[Federal Register: February 14, 2008 (Volume 73, Number 31)]
[Rules and Regulations]
[Page 8599-8606]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14fe08-12]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 36 and 40
RIN 3038-AC39
Amendments Pertinent to Registered Entities and Exempt Commercial
Markets
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: The Commission is adopting final regulations that effectuate
the following amendments to the Commission's regulations. The
amendments delegate the Commission's authority to issue special calls
to exempt commercial markets to the Director of the Division of
Enforcement and that Director's designees. The amendments clarify the
process for listing, clearing, or implementing products or rules,
including dormant products and rules, and amend the definition of
emergency to clarify that persons other than persons comprising a
registered entity's full governing board may declare an emergency on
behalf of the governing board. The amendments also amend the approval
period for designated contract market rules that may change a material
term or condition of an enumerated agricultural futures or options
contract. Lastly, the amendments clarify how far in advance of
implementation registered entities must submit self-certified contracts
and rules to the Commission, and identify three additional categories
of rules that may be implemented without certification or Commission
approval.
EFFECTIVE DATE: February 14, 2008.
FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office
of the Director (telephone 202.418.5578, e-mail [email protected]),
Division of Market Oversight, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Commission published initial comprehensive final regulations
for trading facilities on August 10, 2001 \1\ to implement amendments
introduced to the Commodity Exchange Act (CEA or Act) by the Commodity
Futures Modernization Act of 2000 (CFMA).\2\ The final regulations
codified the procedural provisions common to exempt boards of trade and
exempt commercial markets (ECM) operating pursuant to sections 5d and
2(h)(3) through (5) of the Act, respectively, in part 36 of the
Commission's regulations. The final regulations also codified the
procedural provisions common to designated contract markets (DCM),
derivatives transaction execution facilities (DTEF), and derivatives
clearing organizations (DCO) in part 40 of the Commission's
regulations, and further established the regulatory framework necessary
to implement and interpret the provisions of the CEA, as amended by the
CFMA, pertinent to trading facilities.
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\1\ 66 FR 42256 (August 10, 2001).
\2\ Pub. L. 106-554, 114 Stat. 2763 (December 21, 2000).
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The Commission recently proposed additional amendments to parts 36
and 40 of the Commission's regulations that, based upon its experience
in administering the Act, will better implement certain provisions of
the Act and provide clearer direction as to the Commission's regulatory
requirements thereunder (August 2007 notice of proposed rulemaking).\3\
The Commission received two comment letters in response to the Federal
Register publication of the August 2007 notice of proposed rulemaking.
The material issues raised in each comment letter are addressed in the
following discussion of the final amendments.
II. Exempt Commercial Markets
ECMs are electronic trading facilities that offer a platform for
executing or trading principal-to-principal transactions involving
exempt commodities solely between persons that are eligible commercial
entities (ECM transactions).\4\ ECM transactions, pursuant to section
2(h)(3) of the Act, as amended by the CFMA, are subject to a qualified
exemption from the Act that reserves the applicability of the Act's
fraud and manipulation provisions as well as the Commission's
regulations thereunder to such contracts.\5\ In accord with this
reservation of applicability, the CEA specifically authorizes the
Commission's issuance of special calls for information to ECMs in order
to, among other things, enforce the Act's antifraud and
antimanipulation provisions.\6\
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\3\ 17 CFR parts 36 and 40, Amendments Pertinent to Registered
Entities and Exempt Commercial Markets, 72 FR 45185 (August 13,
2007).
\4\ 7 U.S.C. 2(h)(3).
\5\ 7 U.S.C. 2(h)(4).
\6\ 7 U.S.C. 2(h)(5)(B)(iii).
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In July 2004, the Commission amended regulation 36.3(b), which
governs the Commission's access to ECM transaction data, to improve the
quality of accessible information relevant to its antifraud and
antimanipulation authority.\7\ In that rulemaking, the Commission
stated that aberrant price behavior on ECMs may require further
Commission investigation and the eventual use of special calls to
identify wrongful conduct.\8\ The authority to issue special calls to
ECMs currently is delegated only to the Directors of the Division of
Market Oversight (DMO) and the Division of Clearing and Intermediary
Oversight (DCIO) or their designees.\9\ Given that the Division of
Enforcement is directly charged with the responsibility to enforce the
provisions of the Act that apply to ECMs, and the importance of the
authority to issue special calls to the Commission's ability to enforce
its reserved antifraud and antimanipulation authority, the Commission
is amending, as proposed, regulation 36.3 to expand the set of persons
with delegated authority to issue ECM special calls to include the
Director of the Division of Enforcement or that Director's designees.
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\7\ 69 FR 43285 (July 20, 2004).
\8\ Id. at 43289.
\9\ The persons to whom the authority to issue special calls may
be designated is not restricted by regulation. Nonetheless, pursuant
to Commission practice, the persons who have been so designated by
the Division Directors of DMO and DCIO have been limited to Deputy
Directors, Associate Directors, Branch Chiefs and Chief Counsels of
those Divisions.
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In its comment letter submitted in response to the Commission's
publication of the August 2007 notice of proposed rulemaking, the
IntercontinentalExchange, Inc. (ICE), a Delaware corporation that,
among other things, operates an ECM that predominantly lists energy
commodities derivative contracts, emphasized that information subject
to special calls may include confidential details of transactions that
often reflect the proprietary trading activities of market
participants.\10\ Citing its prior experience providing information to
the Division of Enforcement and the potential sensitive nature of the
information that may be submitted, ICE requested that the exercise of
ECM special call authority, by regulation, be restricted to certain
senior Enforcement staff, or in the alternative, be subject to
consideration and review by a restricted group of senior Enforcement
staff. ICE argued that such restrictions would develop channels of
communication between ECMs and staff from the Division of Enforcement
that would be
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particularly familiar with the type and working value of callable
information. According to ICE, these procedural restrictions would
facilitate the timely and efficient production of information by, for
example, reducing the time spent on specifying the scope of particular
productions.
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\10\ Letter from Johnathan H. Short, Senior Vice President and
General Counsel, ICE, to the Commission's Office of the Secretariat
(September 12, 2007) (on file with the Commission), available at
http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov/stellent/groups/public/@lrfederalregister/documents/frcomment/07-010c001.pdf.
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The CEA specifically recognizes the value and sensitive nature of
transaction data and expressly prohibits, with limited exceptions, the
Commission's public disclosure of ``information that would separately
disclose the business transactions or market positions of any person *
* *'' \11\ The Commission appreciates and will remain aware of the
concerns raised by ICE. The Commission, however, will not adopt ICE's
recommendation that special call authority be restricted by regulation
because adequate controls are in place to ensure the effective and
proper use of delegated authority.
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\11\ 7 U.S.C. 12(a)(1).
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The issuance of an ECM special call by Enforcement staff will be an
agency action undertaken pursuant to delegated authority to act on
behalf of the Commission. The exercise of the authority to issue or
assign the authority to issue special calls under Commission regulation
36.3 will be the product of deliberation and substantial internal
process and will involve the participation of the Division Director
prior to the issuance of a special call. Pursuant to Commission
practice with respect to the other divisions, Division of Enforcement
staff that would be designated by the Director to exercise special
calls should be limited to the Division's Deputy Directors, Associate
Directors and Chief Counsel. Restricting, by regulation, the Division
of Enforcement's authority to issue ECM special calls to certain senior
Enforcement staff, or in the alternative, requiring that issuances be
subject to consideration and review by a restricted group of senior
Enforcement staff, in the judgment of the Commission, will not
substantially facilitate the efficiencies referenced by ICE.
Accordingly, the Commission is amending Commission regulation 36.3, as
proposed, to expand the set of persons with delegated authority to
issue ECM special calls to include the Director of the Division of
Enforcement or that Director's designees.
III. Amendments to Part 40 of the Commission's Regulations
A. Self-Certification, Approval, and Dormancy
The Commission applies the procedural requirements for listing,
clearing or implementing initial submissions of contracts and rules
(including rule amendments) to dormant contracts and rules, and with
certain exceptions, requires DCMs and DCOs to certify or submit for
Commission approval all products and rules prior to listing or
implementation.\12\ Part 40 of the Commission's regulations, however,
currently does not clearly indicate that the procedural requirements
for listing, clearing or implementing dormant contracts and rules are
identical to the requirements established for initial submissions of
contracts and rules that have never been certified with, or approved
by, the Commission.\13\ Furthermore, the current product and rule
filing provisions of part 40 do not clearly indicate that DCMs and
DCOs, in general, must choose either to comply with the approval
process established in part 40, or in the alternative, the
certification process established in part 40, prior to listing,
clearing, or implementing any product or rule, including any product or
rule that has become dormant.\14\
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\12\ The Commission defines a dormant contract as a contract or
product without open interest that, after the expiration of a
thirty-six month development period following initial certification
or approval, has not traded in the preceding twelve consecutive
calendar months. 17 CFR 40.1(b). The Commission defines a dormant
rule as a rule that has remained unimplemented for twelve
consecutive calendar months following the rule's initial
certification with, or approval by, the Commission. 17 CFR 40.1(f).
\13\ This alignment of procedural requirements is based, in
part, on the premise that certain contracts and rules, which have
remained inactive or unimplemented for a significant period of time,
may contain terms that are no longer consistent with the
Commission's regulations or prevailing market conditions. 67 FR
62783, 62784 (October 9, 2002).
\14\ The Commission's regulations do not require a DTEF to
either certify or submit for Commission approval a product or rule
prior to listing or implementation. However, a DTEF, which is
generally subject to notice filing requirements, may choose to self-
certify products or rules or submit them for Commission approval
pursuant to the procedures established in part 40 of the
Commission's regulations. See 17 CFR 37.7.
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The Commission is herein adopting several amendments to address
these matters. The Commission is amending regulations 40.2(a), 40.3(a),
40.4(a), 40.5(a) and 40.6(a) to clarify that the procedural
requirements for listing, clearing or implementing dormant contracts
and rules are identical to the requirements established for submissions
of contracts and rules (including rule amendments) that have never been
certified with, or approved by, the Commission. The Commission is also
amending the above referenced regulations to clarify that a DCM or DCO
in general must choose either to list, clear, or implement a product or
rule, including any dormant product or rule, pursuant to the self-
certification provisions of part 40 or, in the alternative, pursuant to
the process established in part 40 for receiving the Commission's prior
approval.\15\
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\15\ Registered entities may voluntarily seek the Commission's
approval for products, rules, and rule amendments. DCM rules that
will materially change a term or condition of a contract with open
interest that is based on an agricultural commodity enumerated in
section 1a(4) of the Act, however, must be approved by the
Commission prior to implementation. 7 U.S.C. 7a-2(c)(2)(B).
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B. Dormant Registered Entities, Contracts, and Rules
The Commission has applied the concept of dormancy to registered
entities by defining a dormant market or clearing organization as a
registered entity that has been designated by, or registered with, the
Commission for a period of thirty-six months or more but has not served
as a facility for the trading or clearing of transactions for a period
of twelve consecutive calendar months.\16\ The Commission recognizes
that a significant period of inactivity can potentially have a negative
impact on a registered entity's ability to implement rules and list and
clear contracts in a manner that remains consistent with current market
conditions, the Commission's regulations, and self-regulatory best
practices.\17\ Accordingly, the Commission has deemed that upon a
registered entity becoming dormant, its rules and contracts also become
dormant.\18\
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\16\ See 17 CFR 40.1.
\17\ See 47 FR 29515 (July 7, 1982).
\18\ See 71 FR 1953, 1960 (January 12, 2006).
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In contrast to this view, the current language of the Commission's
regulations implies that the earliest possible time that a rule can
become dormant, regardless of whether a registered entity has entered
into dormancy, is at the end of a twelve month rule implementation
period.\19\ Similarly, the current language of the Commission's
regulations implies that the earliest possible time that a contract can
become dormant, regardless of whether a registered entity has entered
into dormancy and absent affirmative
[[Page 8601]]
action on the part of the registered entity, is at the end of a thirty-
six month contract development period. The Commission therefore is
revising the definition of a dormant product or contract, dormant rule,
and dormant DCM, DTEF, and DCO in Commission regulation 40.1 to clearly
establish that the dormancy of a registered entity will automatically
and separately trigger the dormancy of that entity's contracts and
rules.\20\
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\19\ The term ``rule'' is defined to include any registered
entity (DCM, DTEF, or DCO) ``* * * rule, regulation, resolution,
interpretation, stated policy, term and condition * * * in whatever
form adopted, and any amendment or addition thereto or repeal
thereof * * *'' 17 CFR 40.1(h).
\20\ The final amendments also clarify that only registered DCOs
can be dormant.
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C. Definition of Emergency
The Commission's regulations give registered entities the ability
to implement emergency rules in response to market disruptions without
certifying or receiving the Commission's approval prior to
implementation.\21\ The current definition of emergency implies that
the full governing board of a registered entity must determine whether
particular developments constitute an emergency before the registered
entity may operate under emergency procedures.\22\ The Commission, in
its August 2007 notice of proposed rulemaking, proposed to amend the
definition of emergency in regulation 40.1(g) to clarify that certain
persons other than persons that comprise a registered entity's full
governing board may properly issue an emergency determination on behalf
of the governing board. The proposed revision was precipitated by a New
York Mercantile Exchange (NYMEX) comment letter (submitted in response
to the publication of a procedurally unrelated notice of proposed
rulemaking) that suggested that the full governing board of an
exchange, under emergency conditions, may not be able to issue a
determination in a timely manner to address emergency conditions.\23\
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\21\ See 17 CFR 40.6(a)(2).
\22\ See 17 CFR 40.1(g).
\23\ See letter from James A. Newsome, President, NYMEX, to Jean
A. Webb, Secretary of the Commission (September 26, 2005) (on file
with the Commission), available at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov/foia/comment05/foi05-004_1page2.htm.
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The Commission received one comment in response to its proposal to
amend the definition of emergency. In its comment letter, the CME Group
Inc., a DCM formed by the 2007 merger of the Chicago Mercantile
Exchange Inc. and the Board of Trade of the City of Chicago, expressed
its support for the proposed clarification.\24\ CME Group based its
support on the premise that an authorized committee or an exchange
official may be better able to respond in the first instance to market
disruptions that may quickly evolve into emergencies.
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\24\ See letter from Craig S. Donohue, Chief Executive Officer,
CME Group, to David A. Stawick, Secretary of the Commission
(September 12, 2007) (on file with the Commission), available at
http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov/stellent/groups/public/@lrfederalregister/documents/frcomment/07-010c002.pdf.
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The Commission agrees with CME Group and NYMEX, and pursuant to a
broader interpretation of the definition of emergency, has previously
approved registered entity rules that delegate the authority to make an
emergency determination to persons other than persons that comprise the
full governing board. Accordingly, the Commission herein revises the
definition of emergency in regulation 40.1(g) to clarify that duly
authorized persons may determine whether a particular occurrence or
circumstance is an emergency that ``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 * * *'' \25\ The final amendments to the
definition of emergency require, as proposed, that the authorization to
act on behalf of the governing board be derived from registered entity
rules that specify in detail: (1) The persons authorized to issue an
emergency opinion on behalf of the governing board; and (2) the
procedures for the exercise of such authority.\26\
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\25\ 17 CFR 40.1(g).
\26\ The Commission is further adopting, as proposed, amendments
to the definition of emergency in Commission regulation 40.1(g) to
clarify the definition's applicability to all registered entities,
including DCOs.
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D. Commission Review and Approval of Registered Entity Rules
In contrast to other registered entity rules that may be
implemented pursuant to the self-certification process established in
part 40, DCM rules that, as determined by the Commission, materially
change a term or condition of a contract with open interest that is
based on an agricultural commodity enumerated in section 1a(4) of the
Act must be approved by the Commission prior to implementation.\27\
Since a finding of materiality is by statute at the reasonable
discretion of the Commission, part 40 currently affords DCMs the
opportunity to request a materiality opinion from the Commission for
rules that a submitting DCM characterizes as non-material. Upon
request, the Commission will determine whether a DCM rule submitted
under regulation 40.4(b)(9) at least ten business days prior to
implementation is material within the meaning of section 5c(c) of the
Act.\28\
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\27\ 7 U.S.C. 7a-2(c).
\28\ Id.
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DCMs often simultaneously request that agricultural rule changes be
reviewed for materiality, and if found to be material, approved by the
Commission. Commission regulation 40.5 does not specify when the
approval period commences with respect to rules submitted for
materiality review under the process framed by Commission regulation
40.4(b)(9).\29\ To establish certainty, the Commission is amending
regulation 40.5 to commence the rule approval period at the conclusion
of the 10-day materiality review period under regulation 40.4(b)(9). As
stated in the August 2007 notice of proposed rulemaking, the
commencement of the approval period at this point is appropriate
because determining a rule's consistency with the Act and the
Commission's regulations thereunder requires an analysis that is
qualitatively different from the analysis required to determine the
materiality of the same rule within the meaning of section 5c(c) of the
Act.\30\
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\29\ See 17 CFR 40.4(b) and 40.5(b).
\30\ August 2007 notice of proposed rulemaking, at 45187.
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E. Listing of Products and the Implementation of Registered Entity
Rules
1. The Timing of Submissions
The Commission understands that there may be some confusion as to
how far in advance of implementation registered entities must submit
self-certified products and rules to the Commission. Commission
regulations 40.2(a) and 40.6(a) provide that such submissions must be
filed electronically with the Commission at or before the close of
business on the business day preceding implementation. Questions have
arisen as to whether these provisions refer to the Commission's
business day or the business day of the submitting registered entity.
The Commission is adopting regulations to clarify that the
specified date is the Commission's business day. For clarity and in
order to ensure proper notice of certified products and rules, the
Commission is defining business day in part 40 and adding language to
Commission regulations 40.2(a) and 40.6(a) to expressly require the
filing of certified submissions with the Commission at least one full
Commission business day prior to
[[Page 8602]]
implementation.\31\ In addition, to ensure that the appropriate
operating divisions of the Commission have the ability to access
electronic copies of submissions at the time of filing, the Commission
is amending the mandatory recipients of electronic submissions filed
under regulations 40.2(a)(1) and 40.6(a)(2) to include the Secretary of
the Commission at [email protected], the relevant branch chief at
the regional office having local jurisdiction over the registered
entity, and, for filings submitted by a designated contract market or
registered derivatives transaction execution facility, DMO at
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\31\ These amendments are consistent with other Commission
regulations that exclude the day on which a notice is given or an
event occurs in computing time periods that begin upon the
occurrence of that notice or event. See 17 CFR 1.3(b) and 10.5.
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2. Implementing Registered Entity Rules Without Certification
a. Additional Rule Categories
The Commission's regulations generally permit a registered entity
to implement a new or dormant rule without seeking prior Commission
approval by certifying to the Commission that the rule complies with
the Act and the Commission's regulations thereunder on the business day
preceding implementation.\32\ Registered entities, however, are not
required to file certified submissions prior to implementing several
categories of registered entity rules that are enumerated in Commission
regulation 40.6(c)(2).\33\ Registered entity rules that come within
these categories typically are limited in scope and are implemented
under enabling rules that have already been approved by, or certified
with, the Commission. In order to lessen the burden placed on
registered entities as well as better utilize Commission resources, the
Commission is codifying several additional categories of registered
entity rules that may be implemented without prior certification or
Commission approval if subsequently included in a weekly notification
of rule changes under regulation 40.6(c)(2). The categories of rules
enumerated in Commission regulation 40.6(c)(2) are amended to include:
(1) The initial listing of trading months that are consistent with
previously approved or certified standards; (2) changes in lists of
producers' brands or markings that are made pursuant to previously
approved or certified standards or criteria relating to quality
specifications; and (3) for existing delivery locations, changes in
lists of approved delivery facilities and delivery service providers
that are made pursuant to previously approved or certified standards or
criteria.\34\
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\32\ See 17 CFR 40.6(a).
\33\ 17 CFR 40.6(c)(2).
\34\ Commission regulation 40.4(b)(2) identifies rules that are
changes in lists of approved delivery facilities as immaterial. In
conformance with the amendments to Commission regulation 40.6(c)(2),
the Commission is amending regulation 40.4(b)(2) to identify rules
that are changes to lists of approved delivery service providers as
immaterial.
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A registered entity's ability to notice file changes that relate to
trading months under amended regulation 40.6(c)(2) only extends to
trading months within currently established cycles of trading months
and does not extend to the delisting or relisting of trading months. By
way of example, assume that the currently established cycle of trading
months for a particular contract is December, March, May, July and
September. Under the final amendments, the listing of a new trading
month, such as November, would not qualify for notice filing under
regulation 40.6(c) while an earlier than anticipated (or delayed)
listing of a July contract could properly be notice filed.\35\ With
respect to producer's brands or markings and delivery facilities and
service providers, the Commission reviews the relevant enabling
standards and criteria to ensure their consistency with cash market
practices and to ensure that their terms do not unreasonably restrain
trade by inappropriately prohibiting the open participation of certain
producers, facilities or service providers.\36\ The identification of
producers' brands and enumerated delivery facilities and service
providers at an existing delivery location does not alter certified or
Commission approved qualifying standards or criteria, nor does it
change exchange procedures that verify compliance with those standards
or criteria. The final regulations will therefore require that the
Commission be kept apprised of changes in lists of approved producers'
brands or markings, changes in lists of delivery location delivery
facilities and service providers, and the initial listing of trading
months that are consistent with previously certified or approved
standards through weekly notices of rule changes filed under regulation
40.6(c)(2) as opposed to requiring that such changes be certified with
or approved by the Commission prior to implementation.\37\
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\35\ The language of the final regulations for delivery months
is different from the language that was proposed by the Commission
in its August 2007 notice of proposed rulemaking. The final
regulations discard redundant references to open interest and the
delisting and relisting of trading months. The substantive effect of
the final regulations, that is, allowing the initial listing of
trading months (trading months that cannot have open interest or be
delisted or relisted trading months) within the currently
established cycle of trading months without prior certification or
Commission approval, is equivalent to the substantive effect of the
regulations and amendments proposed in the August 2007 notice of
proposed rulemaking. See August 2007 notice of proposed rulemaking,
at 45187 to 45188.
\36\ See 17 CFR part 40, Appendix A (Application for Designation
of Physical Delivery Futures Contracts).
\37\ Registered entities must be able to cite clearly
identifiable registered entity rules that establish the applicable
enabling standards and criteria in any such submission made under
Commission regulation 40.6(c)(2).
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b. Implementing Rules Without Notification
Rule changes that may appear in a weekly notification pursuant to
Commission regulation 40.6(c)(2)(iv) also include ``[c]hanges to option
contract rules relating to the strike price listing procedures, strike
price intervals, and the listing of strike prices on a discretionary
basis.'' \38\ The Commission currently receives substantially the same
information under part 16 of the Commission's regulations, which
specifies the daily reporting requirements that apply to DCMs.\39\ In
particular, regulation 16.01(b) stipulates that each reporting market
must submit to the Commission on a daily basis various trade data,
including trade volume, open interest and price information for all
listed option strike prices, including discretionary prices.\40\
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\38\ 17 CFR 40.6(c)(iv).
\39\ See 17 CFR part 16.
\40\ 17 CFR 16.01(b).
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In January 2006, DMO staff granted no-action relief to permit DCMs
to satisfy the regulation 40.6(c)(2)(iv) notification requirement by
complying with the daily reporting requirements of regulation 16.01 of
the Commission's regulations.\41\ In order to codify the no-action
relief granted by DMO and avoid duplicative regulatory requirements,
the Commission is amending regulation 40.6(c)(2)(iv) and adding
paragraph (G) to regulation 40.6(c)(3)(ii) to allow registered entities
that are in compliance with regulation 16.01(b) to implement the
specified changes relating to option contract strike prices without
either prior approval, certification or inclusion in a weekly
notification to the Commission.\42\
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\41\ See CFTC Staff Letter 06-01 (January 9, 2006).
\42\ In July of 2006, the Commission adopted final rules to
permit the trading of futures contracts based on corporate debt
securities. 71 FR 39541 (July 13, 2006) (Debt Futures Release). The
Commission herein adopts, as proposed, a technical amendment that
conforms regulation 40.6(c)(2)(iii) to the adoption of the Debt
Futures Release by replacing that regulation's reference to stock
indexes with a reference to securities indexes, a general term that
includes both equity and debt securities. Final Commission
regulation 40.6(c)(2)(iii) also includes a reference to regulation
40.6(c)(3)(ii)(F) to alert registered entities that certain rule
changes relating to securities indexes may be implemented pursuant
to notification or without such notice if implemented under
regulation 40.6(c)(3).
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[[Page 8603]]
The Commission is making a similar amendment for registered entity
rules denoting changes to contract trading months within currently
established cycles of trading months that may be implemented pursuant
to a regulation 40.6(c)(2) notification filing.\43\ As with rules that
are changes to option contract strike prices, the Commission currently
receives adequate notification of the same information under regulation
16.01(a). In order to avoid duplicative regulatory requirements, the
Commission is adding paragraph (H) to regulation 40.6(c)(3)(ii) to
provide that registered entities that are in compliance with regulation
16.01(a) may effect the initial listing of contract trading months
within the currently established cycle of trading months without prior
approval, certification or inclusion in a weekly notification to the
Commission.\44\
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\43\ The Commission is amending the heading of regulation 40.6,
and that provision's references to DCMs and DCOs, to clarify its
potential applicability to all registered entities, including DTEFs.
\44\ In its comment letter, CME Group stated that permitting
DCMs that comply with the reporting requirements of Commission
regulations 16.01(a) and (b) to implement changes in the listing of
trading months within currently established cycles of trading months
and changes to certain option contract rules relating to strike
prices, without certification or prior Commission approval, will
avoid duplicative requirements and will facilitate the efficient use
of Commission resources.
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V. Related Matters
A. Cost Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its actions before issuing new regulations under
the Act. Section 15(a) does not require the Commission to quantify the
costs and benefits of new regulations or to determine whether the
benefits of adopted regulations outweigh their costs. Rather, section
15(a) requires the Commission to consider the cost and benefits of the
subject regulations. Section 15(a) further specifies that the costs and
benefits of the regulations 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 of concern and may, in
its discretion, determine that, notwithstanding its costs, a particular
regulation is necessary or appropriate to protect the public interest
or to effectuate any of the provisions or to accomplish any of the
purposes of the Act.
The final regulations expand the set of persons delegated by the
Commission with the authority to issue ECM special calls to include the
Director of the Division of Enforcement and that Director's designees.
The final regulations do not expand the basis for issuing ECM special
calls; rather, they simply expand the set of persons authorized to
issue such special calls. There are no regulatory costs imposed by this
extension of delegated special call authority.
The final regulations clarify that a DCM or DCO must generally
choose either to comply with the rule approval process established in
part 40 of the Commission's regulations or, in the alternative, the
certification process established in part 40, prior to listing or
clearing any product, or implementing any rule, including any product
or rule that has become dormant. The final regulations also clearly
establish that the dormancy of a registered entity will automatically
and separately trigger the dormancy of that entity's contracts and
rules. These clarifications are consistent with current Commission
practice, do not impose any regulatory cost, and serve the public
interest by facilitating regulatory certainty for persons subject to
the Act and the Commission's regulations thereunder.
The final regulations clarify that the definition of emergency
allows persons other than persons comprising the full governing board
of a registered entity to declare an emergency on behalf of the
governing board. The final regulations expressly recognize that the
full governing board of an exchange under emergency conditions may not
be able to issue an opinion in a timely manner to address an emergency.
Accordingly, the Commission's final definition of emergency in part 40
clearly permits duly authorized persons to determine whether a
particular occurrence or circumstance is an emergency. The final
regulations facilitate the ability of registered entities to undertake
timely action in response to emergency events and thereby better
protect market participants and the financial integrity of transactions
executed and cleared on registered entities. The final regulations also
limit the potential costs that may arise from any misuse of authority
by requiring registered entities to adopt detailed procedural rules to
effectuate the exercise of this delegated authority.
The final regulations clearly set forth the duration of the rule
approval period for DCM rules that may change a material term or
condition of a contract based on the agricultural commodities
enumerated in section 1a(4) of the Act by commencing the rule approval
period at the conclusion of the 10-day materiality review period under
Commission regulation 40.4(b)(9). Commencing the approval period at
this point gives the Commission time to effectively discharge its
separate regulatory responsibilities to review registered entity rule
changes for their impact on contracts with open interest and to
determine whether such changes are consistent with the Act and the
Commission's regulations thereunder. The amended review period is
consistent with current Commission regulatory practice and should not
place any additional cost or burden on submitting DCMs.
The final regulations address how far in advance of implementation
registered entities must submit self-certified contracts and rules to
the Commission pursuant to regulations 40.2(a) and 40.6(a) by
clarifying that the date specified in those regulations refers to the
Commission's business day. The final regulations ensure that there is
at least one full Commission business day between the submission of a
certified product or rule and such product or rule's listing or
implementation. The final regulations provide regulatory clarity and
impose no additional cost or burden.
The final regulations lessen the burden placed on registered
entities as well as better utilize Commission resources by codifying
several additional rule categories that may be implemented without
prior certification or Commission approval if noticed to the Commission
through other required filings or disclosure requirements or
subsequently included in a weekly notification of rule changes to the
Commission under regulation 40.6(c)(2). The final regulations add lists
of approved producers' brands or markings, changes in lists of approved
delivery facilities and delivery service providers, certain changes in
contract trading months, and certain specified changes to option
contract strike prices to the categories of rules may be implemented
without prior certification or Commission approval, or as applicable,
notification. Registered entity rules that come within these categories
typically are limited in scope
[[Page 8604]]
and are implemented under enabling rules that have already been
certified with, or approved by, the Commission. Permitting their
implementation without certification or approval, or as applicable,
notification, avoids unnecessary or duplicative regulatory requirements
and better utilizes the Commission's resources.
The Commission's August 2007 notice of proposed rulemaking analyzed
the aforementioned costs and benefits. No relevant comments were
received with respect to the Commission's analysis. After considering
these factors, the Commission has determined to amend parts 36 and 40
of the Commission's regulations as set forth below.
B. The Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires that agencies consider the impact of their regulations on
small businesses. The requirements related to the final amendments fall
mainly on registered entities. The Commission has previously determined
that registered entities are not ``small entities'' for the purposes of
the RFA.\45\ In addition, these final regulations, collectively, tend
to relieve regulatory burdens. Accordingly, the Chairman, on behalf of
the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that the
actions to be taken herein will not have a significant economic impact
on a substantial number of small entities.
---------------------------------------------------------------------------
\45\ See 47 FR 18618 (April 30, 1982).
---------------------------------------------------------------------------
C. Paperwork Reduction Act
When publicizing final regulations, the Paperwork Reduction Act
(PRA) of 1995 (44 U.S.C. 3501 et seq.) imposes certain requirements on
Federal agencies (including the Commission) in connection with their
conducting or sponsoring any collection of information as defined by
the PRA. The information collection requirements associated with the
final regulations are administered under Office of Management and
Budget control numbers 3038-0022 and 3038-0054. These final amendments
to parts 36 and 40 of the Commission's regulations would not impose any
new or additional recordkeeping or information collection requirement
that would require the approval of the Office of Management and Budget
under 44 U.S.C. 3501, et seq.
List of Subjects
17 CFR Part 36
Commodity futures.
17 CFR Part 40
Commodity futures, Reporting and recordkeeping requirements.
0
In consideration of the foregoing, and pursuant to the authority
contained in the Act, and, in particular, sections 2, 4, 5, 5a, 5b, 5c,
5d and 8a of the Act, the Commission hereby amends Chapter I of Title
17 of the Code of Federal Regulations as follows:
PART 36--EXEMPT MARKETS
0
1. The authority citation for part 36 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6, 6c, and 12a, as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Public
Law 106-554, 114 Stat. 2763 (2000).
0
2. In Sec. 36.3, revise paragraphs (b)(3)(ii) to read as follows:
Sec. 36.3 Exempt commercial markets.
* * * * *
(b) * * *
(3) * * *
(ii) The Commission hereby delegates, until the Commission orders
otherwise, the authority to make special calls as set forth in Section
2(h)(5)(B)(iii) of the Act to the Directors of the Divisions of Market
Oversight, the Division of Clearing and Intermediary Oversight, and the
Division of Enforcement to be exercised by each such Director or by
such other employee or employees as the Director may designate. The
Directors may submit to the Commission for its consideration any matter
that has been delegated in this paragraph. Nothing in this paragraph
prohibits the Commission, at its election, from exercising the
authority delegated in this paragraph.
* * * * *
PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES
TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING
ORGANIZATIONS
0
3. The authority citation for part 40 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 8 and 12a, as
amended by appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.
0
4. In Sec. 40.1, revise paragraph (a) through (g) to read as follows:
Sec. 40.1 Definitions.
* * * * *
(a) Business day means the intraday period of time starting at the
business hour of 8:15 a.m. and ending at the business hour of 4:45
p.m.; business hour means any hour between 8:15 a.m. and 4:45 p.m.,
Eastern Standard Time or Eastern Daylight Savings Time, whichever is
currently in effect in Washington, DC, on all days except Saturdays,
Sundays and federal holidays in Washington, DC.
(b) Dormant contract or dormant product means:
(1) Any agreement, contract, transaction, or instrument, or any
commodity futures or option contract with respect to all future or
option expiries that has no open interest and in which no trading has
occurred for a period of twelve complete calendar months following a
certification with, or approval by, the Commission; provided, however,
that no contract or instrument under this paragraph (b)(1) initially
and originally certified with, or approved by, the Commission within
the preceding 36 complete calendar months shall be considered to be
dormant; or
(2) Any commodity futures or option contract or other agreement,
contract, transaction or instrument of a dormant registered entity; or
(3) Any commodity futures or option contract or other agreement,
contract, transaction or instrument not otherwise dormant that a
registered entity self-declares through certification to be dormant.
(c) Dormant designated contract market means any designated
contract market on which no trading has occurred for a period of twelve
complete calendar months; provided, however, no designated contract
market shall be considered to be dormant if its initial and original
Commission order of designation was issued within the preceding 36
complete calendar months.
(d) Dormant derivatives clearing organization means any derivatives
clearing organization registered pursuant to Section 5b of the Act that
has not accepted for clearing any agreement, contract or transaction
that is required or permitted to be cleared by a derivatives clearing
organization under Sections 5b(a) and 5b(b) of the Act, respectively,
for a period of twelve complete calendar months; provided, however, no
derivatives clearing organization shall be considered to be dormant if
its initial and original Commission order of registration was issued
within the preceding 36 complete calendar months.
(e) Dormant derivatives transaction execution facility means any
derivatives transaction execution facility on which no trading has
occurred for a period of twelve complete calendar months; provided,
however, no derivatives transaction execution facility shall be
considered to be dormant if its initial and original Commission order
of
[[Page 8605]]
designation was issued within the preceding 36 complete calendar
months.
(f) Dormant rule means:
(1) Any registered entity rule which remains unimplemented for
twelve complete calendar months following a certification with, or an
approval by, the Commission; or
(2) Any rule or rule amendment of a dormant registered entity.
(g) Emergency means 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.
* * * * *
0
5. In Sec. 40.2, revise the heading and paragraphs (a) introductory
text, (a)(1) and (a)(2) to read as follows:
Sec. 40.2 Listing and accepting products for trading or clearing by
certification.
(a) Unless permitted otherwise by Sec. 37.7 of this chapter, a
designated contract market or a registered derivatives transaction
execution facility must comply with the submission requirements of this
section prior to listing a product for trading that has not been
approved under Sec. 40.3 of this chapter or that remains dormant
subsequent to being submitted under this section or approved under
Sec. 40.3 of this chapter. A registered derivatives clearing
organization must comply with the submission requirements of this
section prior to accepting for clearing a product that is not traded on
a registered entity and has not been approved for clearing under Sec.
40.5 of this chapter or that remains dormant subsequent to being
submitted under this section or approved under Sec. 40.5 of this
chapter. A submission shall comply with the following conditions:
(1) The registered entity has filed its submission electronically
in a format specified by the Secretary of the Commission with the
Secretary of the Commission at [email protected], the relevant
branch chief at the regional office having local jurisdiction over the
registered entity, and, for filings submitted by a designated contract
market or registered derivatives transaction execution facility, the
Division of Market Oversight at [email protected];
(2) The Commission has received the submission at its headquarters
by the open of business on the business day preceding the product's
listing or acceptance for clearing; and
* * * * *
0
6. In Sec. 40.3, revise paragraph (a) introductory text to read as
follows:
Sec. 40.3 Voluntary submission of new products for Commission review
and approval.
(a) Request for approval. Pursuant to Section 5c(c) of the Act and
Sec. Sec. 37.7 and 38.4 of this chapter, a designated contract market
or registered derivatives transaction execution facility may request
that the Commission approve a new or dormant product prior to listing
the product for trading, or if initially submitted under Sec. 40.2 of
this chapter, subsequent to listing the product for trading. A
submission requesting approval shall:
* * * * *
0
7. In Sec. 40.4, revise paragraph (a) and (b)(2) to read as follows:
Sec. 40.4 Amendments to terms or conditions of enumerated
agricultural contracts.
(a) Notwithstanding the provisions of this part, a designated
contract market must submit for Commission approval under the
procedures of Sec. 40.5, prior to its implementation, any rule or
dormant rule that, for a delivery month having open interest, would
materially change a term or condition, as defined in Sec. 40.1(i), of
a contract for future delivery in an agricultural commodity enumerated
in Section 1a(4) of the Act, or of an option on such a contract or
commodity.
* * * * *
(b) * * *
(2) For each delivery location, changes in lists of approved
delivery facilities and delivery service providers, including
weighmasters and inspectors, pursuant to previously set standards or
criteria;
* * * * *
0
8. In Sec. 40.5, revise paragraphs (a) introductory text and (c)
introductory text to read as follows:
Sec. 40.5 Voluntary submission of rules for Commission review and
approval.
(a) Request for approval of rules. Pursuant to Section 5c(c) of the
Act and Sec. Sec. 37.7, 38.4 and 39.4 of this chapter, a registered
entity may request that the Commission approve a new or dormant rule
prior to implementation, or if initially submitted under Sec. Sec.
40.2 or 40.6 of this chapter, subsequent to implementation. A
submission requesting approval shall:
* * * * *
(c) Commencement and extension of time for review. The Commission
shall commence the review period in paragraph (b) of this section for a
compliant submission under Sec. 40.4(b)(9) ten business days after its
receipt and further may extend the review period in paragraph (b) of
this section for any approval request for:
* * * * *
0
9. Amend Sec. 40.6 as follows:
A. Remove the term ``designated contract market or registered
derivatives clearing organization'' and add in its place the term
``registered entity'' in paragraphs (a)(2), (c)(1), and (c)(3)(i);
B. Remove the term ``designated contract market or a registered
derivatives clearing organization'' and add in its place the term
``registered entity'' in paragraph (c) introductory text;
C. Remove the term ``designated contract markets and registered
derivatives clearing organizations'' and add in its place the term
``registered entities'' in paragraph (c)(3) introductory text;
D. Remove the term ``contract market or a derivatives clearing
organization's'' and add in its place the term ``registered entity'' in
paragraph (c)(3)(ii)(B); and
E. In addition, revise the heading and paragraphs (a) introductory
text, (a)(2), (c)(2)(iii), and (c)(2)(iv), and add paragraphs
(c)(2)(vii) through (c)(2)(ix), (c)(3)(ii)(G) and (c)(3)(ii)(H) to read
as follows:
Sec. 40.6 Self-certification of rules.
(a) Required certification. Unless permitted otherwise by Sec.
37.7 of this chapter, a registered entity must comply with the
following conditions prior to the implementation of any rule that has
not obtained Commission approval under Sec. 40.5 of this chapter or
that remains dormant subsequent to being
[[Page 8606]]
submitted under this section or approved under Sec. 40.5 of this
chapter:
(1) * * *
(2) The registered entity has filed its submission electronically
in a format specified by the Secretary of the Commission with the
Secretary of the Commission at [email protected], the relevant
branch chief at the regional office having local jurisdiction over the
registered entity, and, for filings submitted by a designated contract
market or registered derivatives transaction execution facility, the
Division of Market Oversight at [email protected], and the
Commission has received the submission at its headquarters by the open
of business on the business day preceding implementation of the rule;
provided, however, rules or rule amendments implemented under
procedures of the governing board to respond to an emergency as defined
in Sec. 40.1, shall, if practicable, be filed with the Commission
prior to the implementation or, if not practicable, be filed with the
Commission at the earliest possible time after implementation, but in
no event more than twenty-four hours after implementation; and
* * * * *
(c) * * *
(2) * * *
(iii) Index products. Routine changes in the composition,
computation, or method of selection of component entities of an index
(other than routine changes to securities indexes to the extent that
such changes are not described in paragraph (c)(3)(ii)(F) of this
section) referenced and defined in the product's terms, that do not
affect the pricing basis of the index, which are made by an independent
third party whose business relates to the collection or dissemination
of price information and which was not formed solely for the purpose of
compiling an index for use in connection with a futures or option
product;
(iv) Option contract terms. Changes to option contract rules, which
may qualify for implementation without notice pursuant to paragraph
(c)(3)(ii)(G) of this section, relating to the strike price listing
procedures, strike price intervals, and the listing of strike prices on
a discretionary basis;
* * * * *
(vii) Approved brands. Changes in lists of approved brands or
markings pursuant to previously certified or Commission approved
standards or criteria;
(viii) Delivery facilities and delivery service providers. Changes
in lists of approved delivery facilities and delivery service providers
(including weighmasters, assayers, and inspectors) at a delivery
location, pursuant to previously certified or Commission approved
standards or criteria; or
(ix) Trading Months. The initial listing of trading months, which
may qualify for implementation without notice pursuant to (c)(3)(ii)(H)
of this section, within the currently established cycle of trading
months.
(3) * * *
(ii) * * *
(G) Option contract terms. For registered entities that are in
compliance with the daily reporting requirements of Sec. 16.01(b) of
this chapter, changes to option contract rules relating to the strike
price listing procedures, strike price intervals, and the listing of
strike prices on a discretionary basis.
(H) Trading Months. For registered entities that are in compliance
with the daily reporting requirements of Sec. 16.01(a) of this
chapter, the initial listing of trading months which are within the
currently established cycle of trading months.
Issued in Washington, DC, on February 6, 2008, by the
Commission.
David A. Stawik,
Secretary of the Commission.
[FR Doc. E8-2580 Filed 2-13-08; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: February 14, 2008