether there

should be alternative reporting requirements.

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26 Proposed Sec. 39.11(a) would require a DCO to maintain

sufficient financial resources to: (1) Meet its financial

obligations to its clearing members notwithstanding a default by the

clearing member creating the largest financial exposure for the DCO

in extreme but plausible market conditions, and (2) cover its

operating costs for at least one year, calculated on a rolling

basis. Proposed Sec. 39.29(a) would establish a different default

resources standard for SIDCOs, requiring a SIDCO to maintain

sufficient financial resources to meet its financial obligations to

its clearing members notwithstanding a default by the two clearing

members creating the largest combined financial exposure for the

SIDCO in extreme but plausible market conditions. See 75 FR at

63118-19.

—————————————————————————

The DCO would be required to report each such decrease to the

Commission no later than one business day following the day the 10

percent threshold was reached. The report would have to include the

total value of the financial resources: (1) As of the close of business

the day the 10 percent threshold was reached; and (2) if reporting a 10

percent decrease from the previous business day, the total value of the

financial resources immediately prior to the 10 percent drop. This

would include a breakdown of the value of each financial resource

available as reported in each (1) and (2) above, calculated in

accordance with the requirements of proposed Sec. 39.11(d) or, as

applicable if the DCO is a SIDCO, Sec. 39.29(b),27 including the

value of each individual clearing member’s guaranty fund deposit, if

the DCO reports guaranty fund deposits as a financial resource. The

report would also include a detailed explanation for the decrease.

—————————————————————————

27 Proposed Sec. 39.11(d)(2) and Sec. 39.29(b) address

valuation of clearing member assessments for purposes of calculating

default resources. See 75 FR at 63119-20.

—————————————————————————

(b) Decrease in Ownership Equity

Proposed Sec. 39.19(c)(4)(ii) would require a DCO to notify the

Commission of an event which the DCO knows or should reasonably know

will cause a decrease of 20 percent in ownership equity from the last

reported ownership equity balance. This notice would be required to be

provided no later than two business days prior to the event. The last

reported ownership equity balance would generally be on the quarterly

or audited financial statements that would be required to be submitted

by proposed Sec. 39.19(c)(2) 28 or proposed Sec.

39.19(c)(3)(ii),29 respectively. For events which the DCO did not

know, and reasonably could not know, would cause a decrease of 20

percent prior to the event occurring, the DCO would be able to report

the triggering event no later than two business days after the decrease

in ownership equity. Reports submitted prior to an event would have to

include pro forma financial statements, reflecting the DCO’s estimated

future financial condition following the anticipated decrease and

details describing the reason for the anticipated decrease. Reports

submitted after the event would have to include current financial

statements and details describing the reason for the decrease.

—————————————————————————

28 See supra discussion of proposed Sec. 39.19(c)(2) at

Section II.A.2. of this notice.

29 See supra discussion of proposed Sec. 39.19(c)(3)(ii) at

Section II.A.3. of this notice.

—————————————————————————

Proposed Sec. 39.19(c)(4)(ii) is intended to alert the Commission

of major planned events that would significantly affect ownership

equity, most of which are events the DCO would have advance knowledge

of, such as a reinvestment of capital, dividend payment, or major

acquisition. The report would notify the Commission of such an event

and would allow the Commission to

[[Page 78189]]

evaluate its effect on the financial health of the DCO. The Commission

invites commenters to propose alternative reporting requirements which

would also provide the Commission with this type of information.

The Commission recently proposed a new Sec. 39.11(e)(2) which

would establish a six-month liquid asset requirement. It would require

DCOs to maintain unencumbered liquid financial assets in the form of

cash or highly liquid securities equal to six months operating

costs.30 In this notice, the Commission is proposing a new Sec.

39.19(c)(4)(iii) that would require immediate notice to the Commission

when a DCO knows or reasonably should know of a deficit in the six-

month liquid asset requirement of proposed Sec. 39.11(e)(2). The

Commission believes that immediate notification of a DCO’s deficit in

the six-month liquid asset requirement is critical because of its

potential impact on the ability of the DCO to continue to operate as a

going concern.

—————————————————————————

30 See 75 FR at 63116.

—————————————————————————

(d) Change in Working Capital

Proposed Sec. 39.19(c)(4)(iv) would require notice to the

Commission no later than two business days after a DCO’s working

capital becomes negative. Working capital is defined as current assets

minus current liabilities. The notice would include a balance sheet

that reflects the DCO’s working capital and an explanation as to the

reason for the negative balance. The Commission believes that it is

essential that it be made aware, in a timely manner, when a DCO has

negative working capital, as this development can be an indicator of

the declining financial health of a DCO.

The Commission invites comment as to whether this is a meaningful

indicator of a DCO’s financial condition, if there are alternative or

additional measures that might be applied, and if the timing for

notification is appropriate given the information to be provided.

(e) Intraday Initial Margin Calls to Clearing Members

Proposed Sec. 39.19(c)(4)(v) would require a DCO to report any

intraday initial margin calls to clearing members. While proposed Sec.

39.19(c)(1), discussed above, would provide the Commission with initial

margin and daily variation margin data, the Commission would not

receive that data until the following business day. Learning of an

intraday initial margin call soon after the call would assist the

Commission in determining whether certain clearing member positions

could affect the ability of a DCO to meet its end-of-day financial

obligations in a timely manner. This data would alert the Commission to

positions that could pose greater risk. This is especially important

given that intraday initial margin calls are unusual and are often due

to increasing position size. The Commission invites commenters to

recommend other possible reporting solutions that could serve to inform

the Commission of a clearing member that is potentially building up

position size during the current trading day.

The report would have to be submitted no later than 1 hour

following the margin call and would have to separately list each

request and include the name of the clearing member, the amount

requested and the account origin.

The Commission notes that while this may impose an occasional

reporting requirement on DCOs, many DCOs already have such reports

generated for submission to a clearing member’s depository as a request

for intraday funds. The primary burden would be arranging a mechanism

that would allow submission of these reports to the Commission in a

timely manner. Thus, the Commission believes that it would be a de

minimis burden.

(f) Delay in Collection of Initial Margin

Proposed Sec. 39.19(c)(4)(vi) would require the DCO to immediately

notify the Commission when it has not received additional initial

margin that it requested from a clearing member, in a timely manner.

The proposed reporting requirement is intended to alert the Commission

of a development that could be an indicator of a potential clearing

member default. Payment of additional initial margin would be

considered late if the DCO has not received payment within the time

frame allowed by the DCO’s rules and procedures.31 The Commission

invites comment on this reporting requirement and the time frame used

in determining when a payment is not considered timely.

—————————————————————————

31 The DCO’s rules and procedures are required to be submitted

to the Commission under Section 5c(c) of the CEA, 7 U.S.C. 7a-2(c),

and Sec. 40.6. Such information is required to be made available to

clearing members and the public under Core Principle L and proposed

Sec. 39.21. See infra Section II.C. of this notice.

—————————————————————————

(g) Management of Clearing Member Positions

Proposed Sec. Sec. 39.19(c)(4)(vii)-(ix) would require a DCO to

apprise the Commission of different levels of financial distress of a

clearing member, and the status of the DCO’s actions to manage the

risks associated with the clearing member’s financial situation. The

DCO would be required to report situations where a clearing member’s

position(s) must be reduced, transferred or liquidated, or where the

clearing member defaults.

Proposed Sec. 39.19(c)(4)(vii) would require a DCO to immediately

notify the Commission of the DCO’s request to a clearing member to

reduce its positions because the DCO has determined that the clearing

member has exceeded its exposure limit, that the clearing member has

failed to meet an initial or variation margin call, or that it has

failed to fulfill any other financial obligation to the DCO. The notice

would have to include: (A) The name of the clearing member; (B) the

time the clearing member was contacted; (C) the number of positions by

which the DCO requested the clearing member to reduce its position

size; (D) the contracts that are the subject of the request; and (E)

the reason for the request.

Proposed Sec. 39.19(c)(4)(viii) would require a DCO to immediately

notify the Commission of the DCO’s determination that any position the

DCO carries for one of its clearing members must be liquidated

immediately or transferred immediately, or that the trading of any

account of a clearing member can be only for the purposes of

liquidation because that clearing member has failed to meet an initial

or variation margin call or failed to fulfill any other financial

obligation to the DCO. The notice would have to include: (A) The name

of the clearing member; (B) the time the clearing member was contacted;

of positions that are subject to the determination; and (E) the reason

for the determination.

The provisions of proposed Sec. 39.19(c)(4)(viii) are

substantially similar to the requirements of Sec. 1.12(f)(1) of the

Commission’s regulations. Accordingly, the Commission is proposing to

remove Sec. 1.12(f)(1) and redesignate it as proposed Sec.

39.19(c)(4)(viii) in substantially the same form. The difference would

be that while Sec. 1.12(f)(1) applies only to a DCO’s determination

concerning a clearing member that is a registered futures commission

merchant (FCM) or registered leverage transaction merchant, proposed

Sec. 39.19(c)(4)(viii) would apply to all DCO clearing members, even

those that are not registrants.

[[Page 78190]]

Proposed Sec. 39.19(c)(4)(ix) would require a DCO to immediately

notify the Commission of the default of a clearing member. An event of

default would be determined in accordance with the rules of the DCO.

The notice of default would have to include: (A) The name of the

clearing member; (B) the contracts the clearing member defaulted upon;

the amount of the unmet financial obligation.

(h) Change in Ownership or Corporate or Organizational Structure

Proposed Sec. 39.19(c)(4)(x) is intended to provide advance notice

to the Commission of major ownership, corporate, or organizational

changes of a DCO. The DCO would be required to report any anticipated

ownership, corporate, or organizational changes of the DCO or its

parent company that would: (i) Result in at least a 10 percent change

of ownership of the DCO; (ii) create a new subsidiary of the DCO or the

parent company; (iii) eliminate a current subsidiary of the DCO or its

parent company; or (iv) result in a transfer of all or substantially

all of its assets, including its registration as a DCO, to another

legal entity (e.g., as a result of a reincorporation, or corporate

merger). Such changes could include, but would not be limited to, the

DCO’s change of corporate structure from a partnership to a

corporation, or from a member owned company to a publicly held company,

or a change in corporate domicile. The report would include: (1) A

chart outlining the new ownership or corporate or organizational

structure, (2) a brief description of the purpose and impact of the

change; and (3) any relevant agreements effecting the change and

corporate documents such as new articles of incorporation and bylaws.

With respect to a corporate change that results in a transfer of all or

substantially all of a DCO’s assets, the informational requirements of

proposed Sec. 39.19(c)(4)(x)(B) would be satisfied by the DCO’s

compliance with proposed Sec. 39.3(h)(3).32

—————————————————————————

32 In a separate proposed rulemaking, the Commission is

proposing procedures for the transfer of a DCO’s registration and

open interest under proposed Sec. 39.3(h).

—————————————————————————

Because a DCO is likely to be aware of such changes well in advance

of their effective date, the proposed regulation would require the

report to be submitted to the Commission no later than three months

prior to the anticipated change. The Commission is allowing an

exception to the three-month prior notice requirement if the DCO does

not know and reasonably could not have known of the anticipated change

three months prior to that change. In such event, the DCO would be

required to immediately report such change to the Commission as soon as

it knows of the change. The Commission requests comment on whether the

three-month notice period is appropriate or whether a different notice

period should be required.

Proposed Sec. 39.19(c)(4)(x)(D) would require a second report to

the Commission of the consummation of the corporate or organizational

change no later than 2 business days following the effective date of

the change.

The Commission notes that there may be differences in the proposed

notification requirements for changes in the ownership or corporate or

organizational structure of DCOs, designated contract markets, swap

execution facilities, and swap data repositories.33 The Commission

requests comment on the proposed reporting requirements under Sec.

39.19(c)(4)(x), generally, and, more specifically, the extent to which

there should be uniformity or differentiation in notification

procedures applied to different types of registrants.

—————————————————————————

33 Such requirements would be proposed in separate

rulemakings, each for a specific registrant.

—————————————————————————

(i) Change in Key Personnel

Proposed Sec. 39.19(c)(4)(xi) would require a DCO to report to the

Commission the departure or addition of persons who are key personnel,

as defined in proposed Sec. 39.1(b), no later than two business days

following any such change. As applicable when a position is vacated,

the report would include the name of the person who will assume the

duties of the position on a temporary basis until a permanent

replacement fills the position.

Key personnel would be defined by proposed Sec. 39.1(b) as

personnel who play a significant role in the operation of the DCO,

provision of clearing and settlement services, risk management, or

oversight of compliance with the CEA and Commission regulations. Key

personnel would include, but would not be limited to, those persons who

are or perform the functions of any of the following: The chief

executive officer; president; chief compliance officer; chief operating

officer; chief risk officer; chief financial officer; chief technology

officer; and emergency contacts or persons who are responsible for

business continuity and disaster recovery.34 The term “emergency”

would have the same meaning as defined in Sec. 40.1(g), which the

Commission has proposed to revise and redesignate as Sec. 40.1(h).35

The Commission intends to require listing key personnel on a DCO’s

initial application in furtherance of the applicant’s representation

that it can satisfy the requirements of Core Principle B, i.e., that it

will have adequate managerial resources.36 From a practical

standpoint, notification of any changes of key personnel, particularly

those responsible for handling emergency situations, is important for

purposes of the Commission’s general oversight of each DCO, as well as

its ability to establish contact with key personnel in a timely manner,

as circumstances may warrant.

—————————————————————————

34 In a separate rulemaking, the Commission is proposing to

adopt this definition for “key personnel” in a new Sec. 39.1(b).

35 See 75 FR 67282, 67292 (Nov. 2, 2010) (provisions common to

registered entities; proposing to revise and redesignate Sec.

40.1(g) as Sec. 40.1(h)). The term “emergency” is currently

defined as:

Any occurrence or circumstance that, in the opinion of the

governing board of a registered entity, or a person or persons duly

authorized to issue such an opinion on behalf of the governing board

of a registered entity under circumstances and pursuant to

procedures that are specified by rule, requires immediate action and

threatens or may threaten such things as the fair and orderly

trading in, or the liquidation of or delivery pursuant to, any

agreements, contracts or transactions, including: (1) Any

manipulative or attempted manipulative activity; (2) Any actual,

attempted, or threatened corner, squeeze, congestion, or undue

concentration of positions; (3) Any circumstances which may

materially affect the performance of agreements, contracts or

transactions, including failure of the payment system or the

bankruptcy or insolvency of any participant; (4) Any action taken by

any governmental body, or any other registered entity, board of

trade, market or facility which may have a direct impact on trading;

and (5) Any other circumstance which may have a severe, adverse

effect upon the functioning of a registered entity.

17 CFR 40.1(g).

36 See Section 5b(c)(2)(B)(i) of the CEA; 17 USC 7a-

1(c)(2)(B)(i) (requiring each DCO to have “adequate financial,

operational, and managerial resources, as determined by the

Commission, to discharge each responsibility of the derivatives

clearing organization”). The Commission expects to include in a

future rulemaking revised instructions for DCO applications which

will include a requirement that applicants list key personnel and

emergency contacts.

—————————————————————————

(j) Credit Facility Funding Arrangement Change

Under proposed Sec. 39.19(c)(4)(xii), a DCO would be required to

notify the Commission of material changes in a credit facility funding

arrangement, if the DCO has one in place. A credit facility funding

arrangement is generally used as a stop-gap measure in an emergency

situation such as to provide liquidity during a clearing member default

or to temporarily provide the DCO with adequate operating funds.37

[[Page 78191]]

Thus, it is essential for the Commission to be promptly notified of

changes that would affect the DCO’s immediate access to cash. Under the

proposed regulation, a DCO would have to notify the Commission no later

than one business day after a DCO changes a credit facility funding

arrangement, is notified that such an arrangement has changed, or knows

or reasonably should know that the arrangement will change, including

but not limited to a change in lender, change in the size of the

facility, change in expiration date, or any other material changes or

conditions.

—————————————————————————

37 See 75 FR at 63116 (proposing that a DCO may use a

committed line of credit or similar facility to meet the liquidity

requirements set forth in proposed Sec. 39.11(e)(1) and

39.11(e)(2)).

—————————————————————————

(k) Rule Enforcement

As mandated by Core Principle H, proposed Sec. 39.19(c)(4)(xiii)

would require a DCO to report to the Commission regarding rule

enforcement activities and sanctions imposed against clearing members.

More specifically, it would require a DCO to notify the Commission no

later than two business days after the DCO (A) initiates a rule

enforcement action against a clearing member, or (B) imposes sanctions

against a clearing member. The Commission notes that while an exchange

has 30 days within which to notify the Commission of a decision

pursuant to which a disciplinary action has become final,38 a DCO

taking disciplinary action against a clearing member is a less common

occurrence, and the clearing member’s offense could potentially impact

the financial integrity of the DCO. Thus, the Commission believes that

it should be notified of such actions, sooner. Nonetheless, the

Commission requests comment on whether a 30-day reporting period would

be more appropriate under proposed Sec. 39.19(c)(4)(xiii).

—————————————————————————

38 See 17 CFR 9.11(a).

—————————————————————————

(l) Financial Condition and Events

Proposed Sec. 39.19(c)(4)(xiv) is intended to alert the Commission

of certain events and situations that may affect the financial

integrity of a DCO. Under the proposed regulation, a DCO would be

required to immediately notify the Commission after the DCO knows or

reasonably should know of: (A) The institution of any legal proceedings

which may have a material adverse financial impact on the DCO; (B) any

event, circumstance or situation that would not otherwise be required

to be reported under Sec. 39.19 and that would materially impede the

DCO’s ability to comply with part 39 of the Commission’s regulations;

and (C) any material adverse change in the financial condition of any

clearing member that would not otherwise be required to be reported

under Sec. 39.19. These requirements would place an affirmative duty

on the DCO to be aware of and monitor such events, and would permit the

DCO to exercise its discretion in determining which events rise to the

level of requiring notification to the Commission.

Proposed Sec. 39.19(c)(4)(xv) would require a DCO, when it

discovers or is notified by an independent public accountant of the

existence of any material inadequacy, to give notice of such material

inadequacy within 24 hours, and within 48 hours after giving such

notice to file a written report stating what steps have been and are

being taken to correct the material inadequacy. Proposed Sec.

39.19(c)(4)(xv) is consistent with Sec. 1.12(d), a similar requirement

for FCMs and introducing brokers.

5. Technical Amendments

Sections 39.5(a) and (b) require certain reports from a DCO upon

request by the Commission. The Commission is proposing redesignating

Sec. 39.5(a) and (b) as proposed Sec. 39.19(c)(5)(i) and (ii),

respectively, in substantially the same form. The Commission believes

that the addition of proposed Sec. 39.19 as the DCO reporting

regulation would make that section the appropriate placement for the

provisions of Sec. 39.5(a) and (b). Section 39.5(a), which is proposed

as new Sec. 39.19(c)(5)(i), requires that, upon request by the

Commission, a DCO file with the Commission such information related to

its business as a clearing organization, including information relating

to trade and clearing details, in the form and manner and within the

time as specified by the Commission in the request. Section 39.5(b),

which is proposed as new Sec. 39.19(c)(5)(ii), requires that, upon

request by the Commission, a DCO file with the Commission a written

demonstration, containing such supporting data, information and

documents, in the form and manner and within such time as the

Commission may specify, that the DCO is in compliance with one or more

core principles and the relevant provisions of part 39, as specified in

the request.

Section 39.5(c) currently requires a DCO to submit large trader

reports in circumstances where they are not required to be filed by

FCMs, clearing members or others.39 The Commission is proposing to

remove Sec. 39.5(c) because the data from such large trader reports

would be available pursuant to a combination of other large trader

reporting requirements and the requirements of proposed Sec.

39.19(c)(1).40

—————————————————————————

39 Section 39.5(c) states:

Information regarding transactions by large traders cleared by a

derivatives clearing organization shall be filed with the

Commission, in a form and manner acceptable to the Commission, by

futures commission merchants, clearing members, foreign brokers or

registered entities other than a derivatives clearing organization,

as applicable. Provided, however, that if no such person or entity

is required to file large trader information with the Commission,

such information must be filed with the Commission by a derivatives

clearing organization.

17 CFR 39.5(c).

40 See supra discussion of proposed daily reporting

requirements at Section II.A.1. of this notice.

—————————————————————————

Section 39.5(d) currently requires, upon special call, reports by

certain persons for positions cleared on a DCO.41 The Commission is

proposing to redesignate Sec. 39.5(d) as Sec. 21.04 because part 21

(Special Calls) is the appropriate placement for this provision.42 As

such, the Commission also proposes to redesignate current Sec. 21.04

as Sec. 21.05 and add Sec. 21.06 which would delegate its authority

under proposed Sec. 21.04 to the Director of the Division of Clearing

and Intermediary Oversight.43

—————————————————————————

41 Section 39.5(d) states:

Upon special call by the Commission, each futures commission

merchant, clearing member or foreign broker shall provide

information to the Commission concerning customer accounts or

related positions cleared on a derivatives clearing organization or

other multilateral clearing organization in the form and manner and

within the time specified by the Commission in the special call.

17 CFR 39.5(d).

42 In a recent proposed rulemaking, the Commission proposed to

renumber Sec. 39.5 as Sec. 39.6. See 75 FR 67277, 67281 (Nov. 2,

2010) (process for review of swaps for mandatory clearing).

Renumbering would no longer be necessary if the requirements of

Sec. 39.5 are redesignated as proposed in this notice. (As

discussed in this section, the Commission is proposing to: (1)

Redesignate Sec. 39.5(a) as Sec. 39.19(c)(5)(i); (2) redesignate

Sec. 39.5(b) as Sec. 39.19(c)(5)(ii); (3) remove Sec. 39.5(c);

(4) redesignate Sec. 21.04 as Sec. 21.05; (5) redesignate Sec.

39.5(d) as Sec. 21.04; and (6) add Sec. 21.06). Additionally, the

earlier proposal to redesignate Sec. Sec. 39.6 and 39.7 as

Sec. Sec. 39.7 and 39.8, respectively, would no longer be

necessary. See 75 FR at 67281. The Commission notes that it intends

to propose a revised and renumbered part 39 in conjunction with an

upcoming notice of proposed rulemaking.

43 This delegation provision is the same as the delegation

provision for the Director of the Division of Market Oversight in

current Sec. 21.04.

—————————————————————————

B. Recordkeeping Requirements

To implement Core Principle K, the Commission proposes to codify

the requirements of the core principle such that each DCO will have to

maintain records of all activities related to its business as a DCO in

the form and manner acceptable to the Commission for a period of not

less than five years. To clarify this general standard by way of

example, and to supplement pre-existing recordkeeping requirements

[[Page 78192]]

imposed by various Commission regulations,44 the Commission is

proposing to list examples of information subject to the recordkeeping

requirement.

—————————————————————————

44 For example, Sec. Sec. 1.26 and 1.27 impose recordkeeping

requirements for DCOs and FCMs related to the investment of customer

funds.

—————————————————————————

Proposed Sec. 39.20(a)(1) would require a DCO to maintain records

of all cleared transactions, including swaps. This is information that

a DCO already maintains in the ordinary course of its business as a

clearing house.

More specifically, proposed Sec. 39.20(a)(2) would require a DCO

to retain all information necessary to record allocation of bunched

orders for cleared swaps. This provision would highlight an important

recordkeeping component of swaps clearing.

Proposed Sec. 39.20(a)(3) would require a DCO to maintain records

of all information required to be generated, created, or reported under

part 39. This would include, but would not be limited to, the results

of and the methodology used for all tests, reviews, and calculations in

connection with setting and evaluating margin levels, determining the

value and adequacy of financial resources, and establishing settlement

prices.

Proposed Sec. 39.20(a)(4) would require a DCO to maintain records

of all rules and procedures of the DCO. Specifically, the DCO would be

required to maintain records of all rules and procedures required to be

submitted pursuant to part 39 and part 40 of the Commission’s

regulations, including all proposed changes in rules, procedures or

operations of SIDCOs, subject to proposed Sec. 40.10.45

—————————————————————————

45 See 75 FR 67282 (Nov. 2, 2010) (proposing amendments to

part 40 of the Commission’s regulations).

—————————————————————————

Proposed Sec. 39.20(a)(5) would require a DCO to maintain any data

or documentation required by the Commission or the DCO to be submitted

to the DCO by its clearing members, or by any other person in

connection with the DCO’s clearing and settlement activities.

Proposed Sec. 39.20(b)(1) would require a DCO to maintain records

required by the Commission’s regulations in accordance with the

provisions of Sec. 1.31 (books and records; keeping and inspection),

for a period of not less than five years. However, there is an

exception in proposed Sec. 39.20(b)(2) that would require each DCO

that clears swaps to maintain swap data in accordance with the

requirements of part 45 (swap data repositories) of the Commission’s

regulations.

C. Public Information

To implement Core Principle L, the Commission proposes to codify

the requirements of the core principle, requiring DCOs to provide or

make available certain information to the public and to market

participants.

1. Availability of Information

Proposed Sec. 39.21(a) would require each DCO to provide to market

participants sufficient information to enable the market participants

to identify and evaluate accurately the risks and costs associated with

using the services of the DCO.46 In furtherance of this objective,

each DCO would be required to have clear and comprehensive rules and

procedures. Proposed Sec. 39.21(b) would require each DCO to make

information concerning the rules and the operating and default

procedures governing the clearing and settlement systems of the DCO

available to market participants.47

—————————————————————————

46 See Section 5b(c)(2)(L)(i) of the CEA; 7 U.S.C. 7a-

1(c)(2)(L)(i).

47 See Section 5b(c)(2)(L)(ii) of the CEA; 7 U.S.C. 7a-

1(c)(2)(L)(ii).

—————————————————————————

2. Public Disclosure

Proposed Sec. 39.21(c) would require each DCO to disclose publicly

and to the Commission information concerning: (1) The terms and

conditions of each contract, agreement, and transaction cleared and

settled by the DCO; (2) each clearing and other fee that the DCO

charges its clearing members; (3) the DCO’s margin methodology; (4) the

size and composition of the financial resource package available in the

event of a clearing member default; (5) daily settlement prices,

volume, and open interest for each contract, agreement or transaction

cleared or settled by the DCO; (6) the DCO’s rules and procedures for

defaults pursuant to proposed Sec. 39.16; 48 and (7) any other

matter that is relevant to participation in the clearing and settlement

activities of the DCO.49

—————————————————————————

48 In a future proposed rulemaking, the Commission intends to

propose a new Sec. 39.16 to implement DCO Core Principle G,

regarding default rules and procedures. See Section 5b(c)(2)(G) of

the CEA; 7 U.S.C. 7a-1(c)(2)(G).

49 See Section 5b(c)(2)(L)(iii) of the CEA, 7 U.S.C. 7a-

1(c)(2)(L)(iii).

—————————————————————————

Under proposed Sec. 39.21(d) the DCO would be required to make its

rulebook, a list of all current clearing members, and the information

listed in proposed Sec. 39.21(c) readily available to the general

public, in a timely manner, by posting such information on the DCO’s

website, unless otherwise permitted by the Commission. The information

that would be required by proposed Sec. 39.21(c)(5) would have to be

made available to the public no later than the business day following

the day to which the information pertains.

D. Information Sharing

Proposed Sec. 39.22 would require each DCO to enter into, and

abide by the terms of, each appropriate and applicable domestic and

international information-sharing agreement and to use relevant

information obtained from each such agreement in carrying out the risk

management program of the DCO. Proposed Sec. 39.22 would codify the

statutory provisions of Core Principle M. The Commission believes that

the language affords each DCO the appropriate level of discretion

regarding the appropriate information-sharing agreements to enter into

and the rules to abide by, and it does not perceive a need to

articulate more specific requirements. The Commission requests comment

on this approach.

III. Effective Date

The Commission is proposing that the requirements proposed in this

notice become effective 180 days from the date the final rules are

published in the Federal Register. The Commission believes that this

would give DCOs adequate time to implement the technology and the

procedures necessary to fulfill the proposed reporting requirements.

This period of time also would be sufficient to allow for compliance

with the recordkeeping, public information and information sharing

requirements. The Commission requests comment on whether 180 days is an

appropriate time frame for compliance with the proposed rules. The

Commission further requests comment on possible alternative effective

dates and the basis for any such alternative date.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) requires that agencies

consider whether the rules 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.50

The rules proposed by the Commission will affect only DCOs (some of

which will be designated as SIDCOs). The Commission has previously

established certain definitions of “small entities” to be used by the

Commission in evaluating the impact of its regulations on small

[[Page 78193]]

entities in accordance with the RFA.51 The Commission has previously

determined that DCOs are not small entities for the purpose of the

RFA.52 Accordingly, the Chairman, on behalf of the Commission, hereby

certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not

have a significant economic impact on a substantial number of small

entities.

—————————————————————————

50 5 U.S.C. 601 et seq.

51 47 FR 18618 (Apr. 30, 1982).

52 See 66 FR 45604, 45609 (Aug. 29, 2001).

—————————————————————————

B. Paperwork Reduction Act

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless it displays a

currently valid control number. OMB has not yet assigned a control

number to the new collection. The Paperwork Reduction Act of 1995 (PRA)

53 imposes certain requirements on Federal agencies (including the

Commission) in connection with their conducting or sponsoring any

collection of information as defined by the PRA. This proposed

rulemaking would result in new collection of information requirements

within the meaning of the PRA. The Commission therefore is submitting

this proposal to the Office of Management and Budget (OMB) for review.

If adopted, responses to this collection of information would be

mandatory. The Commission will protect proprietary information

according to the Freedom of Information Act and 17 CFR Part 145,

“Commission Records and Information.” In addition, section 8(a)(1) of

the CEA strictly prohibits the Commission, unless specifically

authorized by the CEA, from making public “data and information that

would separately disclose the business transactions or market positions

of any person and trade secrets or names of customers.” The Commission

is also required to protect certain information contained in a

government system of records according to the Privacy Act of 1974, 5

U.S.C. 552a.

—————————————————————————

53 44 U.S.C. 3501 et seq.

—————————————————————————

1. Information Provided by Reporting Entities/Persons

The proposed regulations require each respondent to file

information with the Commission (1) periodically, on a daily,

quarterly, and annual basis,54 (2) as specified events occur, and (3)

upon Commission request.55

—————————————————————————

54 Quarterly financial resources reports and annual compliance

reports are the subjects of separate Paperwork Reduction Act

submissions in connection with other proposed rulemakings.

55 Reports submitted upon Commission request are current

requirements.

—————————————————————————

For daily reports, these would result in an estimated total of 12

initial responses and 250 responses per respondent on an annual basis.

Commission staff estimates that respondents could expend up to $690

initially and $1,400 annually, based on an hourly rate ranging from $46

to $56, to comply with the proposed regulations. This would result in

an aggregated cost of $8,280 initially (12 respondents x $690) and

$16,800 per annum (12 respondents x $1,400).

For annual reports, these would result in an estimated total of 1

response per respondent on an annual basis. Commission staff estimates

that respondents could expend up to $482,110 annually, based on an

hourly rate of $185, to comply with the proposed regulations. This

would result in an aggregated cost of $5,785,320 per annum (12

respondents x $482,110).56

—————————————————————————

56 This amount reflects the estimated cost of preparing

audited annual financial statements, an activity which many, if not

all, respondents already perform on an annual basis.

—————————————————————————

For event-specific reports, these would result in an estimated

total of 4 responses per respondent on an annual basis. Commission

staff estimates that respondents could expend up to $1,680 annually,

based on an hourly rate of $75, to comply with the proposed

regulations. This would result in an aggregated cost of $20,160 per

annum (12 respondents x $1,680).57

—————————————————————————

57 This amount reflects the estimated cost of putting systems

in place which would alert a respondent of certain event-specific-

reporting requirements. It is expected, however, that most

respondents already have most, if not all, of these systems in

place. Additionally, this amount takes into account the preparation

of reports such as the pro forma financial statement for a decrease

in ownership equity, a document which a respondent would most likely

already have produced in connection with whatever specific event the

respondent anticipated would cause a decrease in ownership equity.

—————————————————————————

For recordkeeping requirements, these would result in an estimated

total of 1 response per respondent on an annual basis. Commission staff

estimates that respondents could expend up to $1,000 annually, based on

an hourly rate of $10, to comply with the proposed regulations. This

would result in an aggregated cost of $12,000 per annum (12 respondents

x $1,000).

2. Information Collection Comments

The Commission invites the public and other federal agencies to

comment on any aspect of the reporting and recordkeeping burdens

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

solicits comment in order to: (i) Evaluate whether the proposed

collection of information is necessary for the proper performance of

the functions of the Commission, including whether the information will

have practical utility; (ii) evaluate the accuracy of the Commission’s

estimate of the burden of the proposed collection of information; (iii)

determine whether there are ways to enhance the quality, utility, and

clarity of the information to be collected; and (iv) minimize the

burden of the collection of information on those who are to respond,

including through the use of automated collection techniques or other

forms of information technology.

Comments may be submitted directly to the Office of Information and

Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

[email protected]. Please provide the Commission with a copy

of submitted comments so that all comments can be summarized and

addressed in the final rule preamble. Refer to the Addresses section of

this notice of proposed rulemaking for comment submission instructions

to the Commission. A copy of the supporting statements for the

collections of information discussed above may be obtained by visiting

RegInfo.gov. OMB is required to make a decision concerning the

collection of information between 30 and 60 days after publication of

this document in the Federal Register. Therefore, a comment is best

assured of having its full effect if OMB receives it within 30 days of

publication.

C. Cost-Benefit Analysis

Section 15(a) of the CEA requires the Commission to consider the

costs and benefits of its actions before issuing a rulemaking under the

CEA. By its terms, Section 15(a) does not require the Commission to

quantify the costs and benefits of a rule or to determine whether the

benefits of the rulemaking outweigh its costs; rather, it requires that

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

Section 15(a) further specifies that the costs and benefits shall be

evaluated in light of five broad areas of market and public concern:

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

competitiveness, and financial integrity of futures markets; (3) price

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

interest considerations. The Commission may in its discretion give

greater weight to any one of the five enumerated areas and could in its

discretion determine that, notwithstanding its costs, a particular rule

is necessary or appropriate to protect the public interest or to

effectuate any of the provisions or to

[[Page 78194]]

accomplish any of the purposes of the CEA.

Summary of proposed requirements. The proposed regulations would

implement the reporting, recordkeeping, public information, and

information-sharing requirements for DCOs under the CEA, as amended by

the Dodd-Frank Act.

Costs. With respect to costs, the Commission has determined that

the costs of the new reporting requirements are not expected to be

significant given that the information required to be reported is

readily available to the DCO and, in certain instances, is already

being reported to the Commission. The incremental increases in

operating costs will have a negligible effect on the markets’

efficiency, effectiveness and financial competitiveness.

Benefits. With respect to benefits, the Commission has determined

that receiving such data required by the daily, annual and event-

specific reporting requirements in a timely manner and in one format

would further the Commission’s goal of monitoring the financial health

and financial integrity of DCOs and whether a DCO’s financial and risk

management practices are effective. It would also assist the Commission

in taking prompt action as necessary to identify insipient problems and

address them at an earlier stage. This would further the goal of

avoiding systemic risk due to the default of a clearing member and

thereby protect market participants and the public and serve the public

interest by promoting sound risk management practices. Similarly, the

recordkeeping requirements allow for making certain records available

for Commission inspection, which helps further the goals of the

reporting requirements and is necessary for the Commission to

effectively monitor a DCO’s financial integrity and compliance with the

CEA and Commission regulations. The public information requirements

serve the public interest by facilitating the dissemination of

important information about the DCO, including its clearing and

settlement activities and default procedures. Information-sharing

requirements promote cooperation among industry participants,

facilitating more effective risk management.

Public Comment. The Commission invites public comment on its cost-

benefit considerations. Commentators are also invited to submit any

data or other information that they may have quantifying or qualifying

costs and benefits of the Proposal with their comment letters.

List of Subjects

17 CFR Part 1

Brokers, Commodity futures, Consumer protection.

17 CFR Part 21

Brokers, Commodity futures, Reporting and recordkeeping

requirements

17 CFR Part 39

Definitions, commodity futures, reporting and recordkeeping

requirements, swaps.

For the reasons stated in the preamble, the Commission proposes to

amend 17 CFR parts 1, 21 and 39 as follows:

PART 1–GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

Authority and Issuance

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

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,

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

16, 16a, 19, 21, 23, and 24, as amended by the Dodd-Frank Wall

Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

Stat. 1376 (2010).

2. In Sec. 1.12, remove and reserve paragraph (f)(1).

PART 21–SPECIAL CALLS

Authority and Issuance

3. The authority for part 21 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m,

6n, 7, 7a, 12a, 19 and 21, as amended by the Dodd-Frank Wall Street

Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376

(2010); 5 U.S.C. 552 and 552(b), unless otherwise noted.

4. Redesignate Sec. 21.04 as Sec. 21.05.

5. Add Sec. 21.06 to read as follows:

Sec. 21.06 Delegation of authority to the Director of the Division of

Clearing and Intermediary Oversight.

The Commission hereby delegates, until the Commission orders

otherwise, the special call authority set forth in Sec. 21.04 to the

Director of the Division of Clearing and Intermediary Oversight to be

exercised by such Director or by such other employee or employees of

such Director as designated from time to time by the Director. The

Director of the Division of Clearing and Intermediary Oversight may

submit to the Commission for its consideration any matter which has

been delegated in this paragraph. Nothing in this section shall be

deemed to prohibit the Commission, at its election, from exercising the

authority delegated in this section to the Director.

PART 39–DERIVATIVES CLEARING ORGANIZATIONS

Authority and Issuance

6. The authority for part 39 is proposed to read as follows:

Authority: 7 U.S.C. 2, 5, 6, 6d, 7a-1,7a-2, and 7b as amended

by the Dodd-Frank Wall Street Reform and Consumer Protection Act,

Pub. L. 111-203, 124 Stat. 1376 (2010).

7. Add Sec. 39.19 to read as follows:

Sec. 39.19 Reporting.

(a) In general. Each derivatives clearing organization shall

provide to the Commission the information specified in this section and

any other information that the Commission deems necessary to conduct

its oversight of a derivatives clearing organization.

(b) Submission of reports. (1) Unless otherwise specified by the

Commission or its designee, each derivatives clearing organization

shall submit the information required by this section to the Commission

electronically and in a form and manner prescribed by the Commission.

(2) Time zones. Unless otherwise specified by the Commission or its

designee, any stated time in this section is Central time for

information concerning derivatives clearing organizations located in

that time zone, and Eastern time for information concerning all other

derivatives clearing organizations.

organization shall provide to the Commission or other person as may be

required or permitted by this paragraph the information specified

below:

(1) Daily reporting. A report containing the information specified

by this paragraph (c)(1), which shall be compiled as of the end of each

trading day and shall be submitted to the Commission by 10 a.m. on the

following business day:

(i) Initial margin requirements and initial margin on deposit for

each clearing member, by customer origin and house origin;

(ii) Daily variation margin, separately listing the mark-to-market

amount collected from or paid to each clearing member, by customer

origin and house origin;

(iii) All other daily cash flows relating to clearing and

settlement including, but not limited to, option premiums and payments

related to swaps such as coupon amounts, collected from or paid to each

clearing member, by customer origin and house origin; and

[[Page 78195]]

(iv) End-of-day positions for each clearing member, by customer

origin and house origin.

(2) Quarterly reporting. A report of the derivatives clearing

organization’s financial resources as required by Sec. 39.11(f);

provided that, additional reports may be required by paragraph

(c)(4)(i) of this section or Sec. 39.11(f).

(3) Annual reporting. (i) Annual report of chief compliance

officer. The annual report of the chief compliance officer required by

Sec. 39.10.

(ii) Audited financial statements. Audited year-end financial

statements of the derivatives clearing organization or, if there are no

financial statements available for the derivatives clearing

organization itself, the consolidated audited year-end financial

statements of the derivatives clearing organization’s parent company.

(iii) Time of report. The reports required by this paragraph (c)(3)

shall be submitted concurrently to the Commission not more than 90 days

after the end of the derivatives clearing organization’s fiscal year;

provided that, a derivatives clearing organization may request from the

Commission an extension of time to submit either report, provided the

derivatives clearing organization’s failure to submit the report in a

timely manner could not be avoided without unreasonable effort or

expense. Extensions of the deadline will be granted at the discretion

of the Commission.

(4) Event-specific reporting. (i) Decrease in financial resources.

If there is a decrease of 10 percent in the total value of the

financial resources required to be maintained by the derivatives

clearing organization under Sec. 39.11(a) or, as applicable, Sec.

39.29(a), either from the last quarterly report submitted under Sec.

39.11(f) or from the value as of the close of the previous business

day, the derivatives clearing organization shall report such decrease

to the Commission no later than one business day following the day the

10 percent threshold was reached. The report shall include:

(A) The total value of the financial resources:

(1) as of the close of business the day the 10 percent threshold

was reached, and

(2) if reporting a decrease in value from the previous business

day, the total value of the financial resources immediately prior to

the 10 percent decline;

(B) A breakdown of the value of each financial resource reported in

each of paragraph (4)(i)(A)(1) and (2), calculated in accordance with

the requirements of Sec. 39.11(d) or, as applicable, Sec. 39.29(b),

including the value of each individual clearing member’s guaranty fund

deposit if the derivatives clearing organization reports guaranty fund

deposits as a financial resource; and

(ii) Decrease in ownership equity. No later than two business days

prior to an event which the derivatives clearing organization knows or

should reasonably know will cause a decrease of 20 percent or more in

ownership equity from the last reported ownership equity balance as

reported on a quarterly or audited financial statements required to be

submitted by paragraph (c)(2) or (c)(3)(ii), respectively, of this

section, but in any event no later than two business days after such

decrease in ownership equity for events that caused the decrease for

which the derivatives clearing organization does not know and

reasonably should not have known about prior to the event. The report

shall include:

(A) Pro forma financial statements reflecting the DCO’s estimated

future financial condition following the anticipated decrease for

reports submitted prior to the anticipated decrease and current

financial statements for reports submitted after such a decrease; and

(B) Details describing the reason for the decrease or anticipated

decrease in the balance.

(iii) Six-month liquid asset requirement. Immediate notice when a

derivatives clearing organization knows or reasonably should know of a

deficit in the six-month liquid asset requirement of Sec. 39.11(e)(2).

(iv) Change in working capital. No later than two business days

after working capital becomes negative; the notice shall include a

balance sheet that reflects the derivatives clearing organization’s

working capital and an explanation as to the reason for the negative

balance.

(v) Intraday initial margin calls. (A) Reporting requirement. Any

intraday initial margin call to a clearing member.

(B) Required information. The report shall separately list each

request and include the name of the clearing member, the amount

requested and the account origin.

no later than 1 hour following the margin call.

(vi) Delay in collection of initial margin. Immediate notice when a

derivatives clearing organization has not received additional initial

margin that it requested from a clearing member within the time frame

allowed by the derivatives clearing organization’s rules and

procedures.

(vii) Request to clearing member to reduce its positions. Immediate

notice, of a derivatives clearing organization’s request to a clearing

member to reduce its positions because the derivatives clearing

organization has determined that the clearing member has exceeded its

exposure limit, has failed to meet an initial or variation margin call,

or has failed to fulfill any other financial obligation to the

derivatives clearing organization. The notice shall include:

(A) The name of the clearing member;

(B) The time the clearing member was contacted;

organization requested the clearing member to reduce its position size;

(D) All contracts that are the subject of the request; and

(E) The reason for the request.

(viii) Determination to transfer or liquidate positions. Immediate

notice, of a determination that any position a derivatives clearing

organization carries for one of its clearing members must be liquidated

immediately or transferred immediately, or that the trading of any

account of a clearing member shall be only for the purposes of

liquidation because that clearing member has failed to meet an initial

or variation margin call or has failed to fulfill any other financial

obligation to the derivatives clearing organization. The notice shall

include:

(A) The name of the clearing member;

(B) The time the clearing member was contacted;

(D) The number of positions that are subject to the determination;

and

(E) The reason for the determination.

(ix) Default of a clearing member. Immediate notice, upon the

default of a clearing member. An event of default shall be determined

in accordance with the rules of the derivatives clearing organization.

The notice of default shall include:

(A) The name of the clearing member;

(B) The contracts the clearing member defaulted upon;

(D) The amount of the financial obligation.

(x) Change in ownership or corporate or organizational structure.

(A) Reporting requirement. Any anticipated change in the ownership or

corporate or organizational structure of the derivatives clearing

organization or its parent company that would:

[[Page 78196]]

(1) Result in at least a 10 percent change of ownership of the

derivatives clearing organization,

(2) create a new subsidiary or eliminate a current subsidiary of

the derivatives clearing organization or its parent company, or

(3) result in the transfer of all or substantially all of its

assets, including its registration as a derivatives clearing

organization to another legal entity.

(B) Required information. The report shall include: A chart

outlining the new ownership or corporate or organizational structure; a

brief description of the purpose and impact of the change; and any

relevant agreements effecting the change and corporate documents such

as articles of incorporation and bylaws. With respect to a corporate

change for which a derivatives clearing organization submits a request

for approval to transfer its derivatives clearing organization

registration and open interest under Sec. 39.3(h) of this part, the

informational requirements of this paragraph (c)(4)(x)(B) shall be

satisfied by the derivatives clearing organization’s compliance with

Sec. 39.3(h)(3).

no later than three months prior to the anticipated change; provided

that the derivatives clearing organization may report the anticipated

change to the Commission later than three months prior to the

anticipated change if the derivatives clearing organization does not

know and reasonably could not have known of the anticipated change

three months prior to the anticipated change. In such event, the

derivatives clearing organization shall immediately report such change

to the Commission as soon as it knows of such change.

(D) Confirmation of change report. The derivatives clearing

organization shall report to the Commission the consummation of the

change no later than 2 business days following the effective date of

the change.

(xi) Change in key personnel. No later than two business days

following the departure, or addition of persons who are key personnel

as defined in Sec. 39.1(b), a report that includes, as applicable, the

name of the person who will assume the duties of the position on a

temporary basis until a permanent replacement fills the position.

(xii) Credit facility funding arrangement change. No later than one

business day after a derivatives clearing organization changes a credit

facility funding arrangement it may have in place, is notified that

such arrangement has changed, or knows or reasonably should have known

that the arrangement will change, including but not limited to a change

in lender, change in the size of the facility, change in expiration

date, or any other material changes or conditions.

(xiii) Rule enforcement. Notice of action taken, no later than two

business days after the derivatives clearing organization:

(A) Initiates a rule enforcement action against a clearing member;

(B) Imposes sanctions against a clearing member.

(xiv) Financial condition and events. Immediate notice after the

derivatives clearing organization knows or reasonably should have known

of:

(A) The institution of any legal proceedings which may have a

material adverse financial impact on the derivatives clearing

organization;

(B) Any event, circumstance or situation that materially impedes

the derivatives clearing organization’s ability to comply with this

part and is not otherwise required to be reported under this section;

clearing member that is not otherwise required to be reported under

this section.

(xv) Financial statements material inadequacies. If a derivatives

clearing organization discovers or is notified by an independent public

accountant of the existence of any material inadequacy, such

derivatives clearing organization must give notice of such material

inadequacy within 24 hours, and within 48 hours after giving such

notice file a written report stating what steps have been and are being

taken to correct the material inadequacy.

Sec. 39.5(a) [Redesignated as Sec. 39.19(c)(5)(i)]

8. Redesignate Sec. 39.5(a) as Sec. 39.19(c)(5)(i).

9. Redesignate Sec. 39.5(b) as Sec. 39.19(c)(5)(ii) and revise to

read as follows:

Sec. 39.19 Reporting.

* * * * *

(5) * * *

(ii) Upon request by the Commission, a derivatives clearing

organization shall file with the Commission a written demonstration,

containing such supporting data, information and documents, in the form

and manner and within such time as the Commission may specify, that the

derivatives clearing organization is in compliance with one or more

core principles and relevant provisions of this part, as specified in

the request.

Sec. 39.5(d) [Redesignated as Sec. 21.04]

10. Redesignate Sec. 39.5(d) as Sec. 21.04.

Sec. 39.5 [Amended]

11. Remove Sec. 39.5(c) and reserve the section.

12. Add Sec. 39.20 to read as follows:

Sec. 39.20 Recordkeeping.

(a) Requirement to maintain information. Each derivatives clearing

organization shall maintain records of all activities related to its

business as a derivatives clearing organization. Such records shall

include, but are not limited to, records of:

(1) All cleared transactions, including swaps.

(2) All information necessary to record allocation of bunched

orders for cleared swaps;

(3) All information required to be created, generated, or reported

under this part 39, including but not limited to the results of and

methodology used for all tests, reviews, and calculations in connection

with setting and evaluating margin levels, determining the value and

adequacy of financial resources, and establishing settlement prices;

(4) All rules and procedures required to be submitted pursuant to

this part 39 and part 40 of this chapter, including all proposed

changes in rules, procedures or operations subject to Sec. 40.10 of

this chapter; and

(5) Any data or documentation required by the Commission or by the

derivatives clearing organization to be submitted to the derivatives

clearing organization by its clearing members, or by any other person

in connection with the derivatives clearing organization’s clearing and

settlement activities.

(b) Form and manner of maintaining information. (1) In general. The

records required to be maintained by this chapter shall be maintained

in accordance with the provisions of Sec. 1.31 of this chapter, for a

period of not less than 5 years, except as provided in paragraph (b)(2)

of this section.

(2) Exception for swap data. Each derivatives clearing organization

that clears swaps must maintain swap data in accordance with the

requirements of part 45 of this chapter.

15. Add Sec. 39.21 to read as follows:

Sec. 39.21 Public information.

(a) In general. Each derivatives clearing organization shall

provide to market participants sufficient information to enable the

market participants to identify and evaluate accurately the risks and

costs associated with using the services of the derivatives clearing

organization. In furtherance of this objective, each

[[Page 78197]]

derivatives clearing organization shall have clear and comprehensive

rules and procedures.

(b) Availability of information. Each derivatives clearing

organization shall make information concerning the rules and the

operating and default procedures governing the clearing and settlement

systems of the derivatives clearing organization available to market

participants.

disclose publicly and to the Commission information concerning:

(1) The terms and conditions of each contract, agreement, and

transaction cleared and settled by the derivatives clearing

organization;

(2) Each clearing and other fee that the derivatives clearing

organization charges its clearing members;

(3) The margin-setting methodology;

(4) The size and composition of the financial resource package

available in the event of a clearing member default;

(5) Daily settlement prices, volume, and open interest for each

contract, agreement, or transaction cleared or settled by the

derivatives clearing organization;

(6) The derivatives clearing organization’s rules and procedures

for defaults in accordance with Sec. 39.16 of this part; and

(7) Any other matter that is relevant to participation in the

clearing and settlement activities of the derivatives clearing

organization.

(d) Publication of information. The derivatives clearing

organization shall make its rulebook, a list of all current clearing

members and the information listed in paragraph (c) of this section

readily available to the general public, in a timely manner, by posting

such information on the derivatives clearing organization’s website,

unless otherwise permitted by the Commission. The information required

in paragraph (c)(5) of this section shall be made available to the

public no later than the business day following the day to which the

information pertains.

16. Add Sec. 39.22 to read as follows:

Sec. 39.22 Information sharing.

Each derivatives clearing organization shall enter into, and abide

by the terms of, each appropriate and applicable domestic and

international information-sharing agreement, and shall use relevant

information obtained from each such agreement in carrying out the risk

management program of the derivatives clearing organization.

Issued in Washington, DC, on December 1, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Appendices to Information Management Requirements for Derivatives

Clearing Organizations–Commission Voting Summary and Statements of

Commissioners

Note: The following appendices will not appear in the Code of

Federal Regulations

Appendix 1–Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Dunn,

Sommers, Chilton and O’Malia voted in the affirmative. No

Commissioner voted in the negative.

Appendix 2–Statement of Chairman Gary Gensler

I support the proposed rulemaking concerning information

management, recordkeeping and reporting requirements for derivatives

clearing organizations. The requirements would enable the Commission

to conduct financial risk surveillance more efficiently and

effectively. Further, they would promote transparency to the

regulators, enhancing the Commission’s ability to detect and resolve

potential concerns before they escalate into major problems. The

rule also fulfills Congress’s direction that clearinghouses be

required to make settlement prices and open interest public in all

their contracts on a daily basis.

The proposed reporting rules apply uniform standards to all

DCOs, thereby helping to avoid inconsistency in DCO reporting. The

recordkeeping requirements are rooted in sound business practices,

and the public information requirements serve the public interest by

promoting transparency and disclosure. By codifying the information-

sharing core principle into the Commission’s regulations, the

Commission would reaffirm its commitment to promoting cooperation

among industry participants in carrying out risk management

functions.

[FR Doc. 2010-31131 Filed 12-14-10; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: December 20, 2010

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