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2011-18661

  • Federal Register, Volume 76 Issue 144 (Wednesday, July 27, 2011)[Federal Register Volume 76, Number 144 (Wednesday, July 27, 2011)]

    [Rules and Regulations]

    [Pages 44776-44800]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2011-18661]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 40

    RIN 3038-AD07

    Provisions Common to Registered Entities

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final Rule.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'') is

    adopting regulations to implement certain statutory provisions of the

    Dodd-Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank

    Act''). The Commission also is amending its existing regulations

    governing the submission of new products, rules, and rule amendments.

    The final regulations establish the Commission's procedural framework

    for the submission of new products, rules, and rule amendments by

    designated contract markets (``DCMs''), derivatives clearing

    organizations (``DCOs''), swap execution facilities (``SEFs''), and

    swap data repositories (``SDRs''). In addition, the final regulations

    prohibit event contracts involving certain excluded commodities,

    establish special submission procedures for certain rules proposed by

    systemically important derivatives clearing organizations (``SIDCOs''),

    and stay the certifications and the approval review periods of novel

    derivative products pending jurisdictional determinations.

    DATES: Effective date: September 26, 2011.

    FOR FURTHER INFORMATION CONTACT: Bella Rozenberg, Assistant Deputy

    Director, Division of Market Oversight (``DMO''), at 202-418-5119 or

    cftc.gov">brozenberg@cftc.gov, Riva Spear Adriance, Associate Director, DMO at

    202-418-5494 or cftc.gov">radriance@cftc.gov, Phyllis Dietz, Associate Director,

    Division of Clearing and Intermediary Oversight at 202-418-5449 or

    cftc.gov">pdietz@cftc.gov, and Joseph R. Cisewski, Attorney Advisor, DMO at 202-

    418-5718 or cftc.gov">jcisewski@cftc.gov, in each case, at the Commodity Futures

    Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,

    Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    Table of Contents

    I. Background

    II. Amendments to Part 40 of the Commission's Regulations

    a. Definitions (Sec. 40.1)

    b. Listing Products for Trading by Certification (Sec. 40.2)

    c. Voluntary Submission of New Products for Commission Review

    and Approval (Sec. 40.3)

    d. Amendments to Terms or Conditions of Enumerated Agricultural

    Contracts (Sec. 40.4)

    e. Voluntary Submission of Rules for Commission Review and

    Approval (Sec. 40.5)

    f. Self-Certification of Rules (Sec. 40.6)

    g. Delegations (Sec. 40.7)

    h. Availability of Public Information (Sec. 40.8)

    i. Special Certification Procedures for Submission of Rules by

    Systemically Important Derivatives Clearing Organizations (Sec.

    40.10)

    j. Review of Event Contracts Based Upon Certain Excluded

    Commodities (Sec. 40.11)

    k. Staying of Certification and Tolling of Review Period Pending

    Jurisdictional Determination (Sec. 40.12)

    III. Cost Benefit Considerations

    IV. Related Matters

    a. Regulatory Flexibility Act

    b. Paperwork Reduction Act

    I. Background

    On November 2, 2010, the Commission published proposed regulations

    to implement certain statutory provisions of the Dodd-Frank Act and to

    amend existing regulations governing the submission of new products,

    rules, and rule amendments.\1\ The Commission is hereby adopting final

    regulations 40.1 through 40.8, as amended below, and new regulations

    40.10 through 40.12 to implement certain provisions of the Dodd-Frank

    Act, to clarify submission-related regulatory obligations of registered

    entities, and to enhance the Commission's administration of the

    Commodity Exchange Act (``Act'').

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    \1\ 17 CFR part 40 Provisions Common to Registered Entities, 75

    FR 67282 (Nov. 2, 2010).

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    The Commission's final regulations implement, among other

    provisions, Section 745 of the Dodd-Frank Act, which, effective July

    16, 2011, amended Section 5c of the Act to provide new procedures for

    the submission of rules and rule amendments by DCMs, SEFs, DCOs, and

    SDRs.\2\ The final regulations also amend existing requirements for the

    submission of new products and prohibit the listing and clearing of

    products based upon certain excluded commodities, if such products

    involve statutorily-specified activities or similar activities

    determined, by rule or regulation, to be contrary to the public

    interest. In addition, the Commission is adopting special submission

    procedures for certain risk-related rules proposed

    [[Page 44777]]

    by SIDCOs.\3\ The SIDCO regulations implement Section 806(e)(1) of the

    Dodd-Frank Act by requiring, among other things, 60-days advance notice

    of proposed rules that may materially affect the nature or level of

    risk presented by the SIDCO. Finally, the Commission is adopting

    previously proposed regulations to stay certifications and toll

    approval review periods for novel derivative products subject to

    jurisdictional determinations by the Commission or the Securities and

    Exchange Commission (``SEC'').

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    \2\ Sections 728 and 733 of the Dodd-Frank Act created two new

    categories of registered entities, SEFs and SDRs. Provisions related

    to the regulation of these entities will be promulgated in other

    Commission rulemakings.

    \3\ A SIDCO is a DCO that has been designated as a

    systematically important financial market utility by the Financial

    Stability Oversight Council pursuant to Section 804 of the Dodd-

    Frank Act and for which the Commission is the Supervisory Agency.

    See below section II.i. (discussing Sec. 40.10).

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    Part 40 of the Commission's regulations, as amended herein, will

    become effective sixty days after publication in the Federal Register.

    II. Amendments to Part 40 of the Commission's Regulations

    The Commission received nine comment letters during the 60-day

    public comment period following the publication of its notice of

    proposed rulemaking. Seven of these comment letters were submitted by

    registered entities subject to the proposed regulations. Five comments

    were submitted on behalf of DCMs--the CME Group, Inc. (``CME''), ICE

    Futures U.S., Inc. (``ICE''), the Kansas City Board of Trade

    (``KCBOT''), the Minneapolis Grain Exchange, Inc. (``MGEX''), and

    OneChicago LLC Futures Exchange (``OCX'')--and two comments were

    submitted on behalf of registered DCOs--the Options Clearing

    Corporation (``OCC'') and LCH.Clearnet Ltd (``LCH'').\4\ The Commission

    also received comments from the Futures Industry Association (``FIA''),

    an organization representing futures commission merchants, and the

    American Benefits Council (``ABC''), an organization representing

    pension funds and other buy-side swaps users.

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    \4\ CME also submitted a comment on the Commission's cost-

    benefit analysis subsequent to the close of the public comment

    public for the proposed rulemaking. The Commission has addressed

    CME's comments in its cost-benefit analysis, below. CME, KCBOT, and

    MGEX are also registered DCOs and they commented on clearing-related

    issues.

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    Many of the comments received by the Commission offered specific

    recommendations for clarification or modification of proposed

    regulations; other comments generally objected to certain aspects of

    the proposal. The Commission, in consideration of these comments and as

    detailed below, is modifying its proposed rules to clarify regulatory

    obligations under certain provisions of part 40. The Commission has

    otherwise determined to implement its regulations as originally

    published on November 2, 2010.

    a. Definitions (Sec. 40.1)

    Three registered entities submitted comments concerning the

    proposed definitions of ``rule'' and ``terms and conditions'' in Sec.

    40.1 of the Commission's regulations. The Commission has determined to

    revise both definitions to address these comments. In addition, the

    Commission is adopting revised language in the definition of ``terms

    and conditions'' to provide specific examples of terms and conditions

    frequently included in swaps.

    The FIA asked the Commission to consider whether an amendment to

    the Sec. 40.1 definition of ``rule'' might be appropriate to ensure

    that the Commission's regulations captured advisories, interpretations,

    and less formal means of communicating policies to market participants.

    The FIA noted that registered entities, including DCMs, may be able to

    circumvent regulatory obligations by issuing communications under a

    category not enumerated in the proposed definition of ``rule.'' The

    Commission notes that ``interpretations'' and ``stated policies'' are

    explicitly included in the present definition of ``rule'' and that the

    non-exclusive categories enumerated in that definition are merely

    examples of the types of actions that are subject to Commission review.

    The Commission's position has always been that the definition of

    ``rule'' turns more on substance than form; that is, a registered

    entity cannot avoid regulatory obligations by adopting what is in

    substance a policy or interpretation by formally issuing the

    communication under a category that is not enumerated in the definition

    of ``rule.''

    The Commission nevertheless has determined to add the term

    ``advisory'' to the list of categories constituting ``rules'' under

    Sec. 40.1, which should ensure that registered entities issue

    advisories in compliance with all regulations applicable to ``rules.''

    In consideration of the FIA's comments, the Commission also has

    determined to move the phrase ``in whatever form adopted'' to ensure

    that an addition or deletion to a communication constitutes a ``rule''

    under Sec. 40.1, without regard to the particular form in which a

    registered entity adopts such an amendment. In this regard, the

    Commission is clarifying that the language ``in whatever form adopted''

    applies to all non-exclusive categories of ``rules'' enumerated in

    Sec. 40.1 and that the enumeration of particular examples of ``rules''

    does not imply the exclusion of others.

    MGEX commented on the proposed definition of ``rule'' as well. In

    its comments, MGEX suggested that the Commission may be exceeding its

    authority by requiring DCMs to submit market maker and trading

    incentive programs as ``rules'' subject to the provisions of part 40.

    MGEX also commented that the terms and conditions of such programs

    should not be submitted to the Commission for approval, because, as a

    policy matter, the Commission should not substitute its judgment for

    ``the business judgment of the registered entities.'' Moreover, in

    MGEX's view, the publication of program terms and conditions could

    inhibit negotiations with market participants. The Commission disagrees

    with MGEX and, for the reasons discussed below, has determined to

    continue requiring registered entities to submit the complete terms and

    conditions of market maker and trading incentive programs to the

    Commission, with an appropriate request for confidential treatment.\5\

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    \5\ Pursuant to Sec. 145.9 of the Commission's regulation,

    registered entities requesting confidential treatment for program

    terms and conditions must, among other things, file a written

    justification for the confidential treatment request.

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    A DCM's rules implementing market maker and trading incentive

    programs fall within the Commission's oversight authority. Indeed, a

    number of core principles touch upon trading issues that may be

    implicated by the design of such programs. Core Principle 9, for

    example, establishes the Commission's framework for regulating the

    execution of transactions, requiring DCMs, like MGEX, to provide a

    competitive, open, and efficient market and mechanism for execution.

    The newly-amended Core Principle 12 also requires DCMs to establish and

    enforce rules to protect markets and market participants from abusive

    practices and to promote fair and equitable trading on designated

    contract markets. In addition, market maker and trading incentive

    programs frequently touch upon Core Principle 19, which requires that

    DCMs avoid adopting any rules or taking any actions that result in

    unreasonable restraints of trade.

    It is not always clear in the first instance whether the rules

    implementing market maker and trading incentive programs have

    implications for a DCM's compliance with these core principles.

    Consequently, for many years, the Commission has required registered

    entities to submit the terms and conditions of all market maker and

    [[Page 44778]]

    trading incentive programs to ensure that, among other things, they do

    not incentivize manipulative activities, unreasonably restrain

    competition on or between exchanges, or otherwise interfere with the

    fair and efficient functioning of the marketplace. Reviewing program

    rules for compliance with applicable law is not tantamount to

    substituting the Commission's judgment for the business judgment of the

    registered entity.

    The Commission continues to view such programs as ``agreements * *

    * corresponding'' to a ``trading protocol'' within the Sec. 40.1

    definition of ``rule'' and, as such, all market maker and trading

    incentive programs must be submitted to the Commission in accordance

    with procedures established in part 40. In addition, to further clarify

    submission obligations, the Commission intends to continue reminding

    each newly-designated contract market, in its designation letter, that

    such programs are considered ``rules'' under Sec. 40.1. The Commission

    would like to emphasize, however, that such programs need not be

    submitted to the Commission for approval, as suggested in MGEX's

    comment. Market maker and trading incentive programs may be submitted

    for approval under Sec. 40.5, but they also may be certified and

    submitted in accordance with the provisions of Sec. 40.6, which has

    been the favored process for submission of market maker and trading

    incentive programs to date.

    In a similar comment concerning the Commission's authority to amend

    rules relating to margin, MGEX stated that ``DCMs and DCOs are best

    qualified to set margins'' in light of their ``extensive historical

    record for doing this well.'' MGEX recommended that the Commission

    provide DCOs ``the broadest latitude possible'' to establish

    appropriate margin rules. The Commission believes that the final

    definition of ``rule,'' as adopted herein--and which does not restrict

    the Commission's review of rules relating to margin levels--is not

    inconsistent with the comment submitted by MGEX. As discussed in the

    proposed rulemaking, Section 736 of the Dodd-Frank Act amends Section

    8a(7) of the Act to permit the Commission to alter or supplement the

    rules of a registered DCO by issuing rules, regulations or orders

    regarding margin requirements. To ascertain whether or not and under

    what conditions to issue such rules, regulations, or orders, the

    Commission must be able to review rules ``relating to the setting of

    levels of margin'' in the first instance, although the Commission is

    not authorized to ``set specific margin amounts'' under Section

    8a(7)(D)(iii) of the Act. The Commission's review of such rules is an

    appropriate exercise of its DCO oversight responsibilities and may not

    result in the Commission taking action under Section 8(a)(7).

    Finally, OCC recommended that the Commission reconsider certain

    language within the proposed definition of ``terms and conditions'' in

    Sec. 40.1(j). Specifically, OCC suggested that the Commission delete

    language that would have required ``proposed swap or contract terms and

    conditions * * * [to] conform to industry standards or those terms and

    conditions adopted by comparable contracts.'' In OCC's view, novel

    products, by their nature, contain provisions that deviate somewhat

    from those in comparable contracts. The Commission, as suggested by

    OCC, intended to prevent registered entities from designing products

    that are economically identical to existing products but that have

    ``one or more unique features that serve no apparent purpose but to

    prevent fungibility.'' Given the potential adverse effect on innovation

    and other proposed regulatory provisions, the Commission has determined

    to revise the definition of ``terms and conditions'' to delete the

    above-cited language.

    To further clarify the definition of ``terms and conditions,'' the

    Commission is revising Sec. 40.1(j) to differentiate between the

    ``terms and conditions'' generally applicable to a contract for the

    purchase or sale of a commodity for future delivery, or an option on

    such a contract or an option on a commodity--not including an option on

    a commodity that falls within the definition of a swap--(``commodity

    futures and options contracts'') in paragraph (j)(1) and the ``terms

    and conditions'' generally applicable to a swap in paragraph (j)(2).

    Some of the ``terms and conditions'' associated with commodity futures

    and options contracts are different from those associated with swaps

    and, accordingly, the revised format for identifying particular

    examples of ``terms and conditions'' applicable to each product type

    may clarify certain submission requirements that are dependent on this

    definition. For example, the Commission has determined to revise the

    introductory paragraph to the definition of ``terms and conditions'' to

    include language that describes a swap's underlying ``trading unit'' or

    ``commodity'' as a ``description of the payments to be exchanged under

    a swap.''

    The examples of ``terms and conditions'' generally applicable to

    commodity futures and options contracts and contained in paragraph

    (j)(1) are being adopted as proposed, except that the Commission has

    determined to amend the definition to include ``no cancellation

    ranges'' within subparagraph (vi). However, as discussed above, the

    Commission also has determined to amend and clarify the definition of

    ``terms and conditions'' by separating those terms and conditions

    generally applicable to commodity futures and options contracts from

    those generally applicable to swaps.\6\ Accordingly, the new and final

    Sec. 40.1(j)(2) provides examples of ``terms and conditions''

    frequently associated with swaps,\7\ which the Commission has

    determined to clarify and/or renumber as follows:

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    \6\ The examples of terms and conditions proposed as paragraphs

    (j)(1)-(14) are being renumbered as paragraphs (j)(1)(i) through

    (xiv) to reflect the inclusion of paragraph (j)(2) for swaps.

    \7\ The Commission notes that the definition of ``swap'' in

    Section 1a(47)(A)(i) of the Act includes an option (``any agreement,

    contract or transaction (i) that is a put, call, cap, floor, collar,

    or similar option of any kind that is for the purchase or sale, or

    based on the value of 1, or more interest or other rates,

    currencies. * * *''

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    Paragraph (j)(2)(i) defines as a ``term'' or ``condition''

    the ``identification of the major group, category, type or class in

    which the swap falls'' and ``any further sub-group, category, type or

    class that further describes the swap.'' \8\ To clarify the meaning of

    this phrase, a parenthetical lists ``interest rate, commodity, credit,

    or equity'' swaps as non-exclusive examples of major swap groups. This

    is equivalent to a description of the ``quality and other standards

    that define the commodity or instrument underlying the contract''

    applied to commodity futures and options contracts in Sec.

    40.1(j)(1)(i);

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    \8\ The terminolory used in this provision, i.e., ``group,

    category, type, or class,'' is used to describe swaps in section 723

    of the Dodd-Frank Act, codified in section 2(h)(2) of the Act,

    regarding the review of swaps for a mandatory clearing

    determination. See also proposed Sec. 39.5 (process for review of

    swaps for mandatory clearing; 75 FR 67277 (Nov. 2, 2010)).

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    Paragraph (j)(2)(ii) refers to ``[n]otional amounts,

    quantity standards, or other unit size characteristics.'' This

    provision, as proposed in paragraph (j)(15)(i), previously referred

    only to ``notional values.'' The revision clarifies that there may be

    more than one way to state the size of a swap;

    Paragraphs (j)(2)(iii) (any applicable premiums or

    discounts for delivery of nonpar products) and (iv) (trading hours and

    the listing of swaps) are parallel to paragraphs (j)(1)(iii) and (iv),

    which are applicable to commodity futures and options contracts;

    Paragraph (j)(2)(v) for swaps, like paragraph (j)(1)(v)

    for commodity

    [[Page 44779]]

    futures and options contracts, addresses the pricing basis of the

    instrument. It refers to ``pricing basis for establishing the payment

    obligations under, and mark-to-market value of, the swap including, as

    applicable, the accrual start dates, termination or maturity dates,

    and, for each leg of the swap, the initial cash flow components,

    spreads, and points, and the relevant indexes, prices, rates, coupons,

    or other price reference measures.'' This incorporates the provisions

    of proposed paragraphs (j)(15)(iii) (indexes), (iv) (relevant prices,

    rates or coupons), (vi) (initial cash flow components), and (x)

    (spreads and points). The Commission notes that other ``price reference

    measures'' could include any factor that might have a bearing on the

    price of a swap, including pricing curves, reference prices, reference

    entities or obligations, reference currencies, disruption fallbacks,

    or, given the variety of existing and potential swap products, any

    other term or condition that affects the pricing basis of the swap;

    Paragraphs (j)(2)(vi) (any price limits, trading halts, or

    circuit breaker provisions, and procedures for the establishment of

    daily settlement prices) and (vii) (position limits, position

    accountability standards, and position reporting requirements) for

    swaps are the same as paragraphs (j)(1)(vi) and (vii), respectively, as

    applied to commodity futures and options contracts;

    Paragraph (j)(2)(viii) refers to ``payment and reset

    frequency, day count conventions, business calendars, and accrual

    features.'' It incorporates proposed paragraphs (j)(15)(ii) (relevant

    dates, tenor and day count conventions), (vii) (payment and reset

    frequency), (viii) (business calendars), and (ix) (accrual type).

    Included within this category are such specifications as payment,

    delivery, pricing and reset dates, day count fractions, holiday

    calendars, and accrual features such as compounding;

    Paragraph (j)(2)(ix) addresses specifications related to

    physical delivery, if physical delivery applies. The enumerated

    features are the same as those listed for commodity futures and options

    contracts in paragraph (j)(1)(ix);

    Paragraph (j)(2)(x) relates to cash settlement and

    provides ``[i]f cash settled, the definition, composition, calculation

    and revision of the cash settlement price, and the settlement

    currency.'' This is the same as paragraph (j)(1)(x) for commodity

    futures and options contracts, except that the new paragraph contains

    an additional reference to settlement currency that incorporates

    proposed paragraph (j)(15)(v) (currency);

    Paragraphs (j)(2)(xi), (xii), (xiii) and (xiv), relating

    to swaps that are options, parallel paragraphs (j)(1)(xi), (xii),

    (xiii) and (xiv) relating to commodity options contracts;

    Paragraph (j)(2)(xv) lists ``[l]ife cycle events'' as a

    term or condition. Originally included in proposed paragraph

    (j)(15)(vi), this encompasses provisions relating to such attributes as

    special assignment, novation, exchange or other transfer rights or

    limitations, special termination events, amendment provisions, rights

    to extinguish obligations under the swap, and special notice

    requirements.

    The Commission would like to clarify that these ``terms and

    conditions'' apply to the submission of products for listing or trading

    by DCMs and SEFs. The Commission's proposed swap-related examples

    referenced ``swaps cleared by a derivatives clearing organization,''

    which may have suggested that the examples were relevant only in

    connection with rules submitted by DCOs. The ``terms and conditions''

    of a swap are relevant to rules that may be submitted by DCMs and SEFs,

    as well as DCOs, and the reference to swaps cleared by DCOs therefore

    has been removed.

    b. Listing Products for Trading by Certification (Sec. 40.2)

    The Commission previously proposed to amend Sec. 40.2(a) to

    require registered entities to accompany their submissions with the

    documentation relied upon to establish the basis for compliance with

    the Act and the Commission's regulations. The Commission received a

    number of comments regarding the proposed documentation requirement in

    Sec. 40.2(a)(3)(v). Two registered entities, ICE Futures and CME,

    commented that the Commission may not have the authority to require the

    submission of documentation with newly-certified products. A number of

    registered entities also found the proposed provision unclear or overly

    prescriptive. The Commission, in consideration of these comments, has

    determined to amend its regulations to clarify the filing obligations

    of registered entities and to ameliorate the perceived burdens

    associated with the proposal.

    ICE Futures and CME suggested that the Commission may not have the

    authority to amend the product submission requirements, because the

    Dodd-Frank Act, while substantially amending statutory provisions

    relevant to the submission of rules and rule amendments, did not amend

    the Act's provisions governing the certification and approval of

    products. The Commission would like to clarify that its proposed

    rulemaking concerned not only Dodd-Frank related amendments but also

    certain amendments that facilitate the Commission's administration of

    the Act. Thus, although the Dodd-Frank Act did not substantively change

    the product certification provisions in Section 5c(c) of the Act, the

    Commission proposed the documentation requirement in Sec. 40.2, as

    well as other provisions,\9\ to expedite the submission review process

    and to ensure adequate consideration is given to legal and financial

    issues arising from new product and rule submissions.

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    \9\ See proposed Sec. Sec. 40.3, 40.5, 40.6, and 40.10, 17 CFR

    part 40 Provisions Common to Registered Entities, 75 FR 57282 (Nov.

    2, 2010).

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    In this regard, the Commission continues to view its product

    submission requirements as a logical adjunct to the certification

    provisions of Section 5c(c)(1) of the Act. To argue that the

    Commission's proposal exceeds statutory authority, the product

    submission provisions of the Act would need to be read strictly to

    require that registered entities merely make--and not support--

    certifications of compliance with the Act and regulations thereunder.

    This interpretation ignores the Commission's product oversight function

    and its duty to examine support for certifications of compliance with

    core principles, including certifications that new products are not

    susceptible to manipulation. The Commission has long recognized ``the

    need to balance the flexibility'' that the Act, as amended by the

    Commodity Futures Modernization Act (``CFMA''), gives ``a DCM in being

    able to [quickly] self-certify new products * * * against the

    obligations of both the DCM and the Commission to assure themselves

    that the certification is accurate--i.e., that the product or rule does

    indeed comply with applicable * * * core principles.'' \10\

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    \10\ See Technical Clarifying Amendmens to Rules for Exempt

    Markets, Derivatives Transaction Executiion Facilities and

    Designated Contract Markets, and Procedural Changes for Derivatives

    Clearing Organization Registration Applications, 71 FR 1953, 1956

    (Jan. 12, 2006).

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    The Commission nevertheless agrees with ICE Futures that it might

    be ``more useful'' for staff to have ``a written explanation'' of the

    newly-certified product than to receive ``pages of reports, data and

    other records.'' The Commission therefore has determined to

    substantially revise Sec. 40.2(a)(3)(v) to require product

    certifications be supported by a ``concise explanation and analysis''

    of the certified product

    [[Page 44780]]

    and its compliance with applicable law. This ``explanation and

    analysis'' must either (1) be accompanied by supporting documentation,

    or (2) incorporate the information contained in such documentation,

    with appropriate citations to data sources.\11\ Thus, under final Sec.

    40.2(a)(3)(v), registered entities certifying new products with an

    appropriately detailed and cited ``explanation and analysis'' do not

    have to submit supporting documentation.

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    \11\ For example, registered entities could incorporate a

    summarized record in the product explanation and analysis with

    reference to a Web site link containing the information relied upon

    to establish compliance with applicable law.

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    The submission of an explanation and analysis is necessary for the

    Commission's review of a new product certification. The Commission has

    encountered numerous instances in which registered entities provided

    only cursory supporting analyses for their product submissions or, in

    certain cases, failed to document the evidentiary basis for their

    certifications altogether. The Commission also has experienced undue

    delays in receiving certain requested information, suggesting that

    supporting analyses had not been prepared by the registered entities as

    of the time of request.\12\ Without prompt receipt of supporting

    information, the staff must expend significant resources and time to

    replicate existing analyses or to otherwise independently establish a

    product's compliance with applicable law. In addition, the staff

    frequently has found it necessary to contact registered entities for

    additional guidance on product submissions. To address these problems,

    final Sec. 40.2(a)(3)(v) facilitates the staff's review of new

    products subsequent to certification while discouraging unsupported

    certification of products in the first instance.\13\ The more flexible

    and substantially revised provision permits registered entities to

    support product certifications in a manner that may be most effective

    and least costly under the circumstances.

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    \12\ Staff recently received a number of self-certified

    submissions containing insufficient information for several

    products, implicating a number of core principles. Each submission's

    deficiencies were corrected only after numerous discussions with the

    Commission's staff, a process that exhausted significant resources

    and time.

    \13\ Moreover, the Dodd-Frank Act's elimination of certain

    exemptions and exclusions relied upon by currently operating exempt

    entities may encourage these entities to register with the

    Commission, thereby increasing the number of product certifications

    subject to staff review.

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    The Commission notes that the explanation and analysis supporting a

    product certification requires the incorporation of information that,

    in many cases, is already collected or reviewed by registered entities.

    For example, registered entities complying with the guidance and

    acceptable practices in the Guideline No. 1 Appendix to part 40

    presently must review and, if necessary, develop the evidentiary basis

    for certain certifications prior to submitting new products for

    Commission review. Moreover, under existing Sec. 40.2(b), registered

    entities must, upon receipt of a staff request, submit this or other

    supporting information to substantiate product submissions. The routine

    provision of a concise explanation and analysis should be no more

    burdensome than compliance with existing regulations requiring

    registered entities to collect supporting information and to further

    explain and submit such information upon request.

    To further address comments concerning the perceived burdens of the

    product submission requirements, the Commission also has determined to

    streamline the product certification process for a significant

    percentage of swap contracts \14\ by permitting DCMs and SEFs to

    certify, within a single submission, one or more swaps without

    submitting each swap and its supporting information to the Commission.

    To list a particular swap or a particular number of swaps through the

    class certification provisions of new Sec. 40.2(d), the DCM or SEF

    must certify that each of the individual contracts within the certified

    class complies with certain conditions.

    ---------------------------------------------------------------------------

    \14\ According to a recently published report by the

    International Organization of Securities Commissions (``IOSCO''),

    interest rate swaps comprised approximately 77.5% of the total

    outstanding notional value of over-the-counter swaps. Foreign

    exchange swaps accounted for another 9.1%. See Technical Committee

    of IOSCO, Report on Trading of OTC Derivatives, 1, 6 (Feb. 3, 2011).

    ---------------------------------------------------------------------------

    A DCM or SEF may submit a class certification only if each swap

    within the certified class of swaps complies with the conditions

    specified in Sec. 40.2(d)(1)(i)-(iv). First, each swap within the

    certified class of swaps must be based upon an ``excluded commodity,''

    as defined in Sec. 40.2(d)(1); these swaps include, for example,

    interest rate swaps, swaps on widely-held and liquid currencies, and

    swaps based upon the occurrence or non-occurrence of certain events or

    contingencies. Second, if more than one swap is included in a single

    filing under Sec. 40.2(d), each particular swap within the certified

    class of swaps must be based upon an excluded commodity with an

    identical pricing source and methodology for calculating reference

    prices and payment obligations. This ensures that DCMs and SEFs

    simultaneously certify, for example, only those interest rate swaps

    with a common pricing source--such as Thomson Reuters on behalf of the

    British Bankers' Association (``BBA'')--and a common methodology for

    calculating the reference rates for swaps with varying maturities--such

    as the contributor averaging methodology used to calculate each of the

    BBA's fifteen London Interbank Offer Rates (``LIBOR'') for a particular

    currency. Thus, a DCM or SEF may class certify (i.e., include in a

    single submission under Sec. 40.2) a number of LIBOR-based interest

    rate swaps for a particular currency notwithstanding the varying

    underlying maturities or varying tenors of swaps within the certified

    class.

    Third, the regulation limits class certifications to swaps based

    upon sources and methodologies that the Commission previously reviewed

    in connection with a certified or approved futures or swap contract.

    This ensures that the Commission had an opportunity to review the

    particular pricing source and methodology used in each of the swaps

    within the certified class of swaps.\15\ Fourth and finally, each

    particular swap within the certified class of swaps must be based upon

    an excluded commodity involving an identical currency or identical

    currencies. For example, a swap based upon 3-month LIBOR for U.S.

    Dollars may not be submitted in the same submission as a swap based

    upon the 3-month LIBOR rate for any of the other 9 currencies presently

    included in the BBA survey.

    ---------------------------------------------------------------------------

    \15\ Based upon its experience with Sec. 40.2(d), the

    Commission may consider expanding the classes of commodities

    eligible for class certification in a future rulemaking.

    ---------------------------------------------------------------------------

    To further streamline the new product submission process, the

    Commission also has determined to permit DCOs to submit products

    accepted for clearing under the forthcoming provisions of Sec. 39.5.

    As proposed, the second provision of Sec. 40.2(a) would have retained

    the existing requirement that, prior to accepting any over-the-counter

    product for clearing, a DCO must submit the new product pursuant to the

    provisions of part 40. Comments submitted in connection with the

    proposed process for review of swaps for mandatory clearing indicated

    some confusion about the interplay between the Sec. 40.2 product

    submission process and the Sec. 39.5 submission process for a

    mandatory clearing determination. In light of the introduction of

    procedures for a DCO to submit swap products for a mandatory clearing

    determination under Sec. 39.5 and the potential for confusion as to

    the interaction between

    [[Page 44781]]

    the two regulatory provisions, the Commission has reconsidered what

    would have been a dual submission requirement. The Commission therefore

    is deleting from Sec. 40.2 the provision requiring submission of new

    products by a DCO.\16\ A DCO may submit a single filing in accordance

    with Sec. 39.5 instead of submitting two filings--one under Sec. 40.2

    and one under Sec. 39.5--and the information required for the Sec.

    39.5 submission encompasses the information that would otherwise be

    required under Sec. 40.2. The Commission believes that this revision

    will facilitate the product submission process without adversely

    affecting the supervisory purpose of regulations requiring the

    submission of products for Commission review.

    ---------------------------------------------------------------------------

    \16\ DCOs voluntarily seeking prior approval to clear a new

    product under Sec. 40.3 may still submit two filings--one under

    Sec. 40.3 and one under Sec. 39.5.

    ---------------------------------------------------------------------------

    In other comments related to product certification requirements,

    registered entities stated that the price certification provision in

    proposed Sec. 40.2(a)(3)(vi) required unclear or vague certifications

    concerning matters unrelated to the Commission's core regulatory

    functions. CME commented that registered entities already have

    sufficient incentives--for example, avoiding possible litigation--to

    ensure that products meet applicable legal standards. In addition, ICE

    Futures commented that the Commission's proposal ``exceed[ed] the

    requirements contained in [the] Dodd-Frank [Act]'' and

    ``inappropriately inject[ed] the Commission into the commercial and

    business practices of registered entities.'' In its view, the

    Commission should not be the ``business and legal sounding board for

    each registered entity in the area of intellectual property and other

    legal conditions.'' Moreover, ICE Futures questioned ``whether the

    Commission would be properly positioned to make * * * complex

    [intellectual property] determinations'' as part of the product review

    process. The OCC did not object to the price certification requirement

    but questioned whether it served a ``useful purpose.'' The OCC

    correctly stated that registered entities are required to abide by the

    Act and the Commission's regulations, which contemplate appropriate due

    diligence concerning intellectual property and pricing issues,

    ``whether or not [they] give[] * * * a [special] certification'' to

    that effect.

    The Commission, in consideration of these comments, has determined

    not to adopt proposed Sec. 40.2(a)(3)(vi). The Commission recognizes

    that registered entities should, and generally are, sensitive to

    intellectual property issues that might arise in the course of

    developing a new product and that the general certification provision

    in Sec. 40.2(a)(3)(iv) captures the more specific settlement price

    certification proposed in Sec. 40.2(a)(3)(vi).\17\ However, in light

    of recent experience, the Commission disagrees with the assertion that

    registered entities, without exception, sufficiently account for

    intellectual property issues when listing new products for trading. In

    fact, a DCM was recently involved in a legal dispute concerning the use

    of certain published third-party prices. Although the DCM had been

    facilitating trading in contracts referencing these prices, another

    entity obtained an exclusive license to use the third party's prices

    and, accordingly, threatened to seek legal action to enjoin the DCM

    from further referencing those prices to cash settle its products. The

    DCM ultimately found an alternative means for settlement of its

    existing contracts but not without some disruption to the market. The

    episode highlights the relevance and necessity of appropriate due

    diligence in referencing third-party prices for purposes of cash

    settlement. Market participants should be able to enter into positions

    in a newly-certified contract without concerns that the registered

    entity's use of a particular price may be subject to legal challenge.

    Legal challenges or disputes can be not only disruptive to the

    marketplace but also may undermine confidence in the futures and

    derivatives markets. Moreover, such challenges or disputes can affect

    the value of positions taken in contracts subject to the controversy.

    ---------------------------------------------------------------------------

    \17\ Accordingly, implicit in any certification that a product

    complies with the Act and the Commission's regulations is an

    assertion that the submitting entity has the rights to use or

    reference a particular price. Filing a false certification could

    result in a Commission action under Sec. 40.2(c).

    ---------------------------------------------------------------------------

    Thus, although the Commission has determined not to adopt the

    proposed pricing certification provisions, it notes that the staff, in

    its discretion and as part of its due diligence reviews of new product

    submissions, may request information under Sec. 40.2(b) concerning

    whether a registered entity has obtained the legal rights to use or

    reference proprietary prices, including third-party index prices, in

    connection with the listing or trading of a product. Registered

    entities submitting a product that uses prices published by another

    market or that references third-party prices should include all

    information relevant to the cash settlement of the product with its

    accompanying explanation and analysis. In this regard, a simple

    statement that the registered entity has the legal rights to use or

    reference a particular price could expedite Commission staff review

    without imposing a material burden on either the Commission or

    registered entities.

    Finally, the Commission notes that registered entities frequently

    submit product ``terms and conditions'' with accompanying rules--for

    example, rules establishing block trade thresholds--that, upon the

    effective date of these regulations, will be subject to a new rule

    certification review process. Such ``rules'' or ``rule amendments''

    submitted in connection with the listing or trading of a product, if

    not included in the definition of ``terms and conditions,'' will not be

    effective and cannot be implemented until properly submitted for

    Commission review under Sec. Sec. 40.5 or 40.6. The Commission also

    notes that the ``terms and conditions'' of a product, as defined in

    Sec. 40.1(j), must be submitted in connection with the listing or

    trading of a product and therefore would become effective one full

    business day after the business day of submission. However, if ``terms

    and conditions'' submitted in connection with the listing or trading of

    a particular contract would amend the existing terms or conditions of a

    previously certified or approved product, such ``terms and conditions''

    must be certified under Sec. 40.6 or submitted for approval under

    Sec. 40.5 as well.

    c. Voluntary Submission of New Products for Commission Review and

    Approval (Sec. 40.3)

    For the reasons noted in its explanation of amendments to Sec.

    40.2, the Commission has determined to revise its documentation

    provisions in proposed Sec. 40.3(a)(4) and to eliminate the price

    certification provisions in proposed Sec. 40.3(a)(9). The amendments

    parallel those adopted with respect to product certifications under

    Sec. 40.2. Final Sec. 40.3(a)(4) requires that products submitted for

    Commission approval be accompanied by an explanation and analysis of

    the product and its compliance with applicable law and either (1) the

    documentation relied upon to establish the basis for compliance with

    applicable law, or (2) the information contained within such

    documentation, with appropriate citations to data sources.

    The Commission received a comment concerning its existing

    regulation governing staff requests for additional information under

    final Sec. 40.3(a)(10). The OCC commented that the two-day deadline

    for responses to requests for additional information may be

    insufficient and impractical in certain circumstances. It reasoned that

    [[Page 44782]]

    registered entities generally seek to provide ``additional materials as

    soon as possible in order to expedite the staff's review of the new

    product'' and that the regulation's inflexible deadline therefore was

    unnecessary. The OCC also suggested that the Commission adopt

    alternative language to permit registered entities to ``notify the

    Commission'' that additional time is ``reasonably required to provide

    the requested evidence'' and, in such cases, to require the submission

    of this information no later than ten business days subsequent to the

    request, or at the completion of a longer period specified by staff.

    The Commission has determined that a longer response period is not

    appropriate for the submission of additional information. The

    Commission has a limited timeframe for making final determinations

    under the product approval provisions of Sec. 40.3 and the prompt

    receipt of requested information frequently is requisite to its

    determination regarding the submission. In light of the OCC's comment,

    however, the Commission has determined to amend the final Sec.

    40.3(a)(10) to permit, at the discretion of its staff and upon receipt

    of a written request from the registered entity, an extension of time

    for the submission of additional information.

    d. Amendments to Terms or Conditions of Enumerated Agricultural

    Contracts (Sec. 40.4)

    The Commission has determined to adopt technical amendments to

    Sec. 40.4(b)(3) to permit registered entities to implement ``[c]hanges

    in no cancellation ranges'' for enumerated agricultural contracts

    without prior approval, provided these rules are properly submitted to

    the Commission pursuant to Sec. 40.6. Newly-certified products

    frequently include terms and conditions related to ``no cancellation

    ranges'' and the Commission does not believe it appropriate to delay

    implementation of a no cancellation range for products involving

    enumerated agricultural commodities, especially when those products may

    be actively trading through a registered entity.

    e. Voluntary Submission of Rules for Commission Review and Approval

    (Sec. 40.5)

    For the reasons noted below, the Commission has determined to

    eliminate the documentation provision previously proposed in Sec.

    40.5(a)(7), to revise existing Sec. 40.5(a)(5) to be similar to final

    Sec. 40.6(a)(7)(v), and to eliminate proposed Sec. 40.5(a)(10). The

    Commission notes that the ``explanation and analysis'' requirement in

    final Sec. 40.5(a)(5) does not include the qualifier that the

    submission be ``concise.'' The Commission requires registered entities

    to provide a more detailed explanation and analysis of rules

    voluntarily submitted for Commission approval under the provisions of

    Sec. 40.5.

    f. Self-Certification of Rules (Sec. 40.6)

    The Commission received a number of comments concerning the

    proposed documentation requirement in Sec. 40.6(a)(7)(v) and its

    application to routine rules and rule amendments. The OCC, for example,

    commented that it is frequently ``obvious'' that a routine rule

    submission complies with applicable statutory and regulatory provisions

    and that the documentation requirement failed to account for the fact

    that many rules warrant the submission of minimal, if any, supporting

    documentation. Similarly, KCBOT commented that many rule submissions

    need be supported only by a ``cursory review of the rule or rule change

    in relation to Commission regulations,'' with little or no

    ``significant benefit'' to be gained from the collection or provision

    of supporting documentation. Like comments concerning the submission of

    documentation in Sec. Sec. 40.2 and 40.3, a number of comments also

    stated that the submission of documentation in connection with all new

    rules and rule amendments would be burdensome and unlikely to yield

    benefits that outweighed costs.

    The Commission has determined, in consideration of these comments,

    to eliminate its proposed documentation requirement in Sec.

    40.6(a)(7)(v) and to insert in its place a requirement that registered

    entities provide a ``concise explanation and analysis'' of the

    ``operation, purpose, and effect'' of certified rules, consistent with

    the existing requirement in Sec. 40.5(a)(5). Unlike the certification

    provisions applicable to new products, the rule certification

    provisions of the Act provide the staff ten-business days to review new

    rules and rule amendments and, if necessary, to prevent them from

    becoming effective until staff receives adequate information from the

    submitting entity.\18\ Registered entities therefore should have

    sufficient incentives to provide adequate explanations of new

    submissions under Sec. 40.6 without the provision of actual

    documentation.\19\

    ---------------------------------------------------------------------------

    \18\ Pursuant to Section 745 of the Dodd-Frank Act, the

    Commission has ten-business days to review rule certifications and

    to determine whether to stay certain submissions--including those

    submitted with inadequate information--for as many as 90 additional

    days. Moreover, the Commission's staff may request additional

    information at any time during the applicable rule review period

    pursuant to existing Sec. 40.6(a)(8).

    \19\ CME commented that the extended review period should not be

    ``mandatorily invoked in the event a rule submission [is] stayed due

    to the provision of inadequate information.'' In its view, the

    public comment period associated with stayed rules is designed to

    solicit external perspectives regarding only ``controversial''

    submissions. The Commission does not, however, have the authority to

    prevent a stayed submission from being subject to the extended

    review and public comment requirements. Section 745 of the Dodd-

    Frank Act provides that the Commission's issuance of a notification

    ``shall stay the certification of the new rule or rule amendment''

    and that ``[t]he Commission shall provide a not less than 30-day

    public comment period.'' However, the Commission acknowledges that

    its authority to issue a notification of stay in the first instance

    is discretionary rather than mandatory. Under Sec. 40.6(c), the

    Commission ``may stay the certification of a new rule or rule

    amendment'' for the enumerated reasons, but it may also request a

    revised submission that would render a notice of stay unnecessary.

    Accordingly, the Commission's regulations permit--but do not

    require--a stay of any submission that omits information that could

    ``reasonably be deemed important by the Commission,'' as noted by

    FIA.

    ---------------------------------------------------------------------------

    The ``concise explanation and analysis'' will facilitate the

    Commission's review of newly-certified rules and rule amendments.

    Registered entities recently have submitted rule submissions with only

    a cursory explanation of the rule change and a conclusory statement

    concerning the submission's compliance with core principles. As a

    consequence, the staff frequently has found it necessary to contact

    registered entities for additional guidance on submissions and the

    potential implications for compliance with core principles. The

    Commission's review of the explanation and analysis will be less

    burdensome--both for the Commission and registered entities--than the

    current practice of contacting registered entities to request

    explanations and analyses subsequent to each rule submission.\20\ Like

    the explanation and analysis required for new product submissions, the

    explanation and analysis of certified rules or rule amendments should

    be a

    [[Page 44783]]

    clear and informative--but not necessarily lengthy--discussion of the

    submission, the factors leading to the adoption of the rule or rule

    amendment, and the expected impact of the rule or rule amendment on the

    public and market participants.

    ---------------------------------------------------------------------------

    \20\ The Commission believes that its final regulations will

    conserve both Commission and registered entity resources. Subsequent

    to the effective date of the Dodd-Frank, the Commission anticipates

    an increase in the number of new and amendatory rule submissions

    implementing the Dodd-Frank Act and forthcoming regulations, as well

    as an increase in the number of registered entities submitting such

    rules. Concise explanations and analyses will assist the

    Commission's staff in conducting its due diligence within the

    initial 10-business-day review period, thereby minimizing potential

    delays for registered entities. Moreover, registered entities

    presently submit a large number of rules and rule amendments

    throughout the year; CME, for example, noted that it submitted more

    than 342 rules in the last calendar year alone.

    ---------------------------------------------------------------------------

    In another comment concerning proposed Sec. 40.6, the FIA

    encouraged the Commission to adopt regulations that would maximize the

    transparency of the rule submission process, as well as account for the

    expertise of market participants. The Commission, in consideration of

    the FIA's comment, intends to continue its practice of publishing all

    incoming submissions on its Web site and will continue developing a Web

    portal at cftc.gov that, once completed, should expedite both

    Commission and public review of submissions.\21\ The Commission also

    intends to facilitate public comment by enabling interested parties to

    submit comments directly from the submissions page on the Commission's

    Web site. As noted in the notice of proposed rulemaking, the Commission

    presently is working on enhancements to its Web site and information

    technology systems that will, among other things, enable the Commission

    to promptly inform the public of rule submissions and stays of rule

    submissions. The Commission also intends to continue using its current

    ability to provide notice through e-mail notifications and RSS feeds to

    those who choose to sign-up for them.

    ---------------------------------------------------------------------------

    \21\ Given the short time period for the Commission's review,

    the Commission agrees with FIA that immediate Web site notice is ``a

    far superior alternative to waiting several days for Federal

    Register publication of the rule or product filing.''

    ---------------------------------------------------------------------------

    The Commission would like to note that the ``industry filings'' tab

    on the Commission's Web site currently consolidates all filings onto a

    single Web page and posts them for public review with a brief

    explanation of the rule or rule amendment. Market participants and the

    public can click on a link within this Web page and access all rule

    filings by registered entities. Thus, although the Commission does not

    intend to publish a ``daily rule digest,'' as suggested by the FIA, all

    market participants currently have and will continue to have access to

    submissions in an organized format, which will be complemented by the

    ``concise explanation and analysis'' accompanying each submission.

    The FIA also commented that, with respect to rules submitted in

    response to an emergency pursuant to Sec. 40.6(a)(6), the Commission

    should not limit the ability of registered entities ``to respond as may

    be necessary to the unforeseen circumstances of an emergency

    situation.'' The FIA expressed concerns, however, that a registered

    entity could potentially ``cite an emergency event as the grounds for a

    fundamental recasting'' of regulatory responsibilities. The Commission

    agrees that registered entities must be able to respond flexibly and

    decisively to emergencies. In addition, the Commission acknowledges the

    possibility that a registered entity could attempt to immediately

    implement a rule and bypass the rule certification process by asserting

    that the rule is in response to an emergency. The final regulations

    accordingly clarify that registered entities are required to certify

    any rule implemented in response to an emergency under the procedures

    set forth in Sec. 40.6. The staff will review such certifications for

    compliance with applicable law in situations where the rule, by

    necessity, has been implemented and in situations where the rule is

    intended for implementation prior to the completion of the 10-business-

    day review period. In either situation, the staff may permit the

    registered entity's rule to remain effective or it may determine that

    the implemented rule should be stayed for an extended review.\22\

    ---------------------------------------------------------------------------

    \22\ The Commission's staff may stay a rule or rule amendment

    implemented in response to an emergency for the same reasons that it

    may stay other rules or rule amendments submitted pursuant to the

    procedures in part 40. Specifically, the staff may stay the rule for

    an extended review if the submission insufficiently explains the

    emergency or the registered entity's response, presents novel or

    complex issues warranting further consideration, or is potentially

    inconsistent with the Act or regulations thereunder.

    ---------------------------------------------------------------------------

    The Commission is adopting three revisions to its proposed

    regulations in Sec. 40.6. First, the price certification in proposed

    Sec. 40.6(a)(7)(viii) has been eliminated for the reasons discussed in

    connection with revisions to proposed Sec. Sec. 40.2(a)(3)(vi),

    40.3(a)(9), and 40.5(a)(10). Second, the Commission, in consideration

    of comments from both CME and OCX, has determined to amend Sec.

    40.6(a) to make rules delisting or withdrawing the certification of

    products effective upon submission to the Commission. The Commission

    agrees that such submissions should be exempt from the 10-business-day

    review period in order to avoid complicating the delisting of the

    product by providing market participants an opportunity to enter into

    contracts between the time period of submission and the effective date

    of the rule.\23\ Finally, the Commission, in response to a comment from

    the OCC, is retaining the existing language in Sec. 40.6(d) that

    permits certain non-substantive rules to take effect without

    certification to the Commission.

    ---------------------------------------------------------------------------

    \23\ The Commission has the discretion to permit certain rules

    to become effective prior to the expiration of the 10-business-day

    rule review period, provided it establishes the effective date of

    such rules by rule or regulation. See Section 5c(c)(2) of the Act,

    as amended by Section 745(b) of the Dodd-Frank Act.

    ---------------------------------------------------------------------------

    g. Delegations (Sec. 40.7)

    The Commission is correcting a typographical error that appeared in

    proposed Sec. 40.7(a)(1) by replacing the reference to ``Sec.

    40.5(c)(1)(B)'' with a reference to ``Sec. 40.5(c)(1)(ii).''

    h. Availability of Public Information (Sec. 40.8)

    The Commission has determined to adopt technical amendments to

    Sec. 40.8 to reflect possible changes in the designation or

    registration application procedures for DCMs, SEFs, DCOs and SDRs.\24\

    Specifically, Sec. 40.8(a) will make public the following: (1) The

    transmittal letter and first page of the ``cover sheet'' of

    applications; (2) the applicant's regulatory ``compliance chart;'' and

    (3) the ``narrative summary'' of the applicant's proposed activities.''

    \25\

    ---------------------------------------------------------------------------

    \24\ See, e.g., 76 FR 3698 (Jan. 20, 2011) (proposing revisions

    to DCO application procedures).

    \25\ See id. at 3718 (proposing a parallel public information

    provision in Sec. 39.3(a)(5)).

    ---------------------------------------------------------------------------

    i. Special Certification Procedures for Submission of Rules by

    Systemically Important Derivatives Clearing Organizations (Sec. 40.10)

    CME, FIA, LCH, and OCC submitted comments regarding the

    Commission's proposed regulations to implement Section 806 of the Dodd-

    Frank Act. Section 806 requires a financial market utility that has

    been designated by the Financial Stability Oversight Council (``FSOC'')

    to be systemically important to provide its Supervisory Agency with 60

    days advance notice of any proposed changes to rules, procedures, or

    operations that could materially affect the nature or level of risks

    presented by the financial market utility. Section 40.10 sets forth

    implementing requirements for SIDCOs.

    Proposed Sec. 40.10(a) required that all SIDCOs provide 60 days

    advance notice to the Commission in accordance with Section 806 of the

    Dodd-Frank Act. In a separate proposed rulemaking, the Commission

    proposed to define a ``systemically important derivatives clearing

    organization'' to mean a ``financial market utility that is a

    derivatives clearing organization registered under section 5b of the

    Act (7 U.S.C. 7a-1), which has been designated by the FSOC to be

    systemically

    [[Page 44784]]

    important.'' \26\ Under this definition, a DCO could be a SIDCO even if

    the Commission was not its Supervisory Agency and, as an unintended

    result, proposed Sec. 40.10 would require such a DCO to provide

    advance notice to the Commission.

    ---------------------------------------------------------------------------

    \26\ See 75 FR 77576, 77586 (Dec. 13, 2010).

    ---------------------------------------------------------------------------

    OCC pointed out this issue, noting that the authority for Sec.

    40.10(a) is Section 806(e)(1)(A) of the Dodd-Frank Act, which requires

    a systemically important financial market utility to provide 60 days

    advance notice to ``its Supervisory Agency.'' Under Section 803(8)(B)

    of the Dodd-Frank Act, there can be only one Supervisory Agency for a

    financial market utility designated as systemically important.\27\

    ---------------------------------------------------------------------------

    \27\ Section 803(8)(B) provides as follows: ``Multiple Agency

    Jurisdiction: If a designated financial market is subject to the

    jurisdictional supervision of more than 1 agency listed in

    subparagraph (A), then such agencies should agree on 1 agency to act

    as the Supervisory Agency, and if such agencies cannot agree on

    which agency has primary jurisdiction, the Council shall decide

    which agency is the Supervisory Agency for purposes of this title.''

    ---------------------------------------------------------------------------

    The Commission recognizes that some DCOs, like OCC, may be

    regulated by more than one Federal agency. In the case of OCC, if it

    were designated as a systemically important financial market utility,

    it is possible that it would be so designated because of its activities

    as a securities clearing agency, not because of its activities as a

    DCO. Accordingly, the SEC, not the Commission, would likely be its

    Supervisory Agency.

    OCC recommended revising the language in Sec. 40.10(a) to clarify

    that advance notice to the Commission would be required only for DCOs

    for which the Commission is the Supervisory Agency.\28\ Although the

    Commission is adopting Sec. 40.10(a) as proposed, it intends to act on

    OCC's suggestion by revising the definition of ``systemically important

    derivatives clearing organization'' in a future final rulemaking to

    clarify that a SIDCO is a financial market utility that has been

    designated by the FSOC to be systemically important and for which the

    Commission acts as its Supervisory Agency pursuant to section 803(8) of

    the Dodd-Frank Act. This clarification will address the issue raised by

    OCC in connection with Sec. 40.10 and will serve to clarify the scope

    of any other regulations relating to SIDCOs.

    ---------------------------------------------------------------------------

    \28\ OCC suggested revising Sec. 40.10(a) to read, in relevant

    part: ``A registered derivatives clearing organization that has been

    designated by the Financial Stability Oversight Council as a

    systemically important derivatives clearing organization and for

    which the Commission acts as the Supervisory Agency pursuant to

    Section 803(8) of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act shall provide notice to the Commission * * *'' See

    OCC letter at 7.

    ---------------------------------------------------------------------------

    Proposed Sec. 40.10(a) required a SIDCO to notify the Commission

    of a change in rules, procedures, or operations that could materially

    affect the nature or level of risks presented by the SIDCO. OCC and CME

    commented that a SIDCO would be required to notify the Commission of

    proposed changes that could decrease the nature or level of risk in

    addition to changes that could increase the nature or level of risk.

    OCC does not believe that a SIDCO should be required to report a change

    that could materially reduce risk under Sec. 40.10 because the

    proposed change would be subject to a 60-day ``waiting period,'' and

    the goal of reducing risk is not served by requiring that such a change

    be subject to delay.

    Similarly, CME expressed the view that the Dodd-Frank Act does not

    provide the Commission with authority to impose a 60-day advance notice

    requirement for changes in rules, procedures, or operations that could

    improve the operations of a SIDCO, and it believes the Commission

    should exercise its authority over risk-reducing changes under the

    certification procedures of Sec. 40.6.

    OCC and CME proposed that the Commission change Sec. 40.10(a) to

    cover only a proposed change in rules, procedures, or operations that

    could have a materially adverse impact on risk. The Commission has

    determined not to adopt this suggested revision for the reasons

    discussed below.

    As a preliminary matter, the Dodd-Frank Act does not distinguish

    between a change that could materially increase or decrease the nature

    or level of risks presented by a SIDCO. Although Congress could

    reasonably have expected that risk-related changes are almost always

    intended to reduce risk, it required advance notice of ``any'' change

    that could ``affect'' risk and did not limit Section 806 to only those

    instances where a change could increase risk. Moreover, the purpose of

    advance notice is to assist the Commission in monitoring systemic risk

    and in seeing that SIDCOs effectively manage risk in furtherance of

    compliance with the core principles. The Commission acknowledges that

    requiring a SIDCO to notify the Commission under Sec. 40.10 of a

    change that could materially reduce risk could delay the time when that

    change becomes effective. However, a proposed change that could

    materially reduce risk in certain respects also could materially

    increase risk in other respects, and a SIDCO and the Commission might

    come to different conclusions when evaluating whether a particular

    change could increase or decrease risk, overall. For example, a SIDCO

    could reduce risk by requiring heightened membership requirements, but

    this might also reduce the number of clearing members and therefore

    increase concentration of risk. As a practical matter, even for

    ostensibly risk-reducing changes, there may be adverse consequences

    that the Commission should have the opportunity to consider in the time

    frame set forth in Section 806 of the Dodd-Frank Act.

    The Commission notes that, as proposed, Sec. 40.10(g) provides

    that a SIDCO may implement a change in less than 60 days from the date

    the Commission receives the notice of proposed change or the date the

    Commission receives any further information it has requested, if the

    Commission notifies the SIDCO in writing that it does not object to the

    proposed change and authorizes implementation of the change on an

    earlier date, subject to any conditions imposed by the Commission. To

    further address the concerns expressed by the commenters, the

    Commission is adding a new paragraph (a)(3) that provides that a SIDCO

    may request that the Commission expedite the review on the grounds that

    the change would materially decrease risk. The Commission, in its

    discretion, may expedite the review and, pursuant to paragraph (g) of

    this section, notify the SIDCO in less than 60 days.

    The concern that Sec. 40.10 prevents a SIDCO from instituting a

    risk-reducing change in less than 60 days may be overstated. Section

    40.10(g) allows a SIDCO to implement a change in less than 60 days if

    the Commission notifies the SIDCO in writing that it does not object to

    the change. Moreover, unless an emergency exists, it is unlikely the

    market would be significantly harmed if implementation of the change

    were delayed for more than 10 days, which is the basic time period for

    the Commission's review of certified rules under Sec. 40.6.

    Proposed Sec. 40.10(h) required a SIDCO to provide notice to the

    Commission of an emergency change no later than 24 hours after

    implementation of the change.\29\ Among other things, the proposed rule

    required the notification to include the information set forth in

    proposed Sec. 40.10(a). OCC commented that it is not practical to

    require a SIDCO's emergency filing to conform to the requirements of

    Sec. 40.10(a) within 24

    [[Page 44785]]

    hours of implementing the change. OCC proposed a two-stage approach

    whereby the SIDCO would file an initial notice within 24 hours of the

    change and would submit a more extensive filing conforming to Sec.

    40.10(a) as soon as reasonably practicable thereafter, but in any event

    not more than 30 days after implementation of the change.

    ---------------------------------------------------------------------------

    \29\ This standard is consistent with the 24-hour requirement

    for emergency rule certifications under Sec. 40.6(a)(6).

    ---------------------------------------------------------------------------

    The Commission notes that Sec. 40.10(h)(1) codifies Section

    806(e)(2)(B) of the Dodd-Frank Act, which requires that the emergency

    notice be provided as soon as practicable and no later than 24 hours

    after implementation of the change. Section 40.10(h)(2) codifies

    Section 806(e)(2)(C), which requires that the notice contain the

    information that must be submitted for changes subject to advance

    notice, plus a description of the nature of the emergency and the

    reason the change was necessary for the SIDCO to continue to provide

    its services in a safe and sound manner. These provisions do not

    provide for partial or late submissions, as suggested by OCC. However,

    the Commission believes that it can adequately address the concern

    expressed by OCC.

    As proposed, Sec. 40.10(a) required a SIDCO to provide the

    information required by proposed Sec. 40.6(a)(7) within 24 hours. OCC

    singled out the documentation requirement in proposed Sec.

    40.6(a)(7)(v) as one that would be difficult to satisfy within 24

    hours. As discussed above, that provision, as adopted herein, has been

    revised to significantly reduce the perceived burden of the proposed

    rule, and the Commission believes that a SIDCO should be able to

    provide the required ``concise explanation and analysis,'' as well as

    other required information within 24 hours.

    LCH observed that the Commission may require modification or

    rescission of an emergency change if it finds that the change is not

    consistent with the Act or the Commission's regulations. According to

    LCH, this could lead to legal uncertainty regarding activities

    undertaken while the emergency change is in effect. As a result, LCH

    proposed that the Commission revise Sec. 40.10(h)(3) by adding a

    provision to immunize from legal challenge any action taken by a SIDCO

    pursuant to an emergency change that is later modified or rescinded by

    the Commission.\30\ The Commission is not taking further action on

    LCH's suggestion because it believes that the existing enforceability

    provisions in Sec. 39.6 of the Commission's regulations adequately

    address the concern expressed by LCH.\31\

    ---------------------------------------------------------------------------

    \30\ LCH proposed that the Commission add the following language

    adapted from Section 739 of the Dodd-Frank Act (regarding swaps):

    ``* * * However, no modification or rescission shall retroactively

    affect the enforceability of any power exercised by the SIDCO, nor

    shall any agreement, contract or transaction entered into by the

    SIDCO or its counterparty pursuant to the exercise by such SIDCO of

    any emergency change, be void, voidable, or unenforceable, and no

    party to such agreement, contract, or transaction shall be entitled

    to rescind, or recover, any payment made with respect to, the

    agreement, contract, or transaction under this section or any other

    provision of Federal or State law.''

    \31\ Section 39.6 provides as follows:

    An agreement, contract or transaction submitted to a derivatives

    clearing organization for clearance shall not be void, voidable,

    subject to rescission, or otherwise invalidated or rendered

    unenforceable as a result of:

    (a) A violation by the derivatives clearing organization of the

    provisions of the Act or of Commission regulations; or

    (b) Any Commission proceeding to alter or supplement a rule

    under section 8a(7) of the Act, to declare an emergency under

    section 8a(9) of the Act, or any other proceeding the effect of

    which is to alter, supplement, or require a derivatives clearing

    organization to adopt a specific rule or procedure, or to take or

    refrain from taking a specific action. See also Sec. 38.6

    (comparable enforceability provisions for DCMs); and proposed Sec.

    37.6, 76 FR 1214, 1240 (Jan. 7, 2011) (comparable enforceability

    provisions for SEFs).

    ---------------------------------------------------------------------------

    In the notice of proposed rulemaking, the Commission solicited

    comment as to whether there are any changes a SIDCO should be

    prohibited from adopting on an emergency basis. FIA and CME did not

    favor imposing any restrictions on a SIDCO's response to an emergency.

    CME also noted that a DCO does not have unfettered discretion to act in

    an emergency situation. Rather, a DCO's ability to act is limited by

    the emergency rules and procedures that have been vetted previously by

    the Commission.\32\ The Commission agrees that there should not be any

    express limitation on the type of actions that a SIDCO can take in

    responding to an emergency, primarily because it is difficult to pre-

    judge the permissibility of an emergency action taken in the context of

    particular circumstances.

    ---------------------------------------------------------------------------

    \32\ Under proposed Sec. 40.6(a)(6), new rules or rule

    amendments that establish standards for responding to an emergency

    must be submitted pursuant to Sec. 40.6.

    ---------------------------------------------------------------------------

    Finally, the Commission is making a technical revision to the

    proposed Sec. 40.10(a)(2) requirement that concurrent with providing

    the Commission with the advance notice or any request or other

    information related to the advance notice, the SIDCO provide the Board

    of Governors of the Federal Reserve System (``Board'') with a copy of

    the submission. The Commission is adding the instruction that such

    notice, request or other information must be filed in the same format

    and manner as the Board requires for those designated financial market

    utilities for which it is the Supervisory Agency pursuant to section

    803(8) of the Dodd-Frank Act.

    j. Review of Event Contracts Based Upon Certain Excluded Commodities

    (Sec. 40.11)

    Pursuant to Section 745(b) of the Dodd-Frank Act, the Commission

    proposed Sec. 40.11(a)(1) to prohibit the listing of certain contracts

    involving terrorism, assassination, war, gaming, or activities that are

    unlawful under any State or Federal law. The CME commented that the

    term ``gaming'' should be further defined to ensure that registered

    entities do not confront difficult legal questions with respect to the

    applicability of the ``gaming'' prohibition in Sec. 40.11(a)(1). In

    this regard, the CME noted that the courts have struggled to arrive at

    an appropriate legal definition for ``gaming'' for many years and that

    the Commission's prohibition on contracts involving ``gaming'' could

    introduce uncertainty into the markets.

    The Commission agrees that the term ``gaming'' requires further

    clarification and that the term is not susceptible to easy definition.

    Indeed, in its ``Concept Release on the Appropriate Regulatory

    Treatment of Event Contracts,'' the Commission solicited public

    comments on the best approach for addressing the ``the potential gaming

    aspects of some event contracts and the potential pre-emption of state

    laws.'' \33\ The Commission received a number of responses to its

    concept release, including several comments articulating bases for

    distinguishing trading in contracts linked to the occurrence (or non-

    occurrence) of events and participation in traditional ``gaming''

    activities. The Commission continues to consider these comments and may

    issue a future rulemaking concerning the appropriate regulatory

    treatment of ``event contracts,'' including those involving ``gaming.''

    In the meantime, the Commission has determined to prohibit contracts

    based upon the activities enumerated in Section 745 of the Dodd-Frank

    Act and to consider individual product submissions on a case-by-case

    basis under Sec. 40.2 or Sec. 40.3.

    ---------------------------------------------------------------------------

    \33\ Concept Release on the Appropriate Regulatory Treatment of

    Event Contracts, 73 FR 25669, 25670 (May 7, 2008).

    ---------------------------------------------------------------------------

    The Commission would like to note that registered entities may

    receive a definitive resolution of any questions concerning the

    applicability of Sec. 40.11(a)(1) by submitting a particular product

    for Commission approval under to Sec. 40.3. If the submitted product

    is approved, the registered entity may list it for trading or clearing

    with an

    [[Page 44786]]

    assurance that the Commission reviewed and did not object to the

    submission based on the prohibitions in Sec. 40.11(a). In addition,

    registered entities may always certify products pursuant to the

    procedures in Sec. 40.2. If the Commission determines during its

    review of a product that the submission may violate the prohibitions in

    Sec. 40.11(a)(1)-(2), the Commission may request that the registered

    entity suspend the trading or clearing of the contract pending the

    completion of a 90-day extended review. Upon the completion of that

    review, the Commission must issue an order, pursuant to Section 745(b)

    of the Dodd-Frank Act, finding either that the product violates or does

    not violate the prohibitions in Sec. 40.11(a)(1)-(2).

    The Commission's staff also may, at its discretion and upon a

    request from a registered entity, review a draft product submission or

    proposal and provide guidance concerning the product's compliance with

    core principles and Sec. 40.11(a). The Commission would like to note,

    however, that the staff's guidance concerning drafts and proposals is

    preliminary and non-binding. The staff formally reviews products only

    at such time as a compliant submission is provided to the Commission

    pursuant to Sec. 40.2 or Sec. 40.3.

    Finally, the Commission would like to note that its prohibition of

    certain ``gaming'' contracts is consistent with Congress's intent to

    ``prevent gambling through the futures markets'' \34\ and to ``protect

    the public interest from gaming and other events contracts.'' \35\ The

    Commission may, at some future time, adopt regulations that prohibit

    products that are based upon activities ``similar to'' those enumerated

    in Section 745 of the Dodd-Frank Act. It has determined not to propose

    such regulations at this time.

    ---------------------------------------------------------------------------

    \34\ Congressional Record--Senate, S5906 (July 15, 2010).

    \35\ Id. Senator Lincoln, in a colloquy with Senator Feinstein,

    emphasized that the Commission ``needs the power to, and should,

    prevent derivatives contracts that are contrary to the public

    interest because they exist predominantly to enable gambling through

    supposed event contracts.''

    ---------------------------------------------------------------------------

    k. Staying of Certification and Tolling of Review Period Pending

    Jurisdictional Determination (Sec. 40.12)

    The OCC objected to the Commission's use of the term ``derivative''

    in proposed Sec. 40.12(a)(1), which, the Commission agrees, is an

    undefined term encompassing products within the jurisdiction of both

    the SEC and the Commission. The Commission therefore has determined to

    delete the word ``a derivative'' from Sec. 40.12(a)(1) and to insert

    in its place ``a contract for the sale of a commodity for future

    delivery (or an option on such contract or an option on a commodity).''

    The final regulation thereby codifies the Dodd-Frank Act's provisions

    concerning ``novel derivative products having elements of both

    securities and contracts for the sale of a commodity for future

    delivery (or options on such contracts or options on commodities).'' In

    addition, the Commission has determined to limit the application of

    Sec. 40.12 to only those novel agreements, transactions, or contracts

    that are not subject to a separate process for requesting

    interpretations of the characterization of swaps, security-based swaps,

    and mixed swaps pursuant to Sec. 1.8 of this chapter.\36\

    ---------------------------------------------------------------------------

    \36\ See Further Definition of ``Swap,'' ``Security-Based

    Swap,'' and ``Security-Based Swap Agreement;'' Mixed Swaps;

    Security-Based Swap Agreement Recordkeeping, 76 FR 29818 (May 23,

    2011).

    ---------------------------------------------------------------------------

    The Commission also is amending proposed Sec. 40.12(b) to clarify

    that the receipt of a request for a jurisdictional determination

    ``tolls'' both the applicable product certification and the applicable

    approval review period until the issuance of a final determination. In

    this regard, the Commission has determined to insert ``shall be

    stayed'' after ``the product certification,'' which more appropriately

    characterizes the Commission's action with respect to certified

    products and distinguishes that action from the suspension of the

    approval review period under Sec. 40.3.\37\ Similarly, in Sec.

    40.12(b)(2), the Commission has determined to clarify that the stay

    shall be withdrawn and that the submission review period shall resume

    upon the issuance of a final determination order finding that the

    Commission has jurisdiction over the submission.

    ---------------------------------------------------------------------------

    \37\ Section 717(d) of the Dodd-Frank Act amended Section

    5c(c)(1) of the Act to ``stay the certification of a product pending

    a determination by the Commission upon a request of the Securities

    and Exchange Commission * * * that the Commission issue a

    determination as to whether'' a novel derivative product is within

    the jurisdiction of the Commission. However, Section 745 of the

    Dodd-Frank Act amended the Act by striking Section 5c in its

    entirety and inserting language that did not include the stay

    provision in Section 717(d) of the Dodd-Frank Act. The Commission

    would like to clarify that the stay provisions adopted in final

    Sec. 40.12 of its regulations do not give effect to the stay

    provisions in Section 717(d) of the Dodd-Frank Act, given

    inconsistent amendments to Section 5c(c). The Commission is adopting

    its stay provisions pursuant to its Section 8a(5) authority to

    ``make and promulgate such rules and regulations as, in the judgment

    of the Commission, are reasonably necessary to effectuate any of the

    provisions or to accomplish any purposes of the Act.''

    ---------------------------------------------------------------------------

    The Commission would like to note that the suspension of a

    product's certification would permit continued trading for liquidation

    purposes. That is, the stay of certification under Sec. 40.12 would

    not prevent market participants from entering into positions that

    offset others taken while the product certification remained in effect.

    The Commission will provide to the registered entity a written notice

    of stay pending issuance of a final determination order by the

    Commission.\38\

    ---------------------------------------------------------------------------

    \38\ A final determination, for purposes of Sec. 40.12(b) of

    this part, shall be a determination order issued pursuant to Section

    718(a)(3) of the Dodd-Frank Act.

    ---------------------------------------------------------------------------

    Finally, the Commission notes that Section 718(a)(2) of the Dodd-

    Frank Act provides the Commission explicit authority to request a

    jurisdictional determination concerning a novel derivative product

    having elements of both a security and a contract for the sale of a

    commodity for future delivery (or an option on such contract or an

    option on a commodity) at any time subsequent to the effective date of

    a product containing such elements, provided no notice of a novel

    derivative product filing has been received from the SEC pursuant to

    Section 718(a)(1) of the Dodd-Frank Act.

    III. Cost-Benefit Considerations

    Section 15(a) of the Act requires the Commission to ``consider the

    costs and benefits'' of its actions before promulgating a

    regulation.\39\ In particular, these costs and benefits must 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. In conducting its analysis, the Commission

    may, in its discretion, give greater weight to any one of the five

    enumerated areas and it may determine that, notwithstanding costs, a

    particular rule is necessary to protect the public interest or to

    effectuate any of the provisions or to accomplish any of the purposes

    of the Act.\40\

    ---------------------------------------------------------------------------

    \39\ 7 U.S.C. 19(a).

    \40\ See, e.g., Fisherman's Doc Co-op., Inc v. Brown, 75 F.3d

    164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336

    (DC Cir. 1985) (noting that an agency has discretion to weigh

    factors in undertaking cost-benefit analysis).

    ---------------------------------------------------------------------------

    Certain of the regulations promulgated in this final rule are

    mandated by the Act, as amended by the Dodd-Frank Act, and, for those

    [[Page 44787]]

    provisions, the Commission does not have the authority to consider

    alternatives to the statute's prescribed procedures. For example, the

    final regulations implement, among other provisions, Section 745 of the

    Dodd-Frank Act, which specifies new procedures for the submission of

    certain rules and rule amendments and new default timelines for the

    Commission's review of rule submissions. Many of these new procedures--

    for example, the 30-day public comment period following the stay of a

    submitted rule--are statutorily mandated and the Commission's final

    regulations have been drafted to remain within the confines of the

    enabling language. Similarly, the Commission's SIDCO provisions, in

    large part, codify the procedures established by Section 806 of the

    Dodd-Frank Act. For those final regulations not mandated by the Dodd-

    Frank Act, the Commission has adopted the least-cost alternative

    consistent with achieving the purposes of the Act.

    The Commission invited but did not receive public comments specific

    to its cost-benefit discussion within the initial comment period

    following the Commission's proposal. The Commission also invited the

    public ``to submit any data or other information that [it] may have

    quantifying or qualifying the costs and benefits of the proposal with

    their comment letters.'' The Commission received no such data or other

    information. The Commission did, however, receive general comments on

    the ``burden'' associated with the documentation and pricing source

    certification requirements proposed in Sec. Sec. 40.2, 40.3, 40.5, and

    40.6. Those comments suggested that the new provisions could

    substantially increase the time and resources required to prepare

    submissions and could potentially delay the introduction of new

    products and implementation of rules. However, none of these comments

    suggested feasible alternatives to the statutory mandate. Nor did such

    comments show how and to what extent those burdens would be increased

    by the implementing proposal.

    In a comment concerning the Commission's cost-benefit analysis, the

    CME stated that the CFMA streamlined the product and rule submission

    process to eliminate the ``substantial unnecessary paperwork''

    previously required to be submitted to the Commission. In the CME's

    view, the documentation and pricing source certification requirements

    effectively reinstated the pre-CFMA submission process by mandating

    that registered entities submit ``massive amounts of documentation''

    for Commission review. In addition, CME stated that the part 40

    proposal's cost-benefit discussion did not ``acknowledge that a fully-

    functional and less costly system of self-certification is already in

    place'' and that the Commission failed to justify what CME

    characterized as ``onerous requirements'' with few public benefits. CME

    also stated that the Commission's proposal did not ``address any actual

    costs'' to industry, including ``the cost of compiling all

    documentation relied upon to determine whether a new product, new rule

    or rule amendment complies with the Core Principles'' and the costs of

    ``enabl[ing] foreign competitors'' to introduce products that compete

    with domestic DCM product innovations.

    The Commission, after consideration of the public interest factors

    specified in section 15(a) of the Act, has determined, as set forth

    below, that the costs associated with its final regulations will not

    have a material effect on the efficiency, competitiveness, and

    financial integrity of the futures and swaps markets and should

    substantially benefit registered entities by facilitating and

    expediting the Commission's review of product and rule submissions. The

    Commission has considered the costs and benefits of its regulations

    throughout the preamble and generally views the related matters section

    of this final rulemaking to be an extension of that discussion.

    Estimates pursuant to the Paperwork Reduction Act are a subset of and

    incorporated into the overall compliance costs associated with final

    part 40.

    The Commission's final regulations address the relevant areas of

    market and public concern specified in section 15(a) of the Act.

    Specifically, the Commission's certification and approval procedures

    ensure that registered entities do not enact rules that, among other

    things, harm market participants or the public, result in unreasonable

    restraints of trade or material anticompetitive burdens on trading, or

    have other effects that are detrimental to the public interest. In

    addition, the special certification procedures for SIDCOs and certain

    event contracts implement Sections 806 and 745 of the Dodd-Frank Act,

    respectively, and ensure that the Commission has adequate time and

    information to analyze certain risk-related rules and novel products

    based upon certain excluded commodities. The SIDCO notice requirement

    is important to the Commission's oversight of sound risk management

    practices and to its efforts to monitor and mitigate systemic risks.

    The proposed event contract provisions, consistent with the intent of

    Congress, prevent individuals from speculating on activities that are

    potentially harmful to national security or detrimental to the

    stability of the futures markets. Finally, the ``concise explanation

    and analysis'' required for the submission of new products is a less-

    costly alternative to the Commission's proposed documentation

    requirement and will assist the Commission in protecting the price

    discovery function of the markets.

    The final certification and approval procedures are necessary to

    fulfill the requirements of the Dodd-Frank Act, to protect market

    participants, to enhance the Commission's administration of the Act,

    and to ensure the continued competitiveness and financial integrity of

    the futures and swaps markets. Moreover, in response to public comments

    and after consultations with market participants and prudential

    regulators, the proposed rules have been amended to implement, where

    possible, a less costly alternative that achieves the statutory

    objectives of the Act, as amended by the Dodd-Frank Act.

    With respect to costs, the Commission recognizes that its final

    regulations may increase compliance costs by requiring the submission

    of a ``concise explanation and analysis'' and by requiring registered

    entities to certify that they posted the complete submission on the

    registered entity's Web site at the time of filing. The Commission

    believes that these costs will be de minimis. A ``concise explanation

    and analysis'' should be a clear and informative--but not necessarily

    lengthy--description of the product or rule and its implications for

    compliance with applicable law. Moreover, the explanation and analysis

    incorporates information that is, in many cases, already required to be

    reviewed or collected by registered entities. A concise description and

    examination of the submission should impose minimal costs on registered

    entities, because it requires the registered entity merely to

    memorialize its due diligence in certifying compliance with applicable

    law. Posting this information on the registered entity's Web site

    should be as simple as providing an electronic copy of the submission

    to appropriate personnel. All current registered entities maintain a

    Web site and therefore this new requirement may increase the overall

    cost, if at all, by only a negligible margin.

    In addition, the proposed price certification provisions are not

    being adopted and the proposed documentation provisions have been

    revised--and, in some cases, removed from the final regulations--to

    permit

    [[Page 44788]]

    registered entities more flexibility in complying with the Act and

    Commission's regulations, to reduce potential administrative and

    compliance costs, and to adopt, where possible, less burdensome

    alternatives to the Commission's proposal. For example, under the

    Commission's final product submission regulations, registered entities,

    including CME, are not required to submit ``massive amounts of

    documentation'' with their new product submissions. Instead, as

    suggested by ICE Futures, the Commission will allow registered entities

    to submit an explanation and analysis of the product with the

    information contained in such documentation and citations to relevant

    data sources. Moreover, the Commission finds that the submission of an

    explanation and analysis is necessary for its review of product and

    rule certifications. Although CME correctly notes that self-

    certification regime has been retained under the Act, as amended by the

    Dodd-Frank Act, the Commission has encountered numerous instances in

    which registered entities provided only cursory supporting analyses for

    their product submissions or, in certain cases, failed to document the

    evidentiary basis for their certifications altogether. As discussed in

    the preamble, the staff must expend significant resources and time to

    replicate existing analyses or to otherwise independently establish a

    product's compliance with applicable law when submissions are not

    adequately explained or supported by registered entities.

    With respect to the new SIDCO provisions in Sec. 40.10, the cost

    of creating the advance notice will not be substantial. A SIDCO should

    have this information prior to determining whether to implement a

    change and, consequently, the marginal cost of drafting and submitting

    the notice will be small. On the other hand, the Commission believes

    that the benefit of this information is significant because it is

    necessary to assess the effect that the proposed change would have on

    the nature or level of risks. The final provisions of Sec. 40.10

    parallel the requirements of the Dodd-Frank Act. The Commission's

    proposal effectively mirrors the enabling provisions of the statute

    and, accordingly, the Commission's ability to revise the proposed

    requirements is limited.

    As discussed above, advance notice of all changes that materially

    impact risk--increasing or decreasing risk--is necessary for the

    Commission to monitor systemic risk and to see that SIDCOs effectively

    manage risk in furtherance of compliance with the core principles. The

    Commission acknowledges that requiring a SIDCO to notify the Commission

    under Sec. 40.10 of a change that could materially reduce risk could

    delay the time when that change becomes effective. However, even for

    ostensibly risk-reducing changes, there may be adverse consequences

    that the Commission should have the opportunity to consider in the time

    frame set forth in Section 806 of the Dodd-Frank Act.

    Moreover, the Commission and the Board have statutory obligations

    to review proposed changes to SIDCO rules, procedures and operations

    that materially impact risks and Section 806 of the Dodd-Frank Act

    mandates the time period for review. The Commission also notes that, in

    appropriate cases, the staff may permit a risk-related rule to become

    effective prior to the expiration of the 60-day notice period.

    The costs associated with the emergency notice required in Sec.

    40.10(h) are similarly minimal and include the cost of drafting and

    submitting the notice and any cost associated with the possibility that

    the Commission could rescind or modify the emergency change. There also

    may be a cost of requiring notice within 24 hours; however, section

    806(e)(2)(B) of the Dodd-Frank Act mandates notices be provided within

    this timeframe. The substantive requirements of the notice provisions

    also are outlined by section 806(e)(2)(C) of the Dodd-Frank Act and, as

    explained above, the Commission believes that the cost of providing the

    information required for an advance notice will be small. The marginal

    cost of providing additional information concerning an emergency notice

    should be similarly small because a SIDCO will already know the nature

    of the emergency and will have determined that the change was necessary

    for the SIDCO to continue to provide its services in a safe and sound

    manner prior to implementing the emergency change. The Commission

    believes that the information is necessary for it to review an

    emergency change.

    Having considered the costs of its proposal, the Commission is

    adopting these final regulations, including changes to the proposed

    regulations as summarized below, to further reduce the information

    collection burdens on and associated costs for registered entities as

    follows:

    The Commission is revising the proposed documentation

    requirements in Sec. 40.2 and Sec. 40.3 to permit the submission of

    an appropriately detailed and cited explanation and analysis in lieu of

    documentation;

    The Commission is amending Sec. 40.2 to apply only to

    DCMs and SEFs and intends to implement new product clearing submission

    requirements in a new Sec. 39.5 (in a separate rulemaking);

    The Commission is eliminating the documentation

    requirements in Sec. 40.5 and Sec. 40.6;

    The Commission is providing new provisions for class

    certifications of certain swaps;

    The Commission is amending Sec. 40.6(a) to make effective

    upon submission rules delisting or withdrawing the certification of

    products;

    The Commission is eliminating the proposed certification

    requirement concerning the use of third-party prices;

    The Commission is eliminating a previously proposed

    provision requiring ``[w]henever possible, all proposed swap or

    contract terms and conditions [to] conform to industry standards or

    those terms and conditions adopted by comparable contracts;''

    The Commission is limiting the application of Sec. 40.12

    to novel derivative products that are not subject to the forthcoming

    provisions of Sec. 1.8.

    The resulting final rules should impose significantly lower costs

    on registered entities than the proposed rules. The average annual

    burden for the 70 anticipated registered entities may be reduced by

    more than one-third in comparison to the initial proposed

    requirements--from an estimated 324 hours per year per registered

    entity to approximately 202 hours per year per registered entity. To

    the extent that the Commission's final regulations impose any

    additional costs or burdens on registered entities, these costs or

    burdens would require a single part-time staff person to handle new

    requirements related to product and rule submissions to the Commission;

    the total time cost may be as little as four hours per week per

    registered entity. Thus, the Commission has determined that these final

    regulations are necessary to enable the Commission to perform its

    oversight functions and to carry out its statutory responsibilities

    under the Act.

    IV. Related Matters

    a. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \41\ requires agencies to

    consider whether final regulations have a significant economic impact

    on a substantial number of small entities and, where the regulations do

    so, to provide a regulatory flexibility analysis concerning the impact

    of such

    [[Page 44789]]

    regulations.\42\ The final rules require DCOs, DCMs, SEFs, and SDRs to

    submit to the Commission new products, rules, and rule amendments,

    before they become effective, with either a request for Commission

    approval or a certification that the products or rules comply with the

    Act and Commission regulations. In addition, the Commission's new

    regulations require product submissions be accompanied by a concise

    explanation and analysis that incorporates information contained in

    supporting documents, whereas the new requirements for rule

    certifications simply require the submission of a concise explanation

    and analysis of the purpose, operation, and effect of the filing.

    Accordingly, these product and rule approval and self-certification

    regulations are not complex and do not impose a significant economic

    impact on any registered entity.

    ---------------------------------------------------------------------------

    \41\ 5 U.S.C. 601 et seq.

    \42\ 5 U.S.C. 601 et seq.

    ---------------------------------------------------------------------------

    Moreover, the Commission previously determined that DCMs, DCOs,

    SEFs, and SDRs are not ``small entities'' for purposes of the RFA.\43\

    In determining that these registered entities are not ``small

    entities,'' the Commission reasoned that it designates a contract

    market or registers a DCO, SEF, or SDR only if the entity meets a

    number of specific criteria, including the expenditure of sufficient

    resources to establish and maintain an adequate self-regulatory

    program.\44\ Because DCMs, DCOs, SEFs and SDRs are required to

    demonstrate compliance with Core Principles, including principles

    concerning the maintenance or expenditure of financial resources, the

    Commission previously determined that SEFs and SDRs, like DCMs and

    DCOs, are not ``small entities'' for the purposes of the RFA.

    ---------------------------------------------------------------------------

    \43\ See 17 CFR part 40 Provisions Common to Registered

    Entities, 75 FR 67282 (November 2, 2010); see also 47 FR 18618,

    18619 (April 30, 1982) and 66 FR 45604, 45609 (August 29, 2001).

    \44\ See, e.g., Core Principle 2 applicable to SEFs under

    Section 733 of the Dodd-Frank Act and Core Principles 1-3 applicable

    to SDRs under Section 728 of the Dodd-Frank Act.

    ---------------------------------------------------------------------------

    The Chairman, on behalf of the Commission, hereby certifies

    pursuant to 5 U.S.C. 605(b) that these regulations do not have a

    significant impact on a substantial number of small entities.

    b. Paperwork Reduction Act

    The Commission may not conduct or sponsor, and a registered entity

    is not required to respond to, a collection of information unless it

    displays a currently valid Office of Management and Budget (``OMB'')

    control number. Amendments to Sec. Sec. 40.2, 40.3, 40.5, 40.6, and

    40.10 impose new information collection requirements on registered

    entities within the meaning of the Paperwork Reduction Act.\45\

    Accordingly, the Commission requested and OMB assigned a control number

    for the required collections of information. The Commission has

    submitted this notice of final rulemaking along with supporting

    documentation for OMB's review in accordance with 44 U.S.C. 3507(d) and

    5 CFR 1320.11. The title for this collection of information is ``Part

    40, Provisions Common to Registered Entities, OMB control number 3038-

    D07.'' Many of the responses to this new collection of information are

    mandatory.

    ---------------------------------------------------------------------------

    \45\ 44 U.S.C. 3501 et seq.

    ---------------------------------------------------------------------------

    The Commission protects proprietary information according to the

    Freedom of Information Act and 17 CFR part 145, ``Commission Records

    and Information.'' In addition, section 8(a)(1) of the Act strictly

    prohibits the Commission, unless specifically authorized by the Act,

    from making public ``data and information that would separately

    disclose the business transactions or market positions of any person

    and trade secrets or names of customers.'' The Commission also is

    required to protect certain information contained in a government

    system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

    1. Information Provided by Reporting Entities/Persons

    These rules require DCMs, DCOs, and new registered entities, SEFs

    and SDRs, to collect and submit to the Commission information

    concerning new products, rules, and rule amendments pursuant to the

    procedures outlined in Sec. Sec. 40.2, 40.3, 40.5, 40.6, and 40.10.

    The Commission is adopting these information collection requirements in

    order to give effect to various notice, rule certification, and rule

    approval provisions of the Dodd-Frank Act, to expedite the staff's

    review of newly-certified and submitted products, and to improve the

    Commission's administration of the Act.

    The Commission estimated the final information collection burdens

    on registered entities below. These estimates account for the

    following: (1) The number of respondents; (2) the number of responses

    required of each respondent; (3) the average hours required to produce

    each response; and (4) the aggregate annual reporting burden. The

    Commission estimates that the effect of final Sec. Sec. 40.2, 40.3,

    40.5, 40.6, 40.10, and 40.12 will be to increase the information

    collection burden by approximately 202 hours per year per registered

    entity, resulting mostly from the preparation of the concise

    explanation and analysis to be filed with the Commission in connection

    with the listing of products or the certification or approval of rules.

    The Commission estimates that 70 registered entities will be required

    to file their new product and rule submissions.

    The Commission previously estimated the aggregate number of hours

    that it expected registered entities to spend complying with part 40.

    Upon further consideration, the Commission has determined to revise the

    hours attributable to the new provisions of part 40. The newly-revised

    and final regulations require each registered entity to spend an

    estimated and additional 202 hours per year complying with part 40. Due

    to a calculation error in the proposed rulemaking, the estimated

    information collection burden in the proposed part 40 rulemaking was

    quoted as 8,300 hours; the estimated information collection burden

    should have been 22,664. Based on the 22,664 estimate, the estimated

    average hours per registered entity would have been 323.771 hours.

    Thus, under the Commission's current analysis and in light of the

    regulatory changes below, each registered entity may expect to spend

    approximately 121 fewer hours per year complying with part 40 than

    would have been required under the Commission's proposal. The

    substantial reduction in the estimated annual time that each registered

    entity may spend complying with part 40 results from revisions to the

    documentation requirements in Sec. Sec. 40.2 and 40.3, the elimination

    of the documentation requirements in Sec. Sec. 40.5 and 40.6, the

    elimination of the price certification requirements in Sec. Sec. 40.2,

    40.3, 40.5, and 40.6, and the addition of the class certification

    provisions for certain swaps in Sec. 40.2(d).

    Final Sec. Sec. 40.2, 40.3, 40.5 and 40.6 require each registered

    entity to comply with new certification and approval requirements when

    seeking to implement new products, rules, and rule amendments,

    including changes to product terms or conditions. However, in

    consideration of comments concerning proposed Sec. Sec. 40.2, 40.3,

    40.5 and 40.6, the Commission has determined to amend its proposal to

    reduce the information collection burden on the registered entities.

    Specifically, the Commission's final Sec. 40.2(d) streamlines the

    product certification process for a significant percentage of swap

    contracts by permitting a DCM or SEF to class certify, within a single

    submission, one

    [[Page 44790]]

    or more swaps with similar, specified characteristics.

    In addition, the Commission has determined to amend its proposal to

    do the following: (1) Substantially revise Sec. 40.2 and Sec. 40.3 to

    reduce the document collection burden for newly-submitted products, and

    (2) eliminate the previously proposed documentation provisions in Sec.

    40.5 and Sec. 40.6. The Commission has determined to maintain

    Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10), 40.5(a)(6), and 40.6(a)(2)

    requiring registered entities to state that they posted a copy of the

    certification or request for approval on the registered entity's Web

    site at the time of the filing with the Commission.

    In light of the amendments to the Commission's final regulations,

    noted above, the Commission revises its previous estimates as follows:

    Estimated number of respondents: 70.

    Annual responses by each respondent: 100.

    Estimated average hours per response: 2.00.

    Aggregate annual reporting burden hours (for all respondents):

    14,000.

    The Commission originally estimated that 45 registered entities

    would be subject to the information collection requirements in

    Sec. Sec. 40.2, 40.3, 40.5 and 40.6. The Commission based this

    estimate upon the number of registered and exempt entities at the time

    of proposal. The Commission has determined to increase its previous

    estimate to account for an increased number of anticipated registered

    entities, a few of which do not currently operate a registered or

    exempt entity. The 70 registered entity figure, above, only minimally

    alters the per registered entity estimate of time that will be required

    to comply with part 40.

    In addition, the Commission initially estimated 120 responses per

    year from registered entities. In light of the revisions to the

    documentation requirements and the ability of registered entities to

    certify certain swap contracts as a class under Sec. 40.2(d), the

    number of estimated submissions has been reduced. The Commission also

    reduced the estimated hourly burden in light of revisions to the

    documentation requirements in Sec. Sec. 40.2 and 40.3 and the

    elimination of the documentation requirements in Sec. Sec. 40.5 and

    40.6.

    Sec. 40.10 requires SIDCOs to provide to the Commission 60 days

    advance notice of proposed changes to rules, procedures or operations

    that could materially affect the nature or level of risks presented by

    the SIDCO.

    Estimated number of respondents: 4.

    Annual responses by each respondent: 2.

    Estimated average hours per response: 5.

    Aggregate annual reporting burden hours (for all respondents): 40.

    Finally, Sec. 40.12 permits registered entities to provide notice

    to the Commission and the Securities and Exchange Commission when

    certifying, submitting for approval, or otherwise filing a proposal to

    list a product (other than a product subject to the forthcoming

    provisions of Sec. 1.8 of this chapter) having elements of both a

    security and a contract for the sale of a commodity for future delivery

    (or an option on such contract or an option on a commodity). The

    Commission has determined to promulgate rules governing jurisdictional

    disputes over novel swap products in a separate and forthcoming

    rulemaking. Accordingly, it is adjusting its estimates to reflect that

    fact that jurisdictional determinations concerning certain novel

    product submissions will not be subject to the provisions of Sec.

    40.12.

    Estimated number of respondents: 8.

    Annual responses by each respondent: 4.

    Estimated average hours per response: 2.52.

    Aggregate annual reporting burden hours (for all respondents):

    80.64.

    List of Subjects in 17 CFR Part 40

    Commodity futures, Contract markets, Designation application,

    Reporting and recordkeeping requirements, Swap execution facility, Swap

    data repository, Systemically important derivatives clearing

    organization, Rule approval, Rule certification, Review of certain

    event contracts.

    In light of the foregoing, and pursuant to authority in the Act,

    and, in particular, Sections 3, 5, 5c(c) and 8a(5) of the Act, the

    Commission hereby revises part 40 of Title 17 of the Code of Federal

    Regulations to read as follows:

    PART 40--PROVISIONS COMMON TO REGISTERED ENTITIES

    Sec.

    40.1 Definitions.

    40.2 Listing products for trading by certification.

    40.3 Voluntary submission of new products for Commission review and

    approval.

    40.4 Amendments to terms or conditions of enumerated agricultural

    products.

    40.5 Voluntary submission of rules for Commission review and

    approval.

    40.6 Self-certification of rules.

    40.7 Delegations.

    40.8 Availability of public information.

    40.9 [Reserved]

    40.10 Special certification procedures for submission of rules by

    systemically important derivatives clearing organizations.

    40.11 Review of event contracts based upon certain excluded

    commodities.

    40.12 Staying of certification and tolling of review period pending

    jurisdictional determination.

    Appendix A to Part 40--Schedule of Fees

    Appendix B to Part 40--[Reserved]

    Appendix C to Part 40--[Reserved]

    Appendix D to Part 40--Submission Cover Sheet and Instructions

    Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 12, as amended by

    Titles VII and VIII of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act, Public Pub. L. 111-203, 124 Stat. 1376

    (2010).

    Sec. 40.1 Definitions.

    As used in this part:

    (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.

    Business day and business hour are 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, instrument, swap or any

    such commodity futures or option contract with respect to all future or

    option expiries, listed on a designated contract market, a swap

    execution facility or cleared by a registered derivatives clearing

    organization, that has no open interest and in which no trading has

    occurred for a period of twelve complete calendar months following a

    certification to, or approval by, the Commission; provided, however,

    that no contract or instrument under this paragraph (b)(1) initially

    and originally certified to, 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, swap or other

    agreement, contract, transaction or instrument of a dormant designated

    contract market, dormant swap execution facility or a dormant

    derivatives clearing organization; or

    (3) Any commodity futures or option contract or other agreement,

    contract, swap, transaction or instrument not otherwise dormant that a

    designated contract market, a swap execution facility or a derivatives

    clearing

    [[Page 44791]]

    organization self-declares through certification to be dormant.

    (c) Dormant designated contract market means any designated

    contract market on which no trading has occurred during the period of

    twelve consecutive calendar months, preceding the first day of the most

    recent calendar month; 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

    consecutive 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 swap data repository means any registered swap data

    repository on which no data has resided for a period of twelve

    consecutive calendar months, preceding the most recent calendar month.

    (f) Dormant swap execution facility means any swap execution

    facility on which no trading has occurred for a period of twelve

    consecutive calendar months, preceding the first day of the most recent

    calendar month; provided, however, no swap execution facility shall be

    considered to be dormant if its initial and original Commission order

    of registration was issued within the preceding 36 consecutive calendar

    months.

    (g) Dormant rule means:

    (1) Any registered entity rule which remains unimplemented for

    twelve consecutive calendar months following a certification with, or

    an approval by, the Commission; or

    (2) Any rule or rule amendment of a dormant designated contract

    market, dormant swap execution facility, dormant swap data repository

    or dormant derivatives clearing organization.

    (h) 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, swaps or transactions or the timely collection and payment

    of funds in connection with clearing and settlement by a derivatives

    clearing organization, 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, swaps 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 or clearing and settlement; and

    (5) Any other circumstance which may have a severe, adverse effect

    upon the functioning of a registered entity.

    (i) Rule means any constitutional provision, article of

    incorporation, bylaw, rule, regulation, resolution, interpretation,

    stated policy, advisory, terms and conditions, trading protocol,

    agreement or instrument corresponding thereto, including those that

    authorize a response or establish standards for responding to a

    specific emergency, and any amendment or addition thereto or repeal

    thereof, made or issued by a registered entity or by the governing

    board thereof or any committee thereof, in whatever form adopted.

    (j) Terms and conditions means any definition of the trading unit

    or the specific commodity underlying a contract for the future delivery

    of a commodity or commodity option contract, description of the

    payments to be exchanged under a swap, specification of cash settlement

    or delivery standards and procedures, and establishment of buyers' and

    sellers' rights and obligations under the swap or contract. Terms and

    conditions include provisions relating to the following:

    (1) For a contract for the purchase or sale of a commodity for

    future delivery or an option on such a contract or an option on a

    commodity (other than a swap):

    (i) Quality and other standards that define the commodity or

    instrument underlying the contract;

    (ii) Quantity standards or other provisions related to contract

    size;

    (iii) Any applicable premiums or discounts for delivery of nonpar

    products;

    (iv) Trading hours, trading months and the listing of contracts;

    (v) The pricing basis, minimum price fluctuations, and maximum

    price fluctuations;

    (vi) Any price limits, no cancellation ranges, trading halts, or

    circuit breaker provisions, and procedures for the establishment of

    daily settlement prices;

    (vii) Position limits, position accountability standards, and

    position reporting requirements;

    (viii) Delivery points and locational price differentials;

    (ix) Delivery standards and procedures, including fees related to

    delivery or the delivery process; alternatives to delivery and

    applicable penalties or sanctions for failure to perform;

    (x) If cash settled; the definition, composition, calculation and

    revision of the cash settlement price or index;

    (xi) Payment or collection of commodity option premiums or margins;

    (xii) Option exercise price, if it is constant, and method for

    calculating the exercise price, if it is variable;

    (xiii) Threshold prices for an option contract, the existence of

    which is contingent upon those prices; and

    (xiv) Any restrictions or requirements for exercising an option;

    and

    (2) For a swap:

    (i) Identification of the major group, category, type or class in

    which the swap falls (such as an interest rate, commodity, credit or

    equity swap) and of any further sub-group, category, type or class that

    further describes the swap;

    (ii) Notional amounts, quantity standards, or other unit size

    characteristics;

    (iii) Any applicable premiums or discounts for delivery of nonpar

    products;

    (iv) Trading hours and the listing of swaps;

    (v) Pricing basis for establishing the payment obligations under,

    and mark-to-market value of, the swap including, as applicable, the

    accrual start dates, termination or maturity dates, and, for each leg

    of the swap, the initial cash flow components, spreads, and points, and

    the relevant indexes, prices, rates, coupons, or other price reference

    measures;

    (vi) Any price limits, trading halts, or circuit breaker

    provisions, and procedures for the establishment of daily settlement

    prices;

    (vii) Position limits, position accountability standards, and

    position reporting requirements;

    [[Page 44792]]

    (viii) Payment and reset frequency, day count conventions, business

    calendars, and accrual features;

    (ix) If physical delivery applies, delivery standards and

    procedures, including fees related to delivery or the delivery process,

    alternatives to delivery and applicable penalties or sanctions for

    failure to perform;

    (x) If cash settled, the definition, composition, calculation and

    revision of the cash settlement price, and the settlement currency;

    (xi) Payment or collection of option premiums or margins;

    (xii) Option exercise price, if it is constant, and method for

    calculating the exercise price, if it is variable;

    (xiii) Threshold prices for an option, the existence of which is

    contingent upon those prices;

    (xiv) Any restrictions or requirements for exercising an option;

    and

    (xv) Life cycle events.

    Sec. 40.2 Listing products for trading by certification.

    (a) A designated contract market or a swap 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 part or that remains dormant subsequent to being submitted

    under this section or approved under Sec. 40.3 of this part. A

    submission shall comply with the following conditions:

    (1) The designated contract market or the swap execution facility

    has filed its submission electronically in a format and manner

    specified by the Secretary of the Commission with the Secretary of the

    Commission;

    (2) The Commission has received the submission by the open of

    business on the business day preceding the product's listing; and

    (3) The submission includes:

    (i) A copy of the submission cover sheet in accordance with the

    instructions in Appendix D to this part;

    (ii) A copy of the product's rules, including all rules related to

    its terms and conditions;

    (iii) The intended listing date;

    (iv) A certification by the designated contract market or the swap

    execution facility that the product to be listed complies with the Act

    and Commission regulations thereunder;

    (v) A concise explanation and analysis of the product and its

    compliance with applicable provisions of the Act, including core

    principles, and the Commission's regulations thereunder. This

    explanation and analysis shall either be accompanied by the

    documentation relied upon to establish the basis for compliance with

    applicable law, or incorporate information contained in such

    documentation, with appropriate citations to data sources;

    (vi) A certification that the registered entity posted a notice of

    pending product certification with the Commission and a copy of the

    submission, concurrent with the filing of a submission with the

    Commission, on the registered entity's Web site. Information that the

    registered entity seeks to keep confidential may be redacted from the

    documents published on the registered entity's Web site but must be

    republished consistent with any determination made pursuant to Sec.

    40.8(c)(4);

    (vii) A request for confidential treatment, if appropriate, as

    permitted under Sec. 40.8.

    (b) Additional information. If requested by Commission staff, a

    registered entity shall provide any additional evidence, information or

    data that demonstrates that the contract meets, initially or on a

    continuing basis, the requirements of the Act or the Commission's

    regulations or policies thereunder.

    (c) Stay. The Commission may stay the listing of a contract

    pursuant to paragraph (a) of this section during the pendency of

    Commission proceedings for filing a false certification or during the

    pendency of a petition to alter or amend the contract terms and

    conditions pursuant to Section 8a(7) of the Act. The decision to stay

    the listing of a contract in such circumstances shall not be delegable

    to any employee of the Commission.

    (d) Class certification of swaps. (1) A designated contract market

    or swap execution facility may list or facilitate trading in any swap

    or number of swaps based upon an ``excluded commodity,'' as defined in

    Section 1a(19)(i) of the Act, not including any security, security

    index, and currency other than the United States Dollar and a ``major

    foreign currency,'' as defined in Sec. 15.03(a), or an ``excluded

    commodity,'' as defined in Section 1a(19)(ii)-(iv) of the Act, provided

    the designated contract market or swap execution facility certifies,

    under Sec. 40.2(a)(1)-(2), Sec. 40.2(a)(3)(i), Sec. 40.2(a)(3)(iv),

    and Sec. 40.2(a)(3)(vi), each of the following:

    (i) That each particular swap within the certified class of swaps

    is based upon an excluded commodity specified in Sec. 40.2(d)(1); and

    (ii) That each particular swap within the certified class of swaps

    is based upon an excluded commodity with an identical pricing source,

    formula, procedure, and methodology for calculating reference prices

    and payment obligations; and

    (iii) That the pricing source, formula, procedure, and methodology

    for calculating reference prices and payment obligations in each

    particular swap within the certified class of swaps is identical to a

    pricing source, formula, procedure, and methodology for calculating

    reference prices and payment obligations in a product previously

    submitted to the Commission and certified or approved pursuant to Sec.

    40.2 or Sec. 40.3;

    (iv) That each particular swap within the certified class of swaps

    is based upon an excluded commodity involving an identical currency or

    identical currencies.

    (2) The Commission may in its discretion require a registered

    entity to withdraw its certification under Sec. 40.2(d)(1) and to

    submit each individual swap or certain individual swaps within the

    submission for Commission review pursuant to Sec. 40.2 or Sec. 40.3

    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, a

    designated contract market, a swap execution facility, or a derivatives

    clearing organization may request that the Commission approve a new or

    dormant product prior to listing the product for trading or accepting

    the product for clearing, or if a product was initially submitted under

    Sec. 40.2 of this part or Sec. 39.5 of this chapter, subsequent to

    listing the product for trading or accepting the product for clearing.

    A submission requesting approval shall:

    (1) Be filed electronically in a format and manner specified by the

    Secretary of the Commission with the Secretary of the Commission;

    (2) Include a copy of the submission cover sheet in accordance with

    the instructions in Appendix D to this part;

    (3) Include a copy of the rules that set forth the contract's terms

    and conditions;

    (4) Include an explanation and analysis of the product and its

    compliance with applicable provisions of the Act, including core

    principles, and the Commission's regulations thereunder. This

    explanation and analysis shall either be accompanied by the

    documentation relied upon to establish the basis for compliance with

    the applicable law, or incorporate information contained in such

    documentation, with appropriate citations to data sources;

    [[Page 44793]]

    (5) Describe any agreements or contracts entered into with other

    parties that enable the registered entity to carry out its

    responsibilities;

    (6) Include the certifications required in Sec. 41.22 for product

    approval of a commodity that is a security future or a security futures

    product as defined in Sections 1a(44) or 1a(45) of the Act,

    respectively;

    (7) Include, if appropriate, a request for confidential treatment

    as permitted under Sec. 40.8;

    (8) Include the filing fee required under Appendix A to this part;

    (9) Certify that the registered entity posted a notice of its

    request for Commission approval of the new product and a copy of the

    submission, concurrent with the filing of a submission with the

    Commission, on the registered entity's Web site. Information that the

    registered entity seeks to keep confidential may be redacted from the

    documents published on the registered entity's Web site but must be

    republished consistent with any determination made pursuant to Sec.

    40.8(c)(4);

    (10) Include, if requested by Commission staff, additional

    evidence, information or data demonstrating that the contract meets,

    initially or on a continuing basis, the requirements of the Act, or

    other requirement for designation or registration under the Act, or the

    Commission's regulations or policies thereunder. The registered entity

    shall submit the requested information by the open of business on the

    date that is two business days from the date of request by Commission

    staff, or at the conclusion of such extended period agreed to by

    Commission staff after timely receipt of a written request from the

    registered entity.

    (b) Standard for review and approval. The Commission shall approve

    a new product unless the terms and conditions of the product violate

    the Act or the Commission's regulations.

    (c) Forty-five day review. All products submitted for Commission

    approval under this paragraph shall be deemed approved by the

    Commission 45 days after receipt by the Commission, or at the

    conclusion of an extended period as provided under paragraph (d) of

    this section, unless notified otherwise within the applicable period,

    if:

    (1) The submission complies with the requirements of paragraph (a)

    of this section; and

    (2) The submitting entity does not amend the terms or conditions of

    the product or supplement the request for approval, except as requested

    by the Commission or for correction of typographical errors,

    renumbering or other non-substantive revisions, during that period. Any

    voluntary, substantive amendment by the submitting entity will be

    treated as a new submission under this section.

    (d) Extension of time. The Commission may extend the 45 day review

    period in paragraph (c) of this section for:

    (1) An additional 45 days, if the product raises novel or complex

    issues that require additional time to analyze, in which case the

    Commission shall notify the registered entity within the initial 45 day

    review period and shall briefly describe the nature of the specific

    issues for which additional time for review is required; or

    (2) Any extended review period to which the registered entity

    agrees in writing.

    (e) Notice of non-approval. The Commission at any time during its

    review under this section may notify the registered entity that it will

    not, or is unable to, approve the product. This notification will

    briefly specify the nature of the issues raised and the specific

    provision of the Act or the Commission's regulations, including the

    form or content requirements of paragraph (a) of this section, that the

    product violates, appears to violate or potentially violates but which

    cannot be ascertained from the submission.

    (f) Effect of non-approval. (1) Notification to a registered entity

    under paragraph (e) of this section of the Commission's determination

    not to approve a product does not prejudice the entity from

    subsequently submitting a revised version of the product for Commission

    approval or from submitting the product as initially proposed pursuant

    to a supplemented submission.

    (2) Notification to a registered entity under paragraph (e) of this

    section of the Commission's refusal to approve a product shall be

    presumptive evidence that the entity may not truthfully certify under

    Sec. 40.2 that the same, or substantially the same, product does not

    violate the Act or the Commission's regulations thereunder.

    Sec. 40.4 Amendments to terms or conditions of enumerated

    agricultural products.

    (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(j), of

    a contract for future delivery in an agricultural commodity enumerated

    in Section 1a(9) of the Act, or of an option on such a contract or

    commodity.

    (b) The following rules or rule amendments are not material and

    should not be submitted under this section:

    (1) Changes that are enumerated in Sec. 40.6(d)(2) may be

    implemented without prior approval or certification if implemented

    pursuant to the notification procedures of Sec. 40.6(d);

    (2) Changes that are enumerated in Sec. 40.6(d)(3)(ii) may be

    implemented without prior approval or certification or notification as

    permitted pursuant to Sec. 40.6(d)(3);

    (3) Changes in no cancellation ranges and trading hours may be

    implemented without prior approval if implemented pursuant to the

    procedures of Sec. 40.6(a);

    (4) Changes required to comply with a binding order of a court of

    competent jurisdiction, or a rule, regulation or order of the

    Commission or of another Federal regulatory authority, may be

    implemented without prior approval if implemented pursuant to the

    procedures of Sec. 40.6(a);or

    (5) Any other rule:

    (i) The text of which has been submitted for review at least ten

    business days prior to its implementation and that has been labeled

    ``Non-Material Agricultural Rule Change;''

    (ii) For which the designated contract market has provided an

    explanation as to why it considers the rule ``non-material,'' and any

    other information that may be beneficial to the Commission in analyzing

    the merits of the entity's claim of non-materiality; and

    (iii) With respect to which the Commission has not notified the

    contract market during the review period that the rule appears to

    require or does require prior approval under this section, may be

    implemented without prior approval if implemented under the procedures

    of Sec. 40.6(a).

    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, a registered entity may request that the Commission approve a new

    rule, rule amendment or dormant rule prior to implementation of the

    rule, or if the request was initially submitted under Sec. Sec. 40.2

    or 40.6 of this part, subsequent to implementation of the rule. A

    request for approval shall:

    (1) Be filed electronically in a format and manner specified by the

    Secretary of the Commission with the Secretary of the Commission;

    [[Page 44794]]

    (2) Include a copy of the submission cover sheet in accordance with

    the instructions in Appendix D to this part;

    (3) Set forth the text of the rule or rule amendment (in the case

    of a rule amendment, deletions and additions must be indicated);

    (4) Describe the proposed effective date of the rule or rule

    amendment and any action taken or anticipated to be taken to adopt the

    proposed rule by the registered entity or by its governing board or by

    any committee thereof, and cite the rules of the entity that authorize

    the adoption of the proposed rule;

    (5) Provide an explanation and analysis of the operation, purpose,

    and effect of the proposed rule or rule amendment and its compliance

    with applicable provisions of the Act, including core principles, and

    the Commission's regulations thereunder, including, as applicable, a

    description of the anticipated benefits to market participants or

    others, any potential anticompetitive effects on market participants or

    others, and how the rule fits into the registered entity's framework of

    self-regulation;

    (6) Certify that the registered entity posted a notice of pending

    rule with the Commission and a copy of the submission, concurrent with

    the filing of a submission with the Commission, on the registered

    entity's Web site. Information which the registered entity seeks to

    keep confidential may be redacted from the documents published on the

    registered entity's Web site but must be republished consistent with

    any determination made pursuant to Sec. 40.8(c)(4);

    (7) Provide additional information which may be beneficial to the

    Commission in analyzing the new rule or rule amendment. If a proposed

    rule affects, directly or indirectly, the application of any other rule

    of the registered entity, the pertinent text of any such rule must be

    set forth and the anticipated effect described;

    (8) Provide a brief explanation of any substantive opposing views

    expressed to the registered entity by governing board or committee

    members, members of the entity or market participants that were not

    incorporated into the rule, or a statement that no such opposing views

    were expressed;

    (9) Identify any Commission regulation that the Commission may need

    to amend, or sections of the Act or the Commission's regulations that

    the Commission may need to interpret, in order to approve the new rule

    or rule amendment. To the extent that such an amendment or

    interpretation is necessary to accommodate a new rule or rule

    amendment, the submission should include a reasoned analysis supporting

    the amendment to the Commission's regulation or the interpretation;

    (10) As appropriate, include a request for confidential treatment

    as permitted under the procedures of Sec. 40.8.

    (b) Standard for review and approval. The Commission shall approve

    a new rule or rule amendment unless the rule or rule amendment is

    inconsistent with the Act or the Commission's regulations.

    (c) Forty-five day review. (1) All rules submitted for Commission

    approval under paragraph (a) of this section shall be deemed approved

    by the Commission under section 5c(c) of the Act 45 days after receipt

    by the Commission, or at the conclusion of such extended period as

    provided under paragraph (d) of this section, unless the registered

    entity is notified otherwise within the applicable period, if:

    (i) The submission complies with the requirements of paragraph (a)

    of this section;

    (ii) The registered entity does not amend the proposed rule or

    supplement the submission, except as requested by the Commission,

    during the pendency of the review period other than for correction of

    typographical errors, renumbering or other non-substantive revisions.

    Any amendment or supplementation not requested by the Commission will

    be treated as the submission of a new filing under this section.

    (2) The Commission shall commence the review period in paragraph

    (c) of this section for a compliant submission under Sec. 40.4(b)(5)

    ten business days after its receipt.

    (d) Commencement and extension of time for review. The Commission

    may further extend the review period in paragraph (c) of this section

    for any approval request for:

    (1) An additional 45 days, if the proposed rule raises novel or

    complex issues that require additional time for review or is of major

    economic significance, the submission is incomplete or the requestor

    does not respond completely to Commission questions in a timely manner,

    in which case the Commission shall notify the submitting registered

    entity within the initial forty-five day review period and shall

    briefly describe the nature of the specific issues for which additional

    time for review shall be required; or

    (2) Any period, beyond the additional 45 days provided in Sec.

    40.5(d)(1), to which the registered entity agrees in writing.

    (e) Notice of non-approval. Any time during its review under this

    section, the Commission may notify the registered entity that it will

    not, or is unable to, approve the new rule or rule amendment. This

    notification will briefly specify the nature of the issues raised and

    the specific provision of the Act or the Commission's regulations,

    including the form or content requirements of this section, with which

    the new rule or rule amendment is inconsistent or appears to be

    inconsistent with the Act or the Commission's regulations.

    (f) Effect of non-approval. (1) Notification to a registered entity

    under paragraph (e) of this section does not prevent the registered

    entity from subsequently submitting a revised version of the proposed

    rule or rule amendment for Commission review and approval or from

    submitting the new rule or rule amendment as initially proposed in a

    supplemented submission; the revised submission will be reviewed

    without prejudice.

    (2) Notification to a registered entity under paragraph (e) of this

    section of the Commission's determination not to approve a proposed

    rule or rule amendment of a registered entity shall be presumptive

    evidence that the entity may not truthfully certify that the same, or

    substantially the same, proposed rule or rule amendment under Sec.

    40.6(a) of this section.

    (g) Expedited approval. Notwithstanding the provisions of paragraph

    (c) of this section, changes to a proposed rule or a rule amendment,

    including changes to terms and conditions of a product that are

    consistent with the Act and Commission regulations and with standards

    approved or established by the Commission may be approved by the

    Commission at such time and under such conditions as the Commission

    shall specify in the written notification, provided, however, that the

    Commission may, at any time, alter or revoke the applicability of such

    a notice to any particular product or rule amendment.

    Sec. 40.6 Self-certification of rules.

    (a) Required certification. A registered entity shall comply with

    the following conditions prior to implementing any rule, other than a

    rule delisting or withdrawing the certification of a product, that has

    not obtained Commission approval under Sec. 40.5 of this part, that

    remains dormant subsequent to being submitted under this section or

    approved under Sec. 40.5 of this part, or that is submitted under

    Sec. 40.10 of this part, except as otherwise provided by Sec.

    40.10(a):

    (1) The registered entity has filed its submission electronically

    in a format and manner specified by the Secretary

    [[Page 44795]]

    of the Commission with the Secretary of the Commission.

    (2) The registered entity has provided a certification that the

    registered entity posted a notice of pending certification with the

    Commission and a copy of the submission, concurrent with the filing of

    a submission with the Commission, on the registered entity's Web site.

    Information that the registered entity seeks to keep confidential may

    be redacted from the documents published on the registered entity's Web

    site but it must be republished consistent with any determination made

    pursuant to Sec. 40.8(c)(4).

    (3) The Commission has received the submission not later than the

    open of business on the business day that is 10 business days prior to

    the registered entity's implementation of the rule or rule amendment.

    (4) The Commission has not stayed the submission pursuant to Sec.

    40.6(c).

    (5) The rule or rule amendment is not a rule or rule amendment of a

    designated contract market that materially changes a term or condition

    of a contract for future delivery of an agricultural commodity

    enumerated in section 1a(4) of the Act or an option on such a contract

    or commodity in a delivery month having open interest.

    (6) Emergency rule certifications. (i) New rules or rule amendments

    that establish standards for responding to an emergency must be

    submitted pursuant to Sec. 40.6(a);

    (ii) 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. Such rules shall be

    subject to the certification and stay provisions of paragraphs (b) and

    (c) of this section.

    (7). The rule submission shall include:

    (i) A copy of the submission cover sheet in accordance with the

    instructions in Appendix D to this part (in the case of a rule or rule

    amendment that responds to an emergency, ``Emergency Rule

    Certification'' should be noted in the Description section of the

    submission coversheet);

    (ii) The text of the rule (in the case of a rule amendment,

    deletions and additions must be indicated);

    (iii) The date of intended implementation;

    (iv) A certification by the registered entity that the rule

    complies with the Act and the Commission's regulations thereunder;

    (v) A concise explanation and analysis of the operation, purpose,

    and effect of the proposed rule or rule amendment and its compliance

    with applicable provisions of the Act, including core principles, and

    the Commission's regulations thereunder;

    (vi) A brief explanation of any substantive opposing views

    expressed to the registered entity by governing board or committee

    members, members of the entity or market participants, that were not

    incorporated into the rule, or a statement that no such opposing views

    were expressed;

    (vii) As appropriate, a request for confidential treatment pursuant

    to the procedures provided in Sec. 40.8; and

    (8) The registered entity shall provide, if requested by Commission

    staff, additional evidence, information or data that may be beneficial

    to the Commission in conducting a due diligence assessment of the

    filing and the registered entity's compliance with any of the

    requirements of the Act or the Commission's regulations or policies

    thereunder.

    (b) Review by the Commission. The Commission shall have 10 business

    days to review the new rule or rule amendment before the new rule or

    rule amendment is deemed certified and can be made effective, unless

    the Commission notifies the registered entity during the 10-business

    day review period that it intends to issue a stay of the certification

    under paragraph (c) of this section.

    (c) Stay (1) Stay of certification of new rule or rule amendment.

    The Commission may stay the certification of a new rule or rule

    amendment submitted pursuant to paragraph (a) of this section by

    issuing a notification informing the registered entity that the

    Commission is staying the certification of the rule or rule amendment

    on the grounds that the rule or rule amendment presents novel or

    complex issues that require additional time to analyze, the rule or

    rule amendment is accompanied by an inadequate explanation or the rule

    or rule amendment is potentially inconsistent with the Act or the

    Commission's regulations thereunder. The Commission will have an

    additional 90 days from the date of the notification to conduct the

    review. The decision to stay the certification of a rule in such

    circumstances shall be delegable pursuant to Sec. 40.7 of this part.

    (2) Public comment. The Commission shall provide a 30-day comment

    period within the 90-day period in which the stay is in effect as

    described in paragraph (c)(1) of this section. The Commission shall

    publish a notice of the 30-day comment period on the Commission Web

    site. Comments from the public shall be submitted as specified in that

    notice.

    (3) Expiration of a stay of certification of new rule or rule

    amendment. A new rule or rule amendment subject to a stay pursuant to

    this paragraph shall become effective, pursuant to the certification,

    at the expiration of the 90-day review period described in paragraph

    (c)(1) of this section unless the Commission withdraws the stay prior

    to that time, or the Commission notifies the registered entity during

    the 90-day time period that it objects to the proposed certification on

    the grounds that the proposed rule or rule amendment is inconsistent

    with the Act or the Commission's regulations.

    (4) Stay of effectiveness of rules or rule amendments already

    implemented. The Commission may stay the effectiveness of an

    implemented rule during the pendency of Commission proceedings for

    filing a false certification or during the pendency of a petition to

    alter or amend the rule pursuant to section 8a(7) of the Act. The

    decision to stay the effectiveness of a rule in such circumstances

    shall not be delegable to any employee of the Commission.

    (d) Notification of rule amendments. Notwithstanding the rule

    certification requirement of Section 5c(c)(1) of the Act and paragraph

    (a) of this section, a registered entity may place the following rules

    or rule amendments into effect without certification to the Commission

    if the following conditions are met:

    (1) The registered entity provides to the Commission at least

    weekly a summary notice of all rule amendments made effective pursuant

    to this paragraph during the preceding week. Such notice must be

    labeled ``Weekly Notification of Rule Amendments'' and need not be

    filed for weeks during which no such actions have been taken. One copy

    of each such submission shall be furnished electronically in a format

    and manner specified by the Secretary of the Commission; and

    (2) The rule governs:

    (i) Non-substantive revisions. Corrections of typographical errors,

    renumbering, periodic routine updates to identifying information about

    registered entities and other such non-substantive revisions of a

    product's terms and conditions that have no effect on the economic

    characteristics of the product;

    (ii) Delivery standards set by third parties. Changes to grades or

    standards of commodities deliverable on a product

    [[Page 44796]]

    that are established by an independent third party and that are

    incorporated by reference as product terms, provided that the grade or

    standard is not established, selected or calculated solely for use in

    connection with futures or option trading and such changes do not

    affect deliverable supplies or the pricing basis for the product;

    (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 (d)(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

    (d)(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) Fees. Fees or fee changes, other than fees or fee changes

    associated with market making or trading incentive programs, that:

    (A) Total $1.00 or more per contract, and

    (B) Are established by an independent third party or are unrelated

    to delivery, trading, clearing or dispute resolution.

    (vi) Survey lists. Changes to lists of banks, brokers, dealers, or

    other entities that provide price or cash market information to an

    independent third party and that are incorporated by reference as

    product terms;

    (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 weigh masters, assayers, and inspectors) at a delivery

    location, pursuant to previously certified or Commission approved

    standards or criteria;

    (ix) Trading months. The initial listing of trading months, which

    may qualify for implementation without notice pursuant to (d)(3)(ii)(H)

    of this section, within the currently established cycle of trading

    months; or

    (x) Minimum tick. Reductions in the minimum price fluctuation (or

    ``tick'').

    (3) Notification of rule amendments not required. Notwithstanding

    the rule certification requirements of section 5c(c)(1) of the Act and

    paragraph (a) of this section, a registered entity may place the

    following rules or rule amendments into effect without certification or

    notice to the Commission if the following conditions are met:

    (i) The registered entity maintains documentation regarding all

    changes to rules; and

    (ii) The rule governs:

    (A) Transfer of membership or ownership. Procedures and forms for

    the purchase, sale or transfer of membership or ownership, but not

    including qualifications for membership or ownership, any right or

    obligation of membership or ownership or dues or assessments;

    (B) Administrative procedures. The organization and administrative

    procedures of a registered entity governing bodies such as a Board of

    Directors, Officers and Committees, but not voting requirements, Board

    of Directors or Committee composition requirements or procedures,

    decision making procedures, use or disclosure of material non-public

    information gained through the performance of official duties, or

    requirements relating to conflicts of interest;

    (C) Administration. The routine, daily administration, direction

    and control of employees, requirements relating to gratuity and similar

    funds, but not guaranty, reserves, or similar funds; declaration of

    holidays, and changes to facilities housing the market, trading floor

    or trading area;

    (D) Standards of decorum. Standards of decorum or attire or similar

    provisions relating to admission to the floor, badges, or visitors, but

    not the establishment of penalties for violations of such rules; and

    (E) Fees. Fees or fee changes, other than fees or fee changes

    associated with market making or trading incentive programs, that:

    (1) Are less than $1.00; or

    (2) Relate to matters such as dues, badges, telecommunication

    services, booth space, real time quotations, historical information,

    publications, software licenses or other matters that are

    administrative in nature.

    (F) Securities indexes. Routine changes to the composition,

    computation or method of security selection of an index that is

    referenced and defined in the product's rules, and which is made by an

    independent third party.

    (G) Option contract terms. For registered entities that are in

    compliance with the daily reporting requirements of Sec. 16.01 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 of this chapter,

    the initial listing of trading months which are within the currently

    established cycle of trading months.

    Sec. 40.7 Delegations.

    (a) Procedural matters. (1) The Commission hereby delegates, until

    it orders otherwise, to the Director of the Division of Clearing and

    Intermediary Oversight and, separately, to the Director of the Division

    of Market Oversight, to be exercised by either Director, as

    appropriate, or by such employees of the Commission that either

    Director may designate from time to time, the following authorities,

    with the concurrence of the General Counsel or the General Counsel's

    delegate:

    (i) To request, pursuant to Sec. 40.3(c)(2) or Sec.

    40.5(c)(1)(ii) of this part, that the registered entity requesting

    approval amend the proposed product, rule or rule amendment, or

    supplement the submission to the Commission;

    (ii) To notify the registered entity, pursuant to Sec. 40.3(e) or

    Sec. 40.5(e) of this part, that the Commission is not approving, or is

    unable to approve, the proposed product, rule or rule amendment;

    (iii) To make all determinations reserved to the Commission in

    Sec. 40.10.

    (2) The Commission hereby delegates, until it orders otherwise, to

    the Director of the Division of Clearing and Intermediary Oversight

    and, separately, to the Director of the Division of Market Oversight,

    to be exercised by either Director, as appropriate, or by such

    employees of the Commission that either Director may designate from

    time to time, the following authorities, after consultation with the

    Office of General Counsel or the General Counsel's delegate to notify a

    registered entity:

    (i) Pursuant to Sec. 40.3(d) of this part, that the time for

    review of the submission has been extended because the product raises

    novel or complex issues that require additional time for review;

    (ii) Pursuant to Sec. 40.5(d) of this part, that the time for

    review of the submission has been extended because the proposed rule or

    rule amendment raises novel or complex issues that

    [[Page 44797]]

    require additional time for review or is of major economic

    significance;

    (iii) Pursuant to Sec. 40.6(c) of this part, that the proposed

    rule or rule amendment has been stayed because there exist novel or

    complex issues that require additional time to analyze, or there is

    potential inconsistency with the Act or the Commission's regulations.

    (3) The Commission hereby delegates, until it orders otherwise, to

    the Director of the Division of Clearing and Intermediary Oversight

    and, separately, to the Director of the Division of Market Oversight,

    to be exercised by either Director, as appropriate, or by such

    employees of the Commission that either Director may designate from

    time to time, the authority to notify a registered entity, pursuant to

    Sec. 40.3(d) or Sec. 40.5(d) of this part, that the time for review

    of the submission has been extended, or that a rule certified pursuant

    to Sec. 40.6(c) has been stayed, because the submission is incomplete

    or provides an inadequate explanation.

    (4) Emergency rules. The Commission hereby delegates to the

    Director of the Division of Market Oversight and, separately, to the

    Director of the Division of Clearing and Intermediary Oversight, to be

    exercised by either Director, as appropriate, or by such other employee

    or employees of the Commission that either Director may designate from

    time to time, authority to receive notification of emergency rules

    under Sec. 40.6(a)(6)(ii) of this part.

    (5) The Commission hereby delegates to the Director of the Division

    of Market Oversight, to be exercised by the Director or by such

    employees of the Commission that the Director may designate from time

    to time, with the concurrence of the General Counsel or the General

    Counsel's delegate, the authority to determine whether a rule change

    submitted by a designated contract market for a materiality

    determination under Sec. 40.4(b)(5) of this part is not material (in

    which case it may be reported pursuant to the provisions of Sec.

    40.6(d) of this part), or is material, in which case he or she shall

    notify the registered entity that the rule change must be submitted for

    the Commission's prior approval.

    (b) Approval authority. The Commission hereby delegates, until it

    orders otherwise, to the Director of the Division of Clearing and

    Intermediary Oversight and, separately, to the Director of the Division

    of Market Oversight, to be exercised by either Director, as

    appropriate, or by such employees of the Commission that either

    Director may designate from time to time, with the concurrence of the

    General Counsel or the General Counsel's delegate, the authority to

    approve, pursuant to section 5c(c)(3) of the Act and Sec. 40.5 of this

    part, rules or rule amendments of a registered entity that:

    (1) Relate to, but do not substantially change, the quantity,

    quality, or other delivery specifications, procedures, or obligations

    for delivery, cash settlement, or exercise under an agreement, contract

    or transaction approved for trading by the Commission; daily settlement

    prices; clearing position limits; requirements or procedures for

    governance of a registered entity; procedures for transfer trades;

    trading hours; minimum price fluctuations; and maximum price limit and

    trading suspension provisions;

    (2) Reflect routine modifications that are required or anticipated

    by the terms of the rule of a registered entity;

    (3) Establish or amend speculative limits or position

    accountability provisions that are in compliance with the requirements

    of the Act and the Commission's regulations;

    (4) Are in substance the same as a rule of the same or another

    registered entity which has been approved previously by the Commission

    pursuant to section 5c(c)(3) of the Act;

    (5) Are consistent with a specific, stated policy or interpretation

    of the Commission; or

    (6) Relate to the listing of additional trading months of approved

    contracts.

    (c) Notwithstanding the provisions of this section, the Director of

    the Division of Clearing and Intermediary Oversight and, separately,

    the Director of the Division of Market Oversight may submit to the

    Commission for its consideration any matter that has been delegated

    pursuant to this section.

    (d) Nothing in this section shall be deemed to prohibit the

    Commission, at its election, from exercising any of the authority

    delegated pursuant to this section.

    Sec. 40.8 Availability of public information.

    (a) The following sections of all applications to become a

    designated contract market, swap execution facility, derivatives

    clearing organization, or swap data repository shall be made publicly

    available: Transmittal letter and first page of the application cover

    sheet, proposed rules, narrative summary of the applicant's proposed

    activities and regulatory compliance chart, documents establishing the

    applicant's legal status, documents setting forth the applicant's

    corporate and governance structure and any other part of the

    application not covered by a request for confidential treatment.

    (b) The following submissions provided by an electronic trading

    facility on which significant price discovery contracts are traded or

    executed will be public: rulebook, the facility's regulatory compliance

    chart, documents establishing the facility's legal status, documents

    setting forth the facility's governance structure, and any other parts

    of the submissions not covered by a request for confidential treatment

    (Sec. 40.8(b) will be removed on July 20, 2012).

    (c) A registered entity's filing of new products pursuant to the

    self-certification procedures of Sec. 40.2 of this part, new products

    for Commission review and approval pursuant to Sec. 40.3 of this part,

    new rules and rule amendments for Commission review and approval

    pursuant to Sec. 40.4 or Sec. 40.5 of this part, and new rules and

    rule amendments pursuant to the self-certification procedures of Sec.

    40.6 and Sec. 40.10 of this part shall be treated as public

    information unless accompanied by a request for confidential treatment.

    If a registered entity files a request for confidential treatment, the

    following procedures shall apply:

    (1) A detailed written justification of the confidential treatment

    request must be filed simultaneously with the request for confidential

    treatment. The form and content of the detailed written justification

    shall be governed by Sec. 145.9 of this chapter;

    (2) All material for which confidential treatment is requested must

    be segregated in an Appendix to the submission;

    (3) The submission itself must indicate that material has been

    segregated and, as appropriate, an additional redacted version

    provided;

    (4) Commission staff may make an initial determination with respect

    to the request for confidential treatment without regard to whether a

    request for the information has been sought under the Freedom of

    Information Act;

    (5) All requests for confidential treatment shall be subject to the

    process provided by Sec. 145.9 of this chapter.

    (6) A submitter of information under this part may appeal an

    adverse decision by staff to the Commission's Office of General

    Counsel. The form and content of such appeal shall be governed by Sec.

    145.9(g) of this chapter.

    (7) The grant of any part of a request for confidential treatment

    under this section may be reconsidered if a subsequent request under

    the Freedom of Information Act is made for the information.

    (d) Commission staff will not consider confidential treatment

    requests for information that is required to be made

    [[Page 44798]]

    public under the Act. The terms and conditions of a product submitted

    to the Commission pursuant to Sec. 40.2, Sec. 40.3, Sec. 40.5 and

    Sec. 40.6 of this part shall be made publicly available at the time of

    submission.

    Sec. 40.9 [Reserved]

    Sec. 40.10 Special certification procedures for submission of rules

    by systemically important derivatives clearing organizations.

    (a) Advance notice. A registered derivatives clearing organization

    that has been designated by the Financial Stability Oversight Council

    as a systemically important derivatives clearing organization shall

    provide notice to the Commission not less than 60 days in advance of

    any proposed change to its rules, procedures, or operations that could

    materially affect the nature or level of risks presented by the

    systemically important derivatives clearing organization. A notice

    submitted under this section shall be subject to the filing

    requirements of Sec. 40.6(a)(1) and the Web site publication

    requirements of Sec. 40.6(a)(2).

    (1) The notice of a proposed change shall provide the information

    required to be submitted under Sec. 40.6(a)(7) and shall specifically

    describe:

    (i) The nature of the change and expected effects on risks to the

    systemically important derivatives clearing organization, its clearing

    members, or the market; and

    (ii) How the systemically important derivatives clearing

    organization plans to manage any identified risks.

    (2) Concurrent with providing the Commission with the advance

    notice or any request or other information related to the advance

    notice, the systemically important derivatives clearing organization

    shall provide the Board of Governors of the Federal Reserve System with

    a copy of such notice, request or other information in the same format

    and manner as required by the Board of Governors for those designated

    financial market utilities for which it is the Supervisory Agency

    pursuant to section 803(8) of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act.

    (3) The systemically important derivatives clearing organization

    may request that the Commission expedite the review on the grounds that

    the change would materially decrease risk. The Commission, in its

    discretion, may expedite the review and, pursuant to paragraph (g) of

    this section, notify the systemically important derivatives clearing

    organization in less than 60 days from the date the Commission receives

    the notice of proposed change in writing that it does not object to the

    proposed change and authorizes implementation of the change on an

    earlier date.

    (b) Materiality. The term ``materially affect the nature or level

    of risks presented,'' when used to qualify determinations on a change

    to rules, procedures, or operations of a systemically important

    derivatives clearing organization, means matters as to which there is a

    reasonable possibility that the change could affect the performance of

    essential clearing and settlement functions or the overall nature or

    level of risk presented by the systemically important derivatives

    clearing organization. Such changes may include, but are not limited

    to, changes that materially affect financial resources, participant and

    product eligibility, risk management (including matters relating to

    margin and stress testing), daily or intraday settlement procedures,

    default procedures, system safeguards (business continuity and disaster

    recovery), and governance. If a systemically important derivatives

    clearing organization determines that a proposed change is not material

    and therefore does not file an advance notice under this Sec. 40.10,

    but the Commission determines that the change is material, the

    Commission may require the systemically important derivatives clearing

    organization to withdraw the proposed change and provide notice

    pursuant to this section.

    (c) Further information. The Commission may require the

    systemically important derivatives clearing organization to provide any

    further information necessary to assess the effect the proposed change

    would have on the nature or level of risks associated with the

    systemically important derivatives clearing organization's payment,

    clearing, or settlement activities and the sufficiency of any proposed

    risk management techniques.

    (d) Notice of objection. A systemically important derivatives

    clearing organization shall not implement a change to which the

    Commission has an objection on the grounds that the proposed change is

    not consistent with the Act or the Commission's regulations, or the

    purposes of the Dodd-Frank Act or any applicable rules, orders, or

    standards prescribed under Section 805(a) of the Dodd-Frank Act. The

    Commission will notify the systemically important derivatives clearing

    organization in writing of any objection regarding the proposed change

    within 60 days from the later of:

    (1) The date that the notice of the proposed change was received;

    or

    (2) The date the Commission received any further information it had

    requested for consideration of the notice.

    (e) Implementation of change absent Commission objection. A

    systemically important derivatives clearing organization may implement

    a change if it has not received an objection to the proposed change

    within 60 days from the later of:

    (1) The date that the Commission received the notice of proposed

    change; or

    (2) The date the Commission received any further information it had

    requested for consideration of the notice.

    (f) Extended review. The Commission may, during the 60-day review

    period, extend the review period if the proposed change raises novel or

    complex issues. A notification by the Commission pursuant to this

    paragraph will extend the review for an additional 60 days. Any

    extension under this paragraph will extend the time periods under

    paragraphs (d) and (e) of this section for an additional 60 days.

    (g) Change allowed earlier if notified of no objection. A

    systemically important derivatives clearing organization may implement

    a change in less than 60 days from the date the Commission receives the

    notice of proposed change or the date the Commission receives any

    further information it has requested, if the Commission notifies the

    systemically important derivatives clearing organization in writing

    that it does not object to the proposed change and authorizes

    implementation of the change on an earlier date, subject to any

    conditions imposed by the Commission.

    (h) Emergency changes. A systemically important derivatives

    clearing organization may implement a change that would otherwise

    require advance notice under this section if it determines that an

    emergency exists and immediate implementation of the change is

    necessary for the systemically important derivatives clearing

    organization to continue to provide its services in a safe and sound

    manner.

    (1) The systemically important derivatives clearing organization

    shall provide notice of any such emergency change to the Commission as

    soon as practicable, which shall be no later than 24 hours after

    implementation of the change.

    (2) The notice of an emergency change shall:

    (i) Provide the information required for advance notice as set

    forth in paragraph (a) of this section;

    (ii) Describe the nature of the emergency; and

    [[Page 44799]]

    (iii) Describe the reason the change was necessary for the

    systemically important derivatives clearing organization to continue to

    provide its services in a safe and sound manner.

    (3) The Commission may require modification or rescission of the

    emergency change if it finds that the change is not consistent with the

    Act or the Commission's regulations, or the purposes of the Dodd-Frank

    Act or any applicable rules, orders, or standards prescribed under

    Section 805(a) of the Dodd-Frank Act.

    Sec. 40.11 Review of event contracts based upon certain excluded

    commodities.

    (a) Prohibition. A registered entity shall not list for trading or

    accept for clearing on or through the registered entity any of the

    following:

    (1) An agreement, contract, transaction, or swap based upon an

    excluded commodity, as defined in Section 1a(19)(iv) of the Act, that

    involves, relates to, or references terrorism, assassination, war,

    gaming, or an activity that is unlawful under any State or Federal law;

    or

    (2) An agreement, contract, transaction, or swap based upon an

    excluded commodity, as defined in Section 1a(19)(iv) of the Act, which

    involves, relates to, or references an activity that is similar to an

    activity enumerated in Sec. 40.11(a)(1) of this part, and that the

    Commission determines, by rule or regulation, to be contrary to the

    public interest.

    (b) [Reserved.]

    (c) 90-day review and approval of certain event contracts. The

    Commission may determine, based upon a review of the terms or

    conditions of a submission under Sec. 40.2 or Sec. 40.3, that an

    agreement, contract, transaction, or swap based on an excluded

    commodity, as defined in Section 1a(19)(iv) of the Act, which may

    involve, relate to, or reference an activity enumerated in Sec.

    40.11(a)(1) or Sec. 40.11(a)(2), be subject to a 90-day review. The

    90-day review shall commence from the date the Commission notifies the

    registered entity of a potential violation of Sec. 40.11(a).

    (1) The Commission shall request that a registered entity suspend

    the listing or trading of any agreement, contract, transaction, or swap

    based on an excluded commodity, as defined in Section 1a(19)(iv) of the

    Act, which may involve, relate to, or reference an activity enumerated

    in Sec. 40.11(a)(1) or Sec. 40.11(a)(2), during the Commission's 90-

    day review period. The Commission shall post on the Web site a

    notification of the intent to carry out a 90-day review.

    (2) Final determination. The Commission shall issue an order

    approving or disapproving an agreement, contract, transaction, or swap

    that is subject to a 90-day review under Sec. 40.11(c) not later than

    90 days subsequent to the date that the Commission commences review, or

    if applicable, at the conclusion of such extended period agreed to or

    requested by the registered entity.

    Sec. 40.12 Staying of certification and tolling of review period

    pending jurisdictional determination.

    (a) Notice of novel derivative products. (1) A registered entity

    certifying, submitting for approval, or otherwise filing a proposal to

    list, trade, or clear a novel derivative product (other than a product

    subject to the provisions of Sec. 1.8 of this chapter) having elements

    of both a security and a contract for the sale of a commodity for

    future delivery (or an option on such contract or an option on a

    commodity) may provide notice of its proposal to the Commission and the

    Securities and Exchange Commission with a statement that written notice

    has been provided to both agencies through an appropriate means

    provided in each Commission's regulations.

    (2) If concurrent notice is not provided pursuant to Sec.

    40.12(a)(1), the Commission shall notify the Securities and Exchange

    Commission of the registered entity's submission of a novel derivative

    product described in Sec. 40.12(a)(1) and accompany such notice with a

    copy of the submission. The Commission shall determine whether a

    particular submission is a novel derivative product requiring notice to

    the Securities and Exchange Commission not later than five business

    days subsequent to the date that the registered entity submits the

    product for Commission review.

    (b) Tolling of review period. Upon receipt of a request for a

    jurisdictional determination, pursuant to Section 718(a)(2) of the

    Dodd-Frank Act, by the Commission or the Securities and Exchange

    Commission, the product certification shall be stayed or the approval

    review period shall be tolled until a final determination order is

    issued.

    (1) The Commission will provide the registered entity with a

    written notice of stay pending issuance of a final determination order

    by the Commission or the Securities and Exchange Commission.

    (2) The stay shall be withdrawn or the approval review period shall

    resume upon the Commission's or the Securities and Exchange

    Commission's issuance of a final determination order finding that the

    Commission has jurisdiction over the submission.

    (3) Determination order. A final determination, for purposes of

    Sec. 40.12(b) of this part, shall be a determination order issued by

    the Commission or the Securities and Exchange Commission pursuant to

    Section 718(a)(3) of the Dodd-Frank Act.

    (c) Judicial review of determination order. The filing of a

    petition by a complaining Commission, pursuant to Section 718(b) of the

    Dodd-Frank Act, shall operate as a stay of the agency order.

    (1) The stay shall remain in effect until the date on which the

    United States Court of Appeals for the District of Columbia Circuit

    issues a final determination pursuant to Section 718(b)(4) of the Dodd-

    Frank Act, or until such date that there is a final disposition of an

    appeal of that determination.

    (2) The submission review period shall resume upon issuance of a

    final determination, as described in Sec. 40.12(c)(1), that the

    Commission has jurisdiction over the submission.

    Appendix A to Part 40--Schedule of Fees

    (a) Applications for product approval. Each application for

    product approval under Sec. 40.3 must be accompanied by a check or

    money order made payable to the Commodity Futures Trading Commission

    in an amount to be determined annually by the Commission and

    published in the Federal Register.

    (b) Checks and applications should be sent to the attention of

    the Office of the Secretariat, Commodity Futures Trading Commission,

    Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC

    20581. No checks or money orders may be accepted by personnel other

    than those in the Office of the Secretariat.

    (c) Failure to submit the fee with an application for product

    approval will result in return of the application. Fees will not be

    returned after receipt.

    Appendix B to Part 40--[Reserved]

    Appendix C to Part 40--[Reserved]

    Appendix D to Part 40--Submission Cover Sheet and Instructions

    (a) A properly completed submission cover sheet shall accompany

    all rule and product submissions submitted electronically by a

    registered entity in a format and manner specified by the Secretary

    of the Commission to the Secretary of the Commission. A properly

    completed submission cover sheet shall include all of the following:

    1. Identifier Code (optional)--A registered entity Identifier

    Code at the top of the cover sheet, if applicable. Such codes are

    commonly generated by registered entities to

    [[Page 44800]]

    provide an identifier that is unique to each filing (e.g., NYMEX

    Submission 03-116).

    2. Date--The date of the filing.

    3. Organization--The name of the organization filing the

    submission (e.g., CBOT).

    4. Filing as a--Check in the appropriate box indicating that the

    rule or product is being submitted by a designated contract market

    (DCM), derivatives clearing organization (DCO), swap execution

    facility (SEF), or swap data repository (SDR), electronic trading

    facility with a significant price discovery contract (the term will

    be removed on July 20, 2012).\1\

    ---------------------------------------------------------------------------

    \1\ Even though ECM-SPDC was eliminated by the Dodd-Frank Act,

    the Commission will retain references to this entity in the cover

    sheet since ECMs may be allowed to operate until July 20, 2012,

    pursuant to grandfather relief issued by the Commission. See 75 FR

    56513 (Sept. 16, 2010).

    ---------------------------------------------------------------------------

    5. Type of Filing--An indication as to whether the filing is a

    new rule, rule amendment or new product. The registered entity

    should check the appropriate box to indicate the applicable category

    under that heading.

    6. Rule Numbers--For rule filings, the rule number(s) being

    adopted or modified in the case of rule amendment filings.

    7. Description--For rule or rule amendment filings, a

    description of the new rule or rule amendment, including a

    discussion of its expected impact on the registered entity, market

    participants, and the overall market. The narrative should describe

    the substance of the submission with enough specificity to

    characterize all material aspects of the filing.

    (b) Other Requirements--A submission shall comply with all

    applicable filing requirements for proposed rules, rule amendments,

    or products. The filing of the submission cover sheet does not

    obviate the registered entity's responsibility to comply with

    applicable filing requirements (e.g., rules submitted for Commission

    approval under Sec. 40.5 must be accompanied by an explanation of

    the purpose and effect of the proposed rule along with a description

    of any substantive opposing views).

    (c) Checking the box marked ``confidential treatment requested''

    on the Submission Cover Sheet does not obviate the submitter's

    responsibility to comply with all applicable requirements for

    requesting confidential treatment in Sec. 40.8 and, where

    appropriate, Sec. 145.9 of this chapter, and will not substitute

    for notice or full compliance with such requirements.

    Issued in Washington, DC, on July 19, 2011, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Provisions Common to Registered Entities--Commission

    Voting Summary and Statements of Commissioners

    Note: The following appendices will not appear in the Code of

    Federal Regulations.

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn,

    Sommers, Chilton and O'Malia voted in the affirmative; no

    Commissioner voted in the negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the final rulemaking to establish a process for the

    certification and approval of new rules and rule amendments for

    designated contract markets, derivatives clearing organizations, as

    well as new registrants, swap execution facilities and swap data

    repositories. The Dodd-Frank Wall Street Reform and Consumer

    Protection Act establishes enhanced CFTC review and certification of

    new rules and amendments. Today's final regulations provide

    important procedural guidance to registered entities on how to

    comply with Congress's mandate for the Commission's review of new

    rules and rule amendments.

    [FR Doc. 2011-18661 Filed 7-26-11; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: July 27, 2011



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