60-day FRN

Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
positions in all physical commodity
futures traded on DCMs and uses it for
market surveillance purposes, including
position limit enforcement. With today’s
proposed rule, we would have an
analogous reporting system for swaps.
The proposal would require position
reports on economically equivalent
swaps from clearing organizations, their
members and swap dealers. This will
enable the CFTC to receive such data
until swap data repositories are in
operation and capable of fulfilling the
Commission’s need for this information.
Concurring Statement of Commissioner
Jill E. Sommers

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Relating to the Commission’s Proposal
on Position Reports for Physical
Commodity Swaps and Swaptions
October 19, 2010
I support this proposal to receive
daily position reports for physical
commodity swaps and swaptions
because I believe it furthers our
continued effort to expand transparency
into swap markets and because I believe
it is critical that the Commission receive
this information as soon as possible. I
recognize that this proposal is a
precursor to the Commission moving
forward with a proposal on the
imposition of position limits. That said,
my vote in support of this proposal
today should not in any way be
interpreted as expressing support for
moving forward with the imposition of
position limits by the deadlines set forth
in Dodd-Frank.
In July and August 2009, the
Commission held three public hearings
to discuss imposition of position limits
in energy markets. Five months later, in
January 2010, the Commission issued a
proposed rule imposing position limits
in four enumerated energy contracts. I
had grave concerns about moving
forward with position limits on those
four contracts, and accordingly voted
against the proposal. My grave concerns
about moving forward with position
limits have not been eased, and in fact,
have only been heighted by certain
provisions of Dodd-Frank.
Section 737 of Dodd-Frank states that
the Commission shall by rule,
regulation, or order establish limits on
the amount of positions, as appropriate,
that may be held by any person. This
section requires the limits to be
aggregated across markets and related
products and to be imposed within 180
days for energy and metals contracts,
and 270 days for agricultural contracts.
In my view, no position limit is
appropriate if it is imposed without the
benefit of receiving and fully analyzing
complete data concerning the open

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interest in each market. Only then is the
Commission able to properly consider
the size of each market and calibrate a
limit that is appropriate for each market.
Currently, the Commission does not
have complete data and will not have
complete data until swap data
repositories are up and running and all
swap market data is reported to swap
data repositories or to the Commission.
I believe that, optimistically, the earliest
this reporting can happen will be by the
end of 2011. Again that is an optimistic
estimate.
Because of the 180 and 270 day
requirements in Dodd-Frank, as we sit
here today, the Commission is
tentatively planning a November 30
public meeting to vote on proposed
speculative position limits for exempt
and agricultural commodities. Mind
you, by November 30 the Commission
will not have garnered any data from the
proposed rule we are discussing today,
because it, or some modified version of
it, probably will not be effective in final
form by November 30. In addition, by
November 30, swap data repositories
will still be at least one year away from
operating. Even if the proposed rule we
are discussing today were effective by
November 30, it will not provide
complete information sufficient to
impose position limits.
Under these circumstances, when
considering the imposition of aggregate
position limits on exempt and
agricultural commodities, I believe the
Commission should find that imposing
such limits is not appropriate in the
absence of full and complete data and
analysis on the open interest in each
market. I believe it is a mistake to
interpret the arbitrary 180 day and 270
day deadlines as somehow trumping the
requirement that the Commission make
an appropriateness determination before
imposing any position limits.
This is an issue that I will be
following closely, and I look forward to
hearing the views of the public and
market participants on this issue.
[FR Doc. 2010–27538 Filed 11–1–10; 8:45 am]
BILLING CODE 6351–01–P

67277

The Commodity Futures
Trading Commission (Commission or
CFTC) is proposing rules to implement
new statutory provisions enacted by
Title VII of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
These proposed rules apply to the
review of swaps by the Commission to
determine whether the swaps are
required to be cleared.

SUMMARY:

Submit comments on or before
January 3, 2011.

DATES:

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 the
instructions for submitting comments.
All comments must be submitted in
English, or if not, accompanied by an
English translation. Comments will be
posted as received to http://
www.cftc.gov. You should submit only
information that you wish to make
available publicly. If you wish the
Commission to consider information
that may be exempt from disclosure
under the Freedom of Information Act,
a petition for confidential treatment of
the exempt information may be
submitted according to the established
procedures in CFTC Regulation 145.9.1

ADDRESSES:

FOR FURTHER INFORMATION CONTACT:

Eileen A. Donovan, Special Counsel,
202–418–5096, edonovan@cftc.gov,
Division of Clearing and Intermediary
Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581.
SUPPLEMENTARY INFORMATION:

COMMODITY FUTURES TRADING
COMMISSION
17 CFR Parts 39 and 140
RIN 3038–AD00

Process for Review of Swaps for
Mandatory Clearing
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:

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I. Background
On July 21, 2010, President Obama
signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act).2 Title VII of the
1 Commission regulations referred to herein are
found at 17 CFR Ch. 1.
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.

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

Dodd-Frank Act 3 amended the
Commodity Exchange Act (CEA) 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 rigorous 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.
Section 723(a)(3) of the Dodd-Frank
Act amends the CEA to provide that ‘‘it
shall be unlawful for any person to
engage in a swap unless that person
submits such swap for clearing to a
derivatives clearing organization
[(DCO)] that is registered under [the
CEA] or a [DCO] that is exempt from
registration under [the CEA] if the swap
is required to be cleared.’’ 5 Section
723(a)(3) requires the Commission to
adopt rules for the review of a swap, or
group, category, type, or class of swaps
(collectively, ‘‘swaps’’) to make a
determination as to whether the swaps
should be required to be cleared.
In addition, Section 745(b) of the
Dodd-Frank Act amends the CEA to
direct the Commission to prescribe
criteria, conditions, or rules under
which the Commission will determine
the initial eligibility or the continuing
qualification of a DCO to clear swaps.6
Accordingly, the Commission is
proposing to adopt Regulation 39.5 to
implement procedures for determining
the eligibility of a DCO to clear swaps
that it plans to accept for clearing; for
DCOs submitting swaps to the
Commission for review; for
Commission-initiated reviews of swaps;
and for staying a clearing requirement
while the clearing of a swap is
reviewed.
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.
3 Pursuant to Section 701 of the Dodd-Frank Act,
Title VII may be cited as the ‘‘Wall Street
Transparency and Accountability Act of 2010.’’
4 7 U.S.C. 1 et seq.
5 See Section 2(h) of the CEA, 7 U.S.C. 2(h).
6 See Section 5c(c)(5)(C)(iii) of the CEA, 7 U.S.C.
7a–2(c)(5)(C)(iii).

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II. Proposed Regulations
A. Eligibility of a DCO To Clear Swaps
The Dodd-Frank Act requires the
Commission to determine, upon request
or its own motion, the initial eligibility
or continuing qualification of a DCO to
clear a swap that it plans to accept for
clearing, under criteria, conditions, or
rules determined by the Commission.
Such criteria, conditions, or rules must
consider the financial integrity of the
DCO and any other factors that the
Commission determines to be
appropriate.7
Under proposed Regulation 39.5(a), a
DCO would be presumed eligible to
accept for clearing any swap that is
within a group, category, type, or class
of swaps that the DCO already clears.
However, such a presumption would be
subject to Commission review, and if
the Commission determines that the
swap is not within a group, category,
type, or class of swaps that the DCO
already clears, the DCO would be
required to request a determination by
the Commission of its eligibility to clear
the swap. A DCO that plans to accept for
clearing any swap that is not within a
group, category, type, or class of swaps
that the DCO already clears also would
be required to make such a request.
To receive a determination of
eligibility to clear a swap, a DCO would
have to file a written request with the
Commission that addresses its ability to
maintain compliance with the core
principles for DCOs set out in Section
5b(c)(2) of the CEA if it accepts the swap
for clearing, specifically: (1) The
sufficiency of its financial resources;
and (2) its ability to manage the risks
associated with clearing the swap,
especially if the Commission determines
that the swap is required to be cleared.
B. Submission of Swaps to the
Commission for Review
The Dodd-Frank Act requires a DCO
that plans to accept a swap (or group,
category, type, or class of swaps) for
clearing to submit the swap to the
Commission for review.8 Proposed
Regulation 39.5(b) sets out the process
for DCOs to follow, including what
information a DCO must include in its
submission to assist the Commission in
its review.
First, the submission would have to
include a statement that the DCO is
eligible to clear the swap and, if the
Commission determines that the swap is
required to be cleared, the DCO would
7 See Section 5c(c)(5)(C)(iii)(II) of the CEA, 7
U.S.C. 7a–2(c)(5)(C)(iii)(II).
8 See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C.
2(h)(2)(B)(i).

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be able to maintain compliance with
Section 5b(c)(2) of the CEA. This
provision is intended to satisfy the
Dodd-Frank Act requirement that a
swap submission be consistent with
Section 5b(c)(2).9 Regulation 39.5(b)(1)
would require a DCO submitting a swap
to be eligible to clear the swap under
Regulation 39.5(a) and, as noted above,
a DCO that seeks to be considered
eligible to clear a swap must
demonstrate its ability to maintain
compliance with the core principles in
Section 5b(c)(2). Therefore, a DCO
submitting a swap under Regulation
39.5(b) would have already
demonstrated pursuant to Regulation
39.5(a) its ability to comply with
Section 5b(c)(2). Accordingly, the
Commission believes it is appropriate to
require only a statement to that effect in
the swap submission itself.
A DCO would also have to provide a
statement that includes, but is not
limited to, information that would assist
the Commission in the quantitative and
qualitative assessment of five specific
factors that the Dodd-Frank Act requires
the Commission to take into account
when reviewing a swap submission,10
and additional information that the
Commission believes is needed for an
effective review of the swap submission.
The proposed regulation would require
the DCO to provide specific information
relating to product specifications;
participant eligibility standards; pricing
sources, models, and procedures; 11 risk
management procedures; measures of
market liquidity and trading activity;
the effect of a clearing requirement on
the market for the swap; applicable
rules, manuals, policies, or procedures;
and terms and trading conventions on
which the swap is currently traded.
Finally, the swap submission would
have to include a description of the
manner in which the DCO has provided
9 See Section 2(h)(2)(D)(i) of the CEA, 7 U.S.C.
2(h)(2)(D)(i).
10 See Section 2(h)(2)(D)(ii) of the CEA, 7 U.S.C.
2(h)(2)(D)(ii).
11 This would include information about any
price reference index used, such as the name of the
index, the source that calculates it, the methodology
used to calculate the price reference index and how
often it is calculated, and when and where it is
published publicly. For example, the BBA LIBOR
3-Month USD interest rate published by the British
Bankers Association is calculated daily by Thomson
Reuters on behalf of BBA. The rate is published
daily at 11 a.m. London Time via data vendors like
Reuters and Bloomberg, and is calculated using a
survey of 16 major banks. The bank quotes are then
ranked in order, high four and bottom four
removed, and the remaining eight quotes are
averaged to determine the official 3-Month USD
LIBOR fixing rate for that day. A DCO would be
required to provide documentation of the index
methodology and publication frequency or the
relevant hyperlink if it is openly available on the
Internet.

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Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
notice of the submission to its members
and a summary of any opposition to the
submission expressed by members. The
Dodd-Frank Act requires a DCO to
provide notice of the submission to its
members in a manner to be determined
by the Commission.12 The Commission
recognizes that a DCO typically has
established procedures for providing
notice to its members and believes it is
appropriate to allow the DCO to provide
notice of a swap submission in the same
manner. The submission to the
Commission also would have to include
a summary of any opposition expressed
by members, which means that a DCO
would be expected to notify members
before it makes its submission to the
Commission. The Commission invites
comment on whether the regulation
should prescribe a specific manner in
which a DCO must provide notice to its
members, and whether the regulation
should prescribe a specific period of
time between the notice to members and
the submission to the Commission to
allow time for members to make their
views on the submission known.
Upon receiving a DCO’s submission,
the Commission would begin its 90-day
review by posting the submission on the
Commission Web site for a 30-day
public comment period, as required by
the Dodd-Frank Act. The Commission
invites comment regarding the
appropriateness and sufficiency of
providing notice of the submission on
the Commission Web site as compared
to publishing notice of the submission
in the Federal Register. The review
would not begin until the submission
was complete, as determined solely in
the discretion of the Commission. Due
to the relatively brief 90-day review
period prescribed by the Dodd-Frank
Act, the Commission must be certain
before it begins a review that it has the
information it needs to reach an
appropriate determination.
The proposed regulation encourages a
DCO to submit swaps to the
Commission, to the extent reasonable
and practicable to do so, by group,
category, type, or class of swaps. The
Commission believes this will make the
review process more efficient. The
Commission would be able to
consolidate multiple submissions from
one DCO or subdivide a DCO’s
submission for review as appropriate.
The Commission would review the
submission and make a determination
as to whether the swap will be required
to be cleared not later than 90 days after
receiving the submission, unless the
submitting DCO agreed to an extension.
12 See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C.
2(h)(2)(B)(i).

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In making a determination that the swap
must be cleared, the Commission would
impose terms and conditions on the
requirement as appropriate.
C. Commission-Initiated Reviews of
Swaps
The Dodd-Frank Act requires the
Commission on an ongoing basis to
review swaps that have not been
accepted for clearing by a DCO to make
a determination as to whether the swaps
should be required to be cleared.13
Under proposed Regulation 39.5(c), the
Commission would use information
obtained pursuant to Commission
regulations 14 from swap data
repositories, swap dealers, and major
swap participants, and any other
available information, in undertaking
such reviews.
If no DCO has accepted for clearing a
particular swap, group, category, type,
or class of swaps that the Commission
finds would otherwise be subject to a
clearing requirement, the Commission
would, as required by the Dodd-Frank
Act,15 investigate the relevant facts and
circumstances and, within 30 days of
the completion of its investigation, issue
a public report containing the results of
the investigation. The Commission
would take such actions as it determines
to be necessary and in the public
interest, which may include establishing
margin or capital requirements for
parties to the swap, group, category,
type, or class of swaps.
D. Stay of Clearing Requirement
After making a determination that a
swap (or group, category, type, or class
of swaps) is required to be cleared, the
Commission, on application of a
counterparty to a swap or on its own
initiative, may stay the clearing
requirement until it completes a review
of the terms of the swap and the clearing
arrangement.16 Proposed Regulation
39.5(d)(2) sets out the process for a
counterparty to a swap to apply for a
stay of the clearing requirement.
A counterparty to a swap that wants
to apply for a stay of the clearing
requirement for that swap would be
required to submit a written request to
the Secretary of the Commission that
includes information that would assist
the Commission in its review,
including: The identity and contact
13 See Section 2(h)(2)(A) of the CEA, 7 U.S.C.
2(h)(2)(A).
14 The Commission intends to adopt such
regulations before any Commission reviews would
be initiated.
15 See Section 2(h)(4)(B) of the CEA, 7 U.S.C.
2(h)(4)(B).
16 See Section 2(h)(3)(A) of the CEA, 7 U.S.C.
2(h)(3)(A).

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information of the counterparty to the
swap; the terms of the swap subject to
the clearing requirement; the name of
the DCO that clears the swap; a
description of the clearing arrangement;
and a statement explaining why the
swap should not be subject to a clearing
requirement.
The Commission also would be able
to obtain additional information to
assist it in its review from the DCO that
clears the swap. The Commission would
complete its review not later than 90
days after issuance of the stay, unless
the DCO that clears the swap agrees to
an extension.
Upon completion of its review, the
Commission could determine, subject to
any terms and conditions as the
Commission determines to be
appropriate, that the swap must be
cleared, or that the clearing requirement
will not apply but clearing may
continue on a non-mandatory basis.
III. Technical Amendments
The Commission is proposing to
amend Regulation 140.94 17 to delegate
authority to the Director of the Division
of Clearing and Intermediary Oversight
to consolidate or subdivide swap
submissions as appropriate for review
under proposed Regulation 39.5(b)(2)
and to request information from a
derivatives clearing organization in
connection with the stay of a clearing
requirement under proposed Regulation
39.5(d)(3).
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
requires that agencies consider whether
the rules they propose will have a
significant economic impact on a
substantial number of small entities
and, if so, provide a regulatory
flexibility analysis respecting the
impact.18 The rules proposed by the
Commission shall affect only DCOs. The
Commission has previously established
certain definitions of ‘‘small entities’’ to
be used by the Commission in
evaluating the impact of its regulations
on small entities in accordance with the
RFA.19 The Commission has previously
determined that DCOs are not small
entities for the purpose of the RFA.20
17 See 75 FR 55410 (Sep. 10, 2010). The
Commission previously proposed to amend
Regulation 140.94 in connection with the proposal
of Regulation 39.11 (75 FR 63113 (Oct. 14, 2010)).
The Commission intends to place all delegations to
the Director of the Division of Clearing and
Intermediary Oversight for Part 39 under this
regulation.
18 5 U.S.C. 601 et seq.
19 47 FR 18618 (Apr. 30, 1982).
20 See 66 FR 45605, 45609 (August 29, 2001).

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Accordingly, the Chairman, on behalf of
the Commission, hereby certifies
pursuant to 5 U.S.C. 605(b) that the
proposed rules will not have a
significant economic impact on a
substantial number of small entities.

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B. Paperwork Reduction Act
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number. OMB has not yet
assigned a control number to the new
collection. The Paperwork Reduction
Act of 1995 (PRA) 21 imposes certain
requirements on Federal agencies
(including the Commission) in
connection with their conducting or
sponsoring any collection of
information as defined by the PRA. This
proposed rulemaking would result in
new collection of information
requirements within the meaning of the
PRA. The Commission therefore is
submitting this proposal to the Office of
Management and Budget (OMB) for
review. If adopted, responses to this
collection of information would be
mandatory. The Commission will
protect proprietary information
according to the Freedom of Information
Act and 17 CFR Part 145, ‘‘Commission
Records and Information.’’ In addition,
section 8(a)(1) of the CEA strictly
prohibits the Commission, unless
specifically authorized by the CEA, from
making public ‘‘data and information
that would separately disclose the
business transactions or market
positions of any person and trade
secrets or names of customers.’’ The
Commission is also required to protect
certain information contained in a
government system of records according
to the Privacy Act of 1974, 5 U.S.C.
552a.
1. Information Provided by Reporting
Entities/Persons
The proposed regulations require each
respondent to file information with the
Commission on an occasional basis,
which would result in one annual
response per respondent. Commission
staff estimates that each respondent
would expend 40 hours to prepare each
filing required under the proposed
regulations, which was estimated based
on the Commission’s prior experience
with DCOs and their preparation of
filings for the Commission’s review.
Commission staff estimates that it
would receive filings from up to 12
respondents annually, which assumes
that each DCO would make an average
of one filing per year. Accordingly the
21 44

burden in terms of hours would in the
aggregate be 40 hours annually per
respondent and 480 hours annually for
all respondents.
Commission staff estimates that each
respondent could expend up to $4000
annually, based on an hourly wage rate
of $100, to comply with the proposed
regulations. This would result in an
aggregated cost of $48,000 per annum
(12 respondents x $4000). The
Commission invites public comment on
the accuracy of its estimate regarding
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 any aspect of the reporting and
recordkeeping burdens discussed above.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the
Commission solicits comments in order
to: (i) Evaluate whether the proposed
collection of information is necessary
for the proper performance of the
functions of the Commission, including
whether the information will have
practical utility; (ii) evaluate the
accuracy of the Commission’s estimate
of the burden of the proposed collection
of information; (iii) determine whether
there are ways to enhance the quality,
utility, and clarity of the information to
be collected; and (iv) minimize the
burden of the collection of information
on those who are to respond, including
through the use of automated collection
techniques or other forms of information
technology.
Comments may be submitted directly
to the Office of Information and
Regulatory Affairs, by fax at (202) 395–
6566 or by e-mail at
OIRAsubmissions@omb.eop.gov. Please
provide the Commission with a copy of
submitted comments so that all
comments can be summarized and
addressed in the final rule preamble.
Refer to the Addresses section of this
notice of proposed rulemaking for
comment submission instructions to the
Commission. A copy of the supporting
statements for the collections of
information discussed above may be
obtained by visiting RegInfo.gov. OMB
is required to make a decision
concerning the collection of information
between 30 and 60 days after
publication of this document in the
Federal Register. Therefore, a comment
is best assured of having its full effect
if OMB receives it within 30 days of
publication.

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C. Cost-Benefit Analysis
Section 15(a) of the CEA 22 requires
the Commission to consider the costs
and benefits of its actions before issuing
a rulemaking under the CEA. By its
terms, Section 15(a) does not require the
Commission to quantify the costs and
benefits of a rule or to determine
whether the benefits of the rulemaking
outweigh its costs; rather, it requires
that the Commission ‘‘consider’’ the
costs and benefits of its actions. Section
15(a) further specifies that the costs and
benefits shall be evaluated in light of
five broad areas of market and public
concern: (1) Protection of market
participants and the public; (2)
efficiency, competitiveness, and
financial integrity of futures markets; (3)
price discovery; (4) sound risk
management practices; and (5) other
public interest considerations. The
Commission may in its discretion give
greater weight to any one of the five
enumerated areas and could in its
discretion determine that,
notwithstanding its costs, a particular
rule is necessary or appropriate to
protect the public interest or to
effectuate any of the provisions or
accomplish any of the purposes of the
CEA.
Summary of proposed requirements.
The proposed rule would implement
processes for determining the eligibility
of a DCO to clear swaps that it wishes
to accept for clearing; for DCOs
submitting swaps to the Commission for
review; for Commission-initiated
reviews of swaps; and for staying a
clearing requirement while the clearing
of a swap is reviewed.
Costs. With respect to costs, the
Commission has determined that the
rule results in minimal costs. The rule
only requires DCOs and swap
counterparties to provide sufficient
information for the Commission to carry
out its responsibilities under the DoddFrank Act in an efficient manner. The
rule itself does not require the clearing
of any swap, so the Commission did not
consider the potential costs of
mandatory clearing in its analysis.
Benefits. With respect to benefits, the
Commission has determined that the
rule will benefit the public by making
information publicly available and by
providing opportunity for comment.
The rule also takes into account the risk
management practices of a DCO in
making a determination on the DCO’s
eligibility to clear swaps. The rule itself
does not require the clearing of any
swap, so the Commission did not
22 7

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U.S.C. 19(a).

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Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules
consider the potential benefits of
mandatory clearing in its analysis.
Public Comment. The Commission
invites public comment on its costbenefit 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
17 CFR Part 39
Business and industry, Commodity
futures, Reporting and recordkeeping
requirements.
17 CFR Part 140
Authority delegations (Government
agencies), Conflict of interests,
Organization and functions
(Government agencies).
For the reasons stated in the
preamble, the Commission proposes to
amend 17 CFR parts 39 and 140 as
follows:
PART 39—DERIVATIVES CLEARING
ORGANIZATIONS
1. The authority citation for part 39 is
revised to read as follows:
Authority: 7 U.S.C. 7a–1 as amended by
Pub. L. 111–203, 124 Stat. 1376.

2. Redesignate §§ 39.5 through 39.7 as
§§ 39.6 through 39.8 and add new § 39.5
to read as follows:

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§ 39.5 Review of swaps for Commission
determination on clearing requirement.

(a) Eligibility to clear swaps. (1) A
derivatives clearing organization shall
be presumed eligible to accept for
clearing any swap that is within a
group, category, type, or class of swaps
that the derivatives clearing
organization already clears. Such
presumption of eligibility, however, is
subject to review by the Commission.
(2) A derivatives clearing organization
that wishes to accept for clearing any
swap that is not within a group,
category, type, or class of swaps that the
derivatives clearing organization already
clears shall request a determination by
the Commission of the derivatives
clearing organization’s eligibility to
clear such a swap before accepting the
swap for clearing. The request, which
shall be filed electronically with the
Secretary of the Commission, shall
address the derivatives clearing
organization’s ability, if it accepts the
swap for clearing, to maintain
compliance with section 5b(c)(2) of the
Act, specifically:
(i) The sufficiency of the derivatives
clearing organization’s financial
resources; and

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(ii) The derivative clearing
organization’s ability to manage the
risks associated with clearing the swap,
especially if the Commission determines
that the swap is required to be cleared.
(b) Swap submissions. (1) A
derivatives clearing organization shall
submit to the Commission each swap, or
any group, category, type, or class of
swaps that it plans to accept for
clearing. The derivatives clearing
organization making the submission
must be eligible under paragraph (a) of
this section to accept for clearing the
submitted swap, or group, category,
type, or class of swaps.
(2) A derivatives clearing organization
shall submit swaps to the Commission,
to the extent reasonable and practicable
to do so, by group, category, type, or
class of swaps. The Commission may in
its reasonable discretion consolidate
multiple submissions from one
derivatives clearing organization or
subdivide a derivatives clearing
organization’s submission as
appropriate for review.
(3) The submission shall be filed
electronically with the Secretary of the
Commission and shall include:
(i) A statement that the derivatives
clearing organization is eligible to
accept the swap, or group, category,
type, or class of swaps for clearing and,
if the Commission determines that the
swap, or group, category, type, or class
of swaps is required to be cleared, the
derivatives clearing organization will be
able to maintain compliance with
section 5b(c)(2) of the Act;
(ii) A statement that includes, but is
not limited to, information regarding the
swap, or group, category, type, or class
of swaps that is sufficient to provide the
Commission a reasonable basis to make
a quantitative and qualitative
assessment of the following factors:
(A) The existence of significant
outstanding notional exposures, trading
liquidity, and adequate pricing data;
(B) The availability of rule framework,
capacity, operational expertise and
resources, and credit support
infrastructure to clear the contract on
terms that are consistent with the
material terms and trading conventions
on which the contract is then traded;
(C) The effect on the mitigation of
systemic risk, taking into account the
size of the market for such contract and
the resources of the DCO available to
clear the contract;
(D) The effect on competition,
including appropriate fees and charges
applied to clearing; and
(E) The existence of reasonable legal
certainty in the event of the insolvency
of the relevant DCO or one or more of
its clearing members with regard to the

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treatment of customer and swap
counterparty positions, funds, and
property;
(iii) Product specifications, including
copies of any standardized legal
documentation, generally accepted
contract terms, standard practices for
managing any life cycle events
associated with the swap, and the extent
to which the swap is electronically
confirmable;
(iv) Participant eligibility standards, if
different from the derivatives clearing
organization’s general participant
eligibility standards;
(v) Pricing sources, models, and
procedures, demonstrating an ability to
obtain sufficient price data to measure
credit exposures in a timely and
accurate manner, including any
agreements with clearing members to
provide price data and copies of
executed agreements with third-party
price vendors, and information about
any price reference index used, such as
the name of the index, the source that
calculates it, the methodology used to
calculate the price reference index and
how often it is calculated, and when
and where it is published publicly;
(vi) Risk management procedures,
including measurement and monitoring
of credit exposures, initial and variation
margin methodology, methodologies for
stress testing and back testing,
settlement procedures, default
management procedures, and an
independent validation of the scalability
of the derivatives clearing organization’s
risk management policies, systems, and
procedures, including the margin
methodology, settlement procedures,
and default management procedures;
(vii) Measures of market liquidity and
trading activity, including information
on the sources of such measures;
(viii) An analysis of the effect of a
clearing requirement on the market for
the group, category, type, or class of
swaps, both domestically and globally,
including the potential effect on market
liquidity, trading activity, use of swaps
by direct and indirect market
participants, and any potential market
disruption;
(ix) Applicable rules, manuals,
policies, or procedures;
(x) Terms and trading conventions on
which the swap is currently traded;
(xi) A description of the manner in
which the derivatives clearing
organization has provided notice of the
submission to its members and a
summary of any opposition to the
submission expressed by the members.
A copy of the notice to members shall
be included with the submission.
(4) The submission will be made
available to the public and posted on

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

the Commission Web site for a 30-day
public comment period. A derivatives
clearing organization that wishes to
request confidential treatment for
portions of its submission may do so in
accordance with the procedures set out
in § 145.9(d).
(5) The Commission will review the
submission and determine whether the
swap, or group, category, type, or class
of swaps described in the submission is
required to be cleared. The Commission
will make its determination not later
than 90 days after a complete
submission has been received, unless
the submitting derivatives clearing
organization agrees to an extension. The
determination of when such submission
is complete shall be at the sole
discretion of the Commission. In making
a determination that a clearing
requirement shall apply, the
Commission may require such terms
and conditions to the requirement as the
Commission determines to be
appropriate.
(c) Commission-initiated reviews. (1)
The Commission on an ongoing basis
will review swaps that have not been
accepted for clearing by a derivatives
clearing organization to make a
determination as to whether the swaps
should be required to be cleared. In
undertaking such reviews, the
Commission will use information
obtained pursuant to Commission
regulations from swap data repositories,
swap dealers, and major swap
participants, and any other available
information.
(2) Notice regarding any
determination made under paragraph
(c)(1) of this section will be posted on
the Commission Web site for a 30-day
public comment period.
(3) If no derivatives clearing
organization has accepted for clearing a
particular swap, group, category, type,
or class of swaps that the Commission
finds would otherwise be subject to a
clearing requirement, the Commission
will:
(i) Investigate the relevant facts and
circumstances;
(ii) Within 30 days of the completion
of its investigation, issue a public report
containing the results of the
investigation; and
(iii) Take such actions as the
Commission determines to be necessary
and in the public interest, which may
include requiring the retaining of
adequate margin or capital by parties to
the swap, group, category, type, or class
of swaps.
(d) Stay of clearing requirement. (1)
After making a determination that a
swap, or group, category, type, or class
of swaps is required to be cleared, the

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Commission, on application of a
counterparty to a swap or on its own
initiative, may stay the clearing
requirement until the Commission
completes a review of the terms of the
swap, or group, category, type, or class
of swaps and the clearing arrangement.
(2) A counterparty to a swap that
wishes to apply for a stay of the clearing
requirement for that swap shall submit
a written request to the Secretary of the
Commission that includes:
(i) The identity and contact
information of the counterparty to the
swap;
(ii) The terms of the swap subject to
the clearing requirement;
(iii) The name of the derivatives
clearing organization clearing the swap;
(iv) A description of the clearing
arrangement; and
(v) A statement explaining why the
swap should not be subject to a clearing
requirement.
(3) A derivatives clearing organization
that has accepted for clearing a swap, or
group, category, type, or class of swaps
that is subject to a stay of the clearing
requirement shall provide any
information requested by the
Commission in the course of its review.
(4) The Commission will complete its
review not later than 90 days after
issuance of the stay, unless the
derivatives clearing organization that
clears the swap, or group, category,
type, or class of swaps agrees to an
extension.
(5) Upon completion of its review, the
Commission may:
(i) Determine, subject to any terms
and conditions as the Commission
determines to be appropriate, that the
swap, or group, category, type, or class
of swaps must be cleared; or
(ii) Determine that the clearing
requirement will not apply to the swap,
or group, category, type, or class of
swaps, but clearing may continue on a
non-mandatory basis.
PART 140—ORGANIZATION,
FUNCTIONS, AND PROCEDURES OF
THE COMMISSION
3. The authority citation for part 140
continues to read as follows:
Authority: 7 U.S.C. 2 and 12a.

§ 140.94 Delegation of authority to the
Director of the Division of Clearing and
Intermediary Oversight.

(a) * * *
(5) All functions reserved to the
Commission in § 5.14 of this chapter;

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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
Process for Review of Swaps for
Mandatory Clearing October 26, 2010
I support the proposed rulemaking to
establish a process for the review and
designation of swaps for mandatory
clearing. One of the primary goals of the
Dodd-Frank Act was to lower risk by
requiring standardized swaps to be
centrally cleared. The process set out in
the proposed rule is consistent with the
Congressional requirement that
derivatives clearing organizations
(DCOs) be eligible to clear the swaps
and that before a swap becomes subject
to mandatory clearing the public get to
provide input on the contract or class of
contracts. Though we have until July to
finalize this rulemaking, it is my hope
that we can finish by April. This would
allow us to begin reviewing the
contracts that are already being cleared
by DCOs and under Dodd-Frank have
already been deemed submitted to the
Commission for consideration.
[FR Doc. 2010–27532 Filed 11–1–10; 8:45 am]
BILLING CODE 6351–01–P

COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 40
RIN 3038–AD07

Provisions Common to Registered
Entities
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:

The Commodity Futures
Trading Commission (‘‘Commission’’ or
‘‘CFTC’’) is proposing rules to
implement new statutory provisions
enacted under Title VII of the DoddFrank 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

SUMMARY:

4. In § 140.94, revise paragraph (a)(5)
and add new paragraphs (a)(6) and (a)(7)
to read as follows:

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(6) All functions reserved to the
Commission in §§ 39.5(b)(2) and (d)(3)
of this chapter; and
(7) All functions reserved to the
Commission in §§ 39.11 (b)(1)(vi),
(b)(2)(ii), (c)(1), (c)(2), (f)(1), and (f)(4) of
this chapter.
*
*
*
*
*

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