2010-23141

FR Doc 2010-23141[Federal Register: September 16, 2010 (Volume 75, Number 179)]

[Notices]

[Page 56512-56513]

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

[DOCID:fr16se10-31]

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COMMODITY FUTURES TRADING COMMISSION

Notice Regarding the Treatment of Petitions Seeking Grandfather

Relief for Trading Activity Done in Reliance Upon Section 2(h)(1)-(2)

of the Commodity Exchange Act

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice.

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SUMMARY: Section 723 of the Dodd-Frank Wall Street Reform and Consumer

Protection Act permits persons transacting business in exempt

commodities in reliance upon Section 2(h) of the Commodity Exchange Act

to petition the Commission for grandfather relief enabling them to

continue to rely on Section 2(h) after the effective date of the Dodd-

Frank Wall Street Reform and Consumer Protection Act. While persons may

submit such grandfather relief petitions in accordance with the

procedures provided herein, at this time the Commission has determined

that it will not be issuing such relief to persons seeking to continue

to rely on Section 2(h)(1)-(2). The Commission is prepared to revisit

its decision in the future should it be necessary in order to ensure a

smooth transition to the new regulatory regime mandated by the Dodd-

Frank Wall Street Reform and Consumer Protection Act. Any relief that

the Commission determines to grant in the future will not be limited to

persons that may file a petition.

DATES: Effective date: September 10, 2010 Petitions for relief will be

accepted until September 20, 2010. Comments on this notice will be

accepted until October 18, 2010.

ADDRESSES: You may submit comments or petitions for relief, identified

with ``Section 2(h)(1)-(2) Grandfather Relief'' in the subject line, by

any of the following methods:

E-mail for comments: pgfrcomment@cftc.gov. E-mail for

petitions: pgfrpetition@cftc.gov.

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.

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

by an English translation. Comments and petitions will be posted as

received to http://www.cftc.gov.

FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Chief Counsel,

Division of Market Oversight, Commodity Futures Trading Commission,

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

Telephone: (202) 418-5481. E-mail: dvanwagner@cftc.gov; or Beverly E.

Loew, Assistant General Counsel, Office of the General Counsel, same

address. Telephone: (202) 418-5648. E-mail: bloew@cftc.gov.

SUPPLEMENTARY INFORMATION:

I. Treatment of Petitions for Grandfather Relief Received From Persons

Relying Upon Section 2(h)(1)-(2) of the Commodity Exchange Act

On July 21, 2010, President Obama signed into law the Dodd-Frank

Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\1\

Title VII of the Dodd-Frank Act \2\ will amend the Commodity Exchange

Act (``CEA'') \3\ to establish a comprehensive new regulatory framework

for swaps and security-based swaps. As part of the revisions to the

CEA, the Dodd-Frank Act will delete various provisions from the CEA

that were first established by the Commodity Futures Modernization Act

of 2000 (``CFMA'') \4\ to permit the trading of derivative instruments

off of regulated markets. Among other such provisions, the Dodd-Frank

Act will strike Section 2(h)(1)-(2) (the ``Exempt Commodity

Exemption'') from the CEA, effective July 15, 2011.\5\ CEA Section

2(h)(1)-(2) generally provides that bilateral ``exempt commodity'' \6\

transactions entered into between eligible contract participants, as

that term is defined by CEA Section 1a(12), are exempt from all of the

provisions of the CEA, except for the anti-fraud and anti-manipulation

provisions.

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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Pub. L. No. 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.

\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

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

2010.''

\3\ 7 U.S.C. 1 et seq.

\4\ See Commodity Futures Modernization Act of 2000, Pub. L.

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

\5\ See Section 723(a)(1)(A) of the Dodd-Frank Act.

\6\ Under CEA Section 1a(14), an exempt commodity is defined as

a commodity that is neither an excluded nor an agricultural

commodity. Generally, the term encompasses energy and metals

commodities.

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Section 723(c)(1) of the Dodd-Frank Act provides that a person who

is subject to the Exempt Commodity Exemption may petition the

Commission to continue to operate pursuant to Section 2(h)(1)-(2) by

submitting a petition to the Commission within 60 days of the enactment

of the Dodd-Frank Act (i.e., by September 20, 2010). Section 723(c)(1)

further states that the Commission must consider all such petitions in

a ``prompt manner'' and may grant grandfather relief for up to one

year. The Dodd-Frank Act does not suggest any standard for the

Commission to evaluate grandfather relief petitions from parties

seeking to continue their reliance on the Exempt Commodity Exemption.

Ordinarily, a grandfather clause in a regulatory statute relieves

or exempts

[[Page 56513]]

those already involved in an activity or business from the new

regulations to be established by the statute because it is anticipated

that it may be difficult for the parties to transition the activity or

business to the new regulatory scheme.

The Commission is aware of the transformational nature of the Dodd-

Frank Act and its potential impact on the swaps industry. The

Commission also recognizes that bilateral swaps trading activity

currently conducted in reliance upon the CEA's Exempt Commodity

Exemption will likely become subject to any number of regulatory

provisions implementing the requirements of the Dodd-Frank Act,

including business conduct standards, recordkeeping and reporting

requirements, and capital and margin requirements.\7\ Until the

contents and timing of the Commission's regulations affecting bilateral

swaps are better known, however, the Commission has determined not to

grant grandfather relief as it is impossible to know at this time

whether such relief will be necessary.\8\

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\7\ See Sections 731 and 747 of the Dodd-Frank Act.

\8\ In a separate action, the Commission has issued orders

providing grandfather relief to parties affected by the Dodd-Frank

Act's elimination of the CEA Section 2(h)(3)-(7) exempt commercial

market (``ECM'') provision and the CEA Section 5d exempt board of

trade (``EBOT'') provision. In that matter, the Commission foresaw

that many entities that currently operate as ECMs or EBOTs will seek

to become either swap execution facilities (``SEFs'') or designated

contract markets (``DCMs'') when the Commission adopts regulations

implementing Dodd-Frank's requirements for those facilities. Because

the new SEF and DCM regulatory provisions are not likely to be

completed until close to the same time that the ECM and EBOT

provisions are deleted from the CEA, the Commission anticipated that

there would be a large number of new SEF and DCM applications at

that time. In order to ease this congestion of applications, and to

facilitate the transition of current ECM and EBOT businesses to the

new regulatory regime mandated by the Dodd-Frank Act, the Commission

provided limited grandfather relief to EBOTs and ECMs.

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In implementing the important requirements of the Dodd-Frank Act,

the Commission will strive to ensure that current practices will not be

unduly disrupted during the transition to the new regulatory regime.

Persons relying upon the Exempt Commodity Exemption will have an

opportunity to comment on each of the rulemakings that may affect them,

which will permit the Commission to consider and adopt appropriate

regulatory provisions to address transitioning from the Exempt

Commodity Exemption to the Dodd-Frank regulations as they become

effective. Additionally, while the Commission has chosen at this time

not to grant grandfather relief to parties that rely on the Exempt

Commodity Exemption, if it later determines that Dodd-Frank Act-

required regulations might pose particular difficulties for such

parties that cannot be addressed in final regulations, the Commission

is committed to use its available exemptive authorities to address such

a situation. Any relief that the Commission determines to grant will

not be limited to persons who may wish to file a petition.\9\

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\9\ In addition to deleting the CEA Section 2(h)(1)-(2) Exempt

Commodity Exemption from the CEA, the Dodd-Frank Act also will

delete two other provisions that provide for the exclusion of

bilateral swaps from the CEA--Section 2(d)(2) for excluded

commodities (mostly financial products) and Section 2(g) for non-

agricultural commodities. The Commission notes that the Dodd-Frank

Act does not provide for the possibility of any grandfather relief

for parties relying on those exclusions, which partially overlap

with the Section 2(h)(1)-(2). The Commission also pledges to be

attentive to the transition needs of parties that rely on those

provisions, as well as Section 2(h)(1)-(2) users, as it considers

Dodd-Frank Act-required regulations.

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II. Related Matters

a. Paperwork Reduction Act

This notice does not impose any recordkeeping or information

collection requirements, or other collections of information that

require approval of the Office of Management and Budget (``OMB'') under

the Paperwork Reduction Act (``PRA'').\10\ Requests for comment that

are published in the Federal Register in which collections of

information are not embedded are excluded from PRA compliance by OMB

regulations.\11\ Collections of information that may be required as a

condition for the grant of grandfather relief for persons relying on

the Exempt Commodity Exemption will be addressed at the time such

conditions may be imposed.

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\10\ 44 U.S.C. 3501 et seq.

\11\ 5 CFR 1320.3(h)(4).

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b. Cost-Benefit Analysis

Section 15(a) of the CEA \12\ requires the Commission to consider

the costs and benefits of its actions before taking certain actions

under the Act. This notice is neither a regulation nor an order to

which Section 15(a) applies.

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\12\ 7 U.S.C. 19(a).

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c. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') requires that agencies

consider the impact of their rules on small businesses. This notice is

not a ``rule for which the agency publishes a general notice of

proposed rulemaking.'' \13\ Therefore, the Commission is not required

to conduct a regulatory flexibility analysis.\14\

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\13\ 5 U.S.C. 601(2).

\14\ See 5 U.S.C 603.

Issued in Washington, DC, on September 10, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Concurring Statement of Commissioner Scott D. O'Malia

Regarding the Treatment of Petitions Seeking Grandfather Relief

Pursuant to Section 723 of the Dodd-Frank Act for Trading Activity Done

in Reliance Upon Section 2(h)(1)-(2)

I concur in the Commission's decision to presently decline to

grant relief under Section 723 of the Dodd-Frank Act to persons

transacting business in exempt commodities in reliance upon Sections

2(h)(1)-(2) of the Commodity Exchange Act (the ``Act''). While the

Commission has chosen to decline to grant relief at this time, it is

not restricted from using its authority to address and provide

relief to such persons in the future. In an effort to proactively

ensure the smoothest possible transition of these bilateral markets

for transactions in exempt commodities into the new regulatory

landscape, it is my hope that the Commission will revisit the issue

at least ninety days prior to the Dodd-Frank Act effective date. The

Commission remains committed to the efficient functioning of the

markets in exempt commodities, and the path that we take in each

rulemaking under the Dodd-Frank Act will only be enhanced by the

comments we receive. Therefore, I urge all market participants who

currently rely on Sections 2(h)(1)-(2) of the Act to help shape the

new regulatory frontier by submitting their comments to the

Commission.

[FR Doc. 2010-23141 Filed 9-15-10; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: September 16, 2010