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2010-27533

  • FR Doc 2010-27533[Federal Register: November 2, 2010 (Volume 75, Number 211)]

    [Proposed Rules]

    [Page 67282-67301]

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

    [DOCID:fr02no10-15]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 40

    RIN 3038-AD07

    Provisions Common to Registered Entities

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') is proposing rules to implement new statutory provisions

    enacted under Title VII of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act (``Dodd-Frank Act'') and amend existing rules

    affected by the passage of the Dodd-Frank Act. These proposed rules

    apply to designated contract markets (``DCMs''), derivatives

    [[Page 67283]]

    clearing organizations (``DCOs''), swap execution facilities (``SEFs'')

    and swap data repositories (``SDRs''). The proposed rules implement the

    new statutory framework for certification and approval for new

    products, new rules and rule amendments submitted to the Commission by

    registered entities. Furthermore, the proposed rules prohibit event

    contracts based on certain excluded commodities, establish special

    procedures for certain rule changes proposed by systemically important

    derivatives clearing organizations (``SIDCOs''), and provide for the

    tolling of review periods for certain novel derivative products pending

    the resolution of jurisdictional determinations.

    DATES: Submit comments on or before January 3, 2011.

    ADDRESSES: You may submit comments, identified by RIN number, by any of

    the following methods:

    Agency Web site, via its Comments Online process: http://

    comments.cftc.gov. Follow the instructions for submitting comments

    through the Web site.

    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.

    Federal eRulemaking Portal: http://www.regulations.gov.

    Follow instructions for submitting comments.

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

    by an English translation. Comments will be posted as received to

    http://www.cftc.gov. You should submit only information that you wish

    to make available publicly. If you wish the Commission to consider

    information that is exempt from disclosure under the Freedom of

    Information Act, a petition for confidential treatment of the exempt

    information may be submitted according to the procedures established in

    CFTC Regulation 145.9.\1\ The Commission reserves the right, but shall

    have no obligation, to review, pre-screen, filter, redact, refuse or

    remove any or all of your submission from http://www.cftc.gov that it

    may deem to be inappropriate for publication, such as obscene language.

    All submissions that have been redacted or removed that contain

    comments on the merits of the rulemaking will be retained in the public

    comment file and will be considered as required under the

    Administrative Procedure Act and other applicable laws, and may be

    accessible under the Freedom of Information Act.

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    \1\ 17 CFR 145.9.

    FOR FURTHER INFORMATION CONTACT: Bella Rozenberg, Special Counsel,

    Division of Market Oversight (``DMO''), at 202-418-5119 or

    brozenberg@cftc.gov, Riva Spear Adriance, Associate Director for Market

    Review, DMO at 202-418-5494 or radriance@cftc.gov, in each case, also

    at the Commodity Futures Trading Commission, Three Lafayette Centre,

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

    SUPPLEMENTARY INFORMATION:

    Table of Contents

    I. Background

    II. The Proposed Amendments to Part 40 of the Commission's

    Regulations

    a. Definitions

    b. Listing and accepting products for trading or clearing by

    certification

    c. Voluntary submission of new products for Commission review

    and approval

    d. Amendments to terms or conditions of enumerated agricultural

    contracts

    e. Voluntary submission of rules for Commission review and

    approval

    f. Self-certification of rules

    g. Delegations

    h. Availability of public information

    i. Special certification procedures for submission of rules by

    systemically important derivatives clearing organizations

    j. Review of event contracts based on certain excluded

    commodities

    k. Tolling of review period pending jurisdictional determination

    III. Related Matters

    a. Regulatory Flexibility Act

    b. Paperwork Reduction Act

    c. Cost Benefit Analysis

    I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\2\

    Title VII of the Dodd-Frank Act \3\ amended the Commodity Exchange Act

    (``Act'') \4\ to establish a comprehensive new regulatory framework for

    swaps and security-based swaps. The legislation was enacted to reduce

    risk, increase transparency, and promote market integrity within the

    financial system by, among other things: (1) Providing for the

    registration and comprehensive regulation of swap dealers and major

    swap participants; (2) imposing clearing and trade execution

    requirements on standardized derivative products; (3) creating robust

    recordkeeping and real-time reporting regimes; and (4) enhancing the

    Commission's rulemaking and enforcement authorities with respect to,

    among others, all registered entities and intermediaries subject to the

    Commission's oversight.

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    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection

    Act, Public Law 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.

    \3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

    be cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \4\ 7 U.S.C. 1 et seq.

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    Section 745 of the Dodd-Frank Act amends Section 5c of the Act to

    provide for new rule, rule amendment and product certification and

    approval procedures, which are applicable to DCMs and DCOs, as well as

    new registered entities, SEFs and SDRs.\5\ Section 745 of the Dodd-

    Frank Act also authorizes the Commission to prohibit the listing of

    event contracts based on certain excluded commodities if such contracts

    involve one or more activities enumerated in the Dodd-Frank Act.

    Furthermore, Section 745 of the Dodd-Frank Act authorizes the

    Commission to prohibit contracts based on similar activities if they

    are determined by rule or regulation to be contrary to the public

    interest. Section 806(e)(1) of the Dodd-Frank Act requires that a SIDCO

    \6\ provide the Commission with 60 days advance notice of any proposed

    changes to rules, procedures or operations that could materially affect

    the nature or level of risk presented by a SIDCO. Finally, the

    Commission proposes to toll the review period of novel derivative

    products pending a determination as to whether the Commission or the

    Securities and Exchange Commission (``SEC'') has jurisdiction over

    novel derivative products.

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    \5\ The Dodd-Frank Act created new registered entities,

    including SEFs and SDRs. Issues related to the regulation of these

    entities will be addressed in other rulemakings issued by the

    Commission.

    \6\ A SIDCO is a DCO that has been designated as a systemically

    important financial market utility by the Financial Stability

    Oversight Council pursuant to Section 804 of the Dodd-Frank Act.

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    The Commission proposes a number of changes in order to enhance its

    ability to administer the Act, as amended, ensure consistency with

    various new requirements of the Dodd-Frank Act and clarify the

    regulatory obligations imposed on market participants. Specifically,

    the Commission proposes to amend sections 40.1 through 40.8 and adopt

    new sections 40.10 through 40.12 \7\ to amend the definitions,

    establish certification and approval procedures for the rules and

    products of registered entities, including SIDCOs, prohibit event

    contracts based on certain excluded commodities, and codify statutory

    requirements relating to tolling of the review period pending SEC and

    CFTC jurisdictional determinations.

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    \7\ Commission regulations referred to herein are found at 17

    CFR 1.

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    [[Page 67284]]

    Although Section 745 of the Dodd-Frank Act does not provide a

    statutory deadline for promulgation of final rules, Part 40 of the

    Commission's regulations currently is inconsistent with certain

    provisions of Section 745. In addition, since, as noted, the Dodd-Frank

    Act created new registered entities, SEFs and SDRs, the rule

    certification procedures for these new registered entities must be in

    place by the time these entities begin operating. Therefore, Part 40

    should be amended by July 15, 2011, the date when relevant provisions

    of the Dodd-Frank Act become effective.

    The Commission requests comment on all aspects of the proposed

    rules, as well as comment on the specific provisions and issues

    highlighted in the discussion below.

    II. The Proposed Amendments to Part 40 of the Commission's Regulations

    a. Section 40.1 Definitions

    To implement the requirements of the Dodd-Frank Act and to ensure

    the Commission's ability to administer Part 40, the Commission proposes

    a number of amendments to the definitions found in Sec. 40.1. The

    Commission proposes to add definitions for ``dormant swap execution

    facilities'' and ``dormant swap data repositories'' to provide

    consistency with the extant Sec. 40.1definitions for dormant DCMs and

    dormant DCOs. Also, the Commission proposes to delete the definition of

    a ``dormant derivatives trading execution facility'' since this entity

    was eliminated by the Dodd-Frank Act.

    Further, the Commission proposes to revise the definition of

    ``emergency'' to include an occurrence or circumstance that threatens

    the timely collection and payment of funds in connection with clearing

    and settlement by a derivatives clearing organization. In addition, the

    Commission proposes to incorporate references to swap transactions

    where appropriate to ensure consistency in application of Part 40 to

    both current and new registered entities. The Commission also proposes

    to delete the existing restriction on Commission review of rules

    relating to margin levels currently included in the definition of

    rule.\8\ The restriction is no longer appropriate as Section 736 of the

    Dodd-Frank Act amends Section 8a(7) of the Act to permit the Commission

    to alter or supplement the rules of a registered entity by issuing

    rules, regulations or orders regarding margin requirements. By

    necessity, such action requires the Commission to be able to review a

    DCO's rules ``relating to the setting of levels of margin'' in the

    first instance, even though the Commission itself is not authorized to

    ``set specific margin amounts'' under Section 8(a)(7). Finally, the

    Commission proposes to revise the definition of ``terms and

    conditions'' to add a new paragraph (j)(15) to include specific

    information relating to swaps proposed to be cleared by a DCO. By

    supplementing other provisions of paragraph (j) that are relevant to

    swaps, the Commission seeks to clarify the types of information that

    may differentiate swaps from futures contracts. These include, for

    example, the following: notional value; relevant dates, tenor, and day

    count conventions; stub, premium, or initial cash flow components; and

    payment and reset frequency.

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    \8\ The restriction in the current regulations reflects an

    ambiguity in the Act as modified by the Commodity Futures

    Modernization Act (``CFMA''). Prior to enactment of the CFMA in

    2000, Section 5a(a)(12)(A) of the Act required that all changes to

    contract terms and conditions be submitted to the Commission for

    approval ``except those rules relating to the setting of levels of

    margin.'' In Section 113 of the CFMA, Congress removed Section

    5a(a)(12)(A), allowing registered entities to amend their rules by

    self-certification. The new provision did not retain any reference

    to margin rules. However, Section 8(a)(7) was not amended by the

    CFMA, and retained a provision that allowed the Commission to alter

    or supplement the rules of a registered entity, except for rules

    relating to ``the setting of levels of margin,'' thereby creating

    uncertainty as to whether registered entities could adopt or change

    margin rules without certifying those rules to the Commission.

    Because there was no indication that Congress intended to alter the

    special status of rules relating to the setting of margin levels,

    the Commission resolved this ambiguity by excluding the setting of

    margin levels from the definition of ``rule.'' Section 8(a)(7)(D)

    now permits the Commission to require the changes with respect to

    margin requirements provided that the Commission's rules,

    regulations or orders (i) are limited to protecting the financial

    integrity of a DCO, (ii) are designed for risk management purposes

    to protect the financial integrity of transactions, and (iii) do not

    set specific margin amounts.

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    b. Section 40.2 Listing and accepting products for trading or clearing

    by certification

    Section 5c(c) of the Act permits registered entities to list for

    trading or accept for clearing any new product by providing to the

    Commission a written certification that the new product, rule, or rule

    amendment complies with the Act and Commission regulations. Under

    current Sec. 40.2, prior to listing or accepting products for trading

    or clearing by certification, the Commission requires, among other

    things, that registered entities provide the terms and conditions of

    their products and certify that submitted products comply with the Act

    and Commission regulations. The Commission also requires that

    registered entities provide, only if requested by Commission staff,

    additional information relating to whether the contract meets the

    requirements of the Act or the Commission's regulations or policies

    thereunder.

    Further, the Act permits registered entities to list for trading

    only those products that are not susceptible to manipulation and have

    appropriate position limitations or position accountability for

    speculators. To assist registered entities in demonstrating compliance

    with these Core Principles and to better ensure the integrity of

    certified products, the Commission proposes two amendments to Sec.

    40.2.

    The Commission proposes to amend Sec. 40.2 to require registered

    entities to include in their submission documentation relied on to

    establish the basis for compliance with the applicable provisions of

    the Act and the Commission's regulations thereunder, including the Core

    Principles for registered entities. The proposed amendments to Sec.

    40.2 will increase the timeliness and efficiency of Commission review.

    The Commission has always required that registered entities have

    evidence supporting their certification of compliance with the Act

    available for Commission review.\9\

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    \9\ For instance, in January 2006, when the Commission issued

    Technical and Clarifying Amendments to Rules for Exempt Markets,

    Derivatives Transaction Execution Facilities and Designated Contract

    Markets, and Procedural Changes for Derivatives Clearing

    Organization Registration Applications, it required DCMs to provide

    documentation demonstrating compliance with the Act and the

    Commission's regulations. It expressly stated, ``DCMs are

    responsible in the first instance, and the Commission is ultimately

    responsible in its oversight role, for assuring that DCM products

    and rules comply with applicable designation criteria and Core

    Principles. When a DCM self-certifies a product or rule, it is, in

    effect, pledging that the product or rule does meet those standards.

    Assuming the DCM is acting in good faith, it must have some

    reasonable basis for making that pledge * * * [and therefore] * * *

    when reasonable questions arise, it should not be burdensome for a

    DCM to share information regarding the reasonable basis underlying

    the new product or a rule with the Commission or its staff.'' See 71

    FR 1956 (Jan. 12, 2006).

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    Based on these experiences, the Commission proposes to amend Sec.

    40.2(a) to require a registered entity to include in its submission any

    documentation relied on to establish the basis for compliance with the

    Act and the Commission's regulations thereunder, including the

    applicable Core Principles. For DCM and SEF submissions of new products

    and product amendments, the Commission expects submissions to include

    documentation demonstrating that the product is not readily susceptible

    to manipulation (Core Principle 3 for

    [[Page 67285]]

    DCMs and SEFs) and that associated position limits or position

    accountability provisions are necessary and appropriate (Core Principle

    5 for DCMs and Core Principle 4 for SEFs). Proposed Sec. Sec. 40.3,

    40.5, and 40.6 contain a similar requirement for submission of new

    products, rules and rule amendments.

    The Commission believes that before self-certifying that a new

    contract complies with the Act and the Commission's regulations, a

    registered entity should conduct an appropriate due diligence review to

    support that assertion. Furthermore, the Commission believes that any

    such review should generate some form of documentation at the

    registered entity substantiating the review, including information used

    and sources consulted to reach the conclusion supporting self-

    certification. Therefore, the Commission believes that the inclusion of

    such information in the self-certified submission itself should not be

    burdensome for registered entities that are conducting appropriate due

    diligence reviews before making such submissions.

    Further, the Commission proposes a new Sec. 40.2 requirement that

    registered entities examine potential legal issues associated with the

    listing of products and include certain representations with their

    submissions. The reason for these requirements is that certain

    commodity futures and option products are based on measures or linked

    to information that may be subject to bona fide intellectual property

    rights claims. Commodity futures and option contracts, such as those

    based on emission credits, can also be based on underlying markets that

    are constructs of Federal or state regulations. In these and other

    circumstances, the Commission has an interest in verifying that

    registered entities have an adequate understanding of the legal

    conditions and constraints that may have a material impact on the

    trading of these types of products. Accordingly, the Commission

    proposes to add Sec. 40.2(a)(3)(vi) to require that certified product

    submissions be accompanied by a written statement verifying that the

    registered entity has undertaken a due diligence review of the legal

    conditions, including conditions relating to contractual and

    intellectual property rights, that may affect the trading of the

    product underlying the contract. Finally, the Commission proposes in

    Sec. 40.2(a)(3)(vii) to require a registered entity to certify that

    the registered entity has posted a copy of the pending product

    certification submission on the registered entity's Web site at the

    time of the filing. This will permit market participants to receive

    prompt notice of new rules filed with the Commission.

    c. Section 40.3 Voluntary submission of new products for Commission

    review and approval

    Although the Dodd-Frank Act does not specifically require that the

    Commission amend Sec. 40.3, the Commission believes that the

    amendments described below are necessary to enhance the Commission's

    ability to administer the Act. Similar to its proposed amendments to

    Sec. 40.2, described above, the Commission proposes to amend Sec.

    40.3 to require DCMs, DCOs, and SEFs to include with their requests for

    new product approval all documentation relied upon to determine that

    the new product complies with applicable Core Principles.

    In addition, similar to proposed Sec. 40.2(a)(3)(vi), proposed

    Sec. 40.3(a)(9) requires registered entities to submit a written

    statement that they have undertaken a due diligence review of the legal

    conditions, including conditions relating to contractual and

    intellectual property rights, that may affect the trading of the

    product. These additional requirements should expedite Commission

    review. Moreover, parallel to proposed Sec. Sec. 40.2(a)(3)(vii) and

    40.6(a)(2), proposed Sec. 40.3(a)(10) requires a registered entity to

    certify that the registered entity has posted a copy of the pending

    product certification submission on the registered entity's Web site at

    the time of the filing. As mentioned above, this will allow market

    participants to receive prompt notice of pending requests for product

    approval. Also, to provide the overall consistency with the

    requirements of the Dodd-Frank Act, proposed Sec. 40.3(d)(1)

    authorizes the Commission to extend the review period if the product

    raises novel or complex issues.

    Finally, the Commission notes that the standard for review and

    approval for new products remains unchanged; that is, the Commission

    shall approve a new product unless the terms and conditions of such

    product would violate the Act or the Commission's regulations

    thereunder.

    d. Section 40.4 Amendments to terms or conditions of enumerated

    agricultural products

    The Commission proposes a number of technical amendments to clarify

    existing regulatory obligations imposed on the DCMs that trade

    contracts based on an agricultural commodity listed in Section 1a(9) of

    the Act.

    Pursuant to Section 5c(c)(2)(B) of the Act, rules that materially

    change a term or condition of a contract with open interest that is

    based on an agricultural commodity enumerated in Section 1a(9) of the

    Act, must be approved by the Commission prior to implementation. A

    finding of materiality is, by statute, at the reasonable discretion of

    the Commission. Through prior rulemaking, the Commission has enumerated

    several rule categories in Sec. 40.4(b) that are deemed not to be

    material for purposes of Section 5c(c)(2)(B) of the Act and thus not

    subject to prior approval. The Commission has separately enumerated

    several categories of registered entities' rules in Sec. 40.6(d) that

    need not be approved by, or certified with, the Commission prior to

    implementation. Exchange rules that come within these categories

    typically are limited in scope and are implemented under enabling rules

    that have already been approved by, or certified with, the Commission.

    Since there is substantial overlap between the categories of rules

    deemed not to be material under Sec. 40.4(b) and the categories of

    rules enumerated in Sec. 40.6(d), the Commission proposes to amend

    Sec. 40.4(b) to refer to Sec. 40.6(d) for the purpose of identifying

    rules that are deemed by the Commission not to be material under

    Section 5c(c)(2)(B) of the Act. Such rules would qualify for

    implementation under Sec. 40.6 without prior approval or

    certification.

    In addition, the Commission proposes to clarify that changes in

    trading hours in Sec. 40.4(b)(3) and changes required to comply with

    an order of an adjudicative or regulatory body in Sec. 40.4(b)(4),

    while not material for purposes of Section 5c(c)(2)(B) of the Act, must

    be implemented through a prior certified submission under Sec. 40.6(a)

    because of their potential effects on the operations of a DCM.

    e. Section 40.5 Voluntary submission of rules for Commission review and

    approval

    Section 745 of the Dodd-Frank Act establishes a new standard for

    the review of new rules or rule amendments. That standard, as codified

    in proposed Sec. 40.5(b), requires the Commission to approve a new

    rule or rule amendment unless the rule or rule amendment is

    inconsistent with the Act or the Commission's regulations promulgated

    thereunder. In determining whether a rule is inconsistent with the Act,

    the Commission may also consider, for example, whether the new rule or

    rule amendment potentially disrupts market integrity, or increases

    systemic risk.

    The Commission also proposes amendments to the information required

    to be submitted when requesting

    [[Page 67286]]

    approval of amendments to the terms and conditions of a product under

    Sec. 40.5. Consistent with Sec. 40.2 and Sec. 40.3, the Commission

    proposes to amend Sec. 40.5(a)(7) to require a registered entity

    submitting an amendment of a product's terms and conditions to include

    with its submission the documentation relied upon to establish the

    basis for compliance with the Act and the Commission's regulations

    thereunder, including the applicable Core Principles.

    Additionally, similar to Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10)

    and 40.6 (a)(2), the Commission proposes in Sec. 40.5(a)(6) to require

    registered entities to certify that the registered entity has posted a

    copy of the pending product certification submission on the registered

    entity's Web site at the time of the filing. This will permit market

    participants to receive prompt notice of new requests for approval

    filed with the Commission. The Commission intends to continue its

    current practice of publishing all requests for Commission review and

    approval on its Web site. Finally, proposed Sec. 40.5(a)(11) requires

    registered entities, in connection with the submission of a request for

    changes to a product's terms or conditions, to submit a written

    statement that they have undertaken a due diligence review of the legal

    conditions, including conditions relating to contractual and

    intellectual property rights, that may affect the trading of the

    product, similar to the statement required in Sec. Sec. 40.2 and 40.3.

    f. Section 40.6 Self-certification of rules

    Section 745 of the Dodd-Frank Act amended Section 5c(c) of the Act

    to include a new 10-day certification review period for all rules and

    rule amendments submitted to the Commission by registered entities and

    to permit the Commission to stay the certification of rules or rule

    amendments that, among other things, present novel or complex issues

    that require additional time to analyze. The Commission proposes to

    codify these new certification provisions in Sec. 40.6, as follows.

    To implement the amended procedures for self-certification of rules

    described in Section 745 of the Dodd-Frank Act, the Commission proposes

    in Sec. 40.6(a)(3) to require registered entities to submit self-

    certifications at least ten business days before the projected

    effective date. A rule certification will become effective ten business

    days after the Commission receives the certification, unless the

    Commission notifies the registered entity, within 10 business days,

    that it is staying the certification pursuant to Sec. 40.6(c).

    Parallel to proposed Sec. 40.5(a), proposed Sec. 40.6(a) requires

    a registered entity to certify that the registered entity has posted a

    copy of the pending product certification submission on the registered

    entity's Web site at the time of the filing. This will permit market

    participants to receive prompt notice of new rules or rule amendments

    filed with the Commission. The Commission intends to continue its

    current practice of publishing the self-certified rules on its Web

    site.

    Further, in proposed Sec. 40.6(a)(6), the Commission clarifies the

    distinction between rules that establish standards and authorize

    appropriate parties to respond to an emergency--which must be submitted

    to the Commission prior to implementation--and rules that implement a

    response to a particular emergency--which, in certain circumstances,

    may be submitted to the Commission after implementation.

    Similar to Sec. Sec. 40.2, 40.3 and 40.5, proposed Sec.

    40.6(a)(7)(v) requires that amendments to the terms and conditions of a

    product be accompanied by documentation relied upon to establish the

    basis for compliance with the Act and the regulations thereunder,

    including the applicable Core Principles.

    As is proposed for Sec. Sec. 40.2, 40.3 and 40.5 and discussed

    above, the Commission proposes to amend Sec. 40.6(a)(7)(viii) to

    require registered entities to include with their certification of any

    changes to a product's terms and conditions, a written statement that

    they have undertaken a due diligence review of legal conditions

    relating to futures or options trading based on the underlying product

    or instrument.

    Under proposed Sec. 40.6(b), a new rule or rule amendment will

    become effective ten business days after the certified rule or rule

    amendment is received by the Commission, unless the Commission notifies

    the registered entity that it is staying the certification. Generally,

    a DCM seeking to adopt a program (such as a program to address

    conflicts of interest), which is in substance the same as a program

    previously approved by the Commission, or an exchange seeking to change

    a rule establishing trading hours or seeking to modify the terms and

    conditions of a listed contract for which it has provided sufficient

    evidence of compliance with Core Principles, may self-certify and,

    without Commission action, implement the proposed rule or rule

    amendment after ten business days.

    Proposed Sec. 40.6(c)(1) stays the certification of a rule if the

    Commission determines that the new rule or rule amendment presents

    novel or complex issues, is certified with an inadequate explanation,

    or is potentially inconsistent with the Act or the Commission's

    regulations thereunder. Once the Commission issues a notification of

    stay to the registered entity, the Commission will have 90 days to

    conduct a review. The rule will be certified upon expiration of the 90-

    day review period unless the Commission objects to the certification.

    If the Commission decides to lift the stay prior to the expiration of

    the 90-day review period, the Commission will notify the registered

    entity of its action.

    The Commission also notes that the new stay provision in proposed

    Sec. 40.6(c)(1) is distinct from the stay provision presently in

    effect under current Sec. 40.6(b), which the Commission proposes to

    move to Sec. 40.6(c)(4). The latter provision, which implements

    Commission authority under section 8a(7) of the Act, permits the

    Commission to stay the effectiveness of a rule or rule amendment that

    already has been implemented pursuant to the self-certification

    procedures in Sec. 40.6(a). Conversely, the new stay provision in

    proposed Sec. 40.6(c)(1), pursuant to the Commission's new authority

    in Section 745 of the Dodd-Frank Act, authorizes a stay of the

    certification itself and would be issued during the review process,

    thereby possibly preventing the certified rule or rule amendment from

    ever becoming effective in the first instance.

    A stay of a rule certification may be appropriate, for example,

    where a registered entity certifies a rule that raises unique issues

    not previously reviewed by Commission staff. In addition, the

    Commission believes that new rules or rule amendments may raise a

    number of complex issues if they appear to have a material impact on

    the futures market or the underlying cash market. Thus such rules are

    more likely to be subject to an extended review period to allow the

    Commission to adequately identify and address complex regulatory

    issues. For example, the Commission may need more than ten business

    days to determine whether a proposed market maker incentive program

    appropriately encourages market liquidity and does not have unnecessary

    anticompetitive effects. Staff might also need more than ten business

    days to analyze whether deliverable supplies of an underlying commodity

    are sufficient to support a proposed change to a spot month speculative

    position limit on a physical-delivery contract. The above mentioned

    [[Page 67287]]

    examples of submissions often raise a number of complex issues that may

    require an extended review period.

    Proposed Sec. 40.6(c)(2) provides for a 30-day public comment

    period, within the 90-day review period, whenever the Commission

    determines to stay a new rule or rule amendment and take it under

    further review. Under proposed Sec. 40.6(c)(2), the Commission would

    provide notice of the comment period by posting the notice and the new

    rule or rule amendment submission on the Commission's Web site.\10\

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    \10\ It is the Commission's intention to promptly post the

    notice and new rule or rule amendment in order to commence the

    public comment period as soon as possible within the 90-day review

    period. This will maximize the amount of time after the comment

    period closes for the submitter to respond to public comments and

    possibly revise its proposed rule or rule amendment and for the

    Commission to thoroughly consider the issues raised by the new rule

    or rule amendment.

    ---------------------------------------------------------------------------

    The Commission believes that publication of the notice of the 30-

    day comment period on the Commission's Web site, www.cftc.gov, will

    provide the public and market participants with the timely opportunity

    to comment on new rules or rule amendment submissions. The Commission

    routinely uses its Web site to disseminate information regarding

    Commission activities and industry filings.\11\ Web site publication

    would facilitate public comment while allowing Commission staff

    adequate time to assess comments and complete a substantive analysis

    within the statutory 90-day time frame. Finally, the Commission

    anticipates enhancements to its Web site publication procedures to

    promptly inform interested members of the public of stayed rules

    through email notifications on the Commission's Web site.

    ---------------------------------------------------------------------------

    \11\ In addition, the Commission's Web site provides a link for

    signing up to receive press releases issued by the Office of Public

    Affairs. This service enables members of the public to be apprised

    of the opening of comment periods in a timely manner.

    ---------------------------------------------------------------------------

    The Commission is also exploring the possibility of having

    registered entities file rule certifications, as well as other types of

    submissions, through a portal located at www.cftc.gov. The Commission

    believes that allowing registered entities to file rule certifications

    in this manner will simplify the filing process and also provide the

    public with close to real-time access to new rules and rule amendments

    submitted to the Commission for review. The Commission is determining

    the technological requirements necessary to implement this filing

    process. Once the Commission has formulated a process for submitting

    certifications through the Commission's Web site, the Commission will

    notify the public and establish a timeline to implement new electronic

    filing procedures.

    The Commission proposes several amendments to Sec. 40.6(d).

    Specifically, the Commission proposes to permit registered entities to

    implement reductions to a contract's minimum tick size without approval

    by or certification to the Commission, in order to maintain consistency

    between Sec. Sec. 40.4(b) and 40.6(d). The Commission in proposed

    Sec. 40.6(d)(2)(v), requires that fee changes associated with market

    making or other incentive programs be submitted for Commission review

    under Sec. 40.6(a). Finally, the Commission also proposes that changes

    to the terms of all options, including options on agricultural

    products, options on futures, and options on physicals, that relate to

    the strike price listing procedures, strike price intervals, and the

    listing of strike price on a discretionary basis, be implemented

    without certification or notice under Sec. 40.6(d)(3).

    g. Section 40.7 Delegations

    To ensure that the review process is conducted in an efficient

    manner, the Commission proposes to amend Sec. 40.7 to delegate to the

    Director of the Division of Clearing and Intermediary Oversight and,

    separately, to the Director of the Division of Market Oversight, after

    consultation with the General Counsel or the General Counsel's

    designee, the authority to extend the review of new contracts, rules

    and rule amendments submitted to the Commission pursuant to Sec.

    40.3(d) and Sec. 40.5(d) and the authority to stay the certification

    of new rules or rule amendments pursuant to Sec. 40.6(c), when the

    submission raises novel or complex issues that require additional time

    to analyze, is of major economic significance or is potentially

    inconsistent with the Act or Commission Regulations.

    Furthermore, the Commission proposes to delegate to the Director of

    the Division of Clearing and Intermediary Oversight and, separately, to

    the Director of the Division of Market Oversight the authority to stay

    or to extend the review of new products, new rules and rule amendments

    pursuant to Sec. 40.3 (d) or Sec. 40.5(d) or Sec. 40.6(c), when the

    submission is incomplete or accompanied by an inadequate explanation.

    Finally, proposed Sec. 40.7(a)(1)(iii) delegates to the Director

    of the Division of Clearing and Intermediary Oversight or the

    Director's designee, subject to the concurrence of the General Counsel

    or the General Counsel's designee, all determinations under proposed

    Sec. 40.10 with respect to a SIDCO's proposed change in rules,

    procedures or operations that could materially affect the nature or

    level of risks presented by the SIDCO. This includes a determination

    that the proposed change is consistent with the Act and the

    Commission's regulations, and the purposes of the Dodd-Frank Act and

    any applicable rules, orders or standards prescribed under Section

    805(a) of the Dodd-Frank Act.

    h. Section 40.8 Availability of public information

    This section describes information that the Commission will make

    public and provides for procedures for requesting confidential

    treatment of part 40 submissions to the Commission. The Commission

    proposes to retain reference to an electronic trading facility on which

    significant price discovery contracts are traded or executed in Sec.

    40.8 until July 20, 2012. Although the Dodd-Frank Act eliminated these

    entities, they are allowed to continue operation until July 20, 2012,

    pursuant to grandfather relief issued by the Commission.\12\

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    \12\ See 75 FR 56513 (Sept. 16, 2010).

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    In addition, the Commission proposes to amend Sec. 40.8 to include

    new registered entities, SEFs and SDRs. Confidential treatment requests

    will be considered pursuant to part 145 of the Commission's

    regulations.\13\

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    \13\ 17 CFR part 145.

    ---------------------------------------------------------------------------

    i. Section 40.10 Special certification procedures for submission of

    rules by systemically important derivatives clearing organizations

    To implement the provisions of Section 806(e) of the Dodd-Frank

    Act, proposed Sec. 40.10(a) would require a SIDCO to provide the

    Commission with advance notice of any proposed change to its rules,

    procedures or operations that could ``materially affect the nature or

    level of risks'' presented by the SIDCO. The SIDCO would be required to

    provide the notice not less than 60 days in advance of the proposed

    change. Submission of proposed changes would be subject to the filing

    requirements of Sec. 40.6(a)(1), as well as the Web site publication

    requirements under Sec. 40.6(a)(2). In addition to providing

    information required under Sec. 40.6(a)(7), the notice would have to

    describe the nature of the change, the expected effects on risks to the

    SIDCO, its clearing members, and the market, and how the SIDCO planned

    to manage those risks. Under proposed 40.10(a)(2), concurrent with

    providing the Commission with the advance notice or

    [[Page 67288]]

    any request or other information related to the advance notice, the

    SIDCO would be required to provide the Board of Governors of the

    Federal Reserve System with a copy of such notice, request or other

    information.

    Under proposed Sec. 40.10(b), changes that could materially affect

    the nature or level of risks would be defined as those as to which

    there is a reasonable possibility that the changes could substantially

    affect the performance of essential clearing and settlement functions

    or the overall nature or level of risk presented by the SIDCO. Such

    changes could include, but would not be limited to, changes that

    materially affect financial resources, participant and product

    eligibility, risk management (including matters relating to margin and

    stress testing), daily or intraday settlement procedures, default

    procedures, system safeguards (business continuity and disaster

    recovery), and governance. Materiality would be determined on a case-

    by-case basis. If a SIDCO were to determine that a proposed change was

    not material and it did not file an advance notice, but the Commission

    determined that the change was material, the Commission could require

    the SIDCO to withdraw the proposed change and provide advance notice

    pursuant to Sec. 40.10.

    The Commission requests comment on the proposed materiality

    standard in general and, more specifically, whether another approach to

    defining materiality would be more effective. The Commission further

    requests comment on whether, as an alternative to the proposed

    approach, the standard in proposed paragraph (b) should set forth

    examples of changes that would be considered to be non-material and

    could be treated in accordance with the provisions of Sec. 40.6. The

    Commission solicits recommendations regarding what types of changes

    might be identified as non-material. At a minimum, the Commission would

    consider deeming to be non-material changes those listed in Sec.

    40.6(c) (proposed to be redesignated as Sec. 40.6(d)) and that are

    relevant to SIDCOs.\14\ The Commission notes that while this list of

    non-material changes is useful in the broader context of all rule

    changes that could be submitted under the certification procedures of

    Sec. 40.6, the fact that the Dodd-Frank Act and Sec. 40.10 already

    establish a materiality threshold makes the existing list of non-

    material changes less meaningful for purposes of Sec. 40.10. The

    Commission believes that any further refinement of what might be

    considered non-material for purposes of Sec. 40.10 would have to be

    appropriately circumscribed so as to be specific enough to provide

    useful guidance for SIDCOs, while remaining broad enough so as not to

    inappropriately limit the types of changes that the Commission would

    consider material and subject to the procedures of Sec. 40.10.

    ---------------------------------------------------------------------------

    \14\ Non-material changes include, for example, corrections of

    typographical errors, renumbering, periodic updates to identifying

    information about approved entities and other such non-substantive

    revisions of a product's terms and conditions that have no effect on

    the economic characteristics of the product. See Sec.

    40.6(c)(2)(i).

    ---------------------------------------------------------------------------

    Under proposed Sec. 40.10(c), the Commission may require a SIDCO

    to provide further information to assess the nature or level of any

    risks associated with the proposed change and the sufficiency of any

    proposed risk management technique.

    Further, under proposed Sec. 40.10(d), within 60 days from the

    date the Commission received a notice of a proposed change, the

    Commission would inform a SIDCO if it objects to the proposed change on

    the grounds that the change is not consistent with the Act or the

    Commission's regulations, or the purposes of the Dodd-Frank Act or any

    applicable rules, orders, or standards prescribed under Section 805(a)

    of the Dodd-Frank Act. If the Commission were to require further

    information, the Commission would have an additional 60 days after the

    date the Commission received the requested information, to inform the

    SIDCO of any objection to the proposed change. The Commission may ask

    for additional information more than once. In such case, the review

    period would be extended 60 days from the date that the information

    pertaining to the last request was received.

    Proposed Sec. 40.10(e) would allow a SIDCO to implement a proposed

    rule change if the review period lapsed without Commission action.

    Proposed Sec. 40.10(f) would allow the Commission, during the 60-

    day review period, to extend the review period for an additional 60

    days if the proposed change raised novel or complex issues. For

    example, if the Commission does not request additional information but

    extends the review period 60 days upon receiving the advance notice,

    the maximum review period would be 120 days after receipt of the

    advance notice. On the other hand, if the Commission requests and

    obtains additional information 30 days after receiving the notice and

    then extends the review period 60 days in order to consider complex or

    novel issues, then the Commission would have a maximum of 150 days to

    reach a determination after receipt of the advance notice.

    Proposed Sec. 40.10(g) would permit a SIDCO to implement a

    proposed change prior to the expiration of the review period if it

    received a notification in writing from the Commission that the

    Commission does not object to the proposed change and authorizes the

    SIDCO to implement the change. Such authorization may be subject to

    conditions imposed by the Commission.

    Proposed Sec. 40.10(h) would permit a SIDCO to implement a change

    without providing 60 days advance notice to the Commission if the SIDCO

    determined that an emergency exists and immediate implementation of the

    change was necessary for the SIDCO to continue to provide its services

    in a safe and sound manner. The SIDCO would be required to notify the

    Commission of the emergency change as soon as practicable, but no later

    than 24 hours after implementation of the change. The notification must

    provide the information required in an advance notice, as well as

    describe the nature of the emergency and explain why the emergency

    change was necessary for the SIDCO to continue to provide its services

    in a safe and sound manner. Under the proposed regulation, the

    Commission could require modification or rescission of the emergency

    change if the Commission determined that the change was not consistent

    with the Act or the Commission's regulations or the purposes of the

    Dodd-Frank Act, or any applicable rules, orders, or standards

    prescribed under section 805(a) of the Dodd-Frank Act.

    Finally, the Commission requests comment on whether there are any

    substantive changes to rules, procedures, or operations that should not

    be permitted to be adopted under emergency circumstances without prior

    notice to the Commission. For example, should there be restrictions on

    a SIDCO's ability to demand significantly higher assessments from

    clearing members on an emergency basis?

    j. Section 40.11 Review of event contracts based on certain excluded

    commodities

    Section 745(b) of the Dodd-Frank Act authorizes the Commission to

    prohibit the listing, trading, or clearing of agreements, contracts,

    transactions or swaps that are based upon an occurrence, extent of a

    concurrence, or contingency (other than a change in the price, rate,

    value, or level of a commodity not described in Section 1a(19)(i) of

    the Act) that is beyond the control of the parties to the relevant

    contract, agreement, or transaction and associated with financial,

    commercial, or economic consequence, as defined in

    [[Page 67289]]

    Section 1a(19)(iv) of the Act, if the contract involves terrorism,

    assassination, war, gaming, an activity that is unlawful under any

    Federal or State law, or any similar activity that the Commission

    determines, by rule or regulation, to be contrary to the public

    interest.

    Pursuant to this authority, the Commission proposes new Sec.

    40.11(a)(1) to prohibit the listing, trading, or clearing of any above

    mentioned agreements, contracts, transactions or swaps. In addition,

    the Commission proposes new Sec. 40.11(a)(2) to prohibit the listing,

    trading, or clearing of any agreements, contracts, transactions or

    swaps involving activities similar to those enumerated in Sec.

    40.11(a)(1) and that the Commission determines, by rule or regulation,

    to be contrary to the public interest.

    If during the review process for a product submitted under Sec.

    40.2 or Sec. 40.3, the Commission determines that such product may

    involve an activity that is enumerated in Sec. 40.11(a), the

    Commission will request that the registered entity suspend the listing

    or trading of the contract and will conduct a 90-day review to

    determine whether the product violates Sec. 40.11(a). Upon completion

    of its review, the Commission will issue an order, as required by

    Section 745(b) of the Dodd-Frank Act, finding either that the product

    violates or does not violate the prohibitions in proposed Sec.

    40.11(a).

    k. Section 40.12 Tolling of review period pending jurisdictional

    determination

    Under Section 718(a) of the Dodd-Frank Act, a registered entity

    certifying, submitting for approval, or otherwise filing a proposal to

    list a product having elements of both a security and a derivative may

    provide notice of its proposal both to the Commission and the

    Securities and Exchange Commission. However, under Section 718(a)(1)(B)

    of the Dodd-Frank Act, if the registered entity chooses not to provide

    such notice, then the Commission must notify the Securities and

    Exchange Commission of the submission and accompany such notice with a

    copy of the registered entity's complete filing if it determines that

    the proposal has elements of both securities and futures. If either

    Commission requests a jurisdictional determination pursuant to Section

    718 of the Dodd-Frank Act, the Commission will toll the applicable

    product certification or approval review period until the issuance of a

    final determination order.

    If the Commission or the Securities and Exchange Commission seeks

    judicial review of a jurisdictional determination, proposed Sec. 40.12

    stays the challenged order, as well as the review period for the

    product, until the United States Court of Appeals for the District of

    Columbia Circuit issues a final determination pursuant to Section

    718(b) of the Dodd-Frank Act, or until there is resolution of an appeal

    of that determination. The submission review period will resume only

    upon a finding that the Commission has jurisdiction over the

    submission.

    l. Revision of Appendices to Part 40

    The Commission proposes to revise the appendices to Part 40 to

    clarify the new regulatory requirements and to provide consistency with

    the overall requirements of the Act, as amended by the Dodd-Frank Act.

    The present content of Appendix A relates solely to the listing of

    certain futures contracts by DCMs and not to the listing of contracts

    by registered entities generally. Accordingly, the Commission proposes

    to delete the content of Appendix A, currently titled ``Guideline No.

    1,'' from part 40. The substance of the appendix will be incorporated

    into part 38 as part of a separate rulemaking.

    In addition, the Commission proposes to move and incorporate the

    current language in Appendix B, currently titled, ``Schedule of Fees,''

    into Appendix A. The Commission proposes to reserve Appendix B for a

    future rulemaking. Appendix C remains reserved.

    The Commission proposes minor amendments to the submission cover

    sheet and instructions provided in Appendix D to part 40. The proposed

    submission cover sheet has been modified to include SEFs and SDRs. The

    amended cover sheet will be posted on the Commission's Web site upon

    publication of the final rules. The Commission also proposes to amend

    the instructions in Appendix D to clarify that registered entities must

    describe the substance of the submission with enough specificity to

    characterize all material aspects of the filing. A description of the

    submission should allow a party reading it to ascertain the subject and

    effect of the submission. For example, a description of ``Market

    Regulation Advisory'' does not provide the reader with sufficient

    information to understand what the particular Advisory addresses or its

    effect, thereby rendering the description less useful. A clear and

    informative description will facilitate and expedite the posting of the

    submission on the Commission's Web site. As noted above, the Commission

    is exploring whether an electronic submission system can be established

    and made available to registered entities in the near future. The

    Commission is seeking the public's view on whether automated submission

    of rules, rule amendments, and products might be facilitated by a Web

    site portal dedicated to this purpose.

    III. Related Matters

    a. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \15\ requires that

    agencies consider whether the rules they propose will have a

    significant economic impact on a substantial number of small entities

    and, if so, provide a regulatory flexibility analysis respecting the

    impact.\16\ The proposed rules detailed in this release would require

    DCOs, DCMs, SEFs and SDRs to submit to the Commission, before they

    become effective, new products, new rules, and rule amendments, with a

    self-certification that the rules comply with the Act and Commission

    regulations. The requirements for the self-certification are not

    complex, and may be satisfied by the completion of a cover sheet with a

    detailed explanation of the filing. These self-certification rules will

    not impose a significant economic impact on any entity.

    ---------------------------------------------------------------------------

    \15\ 5 U.S.C. 601 et seq.

    \16\ 5 U.S.C. 601 et seq.

    ---------------------------------------------------------------------------

    Moreover, the Commission previously determined that DCOs and DCMs

    are not ``small entities'' for purposes of the RFA.\17\ The Commission

    has not determined whether SEFs and SDRs, new registered entities

    created by the Dodd-Frank Act, are small entities. The Dodd-Frank Act

    defines an SDR to mean any person that collects and maintains

    information or records with respect to transactions or positions in, or

    the terms and conditions of, swaps entered into by third parties for

    the purpose of providing a centralized recordkeeping facility for

    swaps. The Dodd Frank Act defines a SEF to mean a trading system or

    platform in which multiple participants have the ability to execute or

    trade swaps by accepting bids and offers made by multiple participants

    in the facility or system, through any means of interstate commerce,

    including any trading facility that facilitates the execution of swaps

    between persons and is not a DCM.\18\

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    \17\ 47 FR 18618, 18619 (April 30, 1982) and 66 FR 45604, 45609

    (August 29, 2001).

    \18\ See Section 721 of the Dodd-Frank Act. The Commission

    anticipates proposing regulations that would further specify those

    entities that must register as a SEF. The Commission does not

    believe that such proposals would alter its determination that a SEF

    is not a ``small entity'' for purposes of the RFA.

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    [[Page 67290]]

    The Commission previously determined that DCMs and DCOs are not

    ``small entities'' for purposes of the RFA. The Commission's reasoning

    included the fact that the Commission designates a contract market or a

    DCO only when the entity meets specific criteria, including the

    expenditure of sufficient resources to establish and maintain adequate

    self-regulatory programs. Likewise, the Commission will register an

    entity such as a SEF or an SDR only after the entity has met a number

    of criteria, including the expenditure of sufficient resources to

    establish and maintain an adequate self-regulatory program.\19\ Because

    SEFs and SDRs will be required to demonstrate compliance with Core

    Principles, many of which are similar to those applicable to DCMs and

    DCOs, the Commission hereby determines that SEFs and SDRs are not

    ``small entities'' for the purposes of the RFA.

    ---------------------------------------------------------------------------

    \19\ See Core Principle 2 applicable to SEFs under Section 733

    of the Dodd-Frank Act and Core Principles 1-3 applicable to SDRs

    under Section 728 of the Dodd-Frank Act.

    ---------------------------------------------------------------------------

    Accordingly, the Chairman, on behalf of the Commission, hereby

    certifies pursuant to 5 U.S.C. Sec. 605(b) that the proposed rules

    will not have a significant impact on a substantial number of small

    entities. The Commission invites the public to comment on all aspects

    of this Regulatory Flexibility Analysis.

    b. Paperwork Reduction Act

    The Commission may not conduct or sponsor, and a registered entity

    is not required to respond to, a collection of information unless it

    displays a currently valid Office of Management and Budget (``OMB'')

    control number. Proposed amendments to Sec. Sec. 40.2, 40.3, 40.5 and

    40.6 will impose new information collection requirements within the

    meaning of the Paperwork Reduction Act \20\ on registered entities, as

    will new proposed Sec. Sec. 40.10 and 40.12. Accordingly, the

    Commission has requested that OMB approve and assign a new control

    number for the proposed collections of information. In connection with

    its request, the Commission has submitted this notice of proposed

    rulemaking along with supporting documentation for OMB's review in

    accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this

    collection of information is Part 40, Provisions Common to Registered

    Entities, OMB control number 3038-D07. If adopted, responses to this

    new collection of information will be mandatory.

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    \20\ 44 U.S.C. 3501 et seq.

    ---------------------------------------------------------------------------

    The Commission will protect proprietary information according to

    the Freedom of Information Act and 17 CFR part 145, ``Commission

    Records and Information.'' In addition, section 8(a)(1) of the Act

    strictly prohibits the Commission, unless specifically authorized by

    the Act, from making public ``data and information that would

    separately disclose the business transactions or market positions of

    any person and trade secrets or names of customers.'' The Commission

    also is required to protect certain information contained in a

    government system of records according to the Privacy Act of 1974, 5

    U.S.C. 552a.

    1. Information Provided by Reporting Entities/Persons

    The proposed rules require DCMs, DCOs, and new registered entities,

    SEFs and SDRs, to collect and submit to the Commission new rules,

    amended rules and new products pursuant to the procedures outlined in

    proposed Sec. Sec. 40.2, 40.3, 40.5, 40.6, 40.10, and 40.12. The

    Commission proposes these information collection requirements in order

    to give effect to various notice, rule certification, and rule approval

    provisions of the Dodd-Frank Act.

    The Commission estimated the proposed information collection

    burdens on registered entities below. These estimates account for (1)

    the number of respondents; (2) the number of responses required of each

    respondent; (3) the average hours required to produce each response;

    and (4) the aggregate annual reporting burden. The Commission estimates

    that the aggregate effect of proposed Sec. Sec. 40.2, 40.3, 40.5,

    40.6, 40.10, and 40.12 will be to increase the overall information

    collection burden on registered entities by approximately 8,300 hours

    per year, resulting mostly from the preparation of materials to be

    filed with the Commission in connection with the listing of products or

    the certification or approval of rules and rule amendments. The

    Commission estimates that there will be 70 designated or registered

    entities that would be required to file documentation with the

    Commission on a periodic basis.

    Proposed Sec. Sec. 40.5 and 40.6 require each registered entity to

    comply with new certification and approval requirements when seeking to

    implement new rules or rule amendments, including changes to product

    terms or conditions. In addition, to ensure that market participants

    are promptly notified of product and rule submissions to the

    Commission, proposed Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10),

    40.5(a)(6), and 40.6(a)(2) require registered entities to state that

    they posted a copy of the certification or request for approval on the

    registered entity's Web site at the time of the filing with the

    Commission.

    Estimated number of respondents: 45.

    Annual responses by each respondent: 120.

    Estimated average hours per response: 2.52.

    Aggregate annual reporting burden: 13,608.

    Proposed Sec. 40.10 requires SIDCOs to provide to the Commission

    60 days advance notice of proposed changes to rules, procedures or

    operations that could materially affect the nature or level of risks

    presented by the SIDCO.

    Estimated number of respondents: 4.

    Annual responses by each respondent: 2.

    Estimated average hours per response: 5.

    Aggregate annual reporting burden: 40.

    Proposed Sec. 40.12 requires registered entities to provide notice

    to the Commission and the Securities and Exchange Commission when

    certifying, submitting for approval, or otherwise filing a proposal to

    list a product having elements of both a security and a derivative.

    Estimated number of respondents: 17.

    Annual responses by each respondent: 34.

    Estimated average hours per response: 2.52.

    Aggregate annual reporting burden: 1,456.

    The Commission invites public comment on the accuracy of its

    estimate of the collection requirements that would result from the

    proposed regulations.

    2. Information Collection Comments

    The Commission invites the public and other federal agencies to

    comment on the information collection requirements proposed in this

    notice. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits

    comments to: (1) Evaluate whether the proposed collections of

    information are necessary for the proper performance of the functions

    of the Commission, including whether the information will have

    practical utility; (2) evaluate the accuracy of the estimated burden of

    the proposed information collection requirements, including the degree

    to which the methodology and the assumptions that the Commission

    employed were valid; (3) determine whether there are ways to enhance

    the quality, utility, or clarity of the

    [[Page 67291]]

    information proposed to be collected; and (4) minimize the burden of

    the proposed collections of information on DCMs, SEFs, DCOs, and SDRs,

    for example through implementation of an electronic rule and product

    submission system.

    Comments may be submitted directly to the Office of Information and

    Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

    OIRAsubmissions@omb.eop.gov. Please provide the Commission with a copy

    of submitted comments so that they can be summarized and addressed in

    the final rule. Refer to the Addresses section of this notice of

    proposed rulemaking for comment submission instructions to the

    Commission. A copy of the supporting statements for the collections of

    information discussed above may be obtained by visiting RegInfo.gov.

    OMB is required to make a decision concerning the collection of

    information between 30 and 60 days after publication of this release.

    Consequently, a comment to OMB is best assured of receiving full

    consideration only if received by OMB (and the Commission) within 30

    days of publication of this notice of proposed rulemaking.

    c. Cost-Benefit Analysis

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

    costs and benefits of its actions before issuing new regulations or

    orders.\21\ By its terms, Section 15(a) does not require the Commission

    to quantify the costs and benefits of a new regulation or to determine

    whether the benefits of the proposed regulation outweigh its costs.

    Rather, Section 15(a) requires the Commission to ``consider the costs

    and benefits'' of its proposed regulation. Section 15(a) further

    specifies that costs and benefits shall be evaluated in light of 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, in its

    discretion, give greater weight to any one of the five enumerated areas

    and it may determine that, notwithstanding its costs, a particular rule

    is necessary to protect the public interest or to effectuate any of the

    provisions or to accomplish any of the purposes of the Act.\22\

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    \21\ 7 U.S.C. 19(a).

    \22\ See, e.g., Fisherman's Doc Co-op., Inc v. Brown, 75 F.3d

    164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336

    (DC Cir. 1985) (noting that an agency has discretion to weigh

    factors in undertaking cost-benefit analysis).

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    As discussed above, the proposed regulations require registered

    entities, including DCMs, SEFs, DCOs, and SDRs, to comply with new

    certification and approval procedures when submitting products and

    rules for Commission review. These procedures are mandatory pursuant to

    the Dodd-Frank Act. The Commission has determined that the costs

    associated with the self-certification and submission for Commission

    review of new products, new rules, and rule amendments will not

    negatively affect the efficiency, competitiveness, and financial

    integrity of the futures and swaps markets, particularly because of the

    time limits that Congress has imposed on Commission review. The

    Commission will have 10 days to review new products, new rules, and

    rule amendments, and only 90 days if it stays a rule to issue a rule

    approval or disapproval.

    The Commission believes that the benefits of the rulemaking are

    significant. The Commission's certification and approval procedures

    ensure that registered entities do not enact rules that may be

    anticompetitive, unfair to market participants, or otherwise

    detrimental to the public interest. In addition, the special

    certification procedures for SIDCOs and certain event contracts

    implement Section 745 of the Dodd-Frank Act and ensure that the

    Commission has adequate time and information to analyze the registered

    entity's proposal and to consider the broader implications of

    permitting the entity to implement the rule or list the product. The

    SIDCO notice requirement, in particular, may be crucially important to

    the Commission's oversight of sound risk management practices and to

    its efforts to mitigate systemic risks, whereas the proposed event

    contract provisions, consistent with the intent of Congress, prevent

    individuals from speculating on activities that are harmful to national

    security and potentially detrimental to the stability of the futures

    markets and their price discovery function. Finally, the Commission's

    notice requirements with respect to the submission of novel derivative

    products promote cooperation between the Commission and the SEC and

    facilitate more effective and less duplicative regulation of registered

    entities.

    For these reasons, the Commission believes that the certification

    and approval procedures proposed in this notice are needed to fulfill

    the requirements of the Dodd-Frank Act in order to protect market

    participants and to ensure the continued competitiveness and financial

    integrity of the futures and derivative markets.

    The Commission invites public comment on its cost-benefit

    considerations. Commenters are also invited to submit any data or other

    information that they may have quantifying or qualifying the costs and

    benefits of the proposal with their comment letters.

    List of Subjects in 17 CFR Part 40

    Commodity futures, Contract markets, Designation application,

    Reporting and recordkeeping requirements, Swap execution facility, Swap

    data repository, Systemically important derivatives clearing

    organization, Rule approval, Rule certification, Review of certain

    event contracts.

    In light of the foregoing, and pursuant to authority in the Act,

    and, in particular, Sections 3, 5, 5c(c) and 8a(5) of the Act, the

    Commission hereby proposes to revise Part 40 of Title 17 of the Code of

    Federal Regulations to read as follows:

    PART 40--PROVISIONS COMMON TO REGISTERED ENTITIES

    Sec.

    40.1 Definitions.

    40.2 Listing and accepting products for trading or clearing by

    certification.

    40.3 Voluntary submission of new products for Commission review and

    approval.

    40.4 Amendments to terms or conditions of enumerated agricultural

    products.

    40.5 Voluntary submission of rules for Commission review and

    approval.

    40.6 Self-certification of rules.

    40.7 Delegations.

    40.8 Availability of public information.

    40.9 Corporate governance [Reserved]

    40.10 Special certification procedures for submission of rules by

    systemically important derivatives clearing organizations.

    40.11 Review of event contracts based on certain excluded

    commodities.

    40.12 Tolling of review period pending jurisdictional determination.

    Appendix A to Part 40--Schedule of Fees

    Appendix B to Part 40--[Reserved]

    Appendix C to Part 40--[Reserved]

    Appendix D to Part 40--Submission Cover Sheet and Instructions

    Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 12, as amended by

    Titles VII and VIII of the Dodd-Frank Wall Street Reform and

    Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

    Sec. 40.1 Definitions.

    As used in this part:

    (a) Business day means the intraday period of time starting at the

    business hour of 8:15 a.m. and ending at the

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    business hour of 4:45 p.m.; business hour means any hour between 8:15

    a.m. and 4:45 p.m.. Business day and business hour are Eastern Standard

    Time or Eastern Daylight Savings Time, whichever is currently in effect

    in Washington, DC, on all days except Saturdays, Sundays and federal

    holidays in Washington, DC.

    (b) Dormant contract or dormant product means:

    (1) Any agreement, contract, transaction, instrument, swap or any

    such commodity futures or option contract with respect to all future or

    option expiries, listed on a designated contract market, a swap

    execution facility or cleared by a registered derivatives clearing

    organization, that has no open interest and in which no trading has

    occurred for a period of twelve complete calendar months following a

    certification to, or approval by, the Commission; provided, however,

    that no contract or instrument under this paragraph (b)(1) initially

    and originally certified to, or approved by, the Commission within the

    preceding 36 complete calendar months shall be considered to be

    dormant; or

    (2) Any commodity futures or option contract, swap or other

    agreement, contract, transaction or instrument of a dormant designated

    contract market, swap execution facility or a dormant derivatives

    clearing organization; or

    (3) Any commodity futures or option contract or other agreement,

    contract, swap, transaction or instrument not otherwise dormant that a

    designated contract market, a swap execution facility or a derivatives

    clearing organization self-declares through certification to be

    dormant.

    (c) Dormant designated contract market means any designated

    contract market on which no trading has occurred during the period of

    twelve consecutive calendar months, preceding the first day of the most

    recent calendar month; provided, however, no designated contract market

    shall be considered to be dormant if its initial and original

    Commission order of designation was issued within the preceding 36

    consecutive calendar months.

    (d) Dormant derivatives clearing organization means any derivatives

    clearing organization registered pursuant to Section 5b of the Act that

    has not accepted for clearing any agreement, contract or transaction

    that is required or permitted to be cleared by a derivatives clearing

    organization under Sections 5b(a) and 5b(b) of the Act, respectively,

    for a period of twelve complete calendar months; provided, however, no

    derivatives clearing organization shall be considered to be dormant if

    its initial and original Commission order of registration was issued

    within the preceding 36 complete calendar months.

    (e) Dormant swap data repository means any registered swap data

    repository on which no data has resided for a period of twelve

    consecutive calendar months, preceding the most recent calendar month.

    (f) Dormant swap execution facility means any swap execution

    facility on which no trading has occurred for a period of twelve

    consecutive calendar months, preceding the first day of the most recent

    calendar month; provided, however, no swap execution facility shall be

    considered to be dormant if its initial and original Commission order

    of registration was issued within the preceding 36 consecutive calendar

    months.

    (g) Dormant rule means:

    (1) Any registered entity rule which remains unimplemented for

    twelve consecutive calendar months following a certification with, or

    an approval by, the Commission; or

    (2) Any rule or rule amendment of a dormant designated contract

    market, dormant swap execution facility, dormant swap data repository

    or dormant derivatives clearing organization.

    (h) Emergency means any occurrence or circumstance that, in the

    opinion of the governing board of a registered entity, or a person or

    persons duly authorized to issue such an opinion on behalf of the

    governing board of a registered entity under circumstances and pursuant

    to procedures that are specified by rule, requires immediate action and

    threatens or may threaten such things as the fair and orderly trading

    in, or the liquidation of or delivery pursuant to, any agreements,

    contracts, swaps or transactions or the timely collection and payment

    of funds in connection with clearing and settlement by a derivatives

    clearing organization, including:

    (1) Any manipulative or attempted manipulative activity;

    (2) Any actual, attempted, or threatened corner, squeeze,

    congestion, or undue concentration of positions;

    (3) Any circumstances which may materially affect the performance

    of agreements, contracts, swaps or transactions, including failure of

    the payment system or the bankruptcy or insolvency of any participant;

    (4) Any action taken by any governmental body, or any other

    registered entity, board of trade, market or facility which may have a

    direct impact on trading or clearing and settlement; and

    (5) Any other circumstance which may have a severe, adverse effect

    upon the functioning of a registered entity.

    (i) Rule means any constitutional provision, article of

    incorporation, bylaw, rule, regulation, resolution, interpretation,

    stated policy, terms and conditions, trading protocol, agreement or

    instrument corresponding thereto, including those that authorize a

    response or establish standards for responding to a specific emergency,

    in whatever form adopted, and any amendment or addition thereto or

    repeal thereof, made or issued by a registered entity or by the

    governing board thereof or any committee thereof.

    (j) Terms and conditions means any definition of the trading unit

    or the specific commodity underlying a swap or a contract for the

    future delivery of a commodity or commodity option contract,

    specification of cash settlement or delivery standards and procedures,

    and establishment of buyers' and sellers' rights and obligations under

    the swap or contract. Whenever possible, all proposed swap or contract

    terms and conditions should conform to industry standards or those

    terms and conditions adopted by comparable contracts. Terms and

    conditions include provisions relating to the following:

    (1) Quality and other standards that define the commodity or

    instrument underlying the contract;

    (2) Quantity standards or other provisions related to swap or

    contract size;

    (3) Any applicable premiums or discounts for delivery of nonpar

    products;

    (4) Trading hours, trading months and the listing of swaps or

    contracts;

    (5) The pricing basis, minimum price fluctuations, and maximum

    price fluctuations;

    (6) Any price limits, trading halts, or circuit breaker provisions,

    and procedures for the establishment of daily settlement prices;

    (7) Position limits, position accountability standards, and

    position reporting requirements;

    (8) Delivery points and locational price differentials;

    (9) Delivery standards and procedures, including fees related to

    delivery or the delivery process; alternatives to delivery and

    applicable penalties or sanctions for failure to perform;

    (10) If cash settled; the definition, composition, calculation and

    revision of the cash settlement price or index;

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    (11) Payment or collection of commodity option premiums or margins;

    (12) Option exercise price, if it is constant, and method for

    calculating the exercise price, if it is variable;

    (13) Threshold prices for an option contract, the existence of

    which is contingent upon those prices;

    (14) Any restrictions or requirements for exercising an option; and

    (15) With respect to swaps cleared by a derivatives clearing

    organization, specifications including but not limited to:

    (i) Notional values;

    (ii) Relevant dates, tenor, and day count conventions;

    (iii) Index;

    (iv) Relevant prices, rates or coupons;

    (v) Currency;

    (vi) Stub, premium, or initial cash flow components along with

    subsequent life cycle events;

    (vii) Payment and reset frequency;

    (viii) Business calendars;

    (ix) Accrual type; and

    (x) Spread or points.

    Sec. 40.2 Listing and accepting products for trading or clearing by

    certification.

    (a) A designated contract market or a swap execution facility must

    comply with the submission requirements of this section prior to

    listing a product for trading that has not been approved under Sec.

    40.3 of this part or that remains dormant subsequent to being submitted

    under this section or approved under Sec. 40.3 of this part. A

    derivatives clearing organization must comply with the submission

    requirements of this section prior to accepting for clearing a product

    that is not listed or traded on a designated contract market,

    derivatives clearing organization or a swap execution facility and has

    not been approved for clearing under Sec. 40.3 or Sec. 40.5 of this

    part or that remains dormant subsequent to being submitted under this

    section or approved under Sec. 40.5 of this part. A submission shall

    comply with the following conditions:

    (1) The designated contract market, or the swap execution facility,

    or the derivatives clearing organization has filed its submission

    electronically in a format specified by the Secretary of the Commission

    with the Secretary of the Commission at submissions@cftc.gov, and with

    the relevant branch chief at the regional office having local

    jurisdiction over the registered entity;

    (2) The Commission has received the submission at its headquarters

    by the open of business on the business day preceding the product's

    listing or acceptance for clearing; and

    (3) The submission includes:

    (i) A copy of the submission cover sheet in accordance with the

    instructions in Appendix D to this part;

    (ii) A copy of the product's rules, including all rules related to

    its terms and conditions, or the rules establishing the terms and

    conditions of the listed product that make it acceptable for clearing;

    (iii) The intended listing date;

    (iv) A certification by the designated contract market, the swap

    execution facility, or the derivatives clearing organization that the

    product to be listed complies with the Act and Commission regulations

    thereunder;

    (v) The documentation relied on to establish the basis for

    compliance with the applicable provisions of the Act and the

    Commission's regulations thereunder, including the Core Principles;

    (vi) A written statement verifying that the registered entity has

    undertaken a due diligence review of the legal conditions, including

    conditions that relate to contractual and intellectual property rights,

    which may materially affect the trading of the product;

    (vii) Certification that the registered entity posted a notice of

    pending product certification with the Commission and a copy of the

    submission, concurrent with the filing of a submission with the

    Commission, on the registered entity's Web site. Information which the

    registered entity seeks to keep confidential may be redacted from the

    documents published on the registered entity's Web site, but must be

    republished consistent with any determination made pursuant to Sec.

    40.8(c)(4);

    (viii) A request for confidential treatment, if appropriate, as

    permitted under Sec. 40.8.

    (b) Additional information. If requested by Commission staff, a

    registered entity shall provide any additional evidence, information or

    data that demonstrates that the contract meets, initially or on a

    continuing basis, all of the requirements of the Act and the

    Commission's regulations and policies thereunder.

    (c) Stay. The Commission may stay the listing of a contract

    pursuant to paragraph (a) of this section during the pendency of

    Commission proceedings for filing a false certification or during the

    pendency of a petition to alter or amend the contract terms and

    conditions pursuant to Section 8a(7) of the Act. The decision to stay

    the listing of a contract in such circumstances shall not be delegable

    to any employee of the Commission.

    Sec. 40.3 Voluntary submission of new products for Commission review

    and approval.

    (a) Request for approval. Pursuant to Section 5c(c) of the Act, a

    designated contract market, a swap execution facility, or a derivatives

    clearing organization may request that the Commission approve a new or

    dormant product prior to listing the product for trading or clearing,

    or if a product was initially submitted under Sec. 40.2 of this part,

    subsequent to listing the product for trading or clearing. A submission

    requesting approval shall:

    (1) Be filed electronically with the Secretary of the Commission at

    Submissions@cftc.gov, and with the regional office of the Commission

    having local jurisdiction over the registered entity in a format

    specified by the Secretary of the Commission;

    (2) Include a copy of the submission cover sheet in accordance with

    the instructions in Appendix D to this part;

    (3) Include a copy of the rules that set forth the contract's terms

    and conditions;

    (4) Include the documentation relied on to establish the basis for

    compliance with the applicable provisions of the Act and the

    Commission's regulations thereunder, including the Core Principles;

    (5) Describe any agreements or contracts entered into with other

    parties that enable the registered entity to carry out its

    responsibilities;

    (6) Include the certifications required in Sec. 41.22 for product

    approval of a commodity that is a security future or a security futures

    product as defined in Sections 1a(44) or 1a(45) of the Act,

    respectively, and, if applicable, include the notice required in Sec.

    40.12(a) for the listing of novel derivative products;

    (7) Include, if appropriate, a request for confidential treatment

    as permitted under Sec. 40.8;

    (8) Include the filing fee required under Appendix A to this part;

    (9) Include a written statement verifying that the registered

    entity has undertaken a due diligence review of the legal conditions,

    including conditions relating to contractual and intellectual property

    rights, that may materially affect the trading of the product;

    (10) Certify that the registered entity posted a notice of pending

    request for approval of new product with the Commission and a copy of

    the submission, concurrent with the filing of a submission with the

    Commission, on the registered entity's Web site. Information which the

    registered entity seeks to keep confidential may be redacted from the

    documents published

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    on the registered entity's Web site, but must be republished consistent

    with any determination made pursuant to Sec. 40.8(c)(4);

    (11) Include, if requested by Commission staff, additional

    evidence, information or data demonstrating that the contract meets,

    initially or on a continuing basis, all of the requirements of the Act,

    or other requirements for designation or registration under the Act or

    the Commission's regulations or policies thereunder. The registered

    entity shall submit the requested information by the open of business

    on the date that is two business days from the date of request by

    Commission staff.

    (b) Standard for review and approval. The Commission shall approve

    a new product unless the terms and conditions of the product violate

    the Act or the Commission's regulations.

    (c) Forty-five day review. All products submitted for Commission

    approval under this paragraph shall be deemed approved by the

    Commission 45 days after receipt by the Commission, or at the

    conclusion of an extended period as provided under paragraph (d) of

    this section, unless notified otherwise within the applicable period,

    if:

    (1) The submission complies with the requirements of paragraph (a)

    of this section; and

    (2) The submitting entity does not amend the terms or conditions of

    the product or supplement the request for approval, except as requested

    by the Commission or for correction of typographical errors,

    renumbering or other non-substantive revisions, during that period. Any

    voluntary, substantive amendment by the submitting entity will be

    treated as a new submission under this section.

    (d) Extension of time. The Commission may extend the 45 day review

    period in paragraph (c) of this section for:

    (1) An additional 45 days, if the product raises novel or complex

    issues that require additional time for review in which case, the

    Commission shall notify the registered entity within the initial 45 day

    review period and shall briefly describe the nature of the specific

    issues for which additional time for review is required; or

    (2) Any extended review period to which the registered entity

    agrees in writing.

    (e) Notice of non-approval. The Commission at any time during its

    review under this section may notify the registered entity that it will

    not, or is unable to, approve the product. This notification will

    briefly specify the nature of the issues raised and the specific

    provision of the Act or the Commission's regulations, including the

    form or content requirements of paragraph (a) of this section, that the

    product violates, appears to violate or potentially violates but which

    cannot be ascertained from the submission.

    (f) Effect of non-approval. (1) Notification to a registered entity

    under paragraph (e) of this section of the Commission's determination

    not to approve a product does not prejudice the entity from

    subsequently submitting a revised version of the product for Commission

    approval or from submitting the product as initially proposed pursuant

    to a supplemented submission.

    (2) Notification to a registered entity under paragraph (e) of this

    section of the Commission's refusal to approve a product shall be

    presumptive evidence that the entity may not truthfully certify under

    Sec. 40.2 that the same, or substantially the same, product does not

    violate the Act or the Commission's regulations thereunder.

    Sec. 40.4 Amendments to terms or conditions of enumerated

    agricultural products.

    (a) Notwithstanding the provisions of this part, a designated

    contract market must submit for Commission approval under the

    procedures of Sec. 40.5, prior to its implementation, any rule or

    dormant rule that, for a delivery month having open interest, would

    materially change a term or condition, as defined in Sec. 40.1(j), of

    a contract for future delivery in an agricultural commodity enumerated

    in Section 1a(9) of the Act, or of an option on such a contract or

    commodity.

    (b) The following rules or rule amendments are not material and

    should not be submitted under this section:

    (1) Changes that are enumerated in Sec. 40.6(d)(2) may be

    implemented without prior approval or certification if implemented

    pursuant to the notification procedures of Sec. 40.6(d);

    (2) Changes that are enumerated in Sec. 40.6(d)(3)(ii) may be

    implemented without prior approval or certification or notification as

    permitted pursuant to Sec. 40.6(d)(3);

    (3) Changes in trading hours may be implemented without prior

    approval if implemented pursuant to the procedures of Sec. 40.6(a);

    (4) Changes required to comply with a binding order of a court of

    competent jurisdiction, or a rule, regulation or order of the

    Commission or of another federal regulatory authority, may be

    implemented without prior approval if implemented pursuant to the

    procedures of Sec. 40.6(a); or

    (5) Any other rule:

    (i) The text of which has been submitted for review at least ten

    business days prior to its implementation and that has been labeled

    ``Non-Material Agricultural Rule Change;''

    (ii) For which the designated contract market has provided an

    explanation as to why it considers the rule ``non-material,'' and any

    other information that may be beneficial to the Commission in analyzing

    the merits of the entity's claim of non-materiality; and

    (iii) With respect to which the Commission has not notified the

    contract market during the review period that the rule appears to

    require or does require prior approval under this section, may be

    implemented without prior approval if implemented under the procedures

    of Sec. 40.6(a).

    Sec. 40.5 Voluntary submission of rules for Commission review and

    approval.

    (a) Request for approval of rules. Pursuant to Section 5c(c) of the

    Act, a registered entity may request that the Commission approve a new

    rule, rule amendment or dormant rule prior to implementation of the

    rule, or if the request was initially submitted under Sec. Sec. 40.2

    or 40.6 of this part, subsequent to implementation of the rule. A

    request for approval shall:

    (1) Be filed electronically with the Secretary of the Commission at

    Submissions@cftc.gov, and with the regional office of the Commission

    having local jurisdiction over the registered entity in a format

    specified by the Secretary of the Commission;

    (2) Include a copy of the submission cover sheet in accordance with

    the instructions in Appendix D to this part;

    (3) Set forth the text of the rule or rule amendment (in the case

    of a rule amendment, deletions and additions must be indicated);

    (4) Describe the proposed effective date of the rule or rule

    amendment and any action taken or anticipated to be taken to adopt the

    proposed rule by the registered entity or by its governing board or by

    any committee thereof, and cite the rules of the entity that authorize

    the adoption of the proposed rule;

    (5) Explain the operation, purpose, and effect of the proposed

    rule, including, as applicable, a description of the anticipated

    benefits to market participants or others, any potential

    anticompetitive effects on market participants or others, and how the

    rule fits into the registered entity's framework of self-regulation;

    (6) Certify that the registered entity posted a notice of pending

    rule with the Commission and a copy of the

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    submission, concurrent with the filing of a submission with the

    Commission, on the registered entity's Web site. Information which the

    registered entity seeks to keep confidential may be redacted from the

    documents published on the registered entity's Web site but must be

    republished consistent with any determination made pursuant to Sec.

    40.8(c)(4);

    (7) Include the documentation relied on to establish the basis for

    compliance with the applicable provisions of the Act and the

    Commission's regulations thereunder, including the Core Principles;

    (8) Provide additional information which may be beneficial to the

    Commission in analyzing the new rule or rule amendment. If a proposed

    rule affects, directly or indirectly, the application of any other rule

    of the registered entity, the pertinent text of any such rule must be

    set forth and the anticipated effect described;

    (9) Describe briefly any substantive opposing views expressed to

    the registered entity by governing board or committee members, members

    of the entity or market participants with respect to the new rule or

    rule amendment that were not incorporated into the new rule or rule

    amendment;

    (10) Identify any Commission regulation that the Commission may

    need to amend, or sections of the Act or the Commission's regulations

    that the Commission may need to interpret, in order to approve the new

    rule or rule amendment. To the extent that such an amendment or

    interpretation is necessary to accommodate a new rule or rule

    amendment, the submission should include a reasoned analysis supporting

    the amendment to the Commission's regulation or the interpretation;

    (11) Include, for all products, a written statement verifying that

    the registered entity has undertaken a due diligence review of the

    legal conditions, including conditions relating to contractual and

    intellectual property rights, which may materially affect the trading

    of such product or products, if the proposed rule specifically relates

    to one or more listed products;

    (12) As appropriate, include a request for confidential treatment

    as permitted under the procedures of Sec. 40.8;

    (b) Standard for review and approval. The Commission shall approve

    a new rule or rule amendment unless the rule or rule amendment is

    inconsistent with the Act or the Commission's regulations.

    (c) Forty-five day review. (1) All rules submitted for Commission

    approval under paragraph (a) of this section shall be deemed approved

    by the Commission under section 5c(c) of the Act 45 days after receipt

    by the Commission, or at the conclusion of such extended period as

    provided under paragraph (d) of this section, unless the registered

    entity is notified otherwise within the applicable period, if:

    (i) The submission complies with the requirements of paragraph (a)

    of this section;

    (ii) The registered entity does not amend the proposed rule or

    supplement the submission, except as requested by the Commission,

    during the pendency of the review period other than for correction of

    typographical errors, renumbering or other non-substantive revisions.

    Any amendment or supplementation not requested by the Commission will

    be treated as the submission of a new filing under this section.

    (2) The Commission shall commence the review period in paragraph

    (c) of this section for a compliant submission under Sec. 40.4(b)(5)

    ten business days after its receipt.

    (d) Commencement and extension of time for review. The Commission

    may further extend the review period in paragraph (c) of this section

    for any approval request for:

    (1) An additional 45 days, if the proposed rule raises novel or

    complex issues that require additional time for review or is of major

    economic significance, the submission is incomplete or the requestor

    does not respond completely to Commission questions in a timely manner,

    in which case, the Commission shall notify the submitting registered

    entity within the initial forty-five day review period and shall

    briefly describe the nature of the specific issues for which additional

    time for review shall be required; or

    (2) Any period, beyond the additional 45 days provided in Sec.

    40.5(d)(1), to which the registered entity agrees in writing.

    (e) Notice of non-approval. Any time during its review under this

    section, the Commission may notify the registered entity that it will

    not, or is unable to, approve the new rule or rule amendment. This

    notification will briefly specify the nature of the issues raised and

    the specific provision of the Act or the Commission's regulations,

    including the form or content requirements of this section, with which

    the new rule or rule amendment is inconsistent or appears to be

    inconsistent with the Act or the Commission's regulations.

    (f) Effect of non-approval. (1) Notification to a registered entity

    under paragraph (e) of this section does not prevent the registered

    entity from subsequently submitting a revised version of the proposed

    rule or rule amendment for Commission review and approval or from

    submitting the new rule or rule amendment as initially proposed in a

    supplemented submission; the revised submission will be reviewed

    without prejudice.

    (2) Notification to a registered entity under paragraph (e) of this

    section of the Commission's determination not to approve a proposed

    rule or rule amendment of a registered entity shall be presumptive

    evidence that the entity may not truthfully certify that the same, or

    substantially the same, proposed rule or rule amendment under Sec.

    40.6(a) of this section.

    (g) Expedited approval. Notwithstanding the provisions of paragraph

    (c) of this section, changes to a proposed rule or a rule amendment,

    including changes to terms and conditions of a product that are

    consistent with the Act and Commission regulations and with standards

    approved or established by the Commission may be approved by the

    Commission at such time and under such conditions as the Commission

    shall specify in the written notification, provided, however, that the

    Commission may, at any time, alter or revoke the applicability of such

    a notice to any particular product or rule amendment.

    Sec. 40.6 Self-certification of rules.

    (a) Required certification. A registered entity shall comply with

    the following conditions prior to implementing any rule that has not

    obtained Commission approval under Sec. 40.5 of this part, that

    remains dormant subsequent to being submitted under this section or

    approved under Sec. 40.5 of this part, or that is submitted under

    Sec. 40.10 of this part, except as otherwise provided by Sec.

    40.10(a):

    (1) The registered entity has filed its submission electronically

    in a format specified by the Secretary of the Commission with the

    Secretary of the Commission at submissions@cftc.gov and with the

    relevant branch chief at the regional office having local jurisdiction

    over the registered entity.

    (2) The registered entity has provided a certification that the

    registered entity posted a notice of pending certification with the

    Commission and a copy of the submission, concurrent with the filing of

    a submission with the Commission, on the registered entity's Web site.

    Information that the registered entity seeks to keep confidential may

    be redacted from the documents published on the registered entity's Web

    site, but it must be republished consistent with

    [[Page 67296]]

    any determination made pursuant to Sec. 40.8(c)(4).

    (3) The Commission has received the submission at its headquarters

    not later than the open of business on the business day that is 10

    business days prior to the registered entity's implementation of the

    rule or rule amendment.

    (4) The Commission has not stayed the submission pursuant to Sec.

    40.6(c).

    (5) The rule or rule amendment is not a rule or rule amendment of a

    designated contract market that materially changes a term or condition

    of a contract for future delivery of an agricultural commodity

    enumerated in section 1a(4) of the Act or an option on such a contract

    or commodity in a delivery month having open interest;

    (6) Emergency rule certifications. (i) New rules or rule amendments

    that establish standards for responding to an emergency must be

    submitted pursuant to Sec. 40.6(a);

    (ii) Rules or rule amendments implemented under procedures of the

    governing board to respond to an emergency as defined in Sec. 40.1,

    shall, if practicable, be filed with the Commission prior to the

    implementation or, if not practicable, be filed with the Commission at

    the earliest possible time after implementation, but in no event more

    than twenty-four hours after implementation; and

    (7) The rule submission shall include:

    (i) A copy of the submission cover sheet in accordance with the

    instructions in Appendix D to this part (in the case of a rule or rule

    amendment that responds to an emergency, ``Emergency Rule

    Certification'' should be noted in the Description section of the

    submission coversheet);

    (ii) The text of the rule (in the case of a rule amendment,

    deletions and additions must be indicated);

    (iii) The date of intended implementation;

    (iv) A certification by the registered entity that the rule

    complies with the Act and the Commission's regulations thereunder;

    (v) The documentation relied on to establish the basis for

    compliance with the applicable provisions of the Act and the

    Commission's regulations thereunder, including the Core Principles;

    (vi) A brief explanation of any substantive opposing views

    expressed to the registered entity by governing board or committee

    members, members of the entity or market participants, that were not

    incorporated into the rule, or a statement that no such opposing views

    were expressed;

    (vii) As appropriate, a request for confidential treatment pursuant

    to the procedures provided in Sec. 40.8;

    (viii) For amendments to a product's terms or conditions, a written

    statement certifying that the registered entity has undertaken a due

    diligence review of the legal conditions, including conditions relating

    to contractual and intellectual property rights, that may materially

    affect the trading of the product.

    (8) The registered entity shall provide, if requested by Commission

    staff, additional evidence, information or data that may be beneficial

    to the Commission in conducting a due diligence assessment of the

    filing and the registered entity's compliance with any of the

    requirements of the Act or the Commission's regulations or policies

    thereunder.

    (b) Review by the Commission. The Commission shall have 10 business

    days to review the new rule or rule amendment before the new rule or

    rule amendment is deemed certified and can be made effective, unless

    the Commission notifies the registered entity during the 10-business

    day review period that it intends to issue a stay of the certification

    under paragraph (c) of this section.

    (c) Stay--(1) Stay of certification of new rule or rule amendment.

    The Commission may stay the certification of a new rule or rule

    amendment submitted pursuant to paragraph (a) of this section by

    issuing a notification informing the registered entity that the

    Commission is staying the certification of the rule or rule amendment

    on the grounds that the new rule or rule amendment presents novel or

    complex issues that require additional time to analyze, the rule is

    accompanied by an inadequate explanation or the rule is potentially

    inconsistent with the Act or the Commission's regulations thereunder.

    The Commission will have 90 days from the date of the notification to

    conduct the review. The decision to stay the certification of a rule in

    such circumstances shall be delegable pursuant to Sec. 40.7 of this

    part.

    (2) Public comment. The Commission shall provide a 30-day comment

    period, within the 90-day period while the stay is in effect as

    described in paragraph (c)(1) of this section. The Commission shall

    publish a notice of the 30-day comment period on the Commission Web

    site. Comments from the public shall be submitted as specified in that

    notice.

    (3) Expiration of a stay of certification of new rule or rule

    amendment. A new rule or rule amendment subject to a stay pursuant to

    paragraph (c) shall become effective, pursuant to the certification, at

    the expiration of the 90-day review period described in paragraph

    (c)(1) of this section unless the Commission withdraws the stay prior

    to that time, or the Commission notifies the registered entity during

    the 90-day time period that it objects to the proposed certification on

    the grounds that the proposed rule or rule amendment is inconsistent

    with the Act or the Commission's regulations.

    (4) Stay of effectiveness of rules or rule amendments already

    implemented. The Commission may stay the effectiveness of an

    implemented rule during the pendency of Commission proceedings for

    filing a false certification or during the pendency of a petition to

    alter or amend the rule pursuant to section 8a(7) of the Act. The

    decision to stay the effectiveness of a rule in such circumstances

    shall not be delegable to any employee of the Commission.

    (d) Notification of rule amendments. Notwithstanding the rule

    certification requirement of Section 5c(c)(1) of the Act and paragraph

    (a) of this section, a registered entity may place the following rules

    or rule amendments into effect on the following business day without

    certification to the Commission if the following conditions are met:

    (1) The registered entity provides to the Commission at least

    weekly a summary notice of all rule amendments made effective pursuant

    to this paragraph during the preceding week. Such notice must be

    labeled ``Weekly Notification of Rule Amendments'' and need not be

    filed for weeks during which no such actions have been taken. One copy

    of each such submission shall be furnished electronically in a format

    specified by the Secretary of the Commission; and

    (2) The rule governs:

    (i) Non-substantive revisions. Corrections of typographical errors,

    renumbering, periodic routine updates to identifying information about

    approved entities and other such non-substantive revisions of a

    product's terms and conditions that have no effect on the economic

    characteristics of the product;

    (ii) Delivery standards set by third parties. Changes to grades or

    standards of commodities deliverable on a product that are established

    by an independent third party and that are incorporated by reference as

    product terms, provided that the grade or standard is not established,

    selected or calculated solely for use in connection with futures or

    option trading and such changes do not affect deliverable supplies or

    the pricing basis for the product;

    [[Page 67297]]

    (iii) Index products. Routine changes in the composition,

    computation, or method of selection of component entities of an index

    (other than routine changes to securities indexes to the extent that

    such changes are not described in paragraph (d)(3)(ii)(F) of this

    section) referenced and defined in the product's terms, that do not

    affect the pricing basis of the index, which are made by an independent

    third party whose business relates to the collection or dissemination

    of price information and which was not formed solely for the purpose of

    compiling an index for use in connection with a futures or option

    product;

    (iv) Option contract terms. Changes to option contract rules, which

    may qualify for implementation without notice pursuant to paragraph

    (d)(3)(ii)(G) of this section, relating to the strike price listing

    procedures, strike price intervals, and the listing of strike prices on

    a discretionary basis;

    (v) Fees. Fees or fee changes, other than fees or fee changes

    associated with market making or trading incentive programs, that:

    (A) Total $1.00 or more per contract, and

    (B) Are established by an independent third party or are unrelated

    to delivery, trading, clearing or dispute resolution.

    (vi) Survey lists. Changes to lists of banks, brokers, dealers, or

    other entities that provide price or cash market information to an

    independent third party and that are incorporated by reference as

    product terms;

    (vii) Approved brands. Changes in lists of approved brands or

    markings pursuant to previously certified or Commission approved

    standards or criteria;

    (viii) Delivery facilities and delivery service providers. Changes

    in lists of approved delivery facilities and delivery service providers

    (including weigh masters, assayers, and inspectors) at a delivery

    location, pursuant to previously certified or Commission approved

    standards or criteria;

    (ix) Trading months. The initial listing of trading months, which

    may qualify for implementation without notice pursuant to (d)(3)(ii)(H)

    of this section, within the currently established cycle of trading

    months; or

    (x) Minimum tick. Reductions in the minimum price fluctuation (or

    ``tick'').

    (3) Notification of rule amendments not required. Notwithstanding

    the rule certification requirements of section 5c(c)(1) of the Act and

    paragraph (a) of this section, a registered entity may place the

    following rules or rule amendments into effect without certification or

    notice to the Commission if the following conditions are met:

    (i) The registered entity maintains documentation regarding all

    changes to rules; and

    (ii) The rule governs:

    (A) Transfer of membership or ownership. Procedures and forms for

    the purchase, sale or transfer of membership or ownership, but not

    including qualifications for membership or ownership, any right or

    obligation of membership or ownership or dues or assessments;

    (B) Administrative procedures. The organization and administrative

    procedures of a registered entity governing bodies such as a Board of

    Directors, Officers and Committees, but not voting requirements, Board

    of Directors or Committee composition requirements or procedures,

    decision making procedures, use or disclosure of material non-public

    information gained through the performance of official duties, or

    requirements relating to conflicts of interest;

    (C) Administration. The routine, daily administration, direction

    and control of employees, requirements relating to gratuity and similar

    funds, but not guaranty, reserves, or similar funds; declaration of

    holidays, and changes to facilities housing the market, trading floor

    or trading area;

    (D) Standards of decorum. Standards of decorum or attire or similar

    provisions relating to admission to the floor, badges, or visitors, but

    not the establishment of penalties for violations of such rules; and

    (E) Fees. Fees or fee changes, other than fees or fee changes

    associated with market making or trading incentive programs, that:

    (1) Are less than $1.00; or

    (2) Relate to matters such as dues, badges, telecommunication

    services, booth space, real time quotations, historical information,

    publications, software licenses or other matters that are

    administrative in nature.

    (F) Securities indexes. Routine changes to the composition,

    computation or method of security selection of an index that is

    referenced and defined in the product's rules, and which is made by an

    independent third party.

    (G) Option contract terms. For registered entities that are in

    compliance with the daily reporting requirements of Sec. 16.01 of this

    chapter, changes to option contract rules relating to the strike price

    listing procedures, strike price intervals, and the listing of strike

    prices on a discretionary basis.

    (H) Trading months. For registered entities that are in compliance

    with the daily reporting requirements of Sec. 16.01 of this chapter,

    the initial listing of trading months which are within the currently

    established cycle of trading months.

    Sec. 40.7 Delegations.

    (a) Procedural matters. (1) The Commission hereby delegates, until

    it orders otherwise, to the Director of the Division of Clearing and

    Intermediary Oversight and, separately, to the Director of the Division

    of Market Oversight, to be exercised by either Director, as

    appropriate, or by such employees of the Commission that either

    Director may designate from time to time, the following authorities,

    with the concurrence of the General Counsel or the General Counsel's

    delegate:

    (i) To request, pursuant to Sec. 40.3(c)(2) or Sec. 40.5(c)(1)(B)

    of this part, that the registered entity requesting approval amend the

    proposed product, rule or rule amendment, or supplement the submission

    to the Commission;

    (ii) To notify the registered entity, pursuant to Sec. 40.3(e) or

    Sec. 40.5(e) of this part, that the Commission is not approving, or is

    unable to approve, the proposed product, rule or rule amendment;

    (iii) To make all determinations reserved to the Commission in

    Sec. 40.10.

    (2) The Commission hereby delegates, until it orders otherwise, to

    the Director of the Division of Clearing and Intermediary Oversight

    and, separately, to the Director of the Division of Market Oversight,

    to be exercised by either Director, as appropriate, or by such

    employees of the Commission that either Director may designate from

    time to time, the following authorities, after consultation with the

    Office of General Counsel or the General Counsel's delegate to notify a

    registered entity:

    (i) Pursuant to Sec. 40.3(d) of this part, that the time for

    review of the submission has been extended because the product raises

    novel or complex issues that require additional time for review;

    (ii) Pursuant to Sec. 40.5(d) of this part, that the time for

    review of the submission has been extended because the proposed rule or

    rule amendment raises novel or complex issues that require additional

    time for review or is of major economic significance;

    (iii) Pursuant to Sec. 40.6(c) of this part, that the proposed

    rule or rule amendment has been stayed because there exist novel or

    complex issues that require additional time to analyze, or there is

    potential inconsistency with the Act or the Commission's regulations.

    (3) The Commission hereby delegates, until it orders otherwise, to

    the Director

    [[Page 67298]]

    of the Division of Clearing and Intermediary Oversight and, separately,

    to the Director of the Division of Market Oversight, to be exercised by

    either Director, as appropriate, or by such employees of the Commission

    that either Director may designate from time to time, the authority to

    notify a registered entity, pursuant to Sec. 40.3(d) or Sec. 40.5(d)

    of this part, that the time for review of the submission has been

    extended, or that a rule certified pursuant to Sec. 40.6(c) has been

    stayed, because the submission is incomplete or provides an inadequate

    explanation.

    (4) Emergency rules. The Commission hereby delegates to the

    Director of the Division of Market Oversight and, separately, to the

    Director of the Division of Clearing and Intermediary Oversight, to be

    exercised by either Director, as appropriate, or by such other employee

    or employees of the Commission that either Director may designate from

    time to time, authority to receive notification of emergency rules

    under Sec. 40.6(a)(6)(ii) of this part.

    (5) The Commission hereby delegates to the Director of the Division

    of Market Oversight, to be exercised by the Director or by such

    employees of the Commission that the Director may designate from time

    to time, with the concurrence of the General Counsel or the General

    Counsel's delegate, the authority to determine whether a rule change

    submitted by a designated contract market for a materiality

    determination under Sec. 40.4(b)(5) of this part is not material (in

    which case it may be reported pursuant to the provisions of Sec.

    40.6(d) of this part), or is material, in which case he or she shall

    notify the registered entity that the rule change must be submitted for

    the Commission's prior approval.

    (b) Approval authority. The Commission hereby delegates, until it

    orders otherwise, to the Director of the Division of Clearing and

    Intermediary Oversight and, separately, to the Director of the Division

    of Market Oversight, to be exercised by either Director, as

    appropriate, or by such employees of the Commission that either

    Director may designate from time to time, with the concurrence of the

    General Counsel or the General Counsel's delegate, the authority to

    approve, pursuant to section 5c(c)(3) of the Act and Sec. 40.5 of this

    part, rules or rule amendments of a registered entity that:

    (1) Relate to, but do not substantially change, the quantity,

    quality, or other delivery specifications, procedures, or obligations

    for delivery, cash settlement, or exercise under an agreement, contract

    or transaction approved for trading by the Commission; daily settlement

    prices; clearing position limits; requirements or procedures for

    governance of a registered entity; procedures for transfer trades;

    trading hours; minimum price fluctuations; and maximum price limit and

    trading suspension provisions;

    (2) Reflect routine modifications that are required or anticipated

    by the terms of the rule of a registered entity;

    (3) Establish or amend speculative limits or position

    accountability provisions that are in compliance with the requirements

    of the Act and the Commission's regulations;

    (4) Are in substance the same as a rule of the same or another

    registered entity which has been approved previously by the Commission

    pursuant to section 5c(c)(3) of the Act;

    (5) Are consistent with a specific, stated policy or interpretation

    of the Commission; or

    (6) Relate to the listing of additional trading months of approved

    contracts.

    (c) Notwithstanding the provisions of this section, the Director of

    the Division of Clearing and Intermediary Oversight and, separately,

    the Director of the Division of Market Oversight may submit to the

    Commission for its consideration any matter that has been delegated

    pursuant to this section.

    (d) Nothing in this section shall be deemed to prohibit the

    Commission, at its election, from exercising any of the authority

    delegated pursuant to this section.

    Sec. 40.8 Availability of public information.

    (a) The following sections of all applications to become a

    designated contract market, a swap execution facility, a derivatives

    clearing organization, or a swap data repository shall be made publicly

    available: Transmittal letter, proposed rules, the applicant's

    regulatory compliance narrative, documents establishing the applicant's

    legal status, documents setting forth the applicant's corporate and

    governance structure, and any other part of the application not covered

    by a request for confidential treatment.

    (b) The following submissions provided by an electronic trading

    facility on which significant price discovery contracts are traded or

    executed will be public: Rulebook, the facility's regulatory compliance

    chart, documents establishing the facility's legal status, documents

    setting forth the facility's governance structure, and any other parts

    of the submissions not covered by a request for confidential treatment

    (Sec. 40.8(b) will be removed on July 20, 2012).

    (c) A registered entity's filing of new products pursuant to the

    self-certification procedures of Sec. 40.2 of this part, new products

    for Commission review and approval pursuant to Sec. 40.3 of this part,

    new rules and rule amendments for Commission review and approval

    pursuant to Sec. 40.4 or Sec. 40.5 of this part, and new rules and

    rule amendments pursuant to the self-certification procedures of Sec.

    40.6 and Sec. 40.10 of this part shall be treated as public

    information unless accompanied by a request for confidential treatment.

    If a registered entity files a request for confidential treatment, the

    following procedures shall apply:

    (1) A detailed written justification of the confidential treatment

    request must be filed simultaneously with the request for confidential

    treatment. The form and content of the detailed written justification

    shall be governed by Sec. 145.9 of this chapter;

    (2) All material for which confidential treatment is requested must

    be segregated in an Appendix to the submission;

    (3) The submission itself must indicate that material has been

    segregated and, as appropriate, an additional redacted version

    provided;

    (4) Commission staff may make an initial determination with respect

    to the request for confidential treatment without regard to whether a

    request for the information has been sought under the Freedom of

    Information Act;

    (5) All requests for confidential treatment shall be subject to the

    process provided by Sec. 145.9 of this chapter.

    (6) A submitter of information under this part may appeal an

    adverse decision by staff to the Commission's Office of General

    Counsel. The form and content of such appeal shall be governed by Sec.

    145.9(g) of this chapter.

    (7) The grant of any part of a request for confidential treatment

    under this section may be reconsidered if a subsequent request under

    the Freedom of Information Act is made for the information

    (d) Commission staff will not consider confidential treatment

    requests for information that is required to be made public under

    Section 5(d)(7) of the Act. The terms and conditions of a product

    submitted to the Commission pursuant to Sec. 40.2, Sec. 40.3 or Sec.

    40.5 of this part shall be made publicly available at the time of

    submission.

    [[Page 67299]]

    Sec. 40.9 Corporate Governance [Reserved]

    Sec. 40.10 Special certification procedures for submission of rules

    by systemically important derivatives clearing organizations.

    (a) Advance notice. A registered derivatives clearing organization

    that has been designated by the Financial Stability Oversight Council

    as a systemically important derivatives clearing organization shall

    provide notice to the Commission not less than 60 days in advance of

    any proposed change to its rules, procedures, or operations that could

    materially affect the nature or level of risks presented by the

    systemically important derivatives clearing organization. A notice

    submitted under this section shall be subject to the filing

    requirements of Sec. 40.6(a)(1) and the Web site publication

    requirements of Sec. 40.6(a)(2).

    (1) The notice of a proposed change shall provide the information

    required to be submitted under Sec. 40.6(a)(7) and shall specifically

    describe:

    (i) The nature of the change and expected effects on risks to the

    systemically important derivatives clearing organization, its clearing

    members, or the market; and

    (ii) How the systemically important derivatives clearing

    organization plans to manage any identified risks.

    (2) Concurrent with providing the Commission with the advance

    notice or any request or other information related to the advance

    notice, the systemically important derivatives clearing organization

    shall provide the Board of Governors of the Federal Reserve System with

    a copy of such notice, request or other information.

    (b) Materiality. The term ``materially affect the nature or level

    of risks presented,'' when used to qualify determinations on a change

    to rules, procedures, or operations of a systemically important

    derivatives clearing organization, means matters as to which there is a

    reasonable possibility that the change could affect the performance of

    essential clearing and settlement functions or the overall nature or

    level of risk presented by the systemically important derivatives

    clearing organization. Such changes may include, but are not limited

    to, changes that materially affect financial resources, participant and

    product eligibility, risk management (including matters relating to

    margin and stress testing), daily or intraday settlement procedures,

    default procedures, system safeguards (business continuity and disaster

    recovery), and governance. If a systemically important derivatives

    clearing organization determines that a proposed change is not material

    and therefore does not file an advance notice under this Sec. 40.10,

    but the Commission determines that the change is material, the

    Commission may require the systemically important derivatives clearing

    organization to withdraw the proposed change and provide notice

    pursuant to this section.

    (c) Further information. The Commission may require the

    systemically important derivatives clearing organization to provide any

    further information necessary to assess the effect the proposed change

    would have on the nature or level of risks associated with the

    systemically important derivatives clearing organization's payment,

    clearing, or settlement activities and the sufficiency of any proposed

    risk management techniques.

    (d) Notice of objection. A systemically important derivatives

    clearing organization shall not implement a change to which the

    Commission has an objection on the grounds that the proposed change is

    not consistent with the Act or the Commission's regulations, or the

    purposes of the Dodd-Frank Act or any applicable rules, orders, or

    standards prescribed under Section 805(a) of the Dodd-Frank Act. The

    Commission will notify the systemically important derivatives clearing

    organization in writing of any objection regarding the proposed change

    within 60 days from the later of:

    (1) The date that the notice of the proposed change was received;

    or

    (2) The date the Commission received any further information it had

    requested for consideration of the notice.

    (e) Implementation of change absent Commission objection. A

    systemically important derivatives clearing organization may implement

    a change if it has not received an objection to the proposed change

    within 60 days from the later of:

    (1) The date that the Commission received the notice of proposed

    change; or

    (2) The date the Commission received any further information it had

    requested for consideration of the notice.

    (f) Extended review. The Commission may, during the 60-day review

    period, extend the review period if the proposed change raises novel or

    complex issues. A notification by the Commission pursuant to this

    paragraph will extend the review for an additional 60 days. Any

    extension under this paragraph will extend the time periods under

    paragraphs (d) and (e) of this section for an additional 60 days.

    (g) Change allowed earlier if notified of no objection. A

    systemically important derivatives clearing organization may implement

    a change in less than 60 days from the date the Commission receives the

    notice of proposed change or the date the Commission receives any

    further information it has requested, if the Commission notifies the

    systemically important derivatives clearing organization in writing

    that it does not object to the proposed change and authorizes

    implementation of the change on an earlier date, subject to any

    conditions imposed by the Commission.

    (h) Emergency changes. A systemically important derivatives

    clearing organization may implement a change that would otherwise

    require advance notice under this section if it determines that an

    emergency exists and immediate implementation of the change is

    necessary for the systemically important derivatives clearing

    organization to continue to provide its services in a safe and sound

    manner.

    (1) The systemically important derivatives clearing organization

    shall provide notice of any such emergency change to the Commission as

    soon as practicable, which shall be no later than 24 hours after

    implementation of the change.

    (2) The notice of an emergency change shall:

    (i) Provide the information required for advance notice as set

    forth in paragraph (a) of this section;

    (ii) Describe the nature of the emergency; and

    (iii) Describe the reason the change was necessary for the

    systemically important derivatives clearing organization to continue to

    provide its services in a safe and sound manner.

    (3) The Commission may require modification or rescission of the

    emergency change if it finds that the change is not consistent with the

    Act or the Commission's regulations, or the purposes of the Dodd-Frank

    Act or any applicable rules, orders, or standards prescribed under

    Section 805(a) of the Dodd-Frank Act.

    Sec. 40.11 Review of event contracts based on certain excluded

    commodities.

    (a) Prohibition. A registered entity shall not list for trading or

    clearing on or through the registered entity any of the following:

    (1) An agreement, contract, transaction, or swap based on an

    excluded commodity, as defined in Section 1a(19)(iv) of the Act, that

    involves, relates to, or references terrorism, assassination, war,

    gaming, or an activity that is unlawful under any State or Federal law;

    or

    [[Page 67300]]

    (2) An agreement, contract, transaction, or swap based on an

    excluded commodity, as defined in Section 1a(19)(iv) of the Act, which

    involves, relates to, or references an activity that is similar to an

    activity enumerated in Sec. 40.11(a)(1) of this part, and that the

    Commission determines, by rule or regulation, to be contrary to the

    public interest.

    (b) [Reserved.]

    (c) 90-day review and approval of certain event contracts. The

    Commission may determine, based upon a review of the terms or

    conditions of a submission under Sec. 40.2 or Sec. 40.3, that an

    agreement, contract, transaction, or swap based on an excluded

    commodity, as defined in Section 1a(19)(iv) of the Act, which may

    involve, relate to, or reference an activity enumerated in Sec.

    40.11(a)(1) or Sec. 40.11(a)(2), be subject to a 90-day review. The

    90-day review shall commence from the date the Commission notifies the

    registered entity of a potential violation of Sec. 40.11(a).

    (1) The Commission shall request that a registered entity suspend

    the listing or trading of any agreement, contract, transaction, or swap

    based on an excluded commodity, as defined in Section 1a(19)(iv) of the

    Act, which may involve, relate to, or reference an activity enumerated

    in Sec. 40.11(a)(1) or Sec. 40.11(a)(2), during the Commission's 90-

    day review period. The Commission shall post on the Web site a

    notification of the intent to carry out a 90-day review.

    (2) Final determination. The Commission shall issue an order

    approving or disapproving an agreement, contract, transaction, or swap

    that is subject to a 90-day review under Sec. 40.11(c) no later than

    90 days subsequent to the date that the Commission commences review, or

    if applicable, at the conclusion of such extended period agreed to or

    requested by the registered entity.

    Sec. 40.12 Tolling of review period pending jurisdictional

    determination.

    (a) Notice of novel derivative products. (1) A registered entity

    certifying, submitting for approval, or otherwise filing a proposal to

    list, trade, or clear an agreement, contract, transaction, or swap

    having elements of both a security and a derivative, including a

    contract for the sale of a commodity for future delivery, may provide

    notice of its proposal to the Commission and the Securities and

    Exchange Commission with a statement that written notice has been

    provided to both agencies through an appropriate means provided in each

    Commission's regulations.

    (2) If concurrent notice is not provided pursuant to Sec.

    40.12(a)(1), the Commission shall notify the Securities and Exchange

    Commission of the registered entity's submission of a novel derivative

    product and accompany such notice with a copy of the submission. The

    Commission shall determine whether a particular submission is a novel

    derivative product requiring notice to the Securities and Exchange

    Commission not later than five business days subsequent to the date

    that the registered entity submits the product for Commission review.

    (b) Tolling of review period. Upon receipt of a request for a

    jurisdictional determination, pursuant to Section 718(a)(2) of the

    Dodd-Frank Act, by the Commission or the Securities and Exchange

    Commission, the product certification or the approval review period for

    the submitted agreement, contract, transaction, or swap shall be tolled

    until a final determination order is issued.

    (1) The Commission will provide the registered entity with a

    written notice of stay pending issuance of a final determination order

    by the Commission or the Securities and Exchange Commission.

    (2) The submission review period will resume upon the Commission's

    or the Securities and Exchange Commission's issuance of a final

    determination order finding that the Commission has jurisdiction over

    the submission.

    (3) Determination order. A final determination, for purposes of

    Sec. 40.12(b) of this part, shall be a determination order issued by

    the Commission or the Securities and Exchange Commission pursuant to

    Section 718(a)(3) of the Dodd-Frank Act.

    (c) Judicial review of determination order. The filing of a

    petition by a complaining Commission, pursuant to Section 718(b) of the

    Dodd-Frank Act, shall operate as a stay of the agency order.

    (1) The stay shall remain in effect until the date on which the

    United States Court of Appeals for the District of Columbia Circuit

    issues a final determination pursuant to Section 718(b)(4) of the Dodd-

    Frank Act, or until such date that there is a final disposition of an

    appeal of that determination.

    (2) The submission review period shall resume upon issuance of a

    final determination, as described in Sec. 40.12(c)(1), that the

    Commission has jurisdiction over the submission.

    Appendix A to Part 40--Schedule of Fees

    (a) Applications for product approval. Each application for

    product approval under Sec. 40.3 must be accompanied by a check or

    money order made payable to the Commodity Futures Trading Commission

    in an amount to be determined annually by the Commission and

    published in the Federal Register.

    (b) Checks and applications should be sent to the attention of

    the Office of the Secretariat, Commodity Futures Trading Commission,

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

    No checks or money orders may be accepted by personnel other than

    those in the Office of the Secretariat.

    (c) Failure to submit the fee with an application for product

    approval will result in return of the application. Fees will not be

    returned after receipt.

    Appendix B to Part 40--[Reserved]

    Appendix C to Part 40--[Reserved]

    Appendix D to Part 40--Submission Cover Sheet and Instructions

    (a) A properly completed submission cover sheet shall accompany

    all rule and product submissions submitted electronically by a

    registered entity to the Secretary of the Commodity Futures Trading

    Commission, at submissions@cftc.gov in a format specified by the

    Secretary of the Commission. A properly completed submission cover

    sheet shall include all of the following:

    1. Identifier Code (optional)--A registered entity Identifier

    Code at the top of the cover sheet, if applicable. Such codes are

    commonly generated by registered entities to provide an identifier

    that is unique to each filing (e.g., NYMEX Submission 03-116).

    2. Date--The date of the filing.

    3. Organization--The name of the organization filing the

    submission (e.g., CBOT).

    4. Filing as a--Check in the appropriate box indicating that the

    rule or product is being submitted by a designated contract market

    (DCM), derivatives clearing organization (DCO), swap execution

    facility (SEF), or swap data repository (SDR), electronic trading

    facility with a significant price discovery contract (the term will

    be removed on July 20, 2012).\1\

    ---------------------------------------------------------------------------

    \1\ Even though ECM-SPDC was eliminated by the Dodd-Frank Act,

    the Commission proposes to retain references to this entity in the

    cover sheet since ECM may be allowed to operate until July 20, 2012,

    pursuant to grandfather relief issued by the Commission. See 75 FR

    56513 (Sept. 16, 2010).

    ---------------------------------------------------------------------------

    5. Type of Filing--An indication as to whether the filing is a

    new rule, rule amendment or new product. The registered entity

    should check the appropriate box to indicate the applicable category

    under that heading.

    6. Rule Numbers--For rule filings, the rule number(s) being

    adopted or modified in the case of rule amendment filings.

    7. Description--For rule or rule amendment filings a description

    of the new rule or rule amendment, including a discussion of its

    expected impact on the

    [[Page 67301]]

    registered entity, market participants, and the overall market. The

    narrative should describe the substance of the submission with

    enough specificity to characterize all material aspects of the

    filing.

    (b) Other Requirements--A submission shall comply with all

    applicable filing requirements for proposed rules, rule amendments,

    or products. The filing of the submission cover sheet does not

    obviate the registered entity's responsibility to comply with

    applicable filing requirements (e.g., rules submitted for Commission

    approval under Sec. 40.5 must be accompanied by an explanation of

    the purpose and effect of the proposed rule along with a description

    of any substantive opposing views).

    (c) Checking the box marked ``confidential treatment requested''

    on the Submission Cover Sheet does not obviate the submitter's

    responsibility to comply with all applicable requirements for

    requesting confidential treatment in Sec. 40.8 and, where

    appropriate, Sec. 145.9 of this chapter, and will not substitute

    for notice or full compliance with such requirements.

    Issued in Washington, DC, on October 26, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    Note: The following attachment will not appear in the Code of

    Federal Regulations.

    Statement of Chairman Gary Gensler Provisions Common to Registered

    Entities October 26, 2010

    I support the proposal to publish for comment the proposed rule

    on the Commission's process for certification and approval of rules

    and new products for designated contract markets (DCMs), derivatives

    clearing organizations (DCOs), swap execution facilities (SEFs) and

    swap data repositories (SDRs). The Dodd-Frank Act establishes

    enhanced procedures for Commission review and certification of new

    rules, rule amendments and products. Today's rule gives important

    procedural guidance to registered entities on how to comply with

    Congress's mandate for the Commission's review of new rules and

    products.

    [FR Doc. 2010-27533 Filed 11-1-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: November 2, 2010



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