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e7-22878

  • [Federal Register: November 23, 2007 (Volume 72, Number 225)]

    [Rules and Regulations]

    [Page 65658-65659]

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

    [DOCID:fr23no07-4]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 38

    RIN 3038-AC28

    Conflicts of Interest in Self-Regulation and Self-Regulatory

    Organizations

    AGENCY: Commodity Futures Trading Commission (``Commission'')

    ACTION: Final rule; notice of stay.

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    SUMMARY: On January 31, 2007, the Commission adopted Acceptable

    Practices for Section 5(d)(15) (``Core Principle 15'') of the Commodity

    Exchange Act. The new Acceptable Practices were published in the

    Federal Register on February 14, 2007, and became effective on March

    16, 2007. On March 26, 2007, the Commission published certain proposed

    amendments to the Acceptable Practices in an effort to clarify the

    definition of ``public director'' contained therein.\1\ The Commission

    has yet to act upon the proposed amendments, which are central to every

    element of the Acceptable Practices. Accordingly, the Commission hereby

    notifies all designated contract markets (``DCMs'') that, until further

    notice, the Acceptable Practices contained in paragraph (b) of Core

    Principle 15 in Appendix B to 17 CFR part 38 are stayed indefinitely.

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    \1\ Under the Acceptable Practices, the definition of ``public

    director'' is also relevant to members of DCM regulatory oversight

    committees (all of whom must be public directors) and to members of

    DCM disciplinary panels (panelists need not be directors, but must

    include at least one member who meets certain elements of the

    definition of public director).

    DATES: Effective November 23, 2007, paragraph (b) of Core Principle 15

    in Appendix B to 17 CFR part 38 is stayed indefinitely. The Commission

    will publish a new Federal Register document lifting the stay on a

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    future date.

    FOR FURTHER INFORMATION CONTACT: Rachel F. Berdansky, Acting Deputy

    Director for Market Compliance, 202-418-5429, or Sebastian Pujol

    Schott, Special Counsel, 202-418-5641, Division of Market Oversight,

    Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

    Street, Washington, DC 20581.

    SUPPLEMENTARY INFORMATION: On January 31, 2007 the Commission adopted

    its first Acceptable Practices for Core Principle 15. The Acceptable

    Practices are structured in four parts, including three operational

    provisions. The operational provisions include: (1) DCM boards of

    directors composed of at least 35% public directors; (2) board-level

    regulatory oversight committees (``ROC'') consisting exclusively of

    public directors; and (3) disciplinary panels including at least one

    public person. The Acceptable Practices also include an important

    fourth provision which defines ``public director'' and also impacts ROC

    members and disciplinary panel members. All three operational

    provisions of the Acceptable Practices are dependent upon the

    definition of public director.

    The Acceptable Practices were published in the Federal Register on

    February 14, 2007, with an effective date of March 16, 2007. The

    Commission stated at that time that it would survey all DCMs within six

    months to evaluate their plans for compliance with Core Principle 15.

    The Commission further stated that all DCMs would be granted the lesser

    of two years or two regularly scheduled board elections to fully

    implement the new Acceptable Practices or otherwise demonstrate full

    compliance with Core Principle 15.

    On March 26, 2007, the Commission published proposed amendments to

    the definition of DCM ``public director,'' which, as noted above, also

    impacts ROC and disciplinary panel members. The comment period for the

    proposed amendments ended on April 25, 2007.

    [[Page 65659]]

    Six comment letters were received, including letters from the National

    Futures Association; the Futures Industry Association; the CBOE Futures

    Exchange; the Chicago Board of Trade; the Chicago Mercantile Exchange

    and Kansas City Board of Trade writing jointly; and Mr. Dennis Gartman.

    The comments received were studied carefully and are under advisement

    by the Commission. However, the Commission has yet to take final action

    on the proposed amendments.

    Until such time as the definition of ``public director'' is

    finalized, the operational provisions of the Acceptable Practices,

    which are dependent on the definition, cannot be properly applied by

    DCMs or enforced by the Commission. Recognizing this fact, and in order

    to carefully consider its next steps, the Commission has determined to

    stay the Acceptable Practices for Core Principle 15 adopted on January

    31, 2007. Accordingly, the two-year compliance period is also stayed.

    Related Matters

    A. Cost-Benefit Analysis

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

    costs and benefits of its actions in advance of issuing any new

    regulation or order.\2\ More specifically, Section 15(a) states that

    the costs and benefits of a proposed rule or order shall be evaluated

    with regard to five broad areas of market and public concern: (1)

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

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

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

    interest considerations. In conducting its analysis, the Commission may

    give greater weight to any one of the five enumerated areas of market

    and public concern and determine, notwithstanding potential costs, that

    the implementation of a particular rule or order is necessary or

    appropriate to protect the public's interest or to effectuate or

    accomplish any of the provisions or purposes of the Act.\3\

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    \2\ 7 U.S.C. 19(a).

    \3\ Fishermen's Dock Co-op., Inc. v. Brown, 75 F.3d 164 (4th

    Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336 (D.C. Cir.

    1985) (agency has discretion to weigh factors in undertaking costs-

    benefits analyses).

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    On February 14, 2007, the Commission published its first Acceptable

    Practices for Core Principle 15. The four-part Acceptable Practices,

    described above, were designed to facilitate the reduction of conflicts

    of interest in DCMs' decision making processes.\4\ Although the

    Acceptable Practices became effective on March 16, 2007, the Commission

    established a phase-in period for DCMs to implement the Acceptable

    Practices or to otherwise come into full compliance with Core Principle

    15. The phase-in period extended well beyond the date of effectiveness

    and consisted of the lesser of two years or two regularly scheduled

    board elections.

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    \4\ 72 FR 6936 (February 14, 2007).

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    On March 26, 2007, the Commission published proposed amendments to

    one element of the new Acceptable Practices--the definition of ``public

    director.'' To date, the Commission has yet to act upon the proposed

    amendments. The Commission recognizes that the operational provisions

    of Acceptable Practices cannot be properly applied by DCMs until the

    definition of ``public director'' is resolved. Accordingly, the

    Commission has determined, for the purpose of regulatory clarity, to

    stay the Acceptable Practices for Core Principle 15 and thereby lift

    any potential compliance costs associated with those Acceptable

    Practices.

    B. Paperwork Reduction Act of 1995

    The stay of the effective date of the Acceptable Practices for Core

    Principle 15 reduces the information collection burden to levels

    previously approved by the Office of Management and Budget (OMB). The

    OMB control number for this collection is 3038-0052. The Commission has

    submitted the required Paperwork Reduction Act Change Worksheet (OMB-

    83C) to OMB to reflect the change.

    C. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires

    federal agencies, in promulgating rules, to consider the impact of

    those rules on small entities. The stay of the effective date for the

    Acceptable Practices for Core Principle 15 affects DCMs. The Commission

    has previously determined that DCMs are not small entities for purposes

    of the Regulatory Flexibility Act.\5\ Accordingly, the acting Chairman,

    on behalf of the Commission, hereby certifies pursuant to 5 U.S.C.

    605(b) that the stay of the Acceptable Practices will not have a

    significant economic impact on a substantial number of small entities.

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    \5\ See Policy Statement and Establishment of Definitions of

    ``Small Entities'' for Purposes of the Regulatory Flexibility Act,

    47 FR 18618, 18619 (Apr. 30, 1982).

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    Therefore, paragraph (b) of Core Principle 15 in Appendix B to 17

    CFR part 38 is stayed indefinitely.

    Issued in Washington, DC, on November 16, 2007, by the

    Commission.

    David Stawick,

    Secretary of the Commission.

    [FR Doc. E7-22878 Filed 11-21-07; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: November 23, 2007



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