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e8-12579

  • FR Doc E8-12579[Federal Register: June 5, 2008 (Volume 73, Number 109)]

    [Notices]

    [Page 31979-31981]

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

    [DOCID:fr05jn08-29]

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    COMMODITY FUTURES TRADING COMMISSION

    RIN 3038-AC52

    Exemptive Order for SPDR[reg] Gold Futures Contracts

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final order.

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    SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

    is exempting certain transactions in physically delivered futures

    contracts based on SPDR[reg] Gold Shares

    (SPDR[reg] gold futures contracts) from those provisions of

    the Commodity Exchange Act (CEA or Act),\1\ and the Commission's

    regulations thereunder, that are inconsistent with the trading and

    clearing of SPDR[reg] gold futures contracts as security

    futures. The exemption is conditioned on the compliance of transactions

    in SPDR[reg] gold futures contracts with the requirements

    established for the trading and clearing of security futures. The

    authority for the issuance of this exemption is found in Section 4(c)

    of the Act.\2\

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    \1\ 7 U.S.C. 1 et seq.

    \2\ 7 U.S.C. 6(c).

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    DATES: Effective June 5, 2008.

    FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office

    of the Director (telephone 202.418.5578, e-mail bfekrat@cftc.gov),

    Division of Market Oversight, Commodity Futures Trading Commission,

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

    SUPPLEMENTARY INFORMATION:

    I. Background

    In correspondence dated October 26, 2007, OneChicago, LLC

    (OneChicago or the Exchange),\3\ a board of trade designated with the

    Commission pursuant to Sections 5 and 6(a) of the Act, proposed and

    requested Commission approval to list for trading SPDR[reg]

    gold futures contracts as security futures.\4\ OneChicago is notice-

    registered with the Securities and Exchange Commission (SEC) as a

    national securities exchange under Section 6(g) of the Securities

    Exchange Act of 1934 ('34 Act) for the purpose of listing and trading

    security futures products. The approval request was filed pursuant to

    Section 5c(c)(2) of the Act and Commission Regulations 40.5 and

    41.23.\5\ OneChicago submitted its request for approval under the 45-

    day fast-track review period established by Commission Regulation 40.5.

    The fast-track review period for the Exchange's submission was

    scheduled to expire on December 10, 2007. The review period was

    extended by the Director of the Division of Market Oversight, pursuant

    to Regulations 40.5(c) and 40.7(a)(1), to January 24, 2008 on the

    grounds that the SPDR[reg] gold futures contracts raised

    novel and complex issues that required additional time for review.\6\

    By letter dated January 23, 2008, the Exchange, upon the request of the

    Commission's staff, voluntarily extended the review period to March 17,

    2008. By letter dated February 26, 2008, the Exchange voluntarily

    extended the review period to April 30, 2008.\7\ By letter dated April

    28, 2008, the Exchange further voluntarily extended the review period

    to May 30, 2008.

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    \3\ OneChicago is jointly owned by the CME Group, Inc., IB

    Exchange Corp., and the Chicago Board Options Exchange.

    \4\ In accordance with Section 2(a)(9)(B)(i) of the Act,

    Commission staff forwarded the new contract filing to the Securities

    and Exchange Commission, the U.S. Department of Treasury and the

    Board of Governors of the Federal Reserve System on October 29,

    2007. No comments were received in response to this correspondence.

    On January 4, 2008, the Exchange filed a rule amendment concerning

    minimum price fluctuations to supplement its initial submission.

    \5\ 7 U.S.C. 7a-2(c)(2), 17 CFR 40.5, 41.23.

    \6\ Commission Regulations 40.5(c) and 40.7(a)(1) allow the

    Commission, and certain staff acting pursuant to delegated

    authority, to extend the 45-day fast-track review period by an

    additional 45 days if a product raises novel or complex issues

    requiring additional time for review. 17 CFR 40.5(c), 40.7(a)(1).

    \7\ Section 5c(c) of the Act requires the Commission to approve

    any designated contract market instrument submitted for approval

    within 90 days after the submission of the request unless (1) it

    finds that the trading or clearing of the instrument would violate

    the Act (or the Commission's regulations), or (2) the person

    submitting the request for approval agrees to extend the period of

    review beyond the 90 day time limitation.

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    On March 14, 2008, the Commission published for public comment in

    the Federal Register a proposal to exempt, pursuant to Section 4(c) of

    the Act, SPDR[reg] gold futures contracts from those

    provisions of the CEA, and the Commission's regulations thereunder,

    that are inconsistent with the trading and clearing of

    SPDR[reg] gold futures contracts as security futures.\8\ The

    Commission proposed to issue the exemption in order to facilitate the

    Exchange's request for contract approval. No formal comments were

    submitted in response to the Commission's publication.\9\

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    \8\ Proposed Exemptive Order for ST [SPDR[reg]] Gold

    Futures Contracts, 73 FR 13876 (March 14, 2008) (Proposed Order).

    Effective May 21, 2008, the streetTRACKS[reg] Gold Trust

    has been restyled as the SPDR[reg] Gold Trust.

    Consequently, on May 22, 2008 the Exchange filed a rule amendment to

    reflect that change.

    \9\ A thorough summary of the Trust's operations is provided in

    the Proposed Order.

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    II. CEA Section 4(c) Exemptive Order

    In accordance with the Memorandum of Understanding entered into

    between the CFTC and the SEC on March 11, 2008, and in particular the

    addendum thereto concerning Principles Governing the Review of Novel

    Derivative Products, the Commission believes that novel derivative

    products that implicate areas of overlapping regulatory concern should

    be permitted to trade in either or both a CFTC or SEC regulated

    environment, in a manner consistent with laws and regulations

    (including the appropriate use of all available exemptive and

    interpretive authority). The Commission has determined to use

    [[Page 31980]]

    its authority under Section 4(c) of the Act, as proposed, to exempt

    transactions in SPDR[reg] gold futures contracts from those

    provisions of the Act and the Commission's regulations thereunder that,

    if the underlying were considered to be a commodity that is not a

    security, would be inconsistent with the trading and clearing of

    SPDR[reg] gold futures contracts as security futures.\10\

    Section 4(c)(1) of the CEA empowers the Commission to ``promote

    responsible economic or financial innovation and fair competition'' by

    exempting any transaction or class of transactions \11\ from any of the

    provisions of the Act upon determining that the exemption would be

    consistent with the public interest.\12\ Section 4(c)(2) of the Act

    provides that the Commission may grant exemptions only when it

    determines that the requirements for which an exemption is being

    provided should not be applied to the agreements, contracts or

    transactions at issue; that the exemption is consistent with the public

    interest and the purposes of the Act; that the agreements, contracts or

    transactions will be entered into solely between appropriate persons;

    and that the exemption will not have a material adverse effect on the

    ability of the Commission or any designated contract market or

    derivatives transaction execution facility to discharge its regulatory

    or self-regulatory responsibilities under the CEA.\13\ With respect to

    the term ``appropriate persons,'' Section 4(c)(3) of the Act enumerates

    several categories of appropriate persons and provides in subparagraph

    (K) that the term shall include ``[s]uch other persons that the

    Commission determines to be appropriate in light of * * * the

    applicability of appropriate regulatory protections.''

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    \10\ The Commission recently issued a similar order with respect

    to exchange-traded credit default products. See Order Exempting the

    Trading and Clearing of Certain Credit Default Products Pursuant to

    the Exemptive Authority in Section 4(c) of the Commodity Exchange

    Act, 72 FR 32079 (June 11, 2007).

    \11\ Covered transactions are subject to certain exceptions not

    relevant here.

    \12\ Section 4(c)(1) of the CEA, 7 U.S.C. Sec. 6(c)(1),

    provides in full that:

    In order to promote responsible economic or financial innovation

    and fair competition, the Commission by rule, regulation, or order,

    after notice and opportunity for hearing, may (on its own initiative

    or on application of any person, including any board of trade

    designated or registered as a contract market or derivatives

    transaction execution facility for transactions for future delivery

    in any commodity under section 7 of this title) exempt any

    agreement, contract, or transaction (or class thereof) that is

    otherwise subject to subsection (a) of this section (including any

    person or class of persons offering, entering into, rendering advice

    or rendering other services with respect to, the agreement,

    contract, or transaction), either unconditionally or on stated terms

    or conditions or for stated periods and either retroactively or

    prospectively, or both, from any of the requirements of subsection

    (a) of this section, or from any other provision of this chapter

    (except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this

    title, except that the Commission and the Securities and Exchange

    Commission may by rule, regulation, or order jointly exclude any

    agreement, contract, or transaction from section 2(a)(1)(D) of this

    title), if the Commission determines that the exemption would be

    consistent with the public interest.

    \13\ Section 4(c)(2) of the CEA, 7 U.S.C. 6(c)(2), provides in

    full that:

    The Commission shall not grant any exemption under paragraph (1)

    from any of the requirements of subsection (a) of this section

    unless the Commission determines that--

    (A) The requirement should not be applied to the agreement,

    contract, or transaction for which the exemption is sought and that

    the exemption would be consistent with the public interest and the

    purposes of this Act; and

    (B) The agreement, contract, or transaction--

    (i) Will be entered into solely between appropriate persons; and

    (ii) Will not have a material adverse effect on the ability of

    the Commission or any contract market or derivatives transaction

    execution facility to discharge its regulatory or self-regulatory

    duties under this Act.

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    In enacting Section 4(c) of the Act, Congress noted that the goal

    of the provision ``is to give the Commission a means of providing

    certainty and stability to existing and emerging markets so that

    financial innovation and market development can proceed in an effective

    and competitive manner.'' \14\ SPDR[reg] gold futures

    contracts are novel instruments and the Commission believes that this

    is an appropriate case for issuing an exemption, as proposed, without

    making a finding as to the nature of these particular instruments.

    Accordingly, given the potential usefulness of SPDR[reg]

    gold futures contracts to the significant market for the Trust's

    Shares, as well as all gold-linked markets, the Commission herein

    exempts transactions in SPDR[reg] gold futures contracts

    traded on OneChicago, and the clearing of such contracts as security

    futures, from the provisions of the Act, and the Commission's

    regulations thereunder, to the extent necessary to permit them to be so

    traded and cleared. In the Commission's opinion, the issuance of this

    exemptive order is in the public interest and is consistent with the

    purposes of the Act, because it will likely foster both financial

    innovation by bringing an innovative derivatives product to market, and

    competition by not potentially excluding other similarly innovative

    products from trading on regulated futures markets. In addition,

    SPDR[reg] gold futures contracts, when traded as security

    futures pursuant to this exemption and the Commission's subsequent or

    concurrent approval of the Exchange's submissions, will be subject to

    regulation by both the SEC and the Commission.\15\ The implementation

    of an exemption, under these circumstances, will not erode appropriate

    regulatory protections, and thus SPDR[reg] gold futures

    contracts will be traded by appropriate persons. Nor will this

    exemption impair the ability of the Commission or OneChicago to

    discharge any regulatory or self-regulatory duty under the Act.

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    \14\ H.R. Conf. Rep. No. 102-978, 1992 U.S.C.C.A.N. 3179, at

    3213 (H.R. Conf. Rep.).

    \15\ 7 U.S.C. 2(a)(1)(A). Security futures are subject to joint

    regulation by the CFTC and the SEC under Section 2(a)(1)(D) of the

    CEA, 7 U.S.C. 2(a)(1)(D).

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    This Order is subject to termination or revision, on a prospective

    basis, if the Commission determines upon further information that this

    exemption is not consistent with the public interest. If the Commission

    believes such exemption becomes detrimental to the public interest, the

    Commission may revoke this Order on its own motion.

    III. Related Matters

    A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \16\ imposes certain

    requirements on federal agencies (including the Commission) in

    connection with their conducting or sponsoring any collection of

    information as defined by the PRA. This exemptive order does not

    require a new collection of information from any entity that would be

    subject to the order.

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    \16\ 44 U.S.C. 3507(d).

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    B. Cost-Benefit Analysis

    Section 15(a) of the CEA, as amended by Section 119 of the

    Commodity Futures Modernization Act of 2000,\17\ requires the

    Commission to consider the costs and benefits of its action before

    issuing an order under the CEA. Section 15(a) of the Act further

    specifies that costs and benefits shall be evaluated in light of the

    following five broad areas of market and public concern: protection of

    market participants and the public; efficiency, competitiveness, and

    financial integrity of futures markets; price discovery; sound risk

    management practices; and other public interest considerations. By its

    terms, Section 15(a) does not require the Commission to quantify the

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

    the order outweigh its costs. Rather, Section 15(a) simply requires the

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

    Commission may give greater weight to any one of the five enumerated

    areas and could in its discretion determine

    [[Page 31981]]

    that, notwithstanding potential costs, a particular order is necessary

    or appropriate to protect the public interest or to effectuate any of

    the provisions or to accomplish any of the purposes of the CEA.

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    \17\ 7 U.S.C. 19(a).

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    In the Proposed Order, the Commission analyzed the costs and

    benefits associated with the implementation of an exemption under

    Section 4(c) of the Act. The Commission invited public comment on its

    analysis of the costs and benefits associated with the issuance of an

    exemptive order under Section 4(c) of the Act.\18\ No comments were

    submitted to the Commission.

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    \18\ Proposed Order at 13870.

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    After considering the factors presented in this release, the

    Commission has determined to issue this Order.

    Issued in Washington, DC, on May 30, 2008 by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E8-12579 Filed 6-4-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: August 18, 2011



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