[Federal Register: August 13, 2007 (Volume 72, Number 155)]
[Proposed Rules]
[Page 45185-45191]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13au07-18]
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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: Proposed rulemaking.
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SUMMARY: The proposed regulations expand the set of persons delegated
by the Commission with the authority to issue exempt commercial market
(ECM) special calls to include the Director of the Division of
Enforcement and that Director's designees. The proposed regulations
clarify the process for listing, clearing, or implementing registered
entity products or rules, including dormant products and rules, and
amend the definition of emergency to clarify that persons other than
members of the governing board of a registered entity may declare an
emergency on behalf of the governing board. The proposed regulations
also clarify the duration of the rule approval period for designated
contract market (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 Commodity Exchange Act (CEA or Act).
Finally, the proposed regulations 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 a registered entity may implement without filing
certified submissions or receiving prior Commission approval.
DATES: Comments must be received by September 12, 2007.
ADDRESSES: Comments should be sent to the Commodity Futures Trading
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,
DC 20581, attention: Office of the Secretariat. Comments may be sent by
facsimile to 202.418.5521, or by e-mail to [email protected].
Reference should be made to the ``Amendments Pertinent to Registered
Entities and Exempt Commercial Markets.'' Comments may also be
submitted through the Federal eRulemaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov
.
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 Commodity Futures Trading Commission (Commission) published
comprehensive final regulations for trading facilities on August 10,
2001.\1\ The final regulations codified the procedural provisions
common to exempt boards of trade and ECMs operating pursuant to
sections 5d or 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 DCMs, 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 Commodity
Futures Modernization Act of 2000 (CFMA),\2\ pertinent to trading
facilities. Based upon its subsequent experience in administering the
Act, the Commission herein proposes several amendments to parts 36 and
40 of the Commission's regulations to better implement the Act and
provide clearer direction as to the Commission's regulatory
requirements thereunder.
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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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II. Exempt Commercial Markets
The CFMA created a qualified exemption from the Commission's
jurisdiction for transactions executed or traded on ECMs. Section
2(h)(3) of the Act, which was added by the CFMA, applies the exemption
to transactions in exempt commodities executed or traded on an
electronic trading facility that are entered into on a principal-to-
principal basis solely between persons that are eligible commercial
entities.\3\ The CEA specifically reserves the applicability of the
Commission's antifraud and antimanipulation authority to transactions
executed or traded on ECMs in section 2(h)(4) of the Act \4\ and gives
the Commission the authority to issue ECM special calls for information
to, among other things, enforce that authority.\5\
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\3\ 7 U.S.C. 2(h)(3).
\4\ 7 U.S.C. 2(h)(4).
\5\ 7 U.S.C. 2(h)(5).
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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.\6\ In that rulemaking, the Commission
stated that aberrant price behavior on ECMs may require further
Commission investigation and the eventual use of the Commission's
special call authority to identify wrongful conduct.\7\ The authority
to issue special calls to ECMs currently is delegated to the Directors
of
[[Page 45186]]
the Division of Market Oversight (DMO) and the Division of Clearing and
Intermediary Oversight and their designees. Given the importance of the
authority to issue special calls to the Commission's ability to enforce
its reserved antifraud and antimanipulation authority with respect to
ECM transactions, the Commission herein proposes to amend regulation
36.3 to expand the set of persons with delegated authority to issue
special calls pursuant to section 2(h)(5)(B)(iii) of the Act to include
the Director of the Division of Enforcement and that Director's
designees.
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\6\ 69 FR 43285 (July 20, 2004).
\7\ Id. at 43289.
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III. Proposed Amendments to Part 40 of the Commission's Regulations
A. Self-Certification, Approval, and Dormancy
Part 40 of the Commission's regulations currently does not clearly
indicate that the procedural requirements for listing, clearing or
implementing dormant contracts and rules \8\ are identical to the
requirements established for initial submissions of contracts and rules
that have never been approved by, or certified with, the Commission.\9\
The current product and rule filing provisions of part 40 also do not
clearly indicate that a DCM or DCO, in general, must choose either to
comply with the rule 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.\10\ The Commission therefore
proposes to amend the language in regulations 40.2(a), 40.3(a),
40.4(a), 40.5(a) and 40.6(a) 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.\11\
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\8\ 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).
\9\ 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 no
longer contain terms that are consistent with the Commission's
regulations and prevailing market conditions. 67 FR 62783, 62784
(October 9, 2002).
\10\ 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.
\11\ 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 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.\12\ 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.\13\ Accordingly, the Commission has deemed that upon a
registered entity becoming dormant, its rules and contracts shall also
become dormant.\14\
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\12\ See 17 CFR 40.1.
\13\ See 47 FR 29515 (July 7, 1982).
\14\ 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 implementation
period.\15\ 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 action on the part of the
registered entity, is at the end of a thirty-six month contract
development period. To remedy any uncertainty, the Commission proposes
to amend regulation 40.1(b), the definition of dormant product or
contract, and regulation 40.1(f), the definition of a dormant rule, to
clearly establish that the dormancy of a registered entity will
automatically and separately trigger the dormancy of that entity's
contracts and rules. In addition, the Commission is proposing a
technical amendment to the definition of a dormant DCM, DTEF, and DCO
in regulation 40.1 to conform the language used to define those terms
to the proposed amendments of regulations 40.1(b) and 40.1(f).
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\15\ 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).
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C. Definition of Emergency
The Commission's regulations give registered entities the ability
to implement rules in response to an emergency without certifying, or
receiving the Commission's approval of, such rules prior to
implementation.\16\ The current definition of emergency implies that
the full governing board of a registered entity must itself make the
determination as to whether a circumstance is an emergency before
operating under emergency procedures.\17\ This notice of rulemaking
proposes to amend Commission regulation 40.1(g), the definition of
emergency, to clarify that persons other than members of the governing
board may determine that a particular occurrence or circumstance
constitutes an emergency. In a letter commenting on a previous notice
of proposed rulemaking, the New York Mercantile Exchange (NYMEX)
suggested 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.\18\ In such a situation, it may be optimal for a
duly authorized subcommittee or exchange official to have the ability
to respond to fast developing emergency conditions.
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\16\ See 17 CFR 40.6(a)(2).
\17\ See 17 CFR 40.1(g).
\18\ 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 is in agreement with NYMEX. Accordingly, the
Commission proposes to amend the definition of emergency in part 40 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.'' \19\ The amendment would
require that the rules of the registered entity specify in detail (1)
the persons
[[Page 45187]]
authorized to issue an emergency opinion on behalf of the governing
board; and (2) the procedures for the exercise of such authority.\20\
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\19\ 17 CFR 40.1(g).
\20\ The Commission also proposes to amend the definition of
emergency 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.\21\
Since a finding of materiality is by statute at the reasonable
discretion of the Commission, part 40 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.\22\
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\21\ 7 U.S.C. 7a-2(c).
\22\ 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. Currently, Commission regulation 40.5 does not clearly
specify when the approval period commences with respect to rules
submitted for materiality review under the process framed by regulation
40.4(b)(9).\23\ To establish certainty, the amendments to regulation
40.5 propose to commence the rule approval period at the conclusion of
the 10-day materiality review period under regulation 40.4(b)(9). The
Commission believes that commencing the approval period at this point
is appropriate because the determination as to whether a registered
entity rule should be approved (that is whether a rule is consistent
with the Act and the Commission's regulations thereunder) requires an
analysis that is qualitatively different from the analysis required to
determine whether the same rule is material within the meaning of
section 5c(c) of the Act.
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\23\ See 17 CFR 40.4(b) and 40.5(b).
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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 proposed regulations 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 proposes to
define business day in part 40 and add 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 implementation.\24\ 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
proposed regulations add the e-mail addresses
[email protected] and [email protected] to, and specify each regional branch chief in,
Commission regulations 40.2(a)(1) and 40.6(a)(2) as additional
mandatory recipients of electronically filed submissions.
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\24\ These proposed 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. As discussed above, 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 regulations
thereunder on the business day preceding implementation.\25\ Registered
entities, however, are not required to file certified submissions prior
to implementing several categories of registered entity rules that are
enumerated in regulation 40.6(c)(2).\26\ 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 proposes to codify several additional registered entity rule
categories 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 Commission proposes to
add (1) changes in trading months with no open interest 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 for existing delivery locations, (3)
changes in lists of approved delivery facilities and delivery service
providers that are made pursuant to previously approved or certified
standards or criteria \27\ to the categories of rules enumerated in
regulation 40.6(c)(2).
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\25\ See 17 CFR 40.6(a).
\26\ 17 CFR 40.6(c)(2).
\27\ Commission regulation 40.4(b)(2) identifies rules that are
changes in lists of approved delivery facilities as immaterial. In
conformance with the proposed amendments to regulation 40.6(c)(2),
the Commission proposes to amend regulation 40.4(b)(2) to also
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 proposed regulation 40.6(c)(2) only extends to
trading months within currently established cycles 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 proposed regulations, 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 listing of a
July contract could properly be notice filed. With respect to
producers, 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,
[[Page 45188]]
facilities or service providers.\28\ The identification of producers'
brands and enumerated delivery facilities and service providers at a
delivery location does not alter certified or Commission approved
qualifying delivery standards or criteria, nor does it change exchange
procedures that verify compliance with those standards or criteria. The
Commission therefore proposes to 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 changes in
trading months with no open interest 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.\29\
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\28\ See 17 CFR part 40, Appendix A (Application for Designation
of Physical Delivery Futures Contracts).
\29\ Registered entities must be able to cite registered entity
rules that establish standards and criteria that are both
substantive and clearly identifiable in any such submission made
under 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 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.'' \30\ 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.\31\ 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.\32\
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\30\ 17 CFR 40.6(c)(iv).
\31\ See 17 CFR part 16.
\32\ 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.\33\ In order to codify the no-action
relief granted by DMO and avoid duplicative regulatory requirements,
the Commission proposes to amend regulation 40.6(c)(2)(iv) and add
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.\34\
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\33\ See CFTC Staff Letter 06-01 (January 9, 2006).
\34\ 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 proposes 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. Proposed regulation 40.6(c)(2)(iii)
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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The Commission is making a similar proposal with respect to
registered entity rules denoting changes to contract trading months
within currently established cycles of trading months to the categories
of rules that may be implemented pursuant to a regulation 40.6(c)(2)
notification filing.\35\ 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
proposes to add paragraph (H) to regulation 40.6(c)(3)(ii) to provide
that registered entities that are in compliance with regulation
16.01(a) may implement changes to the listing of contract trading
months with no open interest, other than the delisting of contract
trading months or the relisting of temporarily delisted contract
trading months, without prior approval, certification or inclusion in a
weekly notification to the Commission.\36\
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\35\ As discussed in the previous subsection, the Commission is
proposing to add such rules to the categories of rules that may be
implemented without certification or prior Commission approval if
subsequently included in a regulation 40.6(c)(2) weekly notification
of rule changes.
\36\ In addition, the Commission proposes a technical amendment
to the heading of regulation 40.6, and that rule's references to
DCMs and DCOs, to clarify the potential applicability of that
regulation to all registered entities, including DTEFs.
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IV. 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 the proposed 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 proposed 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 proposed 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 proposed rules 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 proposed 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 proposed 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 proposed regulations clarify that the definition of emergency
allows persons other than members of the governing board of a
registered entity to declare an emergency on behalf of the governing
board. The proposed regulations expressly recognize that the 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 proposed definition of emergency in part
40 clearly permits
[[Page 45189]]
duly authorized persons to determine whether a particular occurrence or
circumstance is an emergency. The proposed 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 proposed 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 proposed 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 proposing to commence the
rule approval period at the conclusion of the 10-day materiality review
period under regulation 40.4(b)(9). Commencing the approval period at
this point gives the Commission additional 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 proposed review period is
consistent with current Commission regulatory practice and should not
place any additional cost or burden on submitting DCMs.
The proposed 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 proposed 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 proposed regulations provide regulatory
clarity and impose no additional cost or burden.
The proposed 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 proposed 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 and are implemented
under enabling rules that have already been approved by, or certified
with, 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.
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 proposed amendments
fall mainly on registered entities. The Commission has previously
determined that registered entities are not ``small entities'' for the
purposes of the RFA.\37\ In addition, these proposed 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 proposed to be taken herein will not
have a significant economic impact on a substantial number of small
entities.
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\37\ See 47 FR 18618 (April 30, 1982).
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C. Paperwork Reduction Act
When publicizing proposed 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
proposed regulations are administered under Office of Management and
Budget control numbers 3038-0022 and 3038-0054. These proposed
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. Accordingly, the PRA is
inapplicable. We solicit comment on the accuracy of our estimate that
no additional recordkeeping or information collection requirements or
changes to existing collection requirements would result from the
amendments proposed herein.
List of Subjects
17 CFR Part 36
Commodity futures.
17 CFR Part 40
Commodity futures, Reporting and recordkeeping requirements.
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 proposes to amend Chapter I
of Title 17 of the Code of Federal Regulations as follows:
PART 36--EXEMPT MARKETS
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 Pub. L.
106-554, 114 Stat. 2763 (2000).
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
3. The authority citation for part 40 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 7a-1, 7a-2, 8 and
12a, as amended by
[[Page 45190]]
appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.
4. In Sec. 40.1, revise paragraph (a) through (g) to read as
follows:
Sec. 40.1 Definitions.
* * * * *
(a) Business day means the same-day 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 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 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; any
actual, attempted, or threatened corner, squeeze, congestion, or undue
concentration of positions;
(2) 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; or
(3) 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 any other circumstance which may have a
severe, adverse effect upon the functioning of a registered entity.
* * * * *
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 clearing organization must
comply with the submission requirements of this section prior to
accepting a product for clearing 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
with the Secretary of the Commission at [email protected], the
Division of Market Oversight at [email protected], and the
relevant branch chief at the regional office having local jurisdiction
over the registered entity, in a format specified by the Secretary of
the Commission;
(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
* * * * *
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:
* * * * *
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.
* * * * *
[[Page 45191]]
(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;
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 ten
business days after receipt of a compliant submission under Sec.
40.4(b)(9) and further may extend the review period in paragraph (b) of
this section for:
* * * * *
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's''
in paragraph (c)(3)(ii)(B); and
E. In addition, revise the heading and paragraphs (a), (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 submitted under this section
or approved under Sec. 40.5 of this chapter:
(1) * * *
(2) The registered entity has filed its submission electronically
with the Secretary of the Commission at [email protected], the
Division of Market Oversight at [email protected], and the
relevant branch chief at the regional office having local jurisdiction
over the registered entity, in a format specified by the Secretary of
the Commission, 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 section
(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;
(v) * * *
(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, pursuant
to previously certified or Commission approved standards or criteria;
or
(ix) Trading Months. Changes to the listing of trading months,
which may qualify for implementation without notice pursuant to section
(c)(3)(ii)(H), within the currently established cycle of trading months
which do not have open interest.
(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, changes to the listing of trading months which are within the
currently established cycle of trading months and which do not have
open interest.
* * * * *
Issued in Washington, DC, on August 1, 2007 by the Commission.
Eileen A. Donovan,
Acting Secretary of the Commission.
[FR Doc. E7-15370 Filed 8-10-07; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: August 13, 2007