FR Doc E8-12624[Federal Register: June 5, 2008 (Volume 73, Number 109)]
[Notices]
[Page 31981-31983]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jn08-30]
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COMMODITY FUTURES TRADING COMMISSION
Order Exempting the Trading and Clearing of Certain Products
Related to SPDR[reg] Gold Trust Shares
AGENCY: Commodity Futures Trading Commission.
ACTION: Final Order.
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SUMMARY: On April 23rd, 2008, the Commodity Futures Trading Commission
(``CFTC'' or the ``Commission'') published for public comment in the
Federal Register \1\ a proposal to exempt the trading and clearing of
products called options on streetTRACKS [supreg] Gold Trust Shares
(``ST Gold Options''), proposed to be traded on national securities
exchanges, and cleared by The Options Clearing Corporation (``OCC''),
from the provisions of the Commodity Exchange Act (``CEA'') \2\ and
Commission regulations thereunder to the extent necessary for them to
be so traded and cleared. The Commission has determined to issue this
Order essentially as proposed. Authority for this exemption is found in
Section 4(c) of the CEA.\3\
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\1\ 73 FR 21917 (April 23, 2008)
\2\ 7 U.S.C. 1 et seq.
\3\ 7 U.S.C. 6(c).
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DATES: Effective Date: May 30, 2008.
FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate
Director, 202-418-5092, [email protected], Division of Clearing and
Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Introduction
The OCC is both a Derivatives Clearing Organization (``DCO'')
registered pursuant to Section 5b of the CEA,\4\ and a securities
clearing agency registered pursuant to Section 17A of the Securities
Exchange Act of 1934 (``the '34 Act'').\5\
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\4\ 7 U.S.C. 7a-1.
\5\ 15 U.S.C. 78q-l.
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OCC filed with the CFTC, pursuant to Section 5c(c) of the CEA and
Commission Regulations 39.4(a) and 40.5 thereunder,\6\ requests for
approval of rules and rule amendments that would enable OCC to clear
and settle ST Gold Options \7\ traded on national securities exchanges
in its capacity as a registered securities clearing agency regulated by
the Securities and Exchange Commission (``SEC'') (and not in its
capacity as a DCO).\8\ Section 5c(c)(3) provides that the CFTC must
approve any such rules and rule amendments submitted for approval
unless it finds that the rules or rule amendments would violate the
CEA.
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\6\ 7 U.S.C. 7a-2(c), 17 CFR 39.4(a), 40.5.
\7\ streetTRACKS[supreg] Gold Trust Shares, which underlie ST
Gold Options, are described in greater detail in the ``Proposed
Exemptive Order for ST Gold Futures Contracts,'' 73 FR 13867, 13868
(March 14, 2008). On May 20, 2008, streetTRACKS[supreg] Gold Trust
Shares were renamed SPDR[reg] Gold Trust Shares. See
Prospectus for SPDR[reg] Gold Trust, available at http://
www.spdrgoldshares.com/pdf/SPDRGoldTrustProspectus.pdf (reviewed May
22, 2008).
\8\ The request for approval concerning the ST Gold Options was
filed effective February 4, 2008, and Amendment No. 1 thereto was
filed effective March 7, 2008. See SR-OCC-2008-04 and Amendment No.
1. OCC has also filed these proposed rule changes with the SEC. See
SEC Release No. 34-57695; File No. SR-OCC-2008-07 (April 21, 2008),
73 FR 22452 (April 25, 2008). On May 22, 2008, OCC filed Amendment
No. 2 to the request for approval, reflecting the change in the name
of streetTRACKS[supreg] Gold Trust Shares.
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II. Section 4(c) of the Commodity Exchange Act
Section 4(c)(1) of the CEA empowers the CFTC to ``promote
responsible economic or financial innovation and fair competition'' by
exempting any transaction or class of transactions from any of the
provisions of the CEA (subject to exceptions not relevant here) where
the Commission determines that the exemption would be consistent with
the public interest. The Commission may grant such an exemption by
rule, regulation or order, after notice and opportunity for hearing,
and may do so on application of any person or on its own initiative.
In enacting Section 4(c), Congress noted that the goal of the
provision ``is to give the Commission a means of providing certainty
and stability to existing and emerging markets so that financial
innovation and market development can proceed in an effective and
competitive manner.'' \9\ Permitting ST Gold Options to trade on
national securities exchanges and be cleared on OCC as discussed above
appears likely to foster both financial innovation and competition. In
accordance with the Memorandum of Understanding entered into between
the CFTC and the Securities and Exchange Commission (``SEC'') on March
11, 2008, and in particular the addendum thereto concerning Principles
Governing the Review of Novel Derivative Products, the Commission
believes that novel derivative products that implicate areas of
overlapping regulatory concern should be permitted to trade in either
or both a CFTC- or SEC-regulated environment, in a manner consistent
with laws and regulations (including the appropriate use of all
available exemptive and interpretive authority).
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\9\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 3213
(``4(c) Conf. Report'').
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ST Gold Options are novel instruments and, given their potential
usefulness to the market, the Commission believes that this is an
appropriate case for issuing an exemption without making a finding as
to the nature of these particular instruments.
Section 4(c)(2) provides that the Commission may grant exemptions
only when it determines that the requirements for which an exemption is
being provided should not be applied to the agreements, contracts or
transactions at issue, and the exemption is consistent with the public
interest and the purposes of the CEA; that the agreements, contracts or
transactions will be entered into solely between appropriate persons;
and that the exemption will not have a material adverse effect on the
ability of the Commission or any contract market or derivatives
transaction execution facility to discharge its regulatory or self-
regulatory responsibilities under the CEA.
In the April 23, 2008 Federal Register Release, the Commission
requested public comment on the matters discussed above and all issues
raised by its proposed exemptive order. No comments were received.
[[Page 31982]]
III. Findings and Conclusions
After considering the complete record in this matter, the
Commission has determined that the requirements of Section 4(c) have
been met. First, the exemption is consistent with the public interest
and with the purposes of the CEA, including ``promot[ing] responsible
innovation and fair competition among boards of trade, other markets
and market participants.'' \10\ It appears to be consistent with these
and the other purposes of the CEA, with the public interest, with the
CFTC-SEC Memorandum of Understanding of March 11, 2008, and with the
addendum thereto, for the mode of trading of these transactions--
whether it is to be through CFTC-regulated markets and clearing
organizations or SEC-regulated markets and clearing agencies--to be
determined by competitive market forces.
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\10\ CEA Section 3(b), 7 U.S.C. 5(b).
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Second, the ST Gold Options will be entered into solely between
appropriate persons. Section 4(c)(3) includes within the term
``appropriate persons'' a number of specified categories of persons,
but also in subparagraph (K), ``such other persons that the Commission
determines to be appropriate in light of * * * the applicability of
appropriate regulatory protections.'' National securities exchanges,
OCC and broker-dealers who will intermediate transactions in ST Gold
Options are subject to extensive and detailed oversight by the SEC and,
in the case of the intermediaries, the securities self-regulatory
organizations. Given that the products will be traded on national
securities exchanges, the regulatory protections available under the
securities laws, and the goal of promoting fair competition, the ST
Gold Options will be traded by appropriate persons.
Third, the exemption would not have a material adverse effect on
the ability of the Commission or any designated contract market to
carry out their regulatory responsibilities under the CEA. There is no
reason to believe that granting an exemption here would interfere with
the Commission's or a designated contract market's ability to oversee
the trading of similar products or otherwise carry out their duties.
Therefore, upon due consideration, pursuant to its authority under
Section 4(c) of the CEA, the Commission hereby issues this Order and
exempts the trading of ST Gold Options on national securities exchanges
and clearing of ST Gold Options by OCC in its capacity as a registered
securities clearing agency from the CEA and the Commission's
Regulations thereunder to the extent necessary to permit them to be so
traded and cleared.
This Order is subject to termination or revision, on a prospective
basis, if the Commission determines upon further information that this
exemption is not consistent with the public interest. If the Commission
believes such exemption becomes detrimental to the public interest, the
Commission may revoke this Order on its own motion.
IV. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \11\ imposes certain
requirements on federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. The exemptive order will not require
a new collection of information from any entities.
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\11\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis
Section 15(a) of the CEA, as amended by Section 119 of the
Commodity Futures Modernization Act of 2000 (``CFMA''),\12\ requires
the Commission to consider the costs and benefits of its action before
issuing an order under the CEA. By its terms, Section 15(a) as amended
does not require the Commission to quantify the costs and benefits of
an order or to determine whether the benefits of the order outweigh its
costs. Rather, Section 15(a) simply requires the Commission to
``consider the costs and benefits'' of its action.
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\12\ 7 U.S.C. 19(a).
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Section 15(a) of the CEA further specifies that costs and benefits
shall be evaluated in light of five broad areas of market and public
concern: protection of market participants and the public; efficiency,
competitiveness, and financial integrity of futures markets; price
discovery; sound risk management practices; and other public interest
considerations. Accordingly, the Commission could in its discretion
give greater weight to any one of the five enumerated areas and could
in its discretion determine that, notwithstanding its costs, a
particular order 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 CEA.
The Commission has considered the costs and benefits of the order
in light of the specific provisions of Section 15(a) of the CEA, as
follows:
1. Protection of market participants and the public. National
securities exchanges, OCC and their members who will intermediate ST
Gold Options are subject to extensive regulatory oversight.
2. Efficiency, competition, and financial integrity. The exemptive
order appears likely to enhance market efficiency and competition since
it could encourage potential trading of ST Gold Options on markets
other than designated contract markets or derivative transaction
execution facilities. Financial integrity will not be affected since
the ST Gold Options will be cleared by OCC, a DCO and SEC-registered
clearing agency, and intermediated by SEC-registered broker-dealers.
3. Price discovery. Price discovery may be enhanced through market
competition.
4. Sound risk management practices. The ST Gold Options will be
subject to OCC's current risk-management practices including its
margining system.
5. Other public interest considerations. The exemptive order
appears likely to encourage development of derivative products through
market competition without unnecessary regulatory burden.
The Commission requested comment on its application of these
factors in the proposing release. No comments were received.
After considering these factors, the Commission has determined to
issue this Order.
Issued in Washington, DC, on May 30, 2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
Dissenting in Part and Concurring in Part to Exemptive Order Under
Section 4(c) of the Commodity Exchange Act (CEA) To Exempt Certain
Products Related to SPDR [supreg] Gold Trust Shares Traded on a
National Securities Exchange and Cleared by the Options Clearing
Corporation (OCC) From Provisions of the CEA, and Approval of OCC's
Request for Approval of Rules
I applaud the agencies' efforts today to enhance cooperation and
coordination in approving innovative and novel products. I respectfully
dissent, however, from the Commission's issuance of the above-
referenced order. In the promulgation of such an exemptive order in
furtherance of the approval process, I believe the Commission should
have adequate basis
[[Page 31983]]
for confidence that the Securities and Exchange Commission will
similarly fully exercise its broad statutory exemptive authority under
the securities laws to permit futures exchanges to trade products that
are economically equivalent to those that are or may be approved for
trading on national securities exchanges, and to allow derivatives
clearing organizations to clear such products, to ensure that the
futures markets are not competitively disadvantaged with regard to such
products. I dissent from today's action, because I do not believe this
exemptive order provides sufficient basis for or assurance of such
reciprocity in the future. Given the issuance of today's orders, I
concur in the approval of the Options Clearing Corporation's above-
referenced request for approval of rules.
Bart Chilton,
Commissioner, Commodity Futures Trading Commission.
[FR Doc. E8-12624 Filed 6-4-08; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: June 5, 2008