FR Doc 2010-31898[Federal Register: January 6, 2011 (Volume 76, Number 4)]
[Proposed Rules]
[Page 722-737]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ja11-9]
[[Page 722]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 1, 37, 38, 39, and 40
RIN 3038-AD01
Governance Requirements for Derivatives Clearing Organizations,
Designated Contract Markets, and Swap Execution Facilities; Additional
Requirements Regarding the Mitigation of Conflicts of Interest
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'')
hereby proposes regulations to further implement new statutory
provisions enacted by Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act (``Dodd-Frank Act''). Specifically, the
Commission proposes certain substantive requirements on the resolution
of conflicts of interest, in order to further implement core principles
applicable to derivatives clearing organizations (``DCOs''), designated
contract markets (``DCMs''), and swap execution facilities (``SEFs'').
Such substantive requirements address reporting, transparency in
decision-making, and limitations on use or disclosure of non-public
information, among other things. For DCOs and DCMs, the Commission also
proposes regulations to implement core principles concerning governance
fitness standards and the composition of governing bodies. Finally, for
publicly-traded DCMs, the Commission proposes regulations to implement
the core principle on diversity of Boards of Directors.
The Commission welcomes comments on all aspects of the proposed
regulations.
DATES: Submit comments on or before March 7, 2011.
ADDRESSES: You may submit comments, identified by RIN 3038-AD01 number,
by any of the following methods:
Agency Web site, via its Comments Online process: http://
comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act, a petition for confidential treatment of
the exempt information may be submitted according to the procedures
established in Sec. 145.9 of the Commission's Regulations.\1\
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\1\ 17 CFR 145.9.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: Nancy Liao Schnabel, Special Counsel,
Division of Clearing and Intermediary Oversight (DCIO), at 202-418-5344
or [email protected]; Lois Gregory, Assistant Deputy Director for
Market Review, the Division of Market Oversight (DMO), at 202-418-5569
or [email protected]; Alicia Lewis, Attorney-Advisor, DCIO, at 202-418-
5862 or [email protected]; Jordan O'Regan, Attorney-Advisor, DCIO, at
202-418-5984 or [email protected]; or Jolanta Sterbenz, Counsel, Office
of the General Counsel, at 202-418-6639 or [email protected]; in each
case, also at the Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
On July 21, 2010, President Obama signed the Dodd-Frank Act.\2\
Title VII of the Dodd-Frank Act \3\ amended the Commodity Exchange Act
(``CEA'') \4\ to establish a comprehensive new regulatory framework for
swaps and certain security-based swaps. The legislation was enacted to
reduce risk, increase transparency, and promote market integrity within
the financial system by, among other things: (i) Providing for the
registration and comprehensive regulation of swap dealers and major
swap participants; \5\ (ii) imposing mandatory clearing and trade
execution requirements on clearable swap contracts; (iii) creating
robust recordkeeping and real-time reporting regimes; and (iv)
enhancing the rulemaking and enforcement authorities of the Commission
with respect to, among others, all registered entities and
intermediaries subject to the oversight of the Commission.
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\2\ See Dodd-Frank Act, Public Law 111-203, 124 Stat. 1376
(2010). The text of the Dodd-Frank Act may be accessed at http://
www.cftc.gov./LawRegulation/OTCDERIVATIVES/index.htm.
\3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\4\ 7 U.S.C. 1 et seq.
\5\ In this release, the terms ``swap dealer'' and ``major swap
participant'' shall have the meanings set forth in Section 721(a) of
the Dodd-Frank Act, which added Sections 1a(49) and (33) of the CEA.
However, Section 721(c) of the Dodd-Frank Act directs the Commission
to promulgate rules to further define, among other terms, ``swap
dealer'' and ``major swap participant.'' The Commission is in the
process of this rulemaking. See, e.g., http://www.cftc.gov/
LawRegulation/DoddFrankAct/OTC_2_Definitions.html. The Commission
anticipates that such rulemaking will be completed by the statutory
deadline of July 15, 2011.
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In order to ensure the proper implementation of the comprehensive
new regulatory framework, the Dodd-Frank Act requires the Commission to
promulgate regulations regarding the mitigation of conflicts of
interest in the operation of certain DCOs, DCMs, and SEFs. On October
1, 2010, the Commission identified possible conflicts. Section II below
briefly summarizes these conflicts. To address these conflicts, the
Commission proposed \6\ both (i) structural governance requirements \7\
and (ii) limits on ownership of voting equity and exercise of voting
power \8\ (the ``Conflicts of Interest NPRM'').
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\6\ 75 FR 63732 (Oct. 18, 2010).
\7\ According to the Conflicts of Interest NPRM: (i) Each DCO,
DCM, or SEF must have a Board of Directors with at least 35 percent,
but no less than two, public directors; (ii) each DCO, DCM, or SEF
must have a nominating committee with at least 51 percent public
directors; (iii) each DCO, DCM, or SEF must have one or more
disciplinary panels, with a public participant as chair; (iv) each
DCM or SEF must have (A) a regulatory oversight committee (``ROC''),
with all public directors, and (B) a membership or participation
committee, with 35 percent public directors; and each DCO must have
a risk management committee (``RMC''), with at least (A) 35 percent
public directors and (B) 10 percent customer representatives. See
generally 75 FR 63732 (Oct. 18, 2010).
\8\ According to the Conflicts of Interest NPRM, no DCM or SEF
member (and related persons) may (i) beneficially own more than 20
percent of any class of voting equity or (ii) directly or indirectly
vote an interest exceeding 20 percent of the voting power of any
class of equity.
A DCO may choose one of the following alternatives. Under the
first alternative, no individual member may beneficially own more
than 20 percent of any class of voting equity or directly or
indirectly vote an interest exceeding 20 percent of the voting power
of any class of equity. In addition, the enumerated entities,
whether or not they are DCO members, may not collectively own on a
beneficial basis more than 40 percent of any class of voting equity,
or directly or indirectly vote an interest exceeding 40 percent of
the voting power of any class of equity.
Under the second alternative, no DCO member or enumerated
entity, regardless of whether it is a DCO member, may own more than
five (5) percent of any class of voting equity or directly or
indirectly vote an interest exceeding five (5) percent of the voting
power of any class of equity. Notwithstanding the foregoing, the
Conflicts of Interest NPRM provides a procedure for the DCO to apply
for, and the Commission to grant, a waiver of the abovementioned
limits. See generally 75 FR 63732 (Oct. 18, 2010).
``Enumerated entities'' are those entities listed in Section
726(a) of the Dodd-Frank Act and include: (i) Bank holding companies
with over $50,000,000,000 in total consolidated assets; (ii) a
nonbank financial company supervised by the Board of Governors of
the Federal Reserve System; (iii) an affiliate of (i) or (ii); (iv)
a swap dealer; (v) a major swap participant; or (vi) an associated
person of (iv) or (v).
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[[Page 723]]
The Conflicts of Interest NPRM primarily aims to implement Sections
726 and 725(d) of the Dodd-Frank Act.\9\ However, the Commission drew
additional authority to propose the abovementioned requirements from
Sections 725(c),\10\ 735(b),\11\ and 733 \12\ of the Dodd-Frank Act.
Together, such sections contain DCO, DCM, or SEF core principles that
require each such entity to (i) establish and enforce rules to minimize
conflicts of interest in its decision-making process and (ii) establish
a process for resolving such conflicts.\13\ This proposed rulemaking
(the ``Governance NPRM'') aims to more fully implement such core
principles. Therefore, the Governance NPRM proposes the following
requirements, which complement those in the Conflicts of Interest NPRM:
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\9\ First, Section 726(a) of the Dodd-Frank Act specifically
empowers the Commission to adopt ``numerical limits * * * on
control'' or ``voting rights'' that enumerated entities may hold
with respect to such DCOs, DCMs, and SEFs. Second, Section 726(b) of
the Dodd-Frank Act directs the Commission to determine the manner in
which its rules may be deemed necessary or appropriate to improve
the governance of certain DCOs, DCMs, or SEFs or to mitigate
systemic risk, promote competition, or mitigate conflicts of
interest in connection with the interaction between swap dealers and
major swap participants, on the one hand, and such DCOs, DCMs, and
SEFs. Finally, Section 726(c) of the Dodd-Frank Act directs the
Commission to consider the manner in which its rules address
conflicts of interest in the abovementioned interaction arising from
equity ownership, voting structure, or other governance arrangements
of the relevant DCOs, DCMs, and SEFs.
Section 725(d) of the Dodd-Frank Act states: ``[t]he Commodity
Futures Trading Commission shall adopt rules mitigating conflicts of
interest in connection with the conduct of business by a swap dealer
or a major swap participant with a derivatives clearing
organization, board of trade, or a swap execution facility that
clears or trades swaps in which the swap dealer or major swap
participant has a material debt or material equity investment.''
\10\ Section 725(c) of the Dodd-Frank Act amends Section 5b(c)
of the CEA to include new DCO Core Principle O (Governance Fitness
Standards), P (Conflicts of Interest), and Q (Composition of
Governing Boards). Together, such core principles empower the
Commission to develop performance standards for determining whether
a DCO has: (i) Governance arrangements that are transparent to
fulfill public interest requirements and to permit consideration of
the views of owners and participants; (ii) appropriate fitness
standards for directors, members, and others; (iii) rules to
minimize and resolve conflicts of interest in DCO decision-making;
and (iv) governing boards or committees that include market
participants.
\11\ Section 735(b) of the Dodd-Frank Act retains the existing
DCM core principle on conflicts of interest and governance fitness
standards, but (i) amends the existing DCM core principle on
composition of governing boards of contract markets to state:
``[t]he governance arrangements of the board of trade shall be
designed to permit consideration of the views of market
participants,'' and (ii) adds a new DCM core principle on diversity
of the Board of Directors. Together, such core principles empower
the Commission to develop performance standards for determining
whether a DCM has: (i) Appropriate fitness standards for directors,
members, and others; (ii) rules to minimize conflicts of interest in
DCM decision-making; (iii) appropriate governance arrangements to
permit the Board of Directors to consider the views of market
participants; and (iv) rules, if the DCM is a publicly-traded
company, regarding the cultural diversity of the Board of Directors.
\12\ Section 733 of the Dodd-Frank Act includes SEF Core
Principle 12 (Conflicts of Interest) in new Section 5h of the CEA.
Such core principle empowers the Commission to establish performance
standards for determining whether a SEF has rules to minimize and
resolve conflicts of interest in SEF decision-making.
\13\ The conflicts of interest core principles are DCO Core
Principle P, DCM Core Principle 16, and SEF Core Principle 12. Such
core principles shall hereinafter be referred to as ``Conflicts of
Interest Core Principles.''
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Each DCO must report to the Commission when its Board of
Directors rejects a recommendation from or supersedes an action of the
RMC; \14\
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\14\ In addition, a DCO would be required to report to the
Commission when its RMC rejects a recommendation from or supersedes
an action of a subcommittee of the RMC.
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Each DCM or SEF must report to the Commission when its
Board of Directors rejects a recommendation from or supersedes an
action of the ROC or the Membership or Participation Committee; \15\
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\15\ The proposed regulations would also require the ROC of a
DCM or SEF to prepare an annual report to the Board of Directors
assessing various components of the regulatory program of such DCM
or SEF.
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Each DCO, DCM, or SEF must:
[cir] Implement a regulatory program to identify, on an ongoing
basis, existing and potential conflicts of interest, as well as a
method for making fair and non-biased decisions in the event of such a
conflict;
[cir] Prescribe limits on the use or disclosure of non-public
information by owners, members of the Board of Directors, members of
any committee, officers or other employees; and
[cir] Make certain information on governance arrangements available
to the public and relevant authorities, including summaries of
significant decisions.
In addition to containing the Conflicts of Interest Core
Principles, Sections 725(c), 735(b), and 733 of the Dodd-Frank Act add
or amend DCO or DCM core principles on (i) governance fitness standards
and (ii) composition of the Board of Directors or other governing
bodies. Section 735(b) of the Dodd-Frank Act also adds a DCM core
principle on diversity of certain Boards of Directors. To implement
such core principles, the Governance NPRM proposes the following
requirements:
Each DCO or DCM must specify and enforce fitness standards
for its members, directors, members of any Disciplinary Panel or
Disciplinary Committee, persons with direct access, and certain
affiliates;
Each publicly-traded DCM must evaluate the breadth and
cultural diversity of its Board of Directors;
Each DCM must design and institute a process for
considering the range of opinions that market participants \16\ hold
with respect to (i) the functioning of an existing market and (ii) new
rules or rule amendments; and
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\16\ In general, the Commission interprets the term ``market
participants'' to be more expansive than the term ``member'' (as
defined in Section 1a(34) of the CEA). Therefore, with respect to
DCMs, DCOs, and SEFs, the Commission construes the term ``market
participants'' to encompass customers of members (to the extent that
such customers do not fall within Section 1a(34) of the CEA).
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Each DCO must have 10 percent customer representation on
its Board of Directors, in lieu of having such representation on the
RMC (or the RMC Subcommittee). Alternatively, each DCO must have 10
percent customer representation on the RMC (or the RMC Subcommittee),
in lieu of having such representation on the DCO Board of
Directors.\17\
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\17\ As Section IV(c)(ii) below describes further, the
Commission is reconsidering that portion of the Conflicts of
Interest NPRM that requires 10 percent customer representation on
the RMC. The Commission notes that it has authority under both
Section 726 of the Dodd-Frank Act, as well as under DCO Core
Principles P (Conflicts of Interest) and Q (Composition of Governing
Boards) to adopt either a Board or RMC composition requirement.
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[[Page 724]]
Sections 725(c), 735(b), and 733 explicitly authorize the
Commission to promulgate regulations implementing DCO, DCM, and SEF
core principles under Section 8a(5) of the CEA. Section 8a(5) of the
CEA states that ``[t]he Commission is authorized * * * to make or
promulgate such rules and regulations as, in the judgment of the
Commission, are reasonably necessary to effectuate any of the
provisions or to accomplish any of the purposes of [the CEA].'' The
requirements that the Governance NPRM proposes apply to all DCOs and
DCMs, regardless of whether they clear or list swap contracts or only
commodity futures or options.\18\
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\18\ As the Conflicts of Interest NPRM states:
In applying such requirements and limits, the Commission does
not propose to distinguish between DCMs and SEFs listing swap
contracts. As mentioned above, such DCMs and SEFs may experience
sustained competition with respect to the same swap contract, and
therefore would face the same pressures on self-regulation.
Additionally, the Commission does not propose to distinguish between
(i) DCMs listing swap contracts and (ii) DCMs listing only commodity
futures and options. As mentioned above, clearable swap contracts
may share sufficiently similar characteristics with certain
commodity futures and options as to compete with respect to
execution. Therefore, a DCM listing only commodity futures and
options may face competition from a SEF with fewer self-regulatory
requirements, in the same manner as a DCM listing swap contracts.
Given that the same conflicts of interest may concern both types of
DCM, it would appear that the same (i) structural governance
requirements and (ii) limits on the ownership of voting equity and
the exercise of voting power should apply.
In addition, the Commission does not propose to distinguish
between (i) DCOs clearing swap contracts and (ii) DCOs clearing only
commodity futures and options. Certain standardized swap contracts
have sufficiently similar risk profiles to commodity futures and
options that the Commission has, on occasion, permitted such
products to be commingled and margined within the segregated
customer account under Section 4d of the CEA. If the Commission
applied differential (i) structural governance requirements and (ii)
limits on the ownership of voting equity and the exercise of voting
power, the Commission risks creating an incentive for regulatory
arbitrage between the two types of DCO.
75 FR at 63737. The Commission has requested comment in the
Conflicts of Interest NPRM regarding this approach. The Commission
reiterates its request for comment in the context of the Governance
NPRM.
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The Governance NPRM reflects consultation with staff of the
following agencies: (i) The Securities and Exchange Commission (the
``SEC''); \19\ (ii) the Board of Governors of the Federal Reserve;
(iii) the Office of the Comptroller of the Currency; (iv) the Federal
Deposit Insurance Corporation; and (v) the Treasury Department. The
Governance NPRM has been further informed by (i) the joint roundtable
that Commission and SEC staff conducted on August 20, 2010 (the
``Roundtable'') \20\ and (ii) public comments posted to the Web site of
the Commission.\21\ Finally, mindful of the importance of international
harmonization,\22\ the Governance NPRM incorporates certain elements
of: (i) The Proposal for a Regulation of the European Parliament and of
the Council on OTC Derivatives, Central Counterparties, and Trade
Depositories (the ``European Commission Proposal''); \23\ and (ii) the
Recommendations for Central Counterparties, drafted by the Committee on
Payment and Settlement Systems of the Bank for International
Settlements and the Technical Committee of the International
Organization of Securities Commissions, dated November 2004 (the ``CCP
Recommendations'').\24\
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\19\ Section 765 of the Dodd-Frank Act requires the SEC to
promulgate rules to mitigate conflicts of interest in the operation
of (i) a clearing agency that clears security-based swaps, (ii) a
security-based swap execution facility, or (iii) a national
securities exchange that posts or makes available for trading
security-based swaps. Core Principles for security-based swap
execution facilities are set forth in Section 763 of the Dodd-Frank
Act.
\20\ The transcript from the roundtable (the ``Roundtable Tr.'')
is available at: http://www.cftc.gov/idc/groups/public/@newsroom/
documents/file/derivative9sub082010.pdf.
\21\ Such comments are available at: http://www.cftc.gov/
LawRegulation/DoddFrankAct/OTC_9_DCOGovernance.html.
\22\ Currently, the Commission regulates certain entities based
outside of the United States (e.g., LCH.Clearnet Limited and ICE
Clear Europe Limited, each of which is based in the United Kingdom).
\23\ COM(2010) 484/5.
\24\ The CCP Recommendations are available at: http://
www.bis.org/publ/cpss61.pdf.
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The Commission requests comment on all aspects of the Governance
NPRM.
II. Conflicts of Interest
As mentioned above, Title VII of the Dodd-Frank Act amended the CEA
to establish a comprehensive new framework for swaps and certain
security-based swaps. This framework imposes mandatory clearing and
trade execution requirements with respect to clearable swap contracts.
Some market participants, investor advocates, and academics have
expressed a concern that the enumerated entities have economic
incentives to minimize the number of swaps subject to mandatory
clearing and trading. They contend that control of a DCO by the
enumerated entities, whether through ownership or otherwise,
constitutes the primary means for keeping swap contracts out of the
mandatory clearing requirement, and therefore also out of the trading
requirement. A further contention is that sustained competition between
DCMs or SEFs may exacerbate certain structural conflicts of
interest.\25\
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\25\ This term is defined in 72 FR 6936 (Feb. 14, 2007), which
includes acceptable practices that the Commission previously adopted
for the DCM core principle on conflicts of interest.
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As the Conflicts of Interest NPRM further describes, the potential
conflicts of interest that the Commission has identified are: Conflicts
of interest that a DCO may confront when determining (i) whether a
product is capable of being cleared, (ii) the minimum criteria that an
entity must meet in order to become and remain a clearing member, and
(iii) whether a particular entity satisfies such criteria; and
conflicts of interest that a DCM or SEF may confront in balancing
advancement of commercial interests and fulfillment of self-regulatory
responsibilities.
In addition, the Commission has identified misuse or disclosure of
non-public information as a conflict of interest that a DCO, DCM, or
SEF may confront. Certain individuals (e.g., owners, members of the
Board of Directors, officers, or other employees) will be privy to non-
public information. Such non-public information could be used or
disclosed improperly (e.g., to the detriment of competitors), whether
advertently or inadvertently.
III. Mitigation of Conflicts of Interest
To more fully implement the Conflicts of Interest Core Principles,
the Commission proposes certain requirements related to (i) reporting,
(ii) identification and mitigation of conflicts of interest, (iii)
transparency of governance arrangements, and (iv) limitations on use or
disclosure of non-public information.
A. Reporting Requirements
1. DCOs, DCMs, and SEFs
As mentioned above, the Conflicts of Interest NPRM imposes specific
compositional requirements on the Boards of Directors and certain
committees of DCOs, DCMs, and SEFs. In order to facilitate the
responsibility of the Commission to oversee compliance with such
requirements, the Governance NPRM proposes to mandate that each DCO,
DCM, or SEF submit to the Commission within 30 days after each election
of its Board of Directors:
A list of all members of the Board of Directors, each
committee with a composition requirement (including any Executive
Committee \26\), and each other
[[Page 725]]
committee that has the authority to amend or constrain the action of
the Board of Directors,
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\26\ The Conflicts of Interest NPRM defines ``Executive
Committee'' as a committee of the Board of Directors that may
exercise the authority delegated to it by the Board of Directors
with respect to the management of the company or organization. See
proposed Sec. 1.3(ccc). 75 FR at 63747.
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A description of the relationship, if any, between such
directors and the registered entity or the members of the registered
entity (and, in each case, any affiliates thereof),
The basis for any determination that a director qualifies
as a Public Director, and \27\
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\27\ With respect to DCOs, the Commission also requires the
basis for any determination that a director qualifies as a customer
representative.
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A description of how the composition of the Board of
Directors and each of the abovementioned committees allows the
registered entity to comply with applicable core principles,
regulations, as well as to the rules of the registered entity.
2. DCOs
As the Conflict of Interest NPRM states:
swap clearing members at DCOs that currently clear large volumes of
swap contracts are exclusively enumerated entities. Some have argued
that the enumerated entities have an incentive to influence DCO risk
assessments regarding (i) whether a swap contract is capable of
being cleared, (ii) the appropriate membership criteria for a swap
clearing member, and (iii) whether a particular entity meets such
criteria. Therefore, the Commission must carefully consider the
composition of the Risk Management Committee, in order to achieve
(i) the increased clearing of swap contracts that the Dodd-Frank Act
contemplates without compromising (ii) DCO safety and soundness.\28\
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\28\ 75 FR at 63740.
The Conflicts of Interest NPRM proposes to require each DCO to have
an RMC, with at least (i) 35 percent public directors and (ii) 10
percent customer representatives.\29\ If a DCO would like to have
greater clearing member participation in risk management, then it may
cause its RMC to delegate to a subcommittee (the ``RMC Subcommittee'')
decisions implicating whether (i) a product is capable of being cleared
and (ii) particular entities or categories of entities are capable of
performing such clearing. After such delegation the RMC would be free
of any composition requirements.
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\29\ See Section IV(c)(ii) below on Commission reconsideration
of requiring customer representation on the RMC, rather than on the
DCO Board of Directors.
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In the abovementioned structure, the RMC Subcommittee reports to
the RMC, whereas the RMC reports to the DCO Board of Directors.
Therefore, a DCO governing body that is not subject to the same
compositional requirements as the RMC or the RMC Subcommittee may
reject a recommendation or supersede an action thereof.\30\ To enable
the Commission to determine whether such a rejection or supersession
originates from a conflict of interest, the Governance NPRM proposes to
require a DCO to submit a written report to the Commission, whenever
such a rejection or supersession occurs.\31\ Such report would detail,
among other things, the rationale for such rejection or supersession.
This requirement parallels the requirements for central counterparties
(``CCPs'') in the European Commission Proposal.\32\ The Commission
anticipates that such a reporting requirement may serve to deter
conflicts from arising in the first place.
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\30\ This observation would be true regardless of whether the
Commission ultimately requires customer representation on the RMC or
the DCO Board of Directors. However, the Commission requests comment
on whether the reporting requirement described herein should apply
to a DCO if the Commission requires the latter and not the former.
\31\ If, after examination, the Commission determines that such
rejection or supersession originates from a conflict of interest,
the Commission may find that the DCO regulatory program (as
referenced in Section III(b) herein) is non-compliant with DCO Core
Principle P. Upon making such a finding, the Commission may resort
to certain administrative remedies (e.g., pursuant to Section 5c(d)
of the CEA).
\32\ See Article 26(5) of the European Commission Proposal.
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3. DCMs or SEFs
The Conflicts of Interest NPRM emphasizes the importance of the ROC
and Membership or Participation Committees in ensuring that the DCM or
SEF does not prioritize commercial interests over self-regulatory
responsibilities, including restricting access or imposing burdens on
access in a discriminatory manner.\33\ As mentioned above, the
Conflicts of Interest NPRM proposes to require each DCM or SEF to have
(i) a ROC with all public directors and (ii) a Membership or
Participation Committee with 35 percent public directors. However, the
Conflicts of Interest NPRM contemplates that such ROC or Membership or
Participation Committee would report to the DCM or SEF Board of
Directors. As such DCM or SEF Board of Directors may not be subject to
the same composition requirements (or may not have the same members) as
the ROC or Membership or Participation Committee, the Governance NPRM
proposes to require a DCM or SEF to submit a written report to the
Commission whenever such Board of Directors rejects a recommendation of
the ROC or the Membership or Participation Committee or supersedes an
action. Such report would detail among other things, the rationale for
such action. The Commission believes that such a reporting requirement
would alert it to potential conflicts of interests, as well as deter
such conflicts from arising in the first place.
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\33\ 75 FR 63741.
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In addition to the above, the Governance NPRM proposes to require
the ROC to prepare an annual report to the Board of Directors assessing
various components of the DCM or SEF regulatory program. Such a
requirement generally parallels current acceptable practices under DCM
Core Principle 15.\34\
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\34\ Such regulatory program is described further in section
III(b) herein. The Dodd-Frank Act has redesignated DCM Core
Principle 15 as DCM Core Principle 16, but has left the actual
language of the core principle substantively unchanged. See section
3(ii)(E) under Acceptable Practices for Core Principle 15 in
Appendix B to Part 38 of the Commission's regulations.
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4. Questions \35\
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\35\ See note 30 supra.
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The Commission requests comment on all aspects of the reporting
requirements. The Commission further requests comment on the questions
set forth below.
Pursuant to Article 31(2) of the European Commission
Proposal, if a CCP cannot manage, through structural or substantive
governance arrangements, conflicts of interest that may disadvantage a
specific member or customer, then that CCP must disclose to that member
(or customer, if known) the general nature or sources of such
conflicts. The CCP must make such disclosure before accepting new
transactions from the affected member, presumably so that such member
(or customer thereof) may choose to discontinue clearing with the CCP.
Should the Commission consider imposing a similar requirement on DCOs?
Why or why not?
If the Commission decides to impose a similar requirement
on DCOs, should the Commission extend such a requirement to cover DCMs
and SEFs? Why or why not?
B. Regulatory Program
The Governance NPRM proposes to require that, as part of its
regulatory program, each DCO, DCM, or SEF must establish, maintain, and
enforce written procedures to:
Identify, on an ongoing basis, existing and potential
conflicts of interest; and
[[Page 726]]
Make fair and non-biased decisions in the event of a
conflict of interest. Such procedures would include rules regarding the
recusal, when appropriate, of parties involved in the making of
decisions. The Chief Compliance Officer (for DCOs and SEFs), or the
Chief Regulatory Officer (for DCMs), shall, in consultation with the
Board of Directors of the entity or a senior officer of the entity,
resolve any conflicts of interest.
The Commission anticipates that the potential conflicts of interest
that each DCO, DCM, or SEF confronts may change as the swaps market
evolves under regulation. Consequently, the Commission believes that it
is appropriate to require a DCO, DCM, or SEF to have a regulatory
program to monitor existing and potential conflicts of interest on an
ongoing basis. The Commission intends to permit a DCO, DCM, or SEF to
contract with a third-party regulatory service provider to fulfill such
requirement, subject to Commission guidance generally applicable to
such contractual relationships.\36\
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\36\ See ``Trading Facilities, Intermediaries, and Clearing
Organizations; New Regulatory Framework; Final Rule,'' 66 FR 42256,
42266 (August 10, 2001). Although the relevant discussion focuses on
DCMs, a similar logic would apply to DCOs. Further, pursuant to the
Dodd-Frank Act, the Commission is contemplating proposing
regulations regarding such contractual relationships.
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To protect the integrity of trade execution and clearing, the
Commission believes that it is appropriate to require each DCO, DCM, or
SEF to have procedures, including recusal procedures, to make fair and
non-biased decisions in the event of a conflict of interest. Article
26(4) of the European Commission Proposal includes a similar recusal
requirement for CCP risk committees. Specifically, if the chairman of a
CCP risk committee determines that a member has an actual or potential
conflict of interest on a particular matter, that member would not be
allowed to vote on that matter.
1. Questions
The Commission requests comment on all aspects of the regulatory
program. The Commission further requests comment on the questions set
forth below:
As mentioned above, the Commission intends to permit a
DCO, DCM, or SEF to contract with a third-party regulatory service
provider (e.g., the National Futures Association) to implement the
abovementioned regulatory program. Would a third-party regulatory
service provider itself ever experience a conflict of interest from the
performance of its obligations under such a contract? If so, under what
circumstances?
Should the Commission propose any other substantive
requirements with respect to the decision-making process of a DCO, DCM,
or SEF?
C. Transparency Requirements
At the Roundtable, certain market participants emphasized that DCO
governance arrangements must be transparent to permit the Commission,
as well as the public, to (i) learn of decisions that have systemic
importance (e.g., whether a product is capable of being cleared), and
(ii) identify the governing bodies (e.g., the RMC) responsible for
making such decisions.\37\ Previously, when the Commission proposed
acceptable practices for current DCM Core Principle 15 (Conflicts of
Interest), the Commission recognized the value of transparency in
``maintaining market integrity and public trust.'' \38\ Such a
rationale would appear to also apply to DCOs and SEFs.\39\
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\37\ See, e.g., Comments from Jason Kastner, Vice Chairman,
Swaps and Derivatives Markets Association (``I think that the issue
is making sure that the risk committees of these DCOs are
transparent, that you know who the membership is, that the decisions
that are taken about whether to permit new clearing members and
whether to permit new products to be listed are transparent and
readily appraisable, and so that everyone knows, you know, what's
going on. * * * So this is an open hearing, right? There's a public
record. There's cameras. There's recordings. The same type of
transparency should apply to DCO governance so that everyone is
clear about how decisions are taken and how they're made and who's
making them.''), Roundtable Tr. at 74-75; and Comments from Randy
Kroszner, Professor of Economics, Booth School of Business,
University of Chicago (``I think this gets back to the transparency
point, but I do think it's extremely important to have people with
the knowledge, the wherewithal, and with their money on the line
having input into these risk-management decisions, and I think the
best way to ensure that is to ensure a very, very transparent
process so that outsiders can evaluate and provide the commentary
and the independent directors will have enough wherewithal, enough
knowledge to know what is going on.''), Roundtable Tr. 78-79.
\38\ 71 FR 38741 (July 7, 2006) (which proposed the acceptable
practices for current DCM core principle 15) (``* * * the current
market environment mandates enhanced and transparent governance as
an essential business practice for maintaining market integrity and
public trust.'').
\39\ According to Section 4.13.3 of the CCP Recommendations,
``[g]overnance arrangements should be clearly specified and publicly
available.''
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In light of the above, the Governance NPRM proposes to establish
minimum standards for the transparency of the governance arrangements
of each DCO, DCM, or SEF to relevant authorities (including the
Commission) as well as the public.\40\ These minimum standards \41\
require each DCO, DCM, or SEF to:
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\40\ The Commission intends to promulgate the transparency
requirements for DCMs and SEFs pursuant to its authority under DCM
Core Principle P, SEF Core Principle 12 (in each case, Conflicts of
Interest), and Section 8a(5) of the CEA. The Commission intends to
promulgate the transparency requirements for DCOs pursuant to its
authority under DCO Core Principle O (Governance Fitness Standards),
and Section 8a(5) of the CEA. This core principle requires that a
DCO establish governance arrangements that are transparent to, among
other things, fulfill public interest requirements. This core
principle is interrelated to DCO Core Principle P (Conflicts of
Interest), since transparency requirements enhance the ability of
the Commission to detect conflicts of interest, and may serve to
deter such conflicts. The Commission believes that it has the
authority to promulgate transparency requirements under either DCO
Core Principle O or P.
\41\ As Section III discusses in greater detail, the Commission
proposes to require DCOs and DCMs to meet additional standards
regarding the manner in which the Board of Directors considers the
opinions of market participants, among others.
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Make available certain information to the public and
relevant authorities; \42\
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\42\ Such information includes (i) the charter (or mission
statement) of the registered entity; (ii) the charter (or mission
statement) of the Board of Directors and certain committees; (iii)
the Board of Directors nominations process for the registered
entity, as well as the process for assigning members of the Board of
Directors or other persons to certain committees; (iv) names of all
members of (a) the Board of Directors and (b) certain committees;
(v) the identities of all Public Directors (and with respect to a
DCO, all customer representatives); (vi) the lines of responsibility
and accountability for each operational unit of the registered
entity; and (vii) summaries of significant decisions implicating the
public interest.
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Ensure that the information made available is current,
accurate, clear and readily accessible; and
Disclose summaries of certain significant decisions.
DCM, SEF, and DCO significant decisions involve those areas in
which conflicts of interest identified in Section II above may be most
manifest. With respect to a DCM or a SEF, significant decisions would
relate to access, membership, and disciplinary procedures. With respect
to a DCO, significant decisions would relate to open access,
membership, and the finding of products acceptable (or not acceptable)
for clearing. The Commission proposes to require that the DCO
specifically disclose whether (i) its Board of Directors has rejected a
recommendation or superseded an action of the RMC, or (ii) the RMC has
rejected a recommendation or superseded an action of the RMC
Subcommittee. The Commission does not intend the foregoing to require a
DCM, SEF, or DCO to disclose any ``non-public information'' (as
proposed Sec. 1.3(ggg) defines such term), including, without
limitation, minutes from meetings of its Board of Directors or
committees or information that it may have received on a confidential
basis from an applicant for membership.
[[Page 727]]
1. Questions
The Commission requests comment on all aspects of the transparency
requirements. The Commission further requests comment on the questions
set forth below.
Are the abovementioned proposals necessary or appropriate
to mitigate DCO, DCM, or SEF conflicts of interest or to ensure that
DCO governance arrangements are transparent to, among other things,
fulfill public interest requirements? If not, why not? What would be a
better alternative?
Should the Commission require that a DCO, DCM, or SEF make
available to the public and relevant authorities information other than
that identified above?
Has the Commission accurately identified DCO, DCM, or SEF
significant decisions? Should the Commission explicitly deem any other
DCO, DCM, or SEF decisions as significant? Conversely, should the
Commission deem any of the DCO, DCM, or SEF decisions that it has
identified to be not significant? Why?
Should the Commission permit a DCO, DCM, or SEF to keep
confidential any information identified above? If so, why?
D. Limitation on Use or Disclosure of Non-Public Information
1. Requirements
The Governance NPRM proposes to require each DCO, DCM, or SEF to
establish and maintain written policies and procedures on safeguarding
non-public information. These policies and procedures must, at a
minimum, preclude a DCO, DCM, or SEF owner, director, officer, or
employee from using or disclosing any non-public information gained
through their interest or position, absent prior written consent from
the DCO, DCM, or SEF, as applicable.\43\ The Commission intends for
such requirements to prohibit those in a position of power, either by
holding a certain position in the organization or through an ownership
interest, from leveraging such power to benefit, commercially or
otherwise, from non-public information.\44\ The Commission believes
that such leveraging would constitute a clear conflict of interest. The
Commission notes that such requirements comport with certain aspects of
the European Commission Proposal.\45\
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\43\ The Commission recognizes that the disclosure of non-public
information may be necessary in certain instances, even without the
written consent of the DCO, DCM, or SEF. Such instances include if
disclosure is compelled by valid legal process (provided that the
individual or entity notifies the registered SDR) or required by a
regulatory authority.
\44\ For example, a DCO, DCM, or SEF member may use or disclose
non-public information (e.g., the possibility of disciplinary
action) to the detriment of its competitor.
\45\ See Article 26(4) of the European Commission Proposal
(stating that ``[w]ithout prejudice to the right of competent
authorities to be duly informed, the members of the risk committee
shall be bound by confidentiality.'').
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The Governance NPRM proposes to define ``non-public information''
as any information that the DCO, DCM, or SEF owns or any information
that such entity otherwise deems confidential, such as intellectual
property belonging to (A) such registered entity or (B) a third party,
which property such registered entity receives on a confidential basis.
The Commission will not preclude a DCO, DCM, or SEF from adopting a
more expansive definition of ``non-public information.''
2. Questions
The Commission requests comment on all aspects of the limitation on
use of non-public information. The Commission further requests comment
on the questions set forth below.
Are the abovementioned proposals necessary or appropriate
to mitigate DCO, DCM, and SEF conflicts of interests? If not, why not?
What would be a better alternative?
Has the Commission proposed an appropriate definition for
``non-public information''? If not, why not? What would be a better
alternative?
Should the Commission consider any other concerns
regarding the use of ``non-public information''?
IV. Regulations Implementing Governance Core Principles
In addition to regulations more fully implementing the Conflicts of
Interest Core Principles, the Commission also proposes regulations
implementing DCO and DCM core principles on governance fitness and the
composition of governing boards. Further, the Commission proposes
regulations to implement the DCM core principle on diversity of certain
Boards of Directors.
A. Governance Fitness Standards
DCO Core Principle O,\46\ as added by Section 725(c) of the Dodd-
Frank Act, provides that each DCO shall (i) establish governance
arrangements that are transparent to fulfill public interest
requirements and to permit the consideration of the views of owners and
participants and (ii) establish and enforce appropriate fitness
standards for (A) directors, (B) members of any disciplinary committee,
(C) members of the DCO, (D) any other individual or entity with direct
access to the settlement or clearing activities of the DCO, and (E) any
party affiliated with any entity mentioned above. DCM Core Principle
15, as retained by Section 735(b) of the Dodd-Frank Act, provides that
a DCM shall establish and enforce appropriate fitness standards for (i)
directors, (ii) members of any disciplinary committee, (iii) members of
the DCM, (iv) any other person with direct access to the facility, and
(v) any person affiliated with any entity mentioned above.
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\46\ 7 U.S.C. 5b(c)(2)(O).
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1. Fitness Requirements
To implement DCM Core Principle 15 and partially implement DCO Core
Principle O, the Governance NPRM proposes to require each DCM and DCO
to specify and enforce fitness standards for (i) directors, (ii)
members of any Disciplinary Panel,\47\ and (iii) members of the
Disciplinary Committee.\48\ These standards shall include, at a
minimum, (i) those bases for refusal to register a person under Section
8a(2) of the CEA,\49\ and (2) the absence of a significant history of
serious disciplinary offenses, such as those that would be
disqualifying under Sec. 1.63 of the Commission's regulations.\50\
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\47\ The Conflicts of Interest NPRM defines ``Disciplinary
Panel'' as a panel that shall be responsible for conducting
hearings, rendering decisions, and imposing sanctions with respect
to disciplinary matters. See proposed Sec. 40.9(c)(3)(i). 75 FR at
63752.
\48\ Section 1.63 of the Commission's regulations defines
``Disciplinary Committee'' as a person or committee of persons, or
any subcommittee thereof, that is authorized by a self-regulatory
organization to issue disciplinary charges, to conduct disciplinary
proceedings, to settle disciplinary charges, to impose disciplinary
sanctions or to hear appeals thereof. See 17 CFR 1.63.
\49\ 7 U.S.C. 12(a)(2). Bases for refusal to register a person
under Section 8a(2) of the CEA include, among other things,
suspension or revocation of registration, certain court orders
prohibiting action in the capacity of a registrant under the CEA,
certain felony convictions, or findings of violation of the CEA or
certain other Federal statutes.
\50\ 17 CFR 1.63. Such offenses include violations of certain
self-regulatory organization rules and violations of the CEA or the
Commission's regulations thereunder.
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Also, the Governance NPRM proposes to require each DCM and DCO to
specify and enforce fitness standards for (i) its members and
affiliates \51\ thereof, (ii) persons with direct access to the DCM or,
in the case of a DCO, to its settlement and clearing activities, (iii)
natural persons who, directly or indirectly, own greater than ten
percent of any one class
[[Page 728]]
of equity interest in a DCM or DCO,\52\ and (v) parties affiliated with
(A) directors, (B) members of any Disciplinary Panel, and (C) members
of the Disciplinary Committee.\53\ At a minimum, such standards shall
include those bases for refusal to register a person under Section
8a(2) of the CEA.\54\
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\51\ The Governance NPRM proposes to define ``affiliate'' as a
person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, a registered entity.
\52\ This provision is a clarification of acceptable practices
under current DCM Core Principle 14.
\53\ Currently, the Governance NPRM does not propose to impose
any requirement on each DCM and DCO with respect to fitness
standards for affiliates of persons with direct access. Therefore,
under Section 5(d)(1)(B) of the CEA, as added by Section 735 of the
Dodd-Frank Act, each DCM has reasonable discretion in comporting
with DCM Core Principle 15 with respect to such affiliates. Also,
under Section 5b(c)(2)(A)(ii) of the CEA, as added by Section 725 of
the Dodd-Frank Act, each DCO retains similar discretion.
\54\ See note 49 supra.
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Further, the Governance NPRM proposes to require each DCM and DCO
to collect and verify information that supports compliance with the
standards articulated above and provide that information to the
Commission annually.
The abovementioned proposals codify the acceptable practices under
current DCM Core Principle 14 (Governance Fitness Standards) and extend
such practices to DCOs.\55\ The Commission believes that such proposals
are appropriate to ensure the integrity of individuals and entities
specified above. Such integrity, in turn, allows DCMs and DCOs to
operate in the best interests of the public.\56\
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\55\ DCM Core Principle 14 is redesignated as DCM Core Principle
15 under the Dodd-Frank Act.
\56\ DCMs facilitate the execution of, and DCOs provide clearing
for, ``* * * transactions * * * affected with a national public
interest.'' See Section 3(a) of the CEA, 7 U.S.C. 5.
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In addition to the above, the Governance NPRM proposes to mandate
that members and certain other persons must agree to become subject to
the jurisdiction of the DCM or the DCO, as a condition of access. Such
a proposal ensures that a DCM or DCO, each of which has self-regulatory
responsibilities, would be able to appropriately discipline a member or
such other person for violation of DCM or DCO rules. The Commission
believes that a DCM or DCO must have the ability to exert such
discipline in order to ensure the fitness of members or such other
persons.
2. Questions
The Commission requests comment on all aspects of the governance
fitness standards. Specifically, the Commission requests comment on the
questions set forth below.
Are the abovementioned proposals necessary or appropriate
to implement DCM Core Principle 15 and DCO Core Principle O? If not,
why not? What would be a better alternative?
Should the Commission propose any minimum fitness
standards other than those specified above?
Is the Commission's proposed definition of affiliate
appropriate? If not, why?
B. Transparency Requirements
As mentioned above, DCO Core Principle O \57\ provides that each
DCO shall establish governance arrangements that are transparent to
fulfill public interest requirements.\58\ Section III(C) of the
Governance NPRM discusses proposals to implement such portion of the
core principle. However, DCO Core Principle O also provides that each
DCO shall establish governance arrangements that are transparent to
permit the consideration of the views of owners and participants. Such
language appears unique to DCOs. Hence, the Governance NPRM sets forth
the following additional proposals for DCOs:
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\57\ 7 U.S.C. 5b(c)(2)(O).
\58\ To comport with the European Commission Proposal, the
Commission has additionally interpreted DCO Core Principle O to
require governance arrangements that are well-defined and that
include a clear organizational structure with consistent lines of
responsibility and effective internal controls.
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Each DCO shall make available to the public, as well as
relevant authorities (including the Commission), a description of the
manner in which its governance arrangements permit the consideration of
the views of owners (whether voting or non-voting) and its
participants, including, without limitation, clearing members and
customers;
Such description shall include, at a minimum:
[cir] The general method by which the DCO learns of the views of
owners (other than through the exercise of voting power) and
participants (other than through representation on the DCO Board of
Directors or any DCO committee); and
[cir] The manner in which the DCO considers such views.
1. Questions
The Commission requests comment on all aspects of the additional
proposals. Specifically, the Commission requests comment on the
questions set forth below.
Are such additional proposals necessary or appropriate to
implement DCO Core Principle O? If not, why not? What would be a better
alternative?
Should the Commission propose to require that each DCO
make available to the public, as well as relevant authorities,
information other than that identified above?
C. Composition of the Board of Directors
1. DCMs
DCM Core Principle 17,\59\ as amended by Section 735(b) of the
Dodd-Frank Act,\60\ provides that the governance arrangements of a DCM
shall be designed to permit consideration of the views of market
participants. To implement this provision, the Governance NPRM proposes
to require each DCM to design and institute a process for considering
the range of opinions that market participants hold with respect to (i)
the functioning of an existing market (including governance
arrangements) and (ii) new rules or rule amendments. The Commission
intends to permit each DCM to have the flexibility to determine the
process that is most appropriate for its market participants. The
Commission notes that one process by which a DCM may fulfill DCM Core
Principle 17 is to have market participants on its Board of Directors
(or other governing bodies). Regardless of the process that a DCM
chooses, the Governance NPRM requires the DCM to make a description of
such process available to the public and to relevant authorities
(including the Commission) as part of its compliance with the
transparency requirements described in Section III(C) above.\61\
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\59\ 7 U.S.C. 7(d)(17).
\60\ The Dodd-Frank Act redesignated DCM Core Principle 16
(Composition of Boards of Mutually Owned Contract Markets) as DCM
Core Principle 17 (Composition of Governing Boards of Contract
Markets), and amended the language of the core principle. Former DCM
Core Principle 16 stated: ``In the case of a mutually owned contract
market, the board of trade shall ensure that the composition of the
governing board reflects market participants.'' DCM Core Principle
17, as amended by the Dodd-Frank Act states that ``[t]he governance
arrangements of the board of trade shall be designed to permit
consideration of the views of market participants.''
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a. Questions.
The Commission requests comment on this proposal. Specifically, the
Commission requests comment on the questions set forth below.
Is the abovementioned proposal appropriate to implement
DCM Core Principle 17? What would be a better alternative? What are the
costs and benefits of the abovementioned proposals? What are the costs
and benefits of any alternative?
Does the Commission need to consider proposing any
additional requirements in order to implement DCM Core Principle 17?
What would be the costs and benefits of any such requirement?
[[Page 729]]
2. DCOs
DCO Core Principle Q, as added by Section 725(c) of the Dodd-Frank
Act, provides that each DCO shall ensure that the composition of the
governing board or committee of the DCO includes market participants.
In partial reliance on this core principle, the Conflicts of Interest
NPRM proposed requiring that the RMC (or the RMC Subcommittee) be
composed of at least 10 percent customer representatives. However,
based on comments that the Commission received on the Conflicts of
Interest NPRM,\62\ certain market participants would prefer that the
DCO Board of Directors, rather than the RMC, include customer
representation.\63\ Therefore, the Commission is reconsidering whether
requiring customer representation on the RMC or the DCO Board of
Directors would better implement both Section 726 of the Dodd-Frank Act
and DCO Core Principle Q. Preliminarily, the Commission is not inclined
to require customer representation on both the RMC and the DCO Board of
Directors, as the former reports to the latter. As members of the DCO
Board of Directors, customer representatives would have the opportunity
to (i) review recommendations and actions of the RMC, (ii) request the
rationale behind such recommendations and actions, and (iii) vote to
reject such recommendations and to supersede such actions.
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\62\ The comment period for the Conflicts of Interest NPRM
closed on November 17, 2010. Comments are available at: http://
comments.cftc.gov/PublicComments/CommentList.aspx?id=861.
\63\ See, e.g., Comment from the Investment Company Institute,
dated November 17, 2010 (stating that ``[t]he Commissions' proposals
include provisions that would allow for industry representation on
board advisory committees. The CFTC proposal, for example,
specifically includes a requirement that 10 percent of the Risk
Management Committee of a swap entity be composed of customers of
clearing members who also routinely execute swap contracts and who
have experience in using pricing models for such contracts. We
strongly support investor representation on board advisory
committees. These committees are designed to facilitate meaningful
discussion on important issues before the board. Nevertheless, such
advisory committee representation should not be a substitute for
investor representation on the board itself. This is particularly
true in the developing swap markets where, at this time, investors
have access to only a handful of swap entities for clearing and
trading.''). C.f. Comment from BlackRock, dated November 15, 2010
(stating that '' [t]he essence of BlackRock's comments is that buy-
side participants, like customers of clearing members, need
meaningful representation on the committees that make the critical
determinations on the core functions of the organization that impact
all of its participants. Such representation is more important than
fair representation on the Board of Directors because the governance
committees, such as the Risk Management Committee, will have
significant influence over the day-to-day affairs of DCOs. The
Proposing Release would charge the Risk Management Committee with
determining products eligible for clearing, setting standards and
requirements for initial and continuing clearing membership
eligibility, and advising the Board of Directors on the DCO's risk
model and default procedures. See Proposed Rule 39.13(g)(1), 75 FR
at 63,750. In other words, decisions of the Risk Management
Committee will have profound and immediate impacts on all DCO
constituencies, including customers.'').
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Based on the above, the Commission is proposing to require that a
DCO Board of Directors include at least 10 percent customer
representatives. However, in case the Commission decides to keep such
requirement at the RMC level, the Commission is alternatively re-
proposing that the RMC (or the RMC Subcommittee) be composed of at
least 10 percent customer representatives. As mentioned above, the
Commission is preliminarily anticipating that it would adopt only one
requirement on customer representation. The Commission is not
anticipating making a final decision regarding customer representation
until it finishes reviewing comments on the Governance NPRM.
a. Questions.
The Commission requests comment on all aspects of the
abovementioned proposal. Specifically, the Commission requests comment
on the questions set forth below.
Should the Commission require customer representation on
the DCO Board of Directors instead of the RMC (or RMC Subcommittee)?
Why or why not? What are the benefits and costs of such requirement?
Alternatively, should the Commission require customer
representation on the RMC (or the RMC Subcommittee) instead of the DCO
Board of Directors? Why or why not? What are the benefits and costs of
such requirement?
Should the Commission consider requiring customer
representation on both the DCO Board of Directors and the RMC? Why or
why not?
Alternatively, should the Commission consider requiring
customer representation on another committee, but neither the DCO Board
of Directors nor the RMC? Why or why not? Which committee would be most
appropriate? For example, the Nominating Committee?
What percentage or number of customer representatives
should the Commission require on the DCO Board of Directors? Should
such percentage be higher or lower than 10 percent? What should such
number be? What are the benefits and costs of each percentage or
number?
Alternatively, what percentage or number of customer
representatives should the Commission require on the RMC? Should such
percentage be higher or lower than 10 percent? What should such number
be? What are the benefits and costs of each percentage or number?
To the extent that the Commission requires customer
representatives on either the DCO Board of Directors or the RMC, should
the Commission consider imposing any additional requirement to ensure
that these representatives appropriately weigh the interests of all
customers, rather than just advocate on behalf of the entity to which
such representative belongs?
D. Diversity of DCM Board of Directors
DCM Core Principle 22, as added by Section 735(b) of the Dodd-Frank
Act, provides that a DCM, if a publicly-traded company, shall endeavor
to recruit individuals to serve on its Board of Directors and its other
decision-making bodies (as determined by the Commission) from among,
and to have the composition of the bodies reflect, a broad and
culturally diverse pool of qualified candidates.
To implement DCM Core Principle 22, the Governance NPRM proposes to
permit each publicly-traded DCM the flexibility to determine (i) the
standards by which a Board of Directors could be deemed broad and
culturally diverse, and (ii) the manner in which the DCM Board of
Directors meets that standard. The Governance NPRM proposes that each
such DCM make available its diversity standards to the public and
relevant authorities (including the Commission) as part of its
compliance with the transparency requirements described in Section
III(C) above. Further, the Governance NPRM proposes that each such DCM
provide the Commission with an annual certification of the manner in
which its Board of Directors meets its diversity standards. If such a
DCM concludes that its Board of Directors does not yet meet such
standards, then the Governance NPRM proposes that the DCM describe the
manner in which its Nominating Committee is structuring recruiting
efforts to meet such standards. The Commission is not currently
proposing diversity requirements for any other DCM decision-making
bodies. The Commission interprets DCM Core Principle 22 to apply only
to DCMs that are publicly-traded. This does not include DCMs that are
not publicly-traded but have one or more affiliates that are.
[[Page 730]]
1. Questions
The Commission requests comment on all aspects of the diversity
requirement. Specifically, should the Commission extend such
requirement to other DCM decision-making bodies? Why or why not? If the
Commission proposes to extend such requirement, which decision-making
bodies should it consider?
V. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \64\ requires that agencies
consider whether the regulations they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis respecting the impact.\65\
The proposed rules detailed in the Governance NPRM would only affect
DCOs, DCMs, and SEFs. The Commission has previously determined that
DCOs \66\ and DCMs \67\ are not ``small entities'' for purposes of the
RFA. In contrast, SEFs are a new category of registrant that the Dodd-
Frank Act created. Accordingly, the Commission has not addressed the
question of whether SEFs are, in fact, ``small entities'' for purposes
of the RFA.
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\64\ 5 U.S.C. 601 et seq.
\65\ Id.
\66\ 66 FR 45604, 45609 (August 29, 2001).
\67\ 47 FR 18618, 18619 (April 30, 1982).
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The Dodd-Frank Act defines a SEF to mean ``a trading system or
platform in which multiple participants have the ability to execute or
trade swaps by accepting bids and offers made by multiple participants
in the facility or system, through any means of interstate commerce,
including any trading facility that (A) facilitates the execution of
swaps between persons and (B) is not a designated contract market.''
\68\ The Commission hereby determines that SEFs not be considered
``small entities'' for essentially the same reasons that DCMs and DCOs
have previously been determined not to be small entities. These reasons
include the fact that the Commission designates a contract market or
registers a derivatives clearing organization only when it meets
specific criteria including expenditure of sufficient resources to
establish and maintain adequate self-regulatory programs. Likewise, the
Commission will register an entity as a SEF only after it has met
specific criteria including the expenditure of sufficient resources to
establish and maintain an adequate self-regulatory program.\69\
Accordingly, the Commission does not expect the rules, as proposed
herein, to have a significant impact on a substantial number of small
entities. Therefore, the Chairman, on behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b), that the proposed amendments
will not have a significant economic impact on a substantial number of
small entities. The Commission invites the public to comment on whether
SEFs covered by these rules should be considered small entities for
purposes of the RFA.
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\68\ See Section 721 of the Dodd-Frank Act. The Commission is
contemplating proposing regulations that would further specify those
entities that must register as a SEF. The Commission does not
believe that such proposals would alter its determination that a SEF
is not a ``small entity'' for purposes of the RFA.
\69\ See Core Principle 2 applicable to SEFs under Section 733
of the Dodd-Frank Act.
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B. Paperwork Reduction Act
The Governance NPRM contains information collection requirements.
The Paperwork Reduction Act of 1995 (``PRA'') \70\ imposes certain
requirements on Federal agencies (including the Commission) in
conducting or sponsoring any ``collection of information'' (as the PRA
defines such term). Pursuant to the PRA, the Commission has submitted
to the Director of the Office of Management and Budget (``OMB''), an
explanation, as well as details, of the information collection and
recordkeeping requirements which would be necessary to implement the
Governance NPRM.
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\70\ 44 U.S.C. 3501 et seq.
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1. Information Provided by Reporting Entities/Persons
If the Governance NPRM is promulgated in final form, they would
require DCOs, DCMs, and new SEF registrants to collect and submit,
pursuant to parts 37 to 40 of the Commission's regulations, certain
information to the Commission, which such regulations have never
previously required. For each such proposed requirement, set forth
below are estimates of: (i) The number of respondents; (ii) the number
of annual responses by each respondent; (iii) the average hours per
response; and (iv) the aggregate annual reporting burden (in hours as
well as dollars). New OMB control numbers will be assigned to these
proposed information collection requirements.
New Collection 3038-NEW
Sections 37.1201(b)(5) and 38.851(b)(5) of the Commission's
regulations require each SEF and DCM, respectively, to provide to the
Commission on an annual basis a report assessing the regulatory program
of the SEF or DCM, including (i) the description of such program, (ii)
expenses, (iii) staffing and structure, (iv) certain disciplinary
matters, and (v) with respect to a SEF only, the performance of the
chief compliance officer (as referenced in Section 5(f)(15) of the
Act).
OMB Control Number 3038-NEW.
Estimated number of respondents: 51.
Annual responses by each respondent: 1.
Estimated average hours per response: 20.
Aggregate annual reporting burden in hours: 1,020.
Aggregate annual reporting burden in dollars: $121,125.00.
New Collection 3038-NEW
Sections 37.1201(d) and 38.851(d) of the Commission's regulations
require a SEF and DCM, respectively, to submit a report to the
Commission detailing five items of information in the event that the
SEF or DCM Board of Directors rejects a recommendation or supersedes an
action of the Regulatory Oversight Committee or the Membership or
Participation Committee (or entity performing the functions of such
committee). Similarly, Sec. 39.25(b) of the Commission's regulations
requires a DCO to submit a report to the Commission detailing five
items of information in the event that (i) the DCO Board of Directors
rejects a recommendation or supersedes an action of the RMC or (ii) the
RMC rejects a recommendation or supersedes an action of the RMC
Subcommittee.
OMB Control Number 3038-NEW
Estimated number of respondents: 70.
Annual responses by each respondent: 1.
Estimated average hours per response: 15.
Aggregate annual reporting burden in hours: 1,050.
Aggregate annual reporting burden in dollars: $124,688.
New Collection 3038-NEW
Sections 38.801(d) and 39.24(b)(4) of the Commission's regulations
require each DCM and DCO, respectively, to provide to the Commission
information on an annual basis that supports compliance with certain
governance fitness standards.
OMB Control Number 3038-NEW
Estimated number of respondents: 35.
Annual responses by each respondent: 1.
Estimated average hours per response: 8.
Aggregate annual reporting burden in hours: 280.
Aggregate annual reporting burden in dollars: $33,250.00.
[[Page 731]]
New Collection 3038-NEW
Section 38.901(c) of the Commission's regulations requires each DCM
to make available to the public and the Commission a description of its
process for considering the range of opinions that market participants
hold with respect to (i) the functioning of an existing market
(including governance arrangements) and (ii) new rules or rule
amendments. Section 39.24(a) of the Commission's regulations requires
each DCO to make available to the public and to the relevant
authorities, including the Commission, a description of the manner in
which its governance arrangements permit the consideration of the views
of its owners, whether voting or non-voting, and its participants,
including, without limitation, clearing members and customers.
OMB Control Number 3038-NEW
Estimated number of respondents: 35.
Annual responses by each respondent: 1.
Estimated average hours per response: 15.
Aggregate annual reporting burden in hours: 525.
Aggregate annual reporting burden in dollars: $62,344.00.
New Collection 3038-NEW
Section 38.1151(d) of the Commission's regulations requires each
DCM that is publicly listed on a domestic exchange to (i) make
available to the public and the Commission the standards by which its
Board of Directors shall be deemed broadly and culturally diverse, and
(ii) certify to the Commission on an annual basis whether and how its
Board of Directors has met certain diversity standards.
OMB Control Number 3038-NEW
Estimated number of respondents: 16.
Annual responses by each respondent: 1.
Estimated average hours per response: 15.
Aggregate annual reporting burden in hours: 240.
Aggregate annual reporting burden in dollars: $28,500.00.
New Collection 3038-NEW
Section 40.9(b) of the Commission's regulations requires each DCO,
DCM, or SEF to submit to the Commission, within 30 days after the
election of the Board of Directors, (i) a list of all members of the
Board of Directors, each committee with a composition requirement
(including any Executive Committee), and each other committee with the
authority to amend or constrain the action of the Board of Directors,
(ii) a description of the relationship, if any, between such directors
and the registered entity or the members of the registered entity (and,
in each case, any affiliates thereof), (iii) the basis for any
determination that a director qualifies as a Public Director (and with
respect to DCOs only, as a customer representative), and (iv) a
description of how the composition of the Board of Directors and each
of the abovementioned committees allows the DCO, DCM, or SEF to comply
with applicable core principles, regulations, as well as to its rules.
OMB Control Number 3038-NEW
Estimated number of respondents: 70.
Annual responses by each respondent: 1.
Estimated average hours per response: 2.
Aggregate annual reporting burden in hours: 140.
Aggregate annual reporting burden in dollars: $16,625.00.
New Collection 3038-NEW
Section 40.9(d) of the Commission's regulations requires each DCO,
DCM or SEF to make certain information regarding its governance
arrangements available to the public and the Commission on a current
basis.\71\
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\71\ See note 42 supra.
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OMB Control Number 3038-NEW
Estimated number of respondents: 70.
Annual responses by each respondent: 4.
Estimated average hours per response: 10.
Aggregate annual reporting burden in hours: 2,800.
Aggregate annual reporting burden in dollars: $332,500.
The Commission invites the public and other Federal agencies to
comment on any aspect of the proposed information collection
requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the
Commission will consider public comments on such proposed requirements
in:
Evaluating whether the proposed collections of information
are necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
Evaluating the accuracy of the estimated burden of the
proposed information collection requirements, including the degree to
which the methodology and the assumptions that the Commission employed
were valid;
Enhancing the quality, utility, and clarity of the
information proposed to be collected; and
Minimizing the burden of the proposed information
collection requirements on DCOs, DCMs, and SEFs, including through the
use of appropriate automated, electronic, mechanical, or other
technological information collection techniques, e.g., permitting
electronic submission of responses.
Copies of the submission from the Commission to OMB are available
from the CFTC Clearance Officer, 1155 21st Street, NW., Washington, DC
20581, (202) 418-5160 or from http://RegInfo.gov. Organizations and
individuals desiring to submit comments on the proposed information
collection requirements should send those comments to the OMB Office of
Information and Regulatory Affairs at:
The Office of Information and Regulatory Affairs, Office
of Management and Budget, Room 10235, New Executive Office Building,
Washington, DC 20503, Attn: Desk Officer of the Commodity Futures
Trading Commission;
(202) 395-6566 (fax); or
[email protected] (e-mail).
2. Information Collection Comments
Please provide the Commission with a copy of submitted comments so
that all comments can be summarized and addressed in the final rule
preamble. Please refer to the ADDRESSES section of the Governance NPRM
for instructions on submitting comments to the Commission.
OMB is required to make a decision concerning the proposed
information collection requirements between thirty (30) and sixty (60)
days after publication of the Governance NPRM in the Federal Register.
Therefore, a comment to OMB is best assured of receiving full
consideration if OMB (as well as the Commission) receives it within
thirty (30) days of publication of the Governance NPRM.
C. Cost-Benefit Analysis
Section 15(a) of the CEA \72\ requires that the Commission, before
promulgating a regulation or issuing an order, consider the costs and
benefits of its action. By its terms, section 15(a) of the CEA does not
require the Commission to quantify the costs and benefits of a new
regulation or to determine whether the benefits of the regulation
outweigh its costs. Rather, section 15(a) of the CEA simply requires
[[Page 732]]
the Commission to ``consider the costs and benefits'' of its action.
Section 15(a) of the CEA further specifies that costs and benefits
shall be evaluated in light of the following considerations: (1)
Protection of market participants and the public; (2) efficiency and
competition; (3) financial integrity of the futures markets and price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. Accordingly, the Commission could in its
discretion, give greater weight to any one of the five considerations
and could determine that, notwithstanding its costs, a particular
regulation was necessary or appropriate to protect the public interest
or to effectuate any of the provisions or to accomplish any of the
purposes of the Act.
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\72\ 7 U.S.C. 19(a).
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1. The Conflicts of Interest Core Principles: Proposed Regulations
a. Reporting.
As mentioned above, Sec. Sec. 37.1201(b)(5) and 38.851(b)(5) of
the Commission's proposed regulations require each SEF and DCM,
respectively, to provide to the Commission an annual assessment report.
In addition, as mentioned above, Sec. Sec. 37.1201(d) and
38.851(d) of the Commission's proposed regulations require a DCO, DCM,
or SEF, as appropriate, to submit a report to the Commission whenever
certain committees are overruled and Sec. 40.9(b) of the Commission's
proposed regulations requires each DCO, DCM, or SEF to submit to the
Commission post-Board election information.
b. Transparency of Governance Arrangements.
As mentioned above, Sec. 40.9(d) of the Commission's proposed
regulations requires each DCO, DCM or SEF to make certain information
regarding its governance arrangements available to the public and the
Commission on a current basis.
c. Identification and Mitigation of Conflicts of Interest.
Section 40.9(e) of the Commission's proposed regulations require
each DCO, DCM, or SEF to establish, maintain, and enforce written
procedures to identify existing and potential conflicts of interest,
and to make decisions in the event of a conflict of interest. The
Commission recognizes that such requirements impose costs. Such costs
may be ameliorated to the extent that certain DCOs or DCMs may modify
existing practices to accommodate proposed Sec. 40.9(e).\73\
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\73\ See, e.g., Rule 234 of the Chicago Mercantile Exchange
(``CME'') (Avoiding Conflicts of Interest in ``Significant
Actions''), available at: http://www.cmegroup.com/rulebook/CME/I/2/
34.html.
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d. Limitations on Use or Disclosure of Non-Public Information.
As more fully described above, Sec. 40.9(f) of the Commission's
proposed regulations requires each DCO, DCM, or SEF to establish and
maintain written policies and procedures on safeguarding non-public
information. The Commission recognizes that such requirements impose
costs. Such costs may be ameliorated to the extent that certain DCOs or
DCMs may modify existing practices to accommodate proposed Sec.
40.9(f).\74\
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\74\ See, e.g., CME Confidentiality Policy for Market Regulation
and Audit Departments, available at: http://www.cmegroup.com/market-
regulation/overview/files/confidentialitypolicy.pdf.
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2. The Costs and Benefits of Regulations Implementing the Conflicts of
Interest Core Principles
As Section II herein mentions, a DCO may face conflicts of interest
resulting from control by enumerated entities. Such conflicts may have
detrimental effects on the public because they may impede the mandatory
clearing of swaps.\75\ Also, such conflicts may evidence less sound
risk management practices, as such conflicts may cause a DCO to make
decisions regarding, e.g., membership, based on the commercial
interests of certain clearing members, rather than on objective risk
criteria. Further, such conflicts may also have detrimental effects on
market participants, as well as on efficiency and competition, because
such conflicts may result in non-risk-based constraints on the number
of futures commission merchants available to clear swaps, which may
increase the price that certain market participants must bear in order
to obtain clearing. Finally, such conflicts may have detrimental
effects on price discovery because, by impeding the mandatory clearing
of swaps, they may also impede the trading of swaps on a SEF or DCM.
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\75\ The Conflicts of Interest NPRM states: ``The framers of the
Dodd-Frank Act observe that the clearing of swap contracts
constitutes a key means for managing systemic risk, because clearing
removes the type of interconnectedness between financial
institutions that contributed to the financial crisis resulting from
the failure and bankruptcy of firms such as Bear Stearns, Lehman
Brothers, and AIG.'' 75 FR at 63736.
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Section II also states that sustained competition between DCMs or
SEFs may exacerbate certain structural conflicts of interest. Such
structural conflicts may lead a DCM or SEF to prioritize commercial
interests over self-regulatory responsibilities, including restricting
access or imposing burdens on access in a discriminatory manner. Such
structural conflicts may have a detrimental effect on price discovery,
as prices are best discovered in a market with broad participation.
Broad participation generally results in higher liquidity. Because of
its effect on price discovery, such structural conflicts may also have
a detrimental effect on market participants, and ultimately, the
public. Certain market participants may face higher fees to access a
DCM or SEF. Others may not be able to access a DCM or SEF at all. To
the extent that such market participants are executing transactions to
hedge price risk (whether their own or those of end-users), increased
costs associated with a hedge (or the inability to execute a hedge) may
be passed on to consumers. Finally, such structural conflicts may have
a detrimental effect on efficiency and competition, as certain market
participants may be precluded from competing to execute at a lower
price for end-users.
As mentioned above, the Governance NPRM proposes substantive
requirements that, together with the proposals in the Conflicts of
Interest NPRM (i.e., structural governance requirements and limitations
on ownership of voting equity and the exercise of voting rights),
mitigate the conflicts of interest described in Section II, and
therefore, the detrimental effects resulting from such conflicts. The
Commission believes that the benefits of such mitigation exceed the
costs for DCOs, DCMs, and SEFs to implement the Governance NPRM. The
Commission welcomes comment on its determination.
3. Regulations Implementing DCM and DCO Core Principles
a. Governance Fitness.
As mentioned above, Sec. Sec. 38.801(d) and 39.24(b)(4) of the
Commission's proposed regulations require each DCM and DCO,
respectively, to (i) specify and enforce fitness standards for
directors, members, and certain other persons, and (ii) provide to the
Commission information on an annual basis that supports compliance with
such standards. For DCMs, the proposed regulations are simply
codifications of current acceptable practices. Therefore, the proposed
regulations should impose minimal additional costs. For DCOs,
governance fitness standards are necessary to ensure sound risk
management practices, and therefore the protection of market
participants and the public. The proposed regulations should impose
minimal costs on DCOs.
Certain DCOs are divisions of DCMs, which means that they may
already apply current acceptable practices to
[[Page 733]]
their directors, members, and other persons. All DCOs are currently
subject to DCO Core Principle B,\76\ which requires each to have
``adequate * * * managerial resources to discharge the responsibilities
of a DCO.'' Thus, the Commission preliminary believes that the benefits
of DCM and DCO governance fitness standards exceed the costs of such
standards. The Commission welcomes comment on its determination.
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\76\ 7 U.S.C. 7a-1(c)(B).
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b. Composition of Governing Boards.
As mentioned above, Sec. 38.901(a) of the Commission's proposed
regulations requires DCM governance arrangements to be designed to
permit consideration of the views of market participants.
Preliminarily, the Commission believes that such benefit exceeds any
costs associated with Sec. 38.901(c), which may be idiosyncratic to
each DCM. However, the Commission notes that it has specifically
requested comment on the costs and benefits of Sec. 38.901(c), as well
as any alternative thereto.
Core Principle Q requires each DCO to ensure that its governing
board or committee includes market participants. Section 39.26 of the
Commission's proposed regulations requires each DCO Board of Directors
to include 10 percent representatives of customers. Preliminarily, the
Commission believes that the benefit of such customer representation
exceeds any cost associated with Sec. 39.26.\77\ However, the
Commission notes that it has specifically requested comment on the
costs and benefits of Sec. 39.26, as well as any alternative thereto.
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\77\ For example, in addition to implementing DCO Core Principle
Q, certain comments on the Conflicts of Interest NPRM state that
customer representation on the DCO Board of Directors would be a
better method of ameliorating conflicts of interest under Section
726 of the Dodd-Frank Act. See note 63 supra. See generally, 75 FR
at 63746 (discussing the costs and benefits of the Conflicts of
Interest NPRM).
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Alternatively, Sec. 39.13(g)(3)(i) of the Commission's proposed
regulations requires each RMC (or RMC Subcommittee) to include 10
percent representatives of customers. As mentioned above, the Conflicts
of Interest NPRM had previously proposed such requirement. Therefore,
the costs and benefits of Sec. 39.13(g)(3)(i) have been addressed in
the Conflicts of Interest NPRM.\78\
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\78\ See generally, 75 FR at 63746.
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c. Regulation Implementing the DCM Core Principle on Diversity of
Certain Boards of Directors.
As mentioned above, DCM Core Principle 22, as added by Section
735(b) of the Dodd-Frank Act, provides that a DCM, if a publicly-traded
company, shall endeavor to recruit individuals to serve on its Board of
Directors and its other decision-making bodies (as determined by the
Commission) from among, and to have the composition of the bodies
reflect, a broad and culturally diverse pool of qualified candidates.
Section 38.1151(d) of the Commission's proposed regulations affords
flexibility to each such DCM \79\ to determine the standards by which a
Board of Directors may be deemed broadly and culturally diverse.
Further, such section requires the DCM to (i) make available to the
public and the Commission such standards, and (ii) certify to the
Commission on an annual basis whether and how its Board of Directors
has met certain standards. The benefit of cultural diversity on Boards
of Directors in enhancing the efficiency of organizations has been
recognized.\80\ Preliminarily, the Commission believes that the benefit
of Sec. 38.1151(d) exceeds its costs. The Commission welcomes comment
on its preliminary determination.
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\79\ Currently, no such DCM exists.
\80\ For example, SEC Commissioner Luis Aguilar made the
following remarks at an SEC Open Meeting held on July 1, 2009:
Because of the importance of boards of directors, investors
increasingly care about how directors are appointed, and what their
background is. This is especially true as American businesses
increasingly compete in both a global environment, and in a domestic
marketplace that is, itself, increasingly diverse. In this ever more
challenging business environment, the ability to draw on a wide
range of viewpoints, backgrounds, skills, and experience is critical
to a company's success.
It should be no surprise that studies indicate that diversity in
the boardroom can result in real value for companies--and for
shareholders. It also should be no surprise that many investors--
from individual investors to sophisticated institutions--have asked
the Commission to provide for disclosures about the diversity of
corporate boards and a company's policies related to board
diversity.
Also, the SEC issued a rule on Proxy Disclosure Enhancements
which, among other things, requires public companies to disclose if
they have a formal policy to consider diversity with respect to
board nominees. See 74 FR 68334 (Dec. 16, 2009).
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4. Conclusion
Accordingly, after considering the five factors specified in
Section 15(a) of the CEA, the Commission has determined to propose the
regulations set forth below. The Commission invites public comment on
its evaluation of the costs and benefits of all aspects of the
Governance NPRM.
List of Subjects
17 CFR Part 1
Brokers, Commodity futures, Consumer protection, Reporting and
recordkeeping requirements.
17 CFR Parts 37, 38 and 40
Commodity futures, Reporting and recordkeeping requirements.
17 CFR Part 39
Commodity futures, Consumer protection, Reporting and recordkeeping
requirements.
For the reasons stated in this release, the Commission proposes to
amend 17 CFR parts 1, 37, 38, 39, and 40 as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
1. The authority citation for part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6h, 6i,
6j, 6k, 6l, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12c, 13a, 13a-1,
16, 16a, 19, 21, 23, and 24 as amended by Pub. L. 222-203, 124 Stat.
1376.
2. In Sec. 1.3, as proposed to be amended at 75 FR 63732, October
18, 2010, 75 FR 65586, October 26, 2010, 75 FR 77576, December 13,
2010, and 75 FR 80211, December 21, 2010, redesignate paragraphs (zz)
to (eee) as paragraphs (bbb) to (ggg), redesignate paragraphs (fff) to
(ggg) as (iii) to (jjj), add and reserve paragraph (zz), and add new
paragraphs (aaa) and (hhh) to read as follows:
* * * * *
(zz) [Reserved].
(aaa) Affiliate. The term ``affiliate'' means a person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, another person.
* * * * *
(hhh) Non-Public Information.
(1) This term means any information that a registered derivatives
clearing organization, a designated contract market, or a registered
swap execution facility owns or any information that such entity
otherwise deems confidential, such as intellectual property belonging
to:
(i) Such registered entity; or
(ii) A third party, which property such registered entity receives
on a confidential basis.
(2) Nothing in this paragraph shall preclude a registered entity
from adopting a definition of ``non-public information'' that is more
expansive than the definition in this paragraph.
* * * * *
PART 37--SWAP EXECUTION FACILITIES
3. The authority citation for part 37 continues to read as follows:
[[Page 734]]
Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a-2, 7b-3, and 12a as
amended by Titles VII and VIII of Pub. L. 111-203, 124 Stat. 1376.
4. Section 37.19, as proposed at 75 FR 63747, October 18, 2010, is
redesignated as Sec. 37.1201 and amended by adding new paragraph
(b)(5), redesignating paragraph (d) as paragraph (e), adding new
paragraph (d), and revising newly designated paragraph (e)(1)
introductory text, to read as follows:
Sec. 37.19 Conflicts of Interest.
* * * * *
(b) * * *
(5) Annual Report. The Regulatory Oversight Committee shall prepare
an annual report assessing, for the Board of Directors and the
Commission, the regulatory program of the registered swap execution
facility. Such report shall:
(i) Describe the self-regulatory program;
(ii) Set forth the expenses of the regulatory program;
(iii) Describe the staffing and structure of the same;
(iv) Catalogue investigations and disciplinary actions taken during
the year; and
(v) Review the performance of disciplinary committees and panels,
as well as the performance of the Chief Compliance Officer (as
referenced in Section 5(f)(15) of the Act).
* * * * *
(d) Reporting to the Commission. In the event that the Board of
Directors of a registered swap execution facility rejects a
recommendation or supersedes an action of the Regulatory Oversight
Committee or the Membership or Participation Committee (or entity
performing the functions of such committee), the registered swap
execution facility shall submit a written report to the Commission
detailing:
(1) The recommendation or action of the Regulatory Oversight
Committee or the Membership or Participation Committee (or entity
performing the functions of such committee);
(2) The rationale for such recommendation or action;
(3) The rationale of the Board of Directors for rejecting such
recommendation or superseding such action; and
(4) The course of action that the Board of Directors decided to
take contrary to such recommendation or action.
(e) * * *
(1) Definitions. For purposes of this Sec. 37.1201(e):
* * * * *
PART 38--DESIGNATED CONTRACT MARKETS
5. The authority citation for part 38 continues to read as follows:
Authority: 7 U.S.C. 2, 4c, 6, 6a, 6d, 6e, 6f, 6g, 6i, 6j, 6k,
6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21 as amended by
Pub. L. 111-203, 124 Stat. 1376.
6. Add Sec. 38.801 to subpart P, as proposed at 75 FR 80612,
December 22, 2010, to read as follows:
Sec. 38.801 Governance Fitness Standards.
(a) General. The designated contract market shall establish and
enforce appropriate fitness standards for directors, members of any
disciplinary committee, members of the contract market, and any other
person with direct access to the facility (including any party
affiliated with any person described in this paragraph).
(b) Fitness Standards for Directors and Members of the Disciplinary
Panel and Disciplinary Committee. Each designated contract market must
specify and enforce fitness standards for directors, members of any
Disciplinary Panel (as defined in Sec. 1.3(bbb) of this chapter), and
members of the Disciplinary Committee (as defined in Sec. 1.63 of this
chapter). At a minimum, such standards shall include:
(1) Those bases for refusal to register a person under Section
8a(2) of the Act; and
(2) The absence of a significant history of serious disciplinary
offenses, such as those that would be disqualifying under Sec. 1.63 of
this chapter.
(c) Fitness Standards for Members, Persons with Direct Access, and
Certain Affiliates. Each designated contract market must specify and
enforce fitness standards for its members and affiliates thereof;
persons with direct access to the facility; natural persons who,
directly or indirectly, own greater than ten percent of any one class
of equity interest in a designated contract market; and parties
affiliated with the persons enumerated in paragraph (b) of this
section. At a minimum, such standards shall include those bases for
refusal to register a person under Section 8a(2) of the Act.
(d) Verification. Each designated contract market must collect and
verify information that supports compliance with the standards in
paragraphs (b) and (c) of this section and provide that information to
the Commission on an annual basis. Such information may take the form
of a certification based on verifiable information, an affidavit from
the general counsel of the designated contract market, registration
information, or other substantiating information.
(e) Jurisdiction. As a condition of access, members and non-member
market participants must agree to become subject to the jurisdiction of
the designated contract market.
7. In Sec. 38.851, as proposed at 75 FR 80612, December 22, 2010,
add new paragraph (b)(5) redesignate paragraph (d) as paragraph (e),
add new paragraph (d), and revise newly designated paragraph (e)(1)
introductory text, to read as follows:
Sec. 38.851 Conflicts of Interest.
* * * * *
(b) * * *
(5) Annual Report. The Regulatory Oversight Committee shall prepare
an annual report assessing, for the Board of Directors and the
Commission, the regulatory program of the designated contract market.
Such report shall:
(i) Describe the self-regulatory program;
(ii) Set forth the expenses of the regulatory program;
(iii) Describe the staffing and structure of the same;
(iv) Catalogue investigations and disciplinary actions taken during
the year; and
(v) Review the performance of disciplinary committees and panels.
* * * * *
(d) Reporting to the Commission. In the event that the Board of
Directors of a designated contract market rejects a recommendation or
supersedes an action of the Regulatory Oversight Committee or the
Membership or Participation Committee (or entity performing the
functions of such committee), the designated contract market shall
submit a written report to the Commission detailing:
(1) The recommendation or action of the Regulatory Oversight
Committee or the Membership or Participation Committee (or entity
performing the functions of such committee);
(2) The rationale for such recommendation or action;
(3) The rationale of the Board of Directors for rejecting such
recommendation or superseding such action; and
(4) The course of action that the Board of Directors decided to
take contrary to such recommendation or action.
(e) * * *
(1) Definitions. For purposes of this Sec. 38.851(e):
* * * * *
8. Add Sec. 38.901 to subpart R, as proposed at 75 FR 80612,
December 22, 2010, to read as follows:
[[Page 735]]
Sec. 38.901 Composition of governing boards of contract markets.
(a) General. The governance arrangements of each designated
contract market shall be designed to permit consideration of the views
of market participants.
(b) Notice. Each designated contract market shall design and
institute a process for considering the range of opinions that market
participants hold with respect to:
(1) The functioning of an existing market (including governance
arrangements) and
(2) New rules or rule amendments.
(c) Transparency. As part of its compliance with Sec. 40.9(d) of
this chapter, each designated contract market shall make available to
the public and to the relevant authorities, including the Commission, a
description of such process.
(1) Such description shall include, at a minimum:
(i) The manner in which the designated contract market obtains
opinions from market participants;
(ii) The manner in which the designated contract market considers
such opinions; and
(iii) A summary of the lines of responsibility and accountability
for considering such opinions, from the relevant operational unit to
the Board of Directors (and any committee thereof).
(2) Nothing in paragraph (c) of this section shall be construed to
constrain the Commission from requiring the designated contract market
to describe any other element of its process for obtaining a fair
understanding of the opinions of market participants.
9. Add Sec. 38.1151 to subpart W, as proposed at 75 FR 80612,
December 22, 2010, to read as follows:
Sec. 38.1151 Diversity of Board of Directors.
(a) General. A designated contract market, if publicly-listed on a
domestic exchange, shall endeavor to recruit individuals to serve on
its Board of Directors and its other decision-making bodies (as
determined by the Commission) from among, and to have the composition
of the bodies reflect, a broad and culturally diverse pool of qualified
candidates.
(b) Standards. Each such designated contract market shall
formulate, describe, and enforce the standards by which its Board of
Directors shall be deemed broadly and culturally diverse.
(c) Transparency. As part of its compliance with Sec. 40.9(d) of
this chapter, each such designated contract market shall make available
to the public and to the relevant authorities, including the
Commission, such standards.
(d) Annual Certification. (1) On an annual basis, each such
designated contract market shall certify to the Secretary of Commission
whether and how its Board of Directors has met such standards. If the
designated contract market determines that its Board of Directors has
failed to meet such standards, then the designated contract market must
describe the manner in which its Nominating Committee is endeavoring to
structure recruitment to meet such standards.
(2) Such certification shall be in the form of a letter or an
affidavit signed by the general counsel of the designated contract
market.
PART 39--DERIVATIVES CLEARING ORGANIZATIONS
10. Revise the authority citation for part 39 to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6d, 7a-1, 7a-2, and 7b as amended
by Pub. L. 111-123, 124 Stat. 1376.
11. Amend Sec. 39.13, as proposed at 75 FR 63750, October 18,
2010, by revising paragraph (g)(3)(i) to read as follows:
Sec. 39.13 Risk management.
* * * * *
(g) * * *
(3) * * *
(i) The Risk Management Committee shall be composed of at least
thirty-five percent Public Directors of a derivatives clearing
organization and at least ten percent representatives of customers. In
this context, a ``customer'' means any customer of a clearing member,
including, without limitation:
(A) Any ``customer'' or ``commodity customer'' within the meaning
of Sec. 1.3(k) of this chapter;
(B) Any ``foreign futures or foreign options customer'' within the
meaning of Sec. 30.1(c) of this chapter; and
(C) Any customer entering into a cleared swap (as defined in
Section 1a(7) of the Act).
* * * * *
12. Add Sec. 39.24 to read as follows:
Sec. 39.24 Governance Fitness Standards.
(a) Governance Arrangements.
(1) General.
(i) Each derivatives clearing organization shall establish
governance arrangements that are transparent:
(A) To fulfill public interest requirements; and
(B) To permit the consideration of the views of owners and
participants.
(ii) Each derivatives clearing organization shall establish
governance arrangements that are well-defined and include a clear
organizational structure with consistent lines of responsibility and
effective internal controls.
(2) Transparency. As part of its compliance with Sec. 40.9(d) of
this chapter, each derivatives clearing organization shall make
available to the public and to the relevant authorities, including the
Commission, a description of the manner in which its governance
arrangements permit the consideration of the views of its owners,
whether voting or non-voting, and its participants, including, without
limitation, clearing members and customers. Such description shall
include, at a minimum:
(i) The general method by which the derivatives clearing
organization learns of (A) the views of owners, other than through
their exercise of voting power, and (B) the views of participants,
other than through representation on the Board of Directors or any
committee of the derivatives clearing organization; and
(ii) The manner in which the derivatives clearing organization
considers such views.
(3) Construction. Nothing in paragraph (a)(2) of this section shall
be construed to constrain the Commission from requiring the derivatives
clearing organization to describe any other element of the manner in
which its governance arrangements permit the consideration of the views
of its owners and participants.
(b) Fitness Standards. (1) General. Each derivatives clearing
organization shall establish and enforce appropriate fitness standards
for directors, members of any disciplinary committee, members of the
derivatives clearing organization, any other individual or entity with
direct access to the settlement or clearing activities of the
derivatives clearing organization, and any party affiliated with any
individual or entity described in this paragraph.
(2) Fitness Standards for Directors and Members of the Disciplinary
Panel and Disciplinary Committee. Each derivatives clearing
organization must specify and enforce fitness standards for directors,
members of any Disciplinary Panel (as defined in Sec. 1.3(bbb) of this
chapter), and members of the Disciplinary Committee (as defined in
Sec. 1.63 of this chapter). At a minimum, such standards shall include
(i) those bases for refusal to register a person under Section 8a(2) of
the Act, and (ii) the absence of a significant history of serious
disciplinary offenses, such as those that would be disqualifying under
Sec. 1.63 of this chapter.
(3) Fitness Standards for Clearing Members, Persons with Direct
Access, and Certain Affiliates. Each derivatives clearing organization
must specify and enforce fitness standards for its clearing
[[Page 736]]
members and affiliates thereof; persons with direct access to its
settlement and clearing activities; natural persons who, directly or
indirectly, own greater than ten percent of any one class of equity
interest in the derivatives clearing organization; and parties
affiliated with the persons enumerated in paragraph (b)(2) of this
section. At a minimum, such standards shall include those bases for
refusal to register a person under Section 8a(2) of the Act.
(4) Verification. Each derivatives clearing organization must
collect and verify information that supports compliance with the
standards in paragraphs (b)(2) and (3) of this section, and provide
that information to the Commission on an annual basis. Such information
may take the form of a certification based on verifiable information,
an affidavit from the general counsel of the derivatives clearing
organization, registration information, or other substantiating
information.
(5) Jurisdiction. As a condition of access, clearing members and
other persons with direct access to the settlement and clearing
activities of a derivatives clearing organization must agree to become
subject to the jurisdiction of the derivatives clearing organization.
13. In Sec. 39.25, as proposed at 75 FR 63750, October 18, 2010,
redesignate paragraph (b) as paragraph (c), add new paragraph (b), and
revise newly designated paragraph (c)(1) introductory text to read as
follows:
Sec. 39.25 Conflicts of interest.
* * * * *
(b) Reporting to the Commission. In the event that:
(1) The Board of Directors of a derivatives clearing organization
rejects a recommendation or supersedes an action of the Risk Management
Committee, or
(2) The Risk Management Committee rejects a recommendation or
supersedes an action of its subcommittee (as described in Sec.
39.13(g)(5) of this part), the derivatives clearing organization shall
submit a written report to the Commission detailing:
(i) The recommendation or action of the Risk Management Committee
(or subcommittee thereof);
(ii) The rationale for such recommendation or action;
(iii) The rationale of the Board of Directors (or the Risk
Management Committee, if applicable) for rejecting such recommendation
or superseding such action; and
(iv) The course of action that the Board of Directors (or the Risk
Management Committee, if applicable) decided to take contrary to such
recommendation or action.
(c) * * *
(1) Definitions. For purposes of this Sec. 39.25(c):
* * * * *
14. Add Sec. 39.26 to read as follows:
Sec. 39.26 Composition of Governing Boards.
(a) General. (1) Each derivatives clearing organization shall
ensure that the composition of the governing board or committee of the
derivatives clearing organization includes market participants.
(2) Nothing in this section shall supersede any other section of
this part or any requirement applicable to a derivatives clearing
organization under Sec. 40.9 of this chapter.
(b) Composition Requirement. The Board of Directors of a
derivatives clearing organization shall be composed of at least ten
percent representatives of customers. In this context, a ``customer''
means any customer of a clearing member, including, without limitation:
(1) Any ``customer'' or ``commodity customer'' within the meaning
of Sec. 1.3(k) of this chapter;
(2) Any ``foreign futures or foreign options customer'' within the
meaning of Sec. 30.1(c) of this chapter; or
(3) Any customer entering into a cleared swap (as defined in
Section 1a(7) of the Act).
PART 40--PROVISIONS COMMON TO REGISTERED ENTITIES
15. Revise the authority citation for part 40 to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8, and 12a, as amended
by Pub. L. 111-203, 124 Stat. 1376.
16. Revise the heading and add new paragraphs (b)(1)(iii), (d),
(e), and (f) to Sec. 40.9 as proposed at 75 FR 63751, October 18,
2010, to read as follows:
Sec. 40.9 Governance and conflicts of interest.
* * * * *
(b) * * *
(1) * * *
(iii) Each registered entity referenced in paragraph (b)(1)(i) of
the section must submit to the Commission, within thirty days after
each election of its Board of Directors:
(A) A list of all members of the Board of Directors, each committee
with a composition requirement (including any Executive Committee), and
each other committee that has the authority to amend or constrain
actions of the Board of Directors;
(B) A description of the relationship, if any, between such
directors and the registered entity or the members of the registered
entity (and, in each case, any affiliates thereof, as Sec. 1.3(aaa) of
defines such term); and
(C) The basis for any determination that a director qualifies as a
Public Director, and, for derivatives clearing organizations only, the
basis for any determination that a director qualifies as a
representative of customers; and
(D) A description of how the composition of the Board of Directors
and each of the committees allows the registered entity to comply with
applicable core principles, regulations, as well as the rules of the
registered entity.
* * * * *
(d) Transparency of Governance Arrangements. (1) Each registered
derivatives clearing organization, designated contract market, or
registered swap execution facility shall, at a minimum, make the
following information available to the public and relevant authorities,
including the Commission:
(i) The charter (or mission statement) of the registered entity;
(ii) The charter (or mission statement) of the registered entity's
Board of Directors, each committee with a composition requirement
(including any Executive Committee), as well as each other committee
that has the authority to amend or constrain actions of the Board of
Directors;
(iii) The Board of Directors nomination process for the registered
entity, as well as the process for assigning members of the Board of
Directors or other persons to any committee referenced in paragraph
(d)(1)(ii) of this section;
(iv) For the Board of Directors and each committee referenced in
paragraph (d)(1)(ii) of this section, the names of all members;
(v) The identities of: all Public Directors; and with respect to a
registered derivatives clearing organization, all representatives of
customers;
(vi) The lines of responsibility and accountability for each
operational unit of the registered entity;
(vii) Summaries of significant decisions implicating the public
interest. Such significant decisions shall include:
(A) With respect to a designated contract market or a registered
swap execution facility, all decisions relating to access, membership,
and disciplinary procedures; and
(B) With respect to a derivatives clearing organization, all
decisions relating to open access (as described in
[[Page 737]]
Section 2(h)(1)(B) of the Act), membership (as described in Section
5(b)(c)(2)(C) of the Act), and the finding of products acceptable or
not acceptable for clearing. In describing such decisions, the
derivatives clearing organization shall specifically disclose whether:
(1) Its Board of Directors has rejected a recommendation or
superseded an action of the Risk Management Committee; or
(2) The Risk Management Committee has rejected a recommendation or
superseded an action of its subcommittee (as described in Sec.
39.13(g)(5) of this part).
(C) Nothing in the foregoing shall be construed as requiring a
designated contract market, a registered swap execution facility, or a
derivatives clearing organization to disclose any ``non-public
information'' (as Sec. 1.3(ggg) of this chapter defines such term),
including, without limitation, minutes from meetings of its Board of
Directors or committees and information that it may have received on a
confidential basis from an applicant for membership.
(2) The registered entity must ensure that the information
specified in paragraphs (d)(1)(i) to (vii) of this section is current,
accurate, clear, and readily accessible, for example, on its Web site.
The registered entity shall set forth such information in a language
commonly used in the commodity futures and swap markets and at least
one of the domestic language(s) of the jurisdiction in which the
registered entity is located.
(e) Regulatory Program. (1) As part of its regulatory program, each
registered derivatives clearing organization, designated contract
market, or registered swap execution facility must establish, maintain,
and enforce written procedures to:
(i) Identify, on an ongoing basis, existing and potential conflicts
of interest; and
(ii) Make fair and non-biased decisions in the event of a conflict
of interest. Such procedures shall include rules regarding the recusal,
in applicable circumstances, of parties involved in the making of
decisions. The Chief Compliance Officer of a registered derivatives
clearing organization or registered swap execution facility shall, in
consultation with the Board of Directors of the entity, an equivalent
body, or a senior officer of the entity, resolve any such conflicts of
interest.
(f) Limitations on Use or Disclosure of Non-Public Information. (1)
Each registered entity must establish and maintain written policies and
procedures on safeguarding non-public information gained through either
an ownership interest or through the performance of official duties
(including duties associated with self-regulatory or regulatory
purposes) by members of its Board of Directors, members of any
committee, or officers and other employees.
(2) Such policies and procedures shall comport, at a minimum, with
the following principles:
(i) No individual or entity described in paragraph (f)(1) of this
section shall use or disclose any non-public information, absent prior
written consent from the relevant registered entity. A registered
entity shall establish guidelines that specify the information that
must be included in the written consent.
(ii) No individual or entity described in paragraph (f)(1) of this
section shall, either during or after service with the relevant
registered entity:
(A) Use, directly or indirectly, information that the registered
entity deems to be non-public information; or
(B) Disclose non-public information to others, except:
(1) To others within the relevant registered entity or to outside
advisors thereof, provided that such advisors are subject to
confidentiality obligations, and that such disclosure is necessary for
the performance of official duties by the individual or entity;
(2) If required by regulatory authority; or
(3) If compelled to so by valid legal process, provided that the
individual or entity notifies the relevant registered entity.
Issued in Washington, DC, on December 9, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendices to Governance Requirements for Derivatives Clearing
Organizations, Designated Contract Markets, and Swap Execution
Facilities; Additional Requirements Regarding the Mitigation of
Conflicts of Interest--Commission Voting Summary and Statements of
Commissioners
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Dunn,
Sommers, Chilton and O'Malia voted in the affirmative; no
Commissioners voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the proposed rule on further governance and conflicts
of interest requirements for derivatives clearing organizations
(DCOs), designated contract markets (DCMs) and swap execution
facilities (SEFs). The proposed rule complements the conflicts of
interest provisions that the Commission proposed on October 1st by
keeping regulators up to date about the composition of boards, board
committees and ownership, promoting transparency in decision-making
and ensuring limitations on use or disclosure of non-public
information. The proposed rule also provides guidance to industry
and the public on appropriate minimum governance fitness standards
for DCOs and DCMs, as well as the manner in which market
participants must be heard or included in DCO or DCM governance
arrangements. The proposed rule would enhance the integrity of
clearing and trading and would increase public trust in the
facilities on which such important activities occur.
[FR Doc. 2010-31898 Filed 1-5-11; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: January 6, 2011