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2010-23141

  • FR Doc 2010-23141[Federal Register: September 16, 2010 (Volume 75, Number 179)]

    [Notices]

    [Page 56512-56513]

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

    [DOCID:fr16se10-31]

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    COMMODITY FUTURES TRADING COMMISSION

    Notice Regarding the Treatment of Petitions Seeking Grandfather

    Relief for Trading Activity Done in Reliance Upon Section 2(h)(1)-(2)

    of the Commodity Exchange Act

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice.

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    SUMMARY: Section 723 of the Dodd-Frank Wall Street Reform and Consumer

    Protection Act permits persons transacting business in exempt

    commodities in reliance upon Section 2(h) of the Commodity Exchange Act

    to petition the Commission for grandfather relief enabling them to

    continue to rely on Section 2(h) after the effective date of the Dodd-

    Frank Wall Street Reform and Consumer Protection Act. While persons may

    submit such grandfather relief petitions in accordance with the

    procedures provided herein, at this time the Commission has determined

    that it will not be issuing such relief to persons seeking to continue

    to rely on Section 2(h)(1)-(2). The Commission is prepared to revisit

    its decision in the future should it be necessary in order to ensure a

    smooth transition to the new regulatory regime mandated by the Dodd-

    Frank Wall Street Reform and Consumer Protection Act. Any relief that

    the Commission determines to grant in the future will not be limited to

    persons that may file a petition.

    DATES: Effective date: September 10, 2010 Petitions for relief will be

    accepted until September 20, 2010. Comments on this notice will be

    accepted until October 18, 2010.

    ADDRESSES: You may submit comments or petitions for relief, identified

    with ``Section 2(h)(1)-(2) Grandfather Relief'' in the subject line, by

    any of the following methods:

    E-mail for comments: pgfrcomment@cftc.gov. E-mail for

    petitions: pgfrpetition@cftc.gov.

    Mail: David A. Stawick, Secretary of the Commission,

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

    Street, NW., Washington, DC 20581.

    Hand Delivery/Courier: Same as mail above.

    All comments must be submitted in English, or if not, accompanied

    by an English translation. Comments and petitions will be posted as

    received to http://www.cftc.gov.

    FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Chief Counsel,

    Division of Market Oversight, Commodity Futures Trading Commission,

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

    Telephone: (202) 418-5481. E-mail: dvanwagner@cftc.gov; or Beverly E.

    Loew, Assistant General Counsel, Office of the General Counsel, same

    address. Telephone: (202) 418-5648. E-mail: bloew@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Treatment of Petitions for Grandfather Relief Received From Persons

    Relying Upon Section 2(h)(1)-(2) of the Commodity Exchange Act

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

    Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\1\

    Title VII of the Dodd-Frank Act \2\ will amend the Commodity Exchange

    Act (``CEA'') \3\ to establish a comprehensive new regulatory framework

    for swaps and security-based swaps. As part of the revisions to the

    CEA, the Dodd-Frank Act will delete various provisions from the CEA

    that were first established by the Commodity Futures Modernization Act

    of 2000 (``CFMA'') \4\ to permit the trading of derivative instruments

    off of regulated markets. Among other such provisions, the Dodd-Frank

    Act will strike Section 2(h)(1)-(2) (the ``Exempt Commodity

    Exemption'') from the CEA, effective July 15, 2011.\5\ CEA Section

    2(h)(1)-(2) generally provides that bilateral ``exempt commodity'' \6\

    transactions entered into between eligible contract participants, as

    that term is defined by CEA Section 1a(12), are exempt from all of the

    provisions of the CEA, except for the anti-fraud and anti-manipulation

    provisions.

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

    Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). The text of the

    Dodd-Frank Act may be accessed 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.

    \4\ See Commodity Futures Modernization Act of 2000, Pub. L.

    106-554, 114 Stat. 2763 (2000).

    \5\ See Section 723(a)(1)(A) of the Dodd-Frank Act.

    \6\ Under CEA Section 1a(14), an exempt commodity is defined as

    a commodity that is neither an excluded nor an agricultural

    commodity. Generally, the term encompasses energy and metals

    commodities.

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    Section 723(c)(1) of the Dodd-Frank Act provides that a person who

    is subject to the Exempt Commodity Exemption may petition the

    Commission to continue to operate pursuant to Section 2(h)(1)-(2) by

    submitting a petition to the Commission within 60 days of the enactment

    of the Dodd-Frank Act (i.e., by September 20, 2010). Section 723(c)(1)

    further states that the Commission must consider all such petitions in

    a ``prompt manner'' and may grant grandfather relief for up to one

    year. The Dodd-Frank Act does not suggest any standard for the

    Commission to evaluate grandfather relief petitions from parties

    seeking to continue their reliance on the Exempt Commodity Exemption.

    Ordinarily, a grandfather clause in a regulatory statute relieves

    or exempts

    [[Page 56513]]

    those already involved in an activity or business from the new

    regulations to be established by the statute because it is anticipated

    that it may be difficult for the parties to transition the activity or

    business to the new regulatory scheme.

    The Commission is aware of the transformational nature of the Dodd-

    Frank Act and its potential impact on the swaps industry. The

    Commission also recognizes that bilateral swaps trading activity

    currently conducted in reliance upon the CEA's Exempt Commodity

    Exemption will likely become subject to any number of regulatory

    provisions implementing the requirements of the Dodd-Frank Act,

    including business conduct standards, recordkeeping and reporting

    requirements, and capital and margin requirements.\7\ Until the

    contents and timing of the Commission's regulations affecting bilateral

    swaps are better known, however, the Commission has determined not to

    grant grandfather relief as it is impossible to know at this time

    whether such relief will be necessary.\8\

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    \7\ See Sections 731 and 747 of the Dodd-Frank Act.

    \8\ In a separate action, the Commission has issued orders

    providing grandfather relief to parties affected by the Dodd-Frank

    Act's elimination of the CEA Section 2(h)(3)-(7) exempt commercial

    market (``ECM'') provision and the CEA Section 5d exempt board of

    trade (``EBOT'') provision. In that matter, the Commission foresaw

    that many entities that currently operate as ECMs or EBOTs will seek

    to become either swap execution facilities (``SEFs'') or designated

    contract markets (``DCMs'') when the Commission adopts regulations

    implementing Dodd-Frank's requirements for those facilities. Because

    the new SEF and DCM regulatory provisions are not likely to be

    completed until close to the same time that the ECM and EBOT

    provisions are deleted from the CEA, the Commission anticipated that

    there would be a large number of new SEF and DCM applications at

    that time. In order to ease this congestion of applications, and to

    facilitate the transition of current ECM and EBOT businesses to the

    new regulatory regime mandated by the Dodd-Frank Act, the Commission

    provided limited grandfather relief to EBOTs and ECMs.

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    In implementing the important requirements of the Dodd-Frank Act,

    the Commission will strive to ensure that current practices will not be

    unduly disrupted during the transition to the new regulatory regime.

    Persons relying upon the Exempt Commodity Exemption will have an

    opportunity to comment on each of the rulemakings that may affect them,

    which will permit the Commission to consider and adopt appropriate

    regulatory provisions to address transitioning from the Exempt

    Commodity Exemption to the Dodd-Frank regulations as they become

    effective. Additionally, while the Commission has chosen at this time

    not to grant grandfather relief to parties that rely on the Exempt

    Commodity Exemption, if it later determines that Dodd-Frank Act-

    required regulations might pose particular difficulties for such

    parties that cannot be addressed in final regulations, the Commission

    is committed to use its available exemptive authorities to address such

    a situation. Any relief that the Commission determines to grant will

    not be limited to persons who may wish to file a petition.\9\

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    \9\ In addition to deleting the CEA Section 2(h)(1)-(2) Exempt

    Commodity Exemption from the CEA, the Dodd-Frank Act also will

    delete two other provisions that provide for the exclusion of

    bilateral swaps from the CEA--Section 2(d)(2) for excluded

    commodities (mostly financial products) and Section 2(g) for non-

    agricultural commodities. The Commission notes that the Dodd-Frank

    Act does not provide for the possibility of any grandfather relief

    for parties relying on those exclusions, which partially overlap

    with the Section 2(h)(1)-(2). The Commission also pledges to be

    attentive to the transition needs of parties that rely on those

    provisions, as well as Section 2(h)(1)-(2) users, as it considers

    Dodd-Frank Act-required regulations.

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    II. Related Matters

    a. Paperwork Reduction Act

    This notice does not impose any recordkeeping or information

    collection requirements, or other collections of information that

    require approval of the Office of Management and Budget (``OMB'') under

    the Paperwork Reduction Act (``PRA'').\10\ Requests for comment that

    are published in the Federal Register in which collections of

    information are not embedded are excluded from PRA compliance by OMB

    regulations.\11\ Collections of information that may be required as a

    condition for the grant of grandfather relief for persons relying on

    the Exempt Commodity Exemption will be addressed at the time such

    conditions may be imposed.

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    \10\ 44 U.S.C. 3501 et seq.

    \11\ 5 CFR 1320.3(h)(4).

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    b. Cost-Benefit Analysis

    Section 15(a) of the CEA \12\ requires the Commission to consider

    the costs and benefits of its actions before taking certain actions

    under the Act. This notice is neither a regulation nor an order to

    which Section 15(a) applies.

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

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    c. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that agencies

    consider the impact of their rules on small businesses. This notice is

    not a ``rule for which the agency publishes a general notice of

    proposed rulemaking.'' \13\ Therefore, the Commission is not required

    to conduct a regulatory flexibility analysis.\14\

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    \13\ 5 U.S.C. 601(2).

    \14\ See 5 U.S.C 603.

    Issued in Washington, DC, on September 10, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    Concurring Statement of Commissioner Scott D. O'Malia

    Regarding the Treatment of Petitions Seeking Grandfather Relief

    Pursuant to Section 723 of the Dodd-Frank Act for Trading Activity Done

    in Reliance Upon Section 2(h)(1)-(2)

    I concur in the Commission's decision to presently decline to

    grant relief under Section 723 of the Dodd-Frank Act to persons

    transacting business in exempt commodities in reliance upon Sections

    2(h)(1)-(2) of the Commodity Exchange Act (the ``Act''). While the

    Commission has chosen to decline to grant relief at this time, it is

    not restricted from using its authority to address and provide

    relief to such persons in the future. In an effort to proactively

    ensure the smoothest possible transition of these bilateral markets

    for transactions in exempt commodities into the new regulatory

    landscape, it is my hope that the Commission will revisit the issue

    at least ninety days prior to the Dodd-Frank Act effective date. The

    Commission remains committed to the efficient functioning of the

    markets in exempt commodities, and the path that we take in each

    rulemaking under the Dodd-Frank Act will only be enhanced by the

    comments we receive. Therefore, I urge all market participants who

    currently rely on Sections 2(h)(1)-(2) of the Act to help shape the

    new regulatory frontier by submitting their comments to the

    Commission.

    [FR Doc. 2010-23141 Filed 9-15-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: September 16, 2010



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