[Federal Register: December 15, 2010 (Volume 75, Number 240)]
[Proposed Rules]
[Page 78185-78197]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de10-18]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 1, 21, and 39
RIN 3038-AC98
Information Management Requirements for Derivatives Clearing
Organizations
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing regulations to implement certain core principles for
derivatives clearing organizations (DCOs) as amended by Title VII of
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act). The proposed regulations would establish standards for
compliance with DCO Core Principles J (Reporting), K (Recordkeeping), L
(Public Information), and M (Information Sharing). Additionally, the
Commission is proposing technical amendments to parts 1 and 21 in
connection with the proposed regulations. Finally, the Commission also
is proposing to delegate to the Director of the Division of Clearing
and Intermediary Oversight the Commission's authority to perform
certain functions in connection with the proposed regulations.
DATES: Submit comments on or before February 14, 2011.
ADDRESSES: You may submit comments, identified by RIN number 3038-AC98,
by any of the following methods:
Agency Web site, via its Comments Online process: http://
comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: http://www.Regulations.gov.
Follow the instructions for submitting comments.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov. You should submit only information that you wish
to make available publicly. If you wish the Commission to consider
information that 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.\1\
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\1\ Commission regulations referred to herein are found at 17
CFR Ch. 1 (2010). They are accessible on the Commission's Web site
at http://www.cftc.gov.
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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: Phyllis P. Dietz, Associate Director,
202-418-5449, [email protected], or Jacob Preiserowicz, Attorney-Advisor,
202-418-5432, [email protected], Division of Clearing and
Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Proposed Regulations
A. Reporting Requirements
1. Information Required on a Daily Basis
2. Information Required on a Quarterly Basis
3. Information Required on an Annual Basis
4. Event-Specific Reporting
(a) Decrease in Financial Resources
[[Page 78186]]
(b) Decrease in Ownership Equity
(c) Six-Month Liquid Asset Requirement
(d) Change in Working Capital
(e) Intraday Initial Margin Call
(f) Delay in Collection of Initial Margin
(g) Management of Clearing Member Positions
(h) Change in Ownership or Corporate or Organizational Structure
(i) Change in Key Personnel
(j) Credit Facility Funding Arrangement Change
(k) Rule Enforcement
(l) Financial Condition and Events
5. Technical Amendments
B. Recordkeeping Requirements
C. Public Information
1. Availability of Information
2. Public Disclosure
D. Information Sharing
III. Effective Date
IV. Related Matters
A. Regulatory Flexibility Act
B. Paperwork Reduction Act
1. Information Provided by Reporting Entities/Persons
2. Information Collection Comments
C. Cost-Benefit Analysis
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 to
reduce risk, increase transparency, and promote market integrity within
the financial system by, among other things: (1) Providing for the
registration and comprehensive regulation of swap dealers and major
swap participants; (2) imposing clearing and trade execution
requirements on standardized derivative products; (3) creating rigorous
recordkeeping and real-time reporting regimes; and (4) enhancing the
Commission's rulemaking and enforcement authorities with respect to all
registered entities and intermediaries subject to the Commission's
oversight.
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\2\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
\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.
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Section 725(c) of the Dodd-Frank Act amended Section 5b(c)(2) of
the CEA, which sets forth core principles with which a DCO must comply
to be registered and to maintain registration as a DCO. The core
principles were added to the CEA by the Commodity Futures Modernization
Act of 2000 (CFMA).\5\ The Commission did not adopt implementing rules
and regulations, but instead promulgated guidance for DCOs on
compliance with the core principles.\6\ Under Section 5b(c)(2), as
amended by the Dodd-Frank Act, Congress expressly confirmed that the
Commission may adopt implementing rules and regulations pursuant to its
rulemaking authority under Section 8a(5) of the CEA.\7\ This rulemaking
is one of a series that will, in its entirety, propose regulations to
implement all 18 DCO core principles.\8\
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\5\ See Commodity Futures Modernization Act of 2000, Public Law
106-554, 114 Stat. 2763 (2000).
\6\ See 17 CFR part 39, app. A.
\7\ See 7 U.S.C. 7a-1(c)(2). Section 8a(5) of the CEA authorizes
the Commission to promulgate such 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].'' 7
U.S.C. 12a(5).
\8\ See 75 FR 63732 (Oct. 18, 2010) (proposing regulations to
implement Core Principle P (Conflicts of Interest); and 75 FR 63113
(Oct. 14, 2010) (proposing regulations to implement Core Principle B
(Financial Resources)). Concurrent with issuing this notice, the
Commission also is proposing regulations to implement Core
Principles A (Compliance), H (Rule Enforcement), N (Antitrust
Considerations), and R (Legal Risk). The Commission expects to issue
two additional notices of proposed rulemaking to implement DCO core
principles.
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The Commission continues to believe that, where possible, each DCO
should be afforded an appropriate level of discretion in determining
how to operate its business within the statutory framework. At the same
time, the Commission recognizes that specific bright-line regulations
may be necessary in order to facilitate DCO compliance with a given
core principle, and ultimately, to protect the integrity of the U.S.
clearing system. Accordingly, in developing the proposed regulations,
the Commission has endeavored to strike an appropriate balance between
establishing general prudential standards and prescriptive
requirements.
Core Principle J, Reporting, as amended by the Dodd-Frank Act,
requires a DCO to provide the Commission with all information that the
Commission determines to be necessary to conduct oversight of the
DCO.\9\ The Commission is proposing to adopt Sec. 39.19 to establish
requirements that a DCO will have to meet in order to comply with Core
Principle J.
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\9\ See Section 5b(c)(2)(J) of the CEA; 7 U.S.C. 7a-1(c)(2)(J).
Prior to amendment by the Dodd-Frank Act, Core Principle J provided
that ``The [DCO] applicant shall provide to the Commission all
information necessary for the Commission to conduct the oversight
function of the applicant with respect to the activities of the
[DCO].''
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Core Principle K, Recordkeeping, as amended by the Dodd-Frank Act,
requires a DCO to maintain records of all activities related to the
business of the DCO as a DCO, in a form and manner that is acceptable
to the Commission and for a period of not less than 5 years.\10\ The
Commission is proposing to adopt Sec. 39.20 to establish requirements
that a DCO will have to meet in order to comply with Core Principle K.
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\10\ See Section 5b(c)(2)(K) of the CEA; 7 U.S.C. 7a-1(c)(2)(K).
Prior to amendment by the Dodd-Frank Act, Core Principle K provided
that ``The [DCO] applicant shall maintain records of all activities
related to the business of the applicant as a [DCO] in a form and
manner acceptable to the Commission for a period of 5 years.''
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Core Principle L, Public Information, as amended by the Dodd-Frank
Act, requires a DCO to provide market participants sufficient
information to enable the market participants to identify and evaluate
accurately the risks and costs associated with using the DCO's
services.\11\ A DCO is, more specifically, required to make available
to market participants information concerning the rules and operating
and default procedures governing its clearing and settlement systems
and also disclose publicly and to the Commission the terms and
conditions of each contract, agreement, and transaction cleared and
settled by the DCO, each clearing and other fee charged to members,\12\
the DCO's margin-setting methodology, daily settlement prices, and
other matters relevant to participation in the DCO's clearing and
settlement activities.\13\ The Commission is proposing to adopt Sec.
39.21 to establish requirements that a DCO will have to meet in order
to comply with Core Principle L.
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\11\ See Section 5b(c)(2)(L) of the CEA; 7 U.S.C. 7a-1(c)(2)(L).
\12\ The statutory language refers to fees charged to ``members
and participants,'' and the Commission interprets this phrase to
mean fees charged to ``clearing members,'' a term which it proposes
to define as ``any person that has clearing privileges such that it
can process, clear and settle trades through a derivatives clearing
organization on behalf of itself or others. The derivatives clearing
organization need not be organized as a membership organization.''
The Commission is proposing to amend the definition of ``clearing
member'' in Sec. 1.3(c) of its regulations, as part of a separate
proposed rulemaking.
\13\ This core principle has been expanded greatly. Prior to
amendment by the Dodd-Frank Act, Core Principle L provided that
``The [DCO] applicant shall make information concerning the rules
and operating procedures governing the clearing and settlement
systems (including default procedures) available to market
participants.''
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Core Principle M, Information Sharing, as amended by the Dodd-Frank
Act, requires a DCO to enter into and abide by terms of each
appropriate and applicable domestic and international information-
sharing agreement and use relevant information obtained under such
agreements in carrying out its risk management program.\14\ The
[[Page 78187]]
Commission is proposing to adopt Sec. 39.22 to codify the statutory
requirement.
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\14\ See Section 5b(c)(2)(M) of the CEA, 7 U.S.C. 7a-1(c)(2)(M).
The Dodd-Frank Act made minor changes in the language of Core
Principle M, but did not make any substantive changes.
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Section 805(a) of the Dodd-Frank Act allows the Commission to
prescribe regulations for those DCOs that the Financial Stability
Oversight Council has determined are systemically important financial
market utilities.\15\ The Commission is not proposing to adopt
additional or enhanced requirements for systemically important DCOs
(SIDCOs) in connection with the proposed rules to implement Core
Principles J, K, L and M. This is based on the Commission's view that
rigorous information management requirements should apply equally to
all DCOs, regardless of their size or systemic importance.
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\15\ Section 804 of the Dodd-Frank Act authorizes the Financial
Stability Oversight Council to designate financial market utilities
involved in clearing and settlement as ``systemically important.''
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The Commission requests comment on all aspects of the proposed
rules, as well as comment on the specific provisions and issues
highlighted in the discussion below.
II. Proposed Regulations
A. Reporting Requirements
Proposed Sec. 39.19 would require certain reports to be made by
the DCO to the Commission: (1) On a periodic basis (daily, quarterly or
annually), (2) where the reporting requirement is triggered by the
occurrence of a significant event; and (3) upon request by the
Commission.\16\ Unless otherwise specified by the Commission or its
designee, each DCO would have to submit the information required by
this section to the Commission electronically and in a form and manner
prescribed by the Commission.
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\16\ Requirements that certain information be submitted upon
request of the Commission are currently found in the Commission's
regulations as paragraphs (a) and (b) of Sec. 39.5. 17 CFR 39.5.
See infra discussion of technical amendments regarding Sec. Sec.
39.5(a) and 39.5(b) at Section II.A.5. of this notice.
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The Commission has determined that the information required by
proposed Sec. 39.19 would enable it to conduct more effective and more
streamlined financial oversight of a DCO. In this regard, obtaining the
required data would enhance the Commission's ability to conduct a more
in-depth and timely analysis of a DCO's activities, thereby enabling
the Commission to identify insipient problems and address them at an
earlier stage. This is particularly important in connection with a DCO
that clears swaps, in light of the increased risk that swaps may pose
to DCOs.\17\
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\17\ The Commission notes that DCOs may be subject to additional
reporting requirements that are not covered by Core Principle J and
therefore are not addressed in proposed Sec. 39.19, e.g.,
requirements for reporting to a swap data repository under proposed
part 45 of the Commission's regulations.
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Unless otherwise specified by the Commission or its designee, any
stated time in these proposed regulations would be Central time for
information concerning DCOs located in that time zone, and Eastern time
for information concerning all other DCOs (including clearing
organizations registered as DCOs but located outside the United
States).\18\
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\18\ See proposed Sec. 39.19(b)(2).
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1. Information Required on a Daily Basis
Currently, the Commission receives initial margin data from
several, but not all DCOs and not necessarily on a daily basis. The
Commission receives variation margin data through the Shared Market
Information System (SHAMIS), which is maintained by The Clearing
Corporation, a subsidiary of IntercontinentalExchange, Inc. However,
the Commission has found it difficult to obtain a complete data set
from SHAMIS on a regular basis and in the necessary format. Moreover,
not all DCOs participate in SHAMIS. The Commission is therefore
proposing regulations that would require reporting by all DCOs on a
daily basis. By requiring both sets of data as well as intraday initial
margin calls \19\ to be reported directly to the Commission, the
Commission would be better positioned to conduct risk surveillance
activities efficiently, to monitor the financial health of the DCO, and
to detect any unusual activity in a timely manner.
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\19\ See infra discussion of proposed Regulation 39.19(c)(4)(v)
which would require intraday reporting of initial margin calls at
Section II.A.4.(e) of this notice.
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Proposed Sec. 39.19(c)(1)(i) would require a DCO to report both
the initial margin requirement for each clearing member, by customer
origin and house origin,\20\ and the initial margin on deposit for each
clearing member, by origin. Proposed Sec. 39.19(c)(1)(ii) would
require a DCO to report the daily variation margin collected and paid
by the DCO. The report would separately list the mark-to-market amount
collected from or paid to each clearing member, by origin.\21\
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\20\ In a separate rulemaking, the Commission is proposing to
define the terms ``customer account or customer origin'' and ``house
account or house origin'' in proposed Sec. 39.1(b). ``Customer
account or customer origin'' would be defined as a clearing member's
account held on behalf of customers, as defined in Sec. 1.3(k) of
the Commission's regulations, and would clarify that a customer
account is also a futures account, as that term is defined by Sec.
1.3(vv). ``House account or house origin'' would be defined as a
clearing member's combined proprietary accounts, as defined in Sec.
1.3(y).
\21\ This requirement would apply to options transactions only
to the extent a DCO uses futures-style margining for options.
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Proposed Sec. 39.19(c)(1)(iii) would require the DCO to report all
other cash flows relating to clearing and settlement including, but not
limited to, option premiums and payments related to swaps such as
coupon amounts, collected from or paid to each clearing member, by
origin. This data, supplementing the initial margin and variation
margin data, would provide the Commission with a more complete picture
of the financial risk profile of the DCO and its clearing members.
Proposed Sec. 39.19(c)(1)(iv) would require a DCO to report the
end-of-day positions for each clearing member, by origin. Although the
Commission currently receives large trader reports that are essential
to an understanding of significant financial risk exposures, receipt of
the proposed reports directly from the DCO would facilitate the ability
of the Commission to evaluate the risk of each DCO as well as the
aggregate financial risk across all DCOs.
Proposed Sec. 39.19(c)(1) would require the report to be compiled
as of the end of each trading day and to be submitted to the Commission
by 10 a.m. the following business day. Although the proposed daily
reporting requirements would be new, the Commission notes that in the
ordinary course of a DCO conducting its clearing and settlement
business, the information required to be reported is already known or
is readily ascertainable by a DCO.
2. Information Required on a Quarterly Basis
The Commission recently proposed a new Sec. 39.11(f)(1) under
which, at the end of each fiscal quarter, or at any time upon
Commission request, a DCO would be required to report to the
Commission: (i) The amount of financial resources necessary to meet the
requirements set forth in the regulation; and (ii) the value of each
financial resource available to meet those requirements.\22\ The DCO
would have to include with the report its financial statements,
including the balance sheet, income statement, and statement of cash
flows of the DCO or its parent company. If one of the financial
resources a DCO is using to meet the regulation's requirements is a
guaranty fund, the DCO would also have to report the value
[[Page 78188]]
of each individual clearing member's guaranty fund deposit. Proposed
Sec. 39.11(f)(3) would require a DCO to provide the Commission with
sufficient documentation that explains both the methodology it used to
calculate its financial requirements and the basis for its
determinations regarding valuation and liquidity. The DCO also would
have to provide copies of any agreements establishing or amending a
credit facility, insurance coverage, or other arrangement that
evidences or otherwise supports its conclusions.
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\22\ See 75 FR 63113 (Oct. 14, 2010) (proposing DCO financial
resources requirements pursuant to Core Principle B).
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By this notice, the Commission is proposing a new Sec. 39.19(c)(2)
under which a DCO would be required to report its financial resources
in accordance with proposed Sec. 39.11(f). The Commission notes that
certain significant changes in financial resources would trigger
additional reporting requirements under proposed Sec.
39.19(c)(4)(i).\23\
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\23\ See infra discussion of proposed Sec. 39.19(c)(4)(i) at
Section II.A.4.(a) of this notice.
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3. Information Required on an Annual Basis
Proposed Sec. 39.19(c)(3)(i) would require a DCO's chief
compliance officer to submit the annual compliance report required by
Section 725(b) of the Dodd-Frank Act \24\ and proposed Sec. 39.10.\25\
The form and content of the annual compliance report would be codified
in proposed Sec. 39.10.
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\24\ Section 5b(i) of the CEA, 7 U.S.C. 7a-1(i).
\25\ Section 39.10 is being proposed in a separate notice of
proposed rulemaking.
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Proposed Sec. 39.19(c)(3)(ii) would require a DCO to provide the
Commission with audited year-end financial statements of the DCO, or if
there are no financial statements available for the DCO itself, the
consolidated audited year-end financial statements of the DCO's parent
company.
Proposed Sec. 39.19(c)(3)(iii) would require a DCO to submit to
the Commission concurrently, the annual compliance report and audited
financial statements required by (c)(3)(i) and (ii), respectively, not
later than 90 days after the end of the DCO's fiscal year. The DCO
would be able to request from the Commission an extension of time to
submit either report, provided the DCO's failure to submit the report
in a timely manner could not be avoided without unreasonable effort or
expense. Extensions of the deadline would be granted at the discretion
of the Commission.
4. Event-Specific Reporting
(a) Decrease in Financial Resources
Proposed Sec. 39.19(c)(4)(i) would alert the Commission in a
timely manner of a significant decrease in the value of a DCO's
financial resources and the reason for the decrease, e.g., whether such
a decrease is an indicator of inadequate financial resources or if it
is merely the result of a corresponding decrease in the margin
requirements of the DCO. A DCO would be required to report certain
decreases of the financial resources required to be maintained by
proposed Sec. 39.11(a) or, as applicable if the DCO is a SIDCO,
proposed Sec. 39.29(a): \26\ (1) A 10 percent decrease from the total
value of the financial resources reported on the last quarterly report
submitted under proposed Sec. 39.11(f); or (2) a 10 percent decrease
from the total value of the financial resources as of the close of the
previous business day. Reporting a decrease from the last quarterly
report is intended to capture a situation where a DCO has a gradual
decrease of financial resources. Reporting a decrease from the previous
business day is intended to capture a situation where the DCO would
experience a sudden decrease in financial resources over a short period
of time. Although in such a situation the DCO may still have financial
resources on hand that are greater in value than what was reported on
the most recent quarterly report, the Commission believes that such a
rapid drop in the value of a DCO's financial resources is a situation
that warrants notice to the Commission. The Commission invites comment
on possible alternatives regarding what would be considered a
significant drop in the value of financial resources and whether there
should be alternative reporting requirements.
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\26\ Proposed Sec. 39.11(a) would require a DCO to maintain
sufficient financial resources to: (1) Meet its financial
obligations to its clearing members notwithstanding a default by the
clearing member creating the largest financial exposure for the DCO
in extreme but plausible market conditions, and (2) cover its
operating costs for at least one year, calculated on a rolling
basis. Proposed Sec. 39.29(a) would establish a different default
resources standard for SIDCOs, requiring a SIDCO to maintain
sufficient financial resources to meet its financial obligations to
its clearing members notwithstanding a default by the two clearing
members creating the largest combined financial exposure for the
SIDCO in extreme but plausible market conditions. See 75 FR at
63118-19.
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The DCO would be required to report each such decrease to the
Commission no later than one business day following the day the 10
percent threshold was reached. The report would have to include the
total value of the financial resources: (1) As of the close of business
the day the 10 percent threshold was reached; and (2) if reporting a 10
percent decrease from the previous business day, the total value of the
financial resources immediately prior to the 10 percent drop. This
would include a breakdown of the value of each financial resource
available as reported in each (1) and (2) above, calculated in
accordance with the requirements of proposed Sec. 39.11(d) or, as
applicable if the DCO is a SIDCO, Sec. 39.29(b),\27\ including the
value of each individual clearing member's guaranty fund deposit, if
the DCO reports guaranty fund deposits as a financial resource. The
report would also include a detailed explanation for the decrease.
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\27\ Proposed Sec. 39.11(d)(2) and Sec. 39.29(b) address
valuation of clearing member assessments for purposes of calculating
default resources. See 75 FR at 63119-20.
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(b) Decrease in Ownership Equity
Proposed Sec. 39.19(c)(4)(ii) would require a DCO to notify the
Commission of an event which the DCO knows or should reasonably know
will cause a decrease of 20 percent in ownership equity from the last
reported ownership equity balance. This notice would be required to be
provided no later than two business days prior to the event. The last
reported ownership equity balance would generally be on the quarterly
or audited financial statements that would be required to be submitted
by proposed Sec. 39.19(c)(2) \28\ or proposed Sec.
39.19(c)(3)(ii),\29\ respectively. For events which the DCO did not
know, and reasonably could not know, would cause a decrease of 20
percent prior to the event occurring, the DCO would be able to report
the triggering event no later than two business days after the decrease
in ownership equity. Reports submitted prior to an event would have to
include pro forma financial statements, reflecting the DCO's estimated
future financial condition following the anticipated decrease and
details describing the reason for the anticipated decrease. Reports
submitted after the event would have to include current financial
statements and details describing the reason for the decrease.
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\28\ See supra discussion of proposed Sec. 39.19(c)(2) at
Section II.A.2. of this notice.
\29\ See supra discussion of proposed Sec. 39.19(c)(3)(ii) at
Section II.A.3. of this notice.
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Proposed Sec. 39.19(c)(4)(ii) is intended to alert the Commission
of major planned events that would significantly affect ownership
equity, most of which are events the DCO would have advance knowledge
of, such as a reinvestment of capital, dividend payment, or major
acquisition. The report would notify the Commission of such an event
and would allow the Commission to
[[Page 78189]]
evaluate its effect on the financial health of the DCO. The Commission
invites commenters to propose alternative reporting requirements which
would also provide the Commission with this type of information.
(c) Six-Month Liquid Asset Requirement
The Commission recently proposed a new Sec. 39.11(e)(2) which
would establish a six-month liquid asset requirement. It would require
DCOs to maintain unencumbered liquid financial assets in the form of
cash or highly liquid securities equal to six months operating
costs.\30\ In this notice, the Commission is proposing a new Sec.
39.19(c)(4)(iii) that would require immediate notice to the Commission
when a DCO knows or reasonably should know of a deficit in the six-
month liquid asset requirement of proposed Sec. 39.11(e)(2). The
Commission believes that immediate notification of a DCO's deficit in
the six-month liquid asset requirement is critical because of its
potential impact on the ability of the DCO to continue to operate as a
going concern.
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\30\ See 75 FR at 63116.
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(d) Change in Working Capital
Proposed Sec. 39.19(c)(4)(iv) would require notice to the
Commission no later than two business days after a DCO's working
capital becomes negative. Working capital is defined as current assets
minus current liabilities. The notice would include a balance sheet
that reflects the DCO's working capital and an explanation as to the
reason for the negative balance. The Commission believes that it is
essential that it be made aware, in a timely manner, when a DCO has
negative working capital, as this development can be an indicator of
the declining financial health of a DCO.
The Commission invites comment as to whether this is a meaningful
indicator of a DCO's financial condition, if there are alternative or
additional measures that might be applied, and if the timing for
notification is appropriate given the information to be provided.
(e) Intraday Initial Margin Calls to Clearing Members
Proposed Sec. 39.19(c)(4)(v) would require a DCO to report any
intraday initial margin calls to clearing members. While proposed Sec.
39.19(c)(1), discussed above, would provide the Commission with initial
margin and daily variation margin data, the Commission would not
receive that data until the following business day. Learning of an
intraday initial margin call soon after the call would assist the
Commission in determining whether certain clearing member positions
could affect the ability of a DCO to meet its end-of-day financial
obligations in a timely manner. This data would alert the Commission to
positions that could pose greater risk. This is especially important
given that intraday initial margin calls are unusual and are often due
to increasing position size. The Commission invites commenters to
recommend other possible reporting solutions that could serve to inform
the Commission of a clearing member that is potentially building up
position size during the current trading day.
The report would have to be submitted no later than 1 hour
following the margin call and would have to separately list each
request and include the name of the clearing member, the amount
requested and the account origin.
The Commission notes that while this may impose an occasional
reporting requirement on DCOs, many DCOs already have such reports
generated for submission to a clearing member's depository as a request
for intraday funds. The primary burden would be arranging a mechanism
that would allow submission of these reports to the Commission in a
timely manner. Thus, the Commission believes that it would be a de
minimis burden.
(f) Delay in Collection of Initial Margin
Proposed Sec. 39.19(c)(4)(vi) would require the DCO to immediately
notify the Commission when it has not received additional initial
margin that it requested from a clearing member, in a timely manner.
The proposed reporting requirement is intended to alert the Commission
of a development that could be an indicator of a potential clearing
member default. Payment of additional initial margin would be
considered late if the DCO has not received payment within the time
frame allowed by the DCO's rules and procedures.\31\ The Commission
invites comment on this reporting requirement and the time frame used
in determining when a payment is not considered timely.
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\31\ The DCO's rules and procedures are required to be submitted
to the Commission under Section 5c(c) of the CEA, 7 U.S.C. 7a-2(c),
and Sec. 40.6. Such information is required to be made available to
clearing members and the public under Core Principle L and proposed
Sec. 39.21. See infra Section II.C. of this notice.
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(g) Management of Clearing Member Positions
Proposed Sec. Sec. 39.19(c)(4)(vii)-(ix) would require a DCO to
apprise the Commission of different levels of financial distress of a
clearing member, and the status of the DCO's actions to manage the
risks associated with the clearing member's financial situation. The
DCO would be required to report situations where a clearing member's
position(s) must be reduced, transferred or liquidated, or where the
clearing member defaults.
Proposed Sec. 39.19(c)(4)(vii) would require a DCO to immediately
notify the Commission of the DCO's request to a clearing member to
reduce its positions because the DCO has determined that the clearing
member has exceeded its exposure limit, that the clearing member has
failed to meet an initial or variation margin call, or that it has
failed to fulfill any other financial obligation to the DCO. The notice
would have to include: (A) The name of the clearing member; (B) the
time the clearing member was contacted; (C) the number of positions by
which the DCO requested the clearing member to reduce its position
size; (D) the contracts that are the subject of the request; and (E)
the reason for the request.
Proposed Sec. 39.19(c)(4)(viii) would require a DCO to immediately
notify the Commission of the DCO's determination that any position the
DCO carries for one of its clearing members must be liquidated
immediately or transferred immediately, or that the trading of any
account of a clearing member can be only for the purposes of
liquidation because that clearing member has failed to meet an initial
or variation margin call or failed to fulfill any other financial
obligation to the DCO. The notice would have to include: (A) The name
of the clearing member; (B) the time the clearing member was contacted;
(C) the contracts that are subject to the determination; (D) the number
of positions that are subject to the determination; and (E) the reason
for the determination.
The provisions of proposed Sec. 39.19(c)(4)(viii) are
substantially similar to the requirements of Sec. 1.12(f)(1) of the
Commission's regulations. Accordingly, the Commission is proposing to
remove Sec. 1.12(f)(1) and redesignate it as proposed Sec.
39.19(c)(4)(viii) in substantially the same form. The difference would
be that while Sec. 1.12(f)(1) applies only to a DCO's determination
concerning a clearing member that is a registered futures commission
merchant (FCM) or registered leverage transaction merchant, proposed
Sec. 39.19(c)(4)(viii) would apply to all DCO clearing members, even
those that are not registrants.
[[Page 78190]]
Proposed Sec. 39.19(c)(4)(ix) would require a DCO to immediately
notify the Commission of the default of a clearing member. An event of
default would be determined in accordance with the rules of the DCO.
The notice of default would have to include: (A) The name of the
clearing member; (B) the contracts the clearing member defaulted upon;
(C) the number of positions the clearing member defaulted upon; and (D)
the amount of the unmet financial obligation.
(h) Change in Ownership or Corporate or Organizational Structure
Proposed Sec. 39.19(c)(4)(x) is intended to provide advance notice
to the Commission of major ownership, corporate, or organizational
changes of a DCO. The DCO would be required to report any anticipated
ownership, corporate, or organizational changes of the DCO or its
parent company that would: (i) Result in at least a 10 percent change
of ownership of the DCO; (ii) create a new subsidiary of the DCO or the
parent company; (iii) eliminate a current subsidiary of the DCO or its
parent company; or (iv) result in a transfer of all or substantially
all of its assets, including its registration as a DCO, to another
legal entity (e.g., as a result of a reincorporation, or corporate
merger). Such changes could include, but would not be limited to, the
DCO's change of corporate structure from a partnership to a
corporation, or from a member owned company to a publicly held company,
or a change in corporate domicile. The report would include: (1) A
chart outlining the new ownership or corporate or organizational
structure, (2) a brief description of the purpose and impact of the
change; and (3) any relevant agreements effecting the change and
corporate documents such as new articles of incorporation and bylaws.
With respect to a corporate change that results in a transfer of all or
substantially all of a DCO's assets, the informational requirements of
proposed Sec. 39.19(c)(4)(x)(B) would be satisfied by the DCO's
compliance with proposed Sec. 39.3(h)(3).\32\
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\32\ In a separate proposed rulemaking, the Commission is
proposing procedures for the transfer of a DCO's registration and
open interest under proposed Sec. 39.3(h).
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Because a DCO is likely to be aware of such changes well in advance
of their effective date, the proposed regulation would require the
report to be submitted to the Commission no later than three months
prior to the anticipated change. The Commission is allowing an
exception to the three-month prior notice requirement if the DCO does
not know and reasonably could not have known of the anticipated change
three months prior to that change. In such event, the DCO would be
required to immediately report such change to the Commission as soon as
it knows of the change. The Commission requests comment on whether the
three-month notice period is appropriate or whether a different notice
period should be required.
Proposed Sec. 39.19(c)(4)(x)(D) would require a second report to
the Commission of the consummation of the corporate or organizational
change no later than 2 business days following the effective date of
the change.
The Commission notes that there may be differences in the proposed
notification requirements for changes in the ownership or corporate or
organizational structure of DCOs, designated contract markets, swap
execution facilities, and swap data repositories.\33\ The Commission
requests comment on the proposed reporting requirements under Sec.
39.19(c)(4)(x), generally, and, more specifically, the extent to which
there should be uniformity or differentiation in notification
procedures applied to different types of registrants.
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\33\ Such requirements would be proposed in separate
rulemakings, each for a specific registrant.
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(i) Change in Key Personnel
Proposed Sec. 39.19(c)(4)(xi) would require a DCO to report to the
Commission the departure or addition of persons who are key personnel,
as defined in proposed Sec. 39.1(b), no later than two business days
following any such change. As applicable when a position is vacated,
the report would include the name of the person who will assume the
duties of the position on a temporary basis until a permanent
replacement fills the position.
Key personnel would be defined by proposed Sec. 39.1(b) as
personnel who play a significant role in the operation of the DCO,
provision of clearing and settlement services, risk management, or
oversight of compliance with the CEA and Commission regulations. Key
personnel would include, but would not be limited to, those persons who
are or perform the functions of any of the following: The chief
executive officer; president; chief compliance officer; chief operating
officer; chief risk officer; chief financial officer; chief technology
officer; and emergency contacts or persons who are responsible for
business continuity and disaster recovery.\34\ The term ``emergency''
would have the same meaning as defined in Sec. 40.1(g), which the
Commission has proposed to revise and redesignate as Sec. 40.1(h).\35\
The Commission intends to require listing key personnel on a DCO's
initial application in furtherance of the applicant's representation
that it can satisfy the requirements of Core Principle B, i.e., that it
will have adequate managerial resources.\36\ From a practical
standpoint, notification of any changes of key personnel, particularly
those responsible for handling emergency situations, is important for
purposes of the Commission's general oversight of each DCO, as well as
its ability to establish contact with key personnel in a timely manner,
as circumstances may warrant.
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\34\ In a separate rulemaking, the Commission is proposing to
adopt this definition for ``key personnel'' in a new Sec. 39.1(b).
\35\ See 75 FR 67282, 67292 (Nov. 2, 2010) (provisions common to
registered entities; proposing to revise and redesignate Sec.
40.1(g) as Sec. 40.1(h)). The term ``emergency'' is currently
defined as:
Any occurrence or circumstance that, in the opinion of the
governing board of a registered entity, or a person or persons duly
authorized to issue such an opinion on behalf of the governing board
of a registered entity under circumstances and pursuant to
procedures that are specified by rule, requires immediate action and
threatens or may threaten such things as the fair and orderly
trading in, or the liquidation of or delivery pursuant to, any
agreements, contracts or transactions, including: (1) Any
manipulative or attempted manipulative activity; (2) Any actual,
attempted, or threatened corner, squeeze, congestion, or undue
concentration of positions; (3) Any circumstances which may
materially affect the performance of agreements, contracts or
transactions, including failure of the payment system or the
bankruptcy or insolvency of any participant; (4) Any action taken by
any governmental body, or any other registered entity, board of
trade, market or facility which may have a direct impact on trading;
and (5) Any other circumstance which may have a severe, adverse
effect upon the functioning of a registered entity.
17 CFR 40.1(g).
\36\ See Section 5b(c)(2)(B)(i) of the CEA; 17 USC 7a-
1(c)(2)(B)(i) (requiring each DCO to have ``adequate financial,
operational, and managerial resources, as determined by the
Commission, to discharge each responsibility of the derivatives
clearing organization''). The Commission expects to include in a
future rulemaking revised instructions for DCO applications which
will include a requirement that applicants list key personnel and
emergency contacts.
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(j) Credit Facility Funding Arrangement Change
Under proposed Sec. 39.19(c)(4)(xii), a DCO would be required to
notify the Commission of material changes in a credit facility funding
arrangement, if the DCO has one in place. A credit facility funding
arrangement is generally used as a stop-gap measure in an emergency
situation such as to provide liquidity during a clearing member default
or to temporarily provide the DCO with adequate operating funds.\37\
[[Page 78191]]
Thus, it is essential for the Commission to be promptly notified of
changes that would affect the DCO's immediate access to cash. Under the
proposed regulation, a DCO would have to notify the Commission no later
than one business day after a DCO changes a credit facility funding
arrangement, is notified that such an arrangement has changed, or knows
or reasonably should know that the arrangement will change, including
but not limited to a change in lender, change in the size of the
facility, change in expiration date, or any other material changes or
conditions.
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\37\ See 75 FR at 63116 (proposing that a DCO may use a
committed line of credit or similar facility to meet the liquidity
requirements set forth in proposed Sec. 39.11(e)(1) and
39.11(e)(2)).
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(k) Rule Enforcement
As mandated by Core Principle H, proposed Sec. 39.19(c)(4)(xiii)
would require a DCO to report to the Commission regarding rule
enforcement activities and sanctions imposed against clearing members.
More specifically, it would require a DCO to notify the Commission no
later than two business days after the DCO (A) initiates a rule
enforcement action against a clearing member, or (B) imposes sanctions
against a clearing member. The Commission notes that while an exchange
has 30 days within which to notify the Commission of a decision
pursuant to which a disciplinary action has become final,\38\ a DCO
taking disciplinary action against a clearing member is a less common
occurrence, and the clearing member's offense could potentially impact
the financial integrity of the DCO. Thus, the Commission believes that
it should be notified of such actions, sooner. Nonetheless, the
Commission requests comment on whether a 30-day reporting period would
be more appropriate under proposed Sec. 39.19(c)(4)(xiii).
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\38\ See 17 CFR 9.11(a).
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(l) Financial Condition and Events
Proposed Sec. 39.19(c)(4)(xiv) is intended to alert the Commission
of certain events and situations that may affect the financial
integrity of a DCO. Under the proposed regulation, a DCO would be
required to immediately notify the Commission after the DCO knows or
reasonably should know of: (A) The institution of any legal proceedings
which may have a material adverse financial impact on the DCO; (B) any
event, circumstance or situation that would not otherwise be required
to be reported under Sec. 39.19 and that would materially impede the
DCO's ability to comply with part 39 of the Commission's regulations;
and (C) any material adverse change in the financial condition of any
clearing member that would not otherwise be required to be reported
under Sec. 39.19. These requirements would place an affirmative duty
on the DCO to be aware of and monitor such events, and would permit the
DCO to exercise its discretion in determining which events rise to the
level of requiring notification to the Commission.
Proposed Sec. 39.19(c)(4)(xv) would require a DCO, when it
discovers or is notified by an independent public accountant of the
existence of any material inadequacy, to give notice of such material
inadequacy within 24 hours, and within 48 hours after giving such
notice to file a written report stating what steps have been and are
being taken to correct the material inadequacy. Proposed Sec.
39.19(c)(4)(xv) is consistent with Sec. 1.12(d), a similar requirement
for FCMs and introducing brokers.
5. Technical Amendments
Sections 39.5(a) and (b) require certain reports from a DCO upon
request by the Commission. The Commission is proposing redesignating
Sec. 39.5(a) and (b) as proposed Sec. 39.19(c)(5)(i) and (ii),
respectively, in substantially the same form. The Commission believes
that the addition of proposed Sec. 39.19 as the DCO reporting
regulation would make that section the appropriate placement for the
provisions of Sec. 39.5(a) and (b). Section 39.5(a), which is proposed
as new Sec. 39.19(c)(5)(i), requires that, upon request by the
Commission, a DCO file with the Commission such information related to
its business as a clearing organization, including information relating
to trade and clearing details, in the form and manner and within the
time as specified by the Commission in the request. Section 39.5(b),
which is proposed as new Sec. 39.19(c)(5)(ii), requires that, upon
request by the Commission, a DCO file with the Commission a written
demonstration, containing such supporting data, information and
documents, in the form and manner and within such time as the
Commission may specify, that the DCO is in compliance with one or more
core principles and the relevant provisions of part 39, as specified in
the request.
Section 39.5(c) currently requires a DCO to submit large trader
reports in circumstances where they are not required to be filed by
FCMs, clearing members or others.\39\ The Commission is proposing to
remove Sec. 39.5(c) because the data from such large trader reports
would be available pursuant to a combination of other large trader
reporting requirements and the requirements of proposed Sec.
39.19(c)(1).\40\
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\39\ Section 39.5(c) states:
Information regarding transactions by large traders cleared by a
derivatives clearing organization shall be filed with the
Commission, in a form and manner acceptable to the Commission, by
futures commission merchants, clearing members, foreign brokers or
registered entities other than a derivatives clearing organization,
as applicable. Provided, however, that if no such person or entity
is required to file large trader information with the Commission,
such information must be filed with the Commission by a derivatives
clearing organization.
17 CFR 39.5(c).
\40\ See supra discussion of proposed daily reporting
requirements at Section II.A.1. of this notice.
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Section 39.5(d) currently requires, upon special call, reports by
certain persons for positions cleared on a DCO.\41\ The Commission is
proposing to redesignate Sec. 39.5(d) as Sec. 21.04 because part 21
(Special Calls) is the appropriate placement for this provision.\42\ As
such, the Commission also proposes to redesignate current Sec. 21.04
as Sec. 21.05 and add Sec. 21.06 which would delegate its authority
under proposed Sec. 21.04 to the Director of the Division of Clearing
and Intermediary Oversight.\43\
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\41\ Section 39.5(d) states:
Upon special call by the Commission, each futures commission
merchant, clearing member or foreign broker shall provide
information to the Commission concerning customer accounts or
related positions cleared on a derivatives clearing organization or
other multilateral clearing organization in the form and manner and
within the time specified by the Commission in the special call.
17 CFR 39.5(d).
\42\ In a recent proposed rulemaking, the Commission proposed to
renumber Sec. 39.5 as Sec. 39.6. See 75 FR 67277, 67281 (Nov. 2,
2010) (process for review of swaps for mandatory clearing).
Renumbering would no longer be necessary if the requirements of
Sec. 39.5 are redesignated as proposed in this notice. (As
discussed in this section, the Commission is proposing to: (1)
Redesignate Sec. 39.5(a) as Sec. 39.19(c)(5)(i); (2) redesignate
Sec. 39.5(b) as Sec. 39.19(c)(5)(ii); (3) remove Sec. 39.5(c);
(4) redesignate Sec. 21.04 as Sec. 21.05; (5) redesignate Sec.
39.5(d) as Sec. 21.04; and (6) add Sec. 21.06). Additionally, the
earlier proposal to redesignate Sec. Sec. 39.6 and 39.7 as
Sec. Sec. 39.7 and 39.8, respectively, would no longer be
necessary. See 75 FR at 67281. The Commission notes that it intends
to propose a revised and renumbered part 39 in conjunction with an
upcoming notice of proposed rulemaking.
\43\ This delegation provision is the same as the delegation
provision for the Director of the Division of Market Oversight in
current Sec. 21.04.
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B. Recordkeeping Requirements
To implement Core Principle K, the Commission proposes to codify
the requirements of the core principle such that each DCO will have to
maintain records of all activities related to its business as a DCO in
the form and manner acceptable to the Commission for a period of not
less than five years. To clarify this general standard by way of
example, and to supplement pre-existing recordkeeping requirements
[[Page 78192]]
imposed by various Commission regulations,\44\ the Commission is
proposing to list examples of information subject to the recordkeeping
requirement.
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\44\ For example, Sec. Sec. 1.26 and 1.27 impose recordkeeping
requirements for DCOs and FCMs related to the investment of customer
funds.
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Proposed Sec. 39.20(a)(1) would require a DCO to maintain records
of all cleared transactions, including swaps. This is information that
a DCO already maintains in the ordinary course of its business as a
clearing house.
More specifically, proposed Sec. 39.20(a)(2) would require a DCO
to retain all information necessary to record allocation of bunched
orders for cleared swaps. This provision would highlight an important
recordkeeping component of swaps clearing.
Proposed Sec. 39.20(a)(3) would require a DCO to maintain records
of all information required to be generated, created, or reported under
part 39. This would include, but would not be limited to, the results
of and the methodology used for all tests, reviews, and calculations in
connection with setting and evaluating margin levels, determining the
value and adequacy of financial resources, and establishing settlement
prices.
Proposed Sec. 39.20(a)(4) would require a DCO to maintain records
of all rules and procedures of the DCO. Specifically, the DCO would be
required to maintain records of all rules and procedures required to be
submitted pursuant to part 39 and part 40 of the Commission's
regulations, including all proposed changes in rules, procedures or
operations of SIDCOs, subject to proposed Sec. 40.10.\45\
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\45\ See 75 FR 67282 (Nov. 2, 2010) (proposing amendments to
part 40 of the Commission's regulations).
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Proposed Sec. 39.20(a)(5) would require a DCO to maintain any data
or documentation required by the Commission or the DCO to be submitted
to the DCO by its clearing members, or by any other person in
connection with the DCO's clearing and settlement activities.
Proposed Sec. 39.20(b)(1) would require a DCO to maintain records
required by the Commission's regulations in accordance with the
provisions of Sec. 1.31 (books and records; keeping and inspection),
for a period of not less than five years. However, there is an
exception in proposed Sec. 39.20(b)(2) that would require each DCO
that clears swaps to maintain swap data in accordance with the
requirements of part 45 (swap data repositories) of the Commission's
regulations.
C. Public Information
To implement Core Principle L, the Commission proposes to codify
the requirements of the core principle, requiring DCOs to provide or
make available certain information to the public and to market
participants.
1. Availability of Information
Proposed Sec. 39.21(a) would require each DCO to provide to market
participants sufficient information to enable the market participants
to identify and evaluate accurately the risks and costs associated with
using the services of the DCO.\46\ In furtherance of this objective,
each DCO would be required to have clear and comprehensive rules and
procedures. Proposed Sec. 39.21(b) would require each DCO to make
information concerning the rules and the operating and default
procedures governing the clearing and settlement systems of the DCO
available to market participants.\47\
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\46\ See Section 5b(c)(2)(L)(i) of the CEA; 7 U.S.C. 7a-
1(c)(2)(L)(i).
\47\ See Section 5b(c)(2)(L)(ii) of the CEA; 7 U.S.C. 7a-
1(c)(2)(L)(ii).
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2. Public Disclosure
Proposed Sec. 39.21(c) would require each DCO to disclose publicly
and to the Commission information concerning: (1) The terms and
conditions of each contract, agreement, and transaction cleared and
settled by the DCO; (2) each clearing and other fee that the DCO
charges its clearing members; (3) the DCO's margin methodology; (4) the
size and composition of the financial resource package available in the
event of a clearing member default; (5) daily settlement prices,
volume, and open interest for each contract, agreement or transaction
cleared or settled by the DCO; (6) the DCO's rules and procedures for
defaults pursuant to proposed Sec. 39.16; \48\ and (7) any other
matter that is relevant to participation in the clearing and settlement
activities of the DCO.\49\
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\48\ In a future proposed rulemaking, the Commission intends to
propose a new Sec. 39.16 to implement DCO Core Principle G,
regarding default rules and procedures. See Section 5b(c)(2)(G) of
the CEA; 7 U.S.C. 7a-1(c)(2)(G).
\49\ See Section 5b(c)(2)(L)(iii) of the CEA, 7 U.S.C. 7a-
1(c)(2)(L)(iii).
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Under proposed Sec. 39.21(d) the DCO would be required to make its
rulebook, a list of all current clearing members, and the information
listed in proposed Sec. 39.21(c) readily available to the general
public, in a timely manner, by posting such information on the DCO's
website, unless otherwise permitted by the Commission. The information
that would be required by proposed Sec. 39.21(c)(5) would have to be
made available to the public no later than the business day following
the day to which the information pertains.
D. Information Sharing
Proposed Sec. 39.22 would require each DCO to enter into, and
abide by the terms of, each appropriate and applicable domestic and
international information-sharing agreement and to use relevant
information obtained from each such agreement in carrying out the risk
management program of the DCO. Proposed Sec. 39.22 would codify the
statutory provisions of Core Principle M. The Commission believes that
the language affords each DCO the appropriate level of discretion
regarding the appropriate information-sharing agreements to enter into
and the rules to abide by, and it does not perceive a need to
articulate more specific requirements. The Commission requests comment
on this approach.
III. Effective Date
The Commission is proposing that the requirements proposed in this
notice become effective 180 days from the date the final rules are
published in the Federal Register. The Commission believes that this
would give DCOs adequate time to implement the technology and the
procedures necessary to fulfill the proposed reporting requirements.
This period of time also would be sufficient to allow for compliance
with the recordkeeping, public information and information sharing
requirements. The Commission requests comment on whether 180 days is an
appropriate time frame for compliance with the proposed rules. The
Commission further requests comment on possible alternative effective
dates and the basis for any such alternative date.
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that agencies
consider whether the rules they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis respecting the impact.\50\
The rules proposed by the Commission will affect only DCOs (some of
which will be designated as SIDCOs). The Commission has previously
established certain definitions of ``small entities'' to be used by the
Commission in evaluating the impact of its regulations on small
[[Page 78193]]
entities in accordance with the RFA.\51\ The Commission has previously
determined that DCOs are not small entities for the purpose of the
RFA.\52\ Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not
have a significant economic impact on a substantial number of small
entities.
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\50\ 5 U.S.C. 601 et seq.
\51\ 47 FR 18618 (Apr. 30, 1982).
\52\ See 66 FR 45604, 45609 (Aug. 29, 2001).
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B. Paperwork Reduction Act
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number. OMB has not yet assigned a control
number to the new collection. The Paperwork Reduction Act of 1995 (PRA)
\53\ imposes certain requirements on Federal agencies (including the
Commission) in connection with their conducting or sponsoring any
collection of information as defined by the PRA. This proposed
rulemaking would result in new collection of information requirements
within the meaning of the PRA. The Commission therefore is submitting
this proposal to the Office of Management and Budget (OMB) for review.
If adopted, responses to this collection of information would be
mandatory. The Commission will protect proprietary information
according to the Freedom of Information Act and 17 CFR Part 145,
``Commission Records and Information.'' In addition, section 8(a)(1) of
the CEA strictly prohibits the Commission, unless specifically
authorized by the CEA, from making public ``data and information that
would separately disclose the business transactions or market positions
of any person and trade secrets or names of customers.'' The Commission
is also required to protect certain information contained in a
government system of records according to the Privacy Act of 1974, 5
U.S.C. 552a.
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\53\ 44 U.S.C. 3501 et seq.
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1. Information Provided by Reporting Entities/Persons
The proposed regulations require each respondent to file
information with the Commission (1) periodically, on a daily,
quarterly, and annual basis,\54\ (2) as specified events occur, and (3)
upon Commission request.\55\
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\54\ Quarterly financial resources reports and annual compliance
reports are the subjects of separate Paperwork Reduction Act
submissions in connection with other proposed rulemakings.
\55\ Reports submitted upon Commission request are current
requirements.
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For daily reports, these would result in an estimated total of 12
initial responses and 250 responses per respondent on an annual basis.
Commission staff estimates that respondents could expend up to $690
initially and $1,400 annually, based on an hourly rate ranging from $46
to $56, to comply with the proposed regulations. This would result in
an aggregated cost of $8,280 initially (12 respondents x $690) and
$16,800 per annum (12 respondents x $1,400).
For annual reports, these would result in an estimated total of 1
response per respondent on an annual basis. Commission staff estimates
that respondents could expend up to $482,110 annually, based on an
hourly rate of $185, to comply with the proposed regulations. This
would result in an aggregated cost of $5,785,320 per annum (12
respondents x $482,110).\56\
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\56\ This amount reflects the estimated cost of preparing
audited annual financial statements, an activity which many, if not
all, respondents already perform on an annual basis.
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For event-specific reports, these would result in an estimated
total of 4 responses per respondent on an annual basis. Commission
staff estimates that respondents could expend up to $1,680 annually,
based on an hourly rate of $75, to comply with the proposed
regulations. This would result in an aggregated cost of $20,160 per
annum (12 respondents x $1,680).\57\
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\57\ This amount reflects the estimated cost of putting systems
in place which would alert a respondent of certain event-specific-
reporting requirements. It is expected, however, that most
respondents already have most, if not all, of these systems in
place. Additionally, this amount takes into account the preparation
of reports such as the pro forma financial statement for a decrease
in ownership equity, a document which a respondent would most likely
already have produced in connection with whatever specific event the
respondent anticipated would cause a decrease in ownership equity.
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For recordkeeping requirements, these would result in an estimated
total of 1 response per respondent on an annual basis. Commission staff
estimates that respondents could expend up to $1,000 annually, based on
an hourly rate of $10, to comply with the proposed regulations. This
would result in an aggregated cost of $12,000 per annum (12 respondents
x $1,000).
2. Information Collection Comments
The Commission invites the public and other federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
solicits comment in order to: (i) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (ii) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information; (iii)
determine whether there are ways to enhance the quality, utility, and
clarity of the information to be collected; and (iv) minimize the
burden of the collection of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at
[email protected]. Please provide the Commission with a copy
of submitted comments so that all comments can be summarized and
addressed in the final rule preamble. Refer to the Addresses section of
this notice of proposed rulemaking for comment submission instructions
to the Commission. A copy of the supporting statements for the
collections of information discussed above may be obtained by visiting
RegInfo.gov. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this document in the Federal Register. Therefore, a comment is best
assured of having its full effect if OMB receives it within 30 days of
publication.
C. Cost-Benefit Analysis
Section 15(a) of the CEA requires the Commission to consider the
costs and benefits of its actions before issuing a rulemaking under the
CEA. By its terms, Section 15(a) does not require the Commission to
quantify the costs and benefits of a rule or to determine whether the
benefits of the rulemaking outweigh its costs; rather, it requires that
the Commission to ``consider'' the costs and benefits of its actions.
Section 15(a) further specifies that the costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
(1) Protection of market participants and the public; (2) efficiency,
competitiveness, and financial integrity of futures markets; (3) price
discovery; (4) sound risk management practices; and (5) other public
interest considerations. The Commission may in its discretion give
greater weight to any one of the five enumerated areas and could in its
discretion determine that, notwithstanding its costs, a particular rule
is necessary or appropriate to protect the public interest or to
effectuate any of the provisions or to
[[Page 78194]]
accomplish any of the purposes of the CEA.
Summary of proposed requirements. The proposed regulations would
implement the reporting, recordkeeping, public information, and
information-sharing requirements for DCOs under the CEA, as amended by
the Dodd-Frank Act.
Costs. With respect to costs, the Commission has determined that
the costs of the new reporting requirements are not expected to be
significant given that the information required to be reported is
readily available to the DCO and, in certain instances, is already
being reported to the Commission. The incremental increases in
operating costs will have a negligible effect on the markets'
efficiency, effectiveness and financial competitiveness.
Benefits. With respect to benefits, the Commission has determined
that receiving such data required by the daily, annual and event-
specific reporting requirements in a timely manner and in one format
would further the Commission's goal of monitoring the financial health
and financial integrity of DCOs and whether a DCO's financial and risk
management practices are effective. It would also assist the Commission
in taking prompt action as necessary to identify insipient problems and
address them at an earlier stage. This would further the goal of
avoiding systemic risk due to the default of a clearing member and
thereby protect market participants and the public and serve the public
interest by promoting sound risk management practices. Similarly, the
recordkeeping requirements allow for making certain records available
for Commission inspection, which helps further the goals of the
reporting requirements and is necessary for the Commission to
effectively monitor a DCO's financial integrity and compliance with the
CEA and Commission regulations. The public information requirements
serve the public interest by facilitating the dissemination of
important information about the DCO, including its clearing and
settlement activities and default procedures. Information-sharing
requirements promote cooperation among industry participants,
facilitating more effective risk management.
Public Comment. The Commission invites public comment on its cost-
benefit considerations. Commentators are also invited to submit any
data or other information that they may have quantifying or qualifying
costs and benefits of the Proposal with their comment letters.
List of Subjects
17 CFR Part 1
Brokers, Commodity futures, Consumer protection.
17 CFR Part 21
Brokers, Commodity futures, Reporting and recordkeeping
requirements
17 CFR Part 39
Definitions, commodity futures, reporting and recordkeeping
requirements, swaps.
For the reasons stated in the preamble, the Commission proposes to
amend 17 CFR parts 1, 21 and 39 as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
Authority and Issuance
1. The authority citation for part 1 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,
6i, 6k, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 13a-1,
16, 16a, 19, 21, 23, and 24, as amended by the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010).
2. In Sec. 1.12, remove and reserve paragraph (f)(1).
PART 21--SPECIAL CALLS
Authority and Issuance
3. The authority for part 21 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m,
6n, 7, 7a, 12a, 19 and 21, as amended by the Dodd-Frank Wall Street
Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376
(2010); 5 U.S.C. 552 and 552(b), unless otherwise noted.
4. Redesignate Sec. 21.04 as Sec. 21.05.
5. Add Sec. 21.06 to read as follows:
Sec. 21.06 Delegation of authority to the Director of the Division of
Clearing and Intermediary Oversight.
The Commission hereby delegates, until the Commission orders
otherwise, the special call authority set forth in Sec. 21.04 to the
Director of the Division of Clearing and Intermediary Oversight to be
exercised by such Director or by such other employee or employees of
such Director as designated from time to time by the Director. The
Director of the Division of Clearing and Intermediary Oversight may
submit to the Commission for its consideration any matter which has
been delegated in this paragraph. Nothing in this section shall be
deemed to prohibit the Commission, at its election, from exercising the
authority delegated in this section to the Director.
PART 39--DERIVATIVES CLEARING ORGANIZATIONS
Authority and Issuance
6. The authority for part 39 is proposed to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6d, 7a-1,7a-2, and 7b as amended
by the Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. 111-203, 124 Stat. 1376 (2010).
7. Add Sec. 39.19 to read as follows:
Sec. 39.19 Reporting.
(a) In general. Each derivatives clearing organization shall
provide to the Commission the information specified in this section and
any other information that the Commission deems necessary to conduct
its oversight of a derivatives clearing organization.
(b) Submission of reports. (1) Unless otherwise specified by the
Commission or its designee, each derivatives clearing organization
shall submit the information required by this section to the Commission
electronically and in a form and manner prescribed by the Commission.
(2) Time zones. Unless otherwise specified by the Commission or its
designee, any stated time in this section is Central time for
information concerning derivatives clearing organizations located in
that time zone, and Eastern time for information concerning all other
derivatives clearing organizations.
(c) Reporting requirements. Each registered derivatives clearing
organization shall provide to the Commission or other person as may be
required or permitted by this paragraph the information specified
below:
(1) Daily reporting. A report containing the information specified
by this paragraph (c)(1), which shall be compiled as of the end of each
trading day and shall be submitted to the Commission by 10 a.m. on the
following business day:
(i) Initial margin requirements and initial margin on deposit for
each clearing member, by customer origin and house origin;
(ii) Daily variation margin, separately listing the mark-to-market
amount collected from or paid to each clearing member, by customer
origin and house origin;
(iii) All other daily cash flows relating to clearing and
settlement including, but not limited to, option premiums and payments
related to swaps such as coupon amounts, collected from or paid to each
clearing member, by customer origin and house origin; and
[[Page 78195]]
(iv) End-of-day positions for each clearing member, by customer
origin and house origin.
(2) Quarterly reporting. A report of the derivatives clearing
organization's financial resources as required by Sec. 39.11(f);
provided that, additional reports may be required by paragraph
(c)(4)(i) of this section or Sec. 39.11(f).
(3) Annual reporting. (i) Annual report of chief compliance
officer. The annual report of the chief compliance officer required by
Sec. 39.10.
(ii) Audited financial statements. Audited year-end financial
statements of the derivatives clearing organization or, if there are no
financial statements available for the derivatives clearing
organization itself, the consolidated audited year-end financial
statements of the derivatives clearing organization's parent company.
(iii) Time of report. The reports required by this paragraph (c)(3)
shall be submitted concurrently to the Commission not more than 90 days
after the end of the derivatives clearing organization's fiscal year;
provided that, a derivatives clearing organization may request from the
Commission an extension of time to submit either report, provided the
derivatives clearing organization's failure to submit the report in a
timely manner could not be avoided without unreasonable effort or
expense. Extensions of the deadline will be granted at the discretion
of the Commission.
(4) Event-specific reporting. (i) Decrease in financial resources.
If there is a decrease of 10 percent in the total value of the
financial resources required to be maintained by the derivatives
clearing organization under Sec. 39.11(a) or, as applicable, Sec.
39.29(a), either from the last quarterly report submitted under Sec.
39.11(f) or from the value as of the close of the previous business
day, the derivatives clearing organization shall report such decrease
to the Commission no later than one business day following the day the
10 percent threshold was reached. The report shall include:
(A) The total value of the financial resources:
(1) as of the close of business the day the 10 percent threshold
was reached, and
(2) if reporting a decrease in value from the previous business
day, the total value of the financial resources immediately prior to
the 10 percent decline;
(B) A breakdown of the value of each financial resource reported in
each of paragraph (4)(i)(A)(1) and (2), calculated in accordance with
the requirements of Sec. 39.11(d) or, as applicable, Sec. 39.29(b),
including the value of each individual clearing member's guaranty fund
deposit if the derivatives clearing organization reports guaranty fund
deposits as a financial resource; and
(C) A detailed explanation for the decrease.
(ii) Decrease in ownership equity. No later than two business days
prior to an event which the derivatives clearing organization knows or
should reasonably know will cause a decrease of 20 percent or more in
ownership equity from the last reported ownership equity balance as
reported on a quarterly or audited financial statements required to be
submitted by paragraph (c)(2) or (c)(3)(ii), respectively, of this
section, but in any event no later than two business days after such
decrease in ownership equity for events that caused the decrease for
which the derivatives clearing organization does not know and
reasonably should not have known about prior to the event. The report
shall include:
(A) Pro forma financial statements reflecting the DCO's estimated
future financial condition following the anticipated decrease for
reports submitted prior to the anticipated decrease and current
financial statements for reports submitted after such a decrease; and
(B) Details describing the reason for the decrease or anticipated
decrease in the balance.
(iii) Six-month liquid asset requirement. Immediate notice when a
derivatives clearing organization knows or reasonably should know of a
deficit in the six-month liquid asset requirement of Sec. 39.11(e)(2).
(iv) Change in working capital. No later than two business days
after working capital becomes negative; the notice shall include a
balance sheet that reflects the derivatives clearing organization's
working capital and an explanation as to the reason for the negative
balance.
(v) Intraday initial margin calls. (A) Reporting requirement. Any
intraday initial margin call to a clearing member.
(B) Required information. The report shall separately list each
request and include the name of the clearing member, the amount
requested and the account origin.
(C) Time of report. The report shall be submitted to the Commission
no later than 1 hour following the margin call.
(vi) Delay in collection of initial margin. Immediate notice when a
derivatives clearing organization has not received additional initial
margin that it requested from a clearing member within the time frame
allowed by the derivatives clearing organization's rules and
procedures.
(vii) Request to clearing member to reduce its positions. Immediate
notice, of a derivatives clearing organization's request to a clearing
member to reduce its positions because the derivatives clearing
organization has determined that the clearing member has exceeded its
exposure limit, has failed to meet an initial or variation margin call,
or has failed to fulfill any other financial obligation to the
derivatives clearing organization. The notice shall include:
(A) The name of the clearing member;
(B) The time the clearing member was contacted;
(C) The number of positions by which the derivatives clearing
organization requested the clearing member to reduce its position size;
(D) All contracts that are the subject of the request; and
(E) The reason for the request.
(viii) Determination to transfer or liquidate positions. Immediate
notice, of a determination that any position a derivatives clearing
organization carries for one of its clearing members must be liquidated
immediately or transferred immediately, or that the trading of any
account of a clearing member shall be only for the purposes of
liquidation because that clearing member has failed to meet an initial
or variation margin call or has failed to fulfill any other financial
obligation to the derivatives clearing organization. The notice shall
include:
(A) The name of the clearing member;
(B) The time the clearing member was contacted;
(C) The contracts that are subject to the determination;
(D) The number of positions that are subject to the determination;
and
(E) The reason for the determination.
(ix) Default of a clearing member. Immediate notice, upon the
default of a clearing member. An event of default shall be determined
in accordance with the rules of the derivatives clearing organization.
The notice of default shall include:
(A) The name of the clearing member;
(B) The contracts the clearing member defaulted upon;
(C) The number of positions the clearing member defaulted upon; and
(D) The amount of the financial obligation.
(x) Change in ownership or corporate or organizational structure.
(A) Reporting requirement. Any anticipated change in the ownership or
corporate or organizational structure of the derivatives clearing
organization or its parent company that would:
[[Page 78196]]
(1) Result in at least a 10 percent change of ownership of the
derivatives clearing organization,
(2) create a new subsidiary or eliminate a current subsidiary of
the derivatives clearing organization or its parent company, or
(3) result in the transfer of all or substantially all of its
assets, including its registration as a derivatives clearing
organization to another legal entity.
(B) Required information. The report shall include: A chart
outlining the new ownership or corporate or organizational structure; a
brief description of the purpose and impact of the change; and any
relevant agreements effecting the change and corporate documents such
as articles of incorporation and bylaws. With respect to a corporate
change for which a derivatives clearing organization submits a request
for approval to transfer its derivatives clearing organization
registration and open interest under Sec. 39.3(h) of this part, the
informational requirements of this paragraph (c)(4)(x)(B) shall be
satisfied by the derivatives clearing organization's compliance with
Sec. 39.3(h)(3).
(C) Time of report. The report shall be submitted to the Commission
no later than three months prior to the anticipated change; provided
that the derivatives clearing organization may report the anticipated
change to the Commission later than three months prior to the
anticipated change if the derivatives clearing organization does not
know and reasonably could not have known of the anticipated change
three months prior to the anticipated change. In such event, the
derivatives clearing organization shall immediately report such change
to the Commission as soon as it knows of such change.
(D) Confirmation of change report. The derivatives clearing
organization shall report to the Commission the consummation of the
change no later than 2 business days following the effective date of
the change.
(xi) Change in key personnel. No later than two business days
following the departure, or addition of persons who are key personnel
as defined in Sec. 39.1(b), a report that includes, as applicable, the
name of the person who will assume the duties of the position on a
temporary basis until a permanent replacement fills the position.
(xii) Credit facility funding arrangement change. No later than one
business day after a derivatives clearing organization changes a credit
facility funding arrangement it may have in place, is notified that
such arrangement has changed, or knows or reasonably should have known
that the arrangement will change, including but not limited to a change
in lender, change in the size of the facility, change in expiration
date, or any other material changes or conditions.
(xiii) Rule enforcement. Notice of action taken, no later than two
business days after the derivatives clearing organization:
(A) Initiates a rule enforcement action against a clearing member;
or
(B) Imposes sanctions against a clearing member.
(xiv) Financial condition and events. Immediate notice after the
derivatives clearing organization knows or reasonably should have known
of:
(A) The institution of any legal proceedings which may have a
material adverse financial impact on the derivatives clearing
organization;
(B) Any event, circumstance or situation that materially impedes
the derivatives clearing organization's ability to comply with this
part and is not otherwise required to be reported under this section;
or
(C) A material adverse change in the financial condition of any
clearing member that is not otherwise required to be reported under
this section.
(xv) Financial statements material inadequacies. If a derivatives
clearing organization discovers or is notified by an independent public
accountant of the existence of any material inadequacy, such
derivatives clearing organization must give notice of such material
inadequacy within 24 hours, and within 48 hours after giving such
notice file a written report stating what steps have been and are being
taken to correct the material inadequacy.
Sec. 39.5(a) [Redesignated as Sec. 39.19(c)(5)(i)]
8. Redesignate Sec. 39.5(a) as Sec. 39.19(c)(5)(i).
9. Redesignate Sec. 39.5(b) as Sec. 39.19(c)(5)(ii) and revise to
read as follows:
Sec. 39.19 Reporting.
* * * * *
(c) * * *
(5) * * *
(ii) Upon request by the Commission, a derivatives clearing
organization shall file with the Commission a written demonstration,
containing such supporting data, information and documents, in the form
and manner and within such time as the Commission may specify, that the
derivatives clearing organization is in compliance with one or more
core principles and relevant provisions of this part, as specified in
the request.
Sec. 39.5(d) [Redesignated as Sec. 21.04]
10. Redesignate Sec. 39.5(d) as Sec. 21.04.
Sec. 39.5 [Amended]
11. Remove Sec. 39.5(c) and reserve the section.
12. Add Sec. 39.20 to read as follows:
Sec. 39.20 Recordkeeping.
(a) Requirement to maintain information. Each derivatives clearing
organization shall maintain records of all activities related to its
business as a derivatives clearing organization. Such records shall
include, but are not limited to, records of:
(1) All cleared transactions, including swaps.
(2) All information necessary to record allocation of bunched
orders for cleared swaps;
(3) All information required to be created, generated, or reported
under this part 39, including but not limited to the results of and
methodology used for all tests, reviews, and calculations in connection
with setting and evaluating margin levels, determining the value and
adequacy of financial resources, and establishing settlement prices;
(4) All rules and procedures required to be submitted pursuant to
this part 39 and part 40 of this chapter, including all proposed
changes in rules, procedures or operations subject to Sec. 40.10 of
this chapter; and
(5) Any data or documentation required by the Commission or by the
derivatives clearing organization to be submitted to the derivatives
clearing organization by its clearing members, or by any other person
in connection with the derivatives clearing organization's clearing and
settlement activities.
(b) Form and manner of maintaining information. (1) In general. The
records required to be maintained by this chapter shall be maintained
in accordance with the provisions of Sec. 1.31 of this chapter, for a
period of not less than 5 years, except as provided in paragraph (b)(2)
of this section.
(2) Exception for swap data. Each derivatives clearing organization
that clears swaps must maintain swap data in accordance with the
requirements of part 45 of this chapter.
15. Add Sec. 39.21 to read as follows:
Sec. 39.21 Public information.
(a) In general. Each derivatives clearing organization shall
provide to market participants sufficient information to enable the
market participants to identify and evaluate accurately the risks and
costs associated with using the services of the derivatives clearing
organization. In furtherance of this objective, each
[[Page 78197]]
derivatives clearing organization shall have clear and comprehensive
rules and procedures.
(b) Availability of information. Each derivatives clearing
organization shall make information concerning the rules and the
operating and default procedures governing the clearing and settlement
systems of the derivatives clearing organization available to market
participants.
(c) Public disclosure. Each derivatives clearing organization shall
disclose publicly and to the Commission information concerning:
(1) The terms and conditions of each contract, agreement, and
transaction cleared and settled by the derivatives clearing
organization;
(2) Each clearing and other fee that the derivatives clearing
organization charges its clearing members;
(3) The margin-setting methodology;
(4) The size and composition of the financial resource package
available in the event of a clearing member default;
(5) Daily settlement prices, volume, and open interest for each
contract, agreement, or transaction cleared or settled by the
derivatives clearing organization;
(6) The derivatives clearing organization's rules and procedures
for defaults in accordance with Sec. 39.16 of this part; and
(7) Any other matter that is relevant to participation in the
clearing and settlement activities of the derivatives clearing
organization.
(d) Publication of information. The derivatives clearing
organization shall make its rulebook, a list of all current clearing
members and the information listed in paragraph (c) of this section
readily available to the general public, in a timely manner, by posting
such information on the derivatives clearing organization's website,
unless otherwise permitted by the Commission. The information required
in paragraph (c)(5) of this section shall be made available to the
public no later than the business day following the day to which the
information pertains.
16. Add Sec. 39.22 to read as follows:
Sec. 39.22 Information sharing.
Each derivatives clearing organization shall enter into, and abide
by the terms of, each appropriate and applicable domestic and
international information-sharing agreement, and shall use relevant
information obtained from each such agreement in carrying out the risk
management program of the derivatives clearing organization.
Issued in Washington, DC, on December 1, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Appendices to Information Management Requirements for Derivatives
Clearing Organizations--Commission Voting Summary and Statements of
Commissioners
Note: The following appendices will not appear in the Code of
Federal Regulations
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 rulemaking concerning information
management, recordkeeping and reporting requirements for derivatives
clearing organizations. The requirements would enable the Commission
to conduct financial risk surveillance more efficiently and
effectively. Further, they would promote transparency to the
regulators, enhancing the Commission's ability to detect and resolve
potential concerns before they escalate into major problems. The
rule also fulfills Congress's direction that clearinghouses be
required to make settlement prices and open interest public in all
their contracts on a daily basis.
The proposed reporting rules apply uniform standards to all
DCOs, thereby helping to avoid inconsistency in DCO reporting. The
recordkeeping requirements are rooted in sound business practices,
and the public information requirements serve the public interest by
promoting transparency and disclosure. By codifying the information-
sharing core principle into the Commission's regulations, the
Commission would reaffirm its commitment to promoting cooperation
among industry participants in carrying out risk management
functions.
[FR Doc. 2010-31131 Filed 12-14-10; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: December 20, 2010