Federal Register, Volume 76 Issue 206 (Tuesday, October 25, 2011)[Federal Register Volume 76, Number 206 (Tuesday, October 25, 2011)]
[Proposed Rules]
[Pages 65999-66004]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27535]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter 1
Effective Date for Swap Regulation
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed amendment.
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SUMMARY: On July 14, 2011, the Commodity Futures Trading Commission
(``CFTC'' or the ``Commission'') issued a final order (``July 14
Order'') that grants temporary exemptive relief from certain provisions
of the Commodity Exchange Act (``CEA'') that otherwise would have taken
effect on the general effective date of title VII of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``the Dodd-Frank
Act'')--July 16, 2011. The July 14 Order grants temporary relief in two
parts. The first part addresses those CEA provisions added or amended
by title VII of the Dodd-Frank Act that reference one or more terms
regarding entities or instruments that title VII requires be ``further
defined'' to the extent that requirements or portions of such
provisions specifically relate to such referenced terms and do not
require a rulemaking. The second part, which is based on part 35 of the
Commission's regulations, addresses certain provisions of the CEA that
may apply to certain agreements, contracts, and transactions in exempt
or excluded commodities as a result of the repeal of various CEA
exemptions and exclusions as of the general effective date of July 16,
2011. This is a notice of a proposed amendment to that July 14 Order,
76 FR 42508 (July 19, 2011), that would modify the temporary exemptive
relief provided therein by extending the potential latest expiration
date of the July 14 Order; and adding provisions to account for the
repeal and replacement (as of December 31, 2011) of part 35 of the
Commission's regulations. Only comments pertaining to these proposed
amendments to the July 14 Order will be considered as part of this
notice of proposed amendment.
DATES: Submit comments on or before November 25, 2011.
ADDRESSES: Comments may be submitted, referenced as ``Effective Date
Amendments,'' by any of the following methods:
Agency Web site, via its Comments Online process at 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 may be exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the established procedures in
Sec. 145.9 of the Commission's regulations, 17 CFR 145.9.
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: Terry Arbit, Deputy General Counsel,
202-418-5357, [email protected], or Mark D. Higgins, Counsel, 202-418-
5864, [email protected], Office of the General Counsel, 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 into
law.\1\ Title VII of the Dodd-Frank Act amends the CEA \2\ to establish
a comprehensive new regulatory framework for swaps. The legislation was
enacted to reduce risk, increase transparency, and promote market
integrity within the financial system by, among other things: (1)
Providing for the registration and comprehensive regulation of swap
dealers and major swap participants; (2) imposing clearing and trade
execution requirements on standardized derivative products; (3)
creating robust recordkeeping and real-time reporting regimes; and (4)
enhancing the rulemaking and enforcement authorities of the Commission
with respect to, among others, all registered entities and
intermediaries subject to the Commission's oversight.\3\
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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 7 U.S.C. 1 et seq.
\3\ Title VII also includes amendments to the federal securities
laws to establish a similar regulatory framework for security-based
swaps under the authority of the Securities and Exchange Commission
(``SEC'').
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Section 754 of the Dodd-Frank Act states that, unless otherwise
provided, the provisions of subtitle A of title VII of the Dodd-Frank
Act \4\ ``shall take
[[Page 66000]]
effect on the later of 360 days after the date of the enactment of this
subtitle or, to the extent a provision of this subtitle requires a
rulemaking, not less than 60 days after publication of the final rule
or regulation implementing such provision of this subtitle.'' Thus, the
general effective date for provisions of title VII that do not require
a rulemaking was July 16, 2011. This includes the provisions that
repealed several provisions of the CEA as in effect prior to the Dodd-
Frank Act that excluded or exempted, in whole or in part, certain
transactions from Commission oversight.\5\
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\4\ All of the amendments to the CEA in title VII are contained
in subtitle A. Accordingly, for convenience, references to ``title
VII'' in this notice of proposed amendment shall refer only to
subtitle A of title VII.
\5\ These exclusions and exemptions were contained in former CEA
sections 2(d), 2(e), 2(g), 2(h), and 5d, 7 U.S.C. 2(d), 2(e), 2(g),
2(h), and 7a-3.
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Section 712(d)(1) of the Dodd-Frank Act requires the Commission and
the SEC to undertake a joint rulemaking to ``further define'' certain
terms used in title VII, including the terms ``swap,'' ``swap dealer,''
``major swap participant,'' and ``eligible contract participant.''\6\
Section 721(c) requires the Commission to adopt a rule to ``further
define'' the terms ``swap,'' ``swap dealer,'' ``major swap
participant,'' and ``eligible contract participant'' to prevent evasion
of statutory and regulatory obligations.\7\ The Commission has issued
two notices of proposed rulemaking that address these further
definitions.\8\
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\6\ Section 712(d)(1) provides: ``Notwithstanding any other
provision of this title and subsections (b) and (c), the Commodity
Futures Trading Commission and the Securities and Exchange
Commission, in consultation with the Board of Governors [of the
Federal Reserve System], shall further define the terms `swap',
`security-based swap', `swap dealer', `security-based swap dealer',
`major swap participant', `major security-based swap participant',
and `security-based swap agreement' in section 1a(47)(A)(v) of the
Commodity Exchange Act (7 U.S.C. 1a(47)(A)(v)) and section 3(a)(78)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(78)).''
\7\ Section 721(c) provides: ``To include transactions and
entities that have been structured to evade this subtitle (or an
amendment made by this subtitle), the Commodity Futures Trading
Commission shall adopt a rule to further define the terms `swap',
`swap dealer', `major swap participant', and `eligible contract
participant'.''
\8\ See Further Definition of ``Swap Dealer,'' ``Security-Based
Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based
Swap Participant'' and ``Eligible Contract Participant,'' 75 FR
80174, Dec. 21, 2010 and Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps;
Security-Based Swap Agreement Recordkeeping, 76 FR 29818, May 23,
2011.
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The Commission's final rulemakings further defining the terms in
sections 712(d) and 721(c) were not expected to be in effect as of July
16, 2011 (i.e., the general effective date set forth in section 754 of
the Dodd-Frank Act). Accordingly, the Commission on July 14, 2011
exercised its exemptive authority under CEA section 4(c) \9\ and its
authority under section 712(f) of the Dodd-Frank Act by issuing the
July 14 Order.\10\ In so doing, the Commission sought to address
concerns that had been raised about the applicability of various
regulatory requirements to certain agreements, contracts, and
transactions after July 16, 2011, and thereby ensure that current
practices will not be unduly disrupted during the transition to the new
regulatory regime.\11\
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\9\ 7 U.S.C. 6(c).
\10\ Effective Date for Swap Regulation, 76 FR 42508 (issued and
made effective by the Commission on July 14, 2011; published in the
Federal Register on July 19, 2011).
\11\ Concurrent with the July 14 Order, the Commission's
Division of Clearing and Intermediary Oversight and the Division of
Market Oversight (together ``the Divisions'') identified certain
provisions of the Dodd-Frank Act and CEA as amended that would take
effect on July 16, 2011, but that may not be eligible for the
exemptive relief provided by the Commission in its July 14 Order--
specifically, the amendments made to the CEA by Dodd-Frank Act
sections 724(c), 725(a), and 731. On July 14, 2011, the Divisions
issued Staff No-Action Relief addressing the application of these
provisions after July 16, 2011. Available at: http://www.cftc.gov/idc/groups/public/@newsroom/documents/file/noactionletter071411.pdf (last visited Sept. 26, 2011). The
Commission anticipates that the Divisions will extend and conform
this no-action relief to any final amendment to the July 14 Order
that may result from this proposal.
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Description of Existing Relief
The July 14 Order groups the relevant provisions of the Dodd-Frank
Act into four categories and provides temporary exemptive relief, set
to expire no later than December 31, 2011, with respect to Categories 2
and 3. A summary of the four categories of provisions follows.
Category 1 covers statutory provisions which by their express terms
require rulemaking to implement. Because, under section 754 of the
Dodd-Frank Act, these provisions do not become effective until at least
60 days after the final rule is published, no exemptive relief from the
general effective date is necessary. Category 1 provisions include,
among others, the further definitions of terms regarding swap entities
or instruments as required by the Dodd-Frank Act (such as the terms
``swap,'' ``swap dealer,'' ``major swap participant,'' or ``eligible
contract participant''). Category 1 also includes, among others: (1)
Registration, capital and margin requirements, and business conduct
standards for swap dealers and major swap participants; (2) provisions
prohibiting agricultural swaps except pursuant to CFTC rules; (3) rules
regarding swap execution facilities; and (4) various swap data
recordkeeping and reporting requirements. A complete list of the
Category 1 provisions is included in the appendix to the July 14 Order.
The first part of the relief provided for in the July 14 Order
reaches those Dodd-Frank Act provisions (``Category 2 provisions'')
that are self-effectuating (i.e., do not require a rulemaking) and that
reference one or more of the terms for which the Commission and SEC are
required to provide further definition, including ``swap,'' ``swap
dealer,'' ``major swap participant,'' ``eligible contract
participant,'' and ``security-based swap agreement'' (collectively, the
``referenced terms''). These Category 2 provisions include, for
example, the trade execution requirement of CEA section 2(h)(8), as
amended by Dodd-Frank Act section 723. A complete list of the Category
2 provisions is included in the appendix to the July 14 Order. Because
the Category 2 provisions would have taken effect on July 16, 2011
pursuant to section 754, the Commission granted temporary relief from
those provisions, but only to the extent that the requirements in such
provisions specifically relate to a referenced term that is not yet
further defined. Thus, if a Category 2 provision also applies to
futures or options on futures, the provision took effect on July 16
with respect to futures or options on futures. The exemption for
Category 2 provisions expires on the earlier of: (1) The effective date
of the applicable final rule further defining the relevant term; or (2)
December 31, 2011.
In part two of the July 14 Order, the Commission provides temporary
exemptive relief from the provisions of the CEA that may apply to
certain agreements, contracts, and transactions in exempt or excluded
commodities (generally, financial, energy and metals commodities) as a
result of the repeal of the CEA exemptions and exclusions in former CEA
sections 2(d), 2(e), 2(g), 2(h), and 5d as of July 16, 2011 pursuant to
sections 723(a)(1) and 734(a) of the Dodd-Frank Act (the ``Category 3
provisions''). As explained in the July 14 Order, this relief is based
on the Commission's existing ``part 35'' exemptive rules.\12\
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\12\ 76 FR at 42514. The July 14 Order did not extend to
agreements, contracts, or transactions that fully met the conditions
of part 35, since in such circumstances further relief was
unnecessary.
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Part 35 originally was promulgated in 1993 pursuant to, among
others, the Commission's general exemptive authority in CEA section
4(c) and its plenary options authority under section 4c(b),\13\ and
provides a broad-based exemption from the CEA for ``swap
[[Page 66001]]
agreements'' in any commodity. Specifically, part 35 exempts ``swap
agreements,'' as defined therein, from most of the provisions of the
CEA if: (1) They are entered into by ``eligible swap participants''
(``ESPs''); \14\ (2) they are not part of a fungible class of
agreements standardized as to their material economic terms; (3) the
creditworthiness of any party having an actual or potential obligation
under the swap agreement would be a material consideration in entering
into or determining the terms of the swap agreement, including pricing,
cost, or credit enhancement terms; and (4) they are not entered into or
traded on a multilateral transaction execution facility.
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\13\ 7 U.S.C. 6c(b).
\14\ As noted in the July 14 Order, the parties covered under
the ESP definition, while very broad, are not coextensive with those
covered by the terms ``eligible commercial entity'' or ``eligible
contract participant.'' Therefore, it is possible that a small
segment of persons or entities that are currently relying on one or
more of the CEA exclusions or exemptions cited above might not
qualify as an ESP and consequently would not be eligible for part
35. 76 FR at 42511, n. 40.
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Under part two of the relief provided for in the July 14 Order, the
Commission stated that transactions in exempt or excluded commodities
(and persons offering, entering into, or rendering advice or rendering
other services with respect to such transactions) are temporarily
exempt from provisions of the CEA that may apply to such transactions
if such transactions comply with part 35, notwithstanding that: (1) The
transaction may be executed on a multilateral transaction execution
facility; (2) the transaction may be cleared; (3) persons offering or
entering into the transaction may be eligible contract participants as
defined in the CEA (prior to the enactment of the Dodd-Frank Act); (4)
the transaction may be part of a fungible class of agreements that are
standardized as to their material economic terms; and/or (5) no more
than one of the parties to the transaction is entering into the
transaction in conjunction with its line of business, but is neither an
eligible contract participant nor an ESP, and the transaction was not
and is not marketed to the public.\15\
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\15\ 76 FR at 42514. With respect to commodity options, the
Commission made clear that options identified in the swap agreement
definition in paragraph (b)(1)(i) of Sec. 35.1 of the Commission's
regulations and any options captured by the concluding catch-all
language in that paragraph, as well as any options described in
paragraphs (b)(1)(ii) and/or (iii) of Sec. 35.1, involving excluded
or exempt commodities are within the scope of the July 14 Order. 76
FR at 42514-15.
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Thus, for certain transactions, the July 14 Order provides relief
notwithstanding that the transaction may not satisfy certain part 35
requirements (e.g., cleared, executed on a multilateral trade execution
facility, entered into by certain persons that are not eligible
contract participants, etc.). The Commission stated in the July 14
Order that this relief is limited to transactions in exempt and
excluded commodities, and does not extend to transactions in
agricultural commodities, because transactions in agricultural
commodities were not covered by the applicable statutory exclusions and
exemptions in effect prior to July 16, 2011.\16\ The exemption in part
two of the July 14 Order expires on the earlier of: (1) The repeal,
withdrawal or replacement of part 35; or (2) December 31, 2011.
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\16\ The Commission also stated, though, that because part 35
remained in effect at the time of the July 14 Order, market
participants could continue to rely on part 35 with respect to swaps
(other than commodity options) on enumerated agricultural
commodities as defined in CEA section 1a(4) or Sec. 32.2 of the
Commission's regulations, as well as swaps and commodity options on
non-enumerated agricultural commodities, to the extent these
transactions fully comply with part 35. Under the July 14 Order,
market participants also may continue to rely on part 32 for options
on enumerated agricultural commodities to the extent these
transactions are conducted in accordance with Sec. 32.13(g) of the
Commission's regulations. Rule 32.13(g) permits off-exchange options
between producers, processors, commercial users or merchants of the
commodity or its products or by-products that have a net worth of at
least $10 million.
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Category 4 contains those Dodd-Frank Act provisions for which the
Commission determined not to issue relief, and which therefore went
into effect on July 16, 2011. A complete list of the Category 4
provisions is included in the appendix to the July 14 Order.
The temporary exemptions issued in the July 14 Order are subject to
several conditions. These conditions provide that the July 14 Order
shall not: (1) Limit in any way the Commission's anti-fraud or anti-
manipulation authority under the CEA; (2) apply to any provision of the
Dodd-Frank Act or the CEA that became effective prior to July 16, 2011;
(3) affect any effective date or compliance date set forth in any
rulemaking issued by the Commission to implement provisions of the
Dodd-Frank Act; (4) limit the Commission's authority under Dodd-Frank
Act section 712(f) to issue rules, orders, or exemptions prior to the
effective date of any provision of the Dodd-Frank Act and the CEA, in
order to prepare for such effective date; and (5) affect the
applicability of any provision of the CEA to futures contracts or
options on futures contracts, or to cash markets.\17\
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\17\ 76 FR at 42522.
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II. Discussion of the Proposed Amendments to the July 14 Order
The Commission is proposing to amend the July 14 Order in two ways.
First, the Commission is proposing to amend the July 14 Order to extend
the potential latest expiry dates. With respect to provisions covered
in the first part of the relief in the July 14 Order, the Commission is
proposing that the temporary exemptive relief expire upon the earlier
of: (1) The effective date of the applicable final rule further
defining the relevant referenced term; or (2) July 16, 2012.\18\ This
amendment addresses the potential that, as of December 31, 2011, the
CFTC-SEC joint rulemakings ``further defining'' the referenced terms
will not yet be effective. The Commission also is proposing to amend
the July 14 Order to extend the expiry date of the second part of the
relief in the July 14 Order until the earlier of: (1) July 16, 2012; or
(2) such other compliance date as may be determined by the Commission.
For the same reason stated by the Commission with respect to the second
part of the relief provided in the July 14 Order, the proposed
extension of this exemptive relief ``will allow markets and market
participants to continue to operate under the regulatory regime as in
effect prior to July 16, 2011, but subject to various implementing
regulations that the Commission promulgates and applies to the subject
transactions, market participants, or markets.'' \19\
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\18\ The date of July 16, 2012, is consistent with the potential
transitional period provided in section 723(c) of the Dodd-Frank Act
regarding former CEA section 2(h) and section 734(c) of the Dodd-
Frank Act regarding former CEA section 5d (i.e., for ``not longer
than a 1-year period'' following the general effective date of title
VII) .
\19\ 76 FR at 42513.
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Second, the Commission is proposing to include within the second
part of the relief any agreement, contract or transaction that fully
meets the conditions in part 35 as in effect on December 31, 2011. This
amendment addresses the fact that such transactions, which were not
included within the scope of the July 14 Order because the exemptive
rules in part 35 covered them at that time, now require temporary
relief because part 35 will no longer be available after December 31,
2011.\20\ Accordingly, to ensure that the
[[Page 66002]]
exemptive relief currently available for these transactions continues
to be available after December 31, 2011, the Commission proposes to
amend the July 14 Order to incorporate by reference the part 35 relief
available as of December 31, 2011. Whereas the relief provided in part
two of the July 14 Order was (and would remain) limited to transactions
in excluded or exempt commodities, this proposed amendment also would
include, beginning on January 1, 2012, transactions in agricultural
commodities that fully meet the conditions in part 35 as in effect on
December 31, 2011.\21\ The Commission proposes that this further
amendment to the July 14 Order is necessary to ensure that the same
scope of the exemptive relief available before December 31, 2011 is
available to all swaps and extends through July 16, 2012, at the
latest.
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\20\ The Commission recently promulgated a rule pursuant to
section 723(c)(3) of the Dodd-Frank Act that, effective December 31,
2011, will repeal the existing part 35 relief and replace it with
new Sec. 35.1 of the Commission's regulations. See Agricultural
Swaps, 76 FR 49291 (Aug. 10, 2011). Rule 35.1 provides, in pertinent
part, that ``agricultural swaps may be transacted subject to all
provisions of the CEA, and any Commission rule, regulation or order
thereunder, that is otherwise applicable to swaps. [It] also
clarifies that by issuing a rule allowing agricultural swaps to
transact subject to the laws and rules applicable to all other
swaps, the Commission is allowing agricultural swaps to transact on
[designated contract markets (``DCMs''), swap execution facilities
(``SEFs'')], or otherwise to the same extent that all other swaps
are allowed to trade on DCMs, SEFs, or otherwise.'' Id. at 49296.
\21\ The Commission also is clarifying that, by operation of new
Sec. 35.1 of the Commission's regulations, the Commission's
statement in adopting the July 14 Order that a DCM may list and
trade swaps ``under the DCM's rules related to futures contracts,
without exemptive relief,'' 76 FR at 42518, would apply, as of
January 1, 2012, to swaps in agricultural commodities.
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In proposing these amendments, the Commission continues to strive
to ensure that current practices will not be unduly disrupted during
the transition to the new regulatory regime. As stated above, the
proposed July 16, 2012 date coincides with the potential transitional
period provided in sections 723(c) and 734(c) of the Dodd-Frank
Act.\22\ Further, should the Commission deem it appropriate to
terminate or extend any exemptive relief under part two of the July 14
Order, the Commission will be in a better position to comprehensively
evaluate and consider any tailored exemption at that time.
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\22\ See Order Regarding the Treatment of Petitions Seeking
Grandfather Relief for Exempt Commercial Markets and Exempt Boards
of Trade, 75 FR 56513, Sept. 16, 2010.
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The Commission believes it is in the interest of the public and
market participants to continue to provide regulatory certainty
regarding the applicability of the Dodd-Frank Act. There have been no
disruptions to the market resulting from the July 14 Order, nor has the
Commission received any request for additional relief beyond that
provided for in the July 14 Order. Accordingly, the Commission believes
the scope of the existing relief is appropriate and is proposing here
only to amend that relief in the aforementioned ways. The Commission
notes, for example, that Category 1 provisions--i.e., those for which a
rulemaking is required--will continue to be addressed outside the scope
of the July 14 Order. Further, where appropriate, the Commission
expects to phase-in compliance with its final rules over a period of
time as part of the Commission's ongoing commitment to ensuring an
orderly transition to the new regulatory regime.
III. Request for Comment
The Commission requests and will only consider comments on the
amendments to the July 14 Order that are proposed in this notice of
proposed amendment.
IV. Related Matters
a. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') \23\ imposes certain
requirements on Federal agencies (including the Commission) in
connection with conducting or sponsoring any collection of information
as defined by the PRA. These proposed amendments, if approved, would
not require a new collection of information from any persons or
entities that would be subject to the proposed amendments.
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\23\ 44 U.S.C. 3507(d).
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b. Cost-Benefit Considerations
Section 15(a) of the CEA \24\ requires the Commission to consider
the costs and benefits of its action before issuing an order under the
CEA. CEA section 15(a) further specifies that costs and benefits shall
be evaluated in light of five broad areas of market and public concern:
(1) Protection of market participants and the public; (2) efficiency,
competitiveness, and financial integrity of futures markets; (3) price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. The Commission may in its discretion give
greater weight to any one of the five enumerated areas and could in its
discretion determine that, notwithstanding its costs, a particular
order is 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.
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\24\ 7 U.S.C. 19(a).
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This notice of proposed amendment proposes to amend the existing
July 14 Order by extending the currently available temporary relief to
no later than July 16, 2012, and by accounting for the repeal of part
35 of the Commission's regulations. As such, and because this proposal
does not change the nature or limit the scope of relief granted in the
July 14 Order, the costs and benefits set forth in the July 14 Order
may be incorporated by reference in this proposal.\25\ Nevertheless,
the Commission seeks comment on whether these proposed amendments would
impose any costs or confer any benefits beyond the July 14 Order.
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\25\ 76 FR 42521.
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V. Proposed Amendments to the July 14 Order
The Commission proposes the following amendments to the July 14
Order:
The Commission, to provide for the orderly implementation of the
requirements of Title VII of the Dodd-Frank Act, pursuant to sections
4(c) and 4c(b) of the CEA and section 712(f) of the Dodd-Frank Act,
hereby issues this Order consistent with the determinations set forth
above, which are incorporated in this Final Order, as amended, by
reference, and:
(1) Exempts, subject to the conditions set forth in paragraph (3),
all agreements, contracts, and transactions, and any person or entity
offering, entering into, or rendering advice or rendering other
services with respect to, any such agreement, contract, or transaction,
from the provisions of the CEA, as added or amended by the Dodd-Frank
Act, that reference one or more of the terms regarding entities or
instruments subject to further definition under sections 712(d) and
721(c) of the Dodd-Frank Act, which provisions are listed in Category 2
of the Appendix to this Order; provided, however, that the foregoing
exemption:
a. Applies only with respect to those requirements or portions of
such provisions that specifically relate to such referenced terms; and
b. With respect to any such provision of the CEA, shall expire upon
the earlier of: (i) The effective date of the applicable final rule
further defining the relevant term referenced in the provision; or (ii)
July 16, 2012.
(2) Exempts, subject to the conditions set forth in paragraph (3),
all agreements, contracts, and transactions, and any person or entity
offering, entering into, or rendering advice or rendering other
services with respect to, any such agreement, contract, or transaction,
from the provisions of the CEA, if the agreement, contract, or
transaction complies with part 35 of the Commission's regulations as in
effect as of December 31, 2011, including any
[[Page 66003]]
agreement, contract, or transaction in an exempt or excluded (but not
agricultural) commodity that complies with such provisions then in
effect notwithstanding that:
a. The agreement, contract, or transaction may be executed on a
multilateral transaction execution facility;
b. The agreement, contract, or transaction may be cleared;
c. Persons offering or entering into the agreement, contract or
transaction may not be eligible swap participants, provided that all
parties are eligible contract participants as defined in the CEA prior
to the date of enactment of the Dodd-Frank Act;
d. The agreement, contract, or transaction may be part of a
fungible class of agreements that are standardized as to their material
economic terms; and/or
e. No more than one of the parties to the agreement, contract, or
transaction is entering into the agreement, contract, or transaction in
conjunction with its line of business, but is neither an eligible
contract participant nor an eligible swap participant, and the
agreement, contract, or transaction was not and is not marketed to the
public;
Provided, however, that: (i) Such agreements, contracts, and
transactions (and persons offering, entering into, or rendering advice
or rendering other services with respect to, any such agreement,
contract, or transaction) fall within the scope of any of the existing
CEA sections 2(d), 2(e), 2(g), 2(h), and 5d provisions or the line of
business provision as in effect prior to July 16, 2011; and (ii) the
foregoing exemption shall expire upon the earlier of: (I) July 16,
2012; or (II) such other compliance date as may be determined by the
Commission.
(3) Provides that the foregoing exemptions in paragraphs (1) and
(2) above shall not:
a. Limit in any way the Commission's authority with respect to any
person, entity, or transaction pursuant to CEA sections 2(a)(1)(B), 4b,
4o, 6(c), 6(d), 6c, 8(a), 9(a)(2), or 13, or the regulations of the
Commission promulgated pursuant to such authorities, including
regulations pursuant to CEA section 4c(b) proscribing fraud;
b. Apply to any provision of the Dodd-Frank Act or the CEA that
became effective prior to July 16, 2011;
c. Affect any effective or compliance date set forth in any
rulemaking issued by the Commission to implement provisions of the
Dodd-Frank Act;
d. Limit in any way the Commission's authority under section 712(f)
of the Dodd-Frank Act to issue rules, orders, or exemptions prior to
the effective date of any provision of the Dodd-Frank Act and the CEA,
in order to prepare for the effective date of such provision, provided
that such rule, order, or exemption shall not become effective prior to
the effective date of the provision; and
e. Affect the applicability of any provision of the CEA to futures
contracts or options on futures contracts, or to cash markets.
In its discretion, the Commission may condition, suspend,
terminate, or otherwise modify this Order, as appropriate, on its own
motion. This Final Order, as amended, shall be effective immediately.
Issued in Washington, DC, on October 18, 2011 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 Notice of Proposed Amendment to Effective Date for Swap
Regulation--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
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the proposed amendment to the July 14th Exemptive
Order regarding the effective dates of certain Dodd-Frank Act
provisions.
The July 14th order provided relief until December 31, 2011, or
when the definitional rulemakings become effective, whichever is
sooner, from certain provisions that would otherwise apply to swaps
or swap dealers on July 16. This includes provisions that do not
directly rely on a rule to be promulgated, but do refer to terms
that must be further defined by the CFTC and SEC, such as ``swap''
and ``swap dealer.''
Commission staff is working very closely with Securities and
Exchange Commission (SEC) staff on rules relating to entity and
product definitions. Staff is making great progress, and we
anticipate taking up the further definition of entities in the near
term and product definitions shortly thereafter.
As these definitional rulemakings have yet to be finalized or
become effective, today's proposed amendment would provide relief
through July 16, 2012, or when the definitional rulemakings become
effective--whichever is sooner.
The order also provided relief through no later than December
31, 2011, from certain CEA requirements that may apply as the result
of the repeal, effective on July 16, 2011, of CEA sections 2(d),
2(e), 2(g), 2(h) and 5d. The proposed amendment also extends this
relief to July 16, 2012, or until a date the Commission may
otherwise determine with respect to a particular requirement under
the CEA.
In addition, today's proposed amendment also tailors the July
14th relief in light of the Commission's actions finalizing the
agricultural swap rules.
Appendix 2--Statement of Commissioner Scott O'Malia
As Yogi Berra famously proclaimed: ``It is d[eacute]j[agrave] vu
all over again.'' Yogi perfectly encapsulates my feelings today. We
find ourselves again voting on a proposed order aimed at providing
legal certainty in the form ``temporary exemptive relief'' for swap
market participants that extends the soon to expire relief found in
the Commission's July 14, 2011 exemptive order (``July 14 Order'').
This temporary relief is necessary because: (1) The Commission has
not yet put forth final rules defining such key terms such as
``swap'' and ``swap dealer''; and (2) certain exemptions and
exclusions for transactions in exempt and excluded commodities
currently relied upon by market participants will be repealed
effective December 31, 2011. The proposal states: ``[t]he Commission
proposes that this further amendment to the July 14 Order is
necessary to ensure that the same scope of the exemptive relief
available before December 31, 2011 is available to all swaps and
extends through July 16, 2012, at the latest.''
Unfortunately, we are once again facing an exemptive order that
suffers the same faults that the July 14 Order suffered, namely: (1)
It again includes an arbitrary sunset provision that will cut the
transition period short and so will likely not provide necessary
``relief'' to market participants, and (2) it demonstrates the lack
of ordering of rulemakings combined with the failure to put forth an
implementation schedule. We now need to broaden the scope of the
July 14 Order because the exemptive rules contained in part 35 will
no longer be available to market participants after December 31,
2011 even though the replacement regulatory regime is not in place
yet.\26\ Part 35 is more commonly known as the swap exemption and is
relied upon primarily by entities engaging in agricultural swaps.
The Commission repealed part 35 in order to ensure that it is not
used by individuals and entities who had relied on Sections 2(d),
(g) and (h) of the Commodity Exchange Act (``CEA'') as an end run
around the new statutory and regulatory requirements.
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\26\ The Commission recently promulgated a rule pursuant to
section 723(c)(3) of the Dodd-Frank Act that, effective December 31,
2011, will repeal the existing part 35 relief and replace it with
new Sec. 35.1 of the Commission's regulations. See Agricultural
Swaps, 76 FR 49291 (Aug. 10, 2011).
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I support the proposal, as I did last time, because it is
important for the Commission to provide market participants and the
public with the form of relief the exemptive order is contemplating,
but I would have preferred
[[Page 66004]]
that this rule, like its predecessor, would not select an arbitrary
end date.
Mr. Chairman, I again renew my call for a comprehensive
rulemaking schedule and implementation plan, that provides greater
insight on reporting requirements to swap data repositories as well
as separate rulemaking on real time and block rules. The Commission
must also provide some certainty on the clearing and trading mandate
including clarification of ``made available for trading'' and
guidance on swap clearing.
[FR Doc. 2011-27535 Filed 10-24-11; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: October 25, 2011