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FR Doc 2010-27533[Federal Register: November 2, 2010 (Volume 75, Number 211)]
[Proposed Rules]
[Page 67282-67301]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02no10-15]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 40
RIN 3038-AD07
Provisions Common to Registered Entities
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (“Commission” or
“CFTC”) is proposing rules to implement new statutory provisions
enacted under Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank Act”) and amend existing rules
affected by the passage of the Dodd-Frank Act. These proposed rules
apply to designated contract markets (“DCMs”), derivatives
[[Page 67283]]
clearing organizations (“DCOs”), swap execution facilities (“SEFs”)
and swap data repositories (“SDRs”). The proposed rules implement the
new statutory framework for certification and approval for new
products, new rules and rule amendments submitted to the Commission by
registered entities. Furthermore, the proposed rules prohibit event
contracts based on certain excluded commodities, establish special
procedures for certain rule changes proposed by systemically important
derivatives clearing organizations (“SIDCOs”), and provide for the
tolling of review periods for certain novel derivative products pending
the resolution of jurisdictional determinations.
DATES: Submit comments on or before January 3, 2011.
ADDRESSES: You may submit comments, identified by RIN number, by any of
the following methods:
Agency Web site, via its Comments Online process: http://
comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow 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 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
CFTC Regulation 145.9.1 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.
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1 17 CFR 145.9.
FOR FURTHER INFORMATION CONTACT: Bella Rozenberg, Special Counsel,
Division of Market Oversight (“DMO”), at 202-418-5119 or
[email protected], Riva Spear Adriance, Associate Director for Market
Review, DMO at 202-418-5494 or [email protected], in each case, also
at the Commodity Futures Trading Commission, Three Lafayette Centre,
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1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. The Proposed Amendments to Part 40 of the Commission’s
Regulations
a. Definitions
b. Listing and accepting products for trading or clearing by
certification
c. Voluntary submission of new products for Commission review
and approval
d. Amendments to terms or conditions of enumerated agricultural
contracts
e. Voluntary submission of rules for Commission review and
approval
f. Self-certification of rules
g. Delegations
h. Availability of public information
i. Special certification procedures for submission of rules by
systemically important derivatives clearing organizations
j. Review of event contracts based on certain excluded
commodities
k. Tolling of review period pending jurisdictional determination
III. Related Matters
a. Regulatory Flexibility Act
b. Paperwork Reduction Act
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
(“Act”) 4 to establish a comprehensive new regulatory framework for
swaps and security-based swaps. The legislation was enacted 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 robust
recordkeeping and real-time reporting regimes; and (4) enhancing the
Commission’s rulemaking and enforcement authorities with respect to,
among others, all registered entities and intermediaries subject to the
Commission’s oversight.
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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.
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Section 745 of the Dodd-Frank Act amends Section 5c of the Act to
provide for new rule, rule amendment and product certification and
approval procedures, which are applicable to DCMs and DCOs, as well as
new registered entities, SEFs and SDRs.5 Section 745 of the Dodd-
Frank Act also authorizes the Commission to prohibit the listing of
event contracts based on certain excluded commodities if such contracts
involve one or more activities enumerated in the Dodd-Frank Act.
Furthermore, Section 745 of the Dodd-Frank Act authorizes the
Commission to prohibit contracts based on similar activities if they
are determined by rule or regulation to be contrary to the public
interest. Section 806(e)(1) of the Dodd-Frank Act requires that a SIDCO
6 provide the Commission with 60 days advance notice of any proposed
changes to rules, procedures or operations that could materially affect
the nature or level of risk presented by a SIDCO. Finally, the
Commission proposes to toll the review period of novel derivative
products pending a determination as to whether the Commission or the
Securities and Exchange Commission (“SEC”) has jurisdiction over
novel derivative products.
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5 The Dodd-Frank Act created new registered entities,
including SEFs and SDRs. Issues related to the regulation of these
entities will be addressed in other rulemakings issued by the
Commission.
6 A SIDCO is a DCO that has been designated as a systemically
important financial market utility by the Financial Stability
Oversight Council pursuant to Section 804 of the Dodd-Frank Act.
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The Commission proposes a number of changes in order to enhance its
ability to administer the Act, as amended, ensure consistency with
various new requirements of the Dodd-Frank Act and clarify the
regulatory obligations imposed on market participants. Specifically,
the Commission proposes to amend sections 40.1 through 40.8 and adopt
new sections 40.10 through 40.12 7 to amend the definitions,
establish certification and approval procedures for the rules and
products of registered entities, including SIDCOs, prohibit event
contracts based on certain excluded commodities, and codify statutory
requirements relating to tolling of the review period pending SEC and
CFTC jurisdictional determinations.
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7 Commission regulations referred to herein are found at 17
CFR 1.
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[[Page 67284]]
Although Section 745 of the Dodd-Frank Act does not provide a
statutory deadline for promulgation of final rules, Part 40 of the
Commission’s regulations currently is inconsistent with certain
provisions of Section 745. In addition, since, as noted, the Dodd-Frank
Act created new registered entities, SEFs and SDRs, the rule
certification procedures for these new registered entities must be in
place by the time these entities begin operating. Therefore, Part 40
should be amended by July 15, 2011, the date when relevant provisions
of the Dodd-Frank Act become effective.
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. The Proposed Amendments to Part 40 of the Commission’s Regulations
a. Section 40.1 Definitions
To implement the requirements of the Dodd-Frank Act and to ensure
the Commission’s ability to administer Part 40, the Commission proposes
a number of amendments to the definitions found in Sec. 40.1. The
Commission proposes to add definitions for “dormant swap execution
facilities” and “dormant swap data repositories” to provide
consistency with the extant Sec. 40.1definitions for dormant DCMs and
dormant DCOs. Also, the Commission proposes to delete the definition of
a “dormant derivatives trading execution facility” since this entity
was eliminated by the Dodd-Frank Act.
Further, the Commission proposes to revise the definition of
“emergency” to include an occurrence or circumstance that threatens
the timely collection and payment of funds in connection with clearing
and settlement by a derivatives clearing organization. In addition, the
Commission proposes to incorporate references to swap transactions
where appropriate to ensure consistency in application of Part 40 to
both current and new registered entities. The Commission also proposes
to delete the existing restriction on Commission review of rules
relating to margin levels currently included in the definition of
rule.8 The restriction is no longer appropriate as Section 736 of the
Dodd-Frank Act amends Section 8a(7) of the Act to permit the Commission
to alter or supplement the rules of a registered entity by issuing
rules, regulations or orders regarding margin requirements. By
necessity, such action requires the Commission to be able to review a
DCO’s rules “relating to the setting of levels of margin” in the
first instance, even though the Commission itself is not authorized to
“set specific margin amounts” under Section 8(a)(7). Finally, the
Commission proposes to revise the definition of “terms and
conditions” to add a new paragraph (j)(15) to include specific
information relating to swaps proposed to be cleared by a DCO. By
supplementing other provisions of paragraph (j) that are relevant to
swaps, the Commission seeks to clarify the types of information that
may differentiate swaps from futures contracts. These include, for
example, the following: notional value; relevant dates, tenor, and day
count conventions; stub, premium, or initial cash flow components; and
payment and reset frequency.
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8 The restriction in the current regulations reflects an
ambiguity in the Act as modified by the Commodity Futures
Modernization Act (“CFMA”). Prior to enactment of the CFMA in
2000, Section 5a(a)(12)(A) of the Act required that all changes to
contract terms and conditions be submitted to the Commission for
approval “except those rules relating to the setting of levels of
margin.” In Section 113 of the CFMA, Congress removed Section
5a(a)(12)(A), allowing registered entities to amend their rules by
self-certification. The new provision did not retain any reference
to margin rules. However, Section 8(a)(7) was not amended by the
CFMA, and retained a provision that allowed the Commission to alter
or supplement the rules of a registered entity, except for rules
relating to “the setting of levels of margin,” thereby creating
uncertainty as to whether registered entities could adopt or change
margin rules without certifying those rules to the Commission.
Because there was no indication that Congress intended to alter the
special status of rules relating to the setting of margin levels,
the Commission resolved this ambiguity by excluding the setting of
margin levels from the definition of “rule.” Section 8(a)(7)(D)
now permits the Commission to require the changes with respect to
margin requirements provided that the Commission’s rules,
regulations or orders (i) are limited to protecting the financial
integrity of a DCO, (ii) are designed for risk management purposes
to protect the financial integrity of transactions, and (iii) do not
set specific margin amounts.
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b. Section 40.2 Listing and accepting products for trading or clearing
by certification
Section 5c(c) of the Act permits registered entities to list for
trading or accept for clearing any new product by providing to the
Commission a written certification that the new product, rule, or rule
amendment complies with the Act and Commission regulations. Under
current Sec. 40.2, prior to listing or accepting products for trading
or clearing by certification, the Commission requires, among other
things, that registered entities provide the terms and conditions of
their products and certify that submitted products comply with the Act
and Commission regulations. The Commission also requires that
registered entities provide, only if requested by Commission staff,
additional information relating to whether the contract meets the
requirements of the Act or the Commission’s regulations or policies
thereunder.
Further, the Act permits registered entities to list for trading
only those products that are not susceptible to manipulation and have
appropriate position limitations or position accountability for
speculators. To assist registered entities in demonstrating compliance
with these Core Principles and to better ensure the integrity of
certified products, the Commission proposes two amendments to Sec.
40.2.
The Commission proposes to amend Sec. 40.2 to require registered
entities to include in their submission documentation relied on to
establish the basis for compliance with the applicable provisions of
the Act and the Commission’s regulations thereunder, including the Core
Principles for registered entities. The proposed amendments to Sec.
40.2 will increase the timeliness and efficiency of Commission review.
The Commission has always required that registered entities have
evidence supporting their certification of compliance with the Act
available for Commission review.9
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9 For instance, in January 2006, when the Commission issued
Technical and Clarifying Amendments to Rules for Exempt Markets,
Derivatives Transaction Execution Facilities and Designated Contract
Markets, and Procedural Changes for Derivatives Clearing
Organization Registration Applications, it required DCMs to provide
documentation demonstrating compliance with the Act and the
Commission’s regulations. It expressly stated, “DCMs are
responsible in the first instance, and the Commission is ultimately
responsible in its oversight role, for assuring that DCM products
and rules comply with applicable designation criteria and Core
Principles. When a DCM self-certifies a product or rule, it is, in
effect, pledging that the product or rule does meet those standards.
Assuming the DCM is acting in good faith, it must have some
reasonable basis for making that pledge * * * [and therefore] * * *
when reasonable questions arise, it should not be burdensome for a
DCM to share information regarding the reasonable basis underlying
the new product or a rule with the Commission or its staff.” See 71
FR 1956 (Jan. 12, 2006).
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Based on these experiences, the Commission proposes to amend Sec.
40.2(a) to require a registered entity to include in its submission any
documentation relied on to establish the basis for compliance with the
Act and the Commission’s regulations thereunder, including the
applicable Core Principles. For DCM and SEF submissions of new products
and product amendments, the Commission expects submissions to include
documentation demonstrating that the product is not readily susceptible
to manipulation (Core Principle 3 for
[[Page 67285]]
DCMs and SEFs) and that associated position limits or position
accountability provisions are necessary and appropriate (Core Principle
5 for DCMs and Core Principle 4 for SEFs). Proposed Sec. Sec. 40.3,
40.5, and 40.6 contain a similar requirement for submission of new
products, rules and rule amendments.
The Commission believes that before self-certifying that a new
contract complies with the Act and the Commission’s regulations, a
registered entity should conduct an appropriate due diligence review to
support that assertion. Furthermore, the Commission believes that any
such review should generate some form of documentation at the
registered entity substantiating the review, including information used
and sources consulted to reach the conclusion supporting self-
certification. Therefore, the Commission believes that the inclusion of
such information in the self-certified submission itself should not be
burdensome for registered entities that are conducting appropriate due
diligence reviews before making such submissions.
Further, the Commission proposes a new Sec. 40.2 requirement that
registered entities examine potential legal issues associated with the
listing of products and include certain representations with their
submissions. The reason for these requirements is that certain
commodity futures and option products are based on measures or linked
to information that may be subject to bona fide intellectual property
rights claims. Commodity futures and option contracts, such as those
based on emission credits, can also be based on underlying markets that
are constructs of Federal or state regulations. In these and other
circumstances, the Commission has an interest in verifying that
registered entities have an adequate understanding of the legal
conditions and constraints that may have a material impact on the
trading of these types of products. Accordingly, the Commission
proposes to add Sec. 40.2(a)(3)(vi) to require that certified product
submissions be accompanied by a written statement verifying that the
registered entity has undertaken a due diligence review of the legal
conditions, including conditions relating to contractual and
intellectual property rights, that may affect the trading of the
product underlying the contract. Finally, the Commission proposes in
Sec. 40.2(a)(3)(vii) to require a registered entity to certify that
the registered entity has posted a copy of the pending product
certification submission on the registered entity’s Web site at the
time of the filing. This will permit market participants to receive
prompt notice of new rules filed with the Commission.
c. Section 40.3 Voluntary submission of new products for Commission
review and approval
Although the Dodd-Frank Act does not specifically require that the
Commission amend Sec. 40.3, the Commission believes that the
amendments described below are necessary to enhance the Commission’s
ability to administer the Act. Similar to its proposed amendments to
Sec. 40.2, described above, the Commission proposes to amend Sec.
40.3 to require DCMs, DCOs, and SEFs to include with their requests for
new product approval all documentation relied upon to determine that
the new product complies with applicable Core Principles.
In addition, similar to proposed Sec. 40.2(a)(3)(vi), proposed
Sec. 40.3(a)(9) requires registered entities to submit a written
statement that they have undertaken a due diligence review of the legal
conditions, including conditions relating to contractual and
intellectual property rights, that may affect the trading of the
product. These additional requirements should expedite Commission
review. Moreover, parallel to proposed Sec. Sec. 40.2(a)(3)(vii) and
40.6(a)(2), proposed Sec. 40.3(a)(10) requires a registered entity to
certify that the registered entity has posted a copy of the pending
product certification submission on the registered entity’s Web site at
the time of the filing. As mentioned above, this will allow market
participants to receive prompt notice of pending requests for product
approval. Also, to provide the overall consistency with the
requirements of the Dodd-Frank Act, proposed Sec. 40.3(d)(1)
authorizes the Commission to extend the review period if the product
raises novel or complex issues.
Finally, the Commission notes that the standard for review and
approval for new products remains unchanged; that is, the Commission
shall approve a new product unless the terms and conditions of such
product would violate the Act or the Commission’s regulations
thereunder.
d. Section 40.4 Amendments to terms or conditions of enumerated
agricultural products
The Commission proposes a number of technical amendments to clarify
existing regulatory obligations imposed on the DCMs that trade
contracts based on an agricultural commodity listed in Section 1a(9) of
the Act.
Pursuant to Section 5c(c)(2)(B) of the Act, rules that materially
change a term or condition of a contract with open interest that is
based on an agricultural commodity enumerated in Section 1a(9) of the
Act, must be approved by the Commission prior to implementation. A
finding of materiality is, by statute, at the reasonable discretion of
the Commission. Through prior rulemaking, the Commission has enumerated
several rule categories in Sec. 40.4(b) that are deemed not to be
material for purposes of Section 5c(c)(2)(B) of the Act and thus not
subject to prior approval. The Commission has separately enumerated
several categories of registered entities’ rules in Sec. 40.6(d) that
need not be approved by, or certified with, the Commission prior to
implementation. Exchange rules that come within these categories
typically are limited in scope and are implemented under enabling rules
that have already been approved by, or certified with, the Commission.
Since there is substantial overlap between the categories of rules
deemed not to be material under Sec. 40.4(b) and the categories of
rules enumerated in Sec. 40.6(d), the Commission proposes to amend
Sec. 40.4(b) to refer to Sec. 40.6(d) for the purpose of identifying
rules that are deemed by the Commission not to be material under
Section 5c(c)(2)(B) of the Act. Such rules would qualify for
implementation under Sec. 40.6 without prior approval or
certification.
In addition, the Commission proposes to clarify that changes in
trading hours in Sec. 40.4(b)(3) and changes required to comply with
an order of an adjudicative or regulatory body in Sec. 40.4(b)(4),
while not material for purposes of Section 5c(c)(2)(B) of the Act, must
be implemented through a prior certified submission under Sec. 40.6(a)
because of their potential effects on the operations of a DCM.
e. Section 40.5 Voluntary submission of rules for Commission review and
approval
Section 745 of the Dodd-Frank Act establishes a new standard for
the review of new rules or rule amendments. That standard, as codified
in proposed Sec. 40.5(b), requires the Commission to approve a new
rule or rule amendment unless the rule or rule amendment is
inconsistent with the Act or the Commission’s regulations promulgated
thereunder. In determining whether a rule is inconsistent with the Act,
the Commission may also consider, for example, whether the new rule or
rule amendment potentially disrupts market integrity, or increases
systemic risk.
The Commission also proposes amendments to the information required
to be submitted when requesting
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approval of amendments to the terms and conditions of a product under
Sec. 40.5. Consistent with Sec. 40.2 and Sec. 40.3, the Commission
proposes to amend Sec. 40.5(a)(7) to require a registered entity
submitting an amendment of a product’s terms and conditions to include
with its submission the documentation relied upon to establish the
basis for compliance with the Act and the Commission’s regulations
thereunder, including the applicable Core Principles.
Additionally, similar to Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10)
and 40.6 (a)(2), the Commission proposes in Sec. 40.5(a)(6) to require
registered entities to certify that the registered entity has posted a
copy of the pending product certification submission on the registered
entity’s Web site at the time of the filing. This will permit market
participants to receive prompt notice of new requests for approval
filed with the Commission. The Commission intends to continue its
current practice of publishing all requests for Commission review and
approval on its Web site. Finally, proposed Sec. 40.5(a)(11) requires
registered entities, in connection with the submission of a request for
changes to a product’s terms or conditions, to submit a written
statement that they have undertaken a due diligence review of the legal
conditions, including conditions relating to contractual and
intellectual property rights, that may affect the trading of the
product, similar to the statement required in Sec. Sec. 40.2 and 40.3.
f. Section 40.6 Self-certification of rules
Section 745 of the Dodd-Frank Act amended Section 5c(c) of the Act
to include a new 10-day certification review period for all rules and
rule amendments submitted to the Commission by registered entities and
to permit the Commission to stay the certification of rules or rule
amendments that, among other things, present novel or complex issues
that require additional time to analyze. The Commission proposes to
codify these new certification provisions in Sec. 40.6, as follows.
To implement the amended procedures for self-certification of rules
described in Section 745 of the Dodd-Frank Act, the Commission proposes
in Sec. 40.6(a)(3) to require registered entities to submit self-
certifications at least ten business days before the projected
effective date. A rule certification will become effective ten business
days after the Commission receives the certification, unless the
Commission notifies the registered entity, within 10 business days,
that it is staying the certification pursuant to Sec. 40.6(c).
Parallel to proposed Sec. 40.5(a), proposed Sec. 40.6(a) requires
a registered entity to certify that the registered entity has posted a
copy of the pending product certification submission on the registered
entity’s Web site at the time of the filing. This will permit market
participants to receive prompt notice of new rules or rule amendments
filed with the Commission. The Commission intends to continue its
current practice of publishing the self-certified rules on its Web
site.
Further, in proposed Sec. 40.6(a)(6), the Commission clarifies the
distinction between rules that establish standards and authorize
appropriate parties to respond to an emergency–which must be submitted
to the Commission prior to implementation–and rules that implement a
response to a particular emergency–which, in certain circumstances,
may be submitted to the Commission after implementation.
Similar to Sec. Sec. 40.2, 40.3 and 40.5, proposed Sec.
40.6(a)(7)(v) requires that amendments to the terms and conditions of a
product be accompanied by documentation relied upon to establish the
basis for compliance with the Act and the regulations thereunder,
including the applicable Core Principles.
As is proposed for Sec. Sec. 40.2, 40.3 and 40.5 and discussed
above, the Commission proposes to amend Sec. 40.6(a)(7)(viii) to
require registered entities to include with their certification of any
changes to a product’s terms and conditions, a written statement that
they have undertaken a due diligence review of legal conditions
relating to futures or options trading based on the underlying product
or instrument.
Under proposed Sec. 40.6(b), a new rule or rule amendment will
become effective ten business days after the certified rule or rule
amendment is received by the Commission, unless the Commission notifies
the registered entity that it is staying the certification. Generally,
a DCM seeking to adopt a program (such as a program to address
conflicts of interest), which is in substance the same as a program
previously approved by the Commission, or an exchange seeking to change
a rule establishing trading hours or seeking to modify the terms and
conditions of a listed contract for which it has provided sufficient
evidence of compliance with Core Principles, may self-certify and,
without Commission action, implement the proposed rule or rule
amendment after ten business days.
Proposed Sec. 40.6(c)(1) stays the certification of a rule if the
Commission determines that the new rule or rule amendment presents
novel or complex issues, is certified with an inadequate explanation,
or is potentially inconsistent with the Act or the Commission’s
regulations thereunder. Once the Commission issues a notification of
stay to the registered entity, the Commission will have 90 days to
conduct a review. The rule will be certified upon expiration of the 90-
day review period unless the Commission objects to the certification.
If the Commission decides to lift the stay prior to the expiration of
the 90-day review period, the Commission will notify the registered
entity of its action.
The Commission also notes that the new stay provision in proposed
Sec. 40.6(c)(1) is distinct from the stay provision presently in
effect under current Sec. 40.6(b), which the Commission proposes to
move to Sec. 40.6(c)(4). The latter provision, which implements
Commission authority under section 8a(7) of the Act, permits the
Commission to stay the effectiveness of a rule or rule amendment that
already has been implemented pursuant to the self-certification
procedures in Sec. 40.6(a). Conversely, the new stay provision in
proposed Sec. 40.6(c)(1), pursuant to the Commission’s new authority
in Section 745 of the Dodd-Frank Act, authorizes a stay of the
certification itself and would be issued during the review process,
thereby possibly preventing the certified rule or rule amendment from
ever becoming effective in the first instance.
A stay of a rule certification may be appropriate, for example,
where a registered entity certifies a rule that raises unique issues
not previously reviewed by Commission staff. In addition, the
Commission believes that new rules or rule amendments may raise a
number of complex issues if they appear to have a material impact on
the futures market or the underlying cash market. Thus such rules are
more likely to be subject to an extended review period to allow the
Commission to adequately identify and address complex regulatory
issues. For example, the Commission may need more than ten business
days to determine whether a proposed market maker incentive program
appropriately encourages market liquidity and does not have unnecessary
anticompetitive effects. Staff might also need more than ten business
days to analyze whether deliverable supplies of an underlying commodity
are sufficient to support a proposed change to a spot month speculative
position limit on a physical-delivery contract. The above mentioned
[[Page 67287]]
examples of submissions often raise a number of complex issues that may
require an extended review period.
Proposed Sec. 40.6(c)(2) provides for a 30-day public comment
period, within the 90-day review period, whenever the Commission
determines to stay a new rule or rule amendment and take it under
further review. Under proposed Sec. 40.6(c)(2), the Commission would
provide notice of the comment period by posting the notice and the new
rule or rule amendment submission on the Commission’s Web site.10
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10 It is the Commission’s intention to promptly post the
notice and new rule or rule amendment in order to commence the
public comment period as soon as possible within the 90-day review
period. This will maximize the amount of time after the comment
period closes for the submitter to respond to public comments and
possibly revise its proposed rule or rule amendment and for the
Commission to thoroughly consider the issues raised by the new rule
or rule amendment.
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The Commission believes that publication of the notice of the 30-
day comment period on the Commission’s Web site, www.cftc.gov, will
provide the public and market participants with the timely opportunity
to comment on new rules or rule amendment submissions. The Commission
routinely uses its Web site to disseminate information regarding
Commission activities and industry filings.11 Web site publication
would facilitate public comment while allowing Commission staff
adequate time to assess comments and complete a substantive analysis
within the statutory 90-day time frame. Finally, the Commission
anticipates enhancements to its Web site publication procedures to
promptly inform interested members of the public of stayed rules
through email notifications on the Commission’s Web site.
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11 In addition, the Commission’s Web site provides a link for
signing up to receive press releases issued by the Office of Public
Affairs. This service enables members of the public to be apprised
of the opening of comment periods in a timely manner.
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The Commission is also exploring the possibility of having
registered entities file rule certifications, as well as other types of
submissions, through a portal located at www.cftc.gov. The Commission
believes that allowing registered entities to file rule certifications
in this manner will simplify the filing process and also provide the
public with close to real-time access to new rules and rule amendments
submitted to the Commission for review. The Commission is determining
the technological requirements necessary to implement this filing
process. Once the Commission has formulated a process for submitting
certifications through the Commission’s Web site, the Commission will
notify the public and establish a timeline to implement new electronic
filing procedures.
The Commission proposes several amendments to Sec. 40.6(d).
Specifically, the Commission proposes to permit registered entities to
implement reductions to a contract’s minimum tick size without approval
by or certification to the Commission, in order to maintain consistency
between Sec. Sec. 40.4(b) and 40.6(d). The Commission in proposed
Sec. 40.6(d)(2)(v), requires that fee changes associated with market
making or other incentive programs be submitted for Commission review
under Sec. 40.6(a). Finally, the Commission also proposes that changes
to the terms of all options, including options on agricultural
products, options on futures, and options on physicals, that relate to
the strike price listing procedures, strike price intervals, and the
listing of strike price on a discretionary basis, be implemented
without certification or notice under Sec. 40.6(d)(3).
g. Section 40.7 Delegations
To ensure that the review process is conducted in an efficient
manner, the Commission proposes to amend Sec. 40.7 to delegate to the
Director of the Division of Clearing and Intermediary Oversight and,
separately, to the Director of the Division of Market Oversight, after
consultation with the General Counsel or the General Counsel’s
designee, the authority to extend the review of new contracts, rules
and rule amendments submitted to the Commission pursuant to Sec.
40.3(d) and Sec. 40.5(d) and the authority to stay the certification
of new rules or rule amendments pursuant to Sec. 40.6(c), when the
submission raises novel or complex issues that require additional time
to analyze, is of major economic significance or is potentially
inconsistent with the Act or Commission Regulations.
Furthermore, the Commission proposes to delegate to the Director of
the Division of Clearing and Intermediary Oversight and, separately, to
the Director of the Division of Market Oversight the authority to stay
or to extend the review of new products, new rules and rule amendments
pursuant to Sec. 40.3 (d) or Sec. 40.5(d) or Sec. 40.6(c), when the
submission is incomplete or accompanied by an inadequate explanation.
Finally, proposed Sec. 40.7(a)(1)(iii) delegates to the Director
of the Division of Clearing and Intermediary Oversight or the
Director’s designee, subject to the concurrence of the General Counsel
or the General Counsel’s designee, all determinations under proposed
Sec. 40.10 with respect to a SIDCO’s proposed change in rules,
procedures or operations that could materially affect the nature or
level of risks presented by the SIDCO. This includes a determination
that the proposed change is consistent with the Act and the
Commission’s regulations, and the purposes of the Dodd-Frank Act and
any applicable rules, orders or standards prescribed under Section
805(a) of the Dodd-Frank Act.
h. Section 40.8 Availability of public information
This section describes information that the Commission will make
public and provides for procedures for requesting confidential
treatment of part 40 submissions to the Commission. The Commission
proposes to retain reference to an electronic trading facility on which
significant price discovery contracts are traded or executed in Sec.
40.8 until July 20, 2012. Although the Dodd-Frank Act eliminated these
entities, they are allowed to continue operation until July 20, 2012,
pursuant to grandfather relief issued by the Commission.12
—————————————————————————
12 See 75 FR 56513 (Sept. 16, 2010).
—————————————————————————
In addition, the Commission proposes to amend Sec. 40.8 to include
new registered entities, SEFs and SDRs. Confidential treatment requests
will be considered pursuant to part 145 of the Commission’s
regulations.13
—————————————————————————
13 17 CFR part 145.
—————————————————————————
i. Section 40.10 Special certification procedures for submission of
rules by systemically important derivatives clearing organizations
To implement the provisions of Section 806(e) of the Dodd-Frank
Act, proposed Sec. 40.10(a) would require a SIDCO to provide the
Commission with advance notice of any proposed change to its rules,
procedures or operations that could “materially affect the nature or
level of risks” presented by the SIDCO. The SIDCO would be required to
provide the notice not less than 60 days in advance of the proposed
change. Submission of proposed changes would be subject to the filing
requirements of Sec. 40.6(a)(1), as well as the Web site publication
requirements under Sec. 40.6(a)(2). In addition to providing
information required under Sec. 40.6(a)(7), the notice would have to
describe the nature of the change, the expected effects on risks to the
SIDCO, its clearing members, and the market, and how the SIDCO planned
to manage those risks. Under proposed 40.10(a)(2), concurrent with
providing the Commission with the advance notice or
[[Page 67288]]
any request or other information related to the advance notice, the
SIDCO would be required to provide the Board of Governors of the
Federal Reserve System with a copy of such notice, request or other
information.
Under proposed Sec. 40.10(b), changes that could materially affect
the nature or level of risks would be defined as those as to which
there is a reasonable possibility that the changes could substantially
affect the performance of essential clearing and settlement functions
or the overall nature or level of risk presented by the SIDCO. Such
changes could include, but would not be limited to, changes that
materially affect financial resources, participant and product
eligibility, risk management (including matters relating to margin and
stress testing), daily or intraday settlement procedures, default
procedures, system safeguards (business continuity and disaster
recovery), and governance. Materiality would be determined on a case-
by-case basis. If a SIDCO were to determine that a proposed change was
not material and it did not file an advance notice, but the Commission
determined that the change was material, the Commission could require
the SIDCO to withdraw the proposed change and provide advance notice
pursuant to Sec. 40.10.
The Commission requests comment on the proposed materiality
standard in general and, more specifically, whether another approach to
defining materiality would be more effective. The Commission further
requests comment on whether, as an alternative to the proposed
approach, the standard in proposed paragraph (b) should set forth
examples of changes that would be considered to be non-material and
could be treated in accordance with the provisions of Sec. 40.6. The
Commission solicits recommendations regarding what types of changes
might be identified as non-material. At a minimum, the Commission would
consider deeming to be non-material changes those listed in Sec.
40.6(c) (proposed to be redesignated as Sec. 40.6(d)) and that are
relevant to SIDCOs.14 The Commission notes that while this list of
non-material changes is useful in the broader context of all rule
changes that could be submitted under the certification procedures of
Sec. 40.6, the fact that the Dodd-Frank Act and Sec. 40.10 already
establish a materiality threshold makes the existing list of non-
material changes less meaningful for purposes of Sec. 40.10. The
Commission believes that any further refinement of what might be
considered non-material for purposes of Sec. 40.10 would have to be
appropriately circumscribed so as to be specific enough to provide
useful guidance for SIDCOs, while remaining broad enough so as not to
inappropriately limit the types of changes that the Commission would
consider material and subject to the procedures of Sec. 40.10.
—————————————————————————
14 Non-material changes include, for example, corrections of
typographical errors, renumbering, periodic updates to identifying
information about approved entities and other such non-substantive
revisions of a product’s terms and conditions that have no effect on
the economic characteristics of the product. See Sec.
40.6(c)(2)(i).
—————————————————————————
Under proposed Sec. 40.10(c), the Commission may require a SIDCO
to provide further information to assess the nature or level of any
risks associated with the proposed change and the sufficiency of any
proposed risk management technique.
Further, under proposed Sec. 40.10(d), within 60 days from the
date the Commission received a notice of a proposed change, the
Commission would inform a SIDCO if it objects to the proposed change on
the grounds that the change is not consistent with the Act or the
Commission’s regulations, or the purposes of the Dodd-Frank Act or any
applicable rules, orders, or standards prescribed under Section 805(a)
of the Dodd-Frank Act. If the Commission were to require further
information, the Commission would have an additional 60 days after the
date the Commission received the requested information, to inform the
SIDCO of any objection to the proposed change. The Commission may ask
for additional information more than once. In such case, the review
period would be extended 60 days from the date that the information
pertaining to the last request was received.
Proposed Sec. 40.10(e) would allow a SIDCO to implement a proposed
rule change if the review period lapsed without Commission action.
Proposed Sec. 40.10(f) would allow the Commission, during the 60-
day review period, to extend the review period for an additional 60
days if the proposed change raised novel or complex issues. For
example, if the Commission does not request additional information but
extends the review period 60 days upon receiving the advance notice,
the maximum review period would be 120 days after receipt of the
advance notice. On the other hand, if the Commission requests and
obtains additional information 30 days after receiving the notice and
then extends the review period 60 days in order to consider complex or
novel issues, then the Commission would have a maximum of 150 days to
reach a determination after receipt of the advance notice.
Proposed Sec. 40.10(g) would permit a SIDCO to implement a
proposed change prior to the expiration of the review period if it
received a notification in writing from the Commission that the
Commission does not object to the proposed change and authorizes the
SIDCO to implement the change. Such authorization may be subject to
conditions imposed by the Commission.
Proposed Sec. 40.10(h) would permit a SIDCO to implement a change
without providing 60 days advance notice to the Commission if the SIDCO
determined that an emergency exists and immediate implementation of the
change was necessary for the SIDCO to continue to provide its services
in a safe and sound manner. The SIDCO would be required to notify the
Commission of the emergency change as soon as practicable, but no later
than 24 hours after implementation of the change. The notification must
provide the information required in an advance notice, as well as
describe the nature of the emergency and explain why the emergency
change was necessary for the SIDCO to continue to provide its services
in a safe and sound manner. Under the proposed regulation, the
Commission could require modification or rescission of the emergency
change if the Commission determined that the change was not consistent
with the Act or the Commission’s regulations or the purposes of the
Dodd-Frank Act, or any applicable rules, orders, or standards
prescribed under section 805(a) of the Dodd-Frank Act.
Finally, the Commission requests comment on whether there are any
substantive changes to rules, procedures, or operations that should not
be permitted to be adopted under emergency circumstances without prior
notice to the Commission. For example, should there be restrictions on
a SIDCO’s ability to demand significantly higher assessments from
clearing members on an emergency basis?
j. Section 40.11 Review of event contracts based on certain excluded
commodities
Section 745(b) of the Dodd-Frank Act authorizes the Commission to
prohibit the listing, trading, or clearing of agreements, contracts,
transactions or swaps that are based upon an occurrence, extent of a
concurrence, or contingency (other than a change in the price, rate,
value, or level of a commodity not described in Section 1a(19)(i) of
the Act) that is beyond the control of the parties to the relevant
contract, agreement, or transaction and associated with financial,
commercial, or economic consequence, as defined in
[[Page 67289]]
Section 1a(19)(iv) of the Act, if the contract involves terrorism,
assassination, war, gaming, an activity that is unlawful under any
Federal or State law, or any similar activity that the Commission
determines, by rule or regulation, to be contrary to the public
interest.
Pursuant to this authority, the Commission proposes new Sec.
40.11(a)(1) to prohibit the listing, trading, or clearing of any above
mentioned agreements, contracts, transactions or swaps. In addition,
the Commission proposes new Sec. 40.11(a)(2) to prohibit the listing,
trading, or clearing of any agreements, contracts, transactions or
swaps involving activities similar to those enumerated in Sec.
40.11(a)(1) and that the Commission determines, by rule or regulation,
to be contrary to the public interest.
If during the review process for a product submitted under Sec.
40.2 or Sec. 40.3, the Commission determines that such product may
involve an activity that is enumerated in Sec. 40.11(a), the
Commission will request that the registered entity suspend the listing
or trading of the contract and will conduct a 90-day review to
determine whether the product violates Sec. 40.11(a). Upon completion
of its review, the Commission will issue an order, as required by
Section 745(b) of the Dodd-Frank Act, finding either that the product
violates or does not violate the prohibitions in proposed Sec.
40.11(a).
k. Section 40.12 Tolling of review period pending jurisdictional
determination
Under Section 718(a) of the Dodd-Frank Act, a registered entity
certifying, submitting for approval, or otherwise filing a proposal to
list a product having elements of both a security and a derivative may
provide notice of its proposal both to the Commission and the
Securities and Exchange Commission. However, under Section 718(a)(1)(B)
of the Dodd-Frank Act, if the registered entity chooses not to provide
such notice, then the Commission must notify the Securities and
Exchange Commission of the submission and accompany such notice with a
copy of the registered entity’s complete filing if it determines that
the proposal has elements of both securities and futures. If either
Commission requests a jurisdictional determination pursuant to Section
718 of the Dodd-Frank Act, the Commission will toll the applicable
product certification or approval review period until the issuance of a
final determination order.
If the Commission or the Securities and Exchange Commission seeks
judicial review of a jurisdictional determination, proposed Sec. 40.12
stays the challenged order, as well as the review period for the
product, until the United States Court of Appeals for the District of
Columbia Circuit issues a final determination pursuant to Section
718(b) of the Dodd-Frank Act, or until there is resolution of an appeal
of that determination. The submission review period will resume only
upon a finding that the Commission has jurisdiction over the
submission.
l. Revision of Appendices to Part 40
The Commission proposes to revise the appendices to Part 40 to
clarify the new regulatory requirements and to provide consistency with
the overall requirements of the Act, as amended by the Dodd-Frank Act.
The present content of Appendix A relates solely to the listing of
certain futures contracts by DCMs and not to the listing of contracts
by registered entities generally. Accordingly, the Commission proposes
to delete the content of Appendix A, currently titled “Guideline No.
1,” from part 40. The substance of the appendix will be incorporated
into part 38 as part of a separate rulemaking.
In addition, the Commission proposes to move and incorporate the
current language in Appendix B, currently titled, “Schedule of Fees,”
into Appendix A. The Commission proposes to reserve Appendix B for a
future rulemaking. Appendix C remains reserved.
The Commission proposes minor amendments to the submission cover
sheet and instructions provided in Appendix D to part 40. The proposed
submission cover sheet has been modified to include SEFs and SDRs. The
amended cover sheet will be posted on the Commission’s Web site upon
publication of the final rules. The Commission also proposes to amend
the instructions in Appendix D to clarify that registered entities must
describe the substance of the submission with enough specificity to
characterize all material aspects of the filing. A description of the
submission should allow a party reading it to ascertain the subject and
effect of the submission. For example, a description of “Market
Regulation Advisory” does not provide the reader with sufficient
information to understand what the particular Advisory addresses or its
effect, thereby rendering the description less useful. A clear and
informative description will facilitate and expedite the posting of the
submission on the Commission’s Web site. As noted above, the Commission
is exploring whether an electronic submission system can be established
and made available to registered entities in the near future. The
Commission is seeking the public’s view on whether automated submission
of rules, rule amendments, and products might be facilitated by a Web
site portal dedicated to this purpose.
III. Related Matters
a. Regulatory Flexibility Act
The Regulatory Flexibility Act (“RFA”) 15 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.16 The proposed rules detailed in this release would require
DCOs, DCMs, SEFs and SDRs to submit to the Commission, before they
become effective, new products, new rules, and rule amendments, with a
self-certification that the rules comply with the Act and Commission
regulations. The requirements for the self-certification are not
complex, and may be satisfied by the completion of a cover sheet with a
detailed explanation of the filing. These self-certification rules will
not impose a significant economic impact on any entity.
—————————————————————————
15 5 U.S.C. 601 et seq.
16 5 U.S.C. 601 et seq.
—————————————————————————
Moreover, the Commission previously determined that DCOs and DCMs
are not “small entities” for purposes of the RFA.17 The Commission
has not determined whether SEFs and SDRs, new registered entities
created by the Dodd-Frank Act, are small entities. The Dodd-Frank Act
defines an SDR to mean any person that collects and maintains
information or records with respect to transactions or positions in, or
the terms and conditions of, swaps entered into by third parties for
the purpose of providing a centralized recordkeeping facility for
swaps. The Dodd Frank Act defines a SEF to mean a trading system or
platform in which multiple participants have the ability to execute or
trade swaps by accepting bids and offers made by multiple participants
in the facility or system, through any means of interstate commerce,
including any trading facility that facilitates the execution of swaps
between persons and is not a DCM.18
—————————————————————————
17 47 FR 18618, 18619 (April 30, 1982) and 66 FR 45604, 45609
(August 29, 2001).
18 See Section 721 of the Dodd-Frank Act. The Commission
anticipates proposing regulations that would further specify those
entities that must register as a SEF. The Commission does not
believe that such proposals would alter its determination that a SEF
is not a “small entity” for purposes of the RFA.
—————————————————————————
[[Page 67290]]
The Commission previously determined that DCMs and DCOs are not
“small entities” for purposes of the RFA. The Commission’s reasoning
included the fact that the Commission designates a contract market or a
DCO only when the entity meets specific criteria, including the
expenditure of sufficient resources to establish and maintain adequate
self-regulatory programs. Likewise, the Commission will register an
entity such as a SEF or an SDR only after the entity has met a number
of criteria, including the expenditure of sufficient resources to
establish and maintain an adequate self-regulatory program.19 Because
SEFs and SDRs will be required to demonstrate compliance with Core
Principles, many of which are similar to those applicable to DCMs and
DCOs, the Commission hereby determines that SEFs and SDRs are not
“small entities” for the purposes of the RFA.
—————————————————————————
19 See Core Principle 2 applicable to SEFs under Section 733
of the Dodd-Frank Act and Core Principles 1-3 applicable to SDRs
under Section 728 of the Dodd-Frank Act.
—————————————————————————
Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. Sec. 605(b) that the proposed rules
will not have a significant impact on a substantial number of small
entities. The Commission invites the public to comment on all aspects
of this Regulatory Flexibility Analysis.
b. Paperwork Reduction Act
The Commission may not conduct or sponsor, and a registered entity
is not required to respond to, a collection of information unless it
displays a currently valid Office of Management and Budget (“OMB”)
control number. Proposed amendments to Sec. Sec. 40.2, 40.3, 40.5 and
40.6 will impose new information collection requirements within the
meaning of the Paperwork Reduction Act 20 on registered entities, as
will new proposed Sec. Sec. 40.10 and 40.12. Accordingly, the
Commission has requested that OMB approve and assign a new control
number for the proposed collections of information. In connection with
its request, the Commission has submitted this notice of proposed
rulemaking along with supporting documentation for OMB’s review in
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this
collection of information is Part 40, Provisions Common to Registered
Entities, OMB control number 3038-D07. If adopted, responses to this
new collection of information will be mandatory.
—————————————————————————
20 44 U.S.C. 3501 et seq.
—————————————————————————
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 Act
strictly prohibits the Commission, unless specifically authorized by
the Act, 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
also is required to protect certain information contained in a
government system of records according to the Privacy Act of 1974, 5
U.S.C. 552a.
1. Information Provided by Reporting Entities/Persons
The proposed rules require DCMs, DCOs, and new registered entities,
SEFs and SDRs, to collect and submit to the Commission new rules,
amended rules and new products pursuant to the procedures outlined in
proposed Sec. Sec. 40.2, 40.3, 40.5, 40.6, 40.10, and 40.12. The
Commission proposes these information collection requirements in order
to give effect to various notice, rule certification, and rule approval
provisions of the Dodd-Frank Act.
The Commission estimated the proposed information collection
burdens on registered entities below. These estimates account for (1)
the number of respondents; (2) the number of responses required of each
respondent; (3) the average hours required to produce each response;
and (4) the aggregate annual reporting burden. The Commission estimates
that the aggregate effect of proposed Sec. Sec. 40.2, 40.3, 40.5,
40.6, 40.10, and 40.12 will be to increase the overall information
collection burden on registered entities by approximately 8,300 hours
per year, resulting mostly from the preparation of materials to be
filed with the Commission in connection with the listing of products or
the certification or approval of rules and rule amendments. The
Commission estimates that there will be 70 designated or registered
entities that would be required to file documentation with the
Commission on a periodic basis.
Proposed Sec. Sec. 40.5 and 40.6 require each registered entity to
comply with new certification and approval requirements when seeking to
implement new rules or rule amendments, including changes to product
terms or conditions. In addition, to ensure that market participants
are promptly notified of product and rule submissions to the
Commission, proposed Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10),
40.5(a)(6), and 40.6(a)(2) require registered entities to state that
they posted a copy of the certification or request for approval on the
registered entity’s Web site at the time of the filing with the
Commission.
Estimated number of respondents: 45.
Annual responses by each respondent: 120.
Estimated average hours per response: 2.52.
Aggregate annual reporting burden: 13,608.
Proposed Sec. 40.10 requires SIDCOs to provide to the Commission
60 days advance notice of proposed changes to rules, procedures or
operations that could materially affect the nature or level of risks
presented by the SIDCO.
Estimated number of respondents: 4.
Annual responses by each respondent: 2.
Estimated average hours per response: 5.
Aggregate annual reporting burden: 40.
Proposed Sec. 40.12 requires registered entities to provide notice
to the Commission and the Securities and Exchange Commission when
certifying, submitting for approval, or otherwise filing a proposal to
list a product having elements of both a security and a derivative.
Estimated number of respondents: 17.
Annual responses by each respondent: 34.
Estimated average hours per response: 2.52.
Aggregate annual reporting burden: 1,456.
The Commission invites public comment on the accuracy of its
estimate of the collection requirements that would result from the
proposed regulations.
2. Information Collection Comments
The Commission invites the public and other federal agencies to
comment on the information collection requirements proposed in this
notice. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to: (1) Evaluate whether the proposed collections of
information are necessary for the proper performance of the functions
of the Commission, including whether the information will have
practical utility; (2) evaluate the accuracy of the estimated burden of
the proposed information collection requirements, including the degree
to which the methodology and the assumptions that the Commission
employed were valid; (3) determine whether there are ways to enhance
the quality, utility, or clarity of the
[[Page 67291]]
information proposed to be collected; and (4) minimize the burden of
the proposed collections of information on DCMs, SEFs, DCOs, and SDRs,
for example through implementation of an electronic rule and product
submission system.
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 they can be summarized and addressed in
the final rule. 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 release.
Consequently, a comment to OMB is best assured of receiving full
consideration only if received by OMB (and the Commission) within 30
days of publication of this notice of proposed rulemaking.
c. Cost-Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its actions before issuing new regulations or
orders.21 By its terms, Section 15(a) does not require the Commission
to quantify the costs and benefits of a new regulation or to determine
whether the benefits of the proposed regulation outweigh its costs.
Rather, Section 15(a) requires the Commission to “consider the costs
and benefits” of its proposed regulation. Section 15(a) further
specifies that 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. In conducting its analysis, the Commission may, in its
discretion, give greater weight to any one of the five enumerated areas
and it may determine that, notwithstanding its costs, a particular rule
is necessary to protect the public interest or to effectuate any of the
provisions or to accomplish any of the purposes of the Act.22
—————————————————————————
21 7 U.S.C. 19(a).
22 See, e.g., Fisherman’s Doc Co-op., Inc v. Brown, 75 F.3d
164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336
(DC Cir. 1985) (noting that an agency has discretion to weigh
factors in undertaking cost-benefit analysis).
—————————————————————————
As discussed above, the proposed regulations require registered
entities, including DCMs, SEFs, DCOs, and SDRs, to comply with new
certification and approval procedures when submitting products and
rules for Commission review. These procedures are mandatory pursuant to
the Dodd-Frank Act. The Commission has determined that the costs
associated with the self-certification and submission for Commission
review of new products, new rules, and rule amendments will not
negatively affect the efficiency, competitiveness, and financial
integrity of the futures and swaps markets, particularly because of the
time limits that Congress has imposed on Commission review. The
Commission will have 10 days to review new products, new rules, and
rule amendments, and only 90 days if it stays a rule to issue a rule
approval or disapproval.
The Commission believes that the benefits of the rulemaking are
significant. The Commission’s certification and approval procedures
ensure that registered entities do not enact rules that may be
anticompetitive, unfair to market participants, or otherwise
detrimental to the public interest. In addition, the special
certification procedures for SIDCOs and certain event contracts
implement Section 745 of the Dodd-Frank Act and ensure that the
Commission has adequate time and information to analyze the registered
entity’s proposal and to consider the broader implications of
permitting the entity to implement the rule or list the product. The
SIDCO notice requirement, in particular, may be crucially important to
the Commission’s oversight of sound risk management practices and to
its efforts to mitigate systemic risks, whereas the proposed event
contract provisions, consistent with the intent of Congress, prevent
individuals from speculating on activities that are harmful to national
security and potentially detrimental to the stability of the futures
markets and their price discovery function. Finally, the Commission’s
notice requirements with respect to the submission of novel derivative
products promote cooperation between the Commission and the SEC and
facilitate more effective and less duplicative regulation of registered
entities.
For these reasons, the Commission believes that the certification
and approval procedures proposed in this notice are needed to fulfill
the requirements of the Dodd-Frank Act in order to protect market
participants and to ensure the continued competitiveness and financial
integrity of the futures and derivative markets.
The Commission invites public comment on its cost-benefit
considerations. Commenters are also invited to submit any data or other
information that they may have quantifying or qualifying the costs and
benefits of the proposal with their comment letters.
List of Subjects in 17 CFR Part 40
Commodity futures, Contract markets, Designation application,
Reporting and recordkeeping requirements, Swap execution facility, Swap
data repository, Systemically important derivatives clearing
organization, Rule approval, Rule certification, Review of certain
event contracts.
In light of the foregoing, and pursuant to authority in the Act,
and, in particular, Sections 3, 5, 5c(c) and 8a(5) of the Act, the
Commission hereby proposes to revise Part 40 of Title 17 of the Code of
Federal Regulations to read as follows:
PART 40–PROVISIONS COMMON TO REGISTERED ENTITIES
Sec.
40.1 Definitions.
40.2 Listing and accepting products for trading or clearing by
certification.
40.3 Voluntary submission of new products for Commission review and
approval.
40.4 Amendments to terms or conditions of enumerated agricultural
products.
40.5 Voluntary submission of rules for Commission review and
approval.
40.6 Self-certification of rules.
40.7 Delegations.
40.8 Availability of public information.
40.9 Corporate governance [Reserved]
40.10 Special certification procedures for submission of rules by
systemically important derivatives clearing organizations.
40.11 Review of event contracts based on certain excluded
commodities.
40.12 Tolling of review period pending jurisdictional determination.
Appendix A to Part 40–Schedule of Fees
Appendix B to Part 40–[Reserved]
Appendix C to Part 40–[Reserved]
Appendix D to Part 40–Submission Cover Sheet and Instructions
Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 12, as amended by
Titles VII and VIII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
Sec. 40.1 Definitions.
As used in this part:
(a) Business day means the intraday period of time starting at the
business hour of 8:15 a.m. and ending at the
[[Page 67292]]
business hour of 4:45 p.m.; business hour means any hour between 8:15
a.m. and 4:45 p.m.. Business day and business hour are Eastern Standard
Time or Eastern Daylight Savings Time, whichever is currently in effect
in Washington, DC, on all days except Saturdays, Sundays and federal
holidays in Washington, DC.
(b) Dormant contract or dormant product means:
(1) Any agreement, contract, transaction, instrument, swap or any
such commodity futures or option contract with respect to all future or
option expiries, listed on a designated contract market, a swap
execution facility or cleared by a registered derivatives clearing
organization, that has no open interest and in which no trading has
occurred for a period of twelve complete calendar months following a
certification to, or approval by, the Commission; provided, however,
that no contract or instrument under this paragraph (b)(1) initially
and originally certified to, or approved by, the Commission within the
preceding 36 complete calendar months shall be considered to be
dormant; or
(2) Any commodity futures or option contract, swap or other
agreement, contract, transaction or instrument of a dormant designated
contract market, swap execution facility or a dormant derivatives
clearing organization; or
(3) Any commodity futures or option contract or other agreement,
contract, swap, transaction or instrument not otherwise dormant that a
designated contract market, a swap execution facility or a derivatives
clearing organization self-declares through certification to be
dormant.
(c) Dormant designated contract market means any designated
contract market on which no trading has occurred during the period of
twelve consecutive calendar months, preceding the first day of the most
recent calendar month; provided, however, no designated contract market
shall be considered to be dormant if its initial and original
Commission order of designation was issued within the preceding 36
consecutive calendar months.
(d) Dormant derivatives clearing organization means any derivatives
clearing organization registered pursuant to Section 5b of the Act that
has not accepted for clearing any agreement, contract or transaction
that is required or permitted to be cleared by a derivatives clearing
organization under Sections 5b(a) and 5b(b) of the Act, respectively,
for a period of twelve complete calendar months; provided, however, no
derivatives clearing organization shall be considered to be dormant if
its initial and original Commission order of registration was issued
within the preceding 36 complete calendar months.
(e) Dormant swap data repository means any registered swap data
repository on which no data has resided for a period of twelve
consecutive calendar months, preceding the most recent calendar month.
(f) Dormant swap execution facility means any swap execution
facility on which no trading has occurred for a period of twelve
consecutive calendar months, preceding the first day of the most recent
calendar month; provided, however, no swap execution facility shall be
considered to be dormant if its initial and original Commission order
of registration was issued within the preceding 36 consecutive calendar
months.
(g) Dormant rule means:
(1) Any registered entity rule which remains unimplemented for
twelve consecutive calendar months following a certification with, or
an approval by, the Commission; or
(2) Any rule or rule amendment of a dormant designated contract
market, dormant swap execution facility, dormant swap data repository
or dormant derivatives clearing organization.
(h) Emergency means 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, swaps or transactions or the timely collection and payment
of funds in connection with clearing and settlement by a derivatives
clearing organization, 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, swaps 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 or clearing and settlement; and
(5) Any other circumstance which may have a severe, adverse effect
upon the functioning of a registered entity.
(i) Rule means any constitutional provision, article of
incorporation, bylaw, rule, regulation, resolution, interpretation,
stated policy, terms and conditions, trading protocol, agreement or
instrument corresponding thereto, including those that authorize a
response or establish standards for responding to a specific emergency,
in whatever form adopted, and any amendment or addition thereto or
repeal thereof, made or issued by a registered entity or by the
governing board thereof or any committee thereof.
(j) Terms and conditions means any definition of the trading unit
or the specific commodity underlying a swap or a contract for the
future delivery of a commodity or commodity option contract,
specification of cash settlement or delivery standards and procedures,
and establishment of buyers’ and sellers’ rights and obligations under
the swap or contract. Whenever possible, all proposed swap or contract
terms and conditions should conform to industry standards or those
terms and conditions adopted by comparable contracts. Terms and
conditions include provisions relating to the following:
(1) Quality and other standards that define the commodity or
instrument underlying the contract;
(2) Quantity standards or other provisions related to swap or
contract size;
(3) Any applicable premiums or discounts for delivery of nonpar
products;
(4) Trading hours, trading months and the listing of swaps or
contracts;
(5) The pricing basis, minimum price fluctuations, and maximum
price fluctuations;
(6) Any price limits, trading halts, or circuit breaker provisions,
and procedures for the establishment of daily settlement prices;
(7) Position limits, position accountability standards, and
position reporting requirements;
(8) Delivery points and locational price differentials;
(9) Delivery standards and procedures, including fees related to
delivery or the delivery process; alternatives to delivery and
applicable penalties or sanctions for failure to perform;
(10) If cash settled; the definition, composition, calculation and
revision of the cash settlement price or index;
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(11) Payment or collection of commodity option premiums or margins;
(12) Option exercise price, if it is constant, and method for
calculating the exercise price, if it is variable;
(13) Threshold prices for an option contract, the existence of
which is contingent upon those prices;
(14) Any restrictions or requirements for exercising an option; and
(15) With respect to swaps cleared by a derivatives clearing
organization, specifications including but not limited to:
(i) Notional values;
(ii) Relevant dates, tenor, and day count conventions;
(iii) Index;
(iv) Relevant prices, rates or coupons;
(v) Currency;
(vi) Stub, premium, or initial cash flow components along with
subsequent life cycle events;
(vii) Payment and reset frequency;
(viii) Business calendars;
(ix) Accrual type; and
(x) Spread or points.
Sec. 40.2 Listing and accepting products for trading or clearing by
certification.
(a) A designated contract market or a swap execution facility must
comply with the submission requirements of this section prior to
listing a product for trading that has not been approved under Sec.
40.3 of this part or that remains dormant subsequent to being submitted
under this section or approved under Sec. 40.3 of this part. A
derivatives clearing organization must comply with the submission
requirements of this section prior to accepting for clearing a product
that is not listed or traded on a designated contract market,
derivatives clearing organization or a swap execution facility and has
not been approved for clearing under Sec. 40.3 or Sec. 40.5 of this
part or that remains dormant subsequent to being submitted under this
section or approved under Sec. 40.5 of this part. A submission shall
comply with the following conditions:
(1) The designated contract market, or the swap execution facility,
or the derivatives clearing organization has filed its submission
electronically in a format specified by the Secretary of the Commission
with the Secretary of the Commission at [email protected], and with
the relevant branch chief at the regional office having local
jurisdiction over the registered entity;
(2) The Commission has received the submission at its headquarters
by the open of business on the business day preceding the product’s
listing or acceptance for clearing; and
(3) The submission includes:
(i) A copy of the submission cover sheet in accordance with the
instructions in Appendix D to this part;
(ii) A copy of the product’s rules, including all rules related to
its terms and conditions, or the rules establishing the terms and
conditions of the listed product that make it acceptable for clearing;
(iii) The intended listing date;
(iv) A certification by the designated contract market, the swap
execution facility, or the derivatives clearing organization that the
product to be listed complies with the Act and Commission regulations
thereunder;
(v) The documentation relied on to establish the basis for
compliance with the applicable provisions of the Act and the
Commission’s regulations thereunder, including the Core Principles;
(vi) A written statement verifying that the registered entity has
undertaken a due diligence review of the legal conditions, including
conditions that relate to contractual and intellectual property rights,
which may materially affect the trading of the product;
(vii) Certification that the registered entity posted a notice of
pending product certification with the Commission and a copy of the
submission, concurrent with the filing of a submission with the
Commission, on the registered entity’s Web site. Information which the
registered entity seeks to keep confidential may be redacted from the
documents published on the registered entity’s Web site, but must be
republished consistent with any determination made pursuant to Sec.
40.8(c)(4);
(viii) A request for confidential treatment, if appropriate, as
permitted under Sec. 40.8.
(b) Additional information. If requested by Commission staff, a
registered entity shall provide any additional evidence, information or
data that demonstrates that the contract meets, initially or on a
continuing basis, all of the requirements of the Act and the
Commission’s regulations and policies thereunder.
(c) Stay. The Commission may stay the listing of a contract
pursuant to paragraph (a) of this section during the pendency of
Commission proceedings for filing a false certification or during the
pendency of a petition to alter or amend the contract terms and
conditions pursuant to Section 8a(7) of the Act. The decision to stay
the listing of a contract in such circumstances shall not be delegable
to any employee of the Commission.
Sec. 40.3 Voluntary submission of new products for Commission review
and approval.
(a) Request for approval. Pursuant to Section 5c(c) of the Act, a
designated contract market, a swap execution facility, or a derivatives
clearing organization may request that the Commission approve a new or
dormant product prior to listing the product for trading or clearing,
or if a product was initially submitted under Sec. 40.2 of this part,
subsequent to listing the product for trading or clearing. A submission
requesting approval shall:
(1) Be filed electronically with the Secretary of the Commission at
[email protected], and with the regional office of the Commission
having local jurisdiction over the registered entity in a format
specified by the Secretary of the Commission;
(2) Include a copy of the submission cover sheet in accordance with
the instructions in Appendix D to this part;
(3) Include a copy of the rules that set forth the contract’s terms
and conditions;
(4) Include the documentation relied on to establish the basis for
compliance with the applicable provisions of the Act and the
Commission’s regulations thereunder, including the Core Principles;
(5) Describe any agreements or contracts entered into with other
parties that enable the registered entity to carry out its
responsibilities;
(6) Include the certifications required in Sec. 41.22 for product
approval of a commodity that is a security future or a security futures
product as defined in Sections 1a(44) or 1a(45) of the Act,
respectively, and, if applicable, include the notice required in Sec.
40.12(a) for the listing of novel derivative products;
(7) Include, if appropriate, a request for confidential treatment
as permitted under Sec. 40.8;
(8) Include the filing fee required under Appendix A to this part;
(9) Include a written statement verifying that the registered
entity has undertaken a due diligence review of the legal conditions,
including conditions relating to contractual and intellectual property
rights, that may materially affect the trading of the product;
(10) Certify that the registered entity posted a notice of pending
request for approval of new product with the Commission and a copy of
the submission, concurrent with the filing of a submission with the
Commission, on the registered entity’s Web site. Information which the
registered entity seeks to keep confidential may be redacted from the
documents published
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on the registered entity’s Web site, but must be republished consistent
with any determination made pursuant to Sec. 40.8(c)(4);
(11) Include, if requested by Commission staff, additional
evidence, information or data demonstrating that the contract meets,
initially or on a continuing basis, all of the requirements of the Act,
or other requirements for designation or registration under the Act or
the Commission’s regulations or policies thereunder. The registered
entity shall submit the requested information by the open of business
on the date that is two business days from the date of request by
Commission staff.
(b) Standard for review and approval. The Commission shall approve
a new product unless the terms and conditions of the product violate
the Act or the Commission’s regulations.
(c) Forty-five day review. All products submitted for Commission
approval under this paragraph shall be deemed approved by the
Commission 45 days after receipt by the Commission, or at the
conclusion of an extended period as provided under paragraph (d) of
this section, unless notified otherwise within the applicable period,
if:
(1) The submission complies with the requirements of paragraph (a)
of this section; and
(2) The submitting entity does not amend the terms or conditions of
the product or supplement the request for approval, except as requested
by the Commission or for correction of typographical errors,
renumbering or other non-substantive revisions, during that period. Any
voluntary, substantive amendment by the submitting entity will be
treated as a new submission under this section.
(d) Extension of time. The Commission may extend the 45 day review
period in paragraph (c) of this section for:
(1) An additional 45 days, if the product raises novel or complex
issues that require additional time for review in which case, the
Commission shall notify the registered entity within the initial 45 day
review period and shall briefly describe the nature of the specific
issues for which additional time for review is required; or
(2) Any extended review period to which the registered entity
agrees in writing.
(e) Notice of non-approval. The Commission at any time during its
review under this section may notify the registered entity that it will
not, or is unable to, approve the product. This notification will
briefly specify the nature of the issues raised and the specific
provision of the Act or the Commission’s regulations, including the
form or content requirements of paragraph (a) of this section, that the
product violates, appears to violate or potentially violates but which
cannot be ascertained from the submission.
(f) Effect of non-approval. (1) Notification to a registered entity
under paragraph (e) of this section of the Commission’s determination
not to approve a product does not prejudice the entity from
subsequently submitting a revised version of the product for Commission
approval or from submitting the product as initially proposed pursuant
to a supplemented submission.
(2) Notification to a registered entity under paragraph (e) of this
section of the Commission’s refusal to approve a product shall be
presumptive evidence that the entity may not truthfully certify under
Sec. 40.2 that the same, or substantially the same, product does not
violate the Act or the Commission’s regulations thereunder.
Sec. 40.4 Amendments to terms or conditions of enumerated
agricultural products.
(a) Notwithstanding the provisions of this part, a designated
contract market must submit for Commission approval under the
procedures of Sec. 40.5, prior to its implementation, any rule or
dormant rule that, for a delivery month having open interest, would
materially change a term or condition, as defined in Sec. 40.1(j), of
a contract for future delivery in an agricultural commodity enumerated
in Section 1a(9) of the Act, or of an option on such a contract or
commodity.
(b) The following rules or rule amendments are not material and
should not be submitted under this section:
(1) Changes that are enumerated in Sec. 40.6(d)(2) may be
implemented without prior approval or certification if implemented
pursuant to the notification procedures of Sec. 40.6(d);
(2) Changes that are enumerated in Sec. 40.6(d)(3)(ii) may be
implemented without prior approval or certification or notification as
permitted pursuant to Sec. 40.6(d)(3);
(3) Changes in trading hours may be implemented without prior
approval if implemented pursuant to the procedures of Sec. 40.6(a);
(4) Changes required to comply with a binding order of a court of
competent jurisdiction, or a rule, regulation or order of the
Commission or of another federal regulatory authority, may be
implemented without prior approval if implemented pursuant to the
procedures of Sec. 40.6(a); or
(5) Any other rule:
(i) The text of which has been submitted for review at least ten
business days prior to its implementation and that has been labeled
“Non-Material Agricultural Rule Change;”
(ii) For which the designated contract market has provided an
explanation as to why it considers the rule “non-material,” and any
other information that may be beneficial to the Commission in analyzing
the merits of the entity’s claim of non-materiality; and
(iii) With respect to which the Commission has not notified the
contract market during the review period that the rule appears to
require or does require prior approval under this section, may be
implemented without prior approval if implemented under the procedures
of Sec. 40.6(a).
Sec. 40.5 Voluntary submission of rules for Commission review and
approval.
(a) Request for approval of rules. Pursuant to Section 5c(c) of the
Act, a registered entity may request that the Commission approve a new
rule, rule amendment or dormant rule prior to implementation of the
rule, or if the request was initially submitted under Sec. Sec. 40.2
or 40.6 of this part, subsequent to implementation of the rule. A
request for approval shall:
(1) Be filed electronically with the Secretary of the Commission at
[email protected], and with the regional office of the Commission
having local jurisdiction over the registered entity in a format
specified by the Secretary of the Commission;
(2) Include a copy of the submission cover sheet in accordance with
the instructions in Appendix D to this part;
(3) Set forth the text of the rule or rule amendment (in the case
of a rule amendment, deletions and additions must be indicated);
(4) Describe the proposed effective date of the rule or rule
amendment and any action taken or anticipated to be taken to adopt the
proposed rule by the registered entity or by its governing board or by
any committee thereof, and cite the rules of the entity that authorize
the adoption of the proposed rule;
(5) Explain the operation, purpose, and effect of the proposed
rule, including, as applicable, a description of the anticipated
benefits to market participants or others, any potential
anticompetitive effects on market participants or others, and how the
rule fits into the registered entity’s framework of self-regulation;
(6) Certify that the registered entity posted a notice of pending
rule with the Commission and a copy of the
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submission, concurrent with the filing of a submission with the
Commission, on the registered entity’s Web site. Information which the
registered entity seeks to keep confidential may be redacted from the
documents published on the registered entity’s Web site but must be
republished consistent with any determination made pursuant to Sec.
40.8(c)(4);
(7) Include the documentation relied on to establish the basis for
compliance with the applicable provisions of the Act and the
Commission’s regulations thereunder, including the Core Principles;
(8) Provide additional information which may be beneficial to the
Commission in analyzing the new rule or rule amendment. If a proposed
rule affects, directly or indirectly, the application of any other rule
of the registered entity, the pertinent text of any such rule must be
set forth and the anticipated effect described;
(9) Describe briefly any substantive opposing views expressed to
the registered entity by governing board or committee members, members
of the entity or market participants with respect to the new rule or
rule amendment that were not incorporated into the new rule or rule
amendment;
(10) Identify any Commission regulation that the Commission may
need to amend, or sections of the Act or the Commission’s regulations
that the Commission may need to interpret, in order to approve the new
rule or rule amendment. To the extent that such an amendment or
interpretation is necessary to accommodate a new rule or rule
amendment, the submission should include a reasoned analysis supporting
the amendment to the Commission’s regulation or the interpretation;
(11) Include, for all products, a written statement verifying that
the registered entity has undertaken a due diligence review of the
legal conditions, including conditions relating to contractual and
intellectual property rights, which may materially affect the trading
of such product or products, if the proposed rule specifically relates
to one or more listed products;
(12) As appropriate, include a request for confidential treatment
as permitted under the procedures of Sec. 40.8;
(b) Standard for review and approval. The Commission shall approve
a new rule or rule amendment unless the rule or rule amendment is
inconsistent with the Act or the Commission’s regulations.
(c) Forty-five day review. (1) All rules submitted for Commission
approval under paragraph (a) of this section shall be deemed approved
by the Commission under section 5c(c) of the Act 45 days after receipt
by the Commission, or at the conclusion of such extended period as
provided under paragraph (d) of this section, unless the registered
entity is notified otherwise within the applicable period, if:
(i) The submission complies with the requirements of paragraph (a)
of this section;
(ii) The registered entity does not amend the proposed rule or
supplement the submission, except as requested by the Commission,
during the pendency of the review period other than for correction of
typographical errors, renumbering or other non-substantive revisions.
Any amendment or supplementation not requested by the Commission will
be treated as the submission of a new filing under this section.
(2) The Commission shall commence the review period in paragraph
(c) of this section for a compliant submission under Sec. 40.4(b)(5)
ten business days after its receipt.
(d) Commencement and extension of time for review. The Commission
may further extend the review period in paragraph (c) of this section
for any approval request for:
(1) An additional 45 days, if the proposed rule raises novel or
complex issues that require additional time for review or is of major
economic significance, the submission is incomplete or the requestor
does not respond completely to Commission questions in a timely manner,
in which case, the Commission shall notify the submitting registered
entity within the initial forty-five day review period and shall
briefly describe the nature of the specific issues for which additional
time for review shall be required; or
(2) Any period, beyond the additional 45 days provided in Sec.
40.5(d)(1), to which the registered entity agrees in writing.
(e) Notice of non-approval. Any time during its review under this
section, the Commission may notify the registered entity that it will
not, or is unable to, approve the new rule or rule amendment. This
notification will briefly specify the nature of the issues raised and
the specific provision of the Act or the Commission’s regulations,
including the form or content requirements of this section, with which
the new rule or rule amendment is inconsistent or appears to be
inconsistent with the Act or the Commission’s regulations.
(f) Effect of non-approval. (1) Notification to a registered entity
under paragraph (e) of this section does not prevent the registered
entity from subsequently submitting a revised version of the proposed
rule or rule amendment for Commission review and approval or from
submitting the new rule or rule amendment as initially proposed in a
supplemented submission; the revised submission will be reviewed
without prejudice.
(2) Notification to a registered entity under paragraph (e) of this
section of the Commission’s determination not to approve a proposed
rule or rule amendment of a registered entity shall be presumptive
evidence that the entity may not truthfully certify that the same, or
substantially the same, proposed rule or rule amendment under Sec.
40.6(a) of this section.
(g) Expedited approval. Notwithstanding the provisions of paragraph
(c) of this section, changes to a proposed rule or a rule amendment,
including changes to terms and conditions of a product that are
consistent with the Act and Commission regulations and with standards
approved or established by the Commission may be approved by the
Commission at such time and under such conditions as the Commission
shall specify in the written notification, provided, however, that the
Commission may, at any time, alter or revoke the applicability of such
a notice to any particular product or rule amendment.
Sec. 40.6 Self-certification of rules.
(a) Required certification. A registered entity shall comply with
the following conditions prior to implementing any rule that has not
obtained Commission approval under Sec. 40.5 of this part, that
remains dormant subsequent to being submitted under this section or
approved under Sec. 40.5 of this part, or that is submitted under
Sec. 40.10 of this part, except as otherwise provided by Sec.
40.10(a):
(1) The registered entity has filed its submission electronically
in a format specified by the Secretary of the Commission with the
Secretary of the Commission at [email protected] and with the
relevant branch chief at the regional office having local jurisdiction
over the registered entity.
(2) The registered entity has provided a certification that the
registered entity posted a notice of pending certification with the
Commission and a copy of the submission, concurrent with the filing of
a submission with the Commission, on the registered entity’s Web site.
Information that the registered entity seeks to keep confidential may
be redacted from the documents published on the registered entity’s Web
site, but it must be republished consistent with
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any determination made pursuant to Sec. 40.8(c)(4).
(3) The Commission has received the submission at its headquarters
not later than the open of business on the business day that is 10
business days prior to the registered entity’s implementation of the
rule or rule amendment.
(4) The Commission has not stayed the submission pursuant to Sec.
40.6(c).
(5) The rule or rule amendment is not a rule or rule amendment of a
designated contract market that materially changes a term or condition
of a contract for future delivery of an agricultural commodity
enumerated in section 1a(4) of the Act or an option on such a contract
or commodity in a delivery month having open interest;
(6) Emergency rule certifications. (i) New rules or rule amendments
that establish standards for responding to an emergency must be
submitted pursuant to Sec. 40.6(a);
(ii) Rules or rule amendments implemented under procedures of the
governing board to respond to an emergency as defined in Sec. 40.1,
shall, if practicable, be filed with the Commission prior to the
implementation or, if not practicable, be filed with the Commission at
the earliest possible time after implementation, but in no event more
than twenty-four hours after implementation; and
(7) The rule submission shall include:
(i) A copy of the submission cover sheet in accordance with the
instructions in Appendix D to this part (in the case of a rule or rule
amendment that responds to an emergency, “Emergency Rule
Certification” should be noted in the Description section of the
submission coversheet);
(ii) The text of the rule (in the case of a rule amendment,
deletions and additions must be indicated);
(iii) The date of intended implementation;
(iv) A certification by the registered entity that the rule
complies with the Act and the Commission’s regulations thereunder;
(v) The documentation relied on to establish the basis for
compliance with the applicable provisions of the Act and the
Commission’s regulations thereunder, including the Core Principles;
(vi) A brief explanation of any substantive opposing views
expressed to the registered entity by governing board or committee
members, members of the entity or market participants, that were not
incorporated into the rule, or a statement that no such opposing views
were expressed;
(vii) As appropriate, a request for confidential treatment pursuant
to the procedures provided in Sec. 40.8;
(viii) For amendments to a product’s terms or conditions, a written
statement certifying that the registered entity has undertaken a due
diligence review of the legal conditions, including conditions relating
to contractual and intellectual property rights, that may materially
affect the trading of the product.
(8) The registered entity shall provide, if requested by Commission
staff, additional evidence, information or data that may be beneficial
to the Commission in conducting a due diligence assessment of the
filing and the registered entity’s compliance with any of the
requirements of the Act or the Commission’s regulations or policies
thereunder.
(b) Review by the Commission. The Commission shall have 10 business
days to review the new rule or rule amendment before the new rule or
rule amendment is deemed certified and can be made effective, unless
the Commission notifies the registered entity during the 10-business
day review period that it intends to issue a stay of the certification
under paragraph (c) of this section.
(c) Stay–(1) Stay of certification of new rule or rule amendment.
The Commission may stay the certification of a new rule or rule
amendment submitted pursuant to paragraph (a) of this section by
issuing a notification informing the registered entity that the
Commission is staying the certification of the rule or rule amendment
on the grounds that the new rule or rule amendment presents novel or
complex issues that require additional time to analyze, the rule is
accompanied by an inadequate explanation or the rule is potentially
inconsistent with the Act or the Commission’s regulations thereunder.
The Commission will have 90 days from the date of the notification to
conduct the review. The decision to stay the certification of a rule in
such circumstances shall be delegable pursuant to Sec. 40.7 of this
part.
(2) Public comment. The Commission shall provide a 30-day comment
period, within the 90-day period while the stay is in effect as
described in paragraph (c)(1) of this section. The Commission shall
publish a notice of the 30-day comment period on the Commission Web
site. Comments from the public shall be submitted as specified in that
notice.
(3) Expiration of a stay of certification of new rule or rule
amendment. A new rule or rule amendment subject to a stay pursuant to
paragraph (c) shall become effective, pursuant to the certification, at
the expiration of the 90-day review period described in paragraph
(c)(1) of this section unless the Commission withdraws the stay prior
to that time, or the Commission notifies the registered entity during
the 90-day time period that it objects to the proposed certification on
the grounds that the proposed rule or rule amendment is inconsistent
with the Act or the Commission’s regulations.
(4) Stay of effectiveness of rules or rule amendments already
implemented. The Commission may stay the effectiveness of an
implemented rule during the pendency of Commission proceedings for
filing a false certification or during the pendency of a petition to
alter or amend the rule pursuant to section 8a(7) of the Act. The
decision to stay the effectiveness of a rule in such circumstances
shall not be delegable to any employee of the Commission.
(d) Notification of rule amendments. Notwithstanding the rule
certification requirement of Section 5c(c)(1) of the Act and paragraph
(a) of this section, a registered entity may place the following rules
or rule amendments into effect on the following business day without
certification to the Commission if the following conditions are met:
(1) The registered entity provides to the Commission at least
weekly a summary notice of all rule amendments made effective pursuant
to this paragraph during the preceding week. Such notice must be
labeled “Weekly Notification of Rule Amendments” and need not be
filed for weeks during which no such actions have been taken. One copy
of each such submission shall be furnished electronically in a format
specified by the Secretary of the Commission; and
(2) The rule governs:
(i) Non-substantive revisions. Corrections of typographical errors,
renumbering, periodic routine updates to identifying information about
approved entities and other such non-substantive revisions of a
product’s terms and conditions that have no effect on the economic
characteristics of the product;
(ii) Delivery standards set by third parties. Changes to grades or
standards of commodities deliverable on a product that are established
by an independent third party and that are incorporated by reference as
product terms, provided that the grade or standard is not established,
selected or calculated solely for use in connection with futures or
option trading and such changes do not affect deliverable supplies or
the pricing basis for the product;
[[Page 67297]]
(iii) Index products. Routine changes in the composition,
computation, or method of selection of component entities of an index
(other than routine changes to securities indexes to the extent that
such changes are not described in paragraph (d)(3)(ii)(F) of this
section) referenced and defined in the product’s terms, that do not
affect the pricing basis of the index, which are made by an independent
third party whose business relates to the collection or dissemination
of price information and which was not formed solely for the purpose of
compiling an index for use in connection with a futures or option
product;
(iv) Option contract terms. Changes to option contract rules, which
may qualify for implementation without notice pursuant to paragraph
(d)(3)(ii)(G) of this section, relating to the strike price listing
procedures, strike price intervals, and the listing of strike prices on
a discretionary basis;
(v) Fees. Fees or fee changes, other than fees or fee changes
associated with market making or trading incentive programs, that:
(A) Total $1.00 or more per contract, and
(B) Are established by an independent third party or are unrelated
to delivery, trading, clearing or dispute resolution.
(vi) Survey lists. Changes to lists of banks, brokers, dealers, or
other entities that provide price or cash market information to an
independent third party and that are incorporated by reference as
product terms;
(vii) Approved brands. Changes in lists of approved brands or
markings pursuant to previously certified or Commission approved
standards or criteria;
(viii) Delivery facilities and delivery service providers. Changes
in lists of approved delivery facilities and delivery service providers
(including weigh masters, assayers, and inspectors) at a delivery
location, pursuant to previously certified or Commission approved
standards or criteria;
(ix) Trading months. The initial listing of trading months, which
may qualify for implementation without notice pursuant to (d)(3)(ii)(H)
of this section, within the currently established cycle of trading
months; or
(x) Minimum tick. Reductions in the minimum price fluctuation (or
“tick”).
(3) Notification of rule amendments not required. Notwithstanding
the rule certification requirements of section 5c(c)(1) of the Act and
paragraph (a) of this section, a registered entity may place the
following rules or rule amendments into effect without certification or
notice to the Commission if the following conditions are met:
(i) The registered entity maintains documentation regarding all
changes to rules; and
(ii) The rule governs:
(A) Transfer of membership or ownership. Procedures and forms for
the purchase, sale or transfer of membership or ownership, but not
including qualifications for membership or ownership, any right or
obligation of membership or ownership or dues or assessments;
(B) Administrative procedures. The organization and administrative
procedures of a registered entity governing bodies such as a Board of
Directors, Officers and Committees, but not voting requirements, Board
of Directors or Committee composition requirements or procedures,
decision making procedures, use or disclosure of material non-public
information gained through the performance of official duties, or
requirements relating to conflicts of interest;
(C) Administration. The routine, daily administration, direction
and control of employees, requirements relating to gratuity and similar
funds, but not guaranty, reserves, or similar funds; declaration of
holidays, and changes to facilities housing the market, trading floor
or trading area;
(D) Standards of decorum. Standards of decorum or attire or similar
provisions relating to admission to the floor, badges, or visitors, but
not the establishment of penalties for violations of such rules; and
(E) Fees. Fees or fee changes, other than fees or fee changes
associated with market making or trading incentive programs, that:
(1) Are less than $1.00; or
(2) Relate to matters such as dues, badges, telecommunication
services, booth space, real time quotations, historical information,
publications, software licenses or other matters that are
administrative in nature.
(F) Securities indexes. Routine changes to the composition,
computation or method of security selection of an index that is
referenced and defined in the product’s rules, and which is made by an
independent third party.
(G) Option contract terms. For registered entities that are in
compliance with the daily reporting requirements of Sec. 16.01 of this
chapter, changes to option contract rules relating to the strike price
listing procedures, strike price intervals, and the listing of strike
prices on a discretionary basis.
(H) Trading months. For registered entities that are in compliance
with the daily reporting requirements of Sec. 16.01 of this chapter,
the initial listing of trading months which are within the currently
established cycle of trading months.
Sec. 40.7 Delegations.
(a) Procedural matters. (1) The Commission hereby delegates, until
it orders otherwise, to the Director of the Division of Clearing and
Intermediary Oversight and, separately, to the Director of the Division
of Market Oversight, to be exercised by either Director, as
appropriate, or by such employees of the Commission that either
Director may designate from time to time, the following authorities,
with the concurrence of the General Counsel or the General Counsel’s
delegate:
(i) To request, pursuant to Sec. 40.3(c)(2) or Sec. 40.5(c)(1)(B)
of this part, that the registered entity requesting approval amend the
proposed product, rule or rule amendment, or supplement the submission
to the Commission;
(ii) To notify the registered entity, pursuant to Sec. 40.3(e) or
Sec. 40.5(e) of this part, that the Commission is not approving, or is
unable to approve, the proposed product, rule or rule amendment;
(iii) To make all determinations reserved to the Commission in
Sec. 40.10.
(2) The Commission hereby delegates, until it orders otherwise, to
the Director of the Division of Clearing and Intermediary Oversight
and, separately, to the Director of the Division of Market Oversight,
to be exercised by either Director, as appropriate, or by such
employees of the Commission that either Director may designate from
time to time, the following authorities, after consultation with the
Office of General Counsel or the General Counsel’s delegate to notify a
registered entity:
(i) Pursuant to Sec. 40.3(d) of this part, that the time for
review of the submission has been extended because the product raises
novel or complex issues that require additional time for review;
(ii) Pursuant to Sec. 40.5(d) of this part, that the time for
review of the submission has been extended because the proposed rule or
rule amendment raises novel or complex issues that require additional
time for review or is of major economic significance;
(iii) Pursuant to Sec. 40.6(c) of this part, that the proposed
rule or rule amendment has been stayed because there exist novel or
complex issues that require additional time to analyze, or there is
potential inconsistency with the Act or the Commission’s regulations.
(3) The Commission hereby delegates, until it orders otherwise, to
the Director
[[Page 67298]]
of the Division of Clearing and Intermediary Oversight and, separately,
to the Director of the Division of Market Oversight, to be exercised by
either Director, as appropriate, or by such employees of the Commission
that either Director may designate from time to time, the authority to
notify a registered entity, pursuant to Sec. 40.3(d) or Sec. 40.5(d)
of this part, that the time for review of the submission has been
extended, or that a rule certified pursuant to Sec. 40.6(c) has been
stayed, because the submission is incomplete or provides an inadequate
explanation.
(4) Emergency rules. The Commission hereby delegates to the
Director of the Division of Market Oversight and, separately, to the
Director of the Division of Clearing and Intermediary Oversight, to be
exercised by either Director, as appropriate, or by such other employee
or employees of the Commission that either Director may designate from
time to time, authority to receive notification of emergency rules
under Sec. 40.6(a)(6)(ii) of this part.
(5) The Commission hereby delegates to the Director of the Division
of Market Oversight, to be exercised by the Director or by such
employees of the Commission that the Director may designate from time
to time, with the concurrence of the General Counsel or the General
Counsel’s delegate, the authority to determine whether a rule change
submitted by a designated contract market for a materiality
determination under Sec. 40.4(b)(5) of this part is not material (in
which case it may be reported pursuant to the provisions of Sec.
40.6(d) of this part), or is material, in which case he or she shall
notify the registered entity that the rule change must be submitted for
the Commission’s prior approval.
(b) Approval authority. The Commission hereby delegates, until it
orders otherwise, to the Director of the Division of Clearing and
Intermediary Oversight and, separately, to the Director of the Division
of Market Oversight, to be exercised by either Director, as
appropriate, or by such employees of the Commission that either
Director may designate from time to time, with the concurrence of the
General Counsel or the General Counsel’s delegate, the authority to
approve, pursuant to section 5c(c)(3) of the Act and Sec. 40.5 of this
part, rules or rule amendments of a registered entity that:
(1) Relate to, but do not substantially change, the quantity,
quality, or other delivery specifications, procedures, or obligations
for delivery, cash settlement, or exercise under an agreement, contract
or transaction approved for trading by the Commission; daily settlement
prices; clearing position limits; requirements or procedures for
governance of a registered entity; procedures for transfer trades;
trading hours; minimum price fluctuations; and maximum price limit and
trading suspension provisions;
(2) Reflect routine modifications that are required or anticipated
by the terms of the rule of a registered entity;
(3) Establish or amend speculative limits or position
accountability provisions that are in compliance with the requirements
of the Act and the Commission’s regulations;
(4) Are in substance the same as a rule of the same or another
registered entity which has been approved previously by the Commission
pursuant to section 5c(c)(3) of the Act;
(5) Are consistent with a specific, stated policy or interpretation
of the Commission; or
(6) Relate to the listing of additional trading months of approved
contracts.
(c) Notwithstanding the provisions of this section, the Director of
the Division of Clearing and Intermediary Oversight and, separately,
the Director of the Division of Market Oversight may submit to the
Commission for its consideration any matter that has been delegated
pursuant to this section.
(d) Nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising any of the authority
delegated pursuant to this section.
Sec. 40.8 Availability of public information.
(a) The following sections of all applications to become a
designated contract market, a swap execution facility, a derivatives
clearing organization, or a swap data repository shall be made publicly
available: Transmittal letter, proposed rules, the applicant’s
regulatory compliance narrative, documents establishing the applicant’s
legal status, documents setting forth the applicant’s corporate and
governance structure, and any other part of the application not covered
by a request for confidential treatment.
(b) The following submissions provided by an electronic trading
facility on which significant price discovery contracts are traded or
executed will be public: Rulebook, the facility’s regulatory compliance
chart, documents establishing the facility’s legal status, documents
setting forth the facility’s governance structure, and any other parts
of the submissions not covered by a request for confidential treatment
(Sec. 40.8(b) will be removed on July 20, 2012).
(c) A registered entity’s filing of new products pursuant to the
self-certification procedures of Sec. 40.2 of this part, new products
for Commission review and approval pursuant to Sec. 40.3 of this part,
new rules and rule amendments for Commission review and approval
pursuant to Sec. 40.4 or Sec. 40.5 of this part, and new rules and
rule amendments pursuant to the self-certification procedures of Sec.
40.6 and Sec. 40.10 of this part shall be treated as public
information unless accompanied by a request for confidential treatment.
If a registered entity files a request for confidential treatment, the
following procedures shall apply:
(1) A detailed written justification of the confidential treatment
request must be filed simultaneously with the request for confidential
treatment. The form and content of the detailed written justification
shall be governed by Sec. 145.9 of this chapter;
(2) All material for which confidential treatment is requested must
be segregated in an Appendix to the submission;
(3) The submission itself must indicate that material has been
segregated and, as appropriate, an additional redacted version
provided;
(4) Commission staff may make an initial determination with respect
to the request for confidential treatment without regard to whether a
request for the information has been sought under the Freedom of
Information Act;
(5) All requests for confidential treatment shall be subject to the
process provided by Sec. 145.9 of this chapter.
(6) A submitter of information under this part may appeal an
adverse decision by staff to the Commission’s Office of General
Counsel. The form and content of such appeal shall be governed by Sec.
145.9(g) of this chapter.
(7) The grant of any part of a request for confidential treatment
under this section may be reconsidered if a subsequent request under
the Freedom of Information Act is made for the information
(d) Commission staff will not consider confidential treatment
requests for information that is required to be made public under
Section 5(d)(7) of the Act. The terms and conditions of a product
submitted to the Commission pursuant to Sec. 40.2, Sec. 40.3 or Sec.
40.5 of this part shall be made publicly available at the time of
submission.
[[Page 67299]]
Sec. 40.9 Corporate Governance [Reserved]
Sec. 40.10 Special certification procedures for submission of rules
by systemically important derivatives clearing organizations.
(a) Advance notice. A registered derivatives clearing organization
that has been designated by the Financial Stability Oversight Council
as a systemically important derivatives clearing organization shall
provide notice to the Commission not less than 60 days in advance of
any proposed change to its rules, procedures, or operations that could
materially affect the nature or level of risks presented by the
systemically important derivatives clearing organization. A notice
submitted under this section shall be subject to the filing
requirements of Sec. 40.6(a)(1) and the Web site publication
requirements of Sec. 40.6(a)(2).
(1) The notice of a proposed change shall provide the information
required to be submitted under Sec. 40.6(a)(7) and shall specifically
describe:
(i) The nature of the change and expected effects on risks to the
systemically important derivatives clearing organization, its clearing
members, or the market; and
(ii) How the systemically important derivatives clearing
organization plans to manage any identified risks.
(2) Concurrent with providing the Commission with the advance
notice or any request or other information related to the advance
notice, the systemically important derivatives clearing organization
shall provide the Board of Governors of the Federal Reserve System with
a copy of such notice, request or other information.
(b) Materiality. The term “materially affect the nature or level
of risks presented,” when used to qualify determinations on a change
to rules, procedures, or operations of a systemically important
derivatives clearing organization, means matters as to which there is a
reasonable possibility that the change could affect the performance of
essential clearing and settlement functions or the overall nature or
level of risk presented by the systemically important derivatives
clearing organization. Such changes may include, but are not limited
to, changes that materially affect financial resources, participant and
product eligibility, risk management (including matters relating to
margin and stress testing), daily or intraday settlement procedures,
default procedures, system safeguards (business continuity and disaster
recovery), and governance. If a systemically important derivatives
clearing organization determines that a proposed change is not material
and therefore does not file an advance notice under this Sec. 40.10,
but the Commission determines that the change is material, the
Commission may require the systemically important derivatives clearing
organization to withdraw the proposed change and provide notice
pursuant to this section.
(c) Further information. The Commission may require the
systemically important derivatives clearing organization to provide any
further information necessary to assess the effect the proposed change
would have on the nature or level of risks associated with the
systemically important derivatives clearing organization’s payment,
clearing, or settlement activities and the sufficiency of any proposed
risk management techniques.
(d) Notice of objection. A systemically important derivatives
clearing organization shall not implement a change to which the
Commission has an objection on the grounds that the proposed change is
not consistent with the Act or the Commission’s regulations, or the
purposes of the Dodd-Frank Act or any applicable rules, orders, or
standards prescribed under Section 805(a) of the Dodd-Frank Act. The
Commission will notify the systemically important derivatives clearing
organization in writing of any objection regarding the proposed change
within 60 days from the later of:
(1) The date that the notice of the proposed change was received;
or
(2) The date the Commission received any further information it had
requested for consideration of the notice.
(e) Implementation of change absent Commission objection. A
systemically important derivatives clearing organization may implement
a change if it has not received an objection to the proposed change
within 60 days from the later of:
(1) The date that the Commission received the notice of proposed
change; or
(2) The date the Commission received any further information it had
requested for consideration of the notice.
(f) Extended review. The Commission may, during the 60-day review
period, extend the review period if the proposed change raises novel or
complex issues. A notification by the Commission pursuant to this
paragraph will extend the review for an additional 60 days. Any
extension under this paragraph will extend the time periods under
paragraphs (d) and (e) of this section for an additional 60 days.
(g) Change allowed earlier if notified of no objection. A
systemically important derivatives clearing organization may implement
a change in less than 60 days from the date the Commission receives the
notice of proposed change or the date the Commission receives any
further information it has requested, if the Commission notifies the
systemically important derivatives clearing organization in writing
that it does not object to the proposed change and authorizes
implementation of the change on an earlier date, subject to any
conditions imposed by the Commission.
(h) Emergency changes. A systemically important derivatives
clearing organization may implement a change that would otherwise
require advance notice under this section if it determines that an
emergency exists and immediate implementation of the change is
necessary for the systemically important derivatives clearing
organization to continue to provide its services in a safe and sound
manner.
(1) The systemically important derivatives clearing organization
shall provide notice of any such emergency change to the Commission as
soon as practicable, which shall be no later than 24 hours after
implementation of the change.
(2) The notice of an emergency change shall:
(i) Provide the information required for advance notice as set
forth in paragraph (a) of this section;
(ii) Describe the nature of the emergency; and
(iii) Describe the reason the change was necessary for the
systemically important derivatives clearing organization to continue to
provide its services in a safe and sound manner.
(3) The Commission may require modification or rescission of the
emergency change if it finds that the change is not consistent with the
Act or the Commission’s regulations, or the purposes of the Dodd-Frank
Act or any applicable rules, orders, or standards prescribed under
Section 805(a) of the Dodd-Frank Act.
Sec. 40.11 Review of event contracts based on certain excluded
commodities.
(a) Prohibition. A registered entity shall not list for trading or
clearing on or through the registered entity any of the following:
(1) An agreement, contract, transaction, or swap based on an
excluded commodity, as defined in Section 1a(19)(iv) of the Act, that
involves, relates to, or references terrorism, assassination, war,
gaming, or an activity that is unlawful under any State or Federal law;
or
[[Page 67300]]
(2) An agreement, contract, transaction, or swap based on an
excluded commodity, as defined in Section 1a(19)(iv) of the Act, which
involves, relates to, or references an activity that is similar to an
activity enumerated in Sec. 40.11(a)(1) of this part, and that the
Commission determines, by rule or regulation, to be contrary to the
public interest.
(b) [Reserved.]
(c) 90-day review and approval of certain event contracts. The
Commission may determine, based upon a review of the terms or
conditions of a submission under Sec. 40.2 or Sec. 40.3, that an
agreement, contract, transaction, or swap based on an excluded
commodity, as defined in Section 1a(19)(iv) of the Act, which may
involve, relate to, or reference an activity enumerated in Sec.
40.11(a)(1) or Sec. 40.11(a)(2), be subject to a 90-day review. The
90-day review shall commence from the date the Commission notifies the
registered entity of a potential violation of Sec. 40.11(a).
(1) The Commission shall request that a registered entity suspend
the listing or trading of any agreement, contract, transaction, or swap
based on an excluded commodity, as defined in Section 1a(19)(iv) of the
Act, which may involve, relate to, or reference an activity enumerated
in Sec. 40.11(a)(1) or Sec. 40.11(a)(2), during the Commission’s 90-
day review period. The Commission shall post on the Web site a
notification of the intent to carry out a 90-day review.
(2) Final determination. The Commission shall issue an order
approving or disapproving an agreement, contract, transaction, or swap
that is subject to a 90-day review under Sec. 40.11(c) no later than
90 days subsequent to the date that the Commission commences review, or
if applicable, at the conclusion of such extended period agreed to or
requested by the registered entity.
Sec. 40.12 Tolling of review period pending jurisdictional
determination.
(a) Notice of novel derivative products. (1) A registered entity
certifying, submitting for approval, or otherwise filing a proposal to
list, trade, or clear an agreement, contract, transaction, or swap
having elements of both a security and a derivative, including a
contract for the sale of a commodity for future delivery, may provide
notice of its proposal to the Commission and the Securities and
Exchange Commission with a statement that written notice has been
provided to both agencies through an appropriate means provided in each
Commission’s regulations.
(2) If concurrent notice is not provided pursuant to Sec.
40.12(a)(1), the Commission shall notify the Securities and Exchange
Commission of the registered entity’s submission of a novel derivative
product and accompany such notice with a copy of the submission. The
Commission shall determine whether a particular submission is a novel
derivative product requiring notice to the Securities and Exchange
Commission not later than five business days subsequent to the date
that the registered entity submits the product for Commission review.
(b) Tolling of review period. Upon receipt of a request for a
jurisdictional determination, pursuant to Section 718(a)(2) of the
Dodd-Frank Act, by the Commission or the Securities and Exchange
Commission, the product certification or the approval review period for
the submitted agreement, contract, transaction, or swap shall be tolled
until a final determination order is issued.
(1) The Commission will provide the registered entity with a
written notice of stay pending issuance of a final determination order
by the Commission or the Securities and Exchange Commission.
(2) The submission review period will resume upon the Commission’s
or the Securities and Exchange Commission’s issuance of a final
determination order finding that the Commission has jurisdiction over
the submission.
(3) Determination order. A final determination, for purposes of
Sec. 40.12(b) of this part, shall be a determination order issued by
the Commission or the Securities and Exchange Commission pursuant to
Section 718(a)(3) of the Dodd-Frank Act.
(c) Judicial review of determination order. The filing of a
petition by a complaining Commission, pursuant to Section 718(b) of the
Dodd-Frank Act, shall operate as a stay of the agency order.
(1) The stay shall remain in effect until the date on which the
United States Court of Appeals for the District of Columbia Circuit
issues a final determination pursuant to Section 718(b)(4) of the Dodd-
Frank Act, or until such date that there is a final disposition of an
appeal of that determination.
(2) The submission review period shall resume upon issuance of a
final determination, as described in Sec. 40.12(c)(1), that the
Commission has jurisdiction over the submission.
Appendix A to Part 40–Schedule of Fees
(a) Applications for product approval. Each application for
product approval under Sec. 40.3 must be accompanied by a check or
money order made payable to the Commodity Futures Trading Commission
in an amount to be determined annually by the Commission and
published in the Federal Register.
(b) Checks and applications should be sent to the attention of
the Office of the Secretariat, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
No checks or money orders may be accepted by personnel other than
those in the Office of the Secretariat.
(c) Failure to submit the fee with an application for product
approval will result in return of the application. Fees will not be
returned after receipt.
Appendix B to Part 40–[Reserved]
Appendix C to Part 40–[Reserved]
Appendix D to Part 40–Submission Cover Sheet and Instructions
(a) A properly completed submission cover sheet shall accompany
all rule and product submissions submitted electronically by a
registered entity to the Secretary of the Commodity Futures Trading
Commission, at [email protected] in a format specified by the
Secretary of the Commission. A properly completed submission cover
sheet shall include all of the following:
1. Identifier Code (optional)–A registered entity Identifier
Code at the top of the cover sheet, if applicable. Such codes are
commonly generated by registered entities to provide an identifier
that is unique to each filing (e.g., NYMEX Submission 03-116).
2. Date–The date of the filing.
3. Organization–The name of the organization filing the
submission (e.g., CBOT).
4. Filing as a–Check in the appropriate box indicating that the
rule or product is being submitted by a designated contract market
(DCM), derivatives clearing organization (DCO), swap execution
facility (SEF), or swap data repository (SDR), electronic trading
facility with a significant price discovery contract (the term will
be removed on July 20, 2012).1
—————————————————————————
1 Even though ECM-SPDC was eliminated by the Dodd-Frank Act,
the Commission proposes to retain references to this entity in the
cover sheet since ECM may be allowed to operate until July 20, 2012,
pursuant to grandfather relief issued by the Commission. See 75 FR
56513 (Sept. 16, 2010).
—————————————————————————
5. Type of Filing–An indication as to whether the filing is a
new rule, rule amendment or new product. The registered entity
should check the appropriate box to indicate the applicable category
under that heading.
6. Rule Numbers–For rule filings, the rule number(s) being
adopted or modified in the case of rule amendment filings.
7. Description–For rule or rule amendment filings a description
of the new rule or rule amendment, including a discussion of its
expected impact on the
[[Page 67301]]
registered entity, market participants, and the overall market. The
narrative should describe the substance of the submission with
enough specificity to characterize all material aspects of the
filing.
(b) Other Requirements–A submission shall comply with all
applicable filing requirements for proposed rules, rule amendments,
or products. The filing of the submission cover sheet does not
obviate the registered entity’s responsibility to comply with
applicable filing requirements (e.g., rules submitted for Commission
approval under Sec. 40.5 must be accompanied by an explanation of
the purpose and effect of the proposed rule along with a description
of any substantive opposing views).
(c) Checking the box marked “confidential treatment requested”
on the Submission Cover Sheet does not obviate the submitter’s
responsibility to comply with all applicable requirements for
requesting confidential treatment in Sec. 40.8 and, where
appropriate, Sec. 145.9 of this chapter, and will not substitute
for notice or full compliance with such requirements.
Issued in Washington, DC, on October 26, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following attachment will not appear in the Code of
Federal Regulations.
Statement of Chairman Gary Gensler Provisions Common to Registered
Entities October 26, 2010
I support the proposal to publish for comment the proposed rule
on the Commission’s process for certification and approval of rules
and new products for designated contract markets (DCMs), derivatives
clearing organizations (DCOs), swap execution facilities (SEFs) and
swap data repositories (SDRs). The Dodd-Frank Act establishes
enhanced procedures for Commission review and certification of new
rules, rule amendments and products. Today’s rule gives important
procedural guidance to registered entities on how to comply with
Congress’s mandate for the Commission’s review of new rules and
products.
[FR Doc. 2010-27533 Filed 11-1-10; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: November 2, 2010
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