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2010-10311

  • FR Doc 2010-10311[Federal Register: May 4, 2010 (Volume 75, Number 85)]

    [Notices]

    [Page 23686-23690]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr04my10-60]

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    COMMODITY FUTURES TRADING COMMISSION

    Order Finding That the Carbon Financial Instrument Contract

    Offered for Trading on the Chicago Climate Exchange, Inc. Does Not

    Perform a Significant Price Discovery Function

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final order.

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    SUMMARY: On August 20, 2009, the Commodity Futures Trading Commission

    (``CFTC'' or ``Commission'') published for comment in the Federal

    Register \1\ a notice of its intent to undertake a determination

    whether the Carbon Financial Instrument (``CFI'') contract offered for

    trading on the Chicago Climate Exchange, Inc. (``CCX''), an exempt

    commercial market (``ECM'') under Section 2(h)(3)-(5) of the Commodity

    Exchange Act (``CEA'' or the ``Act''), performs a significant price

    discovery function pursuant to section 2(h)(7) of the CEA. The

    Commission undertook this review based upon an initial evaluation of

    information and data provided by CCX. The Commission has reviewed

    public comments and the entire record in this matter and has determined

    to issue an order finding that the CCX CFI contract, at this time, does

    not perform a significant price discovery function. Authority for this

    action is found in section 2(h)(7) of the CEA and Commission rule

    36.3(c) promulgated thereunder.

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    \1\ 74 FR 42052 (August 20, 2009).

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    DATES: Effective date: April 28, 2010.

    FOR FURTHER INFORMATION CONTACT: Irina Leonova, Financial Economist,

    Division of Market Oversight, Commodity Futures Trading Commission,

    Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

    Telephone: (202) 418-5646. Email: ileonova@cftc.gov, or Gregory K.

    Price, Industry Economist, Division of Market Oversight, same address.

    Telephone: (202) 418-5515. E-mail: gprice@cftc.gov, or Susan Nathan,

    Senior Special Counsel, Division of Market Oversight, same address.

    Telephone: (202) 418-5133. E-mail: snathan@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Introduction

    The CFTC Reauthorization Act of 2008 (``Reauthorization Act'') \2\

    significantly broadened the CFTC's regulatory authority with respect to

    ECMs by creating, in section 2(h)(7) of the CEA, a new regulatory

    category--ECMs on which significant price discovery contracts

    (``SPDCs'') are traded--and treating ECMs in that category as

    registered entities under the CEA. The legislation authorizes the CFTC

    to designate an agreement, contract or transaction traded on an ECM as

    a SPDC if the Commission determines, under criteria established in

    section 2(h)(7), that it performs a significant price discovery

    function. When the Commission makes such a

    [[Page 23687]]

    determination, the ECM on which the SPDC is traded must assume, with

    respect to that contract, all the responsibilities and obligations of a

    registered entity under the Act and Commission regulations, and must

    comply with nine core principles established by new section 2(h)(7)(C).

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    \2\ Incorporated as Title XIII of the Food, Conservation and

    Energy Act of 2008, Public Law 110-246, 122 Stat. 1624 (June 18,

    2008).

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    On March 16, 2009, the CFTC promulgated final rules implementing

    the provisions of the Reauthorization Act.\3\ As relevant here, Rule

    36.3 imposes increased information reporting requirements on ECMs to

    assist the Commission in making prompt assessments whether particular

    ECM contracts may be SPDCs. In addition to filing quarterly reports

    regarding its contracts, an ECM must notify the Commission promptly

    concerning any contract traded in reliance on the exemption in section

    2(h)(3) of the CEA that averaged five trades per day or more over the

    most recent calendar quarter, and that either: (1) had its price

    information sold by the exchange to market participants or industry

    publications or (2) had daily closing or settlement prices which were

    within 2.5% of the contemporaneously determined closing, settlement or

    other daily price of another contract on 95 percent or more of the days

    in the most recent quarter.

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    \3\ 74 FR 12178 (Mar. 23, 2009); these rules became effective on

    April 22, 2009.

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    Commission Rule 36.3(c)(3) established the procedures by which the

    Commission makes and announces its determination whether a particular

    ECM contract serves a significant price discovery function. Under those

    procedures, the Commission publishes notice in the Federal Register

    that it intends to undertake a determination whether the specified

    agreement, contract or transaction performs a significant price

    discovery function and receives written views, data and arguments

    relevant to its determination from the ECM and other interested

    persons. The Commission, within a reasonable period of time after the

    close of the comment period, considers all relevant information and

    issues an order announcing and explaining its determination. The

    issuance of an affirmative order subjects an ECM with a SPDC to the

    full application of the Commission's regulatory authorities; at that

    time, such an ECM becomes subject to all provisions of the CEA

    applicable to registered entities.\4\ The issuance of such an order

    also triggers the obligations, requirements and timetables prescribed

    in Commission Rule 36.3(c)(4).\5\

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    \4\ Public Law 110-246 at 13203; Joint Explanatory Statement of

    the Committee of Conference, H.R. Rep. No. 110-627, 110 Cong., 2d

    Sess. 978, 986 (Conference Committee Report). See also 73 FR 75888,

    75894 (Dec. 12, 2008).

    \5\ For an initial SPDC determination, ECMs have a grace period

    of 90 calendar days from the issuance of a SPDC determination order

    to submit a written demonstration of compliance with the applicable

    core principles. For subsequent SPDC determinations, ECMs have a

    grace period of 30 calendar days to demonstrate core principle

    compliance.

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    II. Notice of Intent To Undertake SPDC Determination

    On August 20, 2009, the Commission published in the Federal

    Register a notice of its intent to undertake a determination whether

    the CCX's CFI contract performs a significant price discovery function,

    and requested comment from interested parties.\6\ Comments were

    received from the IntercontinentalExchange, Inc. (``ICE''); Jeremy D.

    Weinstein, Esq. (``Weinstein''); the California Forestry Association

    (``CFA''); and Scott DeMonte (``DeMonte'').\7\ The comments are more

    extensively discussed below in the Analysis Section.

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    \6\ The Commission's Part 36 Rules establish, among other

    things, procedures by which the Commission makes and announces its

    determination whether a specific ECM contract serves a significant

    price discovery function. Under those procedures, the Commission

    publishes a notice in the Federal Register that it intends to

    undertake a determination whether a specified agreement, contract or

    transaction performs a significant price discovery function and to

    receive written data, views and arguments relevant to its

    determination from the ECM and other interested persons.

    \7\ The comment letters are available on the Commission's Web

    site: http://www.cftc.gov/lawandregulation/federalregister/

    federalregistercomments/2009/09-010.html.

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    III. Section 2(h)(7) of the CEA

    The Commission is directed by section 2(h)(7) of the CEA to

    consider, as appropriate, the following factors in determining whether

    a contract performs a significant price discovery function:

    Price Linkage--the extent to which the agreement, contract

    or transaction uses or otherwise relies on a daily or final settlement

    price, or other major price parameter, of a contract or contracts

    listed for trading on or subject to the rules of a designated contract

    market (``DCM'') or derivatives transaction execution facility

    (``DTEF''), or a SPDC traded on an electronic trading facility, to

    value a position, transfer or convert a position, cash or financially

    settle a position, or close out a position.

    Arbitrage--the extent to which the price for the

    agreement, contract or transaction is sufficiently related to the price

    of a contract or contracts listed for trading on or subject to the

    rules of a DCM or DTEF, or a SPDC traded on or subject to the rules of

    an electronic trading facility, so as to permit market participants to

    effectively arbitrage between the markets by simultaneously maintaining

    positions or executing trades in the contracts on a frequent and

    recurring basis.

    Material price reference--the extent to which, on a

    frequent and recurring basis, bids, offers or transactions in a

    commodity are directly based on, or are determined by referencing, the

    prices generated by agreements, contracts or transactions being traded

    or executed on the electronic trading facility.

    Material liquidity--the extent to which the volume of

    agreements, contracts or transactions in the commodity being traded on

    the electronic trading facility is sufficient to have a material effect

    on other agreements, contracts or transactions listed for trading on or

    subject to the rules of a DCM, DTEF or electronic trading facility

    operating in reliance on the exemption in section 2(h)(3).

    Not all factors must be present to support a determination that a

    particular contract performs a significant price discovery function.

    Moreover, the statutory language neither prioritizes the factors nor

    specifies the degrees to which a SPDC must conform to the various

    factors. In Guidance issued in connection with the Part 36 rules

    governing ECMs with SPDCs, the Commission observed that these factors

    do not lend themselves to a mechanical checklist or formulaic

    analysis.\8\

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    \8\ Appendix A to Part 36, 17 CFR part 36 (2009).

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    Accordingly, the Commission has indicated that in making its

    determination it will consider the circumstances under which the

    presence of a particular factor, or combination of factors, would be

    sufficient to support a SPDC determination.\9\ For example, for

    contracts that are linked to other contracts or that may be arbitraged

    with other contracts, the Commission will consider whether the price of

    the potential SPDC moves in such harmony with the other contract that

    the two markets essentially become interchangeable.\10\ This co-

    movement of prices would be an indication that activity in the contract

    had reached a level sufficient for the contract to perform a

    significant price discovery function.

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    \9\ 17 CFR part 36, appendix A.

    \10\ Appendix A to Part 36, 17 CFR 36 (2009).

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    IV. The CCX CFI Contract

    CCX, launched in 2003, operates the only North American voluntary,

    legally

    [[Page 23688]]

    binding integrated trading system to reduce emissions of six major

    greenhouse gases, with offset projects worldwide. CCX offers a cap and

    trade system whose members \11\ make a legally binding emission

    reduction commitment. Members are allocated annual emission allowances

    in accordance with their emissions baseline and the CCX emission

    reduction schedule. Members who reduce beyond their targets have

    surplus allowances to sell or bank; those who do not meet the targets

    must comply by purchasing CCX CFIs. The CCX CFI contract is a cash

    market instrument and not a derivatives contract. The Chicago Climate

    Futures Exchange (CCFE), a subsidiary of CCX that operates as a DCM,

    lists derivatives (futures and option contracts) on CCX CFIs.

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    \11\ CCX membership categories:

    Members: Entities with direct greenhouse gas (GHG) emissions.

    Members make a legally binding commitment to the CCX Emission

    Reduction Schedule and are subject to annual emissions verification

    by FINRA. Indirect emissions are an opt-in.

    Registry Participant Members: Entities with direct GHG emissions

    that establish a CCX Registry account of their emissions and undergo

    data verification. Standardized independent third-party data

    verification is provided by FINRA on an annual or multi-annual

    basis.

    Associate Members: Office-based businesses or institutions with

    negligible direct GHG emissions. Associate Members commit to report

    and fully offset 100 percent of indirect emissions associated with

    energy purchases and business travel from year of entry through 2010

    and emissions data are verified by FINRA.

    Offset Providers: Owners of title to qualifying offset projects

    that sequester, destroy or reduce GHG emissions. Offset Providers

    register and sell offsets directly on the CCX.

    Offset Aggregators: Entities that serve as the administrative

    representative, on behalf of offset project owners, of multiple

    offset-generating projects. Offset projects involving less than

    10,000 metric tons of carbon dioxide equivalent per year should be

    registered and sold through an Offset Aggregator.

    Liquidity Providers: Entities or individuals who trade on CCX

    for purposes other than complying with the CCX Emission Reduction

    Schedule, such as market makers and proprietary trading groups.

    Exchange Participants: Entities or individuals who purchase CFI

    contracts and retire them to offset emissions associated with

    special events or other specified activities.

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    The size of the CCX CFI contract is 100 metric tons (MT) of

    CO2-equivalent emissions. A CCX CFI contract involves the

    immediate delivery of, and payment for, vintage specific CCX carbon

    dioxide (CO2) emission allowances called CFIs. Earlier dated

    vintages may be delivered against later vintage trades. Transactions

    (with exception of bilateral agreements) are cleared on trade day. Full

    contract value settlement occurs on the next business day. CCX

    substitutes as a counterparty to all transactions and guarantees

    performance until settlement is completed.

    Based upon a required quarterly notification filed on October 15,

    2009, (mandatory under Rule 36.3(c)(2)), the CCX reported that, with

    respect to its CFI contract, an average of 8 trades per day occurred in

    the third quarter of 2009. During the same period, the CFI had an

    average daily trading volume of 1,141 contracts. In the second quarter

    of 2009, market participants traded the CFI contract on average 15

    times per day with an average daily trading volume of 1,235 contracts.

    Because the CCX CFI is a cash market instrument, open interest figures

    are not applicable.

    V. Analysis

    A. The Statutory Criteria

    In its notice of intent to undertake a determination whether the

    CCX CFI contract performs a significant price discovery function, the

    Commission indicated that the CCX CFI contract might satisfy the

    material price reference and material liquidity criteria for SPDC

    determination.\12\ Further analysis reveals that the CCX CFI contract

    does not meet either criterion.

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    \12\ 74 FR 42054 (Aug. 20, 2009).The Commission did not identify

    either price linkage or arbitrage as the possible criteria for the

    CCX CFI contact to be a SPDC. Accordingly, those criteria will not

    be discussed further in this Order.

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    Material Price Reference Criterion

    The Commission has concluded that the CCX CFI contract does not

    meet the material price reference criterion for SPDC determination. As

    noted in the original Federal Register notice, the CFI market is solely

    a CCX-created entity.\13\ The CCX designed all of the parameters of

    this carbon emission reduction program, and it established the rules

    for membership in the ECM, allowance trading, and the creation of

    offsets. Based on these attributes, staff considered whether traders

    look to the CCX as a source of price information and price discovery

    for the CFI or the U.S. carbon market in general that would either be a

    direct or an indirect source of evidence of the material price

    reference. Staff concluded that it appears that CCX CFI prices are not

    used as a price reference to the U.S. carbon market due to the

    relatively small market share of the CCX CFI program in the overall

    U.S. carbon market, the limited potential for the CFI program to be

    folded into a national carbon reduction program, and significant price

    volatility of the CCX CFI instrument. As part of its material price

    reference analysis, Commission staff considered comments filed pursuant

    to the request for comment and all other relevant information.\14\

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    \13\ 74 FR 42054 (Aug. 20, 2009).

    \14\ The Commission will rely on one of two sources of

    evidence--direct or indirect--to determine a SPDC. Direct evidence

    can be cash market transactions that are frequently based on or

    quoted as a differential to the potential SPDC. Indirect evidence

    includes contracts whose price series are routinely disseminated in

    industry publications or are sold to market participants by the ECM.

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    Material Liquidity Criterion

    The Commission's decision to undertake a review to determine

    whether the CCX CFI contract performs a significant price discovery

    function was based on CCX's required initial quarterly notification

    filed on July 1, 2009. At that time, CCX reported that, with respect to

    all CFI trades combined (aggregate of vintages 2003-2010), an average

    of 15 separate trades per day occurred in the second quarter of 2009.

    Subsequent to the publication of the Commission's Federal Register

    notice announcing its intent to undertake a SPDC review, however, CCX

    amended its filing to show the number of trades per day for each

    vintage, and clarified that the exchange lists and trades CFI contract

    vintages individually and provides a vintage-specific closing price for

    each CFI vintage contract. In these circumstances, the Commission

    recognizes that the CCX CFI vintage-specific contracts should not be

    aggregated, but rather should be treated individually for the purpose

    of a SPDC analysis. Accordingly, the Commission has analyzed each

    individual vintage of the CCX CFIs to determine whether any of them are

    SPDCs.\15\

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    \15\ Because this shift in focus did not alter either the

    analysis or conclusion or otherwise suggest the need for further

    comment, the Commission did not republish its original notice of

    intent to make a SPDC determination with respect to the CCX CFI

    contract.

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    The Commission's evaluation of the supplemental data indicates that

    the CCX CFI vintage specific contracts (2003-2010 vintages) do not meet

    the material liquidity criterion for a SPDC; the average number of

    trades per day per vintage was only one contract, well below the five

    trades per day reporting threshold established by the Commission.

    B. Comments Received

    The Commission received four responses to its request for comments.

    Two of the comment letters addressed issues beyond the scope of the

    instant matter;\16\ two raised substantive issues

    [[Page 23689]]

    with respect to the applicability of section 2(h)(7) to the CFI

    contract.\17\

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    \16\ See supra note 7. Specifically, the California Forestry

    Association offered the opinion that all the over-the-counter

    voluntary carbon trading occurring now serves a significant price

    discovery function. CL 02. Scott DeMonte advises the Commission to

    ``fix the manipulation'' in [its] exchanges'' and requests that

    firms be required to have collateral in excess of two times their

    average end of daily trade value in order to participate in this

    market. CL 01.

    \17\ See supra note 7. The commenters who raised substantive

    issues with respect to the applicability of section 2(h)(7) to the

    CFI contract are Jeremy D. Weinstein, Esq., owner of the law offices

    of Jeremy D. Weinstein, a professional corporation located in Walnut

    Creek, California and IntercontinentalExchange, Inc., operator of

    regulated exchanges, trading platforms and clearing houses serving

    the global markets for agricultural, credit, currency, emissions,

    energy and equity index markets headquartered in Atlanta, Georgia,

    U.S.

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    Weinstein opines that the CCX offset project protocols ``do not

    conform to the stringent additionality \18\ and leakage standards \19\

    that are in the carbon offset contracts * * * accepted by the broader

    market.'' Consequently, Mr. Weinstein asserts that ``the absence from

    the CCX CFI contract of the most essential requirements for commonality

    with other carbon offset contract prevents market participants from

    using the CFI contracts for material price reference, arbitrage, and

    settlement and execution of transactions.'' The environmental

    requirements of the CCX offset protocols are beyond the scope of the

    Commission authority, and this inquiry was limited to an evaluation

    whether the CCX CFI contract might satisfy the material liquidity and

    material price reference statutory criterion for a SPDC determination.

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    \18\ There are a number of interpretations of the additionality

    concept in application to the environmental offset projects. The

    most popular interpretations are ``environmental additionality''

    where a project is additional if the emissions from the project are

    lower than the baseline, and ``project additionality'' where the

    project must not have happened without the Clean Development

    Mechanism (CDM).

    \19\ Leakage generally refers to the increase in emissions

    outside the project boundary that occurs as a consequence of the

    project activity's implementation.

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    ICE expressed an opinion that ``the CFI does not serve a

    significant price discovery function and the Commission may exceed its

    jurisdiction if it determines that the CFI serves as a significant

    price discovery contract.'' ICE observed that the CCX CFI contract

    fails the threshold for material liquidity because ``each [CCX CFI

    contract] vintage may trade less than twice a day.'' Consequently, ICE

    concluded that ``a trade every couple of hours does not equate to the

    ``ability to transact immediately'' or ``a more or less continuous

    stream of prices.'' As noted above, after a thorough review of

    supplemental data provided for the CCX CFI contract, Commission staff

    concluded that different CCX CFI vintages should be considered as

    separate CCX contracts. When analyzed in this manner, the CCX CFI

    contracts do not meet the material liquidity criterion for SPDC

    determination.

    When analyzing the material price reference factor for a CCX CFI

    SPDC determination, ICE commented that ``under the Commission's theory,

    any spot contract automatically serves as a material price reference,

    simply because the contract references itself'' (emphasis in original).

    Additionally, ICE expresses an opinion that ``by making this

    determination [the CCX CFI contract is a SPDC], the Commission is

    broadly asserting jurisdiction over the spot market if the spot

    contract is electronically traded.'' In response, the Commission notes

    that Section 2(h)(7), refers to ``any agreement, contract or

    transaction conducted in reliance on the exemption'' in Section 2(h)(3)

    and does not require that the Commission find that a potential SPDC

    contract is a commodity futures or options contract. The determination

    to list particular instruments in reliance on the Section 2(h)(3)

    exemption is made by the ECM, not the Commission, when the ECM files

    notice with the Commission, under Section 2(h)(5), of its reliance on

    such exemption. Section 2(i) of the CEA reinforces the view that

    instruments traded on 2(h)(3) markets may include non-futures products;

    that section states that there is no presumption that an agreement,

    contract or transaction exempted under section 2(h)(3) ``is or would

    otherwise be subject to this chapter.''

    VI. Findings and Conclusion

    In consideration of the initial and supplemental information

    provided by CCX, the comments received in connection with the Federal

    Register notice and all other relevant information, the Commission has

    determined that the CCX CFI contract does not, at this time, perform a

    significant price discovery function. Accordingly, as set forth in the

    Commission's Order, CCX is not required to comply with Commission Rule

    36.3(c)(4) applicable to ECMs with SPDCs, or otherwise to assume the

    statutory and regulatory responsibilities of a registered entity with

    respect to the CFI contract. The Reauthorization Act amended the CEA to

    require that the Commission evaluate not less than annually all

    agreements, contracts and transactions conducted on an ECM in reliance

    on the exemption in section 2(h)(3) to determine whether they serve a

    significant price discovery function.\20\ In addition, the Commission

    routinely monitors contracts traded or executed in reliance on section

    2(h)(3) and reviews all ECM submissions on an ongoing basis for the

    presence of SPDCs. Accordingly, like all ECMs, CCX remains responsible

    for compliance with the reporting requirements described in Rule

    36.3(a) and (b).

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    \20\ Section 2(h)(7)(D)(ii), 7 U.S.C. 2(h)(7)(D)(ii).

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    VII. Related Matters

    A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \21\ 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. Certain provisions of final

    Commission Rule 36.3 impose new regulatory and reporting requirements

    on ECMs, resulting in information collection requirements within the

    meaning of the PRA; OMB previously has approved and assigned OMB

    control number 3038-0060 to this collection of information.

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    \21\ 44 U.S.C. 3507(d).

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    B. Cost-Benefit Analysis

    Section 15(a) of the CEA \22\ requires the Commission to consider

    the costs and benefits of its actions before issuing an order under the

    Act. By its terms, section 15(a) does not require the Commission to

    quantify the costs and benefits of an order or to determine whether the

    benefits of the order outweigh its costs; rather, it requires that the

    Commission ``consider'' the costs and benefits of its action. Section

    15(a) further specifies that the costs and benefits shall be evaluated

    in light of five broad areas of market and public concern: (1)

    Protection of market participants and the public; (2) efficiency,

    competitiveness, and financial integrity of futures markets; (3) price

    discovery; (4) sound risk management practices; and (5) other public

    interest considerations. The Commission may in its discretion give

    greater weight to any of the five enumerated areas and could in its

    discretion determine that, notwithstanding its costs, a particular

    order is necessary or appropriate to protect the public interest or to

    effectuate any provisions or accomplish any of the purposes of the Act.

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    \22\ 7 U.S.C.19(a).

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    When a futures contract begins to serve a significant price

    discovery function, that contract, and the ECM on which it is traded,

    warrants increased oversight to deter and prevent price manipulation

    and other disruptions to market integrity, both on the ECM itself and

    in any related futures contracts trading on DCMs. An Order finding that

    a particular contract is a SPDC triggers

    [[Page 23690]]

    this increased oversight and imposes obligations on the ECM calculated

    to accomplish this goal. The increased oversight engendered by the

    issuance of a SPDC Order increases transparency and helps to ensure

    fair competition among ECMs and DCMs trading similar products and

    competing for the same business. Moreover, the ECM on which the SPDC is

    traded must assume, with respect to that contract, all the

    responsibilities and obligations of a registered entity under the CEA

    and Commission regulations. Additionally, the ECM must comply with nine

    core principles established by section 2(h)(7) of the Act--including

    the obligation to establish position limits and/or accountability

    standards for the SPDC. Amendments to section 4(i) of the CEA authorize

    the Commission to require large trader reports for SPDCs listed on

    ECMs. These increased ECM responsibilities, along with the CFTC's

    increased regulatory authority, subject the ECM's risk management

    practices to the Commission's supervision and oversight and generally

    enhance the financial integrity of the markets.

    The Commission has concluded that the Chicago Climate Exchange's

    Carbon Financial Instrument contract that is the subject of the

    attached Order is not a SPDC; accordingly, the Commission's Order

    impose no additional costs and no additional statutorily or regulatory

    mandated responsibilities on the ECM.

    VIII. Order

    Order Relating to the CCX CFI Contract

    After considering the complete record in this matter, including the

    comment letters received in response to its request for comments, the

    Commission has determined to issue the following:

    The Commission, pursuant to its authority under section 2(h)(7) of

    the Act, hereby determines that the Chicago Climate Exchange's Carbon

    Financial Instrument contract that was submitted to the Commission by

    the Chicago Climate Exchange for review on July 1, 2009 and October 15,

    2009 does not, at this time, satisfy the statutory or regulatory

    requirements of a significant price discovery contract. Consistent with

    this determination, the Chicago Climate Exchange is not required at

    this time to comply with section 2(h)(7)(C) in connection with the

    Carbon Financial Instrument contract or the Part 36 regulations

    applicable to exempt commercial markets with significant price

    discovery contracts, and is not required to assume the statutory or

    regulatory responsibilities required of registered entities with

    respect to the Carbon Financial Instrument contract.

    This order is based upon the representations made to the Commission

    by the Chicago Climate Exchange in filings dated July 1, 2009 and

    October 15, 2009, and other supporting material. Any material change or

    omissions in the facts and circumstances pursuant to which this order

    is granted might require the Commission to reconsider its current

    determination that the Carbon Financial Instrument contract is not a

    significant price discovery contract.

    The Commission may, based upon information regarding the Carbon

    Financial Instrument contract reviewed under this Order that is

    submitted in required reports and filings, issue another notice of

    intent to undertake a significant price discovery contract

    determination for these contracts. Further, issuance of this Order does

    not affect the Chicago Climate Exchange's continuing obligation to

    comply with all statutory and regulatory requirements applicable to

    2(h)(3) markets, including all reporting requirements found in

    Commission Regulation 36.3.

    Issued in Washington, DC on April 28, 2010 by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. 2010-10311 Filed 5-3-10; 8:45 am]

    BILLING CODE P

    Last Updated: May 4, 2010



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