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e9-6369

  • FR Doc E9-6369[Federal Register: March 24, 2009 (Volume 74, Number 55)]

    [Notices]

    [Page 12316-12320]

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

    [DOCID:fr24mr09-40]

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    COMMODITY FUTURES TRADING COMMISSION

    Order (1) Pursuant to Section 4(c) of the Commodity Exchange Act,

    Permitting the Chicago Mercantile Exchange to Clear Certain Over-the-

    Counter Agricultural Swaps and (2) Pursuant to Section 4d of the

    Commodity Exchange Act, Permitting Customer Positions in Such Cleared-

    Only Contracts and Associated Funds To Be Commingled With Other

    Positions and Funds Held in Customer Segregated Accounts

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Order.

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    SUMMARY: By petition dated April 21, 2008 (Petition), the Chicago

    Mercantile Exchange Inc. (CME), a registered derivatives clearing

    organization (DCO), and the Board of Trade of the City of Chicago, Inc.

    (CBOT), a designated contract market, requested permission to clear

    certain over-the counter (OTC) swap agreements (swaps) in corn, wheat,

    and soybeans. Authority for granting this request is found in Section

    4(c) of the Commodity Exchange Act (Act).\1\ The Petition also

    requested permission pursuant to Section 4d of the Act \2\ to allow CME

    and futures commission merchants (FCMs) clearing through CME to

    commingle positions in those cleared-only OTC swaps (cleared-only

    contracts) and funds associated with those positions with positions and

    funds otherwise required to be held in a customer segregated account.

    The Commodity Futures Trading Commission (Commission) has reviewed

    public comments and the entire record in this matter and it has

    determined to issue an order granting the requested permission, subject

    to certain terms and conditions.

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    \1\ 7 U.S.C. 6(c).

    \2\ 7 U.S.C. 6d.

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    DATES: Effective Date: March 18, 2009.

    FOR FURTHER INFORMATION CONTACT: Phyllis P. Dietz, Associate Director,

    202-418-5449, pdietz@cftc.gov, Division of Clearing and Intermediary

    Oversight, Commodity Futures Trading Commission, Three Lafayette

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

    SUPPLEMENTARY INFORMATION:

    I. The CME/CBOT Petition

    CME, the DCO that provides clearing services for CBOT, and CBOT

    jointly submitted a Petition requesting that the Commission issue an

    exemptive order under Section 4(c) of the Act.\3\ The order would grant

    CME approval to clear OTC corn basis swaps and corn, wheat, and soybean

    calendar swaps, and it would permit CBOT to list those products for

    ``clearing-only.'' \4\ The contract size for the basis and calendar

    swaps would be the same as that for corn, wheat, and soybean futures--

    5,000 bushels. Each of the proposed cleared-only contracts would be

    cash settled, in contrast to the corresponding futures contracts which

    are physically settled.

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    \3\ A copy of the petition is available on the Commission's Web

    site at http://www.cftc.gov/.

    \4\ The suite of OTC agricultural swap products that CBOT

    proposes to list for clearing-only is comprised of corn basis swap

    contracts for the following regions: Northeastern Iowa, Northwestern

    Iowa, Southern Iowa, Eastern Nebraska, Eastern South Dakota, and

    Southern Minnesota; and corn, wheat, and soybean calendar swaps.

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    Part 35 of the Commission's regulations \5\ exempts, subject to

    conditions, swap agreements and eligible persons entering into such

    agreements from most provisions of the Act.\6\ The term ``swap

    agreement'' is defined to include, among other types of agreements, a

    ``basis swap'' and a ``commodity swap.'' \7\ Part 35 was promulgated

    pursuant to authority conferred upon the Commission in Section 4(c) of

    the Act to exempt certain transactions in order to explicitly permit

    certain off-exchange derivatives transactions and thus promote

    innovation and competition.\8\ A number of exemptions and exclusions

    for off-exchange derivatives transactions were subsequently added to

    the Act by the Commodity Futures Modernization Act of 2000,\9\ but none

    apply to agricultural contracts.\10\

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    \5\ 17 CFR Part 35 (Commission regulations are hereinafter cited

    as ``Reg. --'').

    \6\ Jurisdiction is retained for, among other things, provisions

    of the Act proscribing fraud and manipulation. See Reg. 35.2.

    \7\ Reg. 35.1(b)(1)(i). ``Commodity'' is defined in Section

    1a(4) of the Act to include a variety of specified agricultural

    products, ``and all other goods and articles, except onions... and

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

    delivery are presently or in the future dealt in.''

    \8\ See 58 FR 5587 (Jan. 22, 1993). Section 4(c) of the Act was

    added by Section 502(a) of the Futures Trading Practices Act of

    1992, Public Law 102-546, 106 Stat. 3590 (1992).

    \9\ Public Law 106-554, 114 Stat. 2763 (2000).

    \10\ See, e.g., Sections 2(d), (g) and (h) of the Act, 7 U.S.C.

    2(d), (g), and (h).

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    Part 35 requires, among other things, that a swap agreement not be

    part of a fungible class of agreements that are

    [[Page 12317]]

    standardized as to their material economic terms,\11\ and that the

    creditworthiness of any party having an interest under the agreement be

    a material consideration in entering into or negotiating the terms of

    the agreement.\12\ Under the arrangement proposed by CME and CBOT, a

    cleared-only contract could be offset by another cleared-only contract

    with equivalent terms. In addition, due to the introduction of a

    clearing guarantee, the creditworthiness of the counterparty would no

    longer be a consideration. Accordingly, the OTC swaps CME would clear

    would not satisfy all of the conditions of Part 35.\13\

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    \11\ Reg. 35.2(b).

    \12\ Reg. 35.2(c).

    \13\ The contracts that CBOT proposes to list for clearing-only

    would, however, meet the requirements of Reg. 35.2(a) and (d) in

    that they would be entered into solely between eligible swap

    participants and executed OTC, respectively.

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    Part 35 permits ``any person [to] apply to the Commission for

    exemption from any of the provisions of the Act * * * for other

    arrangements or facilities.'' \14\ CME and CBOT have petitioned the

    Commission for an order under Section 4(c) of the Act that would exempt

    certain cleared-only contracts involving corn, wheat, or soybeans to

    the same extent as contracts that are exempt pursuant to Part 35 of the

    Commission's regulations.

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    \14\ Reg. 35.2(d).

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    In addition, CME and CBOT also requested an order under Section 4d

    of the Act so that CME and clearing members of CBOT could hold

    positions in the cleared-only contracts and associated funds in the

    customer segregated account along with positions in exchange-traded

    futures and customer funds, resulting in improved collateral management

    and other benefits.

    II. Sections 4(c) and 4d of the Act

    A. Permitting the OTC Swaps To Be Cleared

    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.'' \15\ Section 4(c)(1) of the Act empowers the

    Commission 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 Act (subject to

    exceptions not relevant here) where the Commission determines that the

    exemption would be consistent with the public interest.\16\ 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.

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    \15\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179,

    3213.

    \16\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides in

    full as follows:

    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.

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    Section 4(c)(2) of the Act provides that the Commission may grant

    exemptions from Section 4(a) of the Act only when the Commission

    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 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 contract market or derivatives

    transaction execution facility to discharge its regulatory or self-

    regulatory responsibilities under the Act.\17\

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    \17\ Section 4(c)(2) of the Act, 7 U.S.C. 6(c)(2), provides in

    full as follows:

    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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    The Commission requested comment on whether it should grant an

    exemption from the requirements of the Act, thereby permitting corn

    basis swaps and corn, wheat, and soybean calendar swaps to be cleared

    through CME. It also requested comment on whether such an exemption

    would affect its ability to discharge its regulatory responsibilities

    under the Act or with the self-regulatory duties of any contract

    market.

    B. Permitting Funds To Be Commingled

    Section 4d(a)(2) of the Act prohibits commingling positions

    executed on a contract market and customer funds associated with such

    positions together with any funds not required to be so segregated.\18\

    Section 4d(a)(2) provides that the Commission may grant exceptions to

    this prohibition by order.

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    \18\ Under Reg. 1.3(gg), the term ``customer funds'' is defined

    to include all money, securities, and property received by an FCM or

    by a DCO from, for, or on behalf of, customers or option customers

    to margin, guarantee or secure exchange-traded futures contracts or

    options on futures, and all money accruing to such customers as the

    result of such contracts. The term ``funds'' is similarly used

    herein to refer to cash as well as securities and other property

    associated with futures contracts or cleared-only contracts.

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    In this case, the corn basis swaps and corn, wheat, and soybean

    calendar swaps are not executed on a contract market and, thus, holding

    positions in those contracts and associated funds in an account

    together with positions and customer funds required to be segregated

    would, absent a Commission order, violate Section 4d. Having analyzed

    the risks and benefits associated with commingling such positions and

    funds in a customer segregated account, the Commission has determined

    that the benefits of the proposal outweigh the risks and that the

    proposal, along with conditions set forth by the Commission, will

    provide for a sufficient level of safeguards to address the risks

    adequately.

    III. Comment Letters

    The Commission published a request for comments regarding the 4(c)

    exemption in the Federal Register on July 7, 2008.\19\ At the same

    time, it posted the Petition on the Commission's Web site, providing

    the opportunity for the public to comment on any aspect of the

    Petition, including the request for an order under Section 4d of the

    Act. As a result of the non-transmission of a comment letter submitted

    through the Federal eRulemaking Portal, the Commission reopened the

    comment period on December 31, 2008,

    [[Page 12318]]

    specifically to afford the commenter whose submission was not received,

    the opportunity to resubmit the comment.\20\ In addition, any other

    member of the public was permitted to comment during the reopened

    comment period.

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    \19\ See 73 FR 38403 (July 7, 2008) (45-day comment period

    closing August 21, 2008).

    \20\ See 73 FR 80367 (Dec. 31, 2008) (reopening the comment

    period for 21 days).

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    The Commission received seven comment letters, one of which was

    submitted during the reopened comment period. Five letters expressly

    supported the issuance of an exemptive order to permit clearing of the

    OTC swaps, citing such benefits as increased transparency and liquidity

    in the OTC markets, enhanced risk management for market participants,

    and greater regulatory surveillance including large trader reporting.

    Of those letters, two specifically commented on the 4d order request.

    Both of those letters supported the issuance of an order to permit the

    commingling of positions in cleared-only contracts and associated funds

    with positions and customer funds otherwise required to be held in a

    customer segregated account. One letter focused on the bankruptcy

    treatment of cleared-only contract positions and associated funds when

    they are held in a customer segregated account.\21\ One commenter

    opposed the issuance of an exemption permitting clearing of OTC swaps

    based on concerns about the impact of OTC clearing on the use of

    exchange-traded futures contracts for hedging purposes.

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    \21\ This bankruptcy matter was subsequently addressed in an

    Interpretative Statement issued by the Commission on September 26,

    2008. See 73 FR 65514 (Nov. 4, 2008).

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    IV. Findings and Conclusions

    After considering the complete record in this matter, including the

    comments received, the Commission finds that the requirements of

    Section 4(c) of the Act have been met with respect to the request for

    an order permitting the clearing of certain corn basis swaps and corn,

    wheat, and soybean calendar swaps.

    First, permitting the clearing of these transactions is consistent

    with the public interest and with the purposes of the Act. The purposes

    of the Act include ``promot[ing] responsible innovation and fair

    competition among boards of trade, other markets, and market

    participants.'' \22\ The purpose of an exemption is ``to promote

    economic or financial innovation and fair competition.'' \23\

    Permitting the clearing of corn basis swaps and corn, wheat, and

    soybean calendar swaps by CME would appear to foster both financial

    innovation and competition. It could benefit the marketplace by

    providing eligible swap participants the ability to bring together

    flexible negotiation with central counterparty guarantees and capital

    efficiencies. Clearing also may increase the liquidity of the OTC

    markets and thereby foster competition in those markets.

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    \22\ Section 3(b) of the Act, 7 U.S.C. 5(b).

    \23\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1).

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    Second, the OTC swaps would be entered into solely between

    appropriate persons. Those would be limited to persons qualifying as

    eligible swap participants under Part 35.\24\

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    \24\ See Reg. 35.1(b)(2) (defining the term ``eligible swap

    participant'').

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

    the ability of the Commission or any designated contract market to

    carry out its regulatory or self-regulatory responsibilities under the

    Act. Clearing of OTC swaps will actually enhance the Commission's

    ability to carry out its regulatory responsibilities by, for example,

    facilitating the collection of large trader reports for cleared-only

    contracts. CME will use the same systems, procedures, personnel, and

    processes to clear the OTC swaps as it currently employs with respect

    to all of the other transactions it clears on behalf of CBOT.

    The commenter who opposed granting the exemption raised a question

    as to how clearing OTC swaps would impact trading in the corresponding

    futures contracts, expressing the view that the ability to clear OTC

    contracts would serve as a disincentive to enter into exchange-traded

    futures contracts, thereby drawing business away from those markets to

    OTC markets. Given the lack of empirical data relating to the trading

    behavior of futures market participants when clearing becomes available

    for OTC products, the basis for the commenter's concerns cannot be

    readily substantiated or refuted. As a result, the Commission is unable

    to conclude that providing eligible swap participants with the

    opportunity to clear OTC swaps would undermine the purpose or

    usefulness of trading in the futures markets. Moreover, because

    eligible swap participants already engage in OTC transactions,

    permitting clearing would provide a means for achieving benefits that

    serve the public interest.

    The Commission has concluded that permitting the clearing of OTC

    corn basis swaps and corn, wheat, and soybean calendar swaps, subject

    to the terms and conditions of the order, furthers the goals of market

    transparency and liquidity, and financial risk management. It also

    enhances the Commission's ability to obtain market information and

    conduct oversight once OTC transactions are cleared by a registered

    DCO.

    With respect to the petitioners' request for an order pursuant to

    Section 4d permitting CME and FCMs clearing through CME to commingle

    cleared-only contract positions and associated funds with positions and

    customer funds required to be held in a customer segregated account,

    the Commission has considered whether the additional risk to customers

    presented by such commingling can be adequately addressed and

    mitigated. Additional risk is presented to customers as a result of the

    risk of default involving the commingled cleared-only contracts.

    The carrying FCM should have adequate means to address a default by

    a customer holding cleared-only contracts. In the event of a customer

    default on a position in a cleared-only corn basis swap, the clearing

    firm could offset its risk by entering into an opposite position in the

    OTC corn basis swap market through a broker or dealer. Alternatively,

    the clearing firm could offset its risk by entering into an opposite

    transaction in the cash corn basis market, which is very liquid due to

    participation by country elevators, terminal elevators, ethanol

    processors, and livestock feeders. In the event of a customer default

    on a position in the corn, wheat, or soybean cleared-only calendar

    swaps contracts, the clearing firm could offset its risk by liquidating

    the customer position through a broker or dealer in the calendar swap

    market or by taking an economically equivalent position in the

    corresponding futures contract.

    The order requires that CME review the clearing members' risk

    management capabilities to verify that all members clearing OTC swaps

    maintain sufficient operational capability to manage a default in a

    cleared-only contract. In the event of a clearing firm default, CME

    would have available the same means for managing the default as the

    clearing firm would have in the first instance.

    The order also requires that CBOT (1) maintain a coordinated market

    surveillance program that encompasses the cleared-only contracts and

    the corresponding futures contracts, and (2) adopt speculative position

    limits for each of the cleared-only contracts, that are the same as the

    limits applicable to the corresponding futures contracts. These

    measures should mitigate market risk.

    Accordingly, the Commission has determined that CME will be able to

    employ reasonable safeguards to protect customer funds, and that it

    will be able

    [[Page 12319]]

    to measure, monitor, manage, and account for risks associated with

    transactions and open interest in the cleared-only contracts as it does

    for other contracts it clears. The Commission believes that CME has

    sufficiently demonstrated that it will continue to comply with the DCO

    core principles set forth in Section 5b of the Act in connection with

    holding customer positions in cleared-only corn basis swaps and corn,

    wheat, and soybean calendar swaps and associated funds with positions

    and customer funds required to be held in a customer segregated account

    pursuant to Section 4d of the Act.

    V. Related Matters

    A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \25\ 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 Commission's order will not

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

    subject to the order.

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    \25\ 44 U.S.C. 3507(d).

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    B. Cost-Benefit Analysis

    Section 15(a) of the Act,\26\ requires the Commission to consider

    the costs and benefits of its action before issuing an order under the

    Act. 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.

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    \26\ 7 U.S.C. 19(a).

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    Section 15(a) of the Act 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 Act.

    The Commission has considered the costs and benefits of this order

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

    follows:

    1. Protection of Market Participants and the Public. The cleared-

    only contracts will be entered into only by persons who are

    ``appropriate persons'' as set forth in Section 4(c) of the Act. Only

    eligible swap participants will enter into the corn basis swaps and

    corn, wheat, and soybean calendar swaps that will be cleared pursuant

    to the Commission's order. Allowing the commingling of positions in

    cleared-only contracts and associated funds with positions and customer

    funds required to be segregated under Section 4d of the Act will

    benefit market participants by facilitating clearing and the reduction

    of credit risk for contracts that meet market participants' specific

    risk management requirements. Customers holding positions in cleared-

    only contracts also would benefit from having those positions and

    associated funds held in a customer segregated account in the event of

    the insolvency of an FCM. Futures customers will be protected from

    risks associated with the commingling of funds by a number of existing

    risk management and other safeguards, including CME's financial

    surveillance of clearing members and its financial resources package,

    as supplemented by conditions imposed by the order.

    2. Efficiency and Competition. Allowing the OTC swaps to be cleared

    appears likely to promote liquidity and transparency in the markets for

    OTC derivatives as well as futures on those commodities. The

    commingling of positions in the cleared-only contracts and associated

    funds with positions and customer funds required to be held in a

    customer segregated account should result in improved, more efficient,

    collateral management and lower administrative costs given that risk-

    reducing positions will be held together in the same account rendering

    a more precise estimation of the risk posed by the account. The

    availability of cleared-only contracts also provides another risk

    management tool that could compete with other OTC products.

    3. Financial Integrity of Futures Markets and Price Discovery.

    Price discovery is likely to be enhanced by bringing greater

    transparency to the OTC market for the subject commodities. The Section

    4(c) exemption also may promote financial integrity by providing the

    benefits of clearing to the OTC markets. As discussed above, the

    Commission believes that the risks associated with the commingling of

    funds in the customer segregated account can be appropriately

    mitigated.

    4. Sound Risk Management Practices. Clearing of the OTC swaps is

    likely to improve risk management by the participant counterparties.

    CME's risk management practices in clearing these transactions are

    subject to the Commission's supervision and oversight.

    5. Other Public Interest Considerations. The action taken by the

    Commission under Sections 4(c) and 4d of the Act is likely to encourage

    market competition in agricultural derivatives products. It will also

    further the Commission's overall goals in supporting greater market

    transparency, credit risk management, and regulatory oversight by

    encouraging the clearing of OTC products.

    The Commission requested comment on its application of these

    factors in the proposing release. No comments were received.

    VI. Order

    After considering the above factors and the comment letters

    received in response to its request for comments, the Commission has

    determined to issue the following:

    Order

    (1) The Commission, pursuant to its authority under Section 4(c) of

    the Act and subject to the conditions below, hereby permits eligible

    swap participants to submit for clearing, and FCMs and CME to clear,

    the following OTC agricultural swap contracts (eligible products):

    (a) Corn basis swap contracts for the following regions:

    (i) Northeastern Iowa;

    (ii) Northwestern Iowa;

    (iii) Southern Iowa;

    (iv) Eastern Nebraska;

    (v) Eastern South Dakota; and

    (vi) Southern Minnesota.

    (b) Corn calendar swap contracts.

    (c) Wheat calendar swap contracts.

    (d) Soybean calendar swap contracts.

    (2) The Commission, pursuant to its authority under Section 4d of

    the Act and subject to the conditions below, hereby permits CME and

    clearing members of CBOT that are registered FCMs, acting pursuant to

    this order, to hold money, securities, and other property, used to

    margin, guarantee, or secure cleared-only transactions in eligible

    products (cleared-only contracts), and belonging to customers that are

    eligible swap participants, with other customer funds used to margin,

    guarantee, or secure trades or positions in commodity futures or

    commodity option contracts executed on or subject to the rules of a

    contract market designated pursuant to Section 5 of the

    [[Page 12320]]

    Act, in a customer segregated account or accounts maintained in

    accordance with Section 4d of the Act (including any orders issued

    pursuant to Section 4d(a)(2) of the Act) and the Commission's

    regulations thereunder, and all such customer funds shall be accounted

    for and treated and dealt with as belonging to the customers of the

    CBOT clearing member, consistent with Section 4d of the Act and the

    regulations thereunder.

    (3) This order is subject to the following conditions:

    (a) The contracts, agreements, or transactions subject to this

    order shall be executed pursuant to the requirements of Part 35 of the

    Commission's regulations, as modified herein, and shall be limited to

    the eligible products enumerated in this order.

    (b) All eligible products shall be submitted for clearing by a CBOT

    clearing member to CME pursuant to CBOT and CME rules.

    (c) Each cleared-only contract shall be marked to market on a daily

    basis, and final settlement prices shall be established in accordance

    with CBOT rules.

    (d) CME shall apply its margining system and calculate performance

    bond rates for each cleared-only contract in accordance with its normal

    and customary practices.

    (e) CME shall apply appropriate risk management procedures with

    respect to transactions and open interest in the cleared-only

    contracts. CME shall conduct financial surveillance and oversight of

    CBOT members clearing the eligible products, and it shall conduct

    oversight sufficient to assure CME that each such member has the

    appropriate operational capabilities necessary to manage defaults in

    such contracts. CME and clearing members of CBOT, acting pursuant to

    this order, shall take all other steps necessary and appropriate to

    manage risk related to clearing eligible products.

    (f) CBOT shall make available open interest and settlement price

    information for the cleared-only contracts on a daily basis in the same

    manner as for contracts listed on CBOT.

    (g) CBOT shall establish and maintain a coordinated market

    surveillance program that encompasses the cleared-only contracts and

    the corresponding futures contracts listed by CBOT on its designated

    contract market.

    (h) CBOT shall adopt speculative position limits for each of the

    cleared-only contracts that are the same as the limits applicable to

    the corresponding futures contracts pursuant to Commission Regulation

    150.2.

    (i) The cleared-only contracts shall not be treated as fungible

    with any contract listed for trading on CBOT.

    (j) Each FCM acting pursuant to this order shall keep the types of

    information and records that are described in Section 4g of the Act and

    Commission regulations thereunder, including but not limited to

    Commission Regulation 1.35, with respect to all cleared-only contracts.

    Such information and records shall be produced for inspection in

    accordance with the requirements of Commission Regulation 1.31.

    (k) CBOT shall provide to the Commission the types of information

    described in Part 16 of the Commission's regulations in the manner

    described in Parts 15 and 16 of the Commission's regulations with

    respect to all cleared-only contracts.

    (l) CBOT shall apply large trader reporting requirements to

    cleared-only contracts in accordance with its rules, and each FCM

    acting pursuant to this order shall provide to the Commission the types

    of information described in Part 17 of the Commission's regulations in

    the manner described in Parts 15 and 17 of the Commission's regulations

    with respect to all cleared-only contracts in which it participates.

    (m) CME and CBOT shall at all times fulfill all representations

    made in their requests for Commission action under Sections 4(c) and 4d

    of the Act and all supporting materials thereto.

    This order is based upon the representations made and supporting

    material provided to the Commission by CME and CBOT in connection with

    their requests. Any material change or omission in the facts and

    circumstances pursuant to which this order is granted might require the

    Commission to reconsider its finding that the actions taken herein are

    appropriate. Further, in its discretion, the Commission may condition,

    suspend, terminate, or otherwise modify this order, as appropriate, on

    its own motion.

    Issued in Washington, DC, on March 18, 2009 by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E9-6369 Filed 3-23-09; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: March 24, 2009



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