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  • FR Doc E8-12624[Federal Register: June 5, 2008 (Volume 73, Number 109)]


    [Page 31981-31983]

    From the Federal Register Online via GPO Access []




    Order Exempting the Trading and Clearing of Certain Products

    Related to SPDR[reg] Gold Trust Shares

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final Order.


    SUMMARY: On April 23rd, 2008, the Commodity Futures Trading Commission

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

    Federal Register \1\ a proposal to exempt the trading and clearing of

    products called options on streetTRACKS [supreg] Gold Trust Shares

    (``ST Gold Options''), proposed to be traded on national securities

    exchanges, and cleared by The Options Clearing Corporation (``OCC''),

    from the provisions of the Commodity Exchange Act (``CEA'') \2\ and

    Commission regulations thereunder to the extent necessary for them to

    be so traded and cleared. The Commission has determined to issue this

    Order essentially as proposed. Authority for this exemption is found in

    Section 4(c) of the CEA.\3\


    \1\ 73 FR 21917 (April 23, 2008)

    \2\ 7 U.S.C. 1 et seq.

    \3\ 7 U.S.C. 6(c).


    DATES: Effective Date: May 30, 2008.

    FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate

    Director, 202-418-5092,, Division of Clearing and

    Intermediary Oversight, Commodity Futures Trading Commission, Three

    Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.


    I. Introduction

    The OCC is both a Derivatives Clearing Organization (``DCO'')

    registered pursuant to Section 5b of the CEA,\4\ and a securities

    clearing agency registered pursuant to Section 17A of the Securities

    Exchange Act of 1934 (``the '34 Act'').\5\


    \4\ 7 U.S.C. 7a-1.

    \5\ 15 U.S.C. 78q-l.


    OCC filed with the CFTC, pursuant to Section 5c(c) of the CEA and

    Commission Regulations 39.4(a) and 40.5 thereunder,\6\ requests for

    approval of rules and rule amendments that would enable OCC to clear

    and settle ST Gold Options \7\ traded on national securities exchanges

    in its capacity as a registered securities clearing agency regulated by

    the Securities and Exchange Commission (``SEC'') (and not in its

    capacity as a DCO).\8\ Section 5c(c)(3) provides that the CFTC must

    approve any such rules and rule amendments submitted for approval

    unless it finds that the rules or rule amendments would violate the



    \6\ 7 U.S.C. 7a-2(c), 17 CFR 39.4(a), 40.5.

    \7\ streetTRACKS[supreg] Gold Trust Shares, which underlie ST

    Gold Options, are described in greater detail in the ``Proposed

    Exemptive Order for ST Gold Futures Contracts,'' 73 FR 13867, 13868

    (March 14, 2008). On May 20, 2008, streetTRACKS[supreg] Gold Trust

    Shares were renamed SPDR[reg] Gold Trust Shares. See

    Prospectus for SPDR[reg] Gold Trust, available at http:// (reviewed May

    22, 2008).

    \8\ The request for approval concerning the ST Gold Options was

    filed effective February 4, 2008, and Amendment No. 1 thereto was

    filed effective March 7, 2008. See SR-OCC-2008-04 and Amendment No.

    1. OCC has also filed these proposed rule changes with the SEC. See

    SEC Release No. 34-57695; File No. SR-OCC-2008-07 (April 21, 2008),

    73 FR 22452 (April 25, 2008). On May 22, 2008, OCC filed Amendment

    No. 2 to the request for approval, reflecting the change in the name

    of streetTRACKS[supreg] Gold Trust Shares.


    II. Section 4(c) of the Commodity Exchange Act

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

    responsible economic or financial innovation and fair competition'' by

    exempting any transaction or class of transactions from any of the

    provisions of the CEA (subject to exceptions not relevant here) where

    the Commission determines that the exemption would be consistent with

    the public interest. The Commission may grant such an exemption by

    rule, regulation or order, after notice and opportunity for hearing,

    and may do so on application of any person or on its own initiative.

    In enacting Section 4(c), 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.'' \9\ Permitting ST Gold Options to trade on

    national securities exchanges and be cleared on OCC as discussed above

    appears likely to foster both financial innovation and competition. In

    accordance with the Memorandum of Understanding entered into between

    the CFTC and the Securities and Exchange Commission (``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).


    \9\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 3213

    (``4(c) Conf. Report'').


    ST Gold Options are novel instruments and, given their potential

    usefulness to the market, the Commission believes that this is an

    appropriate case for issuing an exemption without making a finding as

    to the nature of these particular instruments.

    Section 4(c)(2) 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, and the exemption is consistent with the public

    interest and the purposes of the CEA; 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 contract market or derivatives

    transaction execution facility to discharge its regulatory or self-

    regulatory responsibilities under the CEA.

    In the April 23, 2008 Federal Register Release, the Commission

    requested public comment on the matters discussed above and all issues

    raised by its proposed exemptive order. No comments were received.

    [[Page 31982]]

    III. Findings and Conclusions

    After considering the complete record in this matter, the

    Commission has determined that the requirements of Section 4(c) have

    been met. First, the exemption is consistent with the public interest

    and with the purposes of the CEA, including ``promot[ing] responsible

    innovation and fair competition among boards of trade, other markets

    and market participants.'' \10\ It appears to be consistent with these

    and the other purposes of the CEA, with the public interest, with the

    CFTC-SEC Memorandum of Understanding of March 11, 2008, and with the

    addendum thereto, for the mode of trading of these transactions--

    whether it is to be through CFTC-regulated markets and clearing

    organizations or SEC-regulated markets and clearing agencies--to be

    determined by competitive market forces.


    \10\ CEA Section 3(b), 7 U.S.C. 5(b).


    Second, the ST Gold Options will be entered into solely between

    appropriate persons. Section 4(c)(3) includes within the term

    ``appropriate persons'' a number of specified categories of persons,

    but also in subparagraph (K), ``such other persons that the Commission

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

    appropriate regulatory protections.'' National securities exchanges,

    OCC and broker-dealers who will intermediate transactions in ST Gold

    Options are subject to extensive and detailed oversight by the SEC and,

    in the case of the intermediaries, the securities self-regulatory

    organizations. Given that the products will be traded on national

    securities exchanges, the regulatory protections available under the

    securities laws, and the goal of promoting fair competition, the ST

    Gold Options will be traded by appropriate persons.

    Third, the exemption would not have a material adverse effect on

    the ability of the Commission or any designated contract market to

    carry out their regulatory responsibilities under the CEA. There is no

    reason to believe that granting an exemption here would interfere with

    the Commission's or a designated contract market's ability to oversee

    the trading of similar products or otherwise carry out their duties.

    Therefore, upon due consideration, pursuant to its authority under

    Section 4(c) of the CEA, the Commission hereby issues this Order and

    exempts the trading of ST Gold Options on national securities exchanges

    and clearing of ST Gold Options by OCC in its capacity as a registered

    securities clearing agency from the CEA and the Commission's

    Regulations thereunder to the extent necessary to permit them to be so

    traded and cleared.

    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.

    IV. Related Matters

    A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \11\ 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. The exemptive order will not require

    a new collection of information from any entities.


    \11\ 44 U.S.C. 3507(d).


    B. Cost-Benefit Analysis

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

    Commodity Futures Modernization Act of 2000 (``CFMA''),\12\ requires

    the Commission to consider the costs and benefits of its action before

    issuing an order under the CEA. By its terms, Section 15(a) as amended

    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.


    \12\ 7 U.S.C. 19(a).


    Section 15(a) of the CEA further specifies that costs and benefits

    shall be evaluated in light of 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. Accordingly, the Commission could in its discretion

    give greater weight to any one of the five enumerated areas and could

    in its discretion determine that, notwithstanding its costs, a

    particular order was 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.

    The Commission has considered the costs and benefits of the order

    in light of the specific provisions of Section 15(a) of the CEA, as


    1. Protection of market participants and the public. National

    securities exchanges, OCC and their members who will intermediate ST

    Gold Options are subject to extensive regulatory oversight.

    2. Efficiency, competition, and financial integrity. The exemptive

    order appears likely to enhance market efficiency and competition since

    it could encourage potential trading of ST Gold Options on markets

    other than designated contract markets or derivative transaction

    execution facilities. Financial integrity will not be affected since

    the ST Gold Options will be cleared by OCC, a DCO and SEC-registered

    clearing agency, and intermediated by SEC-registered broker-dealers.

    3. Price discovery. Price discovery may be enhanced through market


    4. Sound risk management practices. The ST Gold Options will be

    subject to OCC's current risk-management practices including its

    margining system.

    5. Other public interest considerations. The exemptive order

    appears likely to encourage development of derivative products through

    market competition without unnecessary regulatory burden.

    The Commission requested comment on its application of these

    factors in the proposing release. No comments were received.

    After considering these factors, 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.

    Dissenting in Part and Concurring in Part to Exemptive Order Under

    Section 4(c) of the Commodity Exchange Act (CEA) To Exempt Certain

    Products Related to SPDR [supreg] Gold Trust Shares Traded on a

    National Securities Exchange and Cleared by the Options Clearing

    Corporation (OCC) From Provisions of the CEA, and Approval of OCC's

    Request for Approval of Rules

    I applaud the agencies' efforts today to enhance cooperation and

    coordination in approving innovative and novel products. I respectfully

    dissent, however, from the Commission's issuance of the above-

    referenced order. In the promulgation of such an exemptive order in

    furtherance of the approval process, I believe the Commission should

    have adequate basis

    [[Page 31983]]

    for confidence that the Securities and Exchange Commission will

    similarly fully exercise its broad statutory exemptive authority under

    the securities laws to permit futures exchanges to trade products that

    are economically equivalent to those that are or may be approved for

    trading on national securities exchanges, and to allow derivatives

    clearing organizations to clear such products, to ensure that the

    futures markets are not competitively disadvantaged with regard to such

    products. I dissent from today's action, because I do not believe this

    exemptive order provides sufficient basis for or assurance of such

    reciprocity in the future. Given the issuance of today's orders, I

    concur in the approval of the Options Clearing Corporation's above-

    referenced request for approval of rules.

    Bart Chilton,

    Commissioner, Commodity Futures Trading Commission.

    [FR Doc. E8-12624 Filed 6-4-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: June 5, 2008

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