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2012-25764

  • Federal Register, Volume 77 Issue 213 (Friday, November 2, 2012)[Federal Register Volume 77, Number 213 (Friday, November 2, 2012)]

    [Rules and Regulations]

    [Pages 66287-66350]

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

    [FR Doc No: 2012-25764]

    [[Page 66287]]

    Vol. 77

    Friday,

    No. 213

    November 2, 2012

    Part III

    Commodity Futures Trading Commission

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    17 CFR Parts 1, 4, 5, et al.

    Adaptation of Regulations to Incorporate Swaps; Final Rule

    Federal Register / Vol. 77 , No. 213 / Friday, November 2, 2012 /

    Rules and Regulations

    [[Page 66288]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 1, 4, 5, 7, 8, 15, 16, 18, 21, 22, 36, 38, 41, 140,

    145, 155, and 166

    RIN Number 3038-AD53

    Adaptation of Regulations To Incorporate Swaps

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rules.

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    SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act

    (``Dodd-Frank Act'' or ``DFA'') established a comprehensive new

    statutory framework for swaps and security-based swaps. The Dodd-Frank

    Act repeals some sections of the Commodity Exchange Act (``CEA'' or

    ``Act''), amends others, and adds a number of new provisions. The DFA

    also requires the Commodity Futures Trading Commission (``CFTC'' or

    ``Commission'') to promulgate a number of rules to implement the new

    framework. The Commission has proposed and finalized numerous rules to

    satisfy its obligations under the DFA. This rulemaking makes a number

    of conforming amendments to integrate the CFTC's regulations more fully

    with the new framework created by the Dodd-Frank Act.

    DATES: Effective January 2, 2013.

    FOR FURTHER INFORMATION CONTACT: Peter A. Kals, Special Counsel, 202-

    418-5466, pkals@cftc.gov, Division of Clearing and Risk; Elizabeth

    Miller, Attorney-Advisor, 202-418-5450, emiller@cftc.gov, Division of

    Swap Dealer and Intermediary Oversight; David E. Aron, Counsel, 202-

    418-6621, daron@cftc.gov, Office of General Counsel; Alexis Hall-Bugg,

    Attorney-Advisor, 202-418-6711, ahallbugg@cftc.gov, Division of Market

    Oversight; Katherine Driscoll, Senior Trial Attorney, 202-418-5544,

    kdriscoll@cftc.gov, Division of Enforcement, Commodity Futures Trading

    Commission, Three Lafayette Centre, 1151 21st Street NW., Washington,

    DC 20581.

    SUPPLEMENTARY INFORMATION:

    Table of Contents

    I. Background

    II. Amended Regulations

    A. Part 1

    1. Regulation 1.3: Definitions

    a. General Changes

    b. Various Amended and New Definitions (Regulation 1.3)

    c. Regulation 1.3(t): Open Contract

    d. Regulation 1.3(ll): Physical

    e. Regulation 1.3(ss): Foreign Board of Trade

    f. Regulation 1.3(yy): Commodity Interest

    g. Regulation 1.3(z): Bona Fide Hedging Transactions and

    Positions

    h. Lack of a Definition of ``End-User'' in Regulation 1.3

    2. Regulation 1.4: Use of Electronic Signatures

    3. Regulation 1.31: Books and Records; Keeping and Inspection

    4. Regulations 1.33: Monthly and Confirmation Statements

    5. Regulation 1.35: Records of Cash Commodity, Futures and

    Option Transactions

    6. Regulation 1.37: Customer's or Option Customer's Name,

    Address, and Occupation Recorded; Record of Guarantor or Controller

    of Account

    7. Regulation 1.39: Simultaneous Buying and Selling Orders of

    Different Principals; Execution of, for and Between Principals

    8. Regulation 1.40: Crop, Market Information Letters, Reports;

    Copies Required

    9. Regulation 1.59: Activities of Self-Regulatory Employees,

    Governing Board Members, Committee Members and Consultants

    10. Regulation 1.63: Service on Self-Regulatory Organization

    Governing Boards or Committees by Persons With Disciplinary

    Histories

    11. Regulation 1.67: Notification of Final Disciplinary Action

    Involving Financial Harm to a Customer

    12. Regulation 1.68: Customer Election Not To Have Funds,

    Carried by a Futures Commission Merchant for Trading on a Registered

    Derivatives Trading Execution Facility, Separately Accounted for and

    Segregated

    13. Regulations 1.44, 1.53, and 1.62--Deletion of Regulations

    Inapplicable to Designated Contract Markets

    14. Technical Changes to Part 1 in Order to Accommodate Recently

    Finalized Part 22 and Corresponding Changes to Part 22

    B. Part 7

    C. Part 8

    D. Parts 15, 18, 21, and 36

    E. Parts 41, 140 and 145

    F. Parts 155 and 156

    G. Other General Changes to CFTC Regulations

    1. Removal of References to DTEFs

    2. Other Conforming Changes

    III. Administrative Compliance

    A. Paperwork Reduction Act

    B. Regulatory Flexibility Act

    C. Consideration of Costs and Benefits

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act into

    law.\1\ Title VII of the Dodd-Frank Act \2\ (``Title VII'') amended the

    CEA \3\ to establish a comprehensive new regulatory framework for swaps

    and security-based swaps. The legislation was enacted, among other

    reasons, to reduce risk, increase transparency, and promote market

    integrity within the financial system by, among other things: (1)

    Providing for the registration and comprehensive regulation of swap

    dealers (``SDs''), security-based swap dealers, major swap participants

    (``MSPs''), and major security-based swap participants; (2) imposing

    clearing and trade execution requirements on swaps and security-based

    swaps, subject to certain exceptions; (3) creating rigorous

    recordkeeping and real-time reporting regimes; and (4) enhancing the

    rulemaking and enforcement authorities of the Commissions with respect

    to, among others, all registered entities and intermediaries subject to

    the Commission's oversight.

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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

    Dodd-Frank Act is available at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.

    \2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \3\ 7 U.S.C. 1 et seq. (2006).

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    To apply its regulatory regime to the swap activity of

    intermediaries, the Commission must make a number of changes to its

    regulations to conform them to the Dodd-Frank Act. On June 7, 2011, the

    Commission published in the Federal Register a proposal to make such

    changes (``the Proposal'').\4\ There was a 60-day period for the public

    to comment on the Proposal, which ended on August 8, 2011. The

    Commission received 39 comment letters from a variety of institutions,

    including designated contract markets (``DCMs''), agricultural trade

    associations, and agricultural cooperatives.\5\ The Commission has

    determined to adopt the proposed rules primarily in the form proposed

    with certain modifications, discussed below, to address the comments

    the Commission received. With respect to certain of the proposed

    changes to regulation 1.35 \6\ (regarding recording of oral

    communications and the scope of written communications) and related

    amendments to regulation 1.31, the Commission has determined to address

    those changes in a final rule in a separate release.

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    \4\ Adaptation of Regulations to Incorporate Swaps, 76 FR 33066

    (June 7, 2011) (``Proposing Release'').

    \5\ Comment letters are available in the comment file on

    www.cftc.gov.

    \6\ All Commission regulations are in Chapter I of Title 17 of

    the CFR.

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    The Commission is mindful of, and continues to consider, the

    comments received on the Proposal's amendments to regulation 1.35

    (records of commodity interest and cash commodity transactions). Those

    comments were submitted by various groups, including DCMs,

    representatives of the FCM and IB communities, energy

    [[Page 66289]]

    end-users, and agricultural trade associations and cooperatives.\7\

    These commenters focused primarily on: the proposed oral communications

    recordkeeping requirement, in general; the proposed requirement that

    all members of a DCM or SEF, including unregistered commercial end-

    users and non-intermediaries, keep records of the oral communications

    that lead to the execution of a cash commodity transaction; and the

    proposed requirement that each record be maintained in a separately

    identifiable electronic file identifiable by transaction and

    counterparty. Many of the comments were directed specifically toward

    narrowing the scope of the proposed changes to regulation 1.35

    regarding recording of oral communications and written communications

    (and related amendments to regulation 1.31).

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    \7\ Commenters on this issue include: American Cotton Shippers

    Association; Agribusiness Association of Iowa; Agribusiness

    Association of Ohio; Agribusiness Council of Indiana; Trade

    Association of American Cotton Cooperatives; Commodity Markets

    Council; Falmouth Farm Supply; American Feed Industry Association;

    Grain and Feed Association of Illinois; Minnesota Grain and Feed

    Association; National Grain and Feed Association; Oklahoma Grain and

    Feed Association; Rocky Mountain Agribusiness Association; South

    Dakota Grain and Feed Association; Land O'Lakes; National Council of

    Farmer Cooperatives; American Gas Association; National Gas Supply

    Association; Fertilizer Institute; American Petroleum Institute;

    Electric Power Supply Association; National Rural Electric

    Cooperative Association; American Public Power Association; Large

    Public Power Council; Edison Electric Institute; Working Group of

    Commercial Energy Firms; IntercontinentalExchange Inc.; Kansas City

    Board of Trade; Minneapolis Grain Exchange; CME Group; Futures

    Industry Association; Barclays Capital; Henderson & Lyman; National

    Introducing Brokers Association; and National Futures Association.

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    The amendments adopted by this rulemaking primarily affect part 1

    of the Commission's regulations, but also affect parts 4, 5, 7, 8, 15,

    16, 18, 21, 22, 36, 41, 140, 145, 155, and 166. This rulemaking

    contains amendments of three different types: ministerial,

    accommodating, and substantive. Many of the amendments are purely

    ministerial--for instance, several changes update definitions to

    conform them to the CEA as amended by the Dodd-Frank Act; add to the

    Commission's regulations new terms created by the Dodd-Frank Act;

    remove all regulations and references pertaining to derivatives

    transaction execution facilities (``DTEFs''), a category of trading

    facility added to the CEA by section 111 of the Commodity Futures

    Modernization Act of 2000 (``CFMA''),\8\ which the DFA eliminated;

    correct various statutory cross-references to the CEA in the

    regulations; and remove regulations in whole or in part that were

    rendered moot by the CFMA.

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    \8\ Public Law 106-554, 114 Stat. 2763 (2000).

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    The accommodating amendments are essential to the implementation of

    the DFA in that they propose to add swaps, swap markets, and swap

    entities to numerous definitions and regulations, but are more than

    ministerial because they require some judgment in drafting.

    Accommodating amendments include, among other things, amending numerous

    definitions in regulation 1.3 to reference or include swaps; creating

    new definitions as necessary in regulation 1.3; amending recordkeeping

    requirements to include information on swap transactions; adding

    references to swaps and swap execution facilities (``SEFs'') in various

    part 1 regulations; and amending parts 15, 18, 21, and 36 to implement

    the DFA's grandfathering and phase-out of exempt boards of trade and

    exempt commercial markets.

    The substantive amendments are changes that align requirements or

    procedures across futures and swap markets. They consist of amendments

    to regulation 1.31 that harmonize some of the current part 1

    recordkeeping requirements with some of those applicable to SDs and

    MSPs under part 23 regulations \9\ and amend procedures pertaining to

    the post-execution allocation of bunched orders (regulation 1.35(a)).

    Under the amendments to the bunched orders provisions, ``eligible

    account managers'' can allocate such orders post-execution similarly to

    how they currently do so with futures.

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    \9\ See Swap Dealer and Major Swap Participant Recordkeeping,

    Reporting, and Duties Rules; Futures Commission Merchant and

    Introducing Broker Conflicts of Interest Rules; and Chief Compliance

    Officer Rules for Swap Dealers, Major Swap Participants, and Futures

    Commission Merchants, 77 FR 20128 (Apr. 3, 2012) (adopting for SDs

    and MSPs reporting and recordkeeping standards now found in 17 CFR

    23.201-23.203).

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    To aid the public in understanding the numerous changes to

    different parts of the CFTC's regulations adopted by this release, the

    Commission will also publish on its Web site a ``redline'' of the

    affected regulations which will clearly reflect the additions and

    deletions.\10\

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    \10\ The redline does not, in and of itself, have any legal

    authority.

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    II. Comments Received and Amended Regulations

    A. General Comments

    Several commenters argued that the Proposal was premature because

    many other rules remained to be proposed and finalized,\11\ and

    subsequent final rulemakings may dictate which conforming amendments

    will be necessary. A joint letter by certain Electric Utility Trade

    Associations (``the ETA'') contended that the incomplete nature of the

    swap regulatory regime renders it unable to ``effectively comment,''

    because it lacks a full understanding of the entire swap regulatory

    landscape. In the ETA's view, the ``premature'' nature of the Proposal

    rises to the level of a violation of the Administrative Procedures Act

    (``APA'').\12\ The ETA commented further that because the Proposal

    updated certain regulations by treating swaps equivalently to futures,

    the Proposal ``represents a fundamental misunderstanding'' of the

    executing electric industry swap market, and, consequently, should be

    withdrawn. The ETA also noted that, ``[f]rom time to time, the

    Commission's staff has declined to consider whether nonfinancial

    commodity and related swap markets are indeed different in any

    meaningful way from other markets,'' and that the ETA ``continues to

    urge the Commission to engage in a considered analysis of such

    differences and the implications of such differences for its rulemaking

    process.'' The CME Group (``CME'') argued that the Commission should

    have waited to propose the voice and electronic recordkeeping

    requirements in regulation 1.35(a) until SEFs register, the Dodd-Frank

    Act clearing and exchange trading requirements take effect, and Dodd-

    Frank Act recordkeeping and reporting requirements take effect. The

    Electric Power Supply Association (``EPSA'') commented that final rules

    defining swap, SD, and MSP must be published prior to proposing a rule

    conforming the Commission's regulations to the Dodd-Frank Act and

    related regulations. Therefore, EPSA argued, the Proposal should be

    withdrawn. Mr. Chris Barnard generally supported the Proposal,

    commenting that the proposed changes were either common sense or

    required by the DFA.

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    \11\ A joint letter by the American Gas Association, Commodity

    Markets Council, National Gas Supply Association, and the Fertilizer

    Institute (``AGA et al.''); Commodity Markets Council (``CMC'');

    Electric Power Supply Association; certain Electric Utility Trade

    Associations; and the Working Group of Commercial Energy Firms

    (``Working Group'').

    \12\ See ETA Letter (claiming that ``[t]he [Proposal] cannot

    fairly apprise interested persons of the nature of the Commission's

    rulemaking, nor can it provide notice of `the terms of substance of

    the proposed rule or a description of the subjects and issues

    involved,' as required by the [APA], when the proposed rules purport

    to adapt to a moving target.'').

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    The Commission believes it was appropriate to have published the

    Proposal when it did. The purpose of this rulemaking is to conform the

    Commission's regulations to the CEA as

    [[Page 66290]]

    revised by the DFA where necessary (to avoid conflicting statutory and

    regulatory definitions of the same term, for example) or desirable

    (e.g., to make retention periods for records of all swap transactions

    consistent with those recently adopted for the records of swap

    transactions of SDs). The Commission viewed many of these changes to be

    non-controversial. For example, the DFA amended the definition of FCM

    in section 1a of the CEA to permit FCMs to execute and clear swaps for

    customers in addition to futures. Accordingly, the Proposal updated

    regulation 1.3's definition of FCM, as well as recordkeeping

    requirements in regulations 1.31, 1.33, and 1.35, so that an FCM's

    duties with respect to swaps would mirror its duties with respect to

    futures. Because IBs and FCMs can execute or clear cleared swaps

    analogously to futures, the Commission believes that certain of the

    requirements in regulations 1.31, 1.33, and 1.35, which describe

    recordkeeping requirements for FCMs and IBs, can and should apply

    equivalently to an FCM's futures and cleared swaps business. In

    response to the ETA's comment that the Proposal inappropriately equated

    swaps with futures, the Commission notes that part 23 of the

    Commission's regulations addresses issues unique to the swap market by

    describing recordkeeping and other ``business conduct'' requirements

    for SDs and MSPs.

    The Commission believes it is appropriate to make these conforming

    changes at this time. In adopting this final rule, the Commission is

    incorporating any changes necessitated by other final Dodd-Frank Act

    rulemakings.

    B. Part 1

    1. Regulation 1.3: Definitions

    a. General Changes

    The Commission is revising regulation 1.3 so that its definitions,

    which are used throughout the Commission's regulations, incorporate

    relevant provisions of the DFA. For instance, amended regulation 1.3

    updates current definitions to conform them to the Dodd-Frank Act's

    amendments of the same terms in the CEA's definitions section,\13\ and

    also includes definitions specifically added by the Dodd-Frank Act to

    the CEA. This is the case for many of the definitions in proposed

    regulation 1.3, including ``commodity pool operator,'' ``commodity

    trading advisor,'' ``futures commission merchant,'' ``introducing

    broker,'' ``floor broker,'' ``floor trader,'' ``swap data repository,''

    and ``swap execution facility.'' For example, section 721(a)(5) of the

    DFA amended the definition of ``commodity pool operator'' (``CPO'') in

    CEA section 1a to add swaps to those contracts for which soliciting

    funds for a collective investment renders a person a CPO. Consequently,

    today's final rulemaking updates the definition of CPO in regulation

    1.3 to match the DFA's new definition of that term. The Commission did

    not receive comments about the Proposal's revised definitions of

    ``commodity pool operator,'' ``commodity trading advisor,'' ``futures

    commission merchant,'' ``floor broker,'' ``floor trader,'' ``swap data

    repository,'' and ``swap execution facility.'' The Commission is

    adopting these definitions as proposed.

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    \13\ CEA section 1a, 7 U.S.C. 1a.

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    In response to the proposed conforming amendments to the definition

    of ``introducing broker,'' Financial Services Roundtable (``FSR'')

    commented that a small commercial lender facilitating a swap

    transaction between a borrower and a third party, solely in connection

    with the lender's loan origination or syndication, should not have to

    register as an introducing broker (``IB''), but could possibly be

    required to do so under the amended definition. FSR commented further

    that such a result would be inconsistent with a 2004 staff no-action

    letter,\14\ in which the Commission's Division of Clearing and

    Intermediary Oversight explained that the purpose of registering and

    regulating IBs is to protect the public from sales abuses--according to

    FSR, such a concern does not exist in the situation FSR described.

    Specifically, FSR recommended that the Commission further define the

    term ``introducing broker'' to specifically exclude the lenders it

    described, or in the alternative, that the Commission issue

    interpretative guidance addressing this issue.

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    \14\ CFTC No-Action Letter No. 04-34 at 3 (Sept. 16, 2004).

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

    The Commission declines to further define the term ``introducing

    broker'' as FSR requested, and is adopting the term as proposed.

    However, the Commission believes that in the situation described by

    FSR, the small commercial lender would not be required to register as

    an IB, as long as it did not receive compensation from the third party

    with whom the lender arranges the borrower's swap. This analysis is

    based solely on the facts as presented by FSR in its comment letter and

    is consistent with previously issued staff no-action or interpretative

    letters.\15\ Staff can issue further guidance, as appropriate, on a

    case-by-case basis under regulation 140.99.\16\

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    \15\ FSR stated that the lenders it described receive

    compensation ``in connection with lending and retaining risk and not

    in connection with introducing a [swap provider].'' A key element of

    both the previous and amended definitions of IB is that the person

    engages in the described conduct ``for compensation or profit,

    whether direct or indirect.'' 17 CFR 1.3(mm). This analysis is

    consistent with past Commission guidance requiring an individual to

    register as an IB based on referring customers to a commodity

    trading advisor and receiving compensation in return. CFTC Interp.

    Letter No. 86-27 (Introducing Broker Registration Requirements),

    Comm. Fut. L. Rep. (CCH) ] 23,364, CFTC (Nov. 24, 1986). This letter

    emphasized that ``the presence or absence or[sic] per-trade

    compensation is not determinative of whether one falls within the

    definition of an introducing broker. The Commission's final rule

    expressly eliminated the form and manner of compensation as the

    principal measure of whether registration as an introducing broker

    would be required * * * [P]ursuant to the express terms of the

    introducing broker definition in rule 1.3(mm), any compensation

    (without regard to whether such compensation is per-trade or

    otherwise) for the solicitation or acceptance of orders * * * brings

    one within the definition.'' Id. (footnotes omitted). Therefore, if

    the lenders FSR described receive compensation from the swap

    providers for their customer referrals, then the lenders would fall

    within the definition and be required to register as IBs.

    \16\ Separately, the Commission notes that the activity of an

    associated person ``AP'' of an SD may resemble the swap activity of

    an IB. The definition of IB in regulation 1.3(mm), as amended by

    today's final rule, excludes an AP, including an AP of an SD.

    Pursuant to paragraph (6) of the definition of AP in regulation

    1.3(aa), an AP of an SD could be an agent of the SD while not an

    employee of the SD. This may be the case, for example, where an

    employee of an affiliate of the SD is authorized to negotiate swap

    transactions on behalf of the SD. Where such an agency relationship

    is present, the Commission would not consider the employer of such

    an AP of an SD to be an IB due to the activities of that AP of the

    SD.

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    Additionally, the Proposal revised the definition of ``self-

    regulatory organization'' (``SRO'') (regulation 1.3(ee)) to include

    SEFs, a new category of regulated markets under the DFA, and

    derivatives clearing organizations (``DCOs''). The Commission did not

    receive any comments concerning its proposal to amend this definition.

    Today's final rulemaking amends the definition of SRO by including

    SEFs. However, it does not amend the definition of SRO to include DCOs.

    Upon further reflection, the Commission has determined that the part 1

    regulations applicable to SROs need not apply to DCOs in light of

    recently finalized regulations in part 39 implementing the Act's Core

    Principles for DCOs.\17\ For example, paragraph (6) of regulation

    39.12(a) (``Participant and product eligibility'') requires a DCO to

    have the ability to enforce compliance

    [[Page 66291]]

    with its participation requirements and to establish procedures for the

    suspension and orderly removal of clearing members that no longer meet

    the requirements. Moreover, the Commission is in the midst of other

    rulemakings pertaining to the responsibilities of SROs and DCOs, e.g.,

    proposed regulations regarding the governance of DCOs.\18\

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    \17\ DCO General Provisions and Core Principles, 76 FR 69334

    (Nov. 8, 2011).

    \18\ Requirements for DCOs, DCMs, and SEFs Regarding the

    Mitigation of Conflicts of Interest, 75 FR 63732 (Oct. 18, 2010);

    and Governance Requirements for DCOs, DCMs, and SEFs; Additional

    Requirements Regarding the Mitigation of Conflicts of Interest, 76

    FR 722 (Jan. 6, 2011).

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    b. Various Amended and New Definitions (Regulation 1.3)

    The Commission is (1) simplifying or clarifying certain existing

    regulation 1.3 definitions, and (2) adding several new definitions to

    regulation 1.3, pursuant to amendments to the CEA by the Dodd-Frank

    Act, existing regulations, and other amendments in the Proposal.

    The term ``contract market,'' for instance, is not defined under

    the CEA, and is currently defined under regulation 1.3(h) as ``a board

    of trade designated by the Commission as a contract market under the

    Commodity Exchange Act or in accordance with the provisions of part 33

    of this chapter.'' In certain provisions throughout the Commission's

    regulations, contract markets are also referred to as ``designated

    contract markets.'' Because both terms are used interchangeably within

    the regulations, the Commission has decided to revise the definition to

    mean contract market and designated contract market (``DCM''). Proposed

    regulation 1.3(h) contained one definition identified by the title

    ``Contract market; designated contract market.'' The proposed

    definition also corrected an erroneous cross-reference to part 33 as

    the regulations applicable to DCMs, which the Commission is correcting

    by changing it to a reference to part 38 of the Commission's

    regulations. No commenters addressed these changes. The Commission is

    adopting the definition in regulation 1.3(h) as proposed with one

    modification to reflect the fact that the Commission designates a board

    of trade as a contract market ``under the Act and in accordance with

    part 38'' as opposed to ``under the Act or in accordance with part

    38.''

    The Proposal contained a similar clarification regarding the

    definition of ``customer.'' It simplified the definition of

    ``customer'' by combining two existing definitions, ``customer;

    commodity customer'' in regulation 1.3(k) and ``option customer'' in

    regulation 1.3(jj), and by adding swaps to the proposed definition.

    Therefore, the proposed definition included swap customers, commodity

    customers, and option customers, referring to them all with the single

    term, ``customer.'' Furthermore, the Commission proposed to revise all

    references to ``commodity customer'' and ``option customer'' throughout

    the Commission's regulations, but particularly in part 1, to simply

    refer to ``customer.'' \19\ The proposed revisions retained references

    to requirements specific to certain contracts.\20\ Today's final

    rulemaking revises the definition of ``customer'' (regulation 1.3(k)),

    as proposed, and deletes the definition of ``option customer''

    (regulation 1.3(jj)), as proposed. The Commission did not receive

    comments about the proposed deletion of the term ``option customer.''

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    \19\ The Commission proposed to remove references to commodity

    customers and option customers, replacing them with references to

    simply ``customer,'' in the following regulations: 17 CFR 1.3, 1.20-

    1.24, 1.26, 1.27, 1.30, 1.32-1.34, 1.35-1.37, 1.46, 1.57, 1.59,

    155.3, 155.4, and 166.5.

    \20\ For example, proposed regulation 1.33 (Monthly and

    confirmation statements) required an FCM to document a customer's

    positions in futures contracts differently from its option or swap

    positions. Proposed regulation 1.33 preserved these distinctions,

    even though it referred only to ``customers'' as opposed to

    ``commodity customers,'' ``option customers,'' and ``swap

    customers.''

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    ETA commented that counterparties to electricity swap contracts are

    not customers analogous to futures customers, and, therefore, by

    expanding the ``customer'' concept to include entities that execute

    swaps, the Commission would impose ``significant and inappropriate

    obligations'' on swap counterparties. The Commission has decided to

    finalize the definition of customer, as proposed. ETA is correct that

    counterparties to bilaterally-executed swaps are principals, which is

    unlike trading futures, where FCMs are agents of their customers.

    However, FCMs will execute and clear swap transactions, as agents,

    equivalently to the manner in which they currently execute and clear

    futures transactions.

    The Commission proposed to define the term ``confirmation'' to

    reflect its differing use in various regulations depending on whether a

    transaction is executed by an FCM, IB or CTA on the one hand, or by an

    SD or MSP on the other hand. In the first case, the registrant is

    acting as an agent. In the second, it is acting as a principal.\21\ No

    commenters addressed the proposed definition of ``confirmation,'' and

    the Commission has decided to adopt it as proposed.

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    \21\ A single entity could be registered in more than one

    capacity, for example, as both an SD and a CTA. Which rules were

    applicable would depend on the capacity in which such an entity was

    performing a particular function.

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    The Commission proposed to add to regulation 1.3 a definition of

    the term ``registered entity,'' currently provided in CEA section

    1a(40), as revised by the Dodd-Frank Act. The proposed definition of

    ``registered entity'' is identical to its CEA counterpart and would

    include DCOs, DCMs, SEFs, swap data repositories (``SDRs'') and certain

    electronic trading facilities. To correspond with this new definition,

    the Commission also proposed to replace the current ``Member of a

    contract market'' definition with a new definition of ``Member,'' in

    regulation 1.3(q), which would be nearly identical to the ``Member of a

    registered entity'' definition provided in CEA section 1a(34), also as

    revised by the Dodd-Frank Act.\22\ The proposed ``Member'' definition

    was broadened to accommodate newly established SEFs, and it includes

    those ``owning or holding membership in, or admitted to membership

    representation on, the registered entity; or having trading privileges

    on the registered entity.'' Additionally, for ease of reference,

    proposed regulation 1.3 added several terms defined under the CEA,

    using identical definitions, including ``electronic trading facility,''

    ``organized exchange,'' and ``trading facility.''

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

    \22\ In accordance with the removal of DTEF references from many

    other Commission regulations, the proposed ``Member'' definition

    would not include DTEF references currently in the definition of

    ``Member of a registered entity'' found in CEA section 1a(34). See 7

    U.S.C. 1a(34).

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

    The ETA commented that the Commission should wait to define

    ``registered entity,'' ``organized exchange,'' ``electronic trading

    facility,'' and ``trading facility'' until the Commission enters into

    an MOU with FERC and publishes rules defining the scope of its

    jurisdiction over nonfinancial energy commodity swaps. According to the

    ETA, a SEF should not be deemed a registered entity. In addition, the

    ETA does not believe SEF participants should fall within the

    Commission's proposed definition of ``member,'' suggesting that it is

    inappropriate or premature to require SEF participants to have the same

    recordkeeping requirements as DCM members under regulation 1.35.

    The Commission disagrees with the ETA's comment that it should wait

    to define the terms ``registered entity,'' ``organized exchange,''

    ``electronic trading facility'' and ``trading facility'' until the

    Commission enters into an MOU with FERC and publishes rules defining

    the scope of its jurisdiction

    [[Page 66292]]

    over nonfinancial energy commodity swaps. As explained in the Proposal,

    the definitions proposed for each of those terms are identical to their

    statutory definitions under the CEA. The Commission may further define

    these terms in the future if necessitated by an MOU with FERC or by

    Commission rules defining the scope of its jurisdiction over

    nonfinancial energy commodity swaps.

    With respect to the ETA's assertion that SEFs should not be deemed

    ``registered entities,'' the Commission notes that SEFs are already

    deemed ``registered entities'' under section 1a(40) of the CEA. Lastly,

    the term ``member,'' as defined under the CEA, includes ``with respect

    to a registered entity * * * an individual, association, partnership,

    corporation or trust * * * having trading privileges on the registered

    entity.'' \23\ Accordingly, the CEA considers participants on a SEF

    ``members'' by virtue of their having trading privileges on the SEF.

    For the foregoing reasons, the Commission is adopting the definitions

    of ``registered entity,'' ``organized exchange,'' ``electronic trading

    facility,'' ``trading facility,'' and ``member'' as proposed.

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

    \23\ CEA section 1a(34), 7 U.S.C. 1a(34).

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

    The Commission also proposed to add a definition of the term

    ``order.'' This term had not previously been defined by Commission

    regulations, although it is used in several of them, e.g., 17 CFR 1.35,

    155.3, and 155.4. In light of this, and with the addition of new

    categories of registrants (SDs and MSPs) who act as principals rather

    than agents, clarification of this term is appropriate. No commenters

    addressed the proposed definition, and the Commission is adopting it as

    proposed.

    Because proposed amendments to regulation 1.31 incorporated the

    term ``prudential regulator,'' as added to the CEA by the Dodd-Frank

    Act, the Commission proposed to define the term in regulation 1.3.\24\

    The proposed definition of ``prudential regulator'' in regulation 1.3

    is coextensive with the definition in section 1a(39) of the Act and

    lists the various prudential regulators. No commenters addressed this

    proposed definition, but the amendments to regulation 1.31 adopted

    today no longer reference the term ``prudential regulator.''

    Nonetheless, the Commission has determined to adopt the definition as

    proposed, in anticipation of future rulemakings and regulations

    possibly using the term ``prudential regulator.''

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

    \24\ Proposing Release, 76 FR at 33068 and 33070. Pursuant to

    proposed regulation 1.31, records of swap transactions must be

    presented, upon request, to ``any applicable prudential regulator as

    that term is defined in section 1a(39) of the Act.'' Id. at 33088.

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

    The Commission also proposed to add the term ``registrant'' to

    regulation 1.3 so that certain regulations in part 1 could refer to

    various intermediaries (e.g., FCMs, IBs, CPOs), their employees

    (associated persons), and other registrants (MSPs). Because the DFA

    created a definition of and several Commission regulations refer to

    ``associated persons of swap dealers or major swap participants,'' the

    Commission proposed to add that term to regulation 1.3 as well. No

    commenters addressed these changes, but the Commission will only be

    adopting the definition of ``registrant'' as proposed. Since the

    Proposal's publication, a separate final rulemaking establishing the

    registration process for SDs and MSPs amended the existing definition

    of ``associated person'' found in regulation 1.3(aa) to incorporate

    associated persons of SDs and MSPs in a manner consistent with CEA

    section 1a, as amended by the Dodd-Frank Act.\25\ In light of that

    rulemaking, the Commission is not adopting a separate definition of

    ``associated person of swap dealers and major swap participants'' in

    regulation 1.3.

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

    \25\ Registration of Swap Dealers and Major Swap Participants,

    77 FR 2613, 2615 and 2625 (Jan. 19, 2012).

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

    The Commission also proposed, and is hereby adopting, a definition

    of the term ``retail forex customer'' in regulation 1.3 because it

    appears in several regulations in part 1 and currently is only defined

    in part 5. The definition is identical in all material respects to the

    definition of this term as it currently appears in regulation

    5.1(k).\26\ The Commission did not receive any comments to the

    Proposal's addition of a definition of ``retail forex customer'' to

    regulation 1.3.

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

    \26\ 17 CFR 5.1(k) currently defines ``retail forex customer''

    as ``a person, other than an eligible contract participant as

    defined in section 1a(12) of the Act, acting on its own behalf and

    trading in any account, agreement, contract or transaction described

    in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.'' This final

    rulemaking amends the definition in part 5 only to reflect the

    renumbering of section 1a of the CEA by the Dodd-Frank Act, and adds

    an identically amended definition to regulation 1.3. See infra Part

    II.G.2.

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

    The Commission is also finalizing the revised definition of

    ``strike price'' (regulation 1.3(kk)) as proposed so that this

    definition encompasses swaps in addition to futures. The Commission

    received no comments about this proposal.

    c. Regulation 1.3(t): Open Contract

    The Proposal changed the defined term from ``open contract'' to

    ``open position'' and added provisions for commodity option

    transactions and swaps. CME commented that it is unclear whether the

    proposed definition is intended to cover options on swaps. If so, then

    the word ``commodity'' should be deleted from the phrase, ``commodity

    option transaction.'' According to CME's comment letter to the

    Proposal, the Commission should also clarify whether, or which, options

    are covered by proposed paragraph (t)(3) (swaps). CME also argues that

    proposed paragraph (t)(3) does not adequately characterize open

    positions in cleared swaps. Proposed paragraph (t)(1)'s terminology,

    CME believes, more appropriately characterizes cleared swaps because,

    like futures, cleared swaps may be fulfilled by delivery or they may be

    offset.

    The Commission has decided to finalize the definition with a few

    modifications. The final definition retains the original title of the

    term, ``open contract.'' It also narrows its applicability from all

    swaps to only Cleared Swaps, as regulation 22.1 defines that term.\27\

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

    \27\ Regulation 22.1 was promulgated as part of Protection of

    Cleared Swaps Customer Contracts and Collateral; Conforming

    Amendments to the Commodity Broker Bankruptcy Provisions, 77 FR 6336

    (Feb. 7, 2012).

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

    The Commission notes that the option component of the definition

    (paragraph (t)(2)) covers all options: i.e., options on futures;

    options on swaps (``swaptions''); and options on commodities.\28\ In

    response to CME's comment, the Commission notes that although, pursuant

    to the Dodd-Frank Act, swaptions and options on commodities (other than

    options on futures) are swaps, it is nevertheless appropriate for the

    definition of ``open contract'' to describe them with language suitable

    only to options and not to other swaps. In other words, the definition

    of ``open contract'' merely describes types of contracts; it is not

    intended to classify these contracts for regulatory purposes or to

    elaborate on the definition of ``swap,'' which the Commission recently

    published in final form.\29\

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

    \28\ Section 4c of the CEA grants the Commission authority over

    all three of these categories of options.

    \29\ See Further Definition of ``Swap,'' ``Security-Based

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

    Security-Based Swap Agreement Recordkeeping, 77 FR 48207 (Aug. 13,

    2012).

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

    Because the only references in the regulations to the term ``open

    contracts'' apply to cleared contracts, i.e. futures contracts and

    Cleared Swaps, the final definition only includes Cleared Swaps in

    paragraph (t)(3). The final rule also

    [[Page 66293]]

    modifies paragraph (t)(3) to reflect the fact that Cleared Swaps can be

    fulfilled by delivery or by offset against other Cleared Swaps, as is

    the case with futures. Thus, paragraph (t)(3) states in final form,

    ``swaps that have not been fulfilled by delivery; not offset; not

    expired; and not been terminated.''

    In the Proposal, pursuant to the revision of the definition of

    ``open contract'' in regulation 1.3(t), the Commission proposed to

    change ``open contract'' to ``open position'' in regulations 1.33

    (``Monthly and confirmation statements'') and 1.34 (``Monthly record,

    `point balance' ''). The Commission did not receive comments about

    these changes. In light of the fact that the Commission is retaining

    the title ``open contract,'' in the final revisions to regulation

    1.3(t), the Commission is preserving those references to ``open

    contract'' in regulations 1.33 and 1.34.\30\

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

    \30\ See infra section II.A.4. (discussing amendments to

    regulation 1.33).

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

    d. Regulation 1.3(ll): Physical

    i. Proposal

    As part of the Proposal, the Commission explained that current

    regulation 1.3(ll) defines ``physical'' as ``any good, article,

    service, right or interest upon which a commodity option may be traded

    in accordance with the Act and these regulations.'' \31\ The Commission

    noted that, other than the reference to options, the term ``physical''

    was similar to the definition of ``commodity'' in regulation 1.3(e),

    which includes, in relevant part ``all * * * goods and articles * * *

    and all services, rights and interests in which contracts for future

    delivery are presently or in the future dealt in.'' The quoted portions

    of the ``physical'' and ``commodity'' definitions are effectively the

    same, differing only in the potential overlying instrument with respect

    to which the respective terms are defined. In addition, the Commission

    noted that the introductory language in regulation 1.3 provides that

    ``[t]he following terms, as used in the rules and regulations of this

    chapter, shall have the meaning hereby assigned to them, unless the

    context otherwise requires.'' \32\

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

    \31\ Proposing Release, 76 FR at 33068-69.

    \32\ Id. at 33069.

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

    In the Proposal, the Commission also traced the history of the term

    ``physical'' in its regulations, noting that the definition of

    ``physical'' was first added to its regulations ``to enable trading, on

    DCMs, in options to buy or sell an underlying commodity'' and that the

    definition had not been substantively amended.\33\ The Commission added

    that, in 1982, when the Commission proposed to add the definition of

    ``physical'' to its regulations, ``cash-settled futures on non-physical

    commodities had just been introduced in the form of the Chicago

    Mercantile Exchange's Eurodollar futures'' and that, ``[i]n that

    context * * * it made sense to name such options based on physical

    commodities, which constituted the vast majority of commodities covered

    by then-existing futures contracts.'' \34\ While options may have

    primarily been written on physical commodities in 1982, the Commission

    noted in the Proposal that ``[a]t present * * * options may be traded

    on both physically deliverable and non-physically deliverable

    commodities, such as interest rates and temperatures'' and that, given

    that change, using the term ``physical'' to refer to an option on both

    physically deliverable and non-physically deliverable commodities may

    be confusing.\35\ The Commission added that the intended-to-be-

    physically-settled element of the forward exclusion from the swap

    definition ``would be meaningless if `physical' included non-

    physical.'' \36\

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

    \33\ Id. at 33069.

    \34\ Id.

    \35\ Id.

    \36\ Id.

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

    In light of (1) The overlapping definitions of ``commodity'' and

    ``physical'' in Commission regulation 1.3, (2) the fact that options

    now are written on a wide range of non-physical commodities, and (3)

    the Commission's desire that the term ``physical'' not be interpreted

    to permit cash settled transactions to rely on the forward exclusion

    from the swap definition (unless otherwise permitted by Commission

    interpretations with respect to such exclusion, such as those discussed

    in the Commission's rulemaking jointly (with the Securities and

    Exchange Commission) further defining ``swap''), the Commission, in the

    Proposal, requested comment on various possible approaches to the

    definition of ``physical'' in regulation 1.3(ll). One possible approach

    on which the Commission requested comment was whether it should

    eliminate the definition, on the theory that its meaning is self-

    evident, and rely on the ability of interested parties to interpret the

    term ``physical.'' The Commission also requested comment on not

    amending the definition in reliance upon the introductory language in

    regulation 1.3, which applies the regulation 1.3(ll) definition of

    ``physical'' unless the context otherwise requires.

    ii. Comments

    Three commenters addressed the definition of physical in regulation

    1.3(ll). The ETA commented that the proposed definition of ``physical''

    should be withdrawn because addressing it in terms of swaps is

    premature prior to the Commission publishing the further definition of

    ``swap,'' including, in particular, defining the term ``nonfinancial

    commodity,'' which the ETA characterized as a key component of the

    forward exclusion from the swap definition. The ETA stated that, in

    proposing such a substantive rule, the Commission must explain how

    defining ``physical'' would affect all of its regulations and requested

    that the Commission re-propose any revised definition of ``physical''

    with a ``comprehensive analysis of the way such word, whether used as

    an adjective or an adverb, interrelates with the Dodd-Frank statutory

    term `nonfinancial commodity,' as well as the concepts of `cash

    market,' `physical market channels' and the `bona fide hedging

    exemption'.''

    The Environmental Markets Association (``EMA'') believes that the

    ``very broad'' definition of the word ``physical'' in current

    Commission regulations ``certainly'' encompasses environmental

    commodities, which the EMA states are subject to the forward exclusion

    from the definition of swap. The EMA requested that the CFTC issue a

    final rule clarifying that environmental commodities are not swaps even

    though intangible, that they are nonfinancial commodities that can rely

    on the forward exclusion, and that intangibility of a commodity does

    not prevent it from being ``physically settled.'' The Coalition for

    Emission Reduction Policy (``CERP'') similarly argued that

    environmental and other intangible commodity transactions that result

    in actual delivery of a commodity, intangible or not, as opposed to

    transactions that settle in cash, can be subject to the forward

    exclusion because such transactions can be physically settled. CERP

    also claimed that the Commission's proposed interpretation of forward

    contracts in nonfinancial commodities in the definition of ``swap''

    supports its interpretation of ``physically settled'' in that forward

    sales of environmental commodities are commercial merchandising

    transactions because both buyer and seller ultimately need and intend

    the transfer of ownership of the emission allowances or offset credits.

    [[Page 66294]]

    EMA also expressed that the Commission's request for comment with

    regard to whether the definition of ``physical'' should rely on the

    ``common sense meaning'' of the word was unclear. In particular, EMA

    argued that environmental commodities traded in the spot or forward

    markets are physically delivered via a registry or an exchange of

    paperwork and eventually consumed through retirement. Further,

    according to EMA, environmental commodities are goods because Uniform

    Commercial Code (``UCC'') section 2105(1) defines ``good'' as

    ``anything that can be moved other than money.''

    iii. Final Rules

    The Commission is removing from regulation 1.3(ll) the definition

    of ``physical,'' which term will therefore have the meaning dictated by

    the context of the individual Commission regulations in which it

    appears. In addition, the Commission is adopting conforming changes to

    other regulations to address the deletion of the definition. The

    Commission is adopting these changes for ease of reference for market

    participants and to reduce confusion in interpreting the Commission's

    regulations, consistent with the spirit of Executive Order 13563, which

    seeks, among other goals, to eliminate agency regulations that have

    outlived their usefulness.\37\ As explained further below, these

    modifications are not intended to alter the substantive provisions of

    the Commission's regulations.

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

    \37\ See Executive Order 13563 of January 18, 2011, Improving

    Regulation and Regulatory Review, at section 6(a), 76 FR 3821, 3822

    (Jan. 21, 2011) (stating ``To facilitate the periodic review of

    existing significant regulations, agencies shall consider how best

    to promote retrospective analysis of rules that may be outmoded,

    ineffective, insufficient, or excessively burdensome, and to modify,

    streamline, expand, or repeal them in accordance with what has been

    learned.'').

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

    When the Commission added the definition of ``physical'' to

    regulation 1.3 in 1982, the intent was to distinguish between options

    on futures contracts and other options subject to the Commission's

    jurisdiction; the Commission termed such other options ``options on

    physicals.'' The Commission added the ``physical'' definition because,

    while the 1982 rulemaking including provisions applicable both to DCM-

    listed options on futures and DCM-listed options on commodities, it

    also contained regulations applicable solely to options on futures.

    Thus, the purpose of the definition was ``principally to enable the

    Commission to differentiate, where necessary, between references to

    options on physicals and options on futures contracts.'' \38\ Although

    the intent of Commission regulation 1.3(ll) was only to address the

    distinction between options on futures and other options, the

    Commission believes that the use of such a broad term to apply to a

    narrow circumstance can create confusion because the definition is not

    expressly so limited. While the introduction to regulation 1.3 says

    that the definitions therein have the meanings set forth therein unless

    the context otherwise requires, determining when regulation 1.3(ll)

    applies as drafted and when the context dictates a different meaning

    can be subjective and result in confusion.

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

    \38\ Domestic Exchange-Traded Commodity Options; Expansion of

    Pilot Program To Include Options on Physicals, 47 FR 56996, 56998

    (Dec. 22, 1982).

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

    The Commission did not intend, when it promulgated the definition

    in regulation 1.3(ll), to apply it to circumstances such as the

    definition of ``physically'' settled. Given the intent of the

    definition of the term ``physical'' (to distinguish options on futures

    from other options) and the introductory language in regulation 1.3

    regarding contextual interpretations of the defined terms therein, in

    regulations where it is not necessary to distinguish between different

    types of options, the definition of ``physical'' in Commission

    regulation 1.3(ll) is not useful and can be overbroad. For example, the

    definition of ``physical'' is not useful with respect to the term

    ``physical safeguards'' in regulation 160.30, which pertains to

    procedures to safeguard customer records and information. Because the

    scope of the definition of ``physical'' essentially includes options on

    any commodity, which would include non-physical commodities such as

    temperatures and interest rates, effectively, the restriction that

    ``physical'' in regulation 1.3(ll) is limited to any goods, article,

    service, right or interest upon which a commodity may be traded in

    accordance with the CEA and the Commission's regulations is not much of

    a restriction at all.

    The Commission also notes that it recently promulgated final and

    interim final rules amending parts 32 and 33 of the Commission's

    regulations.\39\ While part 33 continues to address options on futures

    contracts, the other options subject to the Commission's jurisdiction

    that also were previously addressed in part 33 now are addressed in

    part 32 rather than in part 33. Further, the Commission no longer

    refers to such other options as ``options on physicals.'' Instead, the

    Commission generally uses the term ``commodity option'' as a reference

    to both options on futures and other CFTC-jurisdictional options. Where

    the Commission distinguishes the regulatory treatment for options on

    futures from the regulatory treatment of other options, it specifically

    identifies options on futures as ``commodity option transactions on a

    contract of sale of a commodity for future delivery.'' With these

    recent amendments, the definition of ``physical'' in regulation 1.3(ll)

    will not help to distinguish between options on futures and other

    commodity options because the rules generally addressing the regulatory

    treatment of other commodity options no longer use the term

    ``physical'' to refer to such transactions.

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

    \39\ Commodity Options, 77 FR 25320 (Apr. 27, 2012).

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

    In light of these considerations, the Commission believes that

    deleting the definition of physical will reduce the potential for

    confusion on the part of market participants, as the appropriate

    definition of that term will be based on the context of the individual

    rules in which the term is utilized. These amendments will also serve

    the goals of Executive Order 13563 by amending the Commission's

    regulations because they no longer are ``effective[] in achieving the

    objectives for which they were adopted.'' \40\

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

    \40\ Reducing Regulatory Burden; Retrospective Review Under E.O.

    13563, 76 FR 38328 (June 30, 2011).

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

    Further, various Commission regulations relating to options also

    refer to a ``physical'' when discussing an option on a commodity. In

    order to conform those regulations with the adapting changes discussed

    above, the Commission is adopting a number of non-substantive changes

    including, but not limited to, replacing certain references to

    ``physical'' with references to ``commodity.'' Where appropriate, the

    Commission is also replacing references to ``underlying physical'' with

    references to ``underlying commodity.''

    For the reasons discussed above, these conforming amendments will

    not result in substantive changes. Therefore, the Commission is

    amending the following regulations as described above: Regulations

    1.3(kk); 1.3(ll); 1.17(c)(1)(iii), (c)(5)(ii)(A), and (c)(5)(xiii)(C);

    1.33; 1.34(b); 1.35(b)(2)(iii), (b)(3), (d) and (e); 1.39(a) and

    (a)(3); 1.46(a)(1)(iii) and (iv); 4.23(a) and (b); 4.33(b)(1);

    15.00(p)(1)(ii); 16.00(a); and 16.01(a)(1)(ii) and (iv), and (b)(1)(ii)

    and (iv). The Commission is leaving unchanged other references to

    ``physical'' in its existing definitions because, given the context in

    which the term is used in those rules, such

    [[Page 66295]]

    references are limited to physical commodities.

    The Commission is replacing the word ``physical'' in regulations

    1.17(c)(1)(iii) and 1.17(c)(5)(xi) with the word ``commodity,'' and is

    replacing the word ``physical'' in regulation 1.17(c)(5)(ii)(A) with

    the term ``physical commodity.'' In so doing, the Commission does not

    intend to change the meaning of any of these paragraphs. Thus, final

    regulations 1.17(c)(1)(iii) and 1.17(c)(5)(xi) will continue to apply

    to options that overly any commodity, not just a tangible commodity. By

    contrast, final regulation 1.17(c)(5)(ii)(A) will continue to apply to

    the options described therein, which cover tangible commodities only.

    While some commenters requested that the Commission interpret

    ``physical'' for purposes of the term ``physically settled'' within the

    forward exclusion for swaps, or generally address the definition of

    ``physical'' as it relates to other terms, the Commission declines to

    do so for purposes of this release. The conforming amendments to the

    definition of physical are non-substantive changes that are designed to

    increase clarity for market participants. As noted above, rather than

    have a definition of physical that applies unless the context

    ``otherwise requires,'' the Commission will apply the definition based

    on the particular context of the applicable regulation. Because the

    current definition already applies in this manner, the modifications

    addressed herein do not amount to a substantive change in the

    regulations.

    e. Regulation 1.3(ss): Foreign Board of Trade

    The Commission proposed to amend the definition of foreign board of

    trade to mean ``any board of trade, exchange or market located outside

    the United States, its territories or possessions, whether incorporated

    or unincorporated where foreign futures, foreign options, or foreign

    swap transactions are entered into.'' The Commission received no

    comments regarding the proposed definition of ``foreign board of

    trade'' and is modifying the proposed definition to make it consistent

    with the definition provided in the final rulemaking for Registration

    of Foreign Boards of Trade.\41\ Accordingly, new regulation 1.3(ss)

    defines the term ``foreign board of trade'' as ``any board of trade,

    exchange or market located outside the United States, its territories

    or possessions, whether incorporated or unincorporated.''

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

    \41\ Registration of Foreign Boards of Trade, 76 FR 80674 (Dec.

    23, 2011).

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

    f. Regulation 1.3(yy): Commodity Interest

    The Commission proposed adding ``swap'' to the definition of

    ``commodity interest'' in regulation 1.3(yy).\42\ Currently, commodity

    interest is defined as: ``(1) Any contract for the purchase or sale of

    a commodity for future delivery; (2) Any contract, agreement or

    transaction subject to Commission regulation under section 4c or 19 of

    the Act; and (3) Any contract, agreement or transaction subject to

    Commission jurisdiction under section 2(c)(2) of the Act.'' At the time

    of the proposal, the term was cross-referenced by 33 other Commission

    regulations and appendices to parts of Commission regulations.\43\

    Generally, the term ``commodity interest'' is meant to encompass all

    agreements, contracts and transactions within the Commission's

    jurisdiction, though not all such agreements, contracts and

    transactions are expressly set forth therein.\44\

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

    \42\ Proposing Release, 76 FR at 33069.

    \43\ See 17 CFR 1.12, 1.56, 1.59, 3.10, 3.12, 3.21, 4.6, 4.7,

    4.10, 4.12-4.14, 4.22-4.25, 4.30-4.34, 4.36, 4.41, 30.3, 160.3-

    160.5, and 166.1-166.3; 17 CFR pt. 3 app. B, 17 CFR pt. 4 app. A,

    and 17 CFR pt. 190 app. B.

    \44\ For example, the term ``contract for the purchase or sale

    of a commodity for future delivery'' in current regulation

    1.3(yy)(1) encompasses security futures products. Similarly, the

    term ``swap'' would include mixed swaps (though mixed swaps are

    swaps, they also are security-based swaps, so the Commission shares

    authority over mixed swaps with the SEC). Of course, the impact of

    the scope of proposed regulation 1.3(yy) is only as extensive as the

    other regulations referencing it.

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

    The Dodd-Frank Act added a definition of the term ``swap'' to the

    CEA.\45\ DFA section 712(d)(1) requires the Commission to further

    define the term ``swap'' jointly with the Securities and Exchange

    Commission (``SEC''), and the Commission has recently adopted

    regulations further defining the term ``swap,'' among other terms,

    jointly with the SEC.\46\

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

    \45\ DFA section 721(a)(21); codified at 7 U.S.C. 1a(47).

    \46\ Further Definition of ``Swap,'' ``Security-Based Swap,''

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

    Swap Agreement Recordkeeping, 77 FR 48207 (August 13, 2012)

    (adopting 17 CFR 1.3(xxx), which defines the term ``Swap'').

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

    In their comment letter, the ETA objected to the Proposal's

    addition of the term ``swap'' to the definition of commodity interest

    because, as discussed on page 6, above, the ETA objected to the manner

    in which the Proposal analogized swaps to futures. The Commission

    believes it is appropriate to add ``swap'' to the definition of

    commodity interest because the Dodd-Frank Act amended various

    intermediary definitions in section 1a of the Act (the Dodd-Frank Act

    updated the definitions of CPO, CTA, FCM, IB, Floor Trader and Floor

    Broker) to include their use of swaps. For example, the Act's present

    definition of FCM, as amended by the Dodd-Frank Act, authorizes this

    intermediary to accept customer orders for ``swaps'' in addition to

    accepting customer orders for ``the purchase or sale of any commodity

    for future delivery.'' If the Commission did not update the definition

    of ``commodity interest'' to include swaps, then various regulations

    applicable to intermediaries using the term ``commodity interest''

    would not apply to intermediaries' swap activities. The Commission has

    reviewed all uses of the term ``commodity interest'' throughout the

    regulations and believes they appropriately refer to both futures and

    swaps.

    Thus, the Commission has decided to finalize a revised definition

    of ``commodity interest'' by adding paragraph (yy)(4) to include swaps.

    The final version adopted today makes only minor changes to the

    proposed paragraph. Whereas the proposed paragraph referenced ``any

    swap as defined in the Act, the Commission's regulations, a Commission

    order or interpretation, or a joint interpretation or order issued by

    the Commission and the [SEC],'' amended regulation 1.3(yy)(4) now

    states ``any swap as defined in the Act, by the Commission, or jointly

    by the Commission and the Securities and Exchange Commission.'' The

    Commission is making this change because, for the purposes of the

    definition of ``commodity interest,'' it does not matter whether the

    Commission defines a swap pursuant to an order, interpretation, or

    joint interpretation.

    g. Regulation 1.3(z): Bona Fide Hedging Transactions and Positions

    The Proposal made technical amendments to this definition by

    omitting references to regulations 1.47 and 1.48 because the proposed

    rule on Position Limits deleted those regulations \47\ and omitting

    references to ``option customers'' on account of this rulemaking's

    deletion of that term. The Commission is not promulgating these

    amendments in this rulemaking because the final rule on Position Limits

    has already extensively revised regulation

    [[Page 66296]]

    1.3(z).\48\ Mr. Chris Barnard commented that the definition of ``bona

    fide hedging transactions and positions'' should be amended to state

    that such transactions ``are not held for a purpose that is in the

    nature of speculation or trading'' and ``not held to hedge or mitigate

    the risk of another position, unless that other position itself is held

    for the purpose of reducing risk.'' Mr. Barnard commented further that

    the determination of whether a transaction meets the definition should

    be made at the time the transaction is entered into, considering the

    circumstances existing at that time. The Commission has decided not to

    amend regulation 1.3(z) pursuant to these comments, which address

    substantive issues that are beyond the scope of this rulemaking.

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

    \47\ Position Limits for Derivatives, 76 FR 4752 (Jan. 26,

    2011).

    \48\ Position Limits for Futures and Swaps, 76 FR 71626 (Nov.

    18, 2011).

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

    h. Lack of a Definition of ``End-User'' in Regulation 1.3

    The ETA requested that the Commission, the SEC, and prudential

    regulators agree on a definition of ``end-user'' because the DFA does

    not define this term and regulators have used the term inconsistently.

    The Proposal did not add a definition of ``end-user'' to regulation 1.3

    because the DFA did not add a definition of that term to CEA section

    1a. The Proposal's intention was to conform the Commission's

    regulations to the DFA's revisions to the CEA.

    The Commission has decided not to add a definition of ``end-user.''

    The Commission has no reason to define ``end-user'' because the

    Commission's regulations do not use this term, and even the recently

    adopted Commission regulations implementing the CEA's end-user

    exception to clearing do not define it.\49\ The issue of whether the

    Commission's regulations should use the term ``end-user'' is beyond the

    scope of this final rulemaking.

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

    \49\ Recently adopted regulation 39.6 establishes the end-user

    exception to clearing by defining which parties are eligible to opt

    out of the clearing requirement pursuant to section 2(h)(7) of the

    CEA, as amended by the DFA. See End-User Exception to the Clearing

    Requirement for Swaps, 77 FR 42560 (July 19, 2012).

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

    2. Regulation 1.4: Use of Electronic Signatures

    The Commission proposed to revise regulation 1.4 to extend the

    benefit of electronic signatures and other electronic actions to SDs

    and MSPs. Section 731 of the Dodd-Frank Act amended the CEA by adding

    new section 4s(i)(1), requiring SDs and MSPs to ``conform with such

    standards as may be prescribed by the Commission by rule or regulation

    that relate to timely and accurate confirmation, processing, netting,

    documentation, and valuation of all swaps,'' \50\ and adding new

    section 4s(i)(2), requiring the Commission to adopt rules ``governing

    documentation standards for swap dealers and major swap participants.''

    \51\

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

    \50\ 7 U.S.C. 6s(i)(1).

    \51\ 7 U.S.C. 6s(i)(2).

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

    Pursuant to the foregoing authority, the Commission has adopted new

    regulation 23.501(a)(1), which requires ``[e]ach swap dealer and major

    swap participant entering into a swap transaction with a counterparty

    that is a swap dealer or major swap participant [to] execute a

    confirmation for the swap transaction,'' according to a specified

    schedule.\52\ Also pursuant to the foregoing authority, the Commission

    has adopted a new regulation 23.501(a)(2), which requires ``[e]ach swap

    dealer and major swap participant entering into a swap transaction with

    a counterparty that is not a swap dealer or a major swap participant

    [to] send an acknowledgment of such swap transaction'' according to a

    specified schedule.\53\ Regulation 23.500(a) defines such an

    ``acknowledgment'' as ``a written or electronic record of all of the

    terms of a swap signed and sent by one counterparty to the other.''

    \54\ In proposing the confirmation and acknowledgment rules, the

    Commission explained that ``[w]hen one party acknowledges the terms of

    a swap and its counterparty verifies it, the result is the issuance of

    a confirmation.'' \55\

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

    \52\ Confirmation, Portfolio Reconciliation, Portfolio

    Compression, and Swap Trading Relationship Documentation

    Requirements for Swap Dealers and Major Swap Participants, 77 FR

    55904, 55961 (September 11, 2012).

    \53\ Id.

    \54\ Id.

    \55\ Confirmation, Portfolio Reconciliation, and Portfolio

    Compression Requirements for Swap Dealers and Major Swap

    Participants, 75 FR 81519, 81522 (Dec. 28, 2010).

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

    Regulation 1.4 currently provides that an FCM, IB, CPO and CTA

    receiving an electronically signed document is in compliance with

    Commission regulations requiring signed documents, provided that such

    entity generally accepts electronic signatures.\56\ The rationale for

    allowing the existing entities listed in regulation 1.4 to use

    electronic signatures (i.e., ``[a]s part of [the Commission's] ongoing

    efforts to facilitate the use of electronic technology and media'')

    \57\ applies equally to SDs and MSPs. No commenters addressed the

    amendments to regulation 1.4, and the Commission is adopting them as

    proposed. Therefore, the Commission is hereby adding SDs and MSPs to

    the list of entities covered by regulation 1.4 and amending its

    structure to account for the provisions of the Commission's

    confirmation and acknowledgement obligations discussed above.\58\

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

    \56\ 17 CFR 1.4. The regulation also requires that the

    signatures in question comply with applicable Federal laws and

    Commission regulations, and requires the relevant entity to employ

    reasonable safeguards regarding the use of electronic signatures,

    including safeguards against alteration of the record of the

    electronic signature. Id.

    \57\ Use of Electronic Signatures by Customers, Participants and

    Clients of Registrants, 64 FR 47151 (Aug. 30, 1999).

    \58\ This includes revision to the title of regulation 1.4 to

    reflect these changes. Regulation 1.4, as amended by this release,

    is entitled ``Use of electronic signatures, acknowledgments and

    verifications.''

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

    3. Regulation 1.31: Books and Records; Keeping and Inspection

    a. Record Retention Period and Inspection

    To conform the existing recordkeeping requirements under regulation

    1.31 to the recordkeeping requirements under proposed regulation

    23.203(b) for SDs and MSPs relating to their swap transactions, the

    Commission proposed to amend regulation 1.31 to require that records of

    a swap transaction or related cash or forward transaction, including

    records of oral communications, be kept until the termination,

    maturity, expiration, transfer, assignment, or novation date of the

    transaction and for five years after such date.\59\

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

    \59\ Certain proposed amendments to Sec. 1.35 (regarding

    recording of communications), and related amendments to Sec. 1.31,

    are not addressed in this final rule. The Commission intends to

    address these amendments in a final rule in a separate Federal

    Register release.

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

    CME suggested that conversations should only have to be retained

    for six months after the execution of a transaction. FIA commented that

    the Commission failed to provide a justification for requiring that a

    swap record be maintained for the life of the swap plus five years.

    Encana requested clarification that regulation 1.31 does not apply to a

    non-financial end-user who enters into swaps, but is not an FCM, IB, or

    member of a DCM or SEF. Encana also made a general request that the

    Commission specify in its final rules which recordkeeping and reporting

    rules apply to non-financial end-users.

    In contrast to other commenters, Mr. Chris Barnard asserted that

    all records should be kept indefinitely and scanned after two years,

    arguing that there is no technological or practical reason to limit the

    record retention period. Mr. Barnard specifically commented that

    records of voice communications also should be

    [[Page 66297]]

    kept indefinitely. To support the asserted usefulness of such records,

    Mr. Barnard cited a 2009 IOSCO report stating that telephone records

    could benefit enforcement investigations.\60\

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

    \60\ http://www.iosco.org/news/pdf/IOSCONEWS137.pdf.

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

    The Commission also proposed to amend regulation 1.31 to conform to

    the proposed regulation 23.203(b)(2) requirement for SDs and MSPs and

    their swap transactions by proposing to require that all records kept

    pursuant to the Act or the Commission's regulations be made available

    for inspection to any applicable prudential regulator, as that term is

    defined in section 1a(39) of the Act, or, in connection with security-

    based swap agreements described in section 1a(47)(A)(v) of the Act, the

    SEC. By contrast, existing regulation 1.31, which pertains to ``all

    books and records required to be kept by the Act or by these

    regulations,'' requires that records be kept for five years and be made

    available only to the Commission and the Department of Justice.\61\ The

    Commission did not receive comment on this proposed revision.

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

    \61\ 17 CFR 1.31(a) (emphasis added).

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

    b. Final Rule

    The Commission has determined to adopt the proposed revision to

    regulation 1.31 regarding record retention periods with two

    modifications. First, in final regulation 1.31, the retention period

    for records of oral communications leading to the execution of a swap

    or related cash or forward transaction, as required of SDs and MSPs

    under regulation 23.202(a)(1) and (b)1), respectively, will be one year

    (rather than five years after the termination, maturity, expiration,

    transfer, assignment, or novation date of the transaction, as

    proposed). This modification is consistent with the final provision for

    an SD's or MSP's oral communications under new regulation 23.203(b)(2)

    in the Reporting, Recordkeeping, and Daily Trading Record Requirements

    final rulemaking.\62\ The Commission believes that this retention

    period for SDs and MSPs with respect to records of oral communications

    leading to the execution of a swap or related cash or forward

    transaction will enable it to adequately execute its enforcement

    responsibilities under the Act and these regulations while minimizing

    the storage costs imposed on these affected entities.\63\

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

    \62\ See Swap Dealer and Major Swap Participant Recordkeeping,

    Reporting, and Duties Rules; Futures Commission Merchant and

    Introducing Broker Conflicts of Interest Rules; and Chief Compliance

    Officer Rules for Swap Dealers, Major Swap Participants, and Futures

    Commission Merchants, 77 FR 20128, 20204 (Apr. 3, 2012) (``Provided,

    however, that records of oral communications communicated by

    telephone, voicemail, mobile device, or other digital or electronic

    media pursuant to Sec. 23.202(a)(1) and (b)(1) shall be kept for a

    period of one year.'').

    \63\ As noted above, the proposed amendments to regulation 1.35

    that would require the recording of certain oral communications by

    certain entities in addition to SDs and MSPs will be the subject of

    a separate final release. The Commission will consider any related

    amendments to regulation 1.31 at that same time.

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

    With respect to Encana's request for clarification concerning the

    applicability of regulation 1.31 to commercial end-users, regulation

    1.31 applies to all records required to be kept by the Act or the

    Commission's regulations, for example, records required to be kept

    under regulations 1.35, 18.05 and 23.202. If these rules require end-

    users to keep records (e.g., regulation 18.05, Maintenance of Books and

    Records), then those records must be kept in accordance with regulation

    1.31.

    In response to CME's comment that although the Commission suggests

    that the retention period for swaps applies only to SDs and MSPs, as

    addressed in proposed regulation 23.203(b), the proposed amendment to

    regulation 1.31 is ambiguous in that it could be read to apply to all

    entities, the Commission clarifies that the final provision in

    regulation 1.31 regarding the retention period for records of swap

    transactions is triggered by the type of record and not the entity that

    is required to keep the record. Therefore, although regulation

    23.203(b) only applies to SDs and MSPs with regard to their swap

    transactions, the final corresponding provision in regulation 1.31

    applies to anyone who is required by the Act or by these regulations to

    keep records of, among other things, swap transactions.\64\

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

    \64\ Until such time as the Commission adopts amendments to

    regulation 1.35 regarding the recording of oral communications, only

    SDs and MSPs are required, pursuant to regulation 23.202, to record

    certain oral communications relating to swap transactions and

    related cash and forward transactions. However, regulation 1.35, as

    amended herein, requires certain other entities, in addition to SDs

    and MSPs, to keep certain records of all transactions relating to

    their business of dealing in, among other things, swap transactions.

    As noted in text, regulation 1.31 as amended herein, applies to

    these records.

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

    Second, the Commission also has determined not to adopt the

    proposed revisions to regulation 1.31(a)(1), (b)(2)(ii), (b)(2)(v)(B),

    (b)(3)(i), (b)(3)(ii)(C), (b)(3)(iii)(A), and (b)(4)(i) regarding the

    parties to whom documents must be made available for inspection. The

    proposed revisions were intended to require only SDs and MSPs to make

    the records that the CEA or the Commission's regulations require them

    to maintain available for inspection to, in addition to the Commission

    and DOJ, any applicable prudential regulator (and, in the case of

    security-based swap agreement records, to the SEC). However, as

    drafted, the proposed regulation text would have applied to all persons

    covered by regulation 1.31, not just to SDs and MSPs. The Commission's

    final swap recordkeeping rules require SDs and MSPs to make the records

    that the CEA or the Commission's regulations require them to maintain

    available for inspection to, in addition to the Commission and DOJ, any

    applicable prudential regulator or, in the case of security-based swap

    agreements, to the SEC, capturing the intent of the proposed revisions

    to regulation 1.31(a)(1), (b)(2)(ii), (b)(2)(v)(B), (b)(3)(i),

    (b)(3)(ii)(C), (b)(3)(iii)(A), and (b)(4)(i).\65\ Therefore, those

    proposed revisions have become superfluous. Consequently, the final

    rule provides that, instead of having to make records available for

    inspection to the Commission, the Department of Justice, any applicable

    prudential regulator or, in the case of security-based swap agreements,

    to the Securities and Exchange Commission, persons covered by

    regulation 1.31 will continue to be required to make records available

    for inspection only to the Commission and the Department of Justice.

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

    \65\ 17 CFR 23.203(b).

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

    c. Format of Retained Records

    The Commission also proposed revising regulation 1.31(a)(1),

    (a)(2), and (b) to require that: all books and records required to be

    kept by the Act or by the Commission's regulations be kept in their

    original form (for paper records) or native file format (for electronic

    records); and production of such records be made in a form specified by

    the Commission.

    CME believes that the native file format requirement should not

    require the retention of raw, unprocessed data generated or transmitted

    by an electronic trading or clearing system. Otherwise, CME argued,

    DCOs and DCMs would have to change the way they retain records. CME

    stated that its recommendation is not intended to alter the type or

    format of data that DCOs and DCMs currently capture and store for both

    business and regulatory purposes. Rather, it asked the Commission to

    clarify that the ``native file format'' provision does not impose a new

    or additional recordkeeping requirement on DCOs and DCMs as it relates

    to their electronic trading or clearing systems.

    [[Page 66298]]

    CME also asked for clarification as to which proposed revisions to

    regulation 1.31 apply only to swaps. MGEX sought clarification that

    proposed regulation 1.31 does not require a firm to keep both paper and

    electronic records concerning the same communications.

    CME commented that the original form requirement is confusing and

    superfluous in light of current regulation 1.31(b), which permits the

    storage of paper records on microfilm, microfiche, or a similar medium,

    and that it is not clear what the Commission means by ``native file

    format.'' Similarly, NFA requested clarification that regulation

    1.31(b) would continue to permit firms to retain paper records on

    micrographic or electronic storage media in lieu of maintaining paper

    records in their original format. NFA commented that the proposed

    revisions fail to provide a reason for requiring that electronic

    records be kept in their native file format.

    FIA and NFA believe that existing regulation 1.31 complies with

    Federal Rule of Civil Procedure 34. Therefore, they asserted, there is

    no reason for the Commission to require that records be kept in their

    original form for paper records and native file format for electronic

    records. FIA and NFA further asserted that there is no reason for the

    Commission to depart from a rule that was designed, in 1999, to

    harmonize with the SEC's recordkeeping rules. Similarly, ACSA commented

    that requiring paper records to be maintained in their original form

    for five years and be readily accessible for the first two would

    conflict with SEC rules. FIA commented that firms currently rely on

    regulation 1.31(b) to transfer electronic records from their original

    format to new forms of electronic media. CME similarly commented that

    electronic files often must be migrated, upgraded or converted in order

    to meet ever-evolving technology standards. Therefore, CME argued that,

    because some swaps could exist for 30 to 50 years, the technology used

    to generate or store electronic records related to such swap

    transactions may become outdated or obsolete in a much shorter period

    of time. Therefore, CME recommended that the Commission eliminate the

    requirement to retain swap records in their native file format for the

    life of the swap.

    CME argued that the Commission should re-propose other rules

    referencing regulation 1.31 (e.g., DCO Core Principles, DCM Core

    Principles, SEF Core Principles, and SD and MSP Recordkeeping) because

    the proposed revisions to the form a record must take under regulation

    1.31 substantially change the requirements proposed by those

    rulemakings. In contrast to other comments, the Working Group, in

    response to the proposed regulation 23.203(b) requiring SDs and MSPs to

    maintain records in accordance with existing regulation 1.31, asserted

    that, to be made workable for purposes of complying with the

    Commission's proposed requirements under regulation 23.203(b),

    regulation 1.31 should be revised to reflect current technologies and

    industry practices relating to digitized data storage.\66\

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

    \66\ See Letter of Working Group of Commercial Energy Firms,

    dated February 7, 2011, in response to Notice of Proposed Rulemaking

    for Reporting, Recordkeeping, and Daily Trading Requirements for

    Swap Dealers and Major Swap Participants (75 FR 76666, Dec. 9,

    2010). The Commission addressed the Working Group's comment in the

    final rule for SD and MSP recordkeeping requirements stating,

    ``[t]he Commission believes that The Working Group's concerns about

    Sec. 1.31 have been addressed by a subsequent rule proposal to

    amend Sec. 1.31 to reflect current technologies and industry

    practices related to digitized data storage. If these amendments are

    finalized, the Commission believes that Sec. 1.31 will be

    compatible with electronic records in a trading system and other

    records that do not originate from a written document.'' See Swap

    Dealer and Major Swap Participant Recordkeeping, Reporting, and

    Duties Rules; Futures Commission Merchant and Introducing Broker

    Conflicts of Interest Rules; and Chief Compliance Officer Rules for

    Swap Dealers, Major Swap Participants, and Futures Commission

    Merchants, 77 FR 20128, 20134 (Apr. 3, 2012).

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

    Having considered these comments, the Commission is adopting the

    revisions to regulation 1.31 regarding the form in which records must

    be kept as proposed. In 1999, as commenters highlighted, the Commission

    adopted amendments to the recordkeeping obligations established in

    regulation 1.31 by, among other things, allowing most categories of

    records to be stored on either micrographic or electronic storage media

    for the full five-year maintenance period.\67\ The Commission reasserts

    one of its intentions in undertaking the 1999 update, which was to

    ``provide recordkeepers with opportunities to reduce costs and improve

    both the efficiency and security of their recordkeeping systems.''

    Thus, the Commission clarifies that recordkeepers will be in compliance

    with the new requirement to keep paper records in their original form

    if they continue to store paper records ``on either `micrographic

    media' * * * or `electronic storage media' for the required time

    period,'' as provided under regulation 1.31(b). However, one of the

    Commission's other stated goals in amending regulation 1.31 in 1999 was

    to further the Commission's need for access to complete and accurate

    records when necessary in a format that the Commission can process,

    i.e., a usable format.\68\ Thus, the Commission is now making clear

    that paper records are not usable by the Commission as a substitute for

    the underlying financial data used to create that paper. Therefore, it

    is necessary that electronic records be maintained in their native file

    format and not reduced to paper.

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

    \67\ See 64 FR 28735 (May 27, 1999).

    \68\ In 1999, the Commission stated that, ``[t]he requirement

    that recordkeepers provide documents to the Commission in one of the

    many identified formats arises out of practical limitations on the

    Commission's ability to process data stored in the full range of

    available formats and coding structures on the full range of storage

    media available to recordkeepers.'' 64 FR 28735, 28740 (May 27,

    1999).

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

    Accordingly, for records that include data stored in a database,

    the ``native file format'' is the format in which the data is

    maintained in that database, not a format reduced to paper or imaged

    format, which is essentially the equivalent of paper. This is true

    regardless of the imaged format, such as portable document format

    (``PDF''), whether machine-readable through optical character

    recognition (``OCR'') or any other process. Thus, the underlying

    financial data from which an FCM creates PDF versions of customer

    account statements must be kept in its ``native file format'' because,

    if and when the Commission requests those financial records, it will

    not be sufficient for the recordkeeper to produce the paper and/or PDF

    statements. Where the data is used to generate a paper document

    (including, but not limited to a PDF), such as a customer account

    statement, the paper document must be maintained in its original form,

    while the data must be maintained in its native file format.

    Specifically regarding records of swap transactions, the Commission

    has decided to keep the requirement that these records be maintained in

    their native file format for the life of the swap plus five years. In

    response to CME's specific concerns about the need to migrate, update

    or convert electronic files over the potentially long life of a swap to

    meet evolving technology standards, the Commission confirms that

    maintaining data in native file format (i.e., the format in which it

    was originally created or maintained) does not prohibit a recordkeeper

    from migrating that data from an obsolete or legacy system or database

    to a new system or database, where it will then be maintained in the

    native file format of the new system or database. If due to the

    proprietary nature of the system, it is impossible or impracticable to

    provide the Commission with the data in its native file format because,

    for

    [[Page 66299]]

    example, the native file format would not be accessible by the

    Commission, as it may not otherwise have that proprietary system, or

    the system does not readily export the requested data in native file

    format, then a recordkeeper may provide the data in a commonly

    accessible, non-proprietary format.

    In the proposed changes to regulation 1.31, the Commission proposed

    to amend regulation 1.31(b)(3)(i) by replacing ``approved machine-

    readable media as defined in regulation 15.00(l)'' with ``compatible

    data processing media as defined in regulation 15.00(d).'' The proposed

    change was intended to update this paragraph of regulation 1.31 to

    reflect that regulation 15.00(l) no longer exists and, when it existed,

    was a definition of ``compatible data processing media'' and not

    ``machine-readable media.'' \69\ Having received no comments on this

    proposed ministerial change, the Commission has determined to adopt the

    changes to regulation 1.31(b)(3)(i) as proposed.

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

    \69\ Under current Sec. 15.00(d), ``Compatible data processing

    media'' means ``data processing media approved by the Commission or

    its designee.'' This term has existed under Sec. 15.00 since as

    early as 1986. See 17 CFR 15.01 (1986). At that time, the definition

    included a list of what the Commission considered to be compatible

    data processing media, but deleted those references to specific

    media in 1997 in response to comments suggesting that a regulatory

    definition was impractical given the fast pace of evolving

    technology. See 64 FR 28735, 28739 (May 27, 1999) (citing 62 FR

    24026, 24028 (May 2, 1997)).

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

    In response to CME's request for clarification of the scope of

    ``native file format,'' the Commission confirms that the definition of

    ``native file format'' excludes raw, unprocessed data generated or

    transmitted by an electronic trading or clearing system.

    4. Regulation 1.33: Monthly and Confirmation Statements

    Regulation 1.33 requires FCMs to maintain certain records and to

    regularly furnish monthly and confirmation statements to customers

    regarding commodity futures and option transactions they have entered

    into on behalf of customers. The DFA amended the definition of FCM in

    section 1a of the CEA to authorize an FCM to solicit or accept orders

    for swaps in addition to commodity futures and option transactions.\70\

    Therefore, the Commission proposed adding requirements for monthly and

    confirmation statements applicable to swaps. The Commission did not

    receive comments concerning these amendments and is adopting these

    provisions mostly as proposed.

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

    \70\ DFA section 721(a)(13). Today's rulemaking similarly

    incorporates those changes into the corresponding definition of

    ``futures commission merchant'' in regulation 1.3.

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

    The Commission has decided to replace a reference to ``open

    positions'' in the existing paragraph (a) introductory text with ``open

    contracts.'' This amendment makes the regulation 1.33(a) introductory

    text consistent with the Commission's revised definition of ``open

    contracts'' in regulation 1.3(t).

    In finalizing paragraphs (a)(3) and (b)(2), the Commission is

    replacing proposed references to ``swaps'' with ``Cleared Swaps,'' as

    regulation 22.1 defines that term. Since the publication of the

    Proposal, the Commission has finalized part 22 concerning the

    segregation of ``Cleared Swaps Customer Collateral.'' \71\ Because an

    FCM will only clear those swaps that are ``Cleared Swaps,'' regulation

    1.33 should only refer to ``Cleared Swaps.'' For the same reason, the

    Commission is using the terms ``Cleared Swaps Customer'' and ``Cleared

    Swaps Customer Collateral,'' as now defined in regulation 1.3. These

    corrections are being made in conjunction with technical corrections

    described below, in section II.A.14 (Technical corrections to parts 1

    and 22).

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

    \71\ Protection of Cleared Swaps Customer Contracts and

    Collateral; Conforming Amendments to the Commodity Broker Bankruptcy

    Provisions, 77 FR 6336 (Feb. 7, 2012). See infra pt. II.A.14

    (discussing technical changes to parts 1 and 22).

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

    Finally, in paragraph (a)(3) of regulation 1.33, the Commission is

    replacing the phrase ``caused to be executed by'' with ``carried by.''

    The reason is that an FCM might not provide a trade execution function

    for every swap that it clears.

    5. Regulation 1.35: Records of Cash Commodity, Futures and Option

    Transactions \72\

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

    \72\ The Commission proposed to amend regulation 1.35(a) so that

    FCMs, RFEDs, IBs, and members of a DCM or SEF would be required to

    record all oral and written communications provided or received

    concerning quotes, solicitations, bids, offers, instructions,

    trading, and prices, that lead to the execution of transactions in a

    commodity interest or cash commodity, however communicated. The

    proposed amendments to regulation 1.35(a) also included a

    requirement that each transaction record be maintained in a separate

    electronic file identifiably by transaction and counterparty. As

    noted above, the Commission will consider these proposed amendments

    to regulation 1.35(a) in a separate release.

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

    As part of the ministerial amendments contained in this release,

    the Commission is renumbering portions of regulation 1.35 so that

    paragraphs currently numbered 1.35(a-1) and 1.35(a-2) will be

    renumbered 1.35(b) and 1.35(c), respectively. As a result, paragraphs

    currently numbered 1.35(b), (c), (d) and (e) have been renumbered as

    1.35(d), (e), (f) and (g), respectively.

    Because amended regulation 1.35 extends recordkeeping obligations

    to swaps, the Commission has created special language for swaps, where

    appropriate. In regulation 1.35(d)(2) (formerly (b)(2)) (records of

    futures, commodity options, and retail forex exchange transactions for

    each account), the Commission has added paragraph (iv), as proposed.

    The Commission did not receive comments about this amendment and is

    adopting it as proposed. Amended regulation 1.35(d)(2)(iv) requires

    FCMs, IBs, and any clearing members clearing swaps executed on a DCM or

    SEF to maintain records describing the date, price, quantity, market,

    commodity, and, if cleared, DCO of each swap.

    a. Bunched Orders

    The Commission recognizes that investment managers currently

    execute bunched swap orders on behalf of clients and allocate the

    trades to individual clients post-execution. The Commission believes

    that the bunched order procedures currently applicable to futures can

    be adapted for use in swap trading. Therefore, the Commission proposed

    amending regulation 1.35(a-1)(5) (redesignated as (b)(5) pursuant to

    this rulemaking), addressing post-execution allocation of bunched

    orders.\73\ The Commission received one comment letter concerning this

    topic. The Swaps and Derivatives Market Association (``SDMA'') strongly

    supported the proposed amendment on the grounds that it would promote

    operational and execution efficiency in both the cleared and uncleared

    swaps markets. Specifically, SDMA noted that industry precedent

    supports the proposed post-execution time limits (for cleared swaps, no

    later than a time sufficiently before the end of the calendar day the

    order is executed to ensure that clearing records identify the ultimate

    customer for each trade; for uncleared swaps, no later than the end of

    the day the swap was executed). SDMA also noted that regulation 1.35(a-

    1)(5)'s bunched order provisions for futures provide an appropriate

    model for swaps and that FCMs generally have sufficient risk control

    capability (technologically speaking) to allocate swap orders post-

    execution.

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    \73\ In the Proposal, the Commission requested comment as to

    whether it would be appropriate to add FCMs and IBs to the list of

    eligible account managers. Proposing Release, 76 FR at 33073.

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

    In its final rulemaking concerning Customer Clearing Documentation,

    Time of Acceptance for Clearing, and Clearing Member Risk Management,

    the Commission adopted the Proposal's

    [[Page 66300]]

    amendments to regulation 1.35(a-1)(5) concerning the post-execution

    time limits referred to above.\74\

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    \74\ Customer Clearing Documentation, Time of Acceptance for

    Clearing, and Clearing Member Risk Management, 77 FR 21278, 21306

    (Apr. 9, 2012).

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

    In this rulemaking, the Commission is adding FCMs and IBs to the

    list of eligible account managers in regulation 1.35(a-1)(5)

    (redesignated as (b)(5)), as proposed, in order to have a single

    standard for all intermediaries that might have discretion over

    customer accounts. Unlike other account managers, however, under

    regulations 155.3 and 155.4, FCMs and IBs are prohibited from including

    proprietary trades in a bunched order with customer trades.

    Accordingly, as proposed, the Commission has added a cross-reference in

    regulation 1.35(a-1)(5) (re-designated herein as (b)(5)) to those

    regulations. The Commission did not receive comments to this segment of

    the Proposal.

    The Commission is further amending regulation 1.35(a-1)

    (redesignated herein as (b)) in order to provide that specific customer

    account identifiers need not be included in confirmations or

    acknowledgments provided pursuant to regulation 23.501(a), if the

    requirements of regulation 1.35(a-1)(5) (redesignated herein as (b)(5))

    are met. This will enable account managers to bunch orders for trades

    executed bilaterally with SDs or MSPs. This will require that, similar

    to the current procedure for futures, the allocation be completed by

    the end of the day of execution and provided to the counterparty. The

    Commission is making this revision as proposed; it did not receive

    comments to this revision.

    Also as proposed, the Commission is deleting appendix C to part 1,

    which predated regulation 1.35(a-1)(5) (re-designated herein as (b)(5))

    and also addresses bunched orders. Appendix C consists of a Commission

    Interpretation regarding certain account identification requirements

    pertaining to the practice of combining orders for different accounts

    into a single order book, referred to as bunched orders. The procedures

    for bunched orders are set forth in regulation 1.35(a-1)(5) (re-

    designated herein as (b)(5)). Accordingly, the procedures under

    appendix C to part 1 are duplicative and no longer necessary. The

    Commission received no comments concerning its proposal to delete

    appendix C to part 1 and is hereby deleting that appendix.

    b. Other Changes to Regulation 1.35

    The Commission has deleted paragraphs (f)-(l) of regulation 1.35,

    as proposed. To implement the CFMA, regulation 38.2 required DCMs to

    comply with an enumerated list of Commission regulations, and exempted

    them from all remaining Commission regulations that were no longer

    applicable post-CFMA.\75\ The DCM Core Principles final rulemaking

    substantially revised part 38, but did not revoke regulation 38.2.\76\

    Instead, it updated the list of Commission regulations that are

    applicable to DCMs. Unlike its predecessor, regulation 38.2, as revised

    by the DCM Core Principles final rulemaking, only enumerates the

    Commission regulations from which DCMs are exempt.

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

    \75\ See 71 FR 1964 (Jan. 12, 2006).

    \76\ Core Principles and Other Requirements for Designated

    Contract Markets, 77 FR 36612 (June 19, 2012).

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

    As part of the ministerial amendments contained in this rulemaking,

    the Commission has eliminated from the Commission's regulations any

    provisions that have been inapplicable to DCMs since the passage of the

    CFMA, and that remain inapplicable after the passage of the DFA.

    Paragraphs (f)-(l) of regulation 1.35 are among those provisions.

    Pursuant to the deletion paragraph (j) of regulation 1.35, the

    Commission has copied most of that provision into new subsection

    (d)(7)(i) (formerly (b)(7)(i)). The Commission made these changes as

    proposed; it did not receive any comments on these provisions.

    Also as part of the ministerial amendments contained in this

    rulemaking, the Commission proposed to eliminate regulations 1.35(a-

    1)(3)(ii) and 1.35(a-2)(3). However, regulation 38.2, as revised by the

    DCM Core Principles final rule, no longer exempts DCMs from these

    provisions. Accordingly, these provisions will not be eliminated in

    this rulemaking, and they are redesignated as regulations

    1.35(b)(3)(ii) and 1.35(c)(3), respectively.

    Regulation 1.35, as revised by this rulemaking, no longer agrees

    with regulation 38.2. As this rulemaking eliminates the provisions of

    regulation 1.35 that remain inapplicable to DCMs, the Commission is

    revising regulation 38.2 to remove references to those provisions of

    regulation 1.35 with which DCMs are not required to comply. The

    Commission considers this revision to regulation 38.2 technical in

    nature as it merely cleans up the discrepancy created by the revisions

    to regulation 1.35.

    Finally, the Commission has made a technical correction to

    regulation 1.35(b)(3)(v) (redesignated herein as (d)(3)(v)) so that the

    final sentence references ``commodity futures, retail forex, commodity

    option, or swap books and records'' instead of ``commodity retail forex

    or commodity option books and records.'' The Commission has made this

    change as proposed; it did not receive any comments on this provision.

    6. Regulation 1.37: Customer's or Option Customer's Name, Address, and

    Occupation Recorded; Record of Guarantor or Controller of Account

    Dodd-Frank Act section 723(a)(3) added a new section 2(h)(8) to the

    CEA to require, among other things, that swaps subject to the clearing

    requirement of CEA section 2(h)(1) be executed either on a DCM or on a

    SEF. The DFA established SEFs as a new category of regulated markets

    for the purpose of trading and executing swaps. Because SEFs are now

    regulated markets under the CEA, many of the Commission's existing

    regulatory provisions that currently are applicable to DCMs also will

    become applicable to SEFs.

    Accordingly, the Commission, as proposed, has amended paragraphs

    (c) and (d) of regulation 1.37, pertaining to recording foreign

    traders' and guarantors' names, addresses, and business information.

    Currently, these provisions apply to DCMs and futures and options

    contracts executed on those facilities. This revision amends the

    provisions to also include SEFs and swap transactions. Additionally,

    the Commission is amending the title and remaining text of regulation

    1.37 to reflect the removal of the term ``option customer.'' \77\ The

    Commission received no comments on these provisions.

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

    \77\ See supra, section II.A.b. for a discussion of the deletion

    of the defined term ``option customer'' (1.3(jj)).

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

    7. Regulation 1.39: Simultaneous Buying and Selling Orders of Different

    Principals; Execution of, for and Between Principals

    Like regulation 1.37, the Commission is amending regulation 1.39 to

    apply it to SEFs and swaps. Regulation 1.39, which has applied to

    members of contract markets, governs the simultaneous execution of buy

    and sell orders of different principals for the same commodity for

    future delivery by a member and permits the execution of such orders

    between such principals on a contract market. The Commission is

    amending this provision to include members of SEFs, and to include swap

    transactions. The Commission is also amending paragraph (c) to

    eliminate the reference to ``cross trades,'' as they are

    [[Page 66301]]

    no longer defined under section 4c(a) of the Act, as amended by the

    DFA. The Commission received no comments and is making these revisions

    as proposed, with a slight modification to further clarify that the

    rule applies to SEFs in the same manner that it applies to DCMs.

    8. Regulation 1.40: Crop, Market Information Letters, Reports; Copies

    Required

    Regulation 1.40 requires FCMs, RFEDs, IBs and members of contract

    markets to furnish to the Commission certain information they publish

    or circulate concerning crop or market information affecting prices of

    commodities. The Commission is amending regulation 1.40 to apply it to

    trading on a SEF, to the extent that persons have trading privileges on

    the SEF. Persons without trading privileges on a SEF will not be

    subject to regulation 1.40. The amendments also update the forms of

    communication covered by the regulation by replacing the word

    ``telegram'' with ``telecommunication.'' The Commission is making these

    revisions as proposed; the Commission received no comments on these

    provisions.

    9. Regulation 1.59: Activities of Self-Regulatory Employees, Governing

    Board Members, Committee Members and Consultants

    The Commission proposed to amend regulation 1.59 to include SEFs

    and swaps. The Commission also proposed to amend regulation 1.59(b) to

    correct certain cross-references to the Act and Commission regulations.

    Regulation 1.59(c) has been revised to apply only to registered futures

    associations, as the prohibitions contained therein applicable to the

    other SROs already are addressed in proposed regulation 40.9.\78\ The

    Commission is making these revisions as proposed; the Commission

    received no comments.

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

    \78\ Requirements for Derivatives Clearing Organizations,

    Designated Contract Markets, and Swap Execution Facilities Regarding

    the Mitigation of Conflicts of Interest, 75 FR 63732 (Oct. 18,

    2010).

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

    10. Regulation 1.63: Service on Self-Regulatory Organization Governing

    Boards or Committees by Persons With Disciplinary Histories

    The Commission proposed to amend regulation 1.63 to correct certain

    cross-references to the Act and its regulations. The Commission also

    proposed to amend paragraph (d) to incorporate the posting of notices

    required under that paragraph on each SRO's Web site. The Commission

    received no comments regarding the proposed amendments to regulation

    1.63 and is adopting the amendments without modification.

    11. Regulation 1.67: Notification of Final Disciplinary Action

    Involving Financial Harm to a Customer

    Regulation 1.67 requires contract markets, upon taking any final

    disciplinary action involving a member causing financial harm to a non-

    member, to provide notice to the FCM that cleared the transaction. FCMs

    and other registrants on SEFs should also be notified of any

    disciplinary action involving transactions on a SEF they executed for

    ECPs. Accordingly, the Commission proposed to amend regulation 1.67 to

    include SEFs, registrants and ECPs on such facilities. The Commission

    received no comments regarding proposed regulation 1.67 and is adopting

    the rule without modification.

    12. Regulation 1.68: Customer Election Not To Have Funds, Carried by a

    Futures Commission Merchant for Trading on a Registered Derivatives

    Transaction Execution Facility, Separately Accounted for and Segregated

    The Commission is hereby removing and reserving regulation 1.68.

    Regulation 1.68 had permitted a customer of an FCM to allow the FCM to

    not separately account for and segregate such customer's funds if,

    among other things, such funds are being carried by the FCM to trade on

    or through the facilities of a DTEF. No DTEF has ever registered with

    the Commission. Furthermore, section 734 of the Dodd-Frank Act repealed

    the DTEF provisions in the CEA, effective July 15, 2011. Therefore,

    because the statutory provisions underpinning regulation 1.68 have been

    repealed, the Commission is removing it from the Commission's

    regulations.\79\

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

    \79\ The Commission is also hereby deleting all other references

    to DTEFs, except those already removed by other Commission

    rulemakings, throughout its regulations. See infra Part II.G.

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

    13. Regulations 1.44, 1.53, and 1.62--Deletion of Regulations

    Inapplicable to Designated Contract Markets

    The CFMA adopted core principles for DCMs.\80\ On August 10, 2001,

    the Commission published final rules implementing provisions of the

    CFMA, in which it concluded that the CFMA's framework effectively

    constituted a broad exemption from many of the existing regulations

    applicable to DCMs.\81\ Accordingly, the final rules included

    regulation 38.2, which required DCMs to comply with an enumerated list

    of Commission regulations, and exempted them from all remaining

    Commission regulations no longer applicable post-CFMA. As part of the

    ministerial amendments contained in the Proposal, the Commission

    proposed to eliminate from the Commission's regulations any provisions

    that have been inapplicable to DCMs since the CFMA was enacted and that

    remain inapplicable after enactment of the DFA. Accordingly, the

    Commission proposed to eliminate the following regulations: regulation

    1.44 (Records and reports of warehouses, depositories, and other

    similar entities; visitation of premises), regulation 1.53 (Enforcement

    of contract market bylaws, rules, regulations, and resolutions), and

    regulation 1.62 (Contract market requirement for floor broker and floor

    trader registration). The Commission received no comments regarding the

    proposed deletion of these provisions and is hereby deleting such

    provisions as proposed.

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

    \80\ Public Law 106-554, 114 Stat. 2763 (2000).

    \81\ A New Regulatory Framework for Trading Facilities,

    Intermediaries and Clearing Organizations, 66 FR 42256 (Aug. 10,

    2001).

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

    14. Technical Changes to Part 1 and Part 22 in Order To Accommodate

    Recently Finalized Part 22

    On February 7, 2012, the Commission finalized regulations in part

    22 regarding the Protection of Cleared Swaps Customer Contracts and

    Collateral (``Cleared Swaps Customer Final Rule'').\82\ The Cleared

    Swaps Customer Final Rule took effect on April 9, 2012, although the

    compliance date for the rule is November 8, 2012. The Cleared Swaps

    Customer Final Rule established a segregation regime applicable to FCMs

    and DCOs for ``Cleared Swaps Customer Collateral,'' as regulation 22.1

    defines that term.\83\ The rulemaking process involved extensive public

    comment, including through both an advanced notice of proposed

    rulemaking and a notice of proposed rulemaking.

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

    \82\ Protection of Cleared Swaps Customer Contracts and

    Collateral; Conforming Amendments to the Commodity Broker Bankruptcy

    Provisions, 77 FR 6336 (Feb. 7, 2012) (``Cleared Swaps Customer

    Final Rule'').

    \83\ Part 22 capitalizes definitions, but part 1 does not.

    Hence, in this rulemaking, terms defined in regulation 22.1 are

    capitalized, and terms defined in regulation 1.3 are not.

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

    The Cleared Swaps Customer Final Rule carefully established the

    basic architecture for protecting Cleared Swaps Customer Collateral.

    Both the Cleared Swaps Customer Final Rule and

    [[Page 66302]]

    the related proposed rule \84\ described how and to what extent the

    part 22 regulations for cleared swaps parallel and deviate from the

    part 1 regulations applicable to FCMs and DCOs relating to Customers'

    Money, Securities, and Property for exchange-traded contracts (referred

    to herein as the ``Part 1 Segregation Regulations''). In today's final

    rulemaking, the Commission is making technical corrections to certain

    of the Part 1 Segregation Regulations to make unambiguous that certain

    parallel Part 1 Segregation Regulations do not apply to Cleared Swaps

    Customer Collateral. These Part 1 Segregation Regulations only apply to

    the segregation of customer funds used to margin, guarantee, or secure

    contracts for future delivery on or subject to the rules of a contract

    market, and all money accruing to such customers as a result of such

    contracts (referred to herein as ``futures contracts''), as well as to

    customer funds used to margin commodity option transactions on or

    subject to the rules of a contract market or DCO (referred to herein as

    ``options on futures contracts'').\85\

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

    \84\ Protection of Cleared Swaps Customer Contracts and

    Collateral; Conforming Amendments to the Commodity Broker Bankruptcy

    Provisions, 76 FR 33818 (June 9, 2011).

    \85\ See generally Cleared Swaps Customer Final Rule, 77 FR at

    6363 (``Sections 22.2 through 22.10 implement the basic architecture

    of a system of segregation for swaps customer funds roughly

    comparable to the system used for customer funds for futures

    contracts under CEA sections 4d(a)(2) and 4d(b) and Commission

    regulations 1.20 through 1.30 and 1.49.'').

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

    For the reasons stated above, the Commission is hereby making the

    following technical corrections:

    In regulation 1.3, the Commission has added a definition of

    ``futures customer funds'' to reference only those funds used to margin

    futures contracts or commodity option transactions on or subject to the

    rules of a contract market, or DCO, as the case may be. This definition

    matches the existing definition of customer funds (regulation 1.3(gg)).

    The Commission is also adding a definition of ``Cleared Swaps Customer

    Collateral,'' which cross-references regulation 22.1's definition of

    this term. Regulation 1.3(gg)(``customer funds'') applies to both

    ``futures customer funds'' and ``Cleared Swaps Customer Collateral.''

    The Proposal's definition in regulation 1.3(gg) had already applied to

    customer funds used to margin both futures and swaps.

    Relatedly, the Commission is adding a definition of ``futures

    customer'' to regulation 1.3 and a definition of ``Cleared Swaps

    Customer,'' which cross-references regulation 22.1's definition of that

    term. As discussed above in section II.A.1.b. of this preamble, the

    definition of ``customer'' in regulation 1.3(k) will be finalized as

    proposed, to reference ``any person who uses a futures commission

    merchant, introducing broker, commodity trading advisor, or commodity

    pool operator as an agent in connection with trading in any commodity

    interest.'' \86\ The definition of ``customer'' refers to both a

    ``futures customer'' and a ``Cleared Swaps Customer'' because, as

    described in section II.A.1.f. of this preamble, this rulemaking is

    adopting a revised definition of ``commodity interest'' (regulation

    1.3(yy)), largely as proposed, to reference futures, swaps, and

    contracts subject to Commission sections 2(c)(2), 4c or 19 of the Act.

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

    \86\ As finalized, the definition of customer in regulation

    1.3(k) preserves existing treatment of proprietary accounts.

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

    The Proposal included an amendment to the definition of ``futures

    account'' in regulation 1.3(vv) to reference a related futures

    segregation provision of section 4 of the Act, as amended by the Dodd-

    Frank Act, i.e., section 4d(a). The Proposal neglected to reference

    subsection (b) of section 4d, so today's final definition of ``futures

    account'' references sections 4d(a) and 4d(b) of the Act. The

    Commission did not receive comments about its proposed revisions to

    this definition. As a technical correction, the Commission is adding a

    definition of ``Cleared Swaps Customer Account,'' which references

    regulation 22.1's definition of that term. Relatedly, the Commission is

    adding a definition of ``customer account'' in regulation 1.3 to

    connote both a ``futures account'' and a ``Cleared Swaps Customer

    Account,'' as regulation 1.3 defines each of those terms.

    The Commission is making a technical correction to paragraph

    (c)(5)(xiii)(C) of regulation 1.17 (``Minimum financial requirements

    for futures commission merchants and introducing brokers'') to restrict

    a provision pertaining to a foreign broker granted relief pursuant to

    regulation 30.10 to ``the foreign futures or foreign options secured

    amount, as Sec. 1.3(rr) of this part defines such term.'' This

    provision has always referenced the foreign futures or foreign options

    secured amount. Thus, because ``customer funds'' includes both

    ``futures customer funds'' and ``Cleared Swaps Customer Collateral,''

    the Commission is making a technical correction to replace the term

    ``customer funds'' in paragraph (c)(5)(xiii)(C) of regulation 1.17 with

    the term ``foreign futures or foreign options secured amount.''

    The Commission is making technical corrections to regulation 1.20

    (``Customer funds to be segregated and separately accounted for'') by:

    changing the title to ``Futures customer funds to be segregated and

    separately account for''; replacing references to ``customer funds''

    and ``customers'' to ``futures customer funds'' and ``futures

    customers''; and linking the regulation to those provisions of section

    4d of the Act, as amended by the Dodd-Frank Act, pertaining to the

    segregation of futures customer funds (i.e., sections 4d(a) and (b)).

    The Commission is making technical corrections to regulation 1.21

    (``Care of money and equities accruing to customers'') by changing the

    title to ``Care of money and equities accruing to futures customer''

    and replacing references to ``customer'' with references to ``futures

    customer.'' The Cleared Swaps Customer Final Rule did not create a

    parallel regulation in part 22 on the grounds that such parallels were

    not necessary because: (1) Regulation 22.1 broadly includes

    ``accruals'' in the definition of Cleared Swaps Customer Collateral,

    and (2) regulation 22.2(e) permits an FCM to commingle the Cleared

    Swaps Customer Collateral of multiple Cleared Swaps Customers. Thus,

    although revised regulation 1.21 is limited to futures customers and

    there is no parallel regulation in part 22, part 22 captures the

    substance of regulation 1.21 with respect to Cleared Swaps Customers

    and Cleared Swaps Customer Collateral.

    The Commission is making technical corrections to regulation 1.22

    (``Use of customer funds restricted'') by changing the title to ``Use

    of futures customer funds restricted'' and replacing references to

    ``customer funds'' and ``customer'' with references to ``futures

    customer funds'' and ``futures customer.'' The Cleared Swaps Customer

    Final Rule incorporated these requirements into part 22 with respect to

    Cleared Swaps Customer Collateral and Cleared Swaps Customers.

    The Commission is making technical corrections to regulation 1.23

    (``Interest of futures commission merchant in funds; additions and

    withdrawals'') by changing the title to ``Interest of futures

    commission merchant in segregated futures customer funds; additions and

    withdrawals;'' replacing references to ``customer funds'' and

    ``customer'' with references to ``futures customer funds'' and

    ``futures customer;'' and linking the regulation to sections 4d(a) and

    (b) of the Act.\87\

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

    \87\ The Cleared Swaps Customer Final Rule created analogous

    requirements in part 22 with respect to Cleared Swaps Customer

    Collateral and Cleared Swaps Customers. See 17 CFR 22.2(e)(3).

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

    [[Page 66303]]

    The Commission is making technical corrections to regulation 1.24

    (``Segregated funds; exclusions therefrom'') by replacing a reference

    to ``customers'' with ``futures customers.'' \88\

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

    \88\ The Cleared Swaps Customer Final Rule created analogous

    provisions in part 22 with respect to Cleared Swaps Customers. See

    17 CFR 22.2(d)(3).

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

    The Commission is making technical corrections to regulation 1.26

    (``Deposit of instruments purchased with customer funds'') by: changing

    the title to ``Deposit of instruments purchased with futures customer

    funds''; replacing references to ``customer funds'' and ``customer''

    with references to ``futures customer funds'' and ``futures customer;''

    and linking the regulation to sections 4d(a) and (b) of the Act.\89\

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

    \89\ The Cleared Swaps Customer Final Rule created analogous

    requirements in regulation 22.5 17 CFR 22.5.

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

    The Commission is making technical corrections to regulation 1.32

    (``Segregated account; daily computation and record'') by replacing

    references to ``customer funds,'' ``customer,'' and ``customer

    account'' with references to ``futures customer funds,'' ``futures

    customer,'' and ``futures customer account.'' \90\

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

    \90\ The Cleared Swaps Customer Final Rule mirrored some of

    regulation 1.32's requirements in part 22 with respect to Cleared

    Swaps Customer Collateral and Cleared Swaps Customers. See 17 CFR

    22.2(g).

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

    The Commission is making a technical correction to regulations

    1.21, 1.23, 1.24, 1.26, 1.29, 140.735-2a, and 140.735-3 by replacing

    the term ``clearing organization'' or ``clearinghouse'' with

    ``derivatives clearing organization.'' Since Congress' enactment of the

    CFMA in 2000,\91\ which added ``derivatives clearing organization'' as

    a new defined term to section 1a of the Act, the intent of these

    regulations has been to refer to ``derivatives clearing

    organizations.''

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

    \91\ Public Law 106-55, 114 Stat. 2763 (Effective December 21,

    2000).

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

    The Commission is making technical changes to subsection (1)(iii)

    of regulation 1.33 (``Monthly and Confirmation statements'') to

    specifically reference ``futures customer funds'' and the ``foreign

    futures and foreign options secured amount.'' This subsection presently

    refers to these classes of customer funds; the intention of this

    technical amendment is to clarify that meaning.

    Proposed amended regulation 1.33(a)(3) described what ``swap

    positions'' information an FCM must provide in monthly statements to

    its customers. The Commission did not receive comments on this proposal

    and is publishing it as proposed, except for the following. In line

    with the aforementioned technical corrections, today's final version of

    regulation 1.33 replaces ``swap position'' with ``Cleared Swaps

    Customer.'' Today's final rulemaking also makes a technical correction

    to regulation 1.33 by combining subsections (a)(1)(iv), (a)(2)(v), and

    proposed (a)(3)(iv) into a new paragraph (a)(4).

    Unlike the aforementioned Part 1 Segregation Regulations,

    Regulation 1.25 (``Investment of customer funds''), on the other hand,

    now properly applies to both futures customer funds and Cleared Swaps

    Customer Collateral. Thus, its title will continue to refer to

    ``customer funds,'' which, as defined by revised regulation 1.3(gg),

    includes both futures customer funds and Cleared Swaps Customer

    Collateral. However, the Commission is making technical corrections to

    regulation 1.25 as part of today's final rulemaking by adding

    references to regulation 22.5 (``Futures commission merchants and

    derivatives clearing organizations: Written acknowledgment'') alongside

    current references to regulation 1.26 (``Deposit of instruments

    purchased with customer funds'') (to be amended herein as ``Deposit of

    instruments purchased with futures customer funds''). The Commission

    explains this reference to regulation 22.5 in a new provision at the

    end of paragraph (d)(13) of regulation 1.25.

    The foregoing technical corrections to the Part 1 Segregation

    Regulations are designed to ensure that, when taken together with the

    Cleared Swaps Customer Final Rule, they do not create redundant, and

    potentially conflicting, duties for FCMs and DCOs. For similar reasons,

    the Commission is making certain equivalent technical corrections to

    part 22. As mentioned above, none of these technical changes alter the

    meaning of any regulation of part 22. First, the Commission is deleting

    the definition of ``Customer'' from regulation 22.1 (``Definitions'').

    Because of the aforementioned addition of the definition of ``futures

    customer'' in regulation 1.3, regulation 22.1's definition of

    ``Customer'' is no longer needed or correct. Consequently, in

    regulation 22.2 (``Futures Commission Merchants: Treatment of Cleared

    Swaps and Associated Cleared Swaps Customer Collateral''), the

    Commission is replacing references to ``Customers'' with references to

    ``futures customers'' or ``foreign futures or foreign options

    customers,'' as regulation 30.1(c) defines that term. For the same

    reason, in regulation 22.3(b)(2)(iii) (``Derivatives clearing

    organizations: Treatment of Cleared Swaps Customer Collateral'');

    paragraphs (a) and (b) of regulation 22.5 (``Futures commission

    merchants and derivatives clearing organizations: Written

    acknowledgement''); and paragraph (a) of regulation 22.9

    (``Denomination of Cleared Swaps Customer Collateral and location of

    depositories''), the Commission is replacing references to funds

    belonging to ``Customers'' with references to ``futures customer

    funds.''

    In addition, since, as described above, regulation 1.25

    (``Investment of customer funds'') applies to both futures customer

    funds and Cleared Swaps Customer Collateral, the Commission is making a

    technical correction to paragraph (e)(1) of regulation 22.2 and

    paragraph (d) of regulation 22.3 by omitting, ``which section shall

    apply to such money, securities, or other property as if they comprised

    customer funds or customer money subject to segregation pursuant to

    section 4d(a) of the Act and the regulations thereunder.''

    Similarly, the Commission is making a technical correction to

    regulation 22.9 (``Denomination of Cleared Swaps Customer Collateral

    and location of depositories'') by omitting a reference to Cleared

    Swaps Customer Collateral. Regulation 22.9 cross-references regulation

    1.49 (``Denomination of customer funds and location of depositories'').

    Because the new revised definition of ``customer funds'' in regulation

    1.3 references both futures customer funds and Cleared Swaps Customer

    Collateral, regulation 1.49 references to both classes of funds.

    Therefore, regulation 22.9 can reference regulation 1.49 without making

    a specific reference to Cleared Swaps Customer Collateral, which the

    Commission has always intended.

    Moreover, as a result of the corrections to the definition

    described above, the Commission is making (1) a technical correction to

    regulation 22.10 (``Application of other regulatory provisions'') to

    avoid confusion as to the applicability of regulations 1.27, 1.28,

    1.29, and 1.30 to Cleared Swaps, Cleared Swaps Customers, and Cleared

    Swaps Customer Collateral, and (2) technical corrections to regulations

    22.13(a)(2) and 22.15 to incorporate the new ``Futures Customer'' and

    ``Foreign Futures or Foreign Options Customer'' terms.

    The Commission is also making technical corrections to regulation

    22.11, regulation 22.13(a)(1), the title of regulation 22.14,

    regulation 22.14(a)(2), regulation 22.14(c)(2), regulation 22.15, and

    the title of regulation of 22.16 by replacing references to

    ``Customer'' with

    [[Page 66304]]

    the correct term ``Cleared Swaps Customer.'' Since its publication,

    regulation 22.11 has always intended to reference only Cleared Swaps

    Customers.

    In addition, the Commission is making technical corrections to

    regulation 22.12 (``Information to be maintained regarding Cleared

    Swaps Customer Collateral'') by replacing the term ``Cleared Swaps

    Customer Funds,'' with the correct term, ``Cleared Swaps Customer

    Collateral.''

    The Commission notes that its regulations refer to ``customer

    funds'' in the following regulations: 3.10, 3.21, 5.5, 39.15, 39.16,

    and 170.5, as well as in Appendices to part 190. ``Customer funds''

    also appears in the following regulations recently amended by the

    Commission's final rulemaking concerning Core Principles and Other

    Requirements for Designated Contract Markets: \92\ 1.52, 38.603,

    38.604, and Appendix B to part 38. The Commission believes that these

    provisions properly refer to ``customer funds'' as revised regulation

    1.3(gg) now defines that term, i.e., to connote both ``futures customer

    funds'' and ``Cleared Swaps Customer Collateral.''

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    \92\ 77 FR 3661 (June 19, 2012) (Effective date: August 20,

    2012).

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

    B. Part 7

    The Commission proposed to rename part 7 of the Commission's

    regulations ``Registered Entity Rules Altered or Supplemented by the

    Commission,'' thus reflecting the language in section 8a(7) of the Act,

    as amended by the Dodd-Frank Act, which provides the basis for part 7.

    The Commission also proposed to make a similar change in regulation

    7.1, replacing contract market rules with registered entity rules.

    Finally, the Commission proposed to remove and reserve subparts B

    (Chicago Mercantile Exchange Rules) and C (Board of Trade of the City

    of Chicago Rules) and their associated sections. The Commission

    received no comments regarding the proposed amendments to part 7 and is

    adopting these amendments as proposed.

    C. Part 8

    The Commission proposed to remove part 8 of its regulations.

    Regulation 38.2 enumerates the provisions with which DCMs are not

    required to comply. The part 8 regulations are among those

    provisions.\93\ In the DCM Core Principles final rules, the Commission

    adopted regulations in ``Subpart N--Disciplinary Procedures'' of part

    38 to amend the disciplinary procedure requirements applicable to

    DCMs.\94\ Several of the regulations adopted in subpart N of part 38

    are similar to the text of the disciplinary procedures found in part 8

    of the Commission's regulations.\95\ The Commission proposed to remove

    part 8 from its regulations to avoid any confusion that could result

    from those regulations containing two sets of exchange disciplinary

    procedures. The Commission received no comments regarding the proposed

    deletion of part 8 and is therefore deleting those regulations as

    proposed.

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

    \93\ 17 CFR 38.2.

    \94\ 77 FR at 36649. The DCM Core Principles final rules take

    effect on August 20, 2012. Section 735 of the Dodd-Frank Act

    eliminates all DCM designation criteria, including Designation

    Criterion 6 (Disciplinary Procedures). Section 735 of the Dodd-Frank

    Act creates a new Core Principle 13 (Disciplinary Procedures) that

    is devoted exclusively to exchange disciplinary proceedings, and

    captures disciplinary concepts inherent in both Designation

    Criterion 6 and in current DCM Core Principle 2.

    \95\ Paragraph (b)(4) of the acceptable practices for former

    Core Principle 2 referenced part 8 of the Commission's regulations

    as an example that DCMs could follow to comply with Core Principle

    2. 17 CFR pt. 38, app. B, Acceptable Practices for Core Principle 2

    at (b)(4). In its experience, the Commission has found that many

    DCMs' disciplinary programs do in fact model their disciplinary

    structures and processes on part 8.

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

    D. Parts 15, 18, 21, and 36

    The Commission also proposed to incorporate changes into parts 15,

    18, 21, and 36 of its regulations to account for (1) the DFA's

    elimination of two categories of exempt markets, exempt commercial

    markets (``ECMs'') and electronic boards of trade (``EBOTs''); and (2)

    the DFA's grandfather relief provisions for such entities.

    Section 723 of the DFA repealed CEA section 2(h), thus eliminating

    the ECM category. Section 734 of the DFA repealed CEA section 5d, thus

    eliminating the EBOT category. Section 734 also repealed CEA section

    5a, thus eliminating the DTEF category of regulated markets effective

    July 15, 2011, as discussed above.

    Both sections 723 and 734 of the Dodd-Frank Act contain grandfather

    provisions allowing ECMs and EBOTs to petition the Commission to

    continue to operate as ECMs and EBOTs. Pursuant to the grandfather

    provisions, in September 2010, the Commission issued orders regarding

    the treatment of such grandfather petitions (the ``Grandfather Relief

    Orders'').\96\ Under the Grandfather Relief Orders, the Commission may,

    subject to certain conditions, provide relief to ECMs and EBOTs for up

    to one year from the general effective date of the DFA's amendments to

    the CEA. On July 13, 2012, the Commission amended for the second time a

    Commission order dated July 14, 2011, by, among other things, allowing

    ECMs and EBOTs, as well as markets that rely on pre-DFA CEA section

    2(d)(2), to rely only on the amended order (``Second Amended July 14

    Order'') after July 16, 2012.\97\

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    \96\ 75 FR 56513 (Sept. 16, 2010).

    \97\ 77 FR 41260 (July 13, 2012).

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

    Pursuant to the DFA and the Grandfather Relief Orders, the

    Commission proposed to remove from parts 15, 18, 21 and 36 \98\

    references to CEA sections 2(h) and 5d and to replace those references,

    where appropriate, with references to the Grandfather Relief Orders as

    the authority under which ECMs and EBOTs can continue to operate. The

    Commission also proposed to remove from parts 15, 18, 21, and 36 of its

    regulations references to CEA sections 2(d), 2(g), and 5a, as well as

    references to DTEFs. The Commission received no comments regarding the

    amendments to parts 15, 18, 21, and 36. The Commission is revising

    regulation 36.1 in order to account for the expiration of the

    Grandfather Relief Orders on July 16, 2012, as well as reliance by ECMs

    and EBOTs on the Second Amended July 14 Order. Otherwise, the

    Commission is adopting the amendments to parts 15, 18, 21, and 36 as

    proposed.

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

    \98\ Part 36 provisions apply to ECMs and EBOTs. The Commission

    is not deleting part 36 in its entirety because part 36 provisions

    will continue to apply to ECMs and EBOTs that continue to operate

    under the Grandfather Relief Orders.

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

    E. Parts 41, 140, and 145

    The Commission also proposed to incorporate changes into its

    regulations to account for other new categories of registered entities

    and to include new products now subject to Commission jurisdiction.

    Section 733 of the Dodd-Frank Act added new section 5h to the CEA and

    created SEFs. Section 728 of the Dodd-Frank Act added new section 21 to

    the CEA and created SDRs. SEFs will allow for the trading of swap

    transactions between ECPs, as that term is defined in CEA section

    1a(18).\99\ In addition to the amendments contained in proposed part

    37, the Commission proposed additional amendments throughout the

    regulations to include SEFs and SDRs where necessary. The Commission

    also proposed to delete from part 41 references to DTEFs as that term

    was deleted from CEA section 5b by the Dodd-Frank Act, effective July

    15, 2011.\100\ The Commission received

    [[Page 66305]]

    no comments to its deletion of the term DTEF from part 41 and is

    adopting this change as proposed. In addition, as part of today's final

    rulemaking, the Commission is making a technical change to part 41 so

    that references to the definition of ``narrow-based security index'' is

    cited as section 1a(35) of the Act instead of section 1a(25) of the

    Act.

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

    \99\ For a detailed discussion of the proposed rules as they

    directly relate to SEFs, see 76 FR 1214 (Jan. 7, 2011).

    \100\ Section 5b of the CEA provided for the registration of

    DTEFs. Although secondary references to DTEFs remain in the CEA,

    none of the those would enable an entity to commence operations as a

    DTEF. The proposed deletions are in regulations 41.2, 41.12, 41.13,

    41.21-41.25, 41.27, 41.43 and 41.49.

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

    The proposed changes throughout parts 140 (Organization, Functions

    and Procedures of the Commission) and 145 (Commission Records and

    Information) reflect the need to incorporate SEFs and SDRs into the

    Commission's regulations dealing with the rights and obligations of

    other registered entities. The Commission proposed amending regulation

    140.72 to provide the Commission with the authority to disclose

    confidential information to SEFs and SDRs. This provision allows the

    Commission, or specifically identified Commission personnel, to

    disclose information necessary to effectuate the purposes of the CEA,

    including such matters as transactions or market operations. The

    Commission proposed amending regulation 140.96 to authorize the

    Commission to publish in the Federal Register information pertaining to

    the applications for registration of DCMs, SEFs and SDRs, as well as

    new rules and rule amendments which present novel or complex issues

    that require additional time to analyze, an inadequate explanation by

    the submitting registered entity, or a potential inconsistency with the

    Act, or regulations under the Act. The Proposal included an amendment

    to regulation 140.99 to include SEFs and SDRs to the categories of

    registered entities that may petition the Commission for exemptive

    relief and no-action and interpretative letters.

    The Commission proposed amending regulation 140.735-2 by adding

    swap and retail forex transactions, as regulation 5.1(m) defines the

    latter term, to those agreements, contracts or transactions Commission

    staff may not trade. The Commission proposed amending regulation

    140.735-3 to add SEFs and SDRs to the list of entities from which

    Commission members and employees may not accept employment or

    compensation.

    The Commission received no comments about these proposed amendments

    to part 140 and is adopting them as proposed, except for two technical

    corrections to regulation 140.735-2. The Proposal added ``swap

    transaction'' to the text of paragraph (c) but inadvertently omitted

    updating a cross-reference to paragraph (b) that references ``swaps.''

    Today's final rulemaking updates that cross-reference accordingly.

    Similarly, the Proposal added ``swap transaction'' to one sentence of

    paragraph (c)'s footnote three but, inadvertently, did not add ``swap

    transaction'' to another sentence of that paragraph. Thus, today's

    rulemaking makes a technical correction by adding ``swap transaction''

    to that other sentence.

    The Commission proposed amending regulation 145.9 to expand the

    definition of ``submitter'' by adding SEFs and SDRs to the list of

    registered entities to which a person's confidential information has

    been submitted, and which, in turn, submit that information to the

    Commission. This amendment allows individuals who have submitted

    information to a SEF or SDR to request confidential treatment under

    regulation 145.9. The Commission received no comments about this

    proposed amendment and is adopting it as proposed.

    Appendix A to Part 145 discusses those portions of Commission

    records made available to the public. Section (b) discusses information

    made available in the public reading area of the Commission's Office of

    the Secretariat. The Proposal amended subsection (b)(13) by adding

    ``application form'' to the list of publicly available portions of

    applications for becoming a registered entity. One month following the

    publication of the Proposal, i.e. in July 2011, the Commission

    published final amendments to Regulation 40.8(a) (``Availability of

    public information'').\101\ Regulation 40.8(a) is consistent with

    proposed (b)(13) of Appendix A except for the fact that Regulation

    40.8(a) references a ``first page of the application cover sheet''

    instead of an ``application form.'' Thus, as part of today's final

    rulemaking, the Commission is making a technical correction by deleting

    the proposed language, ``application form,'' and replacing it with

    ``first page of the application cover sheet'' so that it is consistent

    with regulation 40.8(a.) \102\

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

    \101\ Provisions Common to Registered Entities, 76 FR 44776,

    44797 (July 27, 2011).

    \102\ In November 2011, the Commission published a final version

    of Regulation 39.3 (``Procedures for [DCO] registration''). To be

    consistent with Regulation 40.8(a), subsection (a)(5) of Regulation

    39.3 (``Public information'') references the ``first page of the

    Form DCO cover sheet.'' See Derivatives Clearing Organization

    General Provisions and Core Principles Regarding Rulemaking, 76 FR

    69334, 69431(Nov. 8, 2011). Form DCO is the application for

    registration to become a DCO. Thus, today's technical correction to

    subsection (b)(13) of Appendix A is consistent with both Regulation

    40.8(a) and Regulation 39.3(a)(5).

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

    F. Parts 155 and 166

    1. Regulation 155.2: Trading Standards for Floor Brokers

    The Commission is removing the references to regulation 1.41 within

    regulation 155.2 because the Commission removed and reserved regulation

    1.41 in 2001 \103\ pursuant to the CFMA. The Commission is also

    removing the related reference to former section 5a(a)(12)(A) of the

    Act. The Commission did not receive any comments on these changes in

    the Proposal and is finalizing them as proposed.

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

    \103\ 66 FR 42256.

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

    2. Regulation 155.3: Trading Standards for Futures Commission Merchants

    and Regulation 155.4: Trading Standards for Introducing Brokers

    The Commission is removing references to ``option customer'' in

    these two regulations pursuant to this final rulemaking's deletion of

    that term from regulation 1.3, described above. The Commission did not

    receive comments about this change following publication of the

    Proposal and is amending regulations 155.3 and 155.4 as proposed.

    3. Regulation 166.2: Authorization To Trade

    The Commission is revising this regulation by incorporating the

    revised definition of ``commodity interest'' (regulation 1.3(yy)),

    discussed above. The Commission believes that paragraph (a) of

    regulation 166.2 should refer to futures, options, or swaps and that

    paragraph (b) should refer only to futures or options. The Commission

    did not receive comments about these changes and is adopting them as

    proposed.

    4. Regulation 166.5: Dispute Settlement Procedures

    The Commission is revising this regulation by deleting a reference

    to ``option customer'' because, as described above, today's rulemaking

    deletes that term from regulation 1.3. The Commission is also making a

    conforming, technical change to regulation 166.5, described in section

    G.2., below.

    G. Other General Changes to CFTC Regulations

    1. Removal of References to DTEFs

    The Commission is removing references to DTEFs and regulations

    pertaining to DTEFs in parts 1, 5, 15, 36,

    [[Page 66306]]

    41, 140, and 155 because section 734 of the DFA abolished DTEFs,

    effective July 15, 2011.\104\

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

    \104\ This rulemaking is not deleting those DTEF references that

    other rulemakings have deleted or will delete from the Commission's

    regulations (e.g., some references in part 3 and all references in

    part 40).

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

    2. Other Conforming Changes

    The Commission is also making changes to various parts of its

    regulations to update cross-references to CEA provisions, now

    renumbered after the passage of the DFA. An example of one such change

    is amended regulation 166.5, in which the Commission has updated the

    reference to the statutory definition of the term ``eligible contract

    participant,'' to reflect the Dodd-Frank Act's renumbering of CEA

    section 1a. Additionally, where typographical errors or other minor

    inconsistencies were discovered while reviewing CFTC regulations, this

    rulemaking includes instructions and amended regulations to correct

    them.

    III. Administrative Compliance

    A. Paperwork Reduction Act

    Sections 1.31, 1.33, 1.35, 1.37, and 1.39 of the Commission's

    regulations are being amended to provide that records of swap

    transactions be kept in a similar manner to records of futures

    transactions. These amended provisions impose new information

    recordkeeping requirements that constitute the collection of

    information within the meaning of the Paperwork Reduction Act of 1995

    (``PRA'').\105\ Under the PRA, an agency may not conduct or sponsor,

    and a person is not required to respond to, a collection of information

    unless it has been approved by the Office of Management and Budget

    (``OMB'') and displays a currently valid control number.\106\ This

    rulemaking contains new collections of information for which the

    Commission must seek a valid control number. The Commission therefore

    has requested that OMB assign a control number for this collection of

    information. The Commission has also submitted the proposed rulemaking,

    this final rule release, and supporting documentation to OMB for review

    in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for

    these new collections of information is ``Adaptation of Regulations to

    Incorporate Swaps,'' OMB Control Number 3038-0090. Responses to these

    information collections will be mandatory.

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

    \105\ 44 U.S.C. 3501 et seq.

    \106\ Id.

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

    With respect to all of the Commission's collections, the Commission

    will protect proprietary information according to the Freedom of

    Information Act and 17 CFR part 145, ``Commission Records and

    Information.'' In addition, section 8(a)(1) of the 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 To Be Provided by Reporting Entities/Persons

    a. Amendments to Regulation 1.31 (Books and Records; Keeping and

    Inspection)

    Regulation 1.31 describes the manner in which ``all books and

    records required to be kept by the Act'' must be maintained. Most of

    the requirements of regulation 1.31 are applicable to FCMs, IBs, RFEDs,

    CTAs, CPOs, and members of DCMs and SEFs in conjunction with other part

    1 regulations, and the PRA burdens either have been or will be covered

    by the OMB control numbers associated with the other part 1

    regulations. Examples of these other part 1 regulations are regulation

    1.33, which requires certain registrants to produce monthly

    confirmation statements, and regulation 1.35, which requires the

    maintenance of records of cash commodity, futures, and option

    transactions (as finalized, Records of commodity interest and cash

    commodity transactions). Regulation 1.31 is applicable to SDs and MSPs

    by way of the part 23 regulations.\107\

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

    \107\ Swap Dealer and Major Swap Participant Recordkeeping,

    Reporting, and Duties Rules, 77 FR 20128 (Apr. 3, 2012).

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

    i. Obligation To Develop and Maintain Recordkeeping Policies and

    Controls

    Regulation 1.31 additionally contains discrete stand-alone

    collections for which a control number must be sought. Subsection

    (b)(3)(ii) requires persons keeping records using electronic storage

    media to ``develop and maintain written operational procedures and

    controls (an `audit system') designed to provide accountability over

    [the entry of records into the electronic storage media].'' This

    provision is already applicable to FCMs, RFEDs, IBs, CTAs, CPOs, and

    members of DCMs, and would be applicable to SDs and MSPs pursuant to

    the part 23 regulations. As members of SEFs will be newly subject to

    the part 1 regulations, the Commission must estimate the burden of

    subsection (b)(3)(ii) on these entities and seek OMB approval for this

    new application of the subsection.

    The Commission anticipates that members of SEFs may incur certain

    one-time start-up costs in connection with establishing the audit

    system. This will include drafting and adopting procedures and controls

    and may include updates to existing recordkeeping systems. The

    Commission estimates the burden hours associated with these one-time

    start-up costs to be 100 hours per SEF member.

    As there are not any SEFs operating at the present, in light of the

    fact that the Commission has not yet finalized regulations concerning

    SEF Core Principles, it is not possible for the Commission to estimate

    with precision how many SEF members there will be or how many of those

    SEF members will be FCMs, SDs, or MSPs that are being covered by

    already pending existing information collections. Nonetheless, the

    Commission has estimated that 35 SEFs will register with it after the

    Dodd-Frank Act becomes effective, and now is estimating that there may

    be on average 100 members of a SEF that will not fall under one of the

    other collections. Accordingly, the aggregate new burden of subsection

    (b)(3)(ii) is estimated to be 100 one-time burden hours to

    approximately 3,500 SEF members.

    The Commission expects that compliance and operations managers will

    be employed in the establishment of the written procedures and controls

    under subsection (b)(3)(ii). According to recent Bureau of Labor

    Statistics, the mean hourly wage of an employee under occupation code

    11-3031, ``Financial Managers,'' that is employed by the ``Securities

    and Commodity Contracts Intermediation and Brokerage'' industry is

    $80.90.\108\ Because members of SEFs may be large entities that may

    engage employees with wages above the mean, the Commission has

    conservatively chosen to use a mean hourly wage of $100 per hour.

    Accordingly, the burden associated with developing written procedures

    and controls will total approximately $10,000 for each applicable

    member of a SEF on a one-time basis.

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

    \108\ Occupational Employment Statistics, Occupation Employment

    and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).

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

    ii. Representation to the Commission Prior to Initial Use of System

    Members of SEFs will also have to comply with regulation 1.31(c),

    which requires persons employing an

    [[Page 66307]]

    electronic storage system to provide a representation to the Commission

    prior to the initial use of the system.\109\ The Commission estimates

    the burden of drafting this representation in accordance with

    regulation 1.31(c) and submitting it to the Commission to be one hour.

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

    \109\ As with subsection (b)(3)(ii), regulation 1.31(c) is

    already applicable or will be made applicable by other actions to

    FCMs, IBs, DCM members, as well as SDs or MSPs pursuant to the part

    23 regulations.

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

    According to recent Bureau of Labor Statistics, the mean hourly

    wage of an employee under occupation code 11-3031, ``Financial

    Managers,'' (which includes operations managers) that is employed by

    the ``Securities and Commodity Contracts Intermediation and Brokerage''

    industry is $80.90.\110\ Because members of SEFs may be large entities

    that may engage employees with wages above the mean, the Commission has

    conservatively chosen to use a mean hourly wage of $100 per hour.

    Accordingly, the burden associated with drafting and submitting the

    representation prior to using an electronic storage system will be $100

    ($100 x 1 hour) per affected member of a SEF.

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

    \110\ Occupational Employment Statistics, Occupation Employment

    and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).

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

    iii. Comments Received

    The Commission did not receive any comments concerning the cost for

    SEF members to comply with the recordkeeping requirements contained in

    regulation 1.31.

    b. Amendments to Regulation 1.33 (Monthly and Confirmation Statements)

    The Commission is amending regulation 1.33 by requiring FCMs to

    include in their monthly and confirmation statements sent to customers

    certain specified information related to a customer's Cleared Swap

    positions. The information required to be summarized in respect of swap

    transactions will be analogous to information currently required to be

    kept in respect of futures and commodity option transactions. The

    Commission estimates the burden of complying with regulation 1.33 in

    respect of swap transactions to be 1 hour for each Cleared Swap

    confirmation and 1 hour for each monthly statement.

    According to recent Bureau of Labor Statistics, the mean hourly

    wage of an employee under occupation code 11-3031, ``Financial

    Managers,'' (which includes operations managers) that is employed by

    the ``Securities and Commodity Contracts Intermediation and Brokerage''

    industry is $80.90.\111\ Accordingly the burden associated with

    complying with regulation 1.33 in respect of each Cleared Swap

    confirmation will be $80.90 ($80.90 x 1 hour), and the burden will be

    $80.90 ($80.90 x 1 hour) for each monthly statement regarding Cleared

    Swaps.

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

    \111\ Occupational Employment Statistics, Occupation Employment

    and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).

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

    i. Comments Received

    The Commission did not receive any comments concerning the cost for

    FCMs to comply with the recordkeeping requirements contained in

    regulation 1.33 with respect to their swap transactions.

    c. Amendments to Regulation 1.35 (Records of Commodity Interest and

    Cash Commodity Transactions)

    i. Obligation To Develop and Maintain Recordkeeping Policies and

    Controls

    The amendments will require members of SEFs to comply with the

    regulation 1.35 recordkeeping requirements that are currently followed

    by FCMs, IBs, RFEDs, and members of DCMs. The Commission anticipates

    that members of SEFs will spend approximately eight hours per trading

    day (or 2,016 hours per year based on 252 trading days) compiling and

    maintaining transaction records.

    According to recent Bureau of Labor Statistics, the mean hourly

    wage of an employee under occupation code 11-3031, ``Financial

    Managers,'' (which includes operations managers) that is employed by

    the ``Securities and Commodity Contracts Intermediation and Brokerage''

    industry is $80.90.\112\ Because members of SEFs may be large entities

    that may engage employees with wages above the mean, the Commission has

    conservatively chosen to use a mean hourly wage of $100 per hour. Thus,

    each SEF member will have a burden of $201,600 per year (2,016 hours x

    $100/hour).

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

    \112\ Occupational Employment Statistics, Occupation Employment

    and Wages: 11-3031 Financial Managers, http://www.bls.gov/oes/current/oes113031.htm (May 2011).

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

    The amendments to regulation 1.35 will also require FCMs, RFEDs,

    IBs, and members of DCMs to comply with the regulation 1.35

    recordkeeping requirements for any swap transactions into which they

    enter. Because the proposed recordkeeping requirements for swaps would

    be equivalent to the recordkeeping requirements they must currently

    follow in respect of futures and commodity option transactions, the

    additional burden for any swap transaction would be the same for any

    additional futures and commodity option transaction for which they keep

    records pursuant to regulation 1.35 in its current form. The Commission

    estimates that the recordkeeping burden associated with each swap

    transaction would be 0.5 hours, for a total burden of $50 per

    transaction.

    ii. Comments Received

    The Commission did not receive any comments concerning the excepted

    cost of complying with the aforementioned revisions to regulation 1.35.

    d. Amendments to Regulation 1.37 (Customer's Name, Address, and

    Occupation Recorded; Record of Guarantor or Controller of Account)

    i. Obligation To Develop and Maintain Recordkeeping Policies and

    Controls

    The Commission is amending regulation 1.37(a) by requiring each

    FCM, IB, and member of a DCM to keep the same kind of record (showing

    the customer's name, address, occupation or business, and name of any

    other person guaranteeing the account or exercising any trading control

    over it) for any swap transactions it ``carries or introduces'' for

    another person. The Commission estimates that it will take each of

    these entities an average of 0.4 hours to gather the information and

    file it or key it into the entity's customer recordkeeping programs.

    The Commission also is amending regulation 1.37(b) by requiring

    each FCM carrying an omnibus account for another FCM, a foreign broker,

    a member of a DCM or any other person to maintain a daily record for

    such account of the total open long contracts and the total open short

    contracts in each swap. FCMs presently have an equivalent obligation

    with respect to futures and commodity option transactions. These daily

    records typically are maintained in electronic form. Therefore, once a

    position is entered into the entity's systems, the daily record will be

    automatically available. The Commission estimates that entering the

    position into the system, commencing with the placement of an order and

    ending with execution will take each of these entities an average of

    0.4 hours.

    The Commission additionally is amending regulation 1.37(c) by

    requiring SEFs to comply with a provision that DCMs must currently

    follow: Keep a record showing the true name, address, and principal

    occupation or business of any foreign trader executing transactions on

    the

    [[Page 66308]]

    facility or exchange. According to regulation 1.37(d), this provision

    does not apply in respect of futures/options/swaps that foreign traders

    execute through FCMs or IBs.

    The Commission estimates that it would take a SEF a total of 0.4

    hours to prepare each record in accordance with regulation 1.37(c).

    According to the Bureau of Labor Statistics, the mean hourly wage of an

    employee under occupation code 43-9021, ``Data Entry Keyer,'' is

    $13.95.\113\ Because SEFs may be large entities employing persons at

    wages higher than the average, the Commission conservatively estimates

    the mean hourly wage to be $19.03 per hour. Thus, the burden associated

    with preparing a record with regulation 1.37(c) would be $7.61 ($19.03/

    hour x 0.4 hours).

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

    \113\ Occupational Employment Statistics, National Industry-

    Specific Occupational Employment and Wage Estimates, NAICS 523100--

    Securities and Commodity Contracts Intermediation and Brokerage,

    http://www.bls.gov/oes/current/oes439021.htm (May 2011).

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

    ii. Comments Received

    The Commission did not receive any comments concerning the

    extension of regulation 1.37 to swap transactions executed by FCMs,

    IBs, and other DCM members.

    e. Amendments to Regulation 1.39 (Simultaneous Buying and Selling

    Orders of Different Principals; Execution of, for and Between

    Principals)

    i. Obligation To Develop and Maintain Recordkeeping Policies and

    Controls

    The Commission is amending regulation 1.39, which currently applies

    to DCMs, by enabling members of SEFs to execute simultaneous buying and

    selling orders of different principals pursuant to rules of the SEF if

    certain conditions are met. Among those conditions, a SEF would have to

    record these transactions in a manner that ``shows all transaction

    details required to be captured by the Act, Commission rule, or

    regulation.'' The Commission anticipates that the data to be captured

    would already exist in the SEF's trading system. The Commission

    estimates that it will take the SEF an average of 0.1 hours to capture

    this data, and storage costs of less than $1 per record.

    According to the recent Bureau of Labor Statistics, the mean hourly

    wage of computer programmers under occupation code 15-1131 and computer

    software developers under program codes 15-1132 are between $36.54 and

    $44.27.\114\ Because SEFs may be large entities that may engage

    employees with wages above the mean, the Commission has conservatively

    chosen to use a mean hourly programming wage of $50 per hour for each

    of the categories of persons who will have to establish the system for

    maintaining oral records. Accordingly, the start-up burden associated

    with the data capture requirements would be an average of $5.

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

    \114\ Occupational Employment Statistics, Occupational

    Employment and Wages: 15-1131, Computer Programmers, http://www.bls.gov/oes/current/oes151131.htm (May 2011); Occupational

    Employment Statistics, Occupational Employment and Wages: 15-1132,

    Computer Software Developers, http://www.bls.gov/oes/current/oes151132.htm (May 2011).

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

    ii. Comments Received

    The Commission did not receive any comments concerning the

    extension of regulation 1.39 to transactions executed on a SEF.

    B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that agencies

    consider whether the rules they propose will have a significant

    economic impact on a substantial number of small entities and, if so,

    provide a regulatory flexibility analysis respecting the impact.\115\

    The rules adopted by the Commission are for the most part technical

    amendments to conform the affected parts to provisions of the Dodd-

    Frank Act and, as such, are non-substantive and will not have a

    significant economic impact on a substantial number of any types of

    entities, whether or not they are small entities. In order to conform

    the Commission's existing records regulations to its new recordkeeping

    requirements for SDs and MSPs (Regulation 23.202 (``Daily Trading

    Records'')),\116\ the Commission also is amending its regulation 1.35

    records requirements (as finalized, Records of commodity interest and

    cash commodity transactions) to require FCMs, IBs, RFEDs, and members

    of DCMs to observe recordkeeping requirements for swaps that they

    currently observe with respect to their futures and commodity option

    transactions.

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

    \115\ 5 U.S.C. 601 et seq.

    \116\ See Swap Dealer and Major Swap Participant Recordkeeping,

    Reporting, and Duties Rules; Futures Commission Merchant and

    Introducing Broker Conflicts of Interest Rules; and Chief Compliance

    Officer Rules for Swap Dealers, Major Swap Participants, and Futures

    Commission Merchants, 77 FR 20128 (Apr. 3, 2012) (adopting for SDs

    and MSPs reporting and recordkeeping standards now found in 17 CFR

    23.201-23.203).

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

    Additionally, the Commission is applying certain of those books and

    records regulations to members of SEFs, mirroring obligations that

    apply to members of DCMs.

    Accordingly, the Commission is hereby determining that most of the

    entities affected by this rulemaking will not be significantly

    economically impacted by the conforming and technical rules being

    adopted. As discussed below, the Commission is also determining that

    most of the entities that will be subject to compliance with this

    rulemaking are not small entities for the purposes of the RFA.

    Therefore, pursuant to 5 U.S.C. 605(b), the Chairman, on behalf of the

    Commission, certifies by category of market participant below that the

    final rules will not have a significant economic effect on a

    substantial number of small entities.

    1. FCMs, RFEDs, DCMs, ECPs, SEFs and Large Traders

    The Commission has previously determined that registered FCMs,

    RFEDs, DCMs, ECPs, SEFs and large traders are not small entities for

    purposes of the RFA.\117\ The Commission has been informed, in the

    context of other rulemakings, that there are some entities that are

    both ECPs as defined in the CEA and also are small entities as defined

    by the Small Business Administration (``SBA''). In particular, the SBA

    has defined as small entities those entities that are engaged in the

    generation, transmission, and/or distribution of electric energy for

    sale and whose total electric output for the preceding year did not

    exceed four million megawatt hours. As noted previously, however, this

    rulemaking involves primarily technical conforming amendments that

    alone do not impose significant economic impacts on any group of

    entities, and that overlap with substantive rulemakings in which the

    Commission has assessed or will assess the economic impact on small

    entities to the extent required under the RFA. Accordingly, the

    Chairman, on behalf of the Commission, hereby certifies pursuant to 5

    U.S.C. 605(b) that the final rules will not have a significant economic

    impact on a substantial number of small entities with respect to these

    entities.

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

    \117\ See Policy Statement and Establishment of Definitions of

    ``Small Entities'' for Purposes of the Regulatory Flexibility Act,

    47 FR 18618, 18619, Apr. 30, 1982 (DCMs, FCMs, and large traders)

    (``RFA Small Entities Definitions''); Opting Out of Segregation, 66

    FR 20740, 20743, Apr. 25, 2001 (ECPs); Regulation of Off-Exchange

    Retail Foreign Exchange Transactions and Intermediaries, 75 FR

    55410, 55416, Sept. 19, 2010 (RFEDs) (``Retail Forex Final Rules'');

    and Position Limits for Futures and Swaps; Final Rule and Interim

    Final Rule, 76 FR 71626, 71680, Nov. 18, 2011 (SEFs).

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

    [[Page 66309]]

    2. IBs

    As discussed above, most of the provisions of this rulemaking are

    technical and conforming in nature, and overlap with substantive

    rulemakings in which the Commission has conducted RFA analyses to the

    extent such are required.

    The Commission provided an initial regulatory flexibility analysis

    for IBs in the its proposing release, as required by 5 U.S.C. 603,

    because the oral recordkeeping requirement under regulation 1.35(a), as

    proposed, may have had a significant economic impact on a significant

    number of small IBs.\118\ As discussed above, the Commission has

    decided not to adopt the proposed oral communications recordkeeping

    requirement under regulation 1.35(a) as part of today's final rule.

    Instead, the Commission intends to adopt that requirement in a future

    final rulemaking.

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

    \118\ See 76 FR 33066, 33079-80, June 7, 2011.

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

    C. Consideration of Costs and Benefits

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

    costs and benefits of its actions before promulgating a regulation

    under the CEA or issuing certain orders. Section 15(a) further

    specifies that the costs and benefits shall be evaluated in light of

    the following five broad areas of market and public concern: (1)

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

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

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

    interest considerations. The Commission considers the costs and

    benefits resulting from its discretionary determinations with respect

    to the section 15(a) factors.

    In July 2010, Congress passed the Dodd-Frank Act which, among other

    things, establishes a comprehensive regime for the regulation of swaps.

    The Dodd-Frank Act brings swaps under the Commission's jurisdiction and

    obligates the Commission to adopt new regulations related to

    registration and regulation of SDs and MSPs, trade execution and

    clearing requirements, and swap data recordkeeping and real time

    reporting. In section 721 of the Dodd-Frank Act, Congress added CEA

    section 1a(47) to add a definition of the term ``swap.''

    In response to Congress's act of placing swaps under the

    Commission's authority, the Commission is exercising its discretion to

    amend its regulations to ensure that SDs, MSPs, SEFs, and swaps are

    subject to the Commission's comprehensive regulatory regime, and in

    June 2011, proposed to amend parts 1, 5, 7, 8, 15, 18, 21, 36, 41, 140,

    145, 155, and 166 to update its regulations accordingly.\119\

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

    \119\ 76 FR 33066.

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

    As described in the Background, above (section I. of this

    preamble), some of the amendments contained in this release are

    technical in nature; for example, they amend various definitions in

    regulation 1.3 to track the DFA's amendments to the CEA's definitions

    of the same term, such as futures commission merchants. Another example

    of a technical change is the deletion of references to derivatives

    transaction execution facilities, a category of exchange that the DFA

    eliminated. Other revisions contained in this rulemaking amend

    recordkeeping and reporting requirements, which presently apply to

    futures, so that they cover swap transactions as well. An example of

    this type of change is the revision to parts 15, 18, 21, and 36 to

    implement DFA's grandfathering and phase-out of exempt boards of trade

    and exempt commercial markets. Certain amendments in this release are

    designed to harmonize recordkeeping requirements for various registered

    entities transacting in swaps. For example, the amendments to

    Sec. Sec. 1.31 harmonize part 1 recordkeeping requirements with those

    applicable to SDs and MSPs under part 23 regulations. Lastly, this

    rulemaking amends procedures pertaining to the post-execution

    allocation of bunched orders so that they can be used in respect of

    swap transactions similarly to how they are currently used for futures

    transactions.

    The benefits and costs that the Commission considers below are

    those attributable to its amendments of the rules discussed compared to

    a scenario in which these rules were not amended.

    Section 1.31 Books and Records; Keeping and Information

    Summary Description

    Prior to the amendments made in this final rule, Sec. 1.31

    specified the conditions under which records required by the Act of any

    applicable entity shall be maintained. The section stated that these

    records shall be kept for a period of five years from the transaction

    date, must be ``readily accessible'' for the first two years, and

    stipulated a number of further conditions pertaining to the auditing of

    record storage systems, storing duplicate copies of records, and other

    items. As described above in II.A.3, the amendments in this final rule

    specify that: (1) Required books and records must be kept in their

    original form (for paper records) or in their native file formats (for

    electronic records); (2) when books and records are requested by the

    Commission, they must be produced in a form and on any media specified

    by the Commission; (3) required records of any swap or related cash or

    forward transaction must be kept until the ``termination, maturity,

    expiration, transfer, assignment, or novation date of the transaction''

    and then for an additional five-year period; and (4) records of oral

    communications required to be maintained pursuant to regulation

    23.202(a)(1) and (b)(1) must be kept until the ``termination, maturity,

    expiration, transfer, assignment, or novation date of the transaction''

    and then for an additional one-year period.

    Benefits

    The public and the financial integrity of the markets benefit from

    this amendment because it promotes retention of metadata (i.e., data

    about data). This amendment enhances the Commission's forensic

    capabilities, including the ability to trace communications and

    transactions. Moreover, requiring entities to retain data in its native

    file format reduces the likelihood that data could be manipulated or

    corrupted, either intentionally or unintentionally, which makes it more

    reliable.

    In addition, if entities are not required to store data in its

    native file format, some entities may choose to store some of their

    data on paper records or in electronic image formats (such as PDF)

    which cannot be easily converted into a form that allows it to be read

    by programs that the Commission sometimes uses for purposes of

    investigation and analysis. For example, market participants have

    sometimes submitted large amounts of financial data to the Commission

    on printed pages arguing that OCR technology makes such pages ``machine

    readable'' and therefore is compliant with the existing requirements

    under Sec. 1.31(b)(3)(i). While OCR technology is useful in converting

    printed text into an electronic form, it has not been similarly helpful

    in converting financial data provided to the Commission. When market

    participants have submitted large data sets to the Commission on

    printed pages, it has been problematic, forcing the Commission to

    either enter extraordinary amounts of data into its systems manually,

    an expensive process that introduces the possibility of data entry

    errors, or to abandon the use of programs that are often helpful in the

    [[Page 66310]]

    course of investigation, which severely limits the usefulness of that

    data for investigation purposes.

    Requiring all entities subject to regulation 1.31 to retain data in

    its native file format mitigates the potential that market participants

    could discard records in an effort to thwart Commission investigations,

    or that they could do so unintentionally but with similar effect and

    increases the likelihood that the data will exist in a form that can be

    converted to meet the Commission's needs. The requirement that entities

    present that data to the Commission in a format and on a medium

    requested by the Commission will help to ensure that the Commission is

    able to obtain data from market participants in a form that it can use

    effectively for detecting and prosecuting prohibited market activities.

    And by improving the efficiency and effectiveness of the Commission's

    enforcement efforts, these requirements help deter fraud and

    manipulation, and promote the integrity of the markets subject to the

    jurisdiction of the Commission.

    By providing that required written records pertaining to swaps and

    related cash or forward transactions must be retained for the life of

    the swap plus five years, the Commission will have the ability to

    create a sufficient audit trail from which to ascertain and, if

    necessary recreate, the facts and circumstances giving rise to the

    transaction, even if the need to do so arises several months or even a

    few years after the relevant transactions occurred.

    Costs

    The amended requirement to store electronic records in their native

    format will likely create additional data storage costs for market

    participants. The incremental cost of storage depends on whether or not

    the entity in question was previously storing data in its native format

    and the number and size of records that must be stored in their native

    format. The Commission requested but received no data from commenters

    quantifying such costs. In order to quantify these costs the Commission

    would need data sufficient to estimate the number of entities that do

    not store data in its native file format, and the amount of additional

    data that they would, on average, have to retain in order to store it

    in its native file format. The Commission does not have that

    information.

    In addition, market participants will have additional storage costs

    because the rule provides that required swap and related cash and

    forward transaction data must be retained for the life of the swap plus

    five years. These costs will depend on the number and tenor of swaps

    and related cash and forward transactions that an entity enters into.

    These factors are likely to vary widely among market participants. The

    Commission does not have adequate information to estimate how many

    firms are currently storing data in its native format, the number of

    swap transactions that will be affected by the timelines implemented

    here, or to estimate their tenor and the storage space required to

    store related data. Therefore it is not possible to estimate the

    additional storage space or cost of additional storage.

    The requirement that entities submit information to the Commission

    in a format and on a medium determined by the Commission will create

    some costs for market participants. Entities that keep data in

    proprietary systems or in formats that are not read by programs that

    the Commission uses to aid in its investigations would need to adapt

    their systems in order to develop this capability. And when requested

    to do so by the Commission, such entities would have to convert their

    data into the format requested by the Commission, which creates some

    incremental costs as well. The Commission cannot estimate these

    additional costs because it does not have adequate information to

    estimate the number of entities that would need to adapt their systems

    in order to allow for data conversion that meets the Commission's

    needs. Moreover, it does not have information regarding the number of

    inquiries that will require data conversion, or the amount of time that

    entities would need to spend converting data when necessary. The latter

    is likely to vary widely, depending on the data formats currently used

    by market participants and the presence or absence of standard data

    conversion software that might assist with such needs.

    The rules provides that required swap and related cash and forward

    transaction data must be retained for the life of the swap plus five

    years also creates some data migration costs. Entities engaging in

    long-dated swaps will likely upgrade their recordkeeping systems during

    the period of time that they are required to keep data related to those

    swaps and related cash or forward transactions. Such entities will have

    to implement backward-compatible systems, or will have to reformat

    older data so that it can be retained and retrieved using newer

    systems. Either of these approaches will create some cost, however, it

    is not possible to determine which approach entities are likely to take

    or the cost that would likely result in either case. Therefore, the

    Commission is not able to estimate the cost at this time.

    Some commenters noted costs that would result from not being

    allowed to convert paper records to electronic media for storage.\120\

    In response, the Commission notes that regulation 1.31(b) still

    provides that paper records stored on micrographic media or electronic

    storage media (e.g. scanned copies) is sufficient to fulfill the

    requirements of regulation 1.31(a)(1), and therefore the cost that

    these commenters noted will not occur. Similarly, the Minneapolis Grain

    Exchange expressed a concern that amendments to regulations 1.31 and

    1.35, taken together, could ``require an electronic and paper copy of

    the same information,'' leading to unnecessary costs on the part of

    firms. As stated above, the Commission is not requiring that entities

    retain both paper and electronic copies of the same information.

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

    \120\ See e.g., FIA and NFA.

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

    The amendments to the requirements for keeping and inspection of

    records, mandated in this section, create certain costs. It is likely

    that some SEF members will not have not been subject to regulation 1.31

    previously and therefore will need to design written procedures and

    controls for maintaining their recordkeeping system.\121\ For entities

    that need to develop such procedures and controls for the first time,

    the Commission estimates a one-time cost of approximately $13,000 to

    $28,000.\122\

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

    \121\ Sec. 1.31(b)(3)(ii).

    \122\ Calculations in the PRA section rely calculations rely on

    wage estimates from the Bureau of Labor Statistics. However, for the

    purposes of the Cost Benefit Considerations section, we have used

    wage estimates that are taken from the SIFMA ``Report on Management

    and Professional Earnings in the Securities Industry 2011'' because

    industry participants are likely to be more familiar with them.

    Hourly costs are calculated assuming 2,000 hours per year and a

    multiplier of 5.35 to account for overhead and bonuses. All totals

    calculated on the basis of cost estimates are rounded to two

    significant digits.

    This estimate assumes 20-40 hours of a compliance attorney's

    time, 20-40 hours of an intermediate compliance specialist's time,

    5-15 hours of a senior database administrator's time, and 5-15 hours

    of an office manager's time in order to design and implement the

    written procedures and controls. The average cost for a compliance

    attorney is $351.24/hour [($131,303 per year)/(2000 hours per year)

    * 5.35 = $351.24 per hour]. The average cost for an intermediate

    compliance specialist is $351.24/hour [($58,303 per year)/(2000

    hours per year) * 5.35 = $351.24 per hour]. The average cost for a

    senior database administrator's time is $280.22/hour [($104,755 per

    year)/(2000 hours per year) * 5.35 = $280.22 per hour]. The average

    cost for an office manager's time is $229.72/hour [($85,875 per

    year)/(2000 hours per year) * 5.35 = $229.72 per hour].

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

    [[Page 66311]]

    In addition, the members of SEFs that have not previously been

    subject to regulation 1.31 will have to provide a representation to the

    Commission prior to their initial use of the system.\123\ The

    Commission estimates that such entities will spend approximately 0.5

    hours providing the submission, and therefore the estimated cost for

    the submission is $78.\124\

    Consideration of Alternatives

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

    \123\ See Sec. 1.31(c).

    \124\ The average wage for an intermediate compliance specialist

    is $155.96 [($58,303 per year)/(2,000 hours per year) * 5.35 =

    $155.96]

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

    One commenter suggested that the Commission require records to be

    kept indefinitely.\125\ In the Proposal, the Commission did not propose

    to alter the requirements regarding the length of time during which

    written records must be retained by relevant entities for any of the

    transactions that were previously covered by the requirement, and

    continues to believe that the existing requirements ensure access to

    relevant records for a reasonable period of time while also limiting

    costs to market participants. However, the amendments to regulation

    1.31 added swaps and related cash and forward transactions to the types

    of transactions that are covered, and as described above, established a

    longer recordkeeping requirement for required books and records

    regarding those transactions. The Commission believes that the long

    product life of some swaps necessitates longer recordkeeping

    requirements for related documents and data. However, the Commission

    anticipates that data related to such transactions will not be needed

    for enforcement purposes more than five years beyond the time when the

    swap has been terminated, novated, etc. Therefore, providing that

    market participants must retain required data more than five years

    beyond that date would, in the Commission's view, impose unnecessary

    cost upon market participants without significant added benefit.

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

    \125\ Mr. Chris Barnard.

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

    The Proposal would have required oral records to be retained by SDs

    and MSPs until the swap has been terminated, novated, etc., and for

    five years thereafter, whereas the final rule requires these entities

    to retain such records until the swap has been terminated, novated,

    etc., and for a period of one year thereafter. This may create some

    cost by limiting the Commission's ability to obtain from SDs and MSPs

    recordings related to events that occurred more than one year ago,

    which could reduce the Commission's effectiveness in identifying and

    prosecuting certain violations. However, the Commission anticipates

    that in most cases, the one year requirementafter the life of the swap,

    will be sufficient, and notes that the reduced retention requirement

    reduces storage costs to market participants.

    Section 1.35 Records of Commodity Interest and Cash Commodity

    Transactions Introduction

    Prior to this amendment, Sec. 1.35 specified which parties are

    required to keep records related to commodity futures, commodity

    options, and cash commodities. The requirements of Sec. 1.35 applied

    to FCMs, RFEDs, IBs, and members of contract markets. The amendments to

    regulation 1.35 extend these recordkeeping requirements to swap

    transactions and to members of SEFs.

    As described above in II.A.5, the amended rule also applies the

    bunched order procedures for futures transactions to swaps, and adds

    FCMs and IBs to the list of eligible account managers for orders

    executed on a DCM or SEF, and also adds CTAs, FCMs, and IBs as eligible

    account managers for orders executed bilaterally.

    Benefits

    As it explained when adopting similar transactional level

    recordkeeping requirements for SDs and MSPs, the Commission believes

    these recordkeeping requirements for swap transactions will contribute

    to important, though unquantifiable, benefits.\126\ More specifically,

    complete, rigorous transactional recordkeeping is a necessary element

    to promote market integrity, as well as customer protection, by

    providing an audit trail of past swap transactions. For, a strong audit

    trail, among other things:

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

    \126\ See Swap Dealer and Major Swap Participant Recordkeeping,

    Reporting, and Duties Rules; Futures Commission Merchant and

    Introducing Broker Conflicts of Interest Rules; and Chief Compliance

    Officer Rules for Swap Dealers, Major Swap Participants, and Futures

    Commission Merchants, 77 FR 20128, 20172 (Apr. 3, 2012).

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

    Provides a basis for efficiently resolving transactional

    disputes.

    Facilitates a firm's ability to recognize and manage its

    risk, thereby enhancing the risk management of the market as a whole.

    Acts as a disincentive to engage in unduly risky,

    injurious, or illegal conduct in that the conduct will be traceable.

    And, in the event such conduct does occur, provides a

    mechanism for policing such conduct, both internally as part of a

    firm's compliance efforts and externally by regulators enforcing

    applicable laws and regulations.

    The rule also applies the procedures for handling bunched orders of

    futures, to swaps, which enables account managers to reduce transaction

    costs to customers by executing a single, large transaction on behalf

    of multiple customers at the same time, and then allocating the

    positions that were component parts of that transaction to specific

    customers after the transaction has been executed. In addition, bunched

    orders provide additional protection to customers against favoritism.

    In the absence of bunched orders, when an account manager has several

    customers that each need to take out positions in the same swap, the

    manager would place several sequential orders for that swap. The series

    of orders may move the price for that swap, in which case the last

    customer order would receive a less favorable price than the first

    customer order. By combining the orders, the manager is more likely to

    find a single counterparty and a single price for the orders, in which

    case the account manager can distribute the appropriate number of

    shares to each account at a constant price per share. No customer is

    favored over another in such a distribution. This promotes customer

    protection and the integrity of the financial markets.

    In addition, by adding FCMs and IBs to the list of eligible account

    managers for orders executed on a DCM or SEF, and also adding CTAs,

    FCMs, and IBs as eligible account managers for orders executed

    bilaterally, the rule promotes competition among entities that are

    permitted to execute bunched orders, which in turn, promotes

    competitive pricing for account managers who want to execute bunched

    orders. And by promoting competitive pricing, the amendment promotes

    market efficiency. In addition, by permitting FCMs, IBs, and CTAs to

    engage in bunched order transactions, the amendment creates benefits

    for those entities because it allows them to provide an additional

    service to clients, giving them an additional source of revenue.

    Costs

    Amendments in this final rule will require SEF members to comply

    with regulation 1.35, and it is likely that some of those members will

    not have been subject to Sec. 1.35 previously. The Commission

    estimates that SEF members that are newly subject to Sec. 1.35 will

    spend additional time each day compiling and maintaining transaction

    records. The Commission estimates that the cost of that additional time

    is

    [[Page 66312]]

    $236,000 to $393,000 per entity per year.\127\

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

    \127\ This is estimated to take 6-10 hours per day (assuming 252

    days per year) of the time of an office services supervisor. The

    average wage for an office services supervisor is $155.96 [($58,303

    per year)/(2,000 hours per year) * 5.35 = $155.96]. $155.95 * 6 *

    252 = 235,812.31. $155.95 * 10 * 252 = 393,020.52.

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

    Also, the amendments in this final rule will require FCMs, RFEDs,

    IBs, and members of DCMs to comply with the regulation Sec. 1.35

    recordkeeping requirements for any swap transactions into which they

    enter. The Commission estimates that such entities will spend an

    additional 0.5 hours per swap capturing and maintaining the records

    required under Sec. 1.35, and therefore estimates that the per-swap

    cost will be $83.00.\128\

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

    \128\ This estimates 0.5 hours of time from an office services

    supervisor. The average salary for an office services supervisor is

    $165.25/hour [($61,776 per year)/(2,000 hours per year) * 5.35 =

    $165.25 per hour]. $165.25 * 0.5 = $82.63

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

    Section 1.3 Definitions

    Introduction

    As discussed in II.A.1, the Commission is amending and adding

    several definitions in order to incorporate swaps within the

    Commission's regulatory framework. Included among them are definitions

    for ``customer,'' ``futures commission merchant,'' ``member,'' ``net

    deficit,'' ``proprietary account,'' ``commodity trading advisor,''

    ``commodity pool operator,'' ``designated self-regulatory

    organization,'' ``customer funds,'' ``strike price,'' ``introducing

    broker,'' ``registered entity,'' ``registrant,'' ``open contract,''

    ``physical,'' and ``commodity interest.''

    As discussed throughout this release, Congress amended the CEA to

    address swaps. The amendments to regulation 1.3 (``Definitions'') help

    effectuate that mandate and do not, in and of themselves, implicate any

    costs or benefits. Any costs and benefits are associated with

    substantive regulations that rely upon the revised definitions

    contained in regulation 1.3.

    Section 1.4 Electronic Signatures

    Introduction

    In its original form, Sec. 1.4 allowed a customer of an FCM or IB,

    a retail forex customer of an RFED or FCM, and a pool participant or a

    client of a CTA to use an electronic signature to provide any required

    signatures under the CEA, as long as the FCM, RFED, IB, CPO, or CTA

    elects generally to accept electronic signatures for such purposes and

    ``reasonable safeguards'' are in place. The amended rule published as

    part of today's final rulemaking extends the benefit of electronic

    signatures by including SDs, MSPs, and counterparties of SDs and MSPs

    in the list of entities that may use electronic signatures for

    acknowledgement of swap transactions.

    Benefits

    With respect to the protection of market participants and the

    public, permitting FCMs, IBs, CPOs, CTAs, SDs, and MSPs to utilize

    electronic signatures when executing swap transactions enables more

    rapid processing of steps in the transaction process that requires

    signatures than would be possible if using faxed copies or hard copies

    for such purposes. This, in turn, reduces costs to market participants

    by reducing the amount of time they spend handling paperwork and

    enhances market efficiency by allowing transactions to be confirmed

    more rapidly. In addition, this facilitates straight through processing

    of swaps, which provides numerous efficiency and risk reduction

    benefits.

    Costs

    The amendment to Sec. 1.4 is permissive, allowing SDs, MSPs, and

    their counterparties to use electronic signatures if they choose, and

    also allowing FCM's, IBs, CPOs, and CTAs to use electronic signatures

    when engaging in swap transactions. The rule does not create any

    affirmative obligations for market participants, and therefore does not

    create direct costs to entities subject to Sec. 1.4. Costs to other

    market participants and the public would only occur if electronic

    signatures were somehow more susceptible to be falsified or corrupted

    than non-electronic signatures. The Commission is not aware of any such

    risk, and believes that it is unlikely, given that electronic

    signatures are already widely used among market participants, including

    other registered entities.

    Sections 1.33 and 1.37

    Introduction

    These amended regulations require FCMs, IBs, RFEDs, SEFs, DCMs and

    members of DCMs to comply with the same recordkeeping functions for

    swaps that they currently adhere to with respect to futures and

    commodity option transactions. Regulation 1.33 deals with monthly

    confirmation statements, and regulation 1.37 deals with customers'

    names and addresses as well as daily records showing total open long

    and short contracts.

    Benefits

    By incorporating swaps into FCM, IB, RFED, DCM, and DCM members'

    reporting requirements, the rule extends the benefits of such reporting

    requirements to a new range of transactions, and to additional

    customers of such entities. The benefits are likely to be increased

    awareness among market participants of any losses or gains due to their

    swap transactions, which may contribute to sound risk management.

    Moreover, the monthly statements and the confirmation statements

    required by Sec. 1.33 provide customers with additional opportunities

    to identify potential mistakes made over the course of their

    transaction that could result in an undesirable outcome, providing

    further protection to customers of such entities that are clearing

    swaps. Participants would also be able to view a list of fees charged

    to their accounts and verify that all are valid charges and would thus

    be better protected against accidental or fraudulent fees and charges.

    The requirements of Sec. 1.37 will ensure that proper records are

    maintained to identify the rightful owners of customer funds, and that

    are kept on an omnibus basis, as well as to identify parties who own,

    guarantee, or exercise control over any customer cleared swap accounts.

    Proper records regarding the name of individuals or entities that own

    customer funds, and daily reconciliation of balances in the omnibus

    account, promote protection of customer funds held by entities that

    place customer funds in such accounts. Furthermore, by requiring each

    FCM carrying an omnibus account for any other person to maintain a

    daily record of the total open long contracts and total open short

    contracts in each swap, the final rule provides protection for the

    customers that hold funds in such accounts. The daily records may be

    used by the FCM to reconcile the omnibus accounts to their individual

    customer obligations, thus helping to ensure that the omnibus accounts

    have sufficient funds to meet their customer obligations.

    Costs

    Costs of this proposal include the cost of compliance on the part

    of FCMs to compile and deliver monthly statements and confirmations

    after every transaction. FCMs will bear a one-time cost to design the

    confirmation statements, swap section of the monthly reports, and to

    set up automated systems to produce them. The amendment is not likely

    to necessitate new technology since FCMs can use the systems that

    produce existing monthly

    [[Page 66313]]

    statements and confirmations to produce statements pertaining to swaps.

    FCMs, however, will bear some costs designing and setting up their

    systems to produce swap transaction confirmations and the swap section

    of monthly statements. The Commission estimates that the per-entity

    set-up cost will be between $4,900 and $17,000.\129\ The reports are

    likely to be highly automated, which mitigates ongoing costs. Such

    costs are also likely to be similar in magnitude to those incurred

    through compliance with Sec. 1.33 as it pertains to futures positions.

    The Commission estimates that it will cost FCMs approximately $1.40 per

    swap transaction for the FCM to input the data that is required.\130\

    The Commission estimates that entities are likely to spend $3,700 to

    $7,300 monthly in order to maintain the systems and to produce the

    relevant statements.\131\

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

    \129\ Estimate assumes 10-30 hours of IT professional time and

    2-10 hours of a regulatory attorney's time in order to create and

    automate the report. The average salary for a senior programmer is

    $306.86/hour [($114,714 per year)/(2000 hours per year) * 5.35 =

    $306.86 per hour]. The average salary for a compliance attorney is

    $351.24/hour [($131,303 per year)/(2000 hours per year) * 5.35 =

    $351.24 per hour].

    \130\ The estimates assume an office services supervisor spends

    5 minutes per transaction. The average salary for an office services

    supervisor is $165.25/hour [($61,776 per year)/(2,000 hours per

    year) * 5.35 = $165.25 per hour]. 5/60 * $165.25 = $1.38.

    \131\ Estimate assumes 2-10 hours monthly of IT personnel time

    and 2-16 hours of middle office personnel time. The average salary

    for a programmer is $220.74/hour [($82,518 per year)/(2,000 hours

    per year) * 5.35 = $220.74 per hour], and the average salary for an

    office services supervisor is $165.25/hour [($61,776 per year)/

    (2,000 hours per year) * 5.35 = $165.25 per hour]. The Commission

    anticipates that most monthly reports will be sent to clients

    electronically, but includes an additional $1,000 monthly for paper,

    postage, and printing costs.

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

    Adding the requirement that certain entities maintain records of

    the name, address, and occupation of customers that have deposited

    funds with them will not create any set-up costs. The Commission

    assumes that entities subject to Sec. 1.37 already have systems that

    incorporate such information.\132\ The Commission estimates that the

    ongoing cost to capture such information is $1,650 to $3,300 per

    year.\133\ The Commission expects that creating the daily report that

    provides the daily total of open long and short positions in each

    omnibus account will require some modifications to existing systems.

    The Commission estimates that this cost will be approximately $2,600 to

    $9,900.\134\ Producing the daily report is likely to be a process that

    is automated and therefore the Commission does not believe that there

    will be incremental daily costs to produce the report. In addition, the

    Commission recognizes that the requirements will obligate FCMs to enter

    position data into their systems and estimates that this will require

    approximately 0.2 hours of personnel time per swap transaction, which

    results in a cost of approximately $33.00 per transaction.\135\ In

    addition, the Commission estimates that for a SEF that will have to

    keep records of foreign traders' names, addresses, and occupations

    executing transactions on an exchange, the SEF will spend between

    $17.00 and $83.00.\136\

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

    \132\ This is estimated to take 1-10 hours of time from IT

    personnel. The average salary for a programmer is $220.74/hour

    [($82,518 per year)/(2,000 hours per year) * 5.35 = $220.74 per

    hour].

    \133\ The Commission assumes 10-20 hours per year will be

    required. The average salary for an office services supervisor is

    $165.25/hour [($61,776 per year)/(2,000 hours per year) * 5.35 =

    $165.25 per hour]. 10 hours * $165.25/hour = $1,652.50; and 20 hours

    * $165.25/hour = $ 3,305.00.

    \134\ This estimates 1-3 hours of time from a compliance

    attorney and 10-40 hours of time from IT personnel. The average

    compensation for a compliance attorney is $351.24/hour [$131,303 per

    year/(2,000 hours per year) * 5.35 is $351.24 per hour]. The average

    compensation for a programmer is $220.74/hour [($82,518 per year)/

    (2,000 hours per year) * 5.35 = $220.74 per hour]. 1 * $351.24 =

    $351.24. 3 * $351.24 = $1,053.71. $351.24 * 10 = $2,207.36. $351.24

    * 40 = $8,829.43.

    \135\ The estimate assumes 0.2 hours of labor per transaction

    from an office services supervisor. The average salary for an office

    services supervisor is $165.25/hour [($61,776 per year)/(2,000 hours

    per year) * 5.35 = $165.25 per hour]. 0.2 * $165.25 = $33.05.

    \136\ The estimates assume an office services supervisor spends

    between 0.1 and 0.5 hours per transaction. The average salary for an

    office services supervisor is $165.25/hour [($61,776 per year)/

    (2,000 hours per year) * 5.35 = $165.25 per hour]. 0.1 * $165.25 =

    $16.52; 0.5 * $165.25 = 82.63.

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

    Section 1.39 Simultaneous Buying and Selling Orders of Different

    Principals; Execution of, for and Between Principals

    Introduction

    As described above in II.A.7, regulation 1.39 permits the member of

    a contract market to execute simultaneous buy and sell orders for the

    same contract on behalf of different principals if the orders are

    executed on the exchange and subject to certain procedures. The

    amendments to this rule incorporate SEFs and swaps.

    The amendments also delete language barring cross trades; such

    trades are no longer defined under 4c(a) as amended by DFA. This latter

    amendment is made pursuant to the DFA without the exercise of

    Commission discretion and therefore is beyond the scope of

    consideration in this section.

    Benefits

    Under CEA Section 5(d)(9), DCMs have an obligation to provide a

    competitive, open, and efficient market. If a member were to match two

    orders of its own customers without first making it available to the

    broader market through the steps required in regulation 1.39, the trade

    would be neither open nor competitive. The trade would, thus, be open

    to the risk of non-competitive pricing, which could harm one of the two

    customers involved in the trade and would, at least minimally, detract

    from price discovery. By requiring that bids or offers related to the

    member's customer positions are made available to other parties, the

    rule ensures that they are open and that a member only matches one

    customer against another in a trade if the terms of that trade are

    competitive. This protects each customer and also promotes effective

    price discovery. Incorporating SEFs into regulation Sec. 1.39 extends

    the same benefits to SEF members, providing improved price discovery,

    protection for SEF members' customers, and promoting integrity of the

    financial markets.

    Costs

    In order to comply with the rules, a SEF member will be required to

    take certain steps before executing one customer's order against

    another customer's order. Those additional steps include first offering

    its customers' bid and offer to the other members of the SEF through

    open outcry or submission to an electronic platform. Whether its

    customers' orders are filled against others in the market or against

    one another, by offering the trade through the exchange the member will

    be subject to some fees imposed by the exchange that they would not

    have otherwise experienced. The fees vary significantly based on the

    market and product. In addition, the requirement that a SEF record

    these transactions in a manner that ``shows all transaction details

    required to be captured by the Act, Commission rule, or regulation''

    will create additional data capture costs for the SEF. The Commission

    estimates that the cost will be approximately $17.00 per transaction

    and storage costs of less than $1 per record.\137\

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

    \137\ The estimates assume an office services supervisor spends

    between 0.1 per transaction. The average salary for an office

    services supervisor is $165.25/hour [($61,776 per year)/(2,000 hours

    per year) * 5.35 = $165.25 per hour]. 0.1 * $165.25 = $16.52.

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

    [[Page 66314]]

    Section 1.40 Crop, Market Information Letters, Reports

    Introduction

    As described above in II.A.8, the changes to Sec. 1.40 incorporate

    members of a SEF into the requirement that such entities provide to the

    Commission copies of any circular, telecommunication, or report that

    they publish or circulate through other entities concerning crop

    conditions, or market conditions that would tend to affect the price of

    any commodity.

    Benefits

    Regulation 1.40 addresses the need for the Commission to have

    access to any published or circulated information about market-

    affecting commodity prices for the prevention and/or identification of

    manipulative behavior such as false reporting. The benefit of extending

    regulation 1.40 to members of a SEF is that it will give the Commission

    the same ability to prevent and/or identify similar manipulative

    activities in connection with any commodity prices underlying the swap

    transactions that will be executed on a SEF.

    Costs

    The requirement will create de minimis costs for members of a SEF

    related to printing and postage costs for one copy of such

    communications when the Commission requests a copy. Such requests are

    infrequent on a per entity basis and therefore the Commission does not

    expect most entities to bear such costs frequently.

    Section 1.59 Activities of Self-Regulatory Organizations Employees,

    etc.

    Introduction

    Regulation 1.59 imposes restrictions on employees and governing

    board members of SROs that prevent them from disclosing or trading in

    any contracts traded or cleared by the employing contract market, or in

    any related commodity interest. Moreover, it prevents such persons from

    trading on the basis of material non-public information. As discussed

    above in II.A.9, the Commission is amending regulation 1.59 to include

    SEFs and swaps.

    Benefits

    By preventing employees and governing board members from trading in

    contracts traded or cleared by their employing exchange or other

    related commodity interests, the rule helps to prevent conflicts of

    interest that might otherwise incent employees of an exchange to

    perform their duties in a way that benefits their own investments

    rather than benefiting the members of the exchange and the public more

    generally. In doing so, the rule promotes the integrity of financial

    markets. Moreover, the rule prevents employees and governing board

    members from trading to their own advantage, using material non-public

    information. In doing so, the rule protects other market participants

    that would be on the opposite side of such trades, and would be

    disadvantaged by not having access to the same material non-public

    information.

    Costs

    The amendments adding SEFs and swaps to the entities and

    instruments referenced in this rule will, as stated above, prevent

    employees and governing board members of SROs from investing in certain

    instruments. There will, therefore, be opportunity costs to those

    employees. The Commission cannot quantify those opportunity costs

    because it does not have data adequate to determine what investments

    employees might have made without such restrictions, what return they

    would expect on those investments compared to their existing

    investments, or the amount of money such employees have invested.

    However, the Commission believes that guarding against conflicts of

    interest at the SROs is an important step to maintaining integrity in

    the financial markets.

    Section 1.63 Service on Self-Regulatory Organization Governing Boards

    or Committees by Persons With Disciplinary Histories

    Introduction

    Prior to the amendments adopted in this rule, regulation 1.63

    required SROs to maintain a schedule listing all rule violations which

    constitute disciplinary offences, to submit that schedule to the

    Commission and to post it in a public place. This final rule amends the

    rule to specify that the public place in which the SROs must post the

    schedule is the SRO's Web site.\138\

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

    \138\ Sec. 1.63(d).

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

    Benefits

    The amendments to regulation 1.63 promote integrity in the

    financial markets by ensuring that the information contained in the

    schedule is posted in a public place that fulfills the intent of the

    obligation, namely, that the SRO can provide notice to members and the

    general public.

    Costs

    Many SROs likely already post the schedules on their Web sites. To

    the extent that SROs were not previously posting the schedule to their

    Web sites, they will bear the costs associated with posting schedules

    on their Web sites. However, this cost will be offset by eliminating

    the need to post the schedule in whatever alternative public place the

    SRO was previously using. The Commission estimates that the incremental

    cost is between $18.00 and $220.00.\139\

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

    \139\ Calculations assume that posting the notice will require 5

    to 60 minutes of work by non-senior IT personnel. The average salary

    for a programmer is $220.74/hour [($82,518 per year)/(2,000 hours

    per year) * 5.35 = $220.74 per hour]. 5/60 * $220.74 = $18.40; 60/60

    * $220.74 = $220.74.

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

    Section 1.67 Notification of Final Disciplinary Action Involving

    Financial Harm to a Customer

    Introduction

    This rule adds that upon any final disciplinary action in which a

    SEF finds that a member has committed a rule violation, which involved

    a transaction for a customer that resulted in financial harm to the

    customer, a SEF, like a DCM, must provide written notice to such member

    of the disciplinary action taken against that member. This rule

    additionally requires members of SEFs, like members of DCMs, to provide

    written notice of the disciplinary action to the customer upon receipt

    of such notice from the SEF.

    Benefits

    By requiring members of a SEF to communicate disciplinary actions

    taken against them to the customers that were impacted by the

    activities leading to such disciplinary action, the rule promotes

    integrity in the financial markets. Customers harmed by a member's

    actions will, if they choose, have an opportunity to bring legal action

    against the member that has caused financial harm to them and may also

    choose to take their business to another member. Both consequences are

    enabled by the rule, and both serve as an incentive to SEF members to

    avoid any activity that would harm their customers.

    Costs

    This amendment is an extension of previously existing regulations

    that now apply to SEFs as well as DCMs. The costs to SEFs will likely

    be on par with those to DCMs and will be minimal, covering only the

    cost of communicating disciplinary actions to members. The Commission

    estimates

    [[Page 66315]]

    that such notification will cost the SEF approximately $350.00 per

    notification because appropriate personnel will have to draft and send

    the required communication.

    Sections 15.05, 18.05, 21.03, 36.1, 36.2, 36.3, Appendix A to Part 36,

    and Appendix B to Part 36

    Introduction

    As described in II.A.15.D, DFA eliminated ECMs and EBOTs and

    provided a grandfather relief provision for such entities. The

    amendments here remove references to the sections of the CEA that were

    deleted by DFA and insert reference to the Grandfather Relief Orders

    issued by the Commission.

    ECMs and EBOTs are allowed to continue operating as such during the

    period provided by the Grandfather Relief Orders, creating benefits for

    those entities that intend to register with the Commission as SEFs, and

    that wish to continue operating as ECMs or EBOTs until they are able to

    make such registration. However, those benefits are conferred by the

    Act and the Grandfather Relief Order. The changes here are merely

    technical edits to ensure that the regulations reflect the changes to

    the CEA that were made by DFA. Therefore, there are no costs or

    benefits associated with these changes.

    Parts 140 and 145

    Introduction

    As discussed above in II.A.15.E, the changes to parts 140 and 145

    incorporate SEFs and SDRs into existing Commission regulations. The

    proposed changes would: (1) Facilitate the disclosure of confidential

    information to SEFs and SDRs in order to effectuate the purposes of the

    CEA; (2) facilitate publication of information in the Federal Register

    related to the applications for registration of SEFs and SDRs as well

    as new rules and rule amendments that require additional time to

    analyze; (3) include SEFs and SDRs in the category of registered

    entities that may petition the Commission for exemptive relief and no-

    action interpretive letters; (4) add SEFs and SDRs to the list of

    entities from which Commission members and employees may not accept

    employment or compensation; and (5) expand the definition of

    ``submitter'' by adding SEFs and SDRs to the list of registered

    entities to which a person's confidential information has been

    submitted and which, in turn, submit that information to the

    Commission, and also allows such individuals to request confidential

    treatment under Sec. 145.9.

    Benefits

    The amendments described above create the following benefits: (1)

    By facilitating disclosure of confidential information to SEFs and

    SDRs, they assist the Commission in performing its regulatory role with

    respect to swaps, thus providing additional protection to swap market

    participants, promoting the integrity of financial markets, and

    promoting protection for the public. (2) Facilitating publication of

    information in the Federal Register related to registration

    applications for prospective SEFs and SDRs as well as new rule

    amendments, will assist the Commission when obtaining additional

    information from the public in order to ensure that its determinations

    regarding such applications and rules are well-informed. (3) Including

    SEFs and SDRs in the category of entities that may petition for

    exemptive relief and no-action interpretive letters gives these

    entities the opportunity to pursue individualized treatment with

    respect to Commission regulations in circumstances where they believe

    such treatment is appropriate, which in turn, gives the Commission the

    opportunity to grant such relief or to issue a no-action interpretive

    letter if it believes doing so is not contrary to the public interest

    or the intent of the regulations for which such relief is sought.

    (4) Adding SEFs and SDRs to the list of registered entities from

    which Commission members and employees may not accept employment or

    compensation prevents conflicts of interest and in so doing promotes

    the Commission's ability to protect market participants and the public

    as well as to promote the integrity of the financial markets. (5) The

    changes ensure that personal information submitted to SEFs and SDRs is

    subject to the same protections under the Commission's regulations as

    personal information submitted to other registered entities.

    Costs

    SEFs and SDRs may bear some cost due to their obligation to submit

    personal information that they receive to the Commission. Such

    submissions will likely be automated and therefore the SEFs and SDRs

    will bear an initial cost that is necessary to modify their systems to

    submit the required information, and an ongoing cost to submit it when

    required. The Commission estimates that the initial cost is between

    $2,100 and $10,000,\140\ and the ongoing cost is between $230 and $460

    per month.\141\

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

    \140\ This estimates 2-4 hours from a compliance attorney and

    10-40 hours from IT personnel. The average salary for a compliance

    attorney is $351.24/hour [($131,303 per year)/(2000 hours per year)

    * 5.35 = $351.24 per hour]. The average salary for a programmer is

    $220.74/hour [($82,518 per year)/(2,000 hours per year) * 5.35 =

    $220.74 per hour].

    \141\ This estimates 2-4 hours from a compliance attorney and

    10-40 hours from IT personnel. The average salary for a compliance

    attorney is $351.24/hour [($131,303 per year)/(2000 hours per year)

    * 5.35 = $351.24 per hour]. The average salary for a programmer is

    $220.74/hour [($82,518 per year)/(2,000 hours per year) * 5.35 =

    $220.74 per hour].

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

    The other amendments do not impose affirmative obligations on

    market participants and therefore do not create costs for them or the

    public.

    List of Subjects

    17 CFR Part 1

    Agricultural commodity, Agriculture, Brokers, Committees, Commodity

    futures, Conflicts of interest, Consumer protection, Definitions,

    Designated contract markets, Directors, Major swap participants,

    Minimum financial requirements for intermediaries, Reporting and

    recordkeeping requirements, Swap dealers, Swaps.

    17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity pool operators,

    Commodity trading advisors, Consumer protection, Reporting and

    recordkeeping requirements, Swaps.

    17 CFR Part 5

    Bulk transfers, Commodity pool operators, Commodity trading

    advisors, Consumer protection, Customer's money, Securities and

    property, Definitions, Foreign exchange, Minimum financial and

    reporting requirements, Prohibited transactions in retail foreign

    exchange, Recordkeeping requirements, Retail foreign exchange dealers,

    Risk assessment, Special calls, Trading practices.

    17 CFR Part 7

    Commodity futures, Consumer protection, Registered entity.

    17 CFR Part 8

    Commodity futures, Reporting and recordkeeping requirements.

    17 CFR Part 15

    Brokers, Commodity futures, Reporting and recordkeeping

    requirements, Electronic trading facility.

    17 CFR Part 16

    Commodity futures, Reporting and recordkeeping requirements.

    17 CFR Part 18

    Commodity futures, Reporting and recordkeeping requirements,

    Grandfather relief order.

    [[Page 66316]]

    17 CFR Part 21

    Brokers, Commodity futures, Reporting and recordkeeping

    requirements, Grandfather relief order.

    17 CFR Part 22

    Brokers, Clearing, Consumer protection, Reporting and recordkeeping

    requirements, Swaps.

    17 CFR Part 36

    Commodity futures, Electronic trading facility, Eligible commercial

    entities, Eligible contract participants, Federal financial regulatory

    authority, Principal-to-principal, Special calls, Systemic market

    event.

    17 CFR Part 38

    Commodity futures, Reporting and recordkeeping requirements.

    17 CFR Part 41

    Brokers, Reporting and recordkeeping requirements, Security futures

    products.

    17 CFR Part 140

    Authority delegations (Government agencies), Conflict of interests,

    Organizations and functions (Government agencies).

    17 CFR Part 145

    Confidential business information, Freedom of information.

    17 CFR Part 155

    Brokers, Commodity futures, Consumer protection, Reporting and

    recordkeeping requirements, Swaps.

    17 CFR Part 166

    Brokers, Commodity futures, Consumer protection, Reporting and

    recordkeeping requirements, Swaps.

    For the reasons stated in the preamble, under the authority of 7

    U.S.C. 1 et seq., the Commodity Futures Trading Commission hereby

    amends Chapter I of Title 17 of the Code of Federal Regulations as set

    forth below:

    PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    0

    1. The authority citation for part 1 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 2a, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f,

    6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3,

    8, 9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as

    amended by Title VII of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    0

    2. Amend Sec. 1.3 by:

    0

    a. Revising paragraphs (a), (b), (e), (g), (h), (k), (n), (p), (q),

    (r), (s), (t), (x), (y) introductory text, (y)(1), (y)(2) introductory

    text, (y)(2)(iii)(B), (y)(2)(iii)(C), (y)(2)(v)(B), (y)(2)(v)(C),

    (y)(2)(vii), (y)(2)(viii), (aa)(1)(i), (aa)(2)(i), (aa)(5), (bb), (cc),

    (ee), (ff), (gg), (ii), (kk), (mm)(1), (mm)(2) introductory text,

    (mm)(2)(i), (nn), (oo), (pp), (rr)(2), (ss), (tt), (vv), (xx), and

    (yy);

    0

    b. Removing and reserving paragraphs (jj), (ll) and (uu); and

    0

    c. Adding paragraphs (k), (cccc), (dddd), (eeee), (ffff), (gggg),

    (hhhh), (iiii), (jjjj), (kkkk), (llll), (mmmm), (nnnn), (oooo), (pppp),

    (qqqq), (rrrr), and (ssss) to read as follows:

    Sec. 1.3 Definitions.

    * * * * *

    (a) Board of Trade. This term means an organized exchange or other

    trading facility.

    (b) Business day. This term means any day other than a Sunday or

    holiday. In all notices required by the Act or by the rules and

    regulations in this chapter to be given in terms of business days the

    rule for computing time shall be to exclude the day on which notice is

    given and include the day on which shall take place the act of which

    notice is given.

    * * * * *

    (e) Commodity. This term means and includes wheat, cotton, rice,

    corn, oats, barley, rye, flaxseed, grain sorghums, millfeeds, butter,

    eggs, Irish potatoes, wool, wool tops, fats and oils (including lard,

    tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and

    oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal,

    livestock, livestock products, and frozen concentrated orange juice,

    and all other goods and articles, except onions (as provided by the

    first section of Pub. L. 85-839) and motion picture box office receipts

    (or any index, measure, value or data related to such receipts), and

    all services, rights and interests (except motion picture box office

    receipts, or any index, measure, value or data related to such

    receipts) in which contracts for future delivery are presently or in

    the future dealt in.

    * * * * *

    (g) Institutional customer. This term has the same meaning as

    ``eligible contract participant'' as defined in section 1a(18) of the

    Act.

    (h) Contract market; designated contract market. These terms mean a

    board of trade designated by the Commission as a contract market under

    the Act and in accordance with the provisions of part 38 of this

    chapter.

    * * * * *

    (k) Customer. This term means any person who uses a futures

    commission merchant, introducing broker, commodity trading advisor, or

    commodity pool operator as an agent in connection with trading in any

    commodity interest; Provided, however, an owner or holder of a

    proprietary account as defined in paragraph (y) of this section shall

    not be deemed to be a customer within the meaning of section 4d of the

    Act, the regulations that implement sections 4d and 4f of the Act and

    Sec. 1.35, and such an owner or holder of such a proprietary account

    shall otherwise be deemed to be a customer within the meaning of the

    Act and Sec. Sec. 1.37 and 1.46 and all other sections of these rules,

    regulations, and orders which do not implement sections 4d and 4f of

    the Act.

    * * * * *

    (n) Floor broker. This term means any person:

    (1) Who, in or surrounding any pit, ring, post or other place

    provided by a contract market for the meeting of persons similarly

    engaged, shall purchase or sell for any other person--

    (i) Any commodity for future delivery, security futures product, or

    swap; or

    (ii) Any commodity option authorized under section 4c of the Act;

    or

    (2) Who is registered with the Commission as a floor broker.

    * * * * *

    (p) Futures commission merchant. This term means:

    (1) Any individual, association, partnership, corporation, or

    trust--

    (i) Who is engaged in soliciting or in accepting orders for the

    purchase or sale of any commodity for future delivery; a security

    futures product; a swap; any agreement, contract, or transaction

    described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act;

    a commodity option authorized under section 4c of the Act; a leverage

    transaction authorized under section 19 of the Act; or acting as a

    counterparty in any agreement, contract or transaction described in

    section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; and

    (ii) Who, in connection with any of these activities accepts any

    money, securities, or property (or extends credit in lieu thereof) to

    margin, guarantee, or secure any trades or contracts that result or may

    result therefrom; and

    (2) Any person that is registered as a futures commission merchant.

    (q) Member. This term means:

    (1) An individual, association, partnership, corporation, or

    trust--

    (i) Owning or holding membership in, or admitted to membership

    representation on, a registered entity; or

    (ii) Having trading privileges on a registered entity.

    [[Page 66317]]

    (2) A participant in an alternative trading system that is

    designated as a contract market pursuant to section 5f of the Act is

    deemed a member of the contract market for purposes of transactions in

    security futures products through the contract market.

    (r) Net equity. (1) For futures and commodity option positions,

    this term means the credit balance which would be obtained by combining

    the margin balance of any person with the net profit or loss, if any,

    accruing on the open futures or commodity option positions of such

    person.

    (2) For swap positions other than commodity option positions, this

    term means the credit balance which would be obtained by combining the

    margin balance of any person with the net profit or loss, if any,

    accruing on the open swap positions of such person.

    (s) Net deficit. (1) For futures and commodity option positions,

    this term means the debit balance which would be obtained by combining

    the margin balance of any person with the net profit or loss, if any,

    accruing on the open futures or commodity option positions of such

    person.

    (2) For swap positions other than commodity option positions, this

    term means the debit balance which would be obtained by combining the

    margin balance of any person with the net profit or loss, if any,

    accruing on the open swap positions of such person.

    (t) Open contracts. This term means:

    (1) Positions in contracts of purchase or sale of any commodity

    made by or for any person on or subject to the rules of a board of

    trade for future delivery during a specified month or delivery period

    that have neither been fulfilled by delivery nor been offset by other

    contracts of purchase or sale in the same commodity and delivery month;

    (2) Positions in commodity option transactions that have not

    expired, been exercised, or offset; and

    (3) Positions in Cleared Swaps, as Sec. 22.1 of this chapter

    defines that term, that have not been fulfilled by delivery; not been

    offset; not expired; and not been terminated.

    * * * * *

    (x) Floor trader. This term means any person:

    (1) Who, in or surrounding any pit, ring, post or other place

    provided by a contract market for the meeting of persons similarly

    engaged, purchases, or sells solely for such person's own account--

    (i) Any commodity for future delivery, security futures product, or

    swap; or

    (ii) Any commodity option authorized under section 4c of the Act;

    or

    (2) Who is registered with the Commission as a floor trader.

    (y) Proprietary account. This term means a commodity futures,

    commodity option, or swap trading account carried on the books and

    records of an individual, a partnership, corporation or other type of

    association:

    (1) For one of the following persons, or

    (2) Of which ten percent or more is owned by one of the following

    persons, or an aggregate of ten percent or more of which is owned by

    more than one of the following persons:

    * * * * *

    (iii) * * *

    (B) The handling of the trades of customers or customer funds of

    such partnership,

    (C) The keeping of records pertaining to the trades of customers or

    customer funds of such partnership, or

    * * * * *

    (v) * * *

    (B) The handling of the trades of customers or customer funds of

    such individual, partnership, corporation or association,

    (C) The keeping of records pertaining to the trades of customers or

    customer funds of such individual, partnership, corporation or

    association, or

    * * * * *

    (vii) A business affiliate that directly or indirectly controls

    such individual, partnership, corporation or association; or

    (viii) A business affiliate that, directly or indirectly is

    controlled by or is under common control with, such individual,

    partnership, corporation or association. Provided, however, That an

    account owned by any shareholder or member of a cooperative association

    of producers, within the meaning of section 6a of the Act, which

    association is registered as a futures commission merchant and carries

    such account on its records, shall be deemed to be an account of a

    customer and not a proprietary account of such association, unless the

    shareholder or member is an officer, director or manager of the

    association.

    * * * * *

    (aa) * * *

    (1) * * *

    (i) The solicitation or acceptance of customers' orders (other than

    in a clerical capacity) or

    * * * * *

    (2) * * *

    (i) The solicitation or acceptance of customers' orders (other than

    in a clerical capacity) or

    * * * * *

    (5) A leverage transaction merchant as a partner, officer,

    employee, consultant, or agent (or any natural person occupying a

    similar status or performing similar functions), in any capacity which

    involves:

    (i) The solicitation or acceptance of leverage customers' orders

    (other than in a clerical capacity) for leverage transactions as

    defined in Sec. 31.4(x) of this chapter, or

    (ii) The supervision of any person or persons so engaged.

    * * * * *

    (bb)(1) Commodity trading advisor. This term means any person who,

    for compensation or profit, engages in the business of advising others,

    either directly or through publications, writings or electronic media,

    as to the value of or the advisability of trading in any contract of

    sale of a commodity for future delivery, security futures product, or

    swap; any agreement, contract or transaction described in section

    2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option

    authorized under section 4c of the Act; any leverage transaction

    authorized under section 19 of the Act; any person registered with the

    Commission as a commodity trading advisor; or any person, who, for

    compensation or profit, and as part of a regular business, issues or

    promulgates analyses or reports concerning any of the foregoing. The

    term does not include:

    (i) Any bank or trust company or any person acting as an employee

    thereof;

    (ii) Any news reporter, news columnist, or news editor of the print

    or electronic media or any lawyer, accountant, or teacher;

    (iii) Any floor broker or futures commission merchant;

    (iv) The publisher or producer of any print or electronic data of

    general and regular dissemination, including its employees;

    (v) The named fiduciary, or trustee, of any defined benefit plan

    which is subject to the provisions of the Employee Retirement Income

    Security Act of 1974, or any fiduciary whose sole business is to advise

    that plan;

    (vi) Any contract market; and

    (vii) Such other persons not within the intent of this definition

    as the Commission may specify by rule, regulation or order: Provided,

    That the furnishing of such services by the foregoing persons is solely

    incidental to the conduct of their business or profession:

    Provided further, That the Commission, by rule or regulation, may

    include within this definition, any person advising as to the value of

    commodities or issuing reports or

    [[Page 66318]]

    analyses concerning commodities, if the Commission determines that such

    rule or regulation will effectuate the purposes of this provision.

    (2) Client. This term, as it relates to a commodity trading

    advisor, means any person:

    (i) To whom a commodity trading advisor provides advice, for

    compensation or profit, either directly or through publications,

    writings, or electronic media, as to the value of, or the advisability

    of trading in, any contract of sale of a commodity for future delivery,

    security futures product or swap; any agreement, contract or

    transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i)

    of the Act; any commodity option authorized under section 4c of the

    Act; any leverage transaction authorized under section 19 of the Act;

    or

    (ii) To whom, for compensation or profit, and as part of a regular

    business, the commodity trading advisor issues or promulgates analyses

    or reports concerning any of the activities referred to in paragraph

    (bb)(2)(i) of this section. The term ``client'' includes, without

    limitation, any subscriber of a commodity trading advisor.

    (cc) Commodity pool operator. This term means any person engaged in

    a business which is of the nature of a commodity pool, investment

    trust, syndicate, or similar form of enterprise, and who, in connection

    therewith, solicits, accepts, or receives from others, funds,

    securities, or property, either directly or through capital

    contributions, the sale of stock or other forms of securities, or

    otherwise, for the purpose of trading in commodity interests, including

    any commodity for future delivery, security futures product, or swap;

    any agreement, contract or transaction described in section

    2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option

    authorized under section 4c of the Act; any leverage transaction

    authorized under section 19 of the Act; or any person who is registered

    with the Commission as a commodity pool operator, but does not include

    such persons not within the intent of this definition as the Commission

    may specify by rule or regulation or by order.

    * * * * *

    (ee) Self-regulatory organization. This term means a contract

    market (as defined in Sec. 1.3(h)), a swap execution facility (as

    defined in Sec. 1.3(rrrr)), or a registered futures association under

    section 17 of the Act.

    (ff) Designated self-regulatory organization. This term means:

    (1) Self-regulatory organization of which a futures commission

    merchant, an introducing broker, a leverage transaction merchant, a

    retail foreign exchange dealer, a swap dealer, or a major swap

    participant is a member; or

    (2) If a Commission registrant other than a leverage transaction

    merchant is a member of more than one self-regulatory organization and

    such registrant is the subject of an approved plan under Sec. 1.52,

    then a self-regulatory organization delegated the responsibility by

    such a plan for monitoring and auditing such registrant for compliance

    with the minimum financial and related reporting requirements of the

    self-regulatory organizations of which the registrant is a member, and

    for receiving the financial reports necessitated by such minimum

    financial and related reporting requirements from such registrant; or

    (3) If a leverage transaction merchant is a member of more than one

    self-regulatory organization and such leverage transaction merchant is

    the subject of an approved plan under Sec. 31.28 of this chapter, then

    a self-regulatory organization delegated the responsibility by such a

    plan for monitoring and auditing such leverage transaction merchant for

    compliance with the minimum financial, cover, segregation and sales

    practice, and related reporting requirements of the self-regulatory

    organizations of which the leverage transaction merchant is a member,

    and for receiving the reports necessitated by such minimum financial,

    cover, segregation and sales practice, and related reporting

    requirements from such leverage transaction merchant.

    (gg) Customer funds. This term means, collectively, Cleared Swaps

    Customer Collateral and futures customer funds.

    * * * * *

    (ii) Premium. This term means the amount agreed upon between the

    purchaser and seller, or their agents, for the purchase or sale of a

    commodity option.

    (jj) [Reserved]

    (kk) Strike price. This term means the price, per unit, at which a

    person may purchase or sell the commodity, swap, or contract of sale of

    a commodity for future delivery that is the subject of a commodity

    option: Provided, That for purposes of Sec. 1.17, the term strike

    price means the total price at which a person may purchase or sell the

    commodity, swap, or contract of sale of a commodity for future delivery

    that is the subject of a commodity option (i.e., price per unit times

    the number of units).

    (ll) [Reserved]

    (mm) * * *

    (1) Any person who, for compensation or profit, whether direct or

    indirect:

    (i) Is engaged in soliciting or in accepting orders (other than in

    a clerical capacity) for the purchase or sale of any commodity for

    future delivery, security futures product, or swap; any agreement,

    contract or transaction described in section 2(c)(2)(C)(i) or section

    2(c)(2)(D)(i) of the Act; any commodity option transaction authorized

    under section 4c; or any leverage transaction authorized under section

    19; or who is registered with the Commission as an introducing broker;

    and

    (ii) Does not accept any money, securities, or property (or extend

    credit in lieu thereof) to margin, guarantee, or secure any trades or

    contracts that result or may result therefrom.

    (2) The term introducing broker shall not include:

    (i) Any futures commission merchant, floor broker, associated

    person, or associated person of a swap dealer or major swap participant

    acting in its capacity as such, regardless of whether that futures

    commission merchant, floor broker, or associated person is registered

    or exempt from registration in such capacity;

    * * * * *

    (nn) Guarantee agreement. This term means an agreement of guarantee

    in the form set forth in part B or C of Form 1-FR, executed by a

    registered futures commission merchant or retail foreign exchange

    dealer, as appropriate, and by an introducing broker or applicant for

    registration as an introducing broker on behalf of an introducing

    broker or applicant for registration as an introducing broker in

    satisfaction of the alternative adjusted net capital requirement set

    forth in Sec. 1.17(a)(1)(iii).

    (oo) Leverage transaction merchant. This term means and includes

    any individual, association, partnership, corporation, trust or other

    person that is engaged in the business of offering to enter into,

    entering into or confirming the execution of leverage contracts, or

    soliciting or accepting orders for leverage contracts, and who accepts

    leverage customer funds (or extends credit in lieu thereof) in

    connection therewith.

    (pp) Leverage customer funds. This term means all money, securities

    and property received, directly or indirectly by a leverage transaction

    merchant from, for, or on behalf of leverage customers to margin,

    guarantee or secure leverage contracts and all money, securities and

    property accruing to such customers as the result of such contracts, or

    the

    [[Page 66319]]

    customers' leverage equity. In the case of a long leverage transaction,

    profit or loss accruing to a leverage customer is the difference

    between the leverage transaction merchant's current bid price for the

    leverage contract and the ask price of the leverage contract when

    entered into. In the case of a short leverage transaction, profit or

    loss accruing to a leverage customer is the difference between the bid

    price of the leverage contract when entered into and the leverage

    transaction merchant's current ask price for the leverage contract.

    * * * * *

    (rr) * * *

    (2) In the case of foreign options customers in connection with

    open foreign options transactions, money, securities and property

    representing premiums paid or received, plus any other funds required

    to guarantee or secure open transactions plus or minus any unrealized

    gain or loss on such transactions.

    (ss) Foreign board of trade. This term means any board of trade,

    exchange or market located outside the United States, its territories

    or possessions, whether incorporated or unincorporated.

    (tt) Electronic signature. This term means an electronic sounds,

    symbol, or process attached to or logically associated with a record

    and executed or adopted by a person with the intent to sign the record.

    (uu) [Reserved]

    (vv) Futures account. This term means an account that is maintained

    in accordance with the segregation requirements of sections 4d(a) and

    4d(b) of the Act and the rules thereunder.

    * * * * *

    (xx) Foreign broker. This term means any person located outside the

    United States, its territories or possessions who is engaged in

    soliciting or in accepting orders only from persons located outside the

    United States, its territories or possessions for the purchase or sale

    of any commodity interest transaction on or subject to the rules of any

    designated contract market or swap execution facility and that, in or

    in connection with such solicitation or acceptance of orders, accepts

    any money, securities or property (or extends credit in lieu thereof)

    to margin, guarantee, or secure any trades or contracts that result or

    may result therefrom.

    (yy) Commodity interest. This term means:

    (1) Any contract for the purchase or sale of a commodity for future

    delivery;

    (2) Any contract, agreement or transaction subject to a Commission

    regulation under section 4c or 19 of the Act;

    (3) Any contract, agreement or transaction subject to Commission

    jurisdiction under section 2(c)(2) of the Act; and

    (4) Any swap as defined in the Act, by the Commission, or jointly

    by the Commission and the Securities and Exchange Commission.

    * * * * *

    (cccc) Cleared Swaps Customer. This term has the meaning provided

    in Sec. 22.1 of this chapter.

    (dddd) Cleared Swaps Customer Account. This term has the meaning

    provided in Sec. 22.1 of this chapter.

    (eeee) Cleared Swaps Customer Collateral. This term has the meaning

    provided in Sec. 22.1 of this chapter.

    (ffff) Confirmation. When used in reference to a futures commission

    merchant, introducing broker, or commodity trading advisor, this term

    means documentation (electronic or otherwise) that memorializes

    specified terms of a transaction executed on behalf of a customer. When

    used in reference to a swap dealer or major swap participant, this term

    has the meaning set forth in Sec. 23.500 of this chapter.

    (gggg) Customer Account. This term references both a Cleared Swaps

    Customer Account and a Futures Account, as defined by paragraphs (dddd)

    and (vv) of this section.

    (hhhh) Electronic trading facility. This term means a trading

    facility that--

    (1) Operates by means of an electronic or telecommunications

    network; and

    (2) Maintains an automated audit trail of bids, offers, and the

    matching of orders or the execution of transactions on the facility.

    (iiii) Futures customer. This term means any person who uses a

    futures commission merchant, introducing broker, commodity trading

    advisor, or commodity pool operator as an agent in connection with

    trading in any contract for the purchase of sale of a commodity for

    future delivery or any option on such contract; Provided, however, an

    owner or holder of a proprietary account as defined in paragraph (y) of

    this section shall not be deemed to be a futures customer within the

    meaning of sections 4d(a) and 4d(b) of the Act, the regulations that

    implement sections 4d and 4f of the Act and Sec. 1.35, and such an

    owner or holder of such a proprietary account shall otherwise be deemed

    to be a futures customer within the meaning of the Act and Sec. Sec.

    1.37 and 1.46 and all other sections of these rules, regulations, and

    orders which do not implement sections 4d and 4f of the Act.

    (jjjj) Futures customer funds. This term means all money,

    securities, and property received by a futures commission merchant or

    by a derivatives clearing organization from, for, or on behalf of,

    futures customers:

    (1) To margin, guarantee, or secure contracts for future delivery

    on or subject to the rules of a contract market or derivatives clearing

    organization, as the case may be, and all money accruing to such

    futures customers as the result of such contracts; and

    (2) In connection with a commodity option transaction on or subject

    to the rules of a contract market, or derivatives clearing

    organization, as the case may be:

    (i) To be used as a premium for the purchase of a commodity option

    transaction for a futures customer;

    (ii) As a premium payable to a futures customer;

    (iii) To guarantee or secure performance of a commodity option by a

    futures customer; or

    (iv) Representing accruals (including, for purchasers of a

    commodity option for which the full premium has been paid, the market

    value of such commodity option) to a futures customer.

    (3) Notwithstanding paragraphs (1) and (2) of this definition, the

    term ``futures customer funds'' shall exclude money, securities or

    property held to margin, guarantee or secure security futures products

    held in a securities account, and all money accruing as the result of

    such security futures products.

    (kkkk) Order. This term means an instruction or authorization

    provided by a customer to a futures commission merchant, introducing

    broker or commodity trading advisor regarding trading in a commodity

    interest on behalf of the customer.

    (llll) Organized exchange. This term means a trading facility

    that--

    (1) Permits trading--

    (i) By or on behalf of a person that is not an eligible contract

    participant; or

    (ii) By persons other than on a principal-to-principal basis; or

    (2) Has adopted (directly or through another nongovernmental

    entity) rules that--

    (i) Govern the conduct of participants, other than rules that

    govern the submission of orders or execution of transactions on the

    trading facility; and

    (ii) Include disciplinary sanctions other than the exclusion of

    participants from trading.

    (mmmm) Prudential regulator. This term has the meaning given to the

    term in section 1a(39) of the Commodity Exchange Act and includes the

    Board of Governors of the Federal Reserve

    [[Page 66320]]

    System, the Office of the Comptroller of the Currency, the Federal

    Deposit Insurance Corporation, the Farm Credit Administration, and the

    Federal Housing Finance Agency, as applicable to the swap dealer or

    major swap participant. The term also includes the Federal Deposit

    Insurance Corporation, with respect to any financial company as defined

    in section 201 of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act or any insured depository institution under the Federal

    Deposit Insurance Act, and with respect to each affiliate of any such

    company or institution.

    (nnnn) Registered entity. This term means:

    (1) A board of trade designated as a contract market under section

    5 of the Act;

    (2) A derivatives clearing organization registered under section 5b

    of the Act;

    (3) A board of trade designated as a contract market under section

    5f of the Act;

    (4) A swap execution facility registered under section 5h of the

    Act;

    (5) A swap data repository registered under section 21 of the Act;

    and

    (6) With respect to a contract that the Commission determines is a

    significant price discovery contract, any electronic trading facility

    on which the contract is executed or traded.

    (oooo) Registrant. This term means: a commodity pool operator;

    commodity trading advisor; futures commission merchant; introducing

    broker; leverage transaction merchant; floor broker; floor trader;

    major swap participant; retail foreign exchange dealer; or swap dealer

    that is subject to these regulations; or an associated person of any of

    the foregoing other than an associated person of a swap dealer or major

    swap participant.

    (pppp) Retail forex customer. This term means a person, other than

    an eligible contract participant as defined in section 1a(18) of the

    Act, acting on its own behalf and trading in any account, agreement,

    contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C)

    of the Act.

    (qqqq) Swap data repository. This term means any person that

    collects and maintains information or records with respect to

    transactions or positions in, or the terms and conditions of, swaps

    entered into by third parties for the purpose of providing a

    centralized recordkeeping facility for swaps.

    (rrrr) Swap execution facility. This term means a trading system or

    platform in which multiple participants have the ability to execute or

    trade swaps by accepting bids and offers made by multiple participants

    in the facility or system, through any means of interstate commerce,

    including any trading facility, that--

    (1) Facilitates the execution of swaps between persons; and

    (2) Is not a designated contract market.

    (ssss) Trading facility. This term has the meaning set forth in

    section 1a(51) of the Act.

    0

    3. Revise Sec. 1.4 to read as follows:

    Sec. 1.4 Electronic signatures, acknowledgments and verifications.

    For purposes of complying with any provision in the Commodity

    Exchange Act or the rules or regulations in this Chapter I that

    requires a swap transaction to be acknowledged by a swap dealer or

    major swap participant or a document to be signed or verified by a

    customer of a futures commission merchant or introducing broker, a

    retail forex customer of a retail foreign exchange dealer or futures

    commission merchant, a pool participant or a client of a commodity

    trading advisor, or a counterparty of a swap dealer or major swap

    participant, an electronic signature executed by the customer, retail

    forex customer, participant, client, counterparty, swap dealer, or

    major swap participant will be sufficient, if the futures commission

    merchant, retail foreign exchange dealer, introducing broker, commodity

    pool operator, commodity trading advisor, swap dealer, or major swap

    participant elects generally to accept electronic signatures,

    acknowledgments or verifications or another Commission rule permits the

    use of electronic signatures for the purposes listed above; Provided,

    however, That the electronic signature must comply with applicable

    Federal laws and other Commission rules; And, Provided further, That

    the futures commission merchant, retail foreign exchange dealer,

    introducing broker, commodity pool operator, commodity trading advisor,

    swap dealer, or major swap participant must adopt and use reasonable

    safeguards regarding the use of electronic signatures, including at a

    minimum safeguards employed to prevent alteration of the electronic

    record with which the electronic signature is associated, after such

    record has been electronically signed.

    0

    4. Revise paragraph (a)(4) of Sec. 1.16 to read as follows:

    Sec. 1.16 Qualifications and reports of accountants.

    (a) * * *

    (4) Customer. The term ``customer'' means customer (as defined in

    Sec. 1.3(k)) and includes a foreign futures or foreign options

    customer (as defined in Sec. 30.1(c) of this chapter).

    * * * * *

    0

    5. Amend Sec. 1.17 by:

    0

    a. Removing and reserving paragraph (a)(1)(ii);

    0

    b. Removing from paragraph (c)(1)(iii) the term ``physical'' in all

    places it appears and adding in its place the term ``commodity'';

    0

    c. Revising paragraph (c)(5)(ii)(A);

    0

    d. Removing from paragraph (c)(5)(xi) the term ``physical'' and adding

    in its place the term ``commodity''; and

    0

    e. Revising paragraph (c)(5)(xiii)(C).

    The revisions read as follows:

    Sec. 1.17 Minimum financial requirements for futures commission

    merchants and introducing brokers.

    (a)(1)(i) * * *

    (ii) [Reserved]

    * * * * *

    (c) * * *

    (5) * * *

    (ii) * * *

    (A) Inventory which is currently registered as deliverable on a

    contract market and covered by an open futures contract or by a

    commodity option on a physical commodity--No charge.

    * * * * *

    (xiii) * * *

    (C) A foreign broker that has been granted comparability relief

    pursuant to Sec. 30.10 of this chapter, Provided, however, that the

    amount of the unsecured receivable not subject to the five percent

    capital charge is no greater than 150 percent of the current amount

    required to maintain futures and options positions in accounts with the

    foreign broker, or 100 percent of such greater amount required to

    maintain futures and option positions in the accounts at any time

    during the previous six-month period, and Provided, that, in the case

    of the foreign futures or foreign options secured amount, as Sec.

    1.3(rr) defines such term, such account is treated in accordance with

    the special requirements of the applicable Commission order issued

    under Sec. 30.10 of this chapter.

    * * * * *

    0

    6. Revise Sec. 1.20 to read as follows:

    Sec. 1.20 Futures customer funds to be segregated and separately

    accounted for.

    (a) All futures customer funds shall be separately accounted for

    and segregated as belonging to futures customers. Such futures customer

    funds when deposited with any bank, trust company, derivatives clearing

    organization or another futures commission merchant shall be deposited

    under an account name which clearly identifies them as

    [[Page 66321]]

    such and shows that they are segregated as required by sections 4d(a)

    and 4d(b) of the Act and this part. Each registrant shall obtain and

    retain in its files for the period provided in Sec. 1.31 a written

    acknowledgment from such bank, trust company, derivatives clearing

    organization, or futures commission merchant, that it was informed that

    the futures customer funds deposited therein are those of futures

    customers and are being held in accordance with the provisions of the

    Act and this part: Provided, however, that an acknowledgment need not

    be obtained from a derivatives clearing organization that has adopted

    and submitted to the Commission rules that provide for the segregation

    as futures customer funds, in accordance with all relevant provisions

    of the Act and the rules and orders promulgated thereunder, of all

    funds held on behalf of futures customers. Under no circumstances shall

    any portion of futures customer funds be obligated to a derivatives

    clearing organization, any member of a contract market, a futures

    commission merchant, or any depository except to purchase, margin,

    guarantee, secure, transfer, adjust or settle trades, contracts or

    commodity option transactions of futures customers. No person,

    including any derivatives clearing organization or any depository, that

    has received futures customer funds for deposit in a segregated

    account, as provided in this section, may hold, dispose of, or use any

    such funds as belonging to any person other than the futures customers

    of the futures commission merchant which deposited such funds.

    (b) All futures customer funds received by a derivatives clearing

    organization from a member of the derivatives clearing organization to

    purchase, margin, guarantee, secure or settle the trades, contracts or

    commodity options of the clearing member's futures customers and all

    money accruing to such futures customers as the result of trades,

    contracts or commodity options so carried shall be separately accounted

    for and segregated as belonging to such futures customers, and a

    derivatives clearing organization shall not hold, use or dispose of

    such futures customer funds except as belonging to such futures

    customers. Such futures customer funds when deposited in a bank or

    trust company shall be deposited under an account name which clearly

    shows that they are the futures customer funds of the futures customers

    of clearing members, segregated as required by sections 4d(a) and 4d(b)

    of the Act and these regulations. The derivatives clearing organization

    shall obtain and retain in its files for the period provided by Sec.

    1.31 an acknowledgment from such bank or trust company that it was

    informed that the futures customer funds deposited therein are those of

    futures customers of its clearing members and are being held in

    accordance with the provisions of the Act and these regulations.

    (c) Each futures commission merchant shall treat and deal with the

    futures customer funds of a futures customer as belonging to such

    futures customer. All futures customer funds shall be separately

    accounted for, and shall not be commingled with the money, securities

    or property of a futures commission merchant or of any other person, or

    be used to secure or guarantee the trades, contracts or commodity

    options, or to secure or extend the credit, of any person other than

    the one for whom the same are held: Provided, however, That futures

    customer funds treated as belonging to the futures customers of a

    futures commission merchant may for convenience be commingled and

    deposited in the same account or accounts with any bank or trust

    company, with another person registered as a futures commission

    merchant, or with a derivatives clearing organization, and that such

    share thereof as in the normal course of business is necessary to

    purchase, margin, guarantee, secure, transfer, adjust, or settle the

    trades, contracts or commodity options of such futures customers or

    resulting market positions, with the derivatives clearing organization

    or with any other person registered as a futures commission merchant,

    may be withdrawn and applied to such purposes, including the payment of

    premiums to option grantors, commissions, brokerage, interest, taxes,

    storage and other fees and charges, lawfully accruing in connection

    with such trades, contracts or commodity options: Provided further,

    That futures customer funds may be invested in instruments described in

    Sec. 1.25.

    0

    7. Revise Sec. 1.21 to read as follows:

    Sec. 1.21 Care of money and equities accruing to futures customers.

    All money received directly or indirectly by, and all money and

    equities accruing to, a futures commission merchant from any

    derivatives clearing organization or from any clearing member or from

    any member of a contract market incident to or resulting from any

    trade, contract or commodity option made by or through such futures

    commission merchant on behalf of any futures customer shall be

    considered as accruing to such futures customer within the meaning of

    the Act and these regulations. Such money and equities shall be treated

    and dealt with as belonging to such futures customer in accordance with

    the provisions of the Act and these regulations. Money and equities

    accruing in connection with futures customers' open trades, contracts,

    or commodity options need not be separately credited to individual

    accounts but may be treated and dealt with as belonging undivided to

    all futures customers having open trades, contracts, or commodity

    option positions which if closed would result in a credit to such

    futures customers.

    0

    8. Revise Sec. 1.22 to read as follows:

    Sec. 1.22 Use of futures customer funds restricted.

    No futures commission merchant shall use, or permit the use of, the

    futures customer funds of one futures customer to purchase, margin, or

    settle the trades, contracts, or commodity options of, or to secure or

    extend the credit of, any person other than such futures customer.

    Futures customer funds shall not be used to carry trades or positions

    of the same futures customer other than in commodities or commodity

    options traded through the facilities of a contract market.

    0

    9. Revise Sec. 1.23 to read as follows:

    Sec. 1.23 Interest of futures commission merchant in segregated

    futures customer funds; additions and withdrawals.

    The provisions in section 4d(a) and 4d(b) of the Act and the

    provision in Sec. 1.20(c), which prohibit the commingling of futures

    customer funds with the funds of a futures commission merchant, shall

    not be construed to prevent a futures commission merchant from having a

    residual financial interest in the futures customer funds, segregated

    as required by the Act and the rules in this part and set apart for the

    benefit of futures customers; nor shall such provisions be construed to

    prevent a futures commission merchant from adding to such segregated

    futures customer funds such amount or amounts of money, from its own

    funds or unencumbered securities from its own inventory, of the type

    set forth in Sec. 1.25, as it may deem necessary to ensure any and all

    futures customers' accounts from becoming undersegregated at any time.

    The books and records of a futures commission merchant shall at all

    times accurately reflect its interest in the segregated funds. A

    futures commission merchant may draw upon such segregated funds to its

    own order, to the extent of its actual interest therein, including the

    [[Page 66322]]

    withdrawal of securities held in segregated safekeeping accounts held

    by a bank, trust company, contract market, derivatives clearing

    organization or other futures commission merchant. Such withdrawal

    shall not result in the funds of one futures customer being used to

    purchase, margin or carry the trades, contracts or commodity options,

    or extend the credit of any other futures customer or other person.

    0

    10. Revise Sec. 1.24 to read as follows:

    Sec. 1.24 Segregated funds; exclusions therefrom.

    Money held in a segregated account by a futures commission merchant

    shall not include: (a) Money invested in obligations or stocks of any

    derivatives clearing organization or in memberships in or obligations

    of any contract market; or

    (b) Money held by any derivatives clearing organization which it

    may use for any purpose other than to purchase, margin, guarantee,

    secure, transfer, adjust, or settle the contracts, trades, or commodity

    options of the futures customers of such futures commission merchant.

    0

    11. Revise paragraphs (c)(3) and (e) of Sec. 1.25 to read as follows:

    Sec. 1.25 Investment of customer funds.

    * * * * *

    (c) * * *

    (3) A futures commission merchant or derivatives clearing

    organization shall maintain the confirmation relating to the purchase

    in its records in accordance with Sec. 1.31 and note the ownership of

    fund shares (by book-entry or otherwise) in a custody account of the

    futures commission merchant or derivatives clearing organization in

    accordance with Sec. Sec. 1.26 and 22.5 of this chapter. The futures

    commission merchant or the derivatives clearing organization shall

    obtain the acknowledgment letter required by Sec. Sec. 1.26 and 22.5

    of this chapter from an entity that has substantial control over the

    fund shares purchased with customer funds and has the knowledge and

    authority to facilitate redemption and payment or transfer of the

    customer funds. Such entity may include the fund sponsor or depository

    acting as custodian for fund shares.

    * * * * *

    (e) Deposit of firm-owned securities into segregation. A futures

    commission merchant shall not be prohibited from directly depositing

    unencumbered securities of the type specified in this section, which it

    owns for its own account, into a segregated safekeeping account or from

    transferring any such securities from a segregated account to its own

    account, up to the extent of its residual financial interest in

    customers' segregated funds; provided, however, that such investments,

    transfers of securities, and disposition of proceeds from the sale or

    maturity of such securities are recorded in the record of investments

    required to be maintained by Sec. 1.27. All such securities may be

    segregated in safekeeping only with a bank, trust company, derivatives

    clearing organization, or other registered futures commission merchant.

    Furthermore, for purposes of Sec. Sec. 1.25, 1.27, 1.28, and 1.29,

    investments permitted by Sec. 1.25 that are owned by the futures

    commission merchant and deposited into such segregated account shall be

    considered customer funds until such investments are withdrawn from

    segregation. Investments permitted by Sec. 1.25 that are owned by the

    futures commission merchant and deposited into a segregated account

    pursuant to Sec. 1.26 shall be considered futures customer funds until

    such investments are withdrawn from segregation. Investments permitted

    by Sec. 1.25 that are owned by the futures commission merchant and

    deposited into a segregated account pursuant to Sec. 22.5 of this

    chapter shall be considered Cleared Swaps Customer Collateral until

    such investments are withdrawn from segregation.

    * * * * *

    0

    12. Revise Sec. 1.26 to read as follows:

    Sec. 1.26 Deposit of instruments purchased with futures customer

    funds.

    (a) Each futures commission merchant who invests futures customer

    funds in instruments described in Sec. 1.25 shall separately account

    for such instruments and segregate such instruments as belonging to

    such futures customers. Such instruments, when deposited with a bank,

    trust company, derivatives clearing organization or another futures

    commission merchant, shall be deposited under an account name which

    clearly shows that they belong to futures customers and are segregated

    as required by the Act and this part. Each futures commission merchant

    upon opening such an account shall obtain and retain in its files an

    acknowledgment from such bank, trust company, derivatives clearing

    organization or other futures commission merchant that it was informed

    that the instruments belong to futures customers and are being held in

    accordance with the provisions of the Act and this part. Provided,

    however, that an acknowledgment need not be obtained from a derivatives

    clearing organization that has adopted and submitted to the Commission

    rules that provide for the segregation as futures customer funds, in

    accordance with all relevant provisions of the Act and the rules and

    orders promulgated thereunder, of all funds held on behalf of futures

    customers and all instruments purchased with futures customer funds.

    Such acknowledgment shall be retained in accordance with Sec. 1.31.

    Such bank, trust company, derivatives clearing organization or other

    futures commission merchant shall allow inspection of such obligations

    at any reasonable time by representatives of the Commission.

    (b) Each derivatives clearing organization which invests money

    belonging or accruing to futures customers of its clearing members in

    instruments described in Sec. 1.25 shall separately account for such

    instruments and segregate such instruments as belonging to such futures

    customers. Such instruments, when deposited with a bank or trust

    company, shall be deposited under an account name which will clearly

    show that they belong to futures customers and are segregated as

    required by the Act and this part. Each derivatives clearing

    organization upon opening such an account shall obtain and retain in

    its files a written acknowledgment from such bank or trust company that

    it was informed that the instruments belong to futures customers of

    clearing members and are being held in accordance with the provisions

    of the Act and this part. Such acknowledgment shall be retained in

    accordance with Sec. 1.31. Such bank or trust company shall allow

    inspection of such instruments at any reasonable time by

    representatives of the Commission.

    0

    13. Revise paragraph (a) introductory text and paragraph (a)(6) of

    Sec. 1.27 to read as follows:

    Sec. 1.27 Record of investments.

    (a) Each futures commission merchant which invests customer funds,

    and each derivatives clearing organization which invests customer funds

    of its clearing members' customers, shall keep a record showing the

    following:

    * * * * *

    (6) The date on which such investments were liquidated or otherwise

    disposed of and the amount of money or current market value of

    securities received on such disposition, if any; and

    * * * * *

    0

    14. Revise Sec. 1.29 to read as follows:

    Sec. 1.29 Increment or interest resulting from investment of customer

    funds.

    The investment of customer funds in instruments described in Sec.

    1.25 shall not

    [[Page 66323]]

    prevent the futures commission merchant or derivatives clearing

    organization so investing such funds from receiving and retaining as

    its own any increment or interest resulting therefrom.

    0

    15. Revise Sec. 1.30 to read as follows:

    Sec. 1.30 Loans by futures commission merchants; treatment of

    proceeds.

    Nothing in the regulations in this chapter shall prevent a futures

    commission merchant from lending its own funds to customers on

    securities and property pledged by such customers, or from repledging

    or selling such securities and property pursuant to specific written

    agreement with such customers. The proceeds of such loans used to

    purchase, margin, guarantee, or secure the trades, contracts, or

    commodity options of customers shall be treated and dealt with by a

    futures commission merchant as belonging to such customers, in

    accordance with and subject to the provisions of the Act and these

    regulations.

    0

    16. Amend Sec. 1.31 by revising paragraphs (a), (b) introductory text,

    (b)(2)(iii), and (b)(3)(i), to read as follows:

    Sec. 1.31 Books and records; keeping and inspection.

    (a)(1) All books and records required to be kept by the Act or by

    these regulations shall be kept in their original form (for paper

    records) or native file format (for electronic records) for a period of

    five years from the date thereof and shall be readily accessible during

    the first 2 years of the 5-year period; Provided, however, That records

    of any swap or related cash or forward transaction shall be kept until

    the termination, maturity, expiration, transfer, assignment, or

    novation date of the transaction and for a period of five years after

    such date. Records of oral communications kept pursuant to Sec.

    23.202(a)(1) and (b)(1) of this chapter shall be kept for a period of

    one year. All such books and records shall be open to inspection by any

    representative of the Commission or the United States Department of

    Justice. For purposes of this section, native file format means an

    electronic file that exists in the format in which it was originally

    created.

    (2) Persons required to keep books and records by the Act or by

    these regulations shall produce such records in a form specified by any

    representative of the Commission. Such production shall be made, at the

    expense of the person required to keep the book or record, to a

    Commission representative upon the representative's request. Instead of

    furnishing a copy, such person may provide the original book or record

    for reproduction, which the representative may temporarily remove from

    such person's premises for this purpose. All copies or originals shall

    be provided promptly. Upon request, the Commission representative shall

    issue a receipt provided by such person for any copy or original book

    or record received. At the request of the Commission representative,

    such person shall, upon the return thereof, issue a receipt for any

    copy or original book or record returned by the representative.

    (b) Except as provided in paragraph (d) of this section, books and

    records required to be kept by the Act or by these regulations may be

    stored on either ``micrographic media'' (as defined in paragraph

    (b)(1)(i) of this section) or ``electronic storage media'' (as defined

    in paragraph (b)(1)(ii) of this section) for the required time period

    under the conditions set forth in this paragraph (b); Provided,

    however, For electronic records, such storage media must preserve the

    native file format of the electronic records as required by paragraph

    (a)(1) of this section.

    * * * * *

    (2) * * *

    (iii) Keep only Commission-required records on the individual

    medium employed (e.g., a disk or sheets of microfiche);

    * * * * *

    (3) * * *

    (i) Be ready at all times to provide, and immediately provide at

    the expense of the person required to keep such records, copies of such

    records on such compatible data processing media as defined in Sec.

    15.00(d) of this chapter which any representative of the Commission or

    the Department of Justice may request. Records must use a format and

    coding structure specified in the request.

    * * * * *

    0

    17. Revise paragraphs (a)(1), (a)(2), (a)(3), and (b) of Sec. 1.32 to

    read as follows:

    Sec. 1.32 Segregated account; daily computation and record.

    (a) * * *

    (1) The total amount of futures customer funds on deposit in

    segregated accounts on behalf of futures customers;

    (2) The amount of such futures customer funds required by the Act

    and these regulations to be on deposit in segregated accounts on behalf

    of such futures customers; and

    (3) The amount of the futures commission merchant's residual

    interest in such futures customer funds.

    (b) In computing the amount of futures customer funds required to

    be in segregated accounts, a futures commission merchant may offset any

    net deficit in a particular futures customer's account against the

    current market value of readily marketable securities, less applicable

    percentage deductions (i.e., ``securities haircuts'') as set forth in

    Rule 15c3-1(c)(2)(vi) of the Securities and Exchange Commission (17 CFR

    240.15c3-1(c)(2)(vi)), held for the same futures customer's account.

    The futures commission merchant must maintain a security interest in

    the securities, including a written authorization to liquidate the

    securities at the futures commission merchant's discretion, and must

    segregate the securities in a safekeeping account with a bank, trust

    company, derivatives clearing organization, or another futures

    commission merchant. For purposes of this section, a security will be

    considered readily marketable if it is traded on a ``ready market'' as

    defined in Rule 15c3-1(c)(11)(i) of the Securities and Exchange

    Commission (17 CFR 240.15c3-1(c)(11)(i)).

    * * * * *

    0

    18. Amend Sec. 1.33 by:

    0

    a. Revising paragraphs (a) introductory text, (a)(1) introductory text,

    and (a)(1)(iii);

    0

    b. Removing paragraph (a)(1)(iv);

    0

    c. Revising paragraphs (a)(2) introductory text, (a)(2)(i), (a)(2)(ii),

    and (a)(2)(iv);

    0

    d. Adding paragraphs (a)(3) and (a)(4);

    0

    e. Revising paragraph (b) introductory text, and (b)(1);

    0

    f. Redesignating paragraphs (b)(2) through (b)(4) as paragraphs (b)(3)

    through (b)(5);

    0

    g. Adding a new paragraph (b)(2);

    0

    h. Revising newly designated paragraphs (b)(3)(i), (b)(3)(iv), (b)(4),

    and (b)(5); and

    0

    i. Revising paragraph (d) introductory text.

    The revisions and additions read as follows:

    Sec. 1.33 Monthly and confirmation statements.

    (a) Monthly statements. Each futures commission merchant must

    promptly furnish in writing to each customer, and to each foreign

    futures or foreign options customer, as defined by Sec. 30.1 of this

    chapter, as of the close of the last business day of each month or as

    of any regular monthly date selected, except for accounts in which

    there are neither open contracts at the end of the statement period nor

    any changes to the account balance since the prior statement period,

    but in any event not less frequently than once every three

    [[Page 66324]]

    months, a statement which clearly shows:

    (1) For each commodity futures customer and foreign futures or

    foreign options customer position--

    * * * * *

    (iii) Any futures customer funds or foreign futures or foreign

    options secured amount, as defined by Sec. 1.3(rr), carried with the

    futures commission merchant.

    (2) For each commodity option position and foreign option

    position--

    (i) All commodity options and foreign options purchased, sold,

    exercised, or expired during the monthly reporting period, identified

    by underlying futures contract or underlying commodity, strike price,

    transaction date, and expiration date;

    (ii) The open commodity option and foreign option positions carried

    for such customer or foreign futures or foreign options customer as of

    the end of the monthly reporting period, identified by underlying

    futures contract or underlying commodity, strike price, transaction

    date, and expiration date;

    * * * * *

    (iv) Any related customer funds carried in such customer's

    account(s) or any related foreign futures or foreign options secured

    amount carried in the account(s) of a foreign futures or foreign

    options customer.

    (3) For each Cleared Swaps Customer position--

    (i) The Cleared Swaps, as Sec. 22.1 of this chapter defines that

    term, carried by the futures commission merchant for the Cleared Swaps

    Customer;

    (ii) The net unrealized profits or losses in all Cleared Swaps

    marked to the market;

    (iii) Any Cleared Swaps Customer Collateral carried with the

    futures commission merchant; and

    (4) A detailed accounting of all financial charges and credits to

    customers and foreign futures or foreign options customers, during the

    monthly reporting period, including all customer funds and any foreign

    futures or foreign options secured amount, received from or disbursed

    to customers or foreign futures or foreign options customers, as well

    as realized profits and losses.

    (b) Confirmation statement. Each futures commission merchant must,

    not later than the next business day after any commodity interest or

    commodity option transaction, including any foreign futures or foreign

    options transactions, furnish to each customer or foreign futures or

    foreign options customer:

    (1) A written confirmation of each commodity futures transaction

    caused to be executed by it for the customer.

    (2) A written confirmation of each Cleared Swap carried by the

    futures commission merchant, containing at least the following

    information:

    (i) The unique swap identifier, as required by Sec. 45.4(a) of

    this chapter, for each Cleared Swap and the date each Cleared Swap was

    executed;

    (ii) The product name of each Cleared Swap;

    (iii) The price at which the Cleared Swap was executed;

    (iv) The date of maturity for each Cleared Swap; and

    (v) The derivatives clearing organization through which it is

    cleared.

    (3) A written confirmation of each commodity option transaction,

    containing at least the following information:

    (i) The customer's account identification number;

    * * * * *

    (iv) The underlying futures contract or underlying commodity;

    * * * * *

    (4) Upon the expiration or exercise of any commodity option, a

    written confirmation statement thereof, which statement shall include

    the date of such occurrence, a description of the option involved, and,

    in the case of exercise, the details of the futures or physical

    position which resulted therefrom including, if applicable, the final

    trading date of the contract for future delivery underlying the option.

    (5) Notwithstanding the provisions of paragraphs (b)(1) through

    (b)(4) of this section, a commodity interest transaction that is caused

    to be executed for a commodity pool need be confirmed only to the

    operator of the commodity pool.

    * * * * *

    (d) Controlled accounts. With respect to any account controlled by

    any person other than the customer for whom such account is carried,

    each futures commission merchant shall:

    * * * * *

    0

    19. Revise Sec. 1.34 to read as follows:

    Sec. 1.34 Monthly record, ``point balance''.

    (a) With respect to commodity futures transactions, each futures

    commission merchant shall prepare, and retain in accordance with the

    requirements of Sec. 1.31, a statement commonly known as a ``point

    balance,'' which accrues or brings to the official closing price, or

    settlement price fixed by the clearing organization, all open contracts

    of customers as of the last business day of each month or of any

    regular monthly date selected: Provided, however, That a futures

    commission merchant who carries part or all of customers' open

    contracts with other futures commission merchants on an ``instruct

    basis'' will be deemed to have met the requirements of this section as

    to open contracts so carried if a monthly statement is prepared which

    shows that the prices and amounts of such contracts long and short in

    the customers' accounts are in balance with those in the carrying

    futures commission merchants' accounts, and such statements are

    retained in accordance with the requirements of Sec. 1.31.

    (b) With respect to commodity option transactions, each futures

    commission merchant shall prepare, and retain in accordance with the

    requirements of Sec. 1.31, a listing in which all open commodity

    option positions carried for customers are marked to the market. Such

    listing shall be prepared as of the last business day of each month, or

    as of any regular monthly date selected, and shall be by put or by

    call, by underlying contract for future delivery (by delivery month) or

    underlying commodity (by option expiration date), and by strike price.

    0

    20. Section 1.35 is revised to read as follows:

    Sec. 1.35 Records of commodity interest and cash commodity

    transactions.

    (a) Futures commission merchants, retail foreign exchange dealers,

    introducing brokers, and members of designated contract markets or swap

    execution facilities. Each futures commission merchant, retail foreign

    exchange dealer, introducing broker, and member of a designated

    contract market or swap execution facility shall keep full, complete,

    and systematic records, which include all pertinent data and memoranda,

    of all transactions relating to its business of dealing in commodity

    interests and cash commodities. Each futures commission merchant,

    retail foreign exchange dealer, introducing broker, and member of a

    designated contract market or swap execution facility shall retain the

    required records, in accordance with the requirements of Sec. 1.31,

    and produce them for inspection and furnish true and correct

    information and reports as to the contents or the meaning thereof, when

    and as requested by an authorized representative of the Commission or

    the United States Department of Justice. Included among such records

    shall be all orders (filled, unfilled, or canceled), trading cards,

    signature cards, street books, journals, ledgers, canceled checks,

    copies of confirmations, copies of statements of purchase and sale, and

    all other records, which have been prepared in the course of its

    business of dealing in commodity interests and cash

    [[Page 66325]]

    commodities. Among such records each member of a designated contract

    market or swap execution facility must retain and produce for

    inspection are all documents on which trade information is originally

    recorded, whether or not such documents must be prepared pursuant to

    the rules or regulations of either the Commission, the designated

    contract market or the swap execution facility. For purposes of this

    section, such documents are referred to as ``original source

    documents.''

    (b) Futures commission merchants, retail foreign exchange dealers,

    introducing brokers, and members of designated contract markets and

    swap execution facilities: Recording of customers' orders. (1) Each

    futures commission merchant, each retail foreign exchange dealer, each

    introducing broker, and each member of a designated contract market or

    swap execution facility receiving a customer's order that cannot

    immediately be entered into a trade matching engine shall immediately

    upon receipt thereof prepare a written record of the order including

    the account identification, except as provided in paragraph (b)(5) of

    this section, and order number, and shall record thereon, by timestamp

    or other timing device, the date and time, to the nearest minute, the

    order is received, and in addition, for commodity option orders, the

    time, to the nearest minute, the order is transmitted for execution.

    (2)(i) Each member of a designated contract market who on the floor

    of such designated contract market receives a customer's order which is

    not in the form of a written record including the account

    identification, order number, and the date and time, to the nearest

    minute, the order was transmitted or received on the floor of such

    designated contract market, shall immediately upon receipt thereof

    prepare a written record of the order in non-erasable ink, including

    the account identification, except as provided in paragraph (b)(5) of

    this section, and order number and shall record thereon, by timestamp

    or other timing device, the date and time, to the nearest minute, the

    order is received.

    (ii) Except as provided in paragraph (b)(3) of this section:

    (A) Each member of a designated contract market who on the floor of

    such designated contract market receives an order from another member

    present on the floor which is not in the form of a written record

    shall, immediately upon receipt of such order, prepare a written record

    of the order or obtain from the member who placed the order a written

    record of the order, in non-erasable ink including the account

    identification and order number and shall record thereon, by time-stamp

    or other timing device, the date and time, to the nearest minute, the

    order is received; or

    (B) When a member of a designated contract market present on the

    floor places an order, which is not in the form of a written record,

    for his own account or an account over which he has control, with

    another member of such designated contract market for execution:

    (1) The member placing such order immediately upon placement of the

    order shall record the order and time of placement to the nearest

    minute on a sequentially-numbered trading card maintained in accordance

    with the requirements of paragraph (f) of this section;

    (2) The member receiving and executing such order immediately upon

    execution of the order shall record the time of execution to the

    nearest minute on a trading card or other record maintained pursuant to

    the requirements of paragraph (f) of this section; and

    (3) The member receiving and executing the order shall return such

    trading card or other record to the member placing the order. The

    member placing the order then must submit together both of the trading

    cards or other records documenting such trade to designated contract

    market personnel or the clearing member.

    (3)(i) The requirements of paragraph (b)(2)(ii) of this section

    will not apply if a designated contract market maintains in effect

    rules which provide for an exemption where:

    (A) A member of a designated contract market places with another

    member of such designated contract market an order that is part of a

    spread transaction;

    (B) The member placing the order personally executes one or more

    legs of the spread; and

    (C) The member receiving and executing such order immediately upon

    execution of the order records the time of execution to the nearest

    minute on his trading card or other record maintained in accordance

    with the requirements of paragraph (f) of this section.

    (ii) Each contract market shall, as part of its trade practice

    surveillance program, conduct surveillance for compliance with the

    recordkeeping and other requirements under paragraphs (b)(2) and (3) of

    this section, and for trading abuses related to the execution of orders

    for members present on the floor of the contract market.

    (4) Each member of a designated contract market reporting the

    execution from the floor of the designated contract market of a

    customer's order or the order of another member of the designated

    contract market received in accordance with paragraphs (b)(2)(i) or

    (b)(2)(ii)(A) of this section, shall record on a written record of the

    order, including the account identification, except as provided in

    paragraph (b)(5) of this section, and order number, by time-stamp or

    other timing device, the date and time to the nearest minute such

    report of execution is made. Each member of a designated contract

    market shall submit the written records of customer orders or orders

    from other designated contract market members to designated contract

    market personnel or to the clearing member responsible for the

    collection of orders prepared pursuant to this paragraph. The execution

    price and other information reported on the order tickets must be

    written in non-erasable ink.

    (5) Post-execution allocation of bunched orders. Specific customer

    account identifiers for accounts included in bunched orders executed on

    designated contract markets or swap execution facilities need not be

    recorded at time of order placement or upon report of execution if the

    requirements of paragraphs (b)(5)(i) through (v) of this section are

    met. Specific customer account identifiers for accounts included in

    bunched orders involving swaps need not be included in confirmations or

    acknowledgments provided by swap dealers or major swap participants

    pursuant to Sec. 23.501(a) of this chapter if the requirements of

    paragraphs (b)(5)(i) through (v) of this section are met.

    (i) Eligible account managers for orders executed on designated

    contract markets or swap execution facilities. The person placing and

    directing the allocation of an order eligible for post-execution

    allocation must have been granted written investment discretion with

    regard to participating customer accounts. The following persons shall

    qualify as eligible account managers for trades executed on designated

    contract markets or swap execution facilities:

    (A) A commodity trading advisor registered with the Commission

    pursuant to the Act or excluded or exempt from registration under the

    Act or the Commission's rules, except for entities exempt under Sec.

    4.14(a)(3) of this chapter;

    (B) An investment adviser registered with the Securities and

    Exchange Commission pursuant to the Investment Advisers Act of 1940 or

    with a state pursuant to applicable state law or excluded or exempt

    from registration under such Act or applicable state law or rule;

    [[Page 66326]]

    (C) A bank, insurance company, trust company, or savings and loan

    association subject to federal or state regulation;

    (D) A foreign adviser that exercises discretionary trading

    authority solely over the accounts of non-U.S. persons, as defined in

    Sec. 4.7(a)(1)(iv) of this chapter;

    (E) A futures commission merchant registered with the Commission

    pursuant to the Act; or

    (F) An introducing broker registered with the Commission pursuant

    to the Act.

    (ii) Eligible account managers for orders executed bilaterally. The

    person placing and directing the allocation of an order eligible for

    post-execution allocation must have been granted written investment

    discretion with regard to participating customer accounts. The

    following persons shall qualify as eligible account managers for trades

    executed bilaterally:

    (A) A commodity trading advisor registered with the Commission

    pursuant to the Act or excluded or exempt from registration under the

    Act or the Commission's rules, except for entities exempt under Sec.

    4.14(a)(3) of this chapter;

    (B) A futures commission merchant registered with the Commission

    pursuant to the Act; or

    (C) An introducing broker registered with the Commission pursuant

    to the Act.

    (iii) Information. Eligible account managers shall make the

    following information available to customers upon request:

    (A) The general nature of the allocation methodology the account

    manager will use;

    (B) Whether accounts in which the account manager may have any

    interest may be included with customer accounts in bunched orders

    eligible for post-execution allocation; and

    (C) Summary or composite data sufficient for that customer to

    compare its results with those of other comparable customers and, if

    applicable and consistent with Sec. 155.3(a)(1) and Sec. 155.4(a)(1)

    of this chapter, any account in which the account manager has an

    interest.

    (iv) Allocation. Orders eligible for post-execution allocation must

    be allocated by an eligible account manager in accordance with the

    following:

    (A) Allocations must be made as soon as practicable after the

    entire transaction is executed, but in any event no later than the

    following times: For cleared trades, account managers must provide

    allocation information to futures commission merchants no later than a

    time sufficiently before the end of the day the order is executed to

    ensure that clearing records identify the ultimate customer for each

    trade. For uncleared trades, account managers must provide allocation

    information to the counterparty no later than the end of the calendar

    day that the swap was executed.

    (B) Allocations must be fair and equitable. No account or group of

    accounts may receive consistently favorable or unfavorable treatment.

    (C) The allocation methodology must be sufficiently objective and

    specific to permit independent verification of the fairness of the

    allocations using that methodology by appropriate regulatory and self-

    regulatory authorities and by outside auditors.

    (v) Records. (A) Eligible account managers shall keep and must make

    available upon request of any representative of the Commission, the

    United States Department of Justice, or other appropriate regulatory

    agency, the information specified in paragraph (b)(5)(iii) of this

    section.

    (B) Eligible account managers shall keep and must make available

    upon request of any representative of the Commission, the United States

    Department of Justice, or other appropriate regulatory agency, records

    sufficient to demonstrate that all allocations meet the standards of

    paragraph (b)(5)(iv) of this section and to permit the reconstruction

    of the handling of the order from the time of placement by the account

    manager to the allocation to individual accounts.

    (C) Futures commission merchants, introducing brokers, or commodity

    trading advisors that execute orders or that carry accounts eligible

    for post-execution allocation, and members of designated contract

    markets or swap execution facilities that execute such orders, must

    maintain records that, as applicable, identify each order subject to

    post-execution allocation and the accounts to which contracts executed

    for such order are allocated.

    (D) In addition to any other remedies that may be available under

    the Act or otherwise, if the Commission has reason to believe that an

    account manager has failed to provide information requested pursuant to

    paragraph (b)(5)(v)(A) or (b)(5)(v)(B) of this section, the Commission

    may inform in writing any designated contract market, swap execution

    facility, swap dealer, or major swap participant, and that designated

    contract market, swap execution facility, swap dealer, or major swap

    participant shall prohibit the account manager from submitting orders

    for execution except for liquidation of open positions and no futures

    commission merchant shall accept orders for execution on any designated

    contract market, swap execution facility, or bilaterally from the

    account manager except for liquidation of open positions.

    (E) Any account manager that believes he or she is or may be

    adversely affected or aggrieved by action taken by the Commission under

    paragraph (b)(5)(v)(D) of this section shall have the opportunity for a

    prompt hearing in accordance with the provisions of Sec. 21.03(g) of

    this chapter.

    (c)(1) Futures commission merchants, introducing brokers, and

    members of designated contract markets and swap execution facilities.

    Upon request of the designated contract market or swap execution

    facility, the Commission, or the United States Department of Justice,

    each futures commission merchant, introducing broker, and member of a

    designated contract market or swap execution facility shall request

    from its customers and, upon receipt thereof, provide to the requesting

    body documentation of cash transactions underlying exchanges of futures

    or swaps for cash commodities or exchanges of futures or swaps in

    connection with cash commodity transactions.

    (2) Customers. Each customer of a futures commission merchant,

    introducing broker, or member of a designated contract market or swap

    execution facility shall create, retain, and produce upon request of

    the designated contract market or swap execution facility, the

    Commission, or the United States Department of Justice documentation of

    cash transactions underlying exchanges of futures or swaps for cash

    commodities or exchanges of futures or swaps in connection with cash

    commodity transactions.

    (3) Contract markets. Every contract market shall adopt rules which

    require its members to provide documentation of cash transactions

    underlying exchanges of futures for cash commodities or exchanges of

    futures in connection with cash commodity transactions upon request of

    the contract market.

    (4) Documentation. For the purposes of this paragraph (c),

    documentation means those documents customarily generated in accordance

    with cash market practices which demonstrate the existence and nature

    of the underlying cash transactions, including, but not limited to,

    contracts, confirmation statements, telex printouts, invoices, and

    warehouse receipts or other documents of title.

    [[Page 66327]]

    (d) Futures commission merchants, retail foreign exchange dealers,

    introducing brokers, and members of derivatives clearing organizations

    clearing trades executed on designated contract markets and swap

    execution facilities. Each futures commission merchant, each retail

    foreign exchange dealer, and each member of a derivatives clearing

    organization clearing trades executed on a designated contract market

    or swap execution facility and, for purposes of paragraph (d)(3) of

    this section, each introducing broker, shall, as a minimum requirement,

    prepare regularly and promptly, and keep systematically and in

    permanent form, the following:

    (1) A financial ledger record which will show separately for each

    customer all charges against and credits to such customer's account,

    including but not limited to customer funds deposited, withdrawn, or

    transferred, and charges or credits resulting from losses or gains on

    closed transactions;

    (2) A record of transactions which will show separately for each

    account (including proprietary accounts):

    (i) All commodity futures transactions executed for such account,

    including the date, price, quantity, market, commodity and future;

    (ii) All retail forex transactions executed for such account,

    including the date, price, quantity, and currency;

    (iii) All commodity option transactions executed for such account,

    including the date, whether the transaction involved a put or call,

    expiration date, quantity, underlying contract for future delivery or

    underlying commodity, strike price, and details of the purchase price

    of the option, including premium, mark-up, commission and fees; and

    (iv) All swap transactions executed for such account, including the

    date, price, quantity, market, commodity, swap, and, if cleared, the

    derivatives clearing organization; and

    (3) A record or journal which will separately show for each

    business day complete details of:

    (i) All commodity futures transactions executed on that day,

    including the date, price, quantity, market, commodity, future and the

    person for whom such transaction was made;

    (ii) All retail forex transactions executed on that day for such

    account, including the date, price, quantity, currency and the person

    who whom such transaction was made;

    (iii) All commodity option transactions executed on that day,

    including the date, whether the transaction involved a put or call, the

    expiration date, quantity, underlying contract for future delivery or

    underlying commodity, strike price, details of the purchase price of

    the option, including premium, mark-up, commission and fees, and the

    person for whom the transaction was made;

    (iv) All swap transactions executed on that day, including the

    date, price, quantity, market, commodity, swap, the person for whom

    such transaction was made, and, if cleared, the derivatives clearing

    organization; and

    (v) In the case of an introducing broker, the record or journal

    required by this paragraph (d)(3) shall also include the futures

    commission merchant or retail foreign exchange dealer carrying the

    account for which each commodity futures, retail forex, commodity

    option, and swap transaction was executed on that day. Provided,

    however, that where reproductions on microfilm, microfiche or optical

    disk are substituted for hard copy in accordance with the provisions of

    Sec. 1.31(b), the requirements of paragraphs (d)(1) and (d)(2) of this

    section will be considered met if the person required to keep such

    records is ready at all times to provide, and immediately provides in

    the same city as that in which such person's commodity futures, retail

    forex, commodity option, or swap books and records are maintained, at

    the expense of such person, reproduced copies which show the records as

    specified in paragraphs (d)(1) and (d)(2) of this section, on request

    of any representatives of the Commission or the U.S. Department of

    Justice.

    (e) Members of derivatives clearing organizations clearing trades

    executed on designated contract markets and swap execution facilities.

    In the daily record or journal required to be kept under paragraph

    (d)(3) of this section, each member of a derivatives clearing

    organization clearing trades executed on a designated contract market

    or swap execution facility shall also show the floor broker or floor

    trader executing each transaction, the opposite floor broker or floor

    trader, and the opposite clearing member with whom it was made.

    (f) Members of designated contract markets. (1) Each member of a

    designated contract market who, in the place provided by the designated

    contract market for the meeting of persons similarly engaged, executes

    purchases or sales of any commodity for future delivery, commodity

    option, or swap on or subject to the rules of such designated contract

    market, shall prepare regularly and promptly a trading card or other

    record showing such purchases and sales. Such trading card or record

    shall show the member's name, the name of the clearing member,

    transaction date, time, quantity, and, as applicable, underlying

    commodity, contract for future delivery, or swap, price or premium,

    delivery month or expiration date, whether the transaction involved a

    put or a call, and strike price. Such trading card or other record

    shall also clearly identify the opposite floor broker or floor trader

    with whom the transaction was executed, and the opposite clearing

    member (if such opposite clearing member is made known to the member).

    (2) Each member of a designated contract market recording purchases

    and sales on trading cards must record such purchases and sales in

    exact chronological order of execution on sequential lines of the

    trading card without skipping lines between trades; Provided, however,

    That if lines remain after the last execution recorded on a trading

    card, the remaining lines must be marked through.

    (3) Each member of a designated contract market must identify on

    his or her trading cards the purchases and sales executed during the

    opening and closing periods designated by the designated contract

    market.

    (4) Trading cards prepared by a member of a designated contract

    market must contain:

    (i) Pre-printed member identification or other unique identifying

    information which would permit the trading cards of one member to be

    distinguished from those of all other members;

    (ii) Pre-printed sequence numbers to permit the intra-day

    sequencing of the cards; and

    (iii) Unique and pre-printed identifying information which would

    distinguish each of the trading cards prepared by the member from other

    such trading cards for no less than a one-week period.

    (5) Trading cards prepared by a member of a designated contract

    market and submitted pursuant to paragraph (f)(7)(i) of this section

    must be time-stamped promptly to the nearest minute upon collection by

    either the designated contract market or the relevant clearing member.

    (6) Each member of a designated contract market shall be

    accountable for all trading cards prepared in exact numerical sequence,

    whether or not such trading cards are relied on as original source

    documents.

    (7) Trading records prepared by a member of a designated contract

    market must:

    (i) Be submitted to designated contract market personnel or the

    clearing member within 15 minutes of designated intervals not to exceed

    30

    [[Page 66328]]

    minutes, commencing with the beginning of each trading session. The

    time period for submission of trading records after the close of

    trading in each market shall not exceed 15 minutes from the close. Such

    documents should nevertheless be submitted as often as is practicable

    to the designated contract market or relevant clearing member; and

    (ii) Be completed in non-erasable ink. A member may correct any

    errors by crossing out erroneous information without obliterating or

    otherwise making illegible any of the originally recorded information.

    With regard to trading cards only, a member may correct erroneous

    information by rewriting the trading card; Provided, however, that the

    member must submit a ply of the trading card, or in the absence of

    plies the original trading card, that is subsequently rewritten in

    accordance with the collection schedule for trading cards and provided

    further, that the member is accountable for any trading card that

    subsequently is rewritten pursuant to paragraph (f)(6) of this section.

    (8) Each member of a designated contract market must use a new

    trading card at the beginning of each designated 30-minute interval (or

    such lesser interval as may be determined appropriate) or as may be

    required pursuant hereto.

    (g) Members of derivatives clearing organizations clearing trades

    executed on designated contract markets and swap execution facilities.

    (1) Each member of a derivatives clearing organization clearing trades

    executed on a designated contract market or swap execution facility

    shall maintain a single record which shall show for each futures,

    option, or swap trade: the transaction date, time, quantity, and, as

    applicable, underlying commodity, contract for future delivery, or

    swap, price or premium, delivery month or expiration date, whether the

    transaction involved a put or a call, strike price, floor broker or

    floor trader buying, clearing member buying, floor broker or floor

    trader selling, clearing member selling, and symbols indicating the

    buying and selling customer types. The customer type indicator shall

    show, with respect to each person executing the trade, whether such

    person:

    (i) Was trading for his or her own account, or an account for which

    he or she has discretion;

    (ii) Was trading for his or her clearing member's house account;

    (iii) Was trading for another member present on the exchange floor,

    or an account controlled by such other member; or

    (iv) Was trading for any other type of customer.

    (2) The record required by this paragraph (g) shall also show, by

    appropriate and uniform symbols, any transaction which is made non-

    competitively in accordance with the provisions of subpart J of part 38

    of this chapter, and trades cleared on dates other than the date of

    execution. Except as otherwise approved by the Commission for good

    cause shown, the record required by this paragraph (g) shall be

    maintained in a format and coding structure approved by the

    Commission--

    (i) In hard copy or on microfilm as specified in Sec. 1.31, and

    (ii) For 60 days in computer-readable form on compatible magnetic

    tapes or discs.

    0

    21. Revise Sec. 1.36 to read as follows:

    Sec. 1.36 Record of securities and property received from customers.

    (a) Each futures commission merchant and each retail foreign

    exchange dealer shall maintain, as provided in Sec. 1.31, a record of

    all securities and property received from customers or retail forex

    customers in lieu of money to margin, purchase, guarantee, or secure

    the commodity interests of such customers or retail forex customers.

    Such record shall show separately for each customer or retail forex

    customer: A description of the securities or property received; the

    name and address of such customer or retail forex customer; the dates

    when the securities or property were received; the identity of the

    depositories or other places where such securities or property are

    segregated or held; the dates of deposits and withdrawals from such

    depositories; and the dates of return of such securities or property to

    such customer or retail forex customer, or other disposition thereof,

    together with the facts and circumstances of such other disposition. In

    the event any futures commission merchant deposits with a derivatives

    clearing organization, directly or with a bank or trust company acting

    as custodian for such derivatives clearing organization, securities

    and/or property which belong to a particular customer, such futures

    commission merchant shall obtain written acknowledgment from such

    derivatives clearing organization that it was informed that such

    securities or property belong to customers of the futures commission

    merchant making the deposit. Such acknowledgment shall be retained as

    provided in Sec. 1.31.

    (b) Each derivatives clearing organization which receives from

    members securities or property belonging to particular customers of

    such members in lieu of money to margin, purchase, guarantee, or secure

    the commodity interests of such customers, or receives notice that any

    such securities or property have been received by a bank or trust

    company acting as custodian for such derivatives clearing organization,

    shall maintain, as provided in Sec. 1.31, a record which will show

    separately for each member, the dates when such securities or property

    were received, the identity of the depositories or other places where

    such securities or property are segregated, the dates such securities

    or property were returned to the member, or otherwise disposed of,

    together with the facts and circumstances of such other disposition

    including the authorization therefor.

    0

    22. Revise Sec. 1.37 to read as follows:

    Sec. 1.37 Customer's name, address, and occupation recorded; record

    of guarantor or controller of account.

    (a) Each futures commission merchant, retail foreign exchange

    dealer, introducing broker, and member of a contract market shall keep

    a record in permanent form which shall show for each commodity interest

    account carried or introduced by it the true name and address of the

    person for whom such account is carried or introduced and the principal

    occupation or business of such person as well as the name of any other

    person guaranteeing such account or exercising any trading control with

    respect to such account. For each such commodity option account, the

    records kept by such futures commission merchant, introducing broker,

    and member of a contract market must also show the name of the person

    who has solicited and is responsible for each customer's account or

    assign account numbers in such a manner to identify that person.

    (b) As of the close of the market each day, each futures commission

    merchant which carries an account for another futures commission

    merchant, foreign broker (as defined in Sec. 15.00 of this chapter),

    member of a contract market, or other person, on an omnibus basis shall

    maintain a daily record for each such omnibus account of the total open

    long contracts and the total open short contracts in each future and in

    each swap and, for commodity option transactions, the total open put

    options purchased, the total open put options granted, the total open

    call options purchased, and the total open call options granted for

    each commodity option expiration date.

    (c) Each designated contract market and swap execution facility

    shall keep a record in permanent form, which shall show the true name,

    address, and

    [[Page 66329]]

    principal occupation or business of any foreign trader executing

    transactions on the facility or exchange. In addition, upon request, a

    designated contract market or swap execution facility shall provide to

    the Commission information regarding the name of any person

    guaranteeing such transactions or exercising any control over the

    trading of such foreign trader.

    (d) Paragraph (c) of this section shall not apply to a designated

    contract market or swap execution facility on which transactions in

    futures, swaps or options (other than swaps) contracts of foreign

    traders are executed through, or the resulting transactions are

    maintained in, accounts carried by a registered futures commission

    merchant or introduced by a registered introducing broker subject to

    the provisions of paragraph (a) of this section.

    0

    23. Amend Sec. 1.39 by revising paragraph (a) introductory text and

    paragraphs (a)(1)(ii), (a)(2), (a)(3), (a)(4), (b), and (c), to read as

    follows:

    Sec. 1.39 Simultaneous buying and selling orders of different

    principals; execution of, for and between principals.

    (a) Conditions and requirements. A member of a contract market or a

    swap execution facility who shall have at the same time both buying and

    selling orders of different principals for the same swap, commodity for

    future delivery in the same delivery month or the same option (both

    puts or both calls, with the same underlying contract for future

    delivery or the same underlying commodity, expiration date and strike

    price) may execute such orders for and directly between such principals

    at the market price, if in conformity with written rules of such

    contract market or swap execution facility which have been approved by

    or self-certified to the Commission, and:

    (1) * * *

    (ii) When in non-pit trading in swaps or contracts of sale for

    future delivery, bids and offers are posted on a board, such member:

    (A) Pursuant to such buying order posts a bid on the board and,

    incident to the execution of such selling order, accepts such bid and

    all other bids posted at equal to or higher than the bid posted by him;

    or

    (B) Pursuant to such selling order posts an offer on the board and,

    incident to the execution of such buying order, accepts such offer and

    all other offers posted at prices equal to or lower than the offer

    posted by him;

    (2) Such member executes such orders in the presence of an official

    representative of such contract market or swap execution facility

    designated to observe such transactions and, by appropriate descriptive

    words or symbol, clearly identifies all such transactions on his

    trading card or other record, made at the time of execution, and notes

    thereon the exact time of execution and promptly presents or makes

    available said record to such official representative for verification

    and initialing, as appropriate;

    (3) Such swap execution facility or contract market keeps a record

    in permanent form of each such transaction showing all transaction

    details required to be captured by the Act, Commission rule or

    regulation; and

    (4) Neither the futures commission merchant, other registrant

    receiving nor the member executing such orders has any interest

    therein, directly or indirectly, except as a fiduciary.

    (b) Large order execution procedures. (1) A member of a contract

    market or a swap execution facility may execute simultaneous buying and

    selling orders of different principals directly between the principals

    in compliance with Commission regulations and large order execution

    procedures established by written rules of the contract market or swap

    execution facility that have been approved by or self-certified to the

    Commission: Provided, That, to the extent such large order execution

    procedures do not meet the conditions and requirements of paragraph (a)

    of this section, the contract market or swap execution facility has

    petitioned the Commission for, and the Commission has granted, an

    exemption from the conditions and requirements of paragraph (a) of this

    section. Any such petition must be accompanied by proposed contract

    market or swap execution facility rules to implement the large order

    execution procedures. The petition shall include:

    (i) An explanation of why the proposed large order execution rules

    do not comply with paragraph (a) of this section; and

    (ii) A description of a special surveillance program that would be

    followed by the contract market or swap execution facility in

    monitoring the large order execution procedures.

    (2) The Commission may, in its discretion and upon such terms and

    conditions as it deems appropriate, grant such petition for exemption

    if it finds that the exemption is not contrary to the public interest

    and the purpose of the provision from which explanation is sought. The

    petition shall be considered concurrently with the proposed large order

    execution rules.

    (c) Not deemed filling orders by offset. The execution of orders in

    compliance with the conditions herein set forth will not be deemed to

    constitute the filling of orders by offset within the meaning of

    section 4b(a) of the Act.

    0

    24. Revise Sec. 1.40 to read as follows:

    Sec. 1.40 Crop, market information letters, reports; copies required.

    Each futures commission merchant, each retail foreign exchange

    dealer, each introducing broker, and each member of a contract market

    or a swap execution facility shall, upon request, furnish or cause to

    be furnished to the Commission a true copy of any letter, circular,

    telecommunication, or report published or given general circulation by

    such futures commission merchant, retail foreign exchange dealer,

    introducing broker, member or eligible contract participant which

    concerns crop or market information or conditions that affect or tend

    to affect the price of any commodity, including any exchange rate, and

    the true source of or authority for the information contained therein.

    Sec. 1.44 [Removed and Reserved]

    0

    25. Remove and reserve Sec. 1.44.

    0

    26. Amend Sec. 1.46 by revising paragraph (a)(1) introductory text and

    paragraphs (a)(1)(iii), (a)(1)(iv), (a)(2)(iii), (a)(2)(iv), and (b),

    to read as follows:

    Sec. 1.46 Application and closing out of offsetting long and short

    positions.

    (a) Application of purchases and sales. (1) Except with respect to

    purchases or sales which are for omnibus accounts, or where the

    customer or account controller has instructed otherwise, any futures

    commission merchant who, on or subject to the rules of a designated

    contract market:

    * * * * *

    (iii) Purchases a put or call option for the account of any

    customer when the account of such customer at the time of such purchase

    has a short put or call option position with the same underlying

    futures contract or same underlying commodity, strike price, expiration

    date and contract market as that purchased; or

    (iv) Sells a put or call option for the account of any customer

    when the account of such customer at the time of such sale has a long

    put or call option position with the same underlying futures contract

    or same underlying commodity, strike price, expiration date and

    contract market as that sold--shall on the same day apply such purchase

    or sale against such previously held short or long futures or option

    position, as the case may be, and shall, for futures transactions,

    promptly furnish such

    [[Page 66330]]

    customer a statement showing the financial result of the transactions

    involved and, if applicable, that the account was introduced to the

    futures commission merchant by an introducing broker and the names of

    the futures commission merchant and introducing broker.

    (2) * * *

    (iii) Purchases a put or call option involving foreign currency for

    the account of any customer when the account of such customer at the

    time of such purchase has a short put or call option position with the

    same underlying currency, strike price, and expiration date as that

    purchased; or

    (iv) Sells a put or call option involving foreign currency for the

    account of any customer when the account of such customer at the time

    of such sale has a long put or call option position with the same

    underlying currency, strike price, and expiration date as that sold--

    shall immediately apply such purchase or sale against such previously

    held opposite transaction, and shall promptly furnish such retail forex

    customer a statement showing the financial result of the transactions

    involved and, if applicable, that the account was introduced to the

    futures commission merchant or retail foreign exchange dealer by an

    introducing broker and the names of the futures commission merchant or

    retail foreign exchange dealer, and the introducing broker.

    (b) Close-out against oldest open position. In all instances

    wherein the short or long futures, retail forex transaction or option

    position in such customer's or retail forex customer's account

    immediately prior to such offsetting purchase or sale is greater than

    the quantity purchased or sold, the futures commission merchant or

    retail foreign exchange dealer shall apply such offsetting purchase or

    sale to the oldest portion of the previously held short or long

    position: Provided, That upon specific instructions from the customer

    the offsetting transaction shall be applied as specified by the

    customer without regard to the date of acquisition of the previously

    held position; and Provided, further, that a futures commission

    merchant or retail foreign exchange dealer, if permitted by the rules

    of a registered futures association, may offset, at the customer's

    request, retail forex transactions of the same size, even if the

    customer holds other transactions of a different size, but in each case

    must offset the transaction against the oldest transaction of the same

    size. Such instructions may also be accepted from any person who, by

    power of attorney or otherwise, actually directs trading in the

    customer's or retail forex customer's account unless the person

    directing the trading is the futures commission merchant or retail

    foreign exchange dealer (including any partner thereof), or is an

    officer, employee, or agent of the futures commission merchant or

    retail foreign exchange dealer. With respect to every such offsetting

    transaction that, in accordance with such specific instructions, is not

    applied to the oldest portion of the previously held position, the

    futures commission merchant or retail foreign exchange dealer shall

    clearly show on the statement issued to the customer or retail forex

    customer in connection with the transaction, that because of the

    specific instructions given by or on behalf of the customer or retail

    forex customer the transaction was not applied in the usual manner,

    i.e., against the oldest portion of the previously held position.

    However, no such showing need be made if the futures commission

    merchant or retail foreign exchange dealer has received such specific

    instructions in writing from the customer or retail forex customer for

    whom such account is carried.

    * * * * *

    0

    27. Revise paragraph (b)(1)(iii) of Sec. 1.49 to read as follows:

    Sec. 1.49 Denomination of customer funds and location of

    depositories.

    * * * * *

    (b) * * *

    (1) * * *

    (iii) In a currency in which funds have accrued to the customer as

    a result of trading conducted on a designated contract market, to the

    extent of such accruals.

    * * * * *

    Sec. 1.53 [Removed and Reserved]

    0

    28. Remove and reserve Sec. 1.53.

    0

    29. Amend Sec. 1.57 by revising paragraph (a)(1), (a)(2) introductory

    text, (a)(2)(ii), (c) introductory text, (c)(1), (c)(2), (c)(4)(i), and

    (c)(4)(iv), to read as follows:

    Sec. 1.57 Operations and activities of introducing brokers.

    (a) * * *

    (1) Open and carry each customer's account with a carrying futures

    commission merchant on a fully-disclosed basis: Provided, however, That

    an introducing broker which has entered into a guarantee agreement with

    a futures commission merchant in accordance with the provisions of

    Sec. 1.10(j) must open and carry such customer's account with such

    guarantor futures commission merchant on a fully-disclosed basis; and

    (2) Transmit promptly for execution all customer orders to:

    * * * * *

    (ii) A floor broker, if the introducing broker identifies its

    carrying futures commission merchant and that carrying futures

    commission merchant is also the clearing member with respect to the

    customer's order.

    * * * * *

    (c) An introducing broker may not accept any money, securities or

    property (or extend credit in lieu thereof) to margin, guarantee or

    secure any trades or contracts of customers, or any money, securities

    or property accruing as a result of such trades or contracts: Provided,

    however, That an introducing broker may deposit a check in a qualifying

    account or forward a check drawn by a customer if:

    (1) The futures commission merchant carrying the customer's account

    authorizes the introducing broker, in writing, to receive a check in

    the name of the futures commission merchant, and the introducing broker

    retains such written authorization in its files in accordance with

    Sec. 1.31;

    (2) The check is payable to the futures commission merchant

    carrying the customer's account;

    * * * * *

    (4) * * *

    (i) Which is maintained in an account name which clearly identifies

    the funds therein as belonging to customers of the futures commission

    merchant carrying the customer's account;

    * * * * *

    (iv) For which the bank or trust company provides the futures

    commission merchant carrying the customer's account with a written

    acknowledgment, which the futures commission merchant must retain in

    its files in accordance with Sec. 1.31, that it was informed that the

    funds deposited therein are those of customers and are being held in

    accordance with the provisions of the Act and the regulations in this

    chapter.

    0

    30. Amend Sec. 1.59 by revising paragraphs (a)(1), (a)(4)(i), (a)(5),

    (a)(7), (a)(8), (a)(9) introductory text, (a)(10), (b)(1) introductory

    text, (b)(1)(i)(A), (b)(1)(i)(C), and (c), to read as follows:

    Sec. 1.59 Activities of self-regulatory organization employees,

    governing board members, committee members and consultants.

    (a) * * *

    (1) Self-regulatory organization means ``self-regulatory

    organization,'' as defined in Sec. 1.3(ee), and includes the

    [[Page 66331]]

    term ``clearing organization,'' as defined in Sec. 1.3(d).

    (4) * * *

    (i) Any governing board member compensated by a self-regulatory

    organization solely for governing board activities; or

    * * * * *

    (5) Material information means information which, if such

    information were publicly known, would be considered important by a

    reasonable person in deciding whether to trade a particular commodity

    interest on a contract market or a swap execution facility, or to clear

    a swap contract through a derivatives clearing organization. As used in

    this section, ``material information'' includes, but is not limited to,

    information relating to present or anticipated cash positions,

    commodity interests, trading strategies, the financial condition of

    members of self-regulatory organizations or members of linked exchanges

    or their customers, or the regulatory actions or proposed regulatory

    actions of a self-regulatory organization or a linked exchange.

    * * * * *

    (7) Linked exchange means:

    (i) Any board of trade, exchange or market outside the United

    States, its territories or possessions, which has an agreement with a

    contract market or swap execution facility in the United States that

    permits positions in a commodity interest which have been established

    on one of the two markets to be liquidated on the other market;

    (ii) Any board of trade, exchange or market outside the United

    States, its territories or possessions, the products of which are

    listed on a United States contract market, swap execution facility, or

    a trading facility thereof;

    (iii) Any securities exchange, the products of which are held as

    margin in a commodity account or cleared by a securities clearing

    organization pursuant to a cross-margining arrangement with a futures

    clearing organization; or

    (iv) Any clearing organization which clears the products of any of

    the foregoing markets.

    (8) Commodity interest means any commodity futures, commodity

    option or swap contract traded on or subject to the rules of a contract

    market, a swap execution facility or linked exchange, or cleared by a

    derivatives clearing organization, or cash commodities traded on or

    subject to the rules of a board of trade which has been designated as a

    contract market.

    (9) Related commodity interest means any commodity interest which

    is traded on or subject to the rules of a contract market, swap

    execution facility, linked exchange, or other board of trade, exchange,

    or market, or cleared by a derivatives clearing organization, other

    than the self-regulatory organization by which a person is employed,

    and with respect to which:

    * * * * *

    (10) Pooled investment vehicle means a trading vehicle organized

    and operated as a commodity pool within the meaning of Sec. 4.10(d) of

    this chapter, and whose units of participation have been registered

    under the Securities Act of 1933, or a trading vehicle for which Sec.

    4.5 of this chapter makes available relief from regulation as a

    commodity pool operator, i.e., registered investment companies,

    insurance company separate accounts, bank trust funds, and certain

    pension plans.

    (b) Employees of self-regulatory organizations; Self-regulatory

    organization rules. (1) Each self-regulatory organization must maintain

    in effect rules which have been submitted to the Commission pursuant to

    section 5c(c) of the Act and part 40 of this chapter (or, pursuant to

    section 17(j) of the Act in the case of a registered futures

    association) that, at a minimum, prohibit:

    (i) * * *

    (A) Trading, directly or indirectly, in any commodity interest

    traded on or cleared by the employing contract market, swap execution

    facility, or clearing organization;

    * * * * *

    (C) Trading, directly or indirectly, in a commodity interest traded

    on contract markets or swap execution facilities or cleared by

    derivatives clearing organizations other than the employing self-

    regulatory organization if the employee has access to material, non-

    public information concerning such commodity interest;

    * * * * *

    (c) Governing board members, committee members, and consultants;

    Registered futures association rules. Each registered futures

    association must maintain in effect rules which have been submitted to

    the Commission pursuant to section 17(j) of the Act which provide that

    no governing board member, committee member, or consultant shall use or

    disclose--for any purpose other than the performance of official duties

    as a governing board member, committee member, or consultant--material,

    non-public information obtained as a result of the performance of such

    person's official duties.

    * * * * *

    Sec. 1.62 [Removed and Reserved]

    0

    31. Remove and reserve Sec. 1.62.

    0

    32. Amend Sec. 1.63 by revising paragraphs (a)(1), (b) introductory

    text and (d) to read as follows:

    Sec. 1.63 Service on self-regulatory organization governing boards or

    committees by persons with disciplinary histories.

    (a) * * *

    (1) Self-regulatory organization means a ``self-regulatory

    organization'' as defined in Sec. 1.3(ee), and includes a ``clearing

    organization'' as defined in Sec. 1.3(d), except as defined in

    paragraph (b)(6) of this section.

    * * * * *

    (b) Each self-regulatory organization must maintain in effect rules

    which have been submitted to the Commission pursuant to section 5c(c)

    of the Act and part 40 of this chapter or, in the case of a registered

    futures association, pursuant to section 17(j) of the Act, that render

    a person ineligible to serve on its disciplinary committees,

    arbitration panels, oversight panels or governing board who:

    * * * * *

    (d) Each self-regulatory organization shall submit to the

    Commission a schedule listing all those rule violations which

    constitute disciplinary offenses as defined in paragraph (a)(6)(i) of

    this section and to the extent necessary to reflect revisions shall

    submit an amended schedule within thirty days of the end of each

    calendar year. Each self-regulatory organization must maintain and keep

    current the schedule required by this section, and post the schedule on

    the self-regulatory organization's Web site so that it is in a public

    place designed to provide notice to members and otherwise ensure its

    availability to the general public.

    * * * * *

    0

    33. Revise Sec. 1.67 to read as follows:

    Sec. 1.67 Notification of final disciplinary action involving

    financial harm to a customer.

    (a) Definitions. For purposes of this section:

    Final disciplinary action means any decision by or settlement with

    a contract market or swap execution facility in a disciplinary matter

    which cannot be further appealed at the contract market or swap

    execution facility, is not subject to the stay of the Commission or a

    court of competent jurisdiction, and has not been reversed by the

    Commission or any court of competent jurisdiction.

    (b) Upon any final disciplinary action in which a contract market

    or swap

    [[Page 66332]]

    execution facility finds that a member has committed a rule violation

    that involved a transaction for a customer, whether executed or not,

    and that resulted in financial harm to the customer:

    (1)(i) The contract market or swap execution facility shall

    promptly provide written notice of the disciplinary action to the

    futures commission merchant or other registrant; and

    (ii) A futures commission merchant or other registrant that

    receives a notice, under paragraph (b)(1)(i) of this section shall

    promptly provide written notice of the disciplinary action to the

    customer as disclosed on its books and records. If the customer is

    another futures commission merchant or other registrant, such futures

    commission merchant or other registrant shall promptly provide notice

    to the customer.

    (2) A written notice required by paragraph (b)(1) of this section

    must include the principal facts of the disciplinary action and a

    statement that the contract market or swap execution facility has found

    that the member has committed a rule violation that involved a

    transaction for the customer, whether executed or not, and that

    resulted in financial harm to the customer. For the purposes of this

    paragraph, a notice which includes the information listed in Sec.

    9.11(b) of this chapter shall be deemed to include the principal facts

    of the disciplinary action thereof.

    Sec. 1.68 [Removed and Reserved]

    0

    34. Remove and reserve Sec. 1.68.

    0

    35. Amend Appendix B to part 1 by revising paragraph (b) to read as

    follows:

    Appendix B--Fees for Contract Market Rule Enforcement Reviews and

    Financial Reviews

    * * * * *

    (b) The Commission determines fees charged to exchanges based

    upon a formula that considers both actual costs and trading volume.

    * * * * *

    Appendix C to Part 1--[Removed and Reserved]

    0

    36. Remove and reserve Appendix C to Part 1.

    PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

    0

    37. The authority citation for part 4 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a

    and 23, as amended by the Dodd-Frank Wall Street Reform and Consumer

    Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    Sec. 4.23 [Amended]

    0

    38. Amend Sec. 4.23 by removing the term ``physical'' in paragraphs

    (a)(1) and (b)(1) and adding in its place the term ``commodity''.

    Sec. 4.33 [Amended]

    0

    39. Amend Sec. 4.33 by removing the word ``physical'' in paragraph

    (b)(1) and adding in its place the word ``commodity''.

    PART 5--OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS

    0

    40. The authority citation for part 5 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,

    6i, 6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21,

    and 23, as amended by Title VII of the Dodd-Frank Wall Street Reform

    and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (Jul.

    21, 2010).

    0

    41. Revise paragraphs (k) and (m) of Sec. 5.1 to read as follows:

    Sec. 5.1 Definitions.

    * * * * *

    (k) Retail forex customer means a person, other than an eligible

    contract participant as defined in section 1a(18) of the Act, acting on

    its own behalf and trading in any account, agreement, contract or

    transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act.

    * * * * *

    (m) Retail forex transaction means any account, agreement, contract

    or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the

    Act. A retail forex transaction does not include an account, agreement,

    contract or transaction in foreign currency that is a contract of sale

    of a commodity for future delivery (or an option thereon) that is

    executed, traded on or otherwise subject to the rules of a contract

    market designated pursuant to section 5(a) of the Act.

    0

    42. Revise Part 7 to read as follows:

    PART 7--REGISTERED ENTITY RULES ALTERED OR SUPPLEMENTED BY THE

    COMMISSION

    Authority: 7 U.S.C. 7a-2(c) and 12a(7), as amended by Title VII

    of the Dodd-Frank Wall Street Reform and Consumer Protection Act,

    Pub. L. 111-203, 124 Stat. 1376 (2010).

    Subpart A--General Provisions

    Sec. 7.1 Scope of rules.

    This part sets forth registered entity rules altered or

    supplemented by the Commission pursuant to section 8a(7) of the Act.

    Subpart B--[Reserved]

    Subpart C--[Reserved]

    PART 8--[REMOVED AND RESERVED]

    0

    43. Remove and reserve part 8.

    PART 15--REPORTS--GENERAL PROVISIONS

    0

    44. The authority citation for part 15 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7,

    7a, 9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank

    Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

    Stat. 1376 (2010).

    0

    45. Revise paragraph (p)(1)(ii) of Sec. 15.00 to read as follows:

    Sec. 15.00 Definitions of terms used in parts 15 to 19, and 21 of

    this chapter.

    * * * * *

    (p) * * *

    (1) * * *

    (ii) Long or short put or call options that exercise into the same

    future of any commodity, or other long or short put or call commodity

    options that have identical expirations and exercise into the same

    commodity, on any one reporting market.

    * * * * *

    0

    46. Revise paragraphs (a), (e), (f), (g) and (h) of Sec. 15.05 to read

    as follows:

    Sec. 15.05 Designation of agent for foreign persons.

    (a) For purposes of this section, the term ``futures contract''

    means any contract for the purchase or sale of any commodity for future

    delivery, or a contract identified under Sec. 36.3(c)(1)(i) traded on

    an electronic trading facility operating in reliance on the exemption

    set forth in Sec. 36.3 of this chapter, traded or executed on or

    subject to the rules of any designated contract market, or for the

    purposes of paragraph (i) of this section, a reporting market

    (including all agreements, contracts and transactions that are treated

    by a clearing organization as fungible with such contracts); the term

    ``option contract'' means any contract for the purchase or sale of a

    commodity option, or as applicable, any other instrument subject to the

    Act, traded or executed on or subject to the rules of any designated

    contract market, or for the purposes of paragraph (i) of this section,

    a reporting market (including all agreements, contracts and

    transactions that are treated by a clearing organization as fungible

    with such contracts); the term

    [[Page 66333]]

    ``customer'' means any person for whose benefit a foreign broker makes

    or causes to be made any futures contract or option contract; and the

    term ``communication'' means any summons, complaint, order, subpoena,

    special call, request for information, or notice, as well as any other

    written document or correspondence.

    * * * * *

    (e) Any designated contract market that permits a foreign broker to

    intermediate contracts, agreements or transactions, or permits a

    foreign trader to effect contracts, agreements or transactions on the

    facility or exchange, shall be deemed to be the agent of the foreign

    broker and any of its customers for whom the transactions were

    executed, or the foreign trader, for purposes of accepting delivery and

    service of any communication issued by or on behalf of the Commission

    to the foreign broker, any of its customers or the foreign trader with

    respect to any contracts, agreements or transactions executed by the

    foreign broker or the foreign trader on the designated contract market.

    Service or delivery of any communication issued by or on behalf of the

    Commission to a designated contract market shall constitute valid and

    effective service upon the foreign broker, any of its customers, or the

    foreign trader. A designated contract market which has been served

    with, or to which there has been delivered, a communication issued by

    or on behalf of the Commission to a foreign broker, any of its

    customers, or a foreign trader shall transmit the communication

    promptly and in a manner which is reasonable under the circumstances,

    or in a manner specified by the Commission in the communication, to the

    foreign broker, any of its customers or the foreign trader.

    (f) It shall be unlawful for any designated contract market to

    permit a foreign broker, any of its customers or a foreign trader to

    effect contracts, agreements or transactions on the facility unless the

    designated contract market prior thereto informs the foreign broker,

    any of its customers or the foreign trader, in any reasonable manner

    the facility deems to be appropriate, of the requirements of this

    section.

    (g) The requirements of paragraphs (e) and (f) of this section

    shall not apply to any contracts, transactions or agreements traded on

    any designated contract market if the foreign broker, any of its

    customers or the foreign trader has duly executed and maintains in

    effect a written agency agreement in compliance with this paragraph

    with a person domiciled in the United States and has provided a copy of

    the agreement to the designated contract market prior to effecting any

    contract, agreement or transaction on the facility. This agreement must

    authorize the person domiciled in the United States to serve as the

    agent of the foreign broker, any of its customers or the foreign trader

    for purposes of accepting delivery and service of all communications

    issued by or on behalf of the Commission to the foreign broker, any of

    its customers or the foreign trader and must provide an address in the

    United States where the agent will accept delivery and service of

    communications from the Commission. This agreement must be filed with

    the Commission by the designated contract market prior to permitting

    the foreign broker, any of its customers or the foreign trader to

    effect any transactions in futures or option contracts. Unless

    otherwise specified by the Commission, the agreements required to be

    filed with the Commission shall be filed with the Secretary of the

    Commission at Three Lafayette Centre, 1155 21st Street NW., Washington,

    DC 20581. A foreign broker, any of its customers or a foreign trader

    shall notify the Commission immediately if the written agency agreement

    is terminated, revoked, or is otherwise no longer in effect. If the

    designated contract market knows or should know that the agreement has

    expired, been terminated, or is no longer in effect, the designated

    contract market shall notify the Secretary of the Commission

    immediately. If the written agency agreement expires, terminates, or is

    not in effect, the designated contract market and the foreign broker,

    any of its customers or the foreign trader are subject to the

    provisions of paragraphs (e) and (f) of this section.

    (h) The provisions of paragraphs (e), (f) and (g) of this section

    shall not apply to a designated contract market on which all

    transactions of foreign brokers, their customers or foreign traders in

    futures or option contracts are executed through, or the resulting

    transactions are maintained in, accounts carried by a registered

    futures commission merchant or introduced by a registered introducing

    broker subject to the provisions of paragraphs (a), (b), (c) and (d) of

    this section.

    * * * * *

    PART 16--REPORTS BY REPORTING MARKETS

    0

    47. The authority citation for part 16 continues to read as follows:

    Authority: 7 U.S.C. 2, 6a, 6c, 6g, 6i, 7, 7a and 12a, as

    amended by Title XIII of the Food, Conservation and Energy Act of

    2008, Pub. L. 110-246, 122 Stat. 1624 (June 18, 2008), unless

    otherwise noted.

    0

    48. Revise paragraph (a) introductory text of Sec. 16.00 to read as

    follows:

    Sec. 16.00 Clearing member reports.

    (a) Information to be provided. Each reporting market shall submit

    to the Commission, in accordance with paragraph (b) of this section, a

    report for each business day, showing for each clearing member, by

    proprietary and customer account, the following information separately

    for futures by commodity and by future, and, for options, by underlying

    futures contract (for options on futures contracts) or by underlying

    commodity (for other commodity options), and by put, by call, by

    expiration date and by strike price:

    * * * * *

    0

    49. Amend Sec. 16.01 by revising the section heading and paragraphs

    (a)(1)(ii), (a)(1)(iv), (b)(1)(ii), and (b)(1)(iv) to read as follows:

    Sec. 16.01 Publication of market data on futures, swaps and options

    thereon: trading volume, open contracts, prices, and critical dates.

    (a) * * *

    (1) * * *

    (ii) For options, by underlying futures contracts for options on

    futures contracts or by underlying commodity for options on

    commodities, and by put, by call, by expiration date and by strike

    price;

    * * * * *

    (iv) For options on swaps or classes of options on swaps, by

    underlying swap contracts for options on swap contracts or by

    underlying commodity for options on swaps on commodities, and by put,

    by call, by expiration date and by strike price.

    * * * * *

    (b) * * *

    (1) * * *

    (ii) For options, by underlying futures contracts for options on

    futures contracts or by underlying commodity for options on

    commodities, and by put, by call, by expiration date and by strike

    price;

    * * * * *

    (iv) For options on swaps or classes of options on swaps, by

    underlying swap contracts for options on swap contracts or by

    underlying commodity for options on swaps on commodities, and by put,

    by call, by expiration date and by strike price.

    * * * * *

    PART 18--REPORTS BY TRADERS

    0

    50. The authority citation for part 18 continues to read as follows:

    [[Page 66334]]

    Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n,

    12a and 19, as amended by Title XIII of the Food, Conservation and

    Energy Act of 2008, Pub. L. 110-246, 122 Stat. 1624 (June 18, 2008);

    5 U.S.C. 552 and 552(b), unless otherwise noted.

    0

    51. Revise paragraphs (a)(2), (a)(3), and (a)(4) of Sec. 18.05 to read

    as follows:

    Sec. 18.05 Maintenance of books and records.

    (a) * * *

    (2) Executed over the counter or pursuant to part 35 of this

    chapter;

    (3) On exempt commercial markets operating under a Commission

    grandfather relief order issued pursuant to Section 723(c)(2)(B) of the

    Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-

    203, 124 Stat. 1376 (2010));

    (4) On exempt boards of trade operating under a Commission

    grandfather relief order issued pursuant to Section 734(c)(2) of the

    Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-

    203, 124 Stat. 1376 (2010)); and

    * * * * *

    PART 21--SPECIAL CALLS

    0

    52. The authority citation for part 21 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m,

    6n, 7, 7a, 12a, 19 and 21, as amended by Pub. L. 111-203, 124 Stat.

    1376; 5 U.S.C. 552 and 552(b), unless otherwise noted.

    0

    53. Revise paragraph (b) of Sec. 21.03 to read as follows:

    Sec. 21.03 Selected special calls--duties of foreign brokers,

    domestic and foreign traders, futures commission merchants, clearing

    members, introducing brokers, and reporting markets.

    * * * * *

    (b) It shall be unlawful for a futures commission merchant to open

    a futures or options account or to effect transactions in futures or

    options contracts for an existing account, or for an introducing broker

    to introduce such an account, for any customer for whom the futures

    commission merchant or introducing broker is required to provide the

    explanation provided for in Sec. 15.05(c) of this chapter, or for a

    reporting market that is a registered entity under section 1a(40)(F) of

    the Act, to cause to open an account, or to cause transactions to be

    effected, in a contract traded in reliance on a Commission grandfather

    relief order issued pursuant to Section 723(c)(2)(B) of the Dodd-Frank

    Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, 124

    Stat. 1376 (2010)), for an existing account for any person that is a

    foreign clearing member or foreign trader, until the futures commission

    merchant, introducing broker, clearing member or reporting market has

    explained fully to the customer, in any manner that such person deems

    appropriate, the provisions of this section.

    * * * * *

    PART 22--CLEARED SWAPS

    0

    54. The authority citation for part 22 continues to read as follows:

    Authority: 7 U.S.C. 1a, 6d, 7a-1 as amended by Pub. L. 111-203,

    124 Stat. 1376.

    Sec. 22.1 [Amended]

    0

    55. Amend Sec. 22.1 by removing the definition of ``Customer.''

    0

    56. Amend Sec. 22.2 by revising paragraphs (c)(2)(ii) and (e)(1) to

    read as follows:

    Sec. 22.2 Futures Commission Merchants: Treatment of Cleared Swaps

    and Associated Cleared Swaps Customer Collateral.

    * * * * *

    (c) * * *

    (2) * * *

    (ii) Other categories of funds belonging to Futures Customers (as

    Sec. 1.3 of this chapter defines that term), or Foreign Futures or

    Foreign Options Customers (as Sec. 30.1 of this chapter defines that

    term) of the futures commission merchant, including Futures Customer

    Funds (as Sec. 1.3 of this chapter defines such term) or the foreign

    futures or foreign options secured amount (as Sec. 1.3 of this chapter

    defines such term), except as expressly permitted by Commission rule,

    regulation, or order, or by a derivatives clearing organization rule

    approved in accordance with Sec. 39.15(b)(2) of this chapter.

    * * * * *

    (e) * * *

    (1) Permitted investments. A futures commission merchant may invest

    money, securities, or other property constituting Cleared Swaps

    Customer Collateral in accordance with Sec. 1.25 of this chapter.

    * * * * *

    0

    57. Amend Sec. 22.3 by revising paragraphs (c)(2)(iii) and (d) to read

    as follows:

    Sec. 22.3 Derivatives clearing organizations: Treatment of cleared

    swaps customer collateral.

    * * * * *

    (c) * * *

    (2) * * *

    (iii) Futures Customer Funds (as Sec. 1.3 of this chapter defines

    such term) or the foreign futures or foreign options secured amount (as

    Sec. 1.3 of this chapter defines such term), except as expressly

    permitted by Commission rule, regulation, or order, (or by a

    derivatives clearing organization rule approved in accordance with

    Sec. 39.15(b)(2) of this chapter).

    (d) Exceptions; Permitted Investments. Notwithstanding the

    foregoing and Sec. 22.15, a derivatives clearing organization may

    invest the money, securities, or other property constituting Cleared

    Swaps Customer Collateral in accordance with Sec. 1.25 of this

    chapter.

    0

    58. Amend Sec. 22.5 by revising paragraphs (a) and (b) to read as

    follows:

    Sec. 22.5 Futures commission merchants and derivatives clearing

    organizations: Written acknowledgement.

    (a) Before depositing Cleared Swaps Customer Collateral, the

    futures commission merchant or derivatives clearing organization shall

    obtain and retain in its files a separate written acknowledgement

    letter from each depository in accordance with Sec. Sec. 1.20 and 1.26

    of this chapter, with all references to ``Futures Customer Funds''

    modified to apply to Cleared Swaps Customer Collateral, and with all

    references to section 4d(a) or 4d(b) of the Act and the regulations

    thereunder modified to apply to section 4d(f) of the Act and the

    regulations thereunder.

    (b) The futures commission merchant or derivatives clearing

    organization shall adhere to all requirements specified in Sec. Sec.

    1.20 and 1.26 of this chapter regarding retaining, permitting access

    to, filing, or amending the written acknowledgement letter, in all

    cases as if the Cleared Swaps Customer Collateral comprised Futures

    Customer Funds subject to segregation pursuant to section 4d(a) or

    4d(b) of the Act and the regulations thereunder.

    * * * * *

    0

    59. Amend Sec. 22.9 by revising paragraphs (a) and (b) to read as

    follows:

    Sec. 22.9 Denomination of Cleared Swaps Customer Collateral and

    location of depositories.

    (a) Subject to paragraph (b) of this section, futures commission

    merchants and derivatives clearing organizations may hold Cleared Swaps

    Customer Collateral in the denominations, at the locations and

    depositories, and subject to the segregation requirements specified in

    Sec. 1.49 of this chapter.

    (b) Notwithstanding the requirements in Sec. 1.49 of this chapter,

    a futures commission merchant's obligations to a Cleared Swaps Customer

    may be denominated in a currency in which funds have accrued to the

    Cleared

    [[Page 66335]]

    Swaps Customer as a result of a Cleared Swap carried through such

    futures commission merchant, to the extent of such accruals.

    * * * * *

    0

    60. Revise Sec. 22.10 to read as follows:

    Sec. 22.10 Application of other regulatory provisions.

    Sections 1.27, 1.28, 1.29, and 1.30 of this chapter shall apply to

    the Cleared Swaps Customer Collateral in accordance with the terms

    therein.

    0

    61. Amend Sec. 22.11 by revising the section heading and paragraphs

    (a)(1), (a)(2), (b)(2), (c)(1), (c)(2), and (d)(2), to read as follows:

    Sec. 22.11 Information to be provided regarding Cleared Swaps

    Customers and their Cleared Swaps.

    (a) * * *

    (1) The first time that the Depositing Futures Commission Merchant

    intermediates a Cleared Swap for a Cleared Swaps Customer with a

    Collecting Futures Commission Merchant, provide information sufficient

    to identify such Cleared Swaps Customer to the relevant Collection

    Futures Commission Merchant; and

    (2) At least once each business day thereafter, provide information

    to the relevant Collecting Futures Commission Merchant sufficient to

    identify, for each Cleared Swaps Customer, the portfolio of rights and

    obligations arising from the Cleared Swaps that the Depositing Futures

    Commission Merchant intermediates for such Cleared Swaps Customer.

    (b) * * *

    (2) The information that such entity must provide to its Collecting

    Futures Commission Merchant pursuant to paragraph (a)(2) of this

    section shall also include information sufficient to identify, for each

    Cleared Swaps Customer referenced in paragraph (b)(1) of this section,

    the portfolio of rights and obligations arising from the Cleared Swaps

    that such entity intermediates as a Collecting Futures Commission

    Merchant, on behalf of its Depositing Futures Commission Merchant, for

    such Cleared Swaps Customer.

    (c) * * *

    (1) The first time that such futures commission merchant

    intermediates a Cleared Swap for a Cleared Swaps Customer, provide

    information to the relevant derivatives clearing organization

    sufficient to identify such Cleared Swaps Customer; and

    (2) At least once each business day thereafter, provide information

    to the relevant derivatives clearing organization sufficient to

    identify, for each Cleared Swaps Customer, the portfolio of rights and

    obligations arising from the Cleared Swaps that such futures commission

    merchant intermediates for such Cleared Swaps Customer.

    (d) * * *

    (2) The information that it must provide to the derivatives

    clearing organization pursuant to paragraph (c)(2) of this section

    shall also include information sufficient to identify, for each Cleared

    Swaps Customer referenced in paragraph (d)(1) of this section, the

    portfolio of rights and obligations arising from the Cleared Swaps that

    the Collecting Futures Commission Merchant intermediates, on behalf of

    the Depositing Futures Commission Merchant, for such Cleared Swaps

    Customer.

    * * * * *

    0

    62. Amend Sec. 22.12 by revising paragraph (a) introductory text and

    paragraph (c) introductory text to read as follows:

    Sec. 22.12 Information to be maintained regarding Cleared Swaps

    Customer Collateral.

    (a) Each Collecting Futures Commission Merchant receiving Cleared

    Swaps Customer Collateral from an entity serving as a Depositing

    Futures Commission Merchant shall, no less frequently than once each

    business day, calculate and record:

    * * * * *

    (c) Each derivatives clearing organization receiving Cleared Swaps

    Customer Collateral from a futures commission merchant shall, no less

    frequently than once each business day, calculate and record:

    * * * * *

    0

    63. Amend Sec. 22.13 by revising paragraph (a) to read as follows:

    Sec. 22.13 Additions to Cleared Swaps Customer Collateral.

    (a)(1) At the election of the derivatives clearing organization or

    Collecting Futures Commission Merchant, the collateral requirement

    referred to in Sec. 22.12(a), (c), and (d) applicable to a particular

    Cleared Swaps Customer or group of Cleared Swaps Customers may be

    increased based on an evaluation of the credit risk posed by such

    Cleared Swaps Customer or group, in which case the derivatives clearing

    organization or Collecting Futures Commission Merchant shall collect

    and record such higher amount as provided in Sec. 22.12.

    (2) Nothing in paragraph (a)(1) of this section is intended to

    interfere with the right of a futures commission merchant to increase

    the collateral requirements at such futures commission merchant with

    respect to any of its Cleared Swaps Customers, Futures Customers (as

    Sec. 1.3 of this chapter defines that term), or Foreign Futures or

    Foreign Options Customers (as Sec. 30.1 of this chapter defines that

    term).

    * * * * *

    0

    64. Amend Sec. 22.14 by revising the section heading and paragraphs

    (a)(2) and (c)(2) to read as follows:

    Sec. 22.14 Futures Commission Merchant failure to meet a Cleared

    Swaps Customer Margin Call in full.

    (a) * * *

    (2) Advise the Collecting Futures Commission Merchant of the

    identity of each such Cleared Swaps Customer, and the amount

    transmitted on behalf of each such Cleared Swaps Customer.

    * * * * *

    (c) * * *

    (2) Advise the derivatives clearing organization of the identity of

    each such Cleared Swaps Customer, and the amount transmitted on behalf

    of each such Cleared Swaps Customer.

    * * * * *

    0

    65. Section 22.15 is revised to read as follows:

    Sec. 22.15 Treatment of Cleared Swaps Customer Collateral on an

    individual basis.

    Subject to Sec. 22.3(d), each derivatives clearing organization

    and each Collecting Futures Commission Merchant receiving Cleared Swaps

    Customer Collateral from a futures commission merchant shall treat the

    value of collateral required with respect to the portfolio of rights

    and obligations arising out of the Cleared Swaps intermediated for each

    Cleared Swaps Customer, and collected from the futures commission

    merchant, as belonging to such Cleared Swaps Customer, and such amount

    shall not be used to margin, guarantee, or secure the Cleared Swaps or

    other obligations of the futures commission merchant, or of any other

    Cleared Swaps Customer, Futures Customer (as Sec. 1.3 of this chapter

    defines that term), or Foreign Futures or Foreign Options Customer (as

    Sec. 30.1 of this chapter defines that term). Nothing contained herein

    shall be construed to limit, in any way, the right of a derivatives

    clearing organization or Collecting Futures Commission Merchant to

    liquidate any or all positions in a Cleared Swaps Customer Account in

    the event of a default of a clearing member or Depositing Futures

    Commission Merchant.

    0

    66. Amend Sec. 22.16 by revising the section heading to read as

    follows:

    [[Page 66336]]

    Sec. 22.16 Disclosures to Cleared Swaps Customers.

    * * * * *

    PART 36--EXEMPT MARKETS

    0

    67. The authority citation for part 36 continues to read as follows:

    Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 12a, as amended by

    Title XIII of the Food, Conservation and Energy Act of 2008, Pub. L.

    110-246, 122 Stat. 1624 (June 18, 2008).

    0

    68. Section 36.1 is revised to read as follows:

    Sec. 36.1 Scope.

    The provisions of this part apply to any board of trade or

    electronic trading facility that operates as:

    (a) An exempt commercial market operating under:

    (1) Until July 16, 2012, a grandfather relief order issued by the

    Commission pursuant to Section 723(c)(2)(B) of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat.

    1376 (2010)), or

    (2) Any other applicable relief granted by the Commission; or

    (b) An exempt board of trade operating under:

    (1) Until July 16, 2012, a grandfather relief order issued by the

    Commission pursuant to Section 734(c)(2) of the Dodd-Frank Wall Street

    Reform and Consumer Protection Act (Pub. L. 111-203, 124 Stat. 1376

    (2010)), or

    (2) Any other applicable relief granted by the Commission.

    0

    69. Amend Sec. 36.2 by:

    0

    a. Revising paragraph (a) introductory text and (a)(2)(i);

    0

    b. Adding paragraph (a)(3); and

    0

    c. Revising paragraph (b) introductory text, (c)(1), (c)(2)(i)

    introductory text, (c)(2)(ii) introductory text, (c)(2)(iii),

    (c)(2)(iv)(A) introductory text, and (c)(3), to read as follows:

    Sec. 36.2 Exempt boards of trade.

    (a) Eligible commodities. Commodities eligible to be traded by an

    exempt board of trade are:

    * * * * *

    (2) * * *

    (i) The commodities defined in section 1a(19) of the Act as

    ``excluded commodities'' (other than a security, including any group or

    index thereof or any interest in, or based on the value of, any

    security or group or index of securities); and

    * * * * *

    (3) Such contracts must be entered into only between persons that

    are eligible contract participants, as defined in section 1a(18) of the

    Act and as further defined by the Commission, at the time at which the

    persons entered into the contract.

    (b) Notification. Boards of trade operating as exempt boards of

    trade shall maintain on file with the Secretary of the Commission at

    the Commission's Washington, DC headquarters, in electronic form, a

    ``Notification of Operation as an Exempt Board of Trade,'' and it shall

    include:

    * * * * *

    (c) Additional requirements--(1) Prohibited representation. A board

    of trade that meets the criteria set forth in this section and operates

    as an exempt board of trade shall not represent to any person that it

    is registered with, designated, recognized, licensed or approved by the

    Commission.

    (2) Market data dissemination. (i) Criteria for price discovery

    determination. An exempt board of trade performs a significant price

    discovery function for transactions in the cash market for a commodity

    underlying any agreement, contract, or transaction executed or traded

    on the facility when:

    * * * * *

    (ii) Notification. An exempt board of trade operating a market in

    reliance on the criteria set forth in this section shall notify the

    Commission when:

    * * * * *

    (iii) Price discovery determination. Following receipt of notice

    under paragraph (c)(2)(ii) of this section, or on its own initiative,

    the Commission may notify an exempt board of trade that the facility

    appears to meet the criteria for performing a significant price

    discovery function under paragraph (c)(2)(i)(A) or (B) of this section.

    Before making a final price discovery determination under this

    paragraph, the Commission shall provide the exempt board of trade with

    an opportunity for a hearing through the submission of written data,

    views and arguments. Any such written data, views and arguments shall

    be filed with the Secretary of the Commission in the form and manner

    and within the time specified by the Commission. After consideration of

    all relevant matters, the Commission shall issue an order containing

    its determination whether the facility performs a significant price

    discovery function under the criteria of paragraph (c)(2)(i)(A) or (B)

    of this section.

    (iv) Price dissemination. (A) An exempt board of trade that the

    Commission has determined performs a significant price discovery

    function under paragraph (c)(2)(iii) of this section shall disseminate

    publicly, and on a daily basis, all of the following information with

    respect to transactions executed in reliance on the criteria set forth

    in this section:

    * * * * *

    (3) Annual certification. A board of trade operating as an exempt

    board of trade shall file with the Commission annually, no later than

    the end of each calendar year, a notice that includes:

    (i) A statement that it continues to operate under the exemption;

    and

    (ii) A certification that the information contained in the previous

    Notification of Operation as an Exempt Board of Trade is still correct.

    0

    70. Section 36.3 is revised to read as follows:

    Sec. 36.3 Exempt commercial markets.

    (a) Eligible transactions. Agreements, contracts or transactions in

    an exempt commodity eligible to be entered into on an exempt commercial

    market must be:

    (1) Entered into on a principal-to-principal basis solely between

    persons that are eligible commercial entities, as that term is defined

    in section 1a(17) of the Act, at the time the persons enter into the

    agreement, contract or transaction; and

    (2) Executed or traded on an electronic trading facility.

    (b) Notification. An electronic trading facility relying upon the

    exemption set forth in this section shall maintain on file with the

    Secretary of the Commission at the Commission's Washington, DC

    headquarters, in electronic form, a ``Notification of Operation as an

    Exempt Commercial Market,'' and it shall include the information and

    certifications specified in this section.

    (c) Required information--(1) All electronic trading facilities. A

    facility operating in reliance on the exemption set forth in this

    section on an on-going basis, must:

    (i) Provide the Commission with the terms and conditions, as

    defined in Sec. 40.1(i) of this chapter and product descriptions for

    each agreement, contract or transaction listed by the facility in

    reliance on the exemption set forth in this section, as well as trading

    conventions, mechanisms and practices;

    (ii) Provide the Commission with information explaining how the

    facility meets the definition of ``trading facility'' contained in

    section 1a(51) of the Act and provide the Commission with access to the

    electronic trading facility's trading protocols, in a format specified

    by the Commission;

    (iii) Demonstrate to the Commission that the facility requires, and

    will require, with respect to all current and future agreements,

    contracts and transactions, that each participant

    [[Page 66337]]

    agrees to comply with all applicable laws; that the authorized

    participants are ``eligible commercial entities'' as defined in section

    1a(17) of the Act; that all agreements, contracts and transactions are

    and will be entered into solely on a principal-to-principal basis; and

    that the facility has in place a program to routinely monitor

    participants' compliance with these requirements;

    (iv) At the request of the Commission, provide any other

    information that the Commission, in its discretion, deems relevant to

    its determination whether an agreement, contract, or transaction

    performs a significant price discovery function; and

    (v) File with the Commission annually, no later than the end of

    each calendar year, a completed copy of CFTC Form 205--Exempt

    Commercial Market Annual Certification. The information submitted in

    Form 205 shall include:

    (A) A statement indicating whether the electronic trading facility

    continues to operate under the exemption; and

    (B) A certification that affirms the accuracy of and/or updates the

    information contained in the previous Notification of Operation as an

    Exempt Commercial Market.

    (2) Electronic trading facilities trading or executing agreements,

    contracts or transactions other than significant price discovery

    contracts. In addition to the requirements of paragraph (c)(1) of this

    section, a facility operating in reliance on the exemption set forth in

    this section, with respect to agreements, contracts or transactions

    that have not been determined to perform significant price discovery

    function, on an on-going basis must:

    (i) Identify to the Commission those agreements, contracts and

    transactions conducted on the electronic trading facility with respect

    to which it intends, in good faith, to rely on the exemption set forth

    in this section, and which averaged five trades per day or more over

    the most recent calendar quarter; and, with respect to such agreements,

    contracts and transactions, either:

    (A) Submit to the Commission, in a form and manner acceptable to

    the Commission, a report for each business day. Each such report shall

    be electronically transmitted weekly, within such time period as is

    acceptable to the Commission after the end of the week to which the

    data applies, and shall show for each agreement, contract or

    transaction executed the following information:

    (1) The underlying commodity, the delivery or price-basing location

    specified in the agreement, contract or transaction maturity date,

    whether it is a financially settled or physically delivered instrument,

    and the date of execution, time of execution, price, and quantity;

    (2) Total daily volume and, if cleared, open interest;

    (3) For an option instrument, in addition to the foregoing

    information, the type of option (i.e., call or put) and strike prices;

    and

    (4) Such other information as the Commission may determine; or

    (B) Provide to the Commission, in a form and manner acceptable to

    the Commission, electronic access to those transactions conducted on

    the electronic trading facility in reliance on the exemption set forth

    in this section, and meeting the average five trades per day or more

    threshold test of this section, which would allow the Commission to

    compile the information set forth in paragraph (c)(2)(i)(A) of this

    section and create a permanent record thereof.

    (ii) Maintain a record of allegations or complaints received by the

    electronic trading facility concerning instances of suspected fraud or

    manipulation in trading activity conducted in reliance on the exemption

    set forth in this section. The record shall contain the name of the

    complainant, if provided, date of the complaint, market instrument,

    substance of the allegations, and name of the person at the electronic

    trading facility who received the complaint;

    (iii) Provide to the Commission, in the form and manner prescribed

    by the Commission, a copy of the record of each complaint received

    pursuant to paragraph (c)(2)(ii) of this section that alleges, or

    relates to, facts that would constitute a violation of the Act or

    Commission regulations. Such copy shall be provided to the Commission

    no later than 30 calendar days after the complaint is received;

    Provided, however, that in the case of a complaint alleging, or

    relating to, facts that would constitute an ongoing fraud or market

    manipulation under the Act or Commission rules, such copy shall be

    provided to the Commission within three business days after the

    complaint is received; and

    (iv) Provide to the Commission on a quarterly basis, within 15

    calendar days of the close of each quarter, a list of each agreement,

    contract or transaction executed on the electronic trading facility in

    reliance on the exemption set forth in this section and indicate for

    each such agreement, contract or transaction the contract terms and

    conditions, the contract's average daily trading volume, and the most

    recent open interest figures.

    (3) Electronic trading facilities trading or executing significant

    price discovery contracts. In addition to the requirements of paragraph

    (c)(1) of this section, if the Commission determines that a facility

    operating in reliance on the exemption set forth in this section trades

    or executes an agreement, contract or transaction that performs a

    significant price discovery function, the facility must, with respect

    to any significant price discovery contract, publish and provide to the

    Commission the information required by Sec. 16.01 of this chapter.

    (4) Delegation of authority. The Commission hereby delegates, until

    the Commission orders otherwise, the authority to determine the form

    and manner of submitting the required information under paragraphs

    (c)(1) through (3) of this section, to the Director of the Division of

    Market Oversight and such members of the Commission's staff as the

    Director may designate. The Director may submit to the Commission for

    its consideration any matter that has been delegated by this paragraph.

    Nothing in this paragraph prohibits the Commission, at its election,

    from exercising the authority delegated in this paragraph (c)(4).

    (5) Special calls. (i) All information required upon special call

    of the Commission shall be transmitted at the same time and to the

    office of the Commission as may be specified in the call.

    (ii) Such information shall include information related to the

    facility's business as an exempt electronic trading facility in

    reliance on the exemption set forth in this section, including

    information relating to data entry and transaction details in respect

    of transactions entered into in reliance on the exemption, as the

    Commission may determine appropriate--

    (A) To enforce the antifraud and anti-manipulation provisions in

    the Act and Commission regulations, and

    (B) To evaluate a systemic market event; or

    (C) To obtain information requested by a Federal financial

    regulatory authority in order to enable the regulator to fulfill its

    regulatory or supervisory responsibilities.

    (iii) The Commission hereby delegates, until the Commission orders

    otherwise, the authority to make special calls to the Directors of the

    Division of Market Oversight, the Division of Clearing and Risk, the

    Division of Swap Dealer and Intermediary Oversight, and the Division of

    Enforcement to be exercised by each such Director or by such other

    employee or employees as

    [[Page 66338]]

    the Director may designate. The Directors may submit to the Commission

    for its consideration any matter that has been delegated in this

    paragraph. Nothing in this paragraph prohibits the Commission, at its

    election, from exercising the authority delegated in this paragraph

    (c)(5).

    (6) Subpoenas to foreign persons. A foreign person whose access to

    an electronic trading facility is limited or denied at the direction of

    the Commission based on the Commission's belief that the foreign person

    has failed timely to comply with a subpoena shall have an opportunity

    for a prompt hearing under the procedures provided in Sec. 21.03(b)

    and (h) of this chapter.

    (7) Prohibited representation. An electronic trading facility

    relying upon the exemption set forth in this section, with respect to

    agreements, contracts or transactions that are not significant price

    discovery contracts, shall not represent to any person that it is

    registered with, designated, recognized, licensed or approved by the

    Commission.

    (d) Significant price discovery contracts--(1) Criteria for

    significant price discovery determination. The Commission may

    determine, in its discretion, that an electronic trading facility

    operating a market in reliance on the exemption set forth in this

    section performs a significant price discovery function for

    transactions in the cash market for a commodity underlying any

    agreement, contract or transaction executed or traded on the facility.

    In making such a determination, the Commission shall consider, as

    appropriate:

    (i) Price linkage. The extent to which the agreement, contract or

    transaction uses or otherwise relies on a daily or final settlement

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

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

    market, or a significant price discovery contract traded on an

    electronic trading facility, to value a position, transfer or convert a

    position, cash or financially settle a position, or close out a

    position;

    (ii) Arbitrage. The extent to which the price for the agreement,

    contract or transaction is sufficiently related to the price of a

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

    a designated contract market, or a significant price discovery contract

    or contracts trading on or subject to the rules of an electronic

    trading facility, so as to permit market participants to effectively

    arbitrage between the markets by simultaneously maintaining positions

    or executing trades in the contracts on a frequent and recurring basis;

    (iii) Material price reference. The extent to which, on a frequent

    and recurring basis, bids, offers, or transactions in a commodity are

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

    generated by agreements, contracts or transactions being traded or

    executed on the electronic trading facility;

    (iv) Material liquidity. The extent to which the volume of

    agreements, contracts or transactions in the commodity being traded on

    the electronic trading facility is sufficient to have a material effect

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

    subject to the rules of a designated contract market or an electronic

    trading facility operating in reliance on the exemption set forth in

    this section;

    (v) Other material factors. [Reserved]

    (2) Notification of possible significant price discovery contract

    conditions. An electronic trading facility operating in reliance on the

    exemption set forth in this section shall promptly notify the

    Commission, and such notification shall be accompanied by supporting

    information or data concerning any contract that:

    (i) Averaged five trades per day or more over the most recent

    calendar quarter; and

    (ii)(A) For which the exchange sells its price information

    regarding the contract to market participants or industry publications;

    or

    (B) Whose daily closing or settlement prices on 95 percent or more

    of the days in the most recent quarter were within 2.5 percent of the

    contemporaneously determined closing, settlement or other daily price

    of another agreement, contract or transaction.

    (3) Procedure for significant price discovery determination. Before

    making a final price discovery determination under this paragraph, the

    Commission shall publish notice in the Federal Register that it intends

    to undertake a determination with respect to whether a particular

    agreement, contract or transaction performs a significant price

    discovery function and to receive written data, views and arguments

    relevant to its determination from the electronic trading facility and

    other interested persons. Any such written data, views and arguments

    shall be filed with the Secretary of the Commission, in the form and

    manner specified by the Commission, within 30 calendar days of

    publication of notice in the Federal Register or within such other time

    specified by the Commission. After prompt consideration of all relevant

    information, the Commission shall, within a reasonable period of time

    after the close of the comment period, issue an order explaining its

    determination whether the agreement, contract or transaction executed

    or traded by the electronic trading facility performs a significant

    price discovery function under the criteria specified in paragraph

    (d)(1)(i) through (v) of this section.

    (4) Compliance with core principles. (i) Following the issuance of

    an order by the Commission that the electronic trading facility

    executes or trades an agreement, contract or transaction that performs

    a significant price discovery function, the electronic trading facility

    must demonstrate, with respect to that agreement, contract or

    transaction, compliance with the Core Principles set forth in this

    section and the applicable provisions of this part. If the Commission's

    order represents the first time it has determined that one of the

    electronic trading facility's agreements, contracts or transactions

    performs a significant price discovery function, the facility must

    submit a written demonstration of compliance with the Core Principles

    within 90 calendar days of the date of the Commission's order. For each

    subsequent determination by the Commission that the electronic trading

    facility has an additional agreement, contract or transaction that

    performs a significant price discovery function, the facility must

    submit a written demonstration of compliance with the Core Principles

    within 30 calendar days of the date of the Commission's order.

    Attention is directed to Appendix B of this part for guidance on and

    acceptable practices for complying with the Core Principles.

    Submissions demonstrating how the electronic trading facility complies

    with the Core Principles with respect to its significant price

    discovery contract must be filed with the Secretary of the Commission

    at its Washington, DC headquarters. Submissions must include the

    following:

    (A) A written certification that the significant price discovery

    contract(s) complies with the Act and regulations thereunder;

    (B) A copy of the electronic trading facility's rules (as defined

    in Sec. 40.1 of this chapter) and any technical manuals, other guides

    or instructions for users of, or participants in, the market, including

    minimum financial standards for members or market participants.

    Subsequent rule changes must be certified by the electronic trading

    facility pursuant to section 5c(c) of the Act and Sec. 40.6 of this

    chapter. The electronic trading facility also may request Commission

    approval of any

    [[Page 66339]]

    rule changes pursuant to section 5c(c) of the Act and Sec. 40.5 of

    this chapter;

    (C) A description of the trading system, algorithm, security and

    access limitation procedures with a timeline for an order from input

    through settlement, and a copy of any system test procedures, tests

    conducted, test results and contingency or disaster recovery plans;

    (D) A copy of any documents pertaining to or describing the

    electronic trading system's legal status and governance structure,

    including governance fitness information;

    (E) An executed or executable copy of any agreements or contracts

    entered into or to be entered into by the electronic trading facility,

    including partnership or limited liability company, third-party

    regulatory service, or member or user agreements, that enable or

    empower the electronic trading facility to comply with a Core

    Principle;

    (F) A copy of any manual or other document describing, with

    specificity, the manner in which the trading facility will conduct

    trade practice, market and financial surveillance;

    (G) To the extent that any of the items in paragraphs (d)(4)(i)(A)

    through (F) of this section raise issues that are novel, or for which

    compliance with a Core Principle is not self-evident, an explanation of

    how that item satisfies the applicable Core Principle or Principles.

    (ii) The electronic trading facility must identify with

    particularity information in the submission that will be subject to a

    request for confidential treatment pursuant to Sec. 145.09 of this

    chapter. The electronic trading facility must follow the procedures

    specified in Sec. 40.8 of this chapter with respect to any information

    in its submission for which confidential treatment is requested.

    (5) Determination of compliance with core principles. The

    Commission shall take into consideration differences between cleared

    and uncleared significant price discovery contracts when reviewing the

    implementation of the Core Principles by an electronic trading

    facility. The electronic facility has reasonable discretion in

    accounting for differences between cleared and uncleared significant

    price discovery contracts when establishing the manner in which it

    complies with the Core Principles.

    (6) Information relating to compliance with core principles. Upon

    request by the Commission, an electronic trading facility trading a

    significant price discovery contract shall file with the Commission a

    written demonstration, containing such supporting data, information and

    documents, in the form and manner and within such time as the

    Commission may specify, that the electronic trading facility is in

    compliance with one or more Core Principles as specified in the

    request, or that is otherwise requested by the Commission to enable the

    Commission to satisfy its obligations under the Act.

    (7) Enforceability. An agreement, contract or transaction entered

    into on or pursuant to the rules of an electronic trading facility

    trading or executing a significant price discovery contract shall not

    be void, voidable, subject to rescission or otherwise invalidated or

    rendered unenforceable as a result of:

    (i) A violation by the electronic trading facility of the

    provisions set forth in this section; or

    (ii) Any Commission proceeding to alter or supplement a rule, term

    or condition 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 an electronic trading facility

    to adopt a specific term or condition, trading rule or procedure, or to

    take or refrain from taking a specific action.

    (8) Procedures for vacating a determination of a significant price

    discovery function--(i) By the electronic trading facility. An

    electronic trading facility that executes or trades an agreement,

    contract or transaction that the Commission has determined performs a

    significant price discovery function under paragraph (d)(3) of this

    section may petition the Commission to vacate that determination. The

    petition shall demonstrate that the agreement, contract or transaction

    no longer performs a significant price discovery function under the

    criteria specified in paragraph (d)(1), and has not done so for at

    least the prior 12 months. An electronic trading facility shall not

    petition for a vacation of a significant price discovery determination

    more frequently than once every 12 months for any individual contract.

    (ii) By the Commission. The Commission may, on its own initiative,

    begin vacation proceedings if it believes that an agreement, contract

    or transaction has not performed a significant price discovery function

    for at least the prior 12 months.

    (iii) Procedure. Before making a final determination whether an

    agreement, contract or transaction has ceased to perform a significant

    price discovery function, the Commission shall publish notice in the

    Federal Register that it intends to undertake such a determination and

    to receive written data, views and arguments relevant to its

    determination from the electronic trading facility and other interested

    persons. Written submissions shall be filed with the Secretary of the

    Commission in the form and manner specified by the Commission, within

    30 calendar days of publication of notice in the Federal Register, or

    within such other time specified by the Commission. After consideration

    of all relevant information, the Commission shall issue an order

    explaining its determination whether the agreement, contract or

    transaction has ceased to perform a significant price discovery

    function and, if so, vacating its prior order. If such an order issues,

    and the Commission subsequently determines, on its own initiative or

    after notification by the electronic trading facility, that the

    agreement, contract or transaction that was subject to the vacation

    order again performs a significant price discovery function, the

    electronic trading facility must comply with the Core Principles within

    30 calendar days of the date of the Commission's order.

    (iv) Automatic vacation of significant price discovery

    determination. Regardless of whether a proceeding to vacate has been

    initiated, any significant price discovery contract that has no open

    interest and in which no trading has occurred for a period of 12

    complete and consecutive calendar months shall, without further

    proceedings, no longer be considered to be a significant price

    discovery contract.

    (e) Commission review. The Commission shall, at least annually,

    evaluate as appropriate agreements, contracts or transactions conducted

    on an electronic trading facility in reliance on the exemption set

    forth in this section to determine whether they serve a significant

    price discovery function as set forth in paragraph (d)(1) of this

    section.

    0

    71. Amend Appendix A to part 36 by revising introductory paragraph 1,

    the headings to paragraphs (A), (B), and (C), and paragraphs (D)2. and

    (D)4., to read as follows:

    Appendix A to Part 36--Guidance on Specific Price Discovery Contracts

    1. There are four factors that the Commission must consider, as

    appropriate, in making a determination that a contract is performing

    a significant price discovery function. The four factors prescribed

    by the statute are: Price Linkage; Arbitrage; Material Price

    Reference; and Material Liquidity.

    * * * * *

    (A) MATERIAL LIQUIDITY--The extent to which the volume of

    agreements, contracts or transactions in the commodity being traded

    on the electronic trading facility is sufficient to have a material

    effect on other agreements, contracts or transactions listed for

    trading on or subject to the rules of a designated

    [[Page 66340]]

    contract market, or an electronic trading facility operating in

    reliance on the exemption set forth in this section.

    * * * * *

    (B) PRICE LINKAGE--The extent to which the agreement, contract

    or transaction uses or otherwise relies on a daily or final

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

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

    designated contract market, or a significant price discovery

    contract traded on an electronic trading facility, to value a

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

    a position, or close out a position.

    * * * * *

    (C) ARBITRAGE CONTRACTS--The extent to which the price for the

    agreement, contract or transaction is sufficiently related to the

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

    the rules of a designated contract market or a significant price

    discovery contract or contracts trading on or subject to the rules

    of an electronic trading facility, so as to permit market

    participants to effectively arbitrage between the markets by

    simultaneously maintaining positions or executing trades in the

    contracts on a frequent and recurring basis.

    * * * * *

    (D) * * *

    2. In evaluating a contract's price discovery role as a directly

    referenced price source, the Commission will perform an analysis to

    determine whether cash market participants are quoting bid or offer

    prices or entering into transactions at prices that are set either

    explicitly or implicitly at a differential to prices established for

    the contract. Cash market prices are set explicitly at a

    differential to the contract being traded on the electronic trading

    facility when, for instance, they are quoted in dollars and cents

    above or below the reference contract's price. Cash market prices

    are set implicitly at a differential to a contract being traded on

    the electronic trading facility when, for instance, they are arrived

    at after adding to, or subtracting from the contract being traded on

    the electronic trading facility, but then quoted or reported at a

    flat price. The Commission will also consider whether cash market

    entities are quoting cash prices based on a contract being traded on

    the electronic trading facility on a frequent and recurring basis.

    * * * * *

    4. In applying this criterion, consideration will be given to

    whether prices established by a contract being traded on the

    electronic trading facility are reported in a widely distributed

    industry publication. In making this determination, the Commission

    will consider the reputation of the publication within the industry,

    how frequently it is published, and whether the information

    contained in the publication is routinely consulted by industry

    participants in pricing cash market transactions.

    * * * * *

    0

    72. Revise Appendix B to part 36 to read as follows:

    Appendix B to Part 36--Guidance on, and Acceptable Practices in,

    Compliance With Core Principles

    1. This Appendix provides guidance on complying with the core

    principles set forth in this part, both initially and on an ongoing

    basis. The guidance is provided in paragraph (a) following each core

    principle and can be used to demonstrate to the Commission core

    principle compliance under Sec. 36.3(d)(4). The guidance for each

    core principle is illustrative only of the types of matters an

    electronic trading facility may address, as applicable, and is not

    intended to be used as a mandatory checklist. Addressing the issues

    and questions set forth in this guidance will help the Commission in

    its consideration of whether the electronic trading facility is in

    compliance with the core principles. A submission pursuant to Sec.

    36.3(d)(4) should include an explanation or other form of

    documentation demonstrating that the electronic trading facility

    complies with the core principles.

    2. Acceptable practices meeting selected requirements of the

    core principles are set forth in paragraph (b) following each core

    principle. Electronic trading facilities on which significant price

    discovery contracts are traded or executed that follow the specific

    practices outlined under paragraph (b) for any core principle in

    this appendix will meet the selected requirements of the applicable

    core principle. Paragraph (b) is for illustrative purposes only, and

    does not state the exclusive means for satisfying a core principle.

    CORE PRINCIPLE I--CONTRACTS NOT READILY SUSCEPTIBLE TO

    MANIPULATION. The electronic trading facility shall list only

    significant price discovery contracts that are not readily

    susceptible to manipulation.

    (a) Guidance. Upon determination by the Commission that a

    contract listed for trading on an electronic trading facility is a

    significant price discovery contract, the electronic trading

    facility must self-certify the terms and conditions of the

    significant price discovery contract under Sec. 36.3(d)(4) within

    90 calendar days of the date of the Commission's order if the

    contract is the electronic trading facility's first significant

    price discovery contract; or 30 days from the date of the

    Commission's order if the contract is not the electronic trading

    facility's first significant price discovery contract. Once the

    Commission determines that a contract performs a significant price

    discovery function, subsequent rule changes must be self-certified

    to the Commission by the electronic trading facility pursuant to

    Sec. 40.6 of this chapter or submitted to the Commission for review

    and approval pursuant to Sec. 40.5 of this chapter.

    (b) Acceptable practices. Guideline No. 1, 17 CFR part 40,

    Appendix A may be used as guidance in meeting this core principle

    for significant price discovery contracts.

    CORE PRINCIPLE II--MONITORING OF TRADING. The electronic trading

    facility shall monitor trading in significant price discovery

    contracts to prevent market manipulation, price distortion, and

    disruptions of the delivery of cash-settlement process through

    market surveillance, compliance and disciplinary practices and

    procedures, including methods for conducting real-time monitoring of

    trading and comprehensive and accurate trade reconstructions.

    (a) Guidance. An electronic trading facility on which

    significant price discovery contracts are traded or executed should,

    with respect to those contracts, demonstrate a capacity to prevent

    market manipulation and have trading and participation rules to

    detect and deter abuses. The facility should seek to prevent market

    manipulation and other trading abuses through a dedicated regulatory

    department or by delegation of that function to an appropriate third

    party. An electronic trading facility also should have the authority

    to intervene as necessary to maintain an orderly market.

    (b) Acceptable practices--(1) An acceptable trade monitoring

    program. An acceptable trade monitoring program should facilitate,

    on both a routine and non-routine basis, arrangements and resources

    to detect and deter abuses through direct surveillance of each

    significant price discovery contract. Direct surveillance of each

    significant price discovery contract will generally involve the

    collection of various market data, including information on

    participants' market activity. Those data should be evaluated on an

    ongoing basis in order to make an appropriate regulatory response to

    potential market disruptions or abusive practices. For contracts

    with a substantial number of participants, an effective surveillance

    program should employ a much more comprehensive large trader

    reporting system.

    (2) Authority to collect information and documents. The

    electronic trading facility should have the authority to collect

    information and documents in order to reconstruct trading for

    appropriate market analysis. Appropriate market analysis should

    enable the electronic trading facility to assess whether each

    significant price discovery contract is responding to the forces of

    supply and demand. Appropriate data usually include various

    fundamental data about the underlying commodity, its supply, its

    demand, and its movement through market channels. Especially

    important are data related to the size and ownership of deliverable

    supplies--the existing supply and the future or potential supply--

    and to the pricing of the deliverable commodity relative to the

    futures price and relative to the similar, but non-deliverable,

    kinds of the commodity. For cash-settled contracts, it is more

    appropriate to pay attention to the availability and pricing of the

    commodity making up the index to which the contract will be settled,

    as well as monitoring the continued suitability of the methodology

    for deriving the index.

    (3) Ability to assess participants' market activity and power.

    To assess participants' activity and potential power in a market,

    electronic trading facilities, with respect to significant price

    discovery contracts, at a minimum should have routine access to the

    positions and trading of its participants and, if applicable, should

    provide for such access through its agreements with its third-party

    provider of clearing services.

    [[Page 66341]]

    CORE PRINCIPLE III--ABILITY TO OBTAIN INFORMATION. The

    electronic trading facility shall establish and enforce rules that

    allow the electronic trading facility to obtain any necessary

    information to perform any of the functions set forth in this

    subparagraph, provide the information to the Commission upon

    request, and have the capacity to carry out such international

    information-sharing agreements as the Commission may require.

    (a) Guidance. An electronic trading facility on which

    significant price discovery contracts are traded or executed should,

    with respect to those contracts, have the ability and authority to

    collect information and documents on both a routine and non-routine

    basis, including the examination of books and records kept by

    participants. This includes having arrangements and resources for

    recording full data entry and trade details and safely storing audit

    trail data. An electronic trading facility should have systems

    sufficient to enable it to use the information for purposes of

    assisting in the prevention of participant and market abuses through

    reconstruction of trading and providing evidence of any violations

    of the electronic trading facility's rules.

    (b) Acceptable practices--(1) The goal of an audit trail is to

    detect and deter market abuse. An effective contract audit trail

    should capture and retain sufficient trade-related information to

    permit electronic trading facility staff to detect trading abuses

    and to reconstruct all transactions within a reasonable period of

    time. An audit trail should include specialized electronic

    surveillance programs that identify potentially abusive trades and

    trade patterns. An acceptable audit trail must be able to track an

    order from time of entry into the trading system through its fill.

    The electronic trading facility must create and maintain an

    electronic transaction history database that contains information

    with respect to transactions executed on each significant price

    discovery contract.

    (2) An acceptable audit trail should include the following:

    original source documents, transaction history, electronic analysis

    capability, and safe storage capability. An acceptable audit trail

    system would satisfy the following practices.

    (i) Original source documents. Original source documents include

    unalterable, sequentially identified records on which trade

    execution information is originally recorded. For each order

    (whether filled, unfilled or cancelled, each of which should be

    retained or electronically captured), such records reflect the terms

    of the order, an account identifier that relates back to the

    account(s) owner(s), and the time of order entry.

    (ii) Transaction history. A transaction history consists of an

    electronic history of each transaction, including:

    (A) All the data that are input into the trade entry or matching

    system for the transaction to match and clear;

    (B) Timing and sequencing data adequate to reconstruct trading;

    and

    (C) The identification of each account to which fills are

    allocated.

    (iii) Electronic analysis capability. An electronic analysis

    capability permits sorting and presenting data included in the

    transaction history so as to reconstruct trading and to identify

    possible trading violations with respect to market abuse.

    (iv) Safe storage capability. Safe storage capability provides

    for a method of storing the data included in the transaction history

    in a manner that protects the data from unauthorized alteration, as

    well as from accidental erasure or other loss. Data should be

    retained in the form and manner specified by the Commission or,

    where no acceptable manner of retention is specified, in accordance

    with the recordkeeping standards of Sec. 1.31 of this chapter.

    (3) Arrangements and resources for the disclosure of the

    obtained information and documents to the Commission upon request.

    The electronic trading facility should maintain records of all

    information and documents related to each significant price

    discovery contract in a form and manner acceptable to the

    Commission. Where no acceptable manner of maintenance is specified,

    records should be maintained in accordance with the recordkeeping

    standards of Sec. 1.31 of this chapter.

    (4) The capacity to carry out appropriate information-sharing

    agreements as the Commission may require. Appropriate information-

    sharing agreements could be established with other markets or the

    Commission can act in conjunction with the electronic trading

    facility to carry out such information sharing.

    CORE PRINCIPLE IV--POSITION LIMITATIONS OR ACCOUNTABILITY. The

    electronic trading facility shall adopt, where necessary and

    appropriate, position limitations or position accountability for

    speculators in significant price discovery contracts, taking into

    account positions in other agreements, contracts and transactions

    that are treated by a derivatives clearing organization, whether

    registered or not registered, as fungible with such significant

    price discovery contracts to reduce the potential threat of market

    manipulation or congestion, especially during trading in the

    delivery month.

    (a) Guidance. [Reserved]

    (b) Acceptable practices for uncleared trades. [Reserved]

    (c) Acceptable practices for cleared trades--(1) Introduction.

    In order to diminish potential problems arising from excessively

    large speculative positions, and to facilitate orderly liquidation

    of expiring contracts, an electronic trading facility relying on the

    exemption set forth in this section should adopt rules that set

    position limits or accountability levels on traders' cleared

    positions in significant price discovery contracts. These position

    limit rules specifically may exempt bona fide hedging; permit other

    exemptions; or set limits differently by market, delivery month or

    time period. For the purpose of evaluating a significant price

    discovery contract's speculative-limit program for cleared

    positions, the Commission will consider the specified position

    limits or accountability levels, aggregation policies, types of

    exemptions allowed, methods for monitoring compliance with the

    specified limits or levels, and procedures for dealing with

    violations.

    (2) Accounting for cleared trades--(i) Speculative-limit levels

    typically should be set in terms of a trader's combined position

    involving cleared trades in a significant price discovery contract,

    plus positions in agreements, contracts and transactions that are

    treated by a derivatives clearing organization, whether registered

    or not registered, as fungible with such significant price discovery

    contract. (This circumstance typically exists where an exempt

    commercial market lists a particular contract for trading but also

    allows for positions in that contract to be cleared together with

    positions established through bilateral or off-exchange

    transactions, such as block trades, in the same contract.

    Essentially, both the on-facility and off-facility transactions are

    considered fungible with each other.) In this connection, the

    electronic trading facility should make arrangements to ensure that

    it is able to ascertain accurate position data for the market.

    (ii) For significant price discovery contracts that are traded

    on a cleared basis, the electronic trading facility should apply

    position limits to cleared transactions in the contract.

    (3) Limitations on spot-month positions. Spot-month limits

    should be adopted for significant price discovery contracts to

    minimize the susceptibility of the market to manipulation or price

    distortions, including squeezes and corners or other abusive trading

    practices.

    (i) Contracts economically equivalent to an existing contract.

    An electronic trading facility that lists a significant price

    discovery contract that is economically-equivalent to another

    significant price discovery contract or to a contract traded on a

    designated contract market should set the spot-month limit for its

    significant price discovery contract at the same level as that

    specified for the economically-equivalent contract.

    (ii) Contracts that are not economically equivalent to an

    existing contract. There may not be an economically-equivalent

    significant price discovery contract or economically-equivalent

    contract traded on a designated contract market. In this case, the

    spot-month speculative position limit should be established in the

    following manner. The spot-month limit for a physical delivery

    market should be based upon an analysis of deliverable supplies and

    the history of spot-month liquidations. The spot-month limit for a

    physical-delivery market is appropriately set at no more than 25

    percent of the estimated deliverable supply. In the case where a

    significant price discovery contract has a cash settlement

    provision, the spot-month limit should be set at a level that

    minimizes the potential for price manipulation or distortion in the

    significant price discovery contract itself; in related futures and

    options contracts traded on a designated contract market; in other

    significant price discovery contracts; in other fungible agreements,

    contracts and transactions; and in the underlying commodity.

    (4) Position accountability for non-spot-month positions. The

    electronic trading facility should establish for its significant

    price discovery contracts non-spot individual

    [[Page 66342]]

    month position accountability levels and all-months-combined

    position accountability levels. An electronic trading facility may

    establish non-spot individual month position limits and all-months-

    combined position limits for its significant price discovery

    contracts in lieu of position accountability levels.

    (i) Definition. Position accountability provisions provide a

    means for an exchange to monitor traders' positions that may

    threaten orderly trading. An acceptable accountability provision

    sets target accountability threshold levels that may be exceeded,

    but once a trader breaches such accountability levels, the

    electronic trading facility should initiate an inquiry to determine

    whether the individual's trading activity is justified and is not

    intended to manipulate the market. As part of its investigation, the

    electronic trading facility may inquire about the trader's rationale

    for holding a position in excess of the accountability levels. An

    acceptable accountability provision should provide the electronic

    trading facility with the authority to order the trader not to

    further increase positions. If a trader fails to comply with a

    request for information about positions held, provides information

    that does not sufficiently justify the position, or continues to

    increase contract positions after a request not to do so is issued

    by the facility, then the accountability provision should enable the

    electronic trading facility to require the trader to reduce

    positions.

    (ii) Contracts economically equivalent to an existing contract.

    When an electronic trading facility lists a significant price

    discovery contract that is economically equivalent to another

    significant price discovery contract or to a contract traded on a

    designated contract market, the electronic trading facility should

    set the non-spot individual month position accountability level and

    all-months-combined position accountability level for its

    significant price discovery contract at the same levels, or lower,

    as those specified for the economically-equivalent contract.

    (iii) Contracts that are not economically equivalent to an

    existing contract. For significant price discovery contracts that

    are not economically equivalent to an existing contract, the trading

    facility shall adopt non-spot individual month and all-months-

    combined position accountability levels that are no greater than 10

    percent of the average combined futures and delta-adjusted option

    month-end open interest for the most recent calendar year. For

    electronic trading facilities that choose to adopt non-spot

    individual month and all-months-combined position limits in lieu of

    position accountability levels for their significant price discovery

    contracts, the limits should be set in the same manner as the

    accountability levels.

    (iv) Contracts economically equivalent to an existing contract

    with position limits. If a significant price discovery contract is

    economically equivalent to another significant price discovery

    contract or to a contract traded on a designated contract market

    that has adopted non-spot or all-months-combined position limits,

    the electronic trading facility should set non-spot month position

    limits and all-months-combined position limits for its significant

    price discovery contract at the same (or lower) levels as those

    specified for the economically-equivalent contract.

    (5) Account aggregation. An electronic trading facility should

    have aggregation rules for significant price discovery contracts

    that apply to accounts under common control, those with common

    ownership, i.e., where there is a ten percent or greater financial

    interest, and those traded according to an express or implied

    agreement. Such aggregation rules should apply to cleared

    transactions with respect to applicable speculative position limits.

    An electronic trading facility will be permitted to set more

    stringent aggregation policies. An electronic trading facility may

    grant exemptions to its price discovery contracts' position limits

    for bona fide hedging (as defined in Sec. 1.3(z) of this chapter)

    and may grant exemptions for reduced risk positions, such as

    spreads, straddles and arbitrage positions.

    (6) Implementation deadlines. An electronic trading facility

    with a significant price discovery contract is required to comply

    with Core Principle IV within 90 calendar days of the date of the

    Commission's order determining that the contract performs a

    significant price discovery function if such contract is the

    electronic trading facility's first significant price discovery

    contract, or within 30 days of the date of the Commission's order if

    such contract is not the electronic trading facility's first

    significant price discovery contract. For the purpose of applying

    limits on speculative positions in newly-determined significant

    price discovery contracts, the Commission will permit a grace period

    following issuance of its order for traders with cleared positions

    in such contracts to become compliant with applicable position limit

    rules. Traders who hold cleared positions on a net basis in the

    electronic trading facility's significant price discovery contract

    must be at or below the specified position limit level no later than

    90 calendar days from the date of the electronic trading facility's

    implementation of position limit rules, unless a hedge exemption is

    granted by the electronic trading facility. This grace period

    applies to both initial and subsequent price discovery contracts.

    Electronic trading facilities should notify traders of this

    requirement promptly upon implementation of such rules.

    (7) Enforcement provisions. The electronic trading facility

    should have appropriate procedures in place to monitor its position

    limit and accountability provisions and to address violations.

    (i) An electronic trading facility with significant price

    discovery contracts should use an automated means of detecting

    traders' violations of speculative limits or exemptions,

    particularly if the significant price discovery contracts have large

    numbers of traders. An electronic trading facility should monitor

    the continuing appropriateness of approved exemptions by

    periodically reviewing each trader's basis for exemption or

    requiring a reapplication. An automated system also should be used

    to determine whether a trader has exceeded applicable non-spot

    individual month position accountability levels and all-months-

    combined position accountability levels.

    (ii) An electronic trading facility should establish a program

    for effective enforcement of position limits for significant price

    discovery contracts. Electronic trading facilities should use a

    large trader reporting system to monitor and enforce daily

    compliance with position limit rules. The Commission notes that an

    electronic trading facility may allow traders to periodically apply

    to the electronic trading facility for an exemption and, if

    appropriate, be granted a position level higher than the applicable

    speculative limit. The electronic trading facility should establish

    a program to monitor approved exemptions from the limits. The

    position levels granted under such hedge exemptions generally should

    be based upon the trader's commercial activity in related markets

    including, but not limited to, positions held in related futures and

    options contracts listed for trading on designated contract markets,

    fungible agreements, contracts and transactions, as determined by a

    derivatives clearing organization. Electronic trading facilities may

    allow a brief grace period where a qualifying trader may exceed

    speculative limits or an existing exemption level pending the

    submission and approval of appropriate justification. An electronic

    trading facility should consider whether it wants to restrict

    exemptions during the last several days of trading in a delivery

    month. Acceptable procedures for obtaining and granting exemptions

    include a requirement that the electronic trading facility approve a

    specific maximum higher level.

    (iii) An acceptable speculative limit program should have

    specific policies for taking regulatory action once a violation of a

    position limit or exemption is detected. The electronic trading

    facility policies should consider appropriate actions.

    (8) Violation of Commission rules. A violation of position

    limits for significant price discovery contracts that have been

    self-certified by an electronic trading facility is also a violation

    of section 4a(e) of the Act.

    CORE PRINCIPLE V--EMERGENCY AUTHORITY. The electronic trading

    facility shall adopt rules to provide for the exercise of emergency

    authority, in consultation or cooperation with the Commission, where

    necessary and appropriate, including the authority to liquidate open

    positions in significant price discovery contracts and to suspend or

    curtail trading in a significant price discovery contract.

    (a) Guidance. An electronic trading facility on which

    significant price discovery contracts are traded should have clear

    procedures and guidelines for decision-making regarding emergency

    intervention in the market, including procedures and guidelines to

    avoid conflicts of interest while carrying out such decision-making.

    An electronic trading facility on which significant price discovery

    contracts are executed or traded should also have the authority to

    intervene as necessary to maintain markets with fair and orderly

    trading as well as procedures for carrying out the intervention.

    Procedures and guidelines should include notifying the Commission of

    [[Page 66343]]

    the exercise of the electronic trading facility's regulatory

    emergency authority, explaining how conflicts of interest are

    minimized, and documenting the electronic trading facility's

    decision-making process and the reasons for using its emergency

    action authority. Information on steps taken under such procedures

    should be included in a submission of a certified rule and any

    related submissions for rule approval pursuant to part 40 of this

    chapter, when carried out pursuant to an electronic trading

    facility's emergency authority. To address perceived market threats,

    the electronic trading facility on which significant price discovery

    contracts are executed or traded should, among other things, be able

    to impose position limits in the delivery month, impose or modify

    price limits, modify circuit breakers, call for additional margin

    either from market participants or clearing members (for contracts

    that are cleared through a clearinghouse), order the liquidation or

    transfer of open positions, order the fixing of a settlement price,

    order a reduction in positions, extend or shorten the expiration

    date or the trading hours, suspend or curtail trading on the

    electronic trading facility, order the transfer of contracts and the

    margin for such contracts from one market participant to another, or

    alter the delivery terms or conditions or, if applicable, should

    provide for such actions through its agreements with its third-party

    provider of clearing services.

    (b) Acceptable practices. [Reserved]

    CORE PRINCIPLE VI--DAILY PUBLICATION OF TRADING INFORMATION. The

    electronic trading facility shall make public daily information on

    price, trading volume, and other trading data to the extent

    appropriate for significant price discovery contracts.

    (a) Guidance. An electronic trading facility, with respect to

    significant price discovery contracts, should provide to the public

    information regarding settlement prices, price range, volume, open

    interest, and other related market information for all applicable

    contracts as determined by the Commission on a fair, equitable and

    timely basis. Provision of information for any applicable contract

    can be through such means as provision of the information to a

    financial information service or by timely placement of the

    information on the electronic trading facility's public Web site.

    (b) Acceptable practices. Compliance with Sec. 16.01 of this

    chapter, which is mandatory, is an acceptable practice that

    satisfies the requirements of Core Principle VI.

    CORE PRINCIPLE VII--COMPLIANCE WITH RULES. The electronic

    trading facility shall monitor and enforce compliance with the rules

    of the electronic trading facility, including the terms and

    conditions of any contracts to be traded and any limitations on

    access to the electronic trading facility.

    (a) Guidance--(1) An electronic trading facility on which

    significant price discovery contracts are executed or traded should

    have appropriate arrangements and resources for effective trade

    practice surveillance programs, with the authority to collect

    information and documents on both a routine and non-routine basis,

    including the examination of books and records kept by its market

    participants. The arrangements and resources should facilitate the

    direct supervision of the market and the analysis of data collected.

    Trade practice surveillance programs may be carried out by the

    electronic trading facility itself or through delegation or

    contracting-out to a third party. If the electronic trading facility

    on which significant price discovery contracts are executed or

    traded delegates or contracts-out the trade practice surveillance

    responsibility to a third party, such third party should have the

    capacity and authority to carry out such programs, and the

    electronic trading facility should retain appropriate supervisory

    authority over the third party.

    (2) An electronic trading facility on which significant price

    discovery contracts are executed or traded should have arrangements,

    resources and authority for effective rule enforcement. The

    Commission believes that this should include the authority and

    ability to discipline and limit or suspend the activities of a

    market participant as well as the authority and ability to terminate

    the activities of a market participant pursuant to clear and fair

    standards. The electronic trading facility can satisfy this

    criterion for market participants by expelling or denying such

    person's future access upon a determination that such a person has

    violated the electronic trading facility's rules.

    (b) Acceptable practices. An acceptable trade practice

    surveillance program generally would include:

    (1) Maintenance of data reflecting the details of each

    transaction executed on the electronic trading facility;

    (2) Electronic analysis of this data routinely to detect

    potential trading violations;

    (3) Appropriate and thorough investigative analysis of these and

    other potential trading violations brought to the electronic trading

    facility's attention; and

    (4) Prompt and effective disciplinary action for any violation

    that is found to have been committed. The Commission believes that

    the latter element should include the authority and ability to

    discipline and limit or suspend the activities of a market

    participant pursuant to clear and fair standards that are available

    to market participants. See, e.g., 17 CFR part 8.

    CORE PRINCIPLE VIII--CONFLICTS OF INTEREST. The electronic

    trading facility on which significant price discovery contracts are

    executed or traded shall establish and enforce rules to minimize

    conflicts of interest in the decision-making process of the

    electronic trading facility and establish a process for resolving

    such conflicts of interest.

    (a) Guidance. (1) The means to address conflicts of interest in

    the decision-making of an electronic trading facility on which

    significant price discovery contracts are executed or traded should

    include methods to ascertain the presence of conflicts of interest

    and to make decisions in the event of such a conflict. In addition,

    the Commission believes that the electronic trading facility on

    which significant price discovery contracts are executed or traded

    should provide for appropriate limitations on the use or disclosure

    of material non-public information gained through the performance of

    official duties by board members, committee members and electronic

    trading facility employees or gained through an ownership interest

    in the electronic trading facility or its parent organization(s).

    (2) All electronic trading facilities on which significant price

    discovery contracts are traded bear special responsibility to

    regulate effectively, impartially, and with due consideration of the

    public interest, as provided in section 3 of the Act. Under Core

    Principle VIII, they are also required to minimize conflicts of

    interest in their decision-making processes. To comply with this

    core principle, electronic trading facilities on which significant

    price discovery contracts are traded should be particularly vigilant

    for such conflicts between and among any of their self-regulatory

    responsibilities, their commercial interests, and the several

    interests of their management, members, owners, market participants,

    other industry participants and other constituencies.

    (b) Acceptable practices. [Reserved]

    CORE PRINCIPLE IX--ANTITRUST CONSIDERATIONS. Unless necessary or

    appropriate to achieve the purposes of this Act, the electronic

    trading facility, with respect to any significant price discovery

    contracts, shall endeavor to avoid adopting any rules or taking any

    actions that result in any unreasonable restraints of trade or

    imposing any material anticompetitive burden on trading on the

    electronic trading facility.

    (a) Guidance. An electronic trading facility, with respect to a

    significant price discovery contract, may at any time request that

    the Commission consider under the provisions of section 15(b) of the

    Act any of the electronic trading facility's rules, which may be

    trading protocols or policies, operational rules, or terms or

    conditions of any significant price discovery contract. The

    Commission intends to apply section 15(b) of the Act to its

    consideration of issues under this core principle in a manner

    consistent with that previously applied to contract markets.

    (b) Acceptable practices. [Reserved]

    PART 38--DESIGNATED CONTRACT MARKETS

    0

    73. The authority citation for part 38 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j,

    6k, 6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as

    amended by the Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Pub. L. 111-203,124 Stat. 1376 (2010).

    0

    74. Revise Sec. 38.2 to read as follows:

    Sec. 38.2 Exempt provisions.

    A designated contract market, the designated contract market's

    operator and transactions traded on or through a designated contract

    market under section 5 of the Act shall comply with all applicable

    regulations under Title 17

    [[Page 66344]]

    of the Code of Federal Regulations, except for the requirements of

    Sec. 1.39(b), Sec. 1.44, Sec. 1.53, Sec. 1.54, Sec. 1.59(b) and

    (c), Sec. 1.62, Sec. 1.63(a) and (b) and (d) through (f), Sec. 1.64,

    Sec. 1.69, part 8, Sec. 100.1, Sec. 155.2, and part 156.

    PART 41--SECURITY FUTURES PRODUCTS

    0

    75. The authority citation for part 41 continues to read as follows:

    Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat.

    2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

    0

    76. Revise paragraph (e) of Sec. 41.1 to read as follows:

    Sec. 41.1 Definitions

    * * * * *

    (e) Narrow-based security index has the same meaning as in section

    1a(35) of the Commodity Exchange Act.

    * * * * *

    0

    77. Revise Sec. 41.2 to read as follows:

    Sec. 41.2 Required records.

    A designated contract market that trades a security index or

    security futures product shall maintain in accordance with the

    requirements of Sec. 1.31 of this chapter books and records of all

    activities related to the trading of such products, including: Records

    related to any determination under subpart B of this part whether or

    not a futures contract on a security index is a narrow-based security

    index or a broad-based security index.

    0

    78. Amend Sec. 41.11 by revising paragraphs (a) introductory text,

    (b)(1) introductory text, (b)(2) introductory text, (c), and (d)(5)

    introductory text to read as follows:

    Sec. 41.11 Method for determining market capitalization and dollar

    value of average daily trading volume; application of the definition of

    narrow-based security index.

    (a) Market capitalization. For purposes of section 1a(35)(B) of the

    Act (7 U.S.C. 1a(35)(B)):

    * * * * *

    (b) * * *

    (1) For purposes of section 1a(35)(A) and (B) of the Act (7 U.S.C.

    1a(35)(A) and (B)):

    * * * * *

    (2) For purposes of section 1a(35)(B)(III)(cc) of the Act (7 U.S.C.

    1a(35)(B)(III)(cc)):

    * * * * *

    (c) Depositary Shares and Section 12 Registration. For purposes of

    section 1a(35)(B)(III)(aa) of the Act (7 U.S.C. 1a(35)(B)(III)(aa)),

    the requirement that each component security of an index be registered

    pursuant to section 12 of the Securities Exchange Act of 1934 (15

    U.S.C. 78l) shall be satisfied with respect to any security that is a

    depositary share if the deposited securities underlying the depositary

    share are registered pursuant to section 12 of the Securities Exchange

    Act of 1934 and the depositary share is registered under the Securities

    Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36).

    (d) * * *

    (5) Lowest weighted 25% of an index. With respect to any particular

    day, the lowest weighted component securities comprising, in the

    aggregate, 25% of an index's weighting for purposes of section

    1a(35)(A)(iv) of the Act (7 U.S.C. 1a(35)(A)(iv)) (``lowest weighted

    25% of an index'') means those securities:

    * * * * *

    0

    79. Revise paragraph (a) introductory text of Sec. 41.12 to read as

    follows:

    Sec. 41.12 Indexes underlying futures contracts trading for fewer

    than 30 days.

    (a) An index on which a contract of sale for future delivery is

    trading on a designated contract market or foreign board of trade is

    not a narrow-based security index under section 1a(35) of the Act (7

    U.S.C. 1a(35)) for the first 30 days of trading, if:

    * * * * *

    0

    80. Revise Sec. 41.13 to read as follows:

    Sec. 41.13 Futures contracts on security indexes trading on or

    subject to the rules of a foreign board of trade.

    When a contract of sale for future delivery on a security index is

    traded on or subject to the rules of a foreign board of trade, such

    index shall not be a narrow-based security index if it would not be a

    narrow-based security index if a futures contract on such index were

    traded on a designated contract market.

    0

    81. Revise paragraphs (a)(1), (a)(3), (b)(1), (b)(2), and (b)(4) of

    Sec. 41.21 to read as follows:

    Sec. 41.21 Requirements for underlying securities.

    (a) * * *

    (1) The underlying security is registered pursuant to section 12 of

    the Securities Exchange Act of 1934;

    * * * * *

    (3) The underlying security conforms with the listing standards for

    the security futures product that the designated contract market has

    filed with the SEC under section 19(b) of the Securities Exchange Act

    of 1934.

    (b) * * *

    (1) The index is a narrow-based security index as defined in

    section 1a(35) of the Act;

    (2) The securities in the index are registered pursuant to section

    12 of the Securities Exchange Act of 1934;

    * * * * *

    (4) The index conforms with the listing standards for the security

    futures product that the designated contract market has filed with the

    SEC under section 19(b) of the Securities Exchange Act of 1934.

    0

    82. Revise the introductory text and paragraph (e) of Sec. 41.22 to

    read as follows:

    Sec. 41.22 Required certifications.

    It shall be unlawful for a designated contract market to list for

    trading or execution a security futures product unless the designated

    contract market has provided the Commission with a certification that

    the specific security futures product or products and the designated

    contract market meet, as applicable, the following criteria:

    * * * * *

    (e) If the board of trade is a designated contract market pursuant

    to section 5 of the Act, dual trading in these security futures

    products is restricted in accordance with Sec. 41.27;

    * * * * *

    0

    83. Revise paragraph (a) introductory text, paragraph (a)(5), and

    paragraph (b) of Sec. 41.23 to read as follows:

    Sec. 41.23 Listing of security futures products for trading.

    (a) Initial listing of products for trading. To list new security

    futures products for trading, a designated contract market shall submit

    to the Commission at its Washington, DC headquarters, either in

    electronic or hard-copy form, to be received by the Commission no later

    than the day prior to the initiation of trading, a filing that:

    * * * * *

    (5) If the board of trade is a designated contract market pursuant

    to section 5 of the Act, it includes a certification that the security

    futures product complies with the Act and rules thereunder; and

    * * * * *

    (b) Voluntary submission of security futures products for

    Commission approval. A designated contract market may request that the

    Commission approve any security futures product under the procedures of

    Sec. 40.5 of this chapter, provided however, that the registered

    entity shall include the certification required by Sec. 41.22 with its

    submission under Sec. 40.5 of this chapter. Notice designated contract

    markets may not request Commission approval of security futures

    products.

    0

    84. Amend Sec. 41.24 by removing paragraph (b), redesignating

    paragraph

    [[Page 66345]]

    (c) as paragraph (b), and revising redesignated paragraph (b), to read

    as follows:

    Sec. 41.24 Rule amendments to security futures products.

    * * * * *

    (b) Voluntary submission of rules for Commission review and

    approval. A designated contract market or a registered derivatives

    clearing organization clearing security futures products may request

    that the Commission approve any rule or proposed rule or rule amendment

    relating to a security futures product under the procedures of Sec.

    40.5 of this chapter, provided however, that the registered entity

    shall include the certifications required by Sec. 41.22 with its

    submission under Sec. 40.5 of this chapter. Notice designated contract

    markets may not request Commission approval of rules.

    0

    85. Revise paragraphs (a)(1), (a)(2) introductory text, (a)(3)

    introductory text, (a)(3)(i)(A), (a)(3)(i)(B), (a)(3)(iv), and (d) of

    Sec. 41.25 to read as follows:

    Sec. 41.25 Additional conditions for trading for security futures

    products.

    (a) Common provisions--(1) Reporting of data. The designated

    contract market shall comply with part 16 of this chapter requiring the

    daily reporting of market data.

    (2) Regulatory trading halts. The rules of a designated contract

    market that lists or trades one or more security futures products must

    include the following provisions:

    * * * * *

    (3) Speculative position limits. The designated contract market

    shall have rules in place establishing position limits or position

    accountability procedures for the expiring futures contract month. The

    designated contract market shall:

    (i) * * *

    (A) For security futures products where the average daily trading

    volume in the underlying security exceeds 20 million shares, or exceeds

    15 million shares and there are more than 40 million shares of the

    underlying security outstanding, the designated contract market may

    adopt a net position limit no greater than 22,500 (100-share) contracts

    applicable to positions held during the last five trading days of an

    expiring contract month; or

    (B) For security futures products where the average daily trading

    volume in the underlying security exceeds 20 million shares and there

    are more than 40 million shares of the underlying security outstanding,

    the designated contract market may adopt a position accountability

    rule. Upon request by the designated contract market, traders who hold

    net positions greater than 22,500 (100-share) contracts, or such lower

    level specified by exchange rules, must provide information to the

    exchange and consent to halt increasing their positions when so ordered

    by the exchange.

    * * * * *

    (iv) For purposes of this section, average daily trading volume

    shall be calculated monthly, using data for the most recent six-month

    period. If the data justify a higher or lower speculative limit for a

    security future, the designated contract market may raise or lower the

    position limit for that security future effective no earlier than the

    day after it has provided notification to the Commission and to the

    public under the submission requirements of Sec. 41.24. If the data

    require imposition of a reduced position limit for a security future,

    the designated contract market may permit any trader holding a position

    in compliance with the previous position limit, but in excess of the

    reduced limit, to maintain such position through the expiration of the

    security futures contract; provided, that the designated contract

    market does not find that the position poses a threat to the orderly

    expiration of such contract.

    * * * * *

    (d) The Commission may exempt a designated contract market from the

    provisions of paragraphs (a)(2) and (b) of this section, either

    unconditionally or on specified terms and conditions, if the Commission

    determines that such exemption is consistent with the public interest

    and the protection of customers. An exemption granted pursuant to this

    paragraph shall not operate as an exemption from any Securities and

    Exchange Commission rules. Any exemption that may be required from such

    rules must be obtained separately from the Securities and Exchange

    Commission.

    0

    86. Amend Sec. 41.27 by:

    0

    a. Revising paragraphs (a)(1), (a)(3) introductory text, (a)(4)(v),

    (a)(5), (b), (d) introductory text, (d)(1), (d)(4), and (f); and

    0

    b. Removing and reserving paragraphs (c)(2) and (e)(2), to read as

    follows:

    Sec. 41.27 Prohibition of dual trading in security futures products

    by floor brokers.

    (a) * * *

    (1) Trading session means hours during which a designated contract

    market is scheduled to trade continuously during a trading day, as set

    forth in its rules, including any related post settlement trading

    session. A designated contract market may have more than one trading

    session during a trading day.

    * * * * *

    (3) Broker association includes two or more designated contract

    market members with floor trading privileges of whom at least one is

    acting as a floor broker who:

    * * * * *

    (4) * * *

    (v) An account for another member present on the floor of a

    designated contract market or an account controlled by such other

    member.

    (5) Dual trading means the execution of customer orders by a floor

    broker through open outcry during the same trading session in which the

    floor broker executes directly or by initiating and passing to another

    member, either through open outcry or through a trading system that

    electronically matches bids and offers pursuant to a predetermined

    algorithm, a transaction for the same security futures product on the

    same designated contract market for an account described in paragraphs

    (a)(4)(i) through (v) of this section.

    (b) Dual Trading Prohibition. (1) No floor broker shall engage in

    dual trading in a security futures product on a designated contract

    market, except as otherwise provided under paragraphs (d), (e), and (f)

    of this section.

    (2) A designated contract market operating an electronic market or

    electronic trading system that provides market participants with a time

    or place advantage or the ability to override a predetermined algorithm

    must submit an appropriate rule proposal to the Commission consistent

    with the procedures set forth in Sec. 40.5. The proposed rule must

    prohibit electronic market participants with a time or place advantage

    or the ability to override a predetermined algorithm from trading a

    security futures product for accounts in which these same participants

    have any interest during the same trading session that they also trade

    the same security futures product for other accounts. This paragraph,

    however, is not applicable with respect to execution priorities or

    quantity guarantees granted to market makers who perform that function,

    or to market participants who receive execution priorities based on

    price improvement activity, in accordance with the rules governing the

    designated contract market.

    (c) * * *

    (2) [Reserved]

    (d) Specific Permitted Exceptions. Notwithstanding the

    applicability of a dual trading prohibition under

    [[Page 66346]]

    paragraph (b) of this section, dual trading may be permitted on a

    designated contract market pursuant to one or more of the following

    specific exceptions:

    (1) Correction of errors. To offset trading errors resulting from

    the execution of customer orders, provided, that the floor broker must

    liquidate the position in his or her personal error account resulting

    from that error through open outcry or through a trading system that

    electronically matches bids and offers as soon as practicable, but,

    except as provided herein, not later than the close of business on the

    business day following the discovery of error. In the event that a

    floor broker is unable to offset the error trade because the daily

    price fluctuation limit is reached, a trading halt is imposed by the

    designated contract market, or an emergency is declared pursuant to the

    rules of the designated contract market, the floor broker must

    liquidate the position in his or her personal error account resulting

    from that error as soon as practicable thereafter.

    * * * * *

    (4) Market emergencies. To address emergency market conditions

    resulting in a temporary emergency action as determined by a designated

    contract market.

    (e) * * *

    (2) [Reserved]

    (f) Unique or Special Characteristics of Agreements, Contracts or

    Transactions, or of Designated Contract Markets. Notwithstanding the

    applicability of a dual trading prohibition under paragraph (b) of this

    section, dual trading may be permitted on a designated contract market

    to address unique or special characteristics of agreements, contracts,

    or transactions, or of the designated contract market as provided

    herein. Any rule of a designated contract market that would permit dual

    trading when it would otherwise be prohibited, based on a unique or

    special characteristic of agreements, contracts, or transactions, or of

    the designated contract market must be submitted to the Commission for

    prior approval under the procedures set forth in Sec. 40.5. The rule

    submission must include a detailed demonstration of why an exception is

    warranted.

    0

    87. Revise paragraphs (a)(4)(i)(B) and (a)(30) of Sec. 41.43 to read

    as follows:

    Sec. 41.43 Definitions.

    (a) * * *

    (4) * * *

    (i) * * *

    (B) If the instrument underlying such security future is a narrow-

    based security index, as defined in section 1a(35)(A) of the Act, the

    product of the daily settlement price of such security future as shown

    by any regularly published reporting or quotation service, and the

    applicable contract multiplier.

    * * * * *

    (30) Self-regulatory authority means a national securities exchange

    registered under section 6 of the Exchange Act, a national securities

    association registered under section 15A of the Exchange Act, or a

    contract market registered under section 5 of the Act or section 5f of

    the Act.

    * * * * *

    0

    88. Revise paragraph (b) introductory text of Sec. 41.49 to read as

    follows:

    Sec. 41.49 Filing proposed margin rule changes with the Commission.

    * * * * *

    (b) Filing requirements under the Act. Any self-regulatory

    authority that is registered with the Commission as a designated

    contract market under section 5 of the Act shall, when filing a

    proposed rule change regarding customer margin for security futures

    with the SEC for approval in accordance with section 19(b)(2) of the

    Exchange Act, submit such proposed rule change to the Commission as

    follows:

    * * * * *

    PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

    0

    89. The authority citation for part 140 continues to read as follows:

    Authority: 7 U.S.C. 2 and 12a.

    0

    90. Amend Sec. 140.72 by revising the section heading and paragraphs

    (a), (b), (d) and (f), to read as follows:

    Sec. 140.72 Delegation of authority to disclose confidential

    information to a contract market, swap execution facility, swap data

    repository, registered futures association or self-regulatory

    organization.

    (a) Pursuant to the authority granted under sections 2(a)(11),

    8a(5) and 8a(6) of the Act, the Commission hereby delegates, until such

    time as the Commission orders otherwise, to the Executive Director, the

    Deputy Executive Director, the Special Assistant to the Executive

    Director, the Director of the Division of Clearing and Intermediary

    Oversight, each Deputy Director of the Division of Clearing and

    Intermediary Oversight, the Chief Accountant, the General Counsel, each

    Deputy General Counsel, the Director of the Division of Market

    Oversight, each Deputy Director of the Division of Market Oversight,

    the Deputy Director of the Market and Trade Practice Surveillance

    Branch, the Director of the Division of Enforcement, each Deputy

    Director of the Division of Enforcement, each Associate Director of the

    Division of Enforcement, the Chief Counsel of the Division of

    Enforcement, each Regional Counsel of the Division of Enforcement, each

    of the Regional Administrators, the Chief Economist of the Office of

    the Chief Economist, the Deputy Chief Economist of the Office of the

    Chief Economist, the Director of the Office of International Affairs,

    and the Deputy Director of the Office of International Affairs, the

    authority to disclose to an official of any contract market, swap

    execution facility, swap data repository, registered futures

    association, or self-regulatory organization as defined in section

    3(a)(26) of the Securities Exchange Act of 1934, any information

    necessary or appropriate to effectuate the purposes of the Act,

    including, but not limited to, the full facts concerning any

    transaction or market operation, including the names of the parties

    thereto. This authority to disclose shall be based on a determination

    that the transaction or market operation disrupts or tends to disrupt

    any market or is otherwise harmful or against the best interests of

    producers, consumers, or investors or that disclosure is necessary or

    appropriate to effectuate the purposes of the Act. The authority to

    make such a determination is also delegated by the Commission to the

    Commission employees identified in this section. A Commission employee

    delegated authority under this section may exercise that authority on

    his or her own initiative or in response to a request by an official of

    a contract market, swap execution facility, swap data repository,

    registered futures association or self-regulatory organization.

    (b) Disclosure under this section shall only be made to a contract

    market, swap execution facility, swap data repository, registered

    futures association or self-regulatory organization official who is

    named in a list filed with the Commission by the chief executive

    officer of the contract market, swap execution facility, swap data

    repository, registered futures association or self-regulatory

    organization, which sets forth the official's name, business address

    and telephone number. The chief executive officer shall thereafter

    notify the Commission of any deletions or additions to the list of

    officials authorized to receive disclosures under this section. The

    original list and any supplemental list required by this paragraph

    shall be filed with the Secretary of the Commission, and a

    [[Page 66347]]

    copy thereof shall also be filed with the Regional Coordinator for the

    region in which the contract market, swap execution facility, or swap

    data repository is located or in which the registered futures

    association or self-regulatory organization has its principal office.

    * * * * *

    (d) For purposes of this section, the term ``official'' shall mean

    any officer or member of a committee of a contract market, swap

    execution facility, swap data repository, registered futures

    association or self-regulatory organization who is specifically charged

    with market surveillance or audit or investigative responsibilities, or

    their duly authorized representative or agent, who is named on the list

    filed pursuant to paragraph (b) of this section or any supplement

    thereto.

    * * * * *

    (f) Any contract market, swap execution facility, swap data

    repository, registered futures association or self-regulatory

    organization receiving information from the Commission under these

    provisions shall not disclose such information except that disclosure

    may be made in any self-regulatory action or proceeding.

    0

    91. Amend Sec. 140.77 by revising the section heading and paragraph

    (a) to read as follows:

    Sec. 140.77 Delegation of authority to determine that applications

    for contract market designation, swap execution facility registration,

    or swap data repository registration are materially incomplete.

    (a) The Commodity Futures Trading Commission hereby delegates,

    until such time as the Commission orders otherwise, to the Director of

    the Division of Market Oversight or the Director's designees, the

    authority to determine that an application for contract market

    designation, swap execution facility registration, or swap data

    repository registration is materially incomplete under section 6 of the

    Commodity Exchange Act and to so notify the applicant.

    * * * * *

    0

    92. Revise paragraphs (a) and (b) of Sec. 140.96 to read as follows:

    Sec. 140.96 Delegation of authority to publish in the Federal

    Register.

    (a) The Commodity Futures Trading Commission hereby delegates,

    until such time as the Commission orders otherwise, to the Director of

    the Division of Market Oversight or the Director's designee, with the

    concurrence of the General Counsel or the General Counsel's designee,

    the authority to publish in the Federal Register notice of the

    availability for comment of the proposed terms and conditions of

    applications for contract market designation, swap execution facility

    and swap data repository registration, and to determine to publish, and

    to publish, requests for public comment on proposed exchange, swap

    execution facility, or swap data repository rules, and rule amendments,

    when there exists novel or complex issues that require additional time

    to analyze, an inadequate explanation by the submitting registered

    entity, or a potential inconsistency with the Act, including

    regulations under the Act.

    (b) The Commodity Futures Trading Commission hereby delegates,

    until such time as the Commission orders otherwise, to the Director of

    the Division of Market Oversight or the Director's designee, and to the

    Director of the Division of Clearing and Intermediary Oversight or the

    Director's designee, with the concurrence of the General Counsel or the

    General Counsel's designee, the authority to determine to publish, and

    to publish, in the Federal Register, requests for public comment on

    proposed exchange and self-regulatory organization rule amendments when

    publication of the proposed rule amendment is in the public interest

    and will assist the Commission in considering the views of interested

    persons.

    * * * * *

    0

    93. Revise paragraph (d)(2) of Sec. 140.99 to read as follows:

    Sec. 140.99 Requests for exemptive, no-action and interpretative

    letters.

    * * * * *

    (d) * * *

    (2) A request for a Letter relating to the provisions of the Act or

    the Commission's rules, regulations or orders governing designated

    contract markets, registered swap execution facilities, registered swap

    data repositories, exempt commercial markets, exempt boards of trade,

    the nature of particular transactions and whether they are exempt or

    excluded from being required to be traded on one of the foregoing

    entities, foreign trading terminals, hedging exemptions, and the

    reporting of market positions shall be filed with the Director,

    Division of Market Oversight, Commodity Futures Trading Commission,

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

    request for a Letter relating to all other provisions of the Act or

    Commission rules shall be filed with the Director, Division of Clearing

    and Intermediary Oversight, Commodity Futures Trading Commission, Three

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

    request must be submitted electronically using the email address

    dmoletters@cftc.gov (for requests filed with the Division of Market

    Oversight), or dcioletters@cftc.gov (for requests filed with the

    Division of Clearing and Intermediary Oversight), as appropriate, and a

    properly signed paper copy of the request must be provided to the

    Division of Market Oversight or the Division of Clearing and

    Intermediary Oversight, as appropriate, within ten days for purposes of

    verification of the electronic submission.

    * * * * *

    0

    94. Amend Sec. 140.735-2 by:

    0

    a. Redesignating paragraphs (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) as

    (b)(1)(ii), (b)(1)(iv), and (b)(1)(v), respectively;

    0

    b. Adding paragraphs (b)(1)(i) and (b)(1)(iii); and

    0

    c. Revising paragraphs (b)(2) and (c), to read as follows:

    Sec. 140.735-2 Prohibited transactions.

    * * * * *

    (b) * * *

    (1) * * *

    (i) In swaps;

    * * * * *

    (iii) In retail forex transactions, as that term is defined in

    Sec. 5.1(m) of this chapter;

    * * * * *

    (2) Effect any purchase or sale of a commodity option, futures

    contract, or swap involving a security or group of securities;

    * * * * *

    (c) Exception for farming, ranching, and natural resource

    operations. The prohibitions in paragraphs (b)(1)(i), (ii), and (iv) of

    this section shall not apply to a transaction in connection with any

    farming, ranching, oil and gas, mineral rights, or other natural

    resource operation in which the member or employee has a financial

    interest, if he or she is not involved in the decision to engage in,

    and does not have prior knowledge of, the actual futures, commodity

    option, or swap transaction and has previously notified the General

    Counsel \2\ in writing of the nature of the operation, the extent of

    the member's or employee's interest, the types of transactions in which

    the operation may engage, and the identity of the person or

    [[Page 66348]]

    persons who will make trading decisions for the operation; \3\ or

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

    \2\ As used in this subpart, ``General Counsel'' refers to the

    General Counsel in his or her capacity as counselor for the

    Commission and designated agency ethics official for the Commission,

    and includes his or her designee and the alternate designated agency

    ethics official appointed by the agency head pursuant to 5 CFR

    2638.202.

    \3\ Although not required, if they choose to do so, members or

    employees may use powers of attorney or other arrangements in order

    to meet the notice requirements of, and to assure that they have no

    control or knowledge of, futures, commodity option, or swap

    transactions permitted under paragraph (c) of this section. A member

    or employee considering such arrangements should consult with the

    Office of General Counsel in advance for approval. Should a member

    or employee gain knowledge of an actual futures, commodity option,

    or swap transaction entered into by an operation described in

    paragraph (c) of this section that has already taken place and the

    market position represented by that transaction remains open, he or

    she should promptly report that fact and all other details to the

    General Counsel and seek advice as to what action, including recusal

    from any particular matter that will have a direct and predictable

    effect on the financial interest in question, may be appropriate.

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

    * * * * *

    0

    95. Revise paragraph (b)(1) of Sec. 140.735-2a to read as follows:

    Sec. 140.735-2a Prohibited interests.

    * * * * *

    (b) * * *

    (1) Have a financial interest, through ownership of securities or

    otherwise, in any person \5\ registered with the Commission (including

    futures commission merchants, associated persons and agents of futures

    commission merchants, floor brokers, commodity trading advisors and

    commodity pool operators, and any other persons required to be

    registered in a fashion similar to any of the above under the Commodity

    Exchange Act or pursuant to any rule or regulation promulgated by the

    Commission), or any contract market, swap execution facility, swap data

    repository, board of trade, or other trading facility, or any

    derivatives clearing organization subject to regulation or oversight by

    the Commission; \6\

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

    \5\ As defined in section 1a(38) of the Commodity Exchange Act

    and 17 CFR 1.3(u) thereunder, a ``person'' includes an individual,

    association, partnership, corporation and a trust.

    \6\ Attention is directed to 18 U.S.C. 208.

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

    * * * * *

    0

    96. Revise Sec. 140.735-3 to read as follows:

    Sec. 140.735-3 Non-governmental employment and other outside

    activity.

    A Commission member or employee shall not accept employment or

    compensation from any person, exchange, swap execution facility, swap

    data repository or derivatives clearing organization subject to

    regulation by the Commission. For purposes of this section, a person

    subject to regulation by the Commission includes but is not limited to

    a contract market, swap execution facility, swap data repository or

    derivatives clearing organization or member thereof, a registered

    futures commission merchant, any person associated with a futures

    commission merchant or with any agent of a futures commission merchant,

    floor broker, commodity trading advisor, commodity pool operator or any

    person required to be registered in a fashion similar to any of the

    above or file reports under the Act or pursuant to any rule or

    regulation promulgated by the Commission.\11\

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

    \11\ Attention is directed to section 2(a)(8) of the Commodity

    Exchange Act, which provides, among other things, that no Commission

    member or employee shall accept employment or compensation from any

    person, exchange or derivatives clearing organization

    (``clearinghouse'') subject to regulation by the Commission, or

    participate, directly or indirectly, in any contract market

    operations or transactions of a character subject to regulation by

    the Commission.

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

    PART 145--COMMISSION RECORDS AND INFORMATION

    0

    97. The authority citation for part 145 continues to read as follows:

    Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80

    Stat. 383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat.

    1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389

    (5 U.S.C. 4a(j)); unless otherwise noted.

    0

    98. Revise paragraphs (c)(1), (d)(1) introductory text, and (d)(1)(vi)

    of Sec. 145.9 to read as follows:

    Sec. 145.9 Petition for confidential treatment of information

    submitted to the Commission.

    * * * * *

    (c) * * *

    (1) Submitter. A ``submitter'' is any person who submits any

    information or material to the Commission or who permits any

    information or material to be submitted to the Commission. For purposes

    of paragraph (d)(1)(ii) of this section only, ``submitter'' includes

    any person whose information has been submitted to a designated

    contract market, derivatives clearing organization, swap execution

    facility, swap data repository or registered futures association that

    in turn has submitted the information to the Commission.

    * * * * *

    (d) Written request for confidential treatment. (1) Any submitter

    may request in writing that the Commission afford confidential

    treatment under the Freedom of Information Act to any information that

    he or she submits to the Commission. Except as provided in paragraph

    (d)(4) of this section, no oral requests for confidential treatment

    will be accepted by the Commission. The submitter shall specify the

    grounds on which confidential treatment is being requested but need not

    provide a detailed written justification of the request unless required

    to do so under paragraph (e) of this section. Confidential treatment

    may be requested only on the grounds that disclosure:

    * * * * *

    (vi) Would reveal investigatory records compiled for law

    enforcement purposes when disclosure would interfere with enforcement

    proceedings or disclose investigative techniques and procedures,

    provided, that the claim may be made only by a designated contract

    market, derivatives clearing organization, swap execution facility,

    swap data repository or registered futures association with regard to

    its own investigatory records.

    * * * * *

    0

    99. Revise paragraphs (a)(6), (a)(8), and (b)(13) of Appendix A to part

    145 to read as follows:

    Appendix A to Part 145--Compilation of Commission Records Available to

    the Public

    * * * * *

    (a) * * *

    (6) Rule enforcement and financial reviews (public version).

    * * * * *

    (8) Commission rules and regulations, Federal Register notices,

    interpretative letters.

    * * * * *

    (b) * * *

    (13) Publicly available portions of applications to become a

    registered entity including the transmittal letter, first page of

    the application cover sheet, proposed rules, proposed bylaws,

    corporate documents, any overview or similar summary provided by the

    applicant, any documents pertaining to the applicant's legal status

    and governance structure, including governance fitness information,

    and any other part of the application not covered by a request for

    confidential treatment.

    * * * * *

    PART 155--TRADING STANDARDS

    0

    100. The authority citation for part 155 continues to read as follows:

    Authority: 7 U.S.C. 6b, 6c, 6g, 6j, and 12a, unless otherwise

    noted.

    0

    101. Revise the introductory text of Sec. 155.2 to read as follows:

    Sec. 155.2 Trading standards for floor brokers.

    Each contract market shall adopt rules which shall, at a minimum,

    with respect to each member of the contract market acting as a floor

    broker:

    * * * * *

    [[Page 66349]]

    0

    102. Revise paragraphs (a)(1), (b)(2)(ii), and (c)(1) of Sec. 155.3 to

    read as follows:

    Sec. 155.3 Trading standards for futures commission merchants.

    (a) * * *

    (1) Insure, to the extent possible, that each order received from a

    customer which is executable at or near the market price is transmitted

    to the floor of the appropriate contract market before any order in any

    future or in any commodity option in the same commodity for any

    proprietary account, any other account in which an affiliated person

    has an interest, or any account for which an affiliated person may

    originate orders without the prior specific consent of the account

    owner, if the affiliated person has gained knowledge of the customer's

    order prior to the transmission to the floor of the appropriate

    contract market of the order for a proprietary account, an account in

    which the affiliated person has an interest, or an account in which the

    affiliated person may originate orders without the prior specific

    consent of the account owner; and

    * * * * *

    (b) * * *

    (2) * * *

    (ii) In the case of a customer who does not qualify as an

    ``institutional customer'' as defined in Sec. 1.3(g) of this chapter,

    a futures commission merchant must obtain the customer's prior consent

    through a signed acknowledgment, which may be accomplished in

    accordance with Sec. 1.55(d) of this chapter.

    (c) * * *

    (1) Receives written authorization from a person designated by such

    other futures commission merchant or introducing broker with

    responsibility for the surveillance over such account pursuant to

    paragraph (a)(2) of this section or Sec. 155.4(a)(2), respectively;

    * * * * *

    0

    103. Revise paragraphs (a)(1), (b)(2)(ii), and (c)(2) of Sec. 155.4 to

    read as follows:

    Sec. 155.4 Trading standards for introducing brokers.

    (a) * * *

    (1) Insure, to the extent possible, that each order received from a

    customer which is executable at or near the market price is transmitted

    to the futures commission merchant carrying the account of the customer

    before any order in any future or in any commodity option in the same

    commodity for any proprietary account, any other account in which an

    affiliated person has an interest, or any account for which an

    affiliated person may originate orders without the prior specific

    consent of the account owner, if the affiliated person has gained

    knowledge of the customer's order prior to the transmission to the

    floor of the appropriate contract market of the order for a proprietary

    account, an account in which the affiliated person has an interest, or

    an account in which the affiliated person may originate orders without

    the prior specific consent of the account owner; and

    * * * * *

    (b) * * *

    (2) * * *

    (ii) In the case of a customer who does not qualify as an

    ``institutional customer'' as defined in Sec. 1.3(g) of this chapter,

    an introducing broker must obtain the customer's prior consent through

    a signed acknowledgment, which may be accomplished in accordance with

    Sec. 1.55(d) of this chapter.

    * * * * *

    (c) * * *

    (2) Copies of all statements for such account and of all written

    records prepared by such futures commission merchant upon receipt of

    orders for such account pursuant to Sec. 155.3(c)(2) are transmitted

    on a regular basis to the introducing broker with which such person is

    affiliated.

    Sec. 155.6 [Removed and Reserved]

    0

    104. Remove and reserve Sec. 155.6.

    PART 166--CUSTOMER PROTECTION RULES

    0

    105. The authority citation for part 155 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7,

    12a, 21, and 23, as amended by Title VII of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

    Stat. 1376 (2010).

    0

    106. Revise paragraph (a) introductory text and paragraph (b) of Sec.

    166.2 to read as follows:

    Sec. 166.2 Authorization to trade.

    * * * * *

    (a) With respect to a commodity interest as defined in any

    paragraph of the commodity interest definition in Sec. 1.3(yy) of this

    chapter, specifically authorized the futures commission merchant,

    retail foreign exchange dealer, introducing broker or any of their

    associated persons to effect the transaction (a transaction is

    ``specifically authorized'' if the customer or person designated by the

    customer to control the account specifies--

    * * * * *

    (b) With respect to a commodity interest as defined in paragraph

    (1) or (2) of the commodity interest definition in Sec. 1.3(yy) of

    this chapter, authorized in writing the futures commission merchant,

    introducing broker or any of their associated persons to effect

    transactions in commodity interests for the account without the

    customer's specific authorization; Provided, however, That if any such

    futures commission merchant, introducing broker or any of their

    associated persons is also authorized to effect transactions in foreign

    futures or foreign options without the customer's specific

    authorization, such authorization must be expressly documented.

    0

    107. Revise paragraph (a)(2) of Sec. 166.5 to read as follows:

    Sec. 166.5 Dispute settlement procedures.

    (a) * * *

    (2) The term customer as used in this section includes any person

    for or on behalf of whom a member of a designated contract market, or a

    participant transacting on or through such designated contract market,

    effects a transaction on such contract market, except another member of

    or participant in such designated contract market. Provided, however, a

    person who is an ``eligible contract participant'' as defined in

    section 1a(18) of the Act shall not be deemed to be a customer within

    the meaning of this section.

    * * * * *

    Issued in Washington, DC on October 16, 2012, by the Commission.

    Sauntia S. Warfield,

    Assistant Secretary of the Commission.

    Appendices to Adaptation of Regulations To Incorporate Swaps--

    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 Sommers,

    Chilton, O'Malia and Wetjen voted in the affirmative; no

    Commissioner voted in the negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the final rule to amend and conform certain provisions

    of the Commodity Futures Trading Commission's (CFTC) regulations to

    incorporate swaps. These final conforming amendments are crucial to

    integrating the CFTC's regulations with the Dodd-Frank Wall Street

    Reform and Consumer Protection Act (Dodd-Frank Act), which expanded

    the scope of the Commodity Exchange Act to cover swaps.

    [[Page 66350]]

    Specifically, this final rule updates the CFTC's definitions of

    futures commission merchant (FCM) and introducing broker (IB) to

    fulfill the Dodd-Frank Act's requirement to permit these entities to

    trade swaps on behalf of their customers. This final rule also

    updates the definitions of commodity interest, customer, and

    customer funds to incorporate swaps. In addition, the final rule

    adds swap execution facilities (SEFs) to the list of CFTC-regulated

    trading venues.

    The final rule amends existing recordkeeping requirements for

    FCMs and IBs to ensure that similar records are kept for swaps as

    are currently kept for futures. In addition, SEF members will be

    obligated to comply with the same recordkeeping duties as are

    required of designated contract market (DCM) members.

    [FR Doc. 2012-25764 Filed 11-1-12; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: November 2, 2012



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