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2010-31131

  • [Federal Register: December 15, 2010 (Volume 75, Number 240)]

    [Proposed Rules]

    [Page 78185-78197]

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

    [DOCID:fr15de10-18]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 1, 21, and 39

    RIN 3038-AC98

    Information Management Requirements for Derivatives Clearing

    Organizations

    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 regulations to implement certain core principles for

    derivatives clearing organizations (DCOs) as amended by Title VII of

    the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-

    Frank Act). The proposed regulations would establish standards for

    compliance with DCO Core Principles J (Reporting), K (Recordkeeping), L

    (Public Information), and M (Information Sharing). Additionally, the

    Commission is proposing technical amendments to parts 1 and 21 in

    connection with the proposed regulations. Finally, the Commission also

    is proposing to delegate to the Director of the Division of Clearing

    and Intermediary Oversight the Commission's authority to perform

    certain functions in connection with the proposed regulations.

    DATES: Submit comments on or before February 14, 2011.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AC98,

    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 the 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 you believe 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 Sec. 145.9.\1\

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    \1\ Commission regulations referred to herein are found at 17

    CFR Ch. 1 (2010). They are accessible on the Commission's Web site

    at http://www.cftc.gov.

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    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.

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

    202-418-5449, pdietz@cftc.gov, or Jacob Preiserowicz, Attorney-Advisor,

    202-418-5432, jpreiserowicz@cftc.gov, Division of Clearing and

    Intermediary Oversight, Commodity Futures Trading Commission, Three

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

    SUPPLEMENTARY INFORMATION:

    Table of Contents

    I. Background

    II. Proposed Regulations

    A. Reporting Requirements

    1. Information Required on a Daily Basis

    2. Information Required on a Quarterly Basis

    3. Information Required on an Annual Basis

    4. Event-Specific Reporting

    (a) Decrease in Financial Resources

    [[Page 78186]]

    (b) Decrease in Ownership Equity

    (c) Six-Month Liquid Asset Requirement

    (d) Change in Working Capital

    (e) Intraday Initial Margin Call

    (f) Delay in Collection of Initial Margin

    (g) Management of Clearing Member Positions

    (h) Change in Ownership or Corporate or Organizational Structure

    (i) Change in Key Personnel

    (j) Credit Facility Funding Arrangement Change

    (k) Rule Enforcement

    (l) Financial Condition and Events

    5. Technical Amendments

    B. Recordkeeping Requirements

    C. Public Information

    1. Availability of Information

    2. Public Disclosure

    D. Information Sharing

    III. Effective Date

    IV. Related Matters

    A. Regulatory Flexibility Act

    B. Paperwork Reduction Act

    1. Information Provided by Reporting Entities/Persons

    2. Information Collection Comments

    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

    (CEA) \4\ to establish a comprehensive new regulatory framework 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 rigorous

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

    Commission's rulemaking and enforcement authorities with respect to 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 725(c) of the Dodd-Frank Act amended Section 5b(c)(2) of

    the CEA, which sets forth core principles with which a DCO must comply

    to be registered and to maintain registration as a DCO. The core

    principles were added to the CEA by the Commodity Futures Modernization

    Act of 2000 (CFMA).\5\ The Commission did not adopt implementing rules

    and regulations, but instead promulgated guidance for DCOs on

    compliance with the core principles.\6\ Under Section 5b(c)(2), as

    amended by the Dodd-Frank Act, Congress expressly confirmed that the

    Commission may adopt implementing rules and regulations pursuant to its

    rulemaking authority under Section 8a(5) of the CEA.\7\ This rulemaking

    is one of a series that will, in its entirety, propose regulations to

    implement all 18 DCO core principles.\8\

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    \5\ See Commodity Futures Modernization Act of 2000, Public Law

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

    \6\ See 17 CFR part 39, app. A.

    \7\ See 7 U.S.C. 7a-1(c)(2). Section 8a(5) of the CEA authorizes

    the Commission to promulgate such Regulations ``as, in the judgment

    of the Commission, are reasonably necessary to effectuate any of the

    provisions or to accomplish any of the purposes of [the CEA].'' 7

    U.S.C. 12a(5).

    \8\ See 75 FR 63732 (Oct. 18, 2010) (proposing regulations to

    implement Core Principle P (Conflicts of Interest); and 75 FR 63113

    (Oct. 14, 2010) (proposing regulations to implement Core Principle B

    (Financial Resources)). Concurrent with issuing this notice, the

    Commission also is proposing regulations to implement Core

    Principles A (Compliance), H (Rule Enforcement), N (Antitrust

    Considerations), and R (Legal Risk). The Commission expects to issue

    two additional notices of proposed rulemaking to implement DCO core

    principles.

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    The Commission continues to believe that, where possible, each DCO

    should be afforded an appropriate level of discretion in determining

    how to operate its business within the statutory framework. At the same

    time, the Commission recognizes that specific bright-line regulations

    may be necessary in order to facilitate DCO compliance with a given

    core principle, and ultimately, to protect the integrity of the U.S.

    clearing system. Accordingly, in developing the proposed regulations,

    the Commission has endeavored to strike an appropriate balance between

    establishing general prudential standards and prescriptive

    requirements.

    Core Principle J, Reporting, as amended by the Dodd-Frank Act,

    requires a DCO to provide the Commission with all information that the

    Commission determines to be necessary to conduct oversight of the

    DCO.\9\ The Commission is proposing to adopt Sec. 39.19 to establish

    requirements that a DCO will have to meet in order to comply with Core

    Principle J.

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    \9\ See Section 5b(c)(2)(J) of the CEA; 7 U.S.C. 7a-1(c)(2)(J).

    Prior to amendment by the Dodd-Frank Act, Core Principle J provided

    that ``The [DCO] applicant shall provide to the Commission all

    information necessary for the Commission to conduct the oversight

    function of the applicant with respect to the activities of the

    [DCO].''

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    Core Principle K, Recordkeeping, as amended by the Dodd-Frank Act,

    requires a DCO to maintain records of all activities related to the

    business of the DCO as a DCO, in a form and manner that is acceptable

    to the Commission and for a period of not less than 5 years.\10\ The

    Commission is proposing to adopt Sec. 39.20 to establish requirements

    that a DCO will have to meet in order to comply with Core Principle K.

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    \10\ See Section 5b(c)(2)(K) of the CEA; 7 U.S.C. 7a-1(c)(2)(K).

    Prior to amendment by the Dodd-Frank Act, Core Principle K provided

    that ``The [DCO] applicant shall maintain records of all activities

    related to the business of the applicant as a [DCO] in a form and

    manner acceptable to the Commission for a period of 5 years.''

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    Core Principle L, Public Information, as amended by the Dodd-Frank

    Act, requires a DCO to provide market participants sufficient

    information to enable the market participants to identify and evaluate

    accurately the risks and costs associated with using the DCO's

    services.\11\ A DCO is, more specifically, required to make available

    to market participants information concerning the rules and operating

    and default procedures governing its clearing and settlement systems

    and also disclose publicly and to the Commission the terms and

    conditions of each contract, agreement, and transaction cleared and

    settled by the DCO, each clearing and other fee charged to members,\12\

    the DCO's margin-setting methodology, daily settlement prices, and

    other matters relevant to participation in the DCO's clearing and

    settlement activities.\13\ The Commission is proposing to adopt Sec.

    39.21 to establish requirements that a DCO will have to meet in order

    to comply with Core Principle L.

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    \11\ See Section 5b(c)(2)(L) of the CEA; 7 U.S.C. 7a-1(c)(2)(L).

    \12\ The statutory language refers to fees charged to ``members

    and participants,'' and the Commission interprets this phrase to

    mean fees charged to ``clearing members,'' a term which it proposes

    to define as ``any person that has clearing privileges such that it

    can process, clear and settle trades through a derivatives clearing

    organization on behalf of itself or others. The derivatives clearing

    organization need not be organized as a membership organization.''

    The Commission is proposing to amend the definition of ``clearing

    member'' in Sec. 1.3(c) of its regulations, as part of a separate

    proposed rulemaking.

    \13\ This core principle has been expanded greatly. Prior to

    amendment by the Dodd-Frank Act, Core Principle L provided that

    ``The [DCO] applicant shall make information concerning the rules

    and operating procedures governing the clearing and settlement

    systems (including default procedures) available to market

    participants.''

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    Core Principle M, Information Sharing, as amended by the Dodd-Frank

    Act, requires a DCO to enter into and abide by terms of each

    appropriate and applicable domestic and international information-

    sharing agreement and use relevant information obtained under such

    agreements in carrying out its risk management program.\14\ The

    [[Page 78187]]

    Commission is proposing to adopt Sec. 39.22 to codify the statutory

    requirement.

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    \14\ See Section 5b(c)(2)(M) of the CEA, 7 U.S.C. 7a-1(c)(2)(M).

    The Dodd-Frank Act made minor changes in the language of Core

    Principle M, but did not make any substantive changes.

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    Section 805(a) of the Dodd-Frank Act allows the Commission to

    prescribe regulations for those DCOs that the Financial Stability

    Oversight Council has determined are systemically important financial

    market utilities.\15\ The Commission is not proposing to adopt

    additional or enhanced requirements for systemically important DCOs

    (SIDCOs) in connection with the proposed rules to implement Core

    Principles J, K, L and M. This is based on the Commission's view that

    rigorous information management requirements should apply equally to

    all DCOs, regardless of their size or systemic importance.

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    \15\ Section 804 of the Dodd-Frank Act authorizes the Financial

    Stability Oversight Council to designate financial market utilities

    involved in clearing and settlement as ``systemically important.''

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    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. Proposed Regulations

    A. Reporting Requirements

    Proposed Sec. 39.19 would require certain reports to be made by

    the DCO to the Commission: (1) On a periodic basis (daily, quarterly or

    annually), (2) where the reporting requirement is triggered by the

    occurrence of a significant event; and (3) upon request by the

    Commission.\16\ Unless otherwise specified by the Commission or its

    designee, each DCO would have to submit the information required by

    this section to the Commission electronically and in a form and manner

    prescribed by the Commission.

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    \16\ Requirements that certain information be submitted upon

    request of the Commission are currently found in the Commission's

    regulations as paragraphs (a) and (b) of Sec. 39.5. 17 CFR 39.5.

    See infra discussion of technical amendments regarding Sec. Sec.

    39.5(a) and 39.5(b) at Section II.A.5. of this notice.

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    The Commission has determined that the information required by

    proposed Sec. 39.19 would enable it to conduct more effective and more

    streamlined financial oversight of a DCO. In this regard, obtaining the

    required data would enhance the Commission's ability to conduct a more

    in-depth and timely analysis of a DCO's activities, thereby enabling

    the Commission to identify insipient problems and address them at an

    earlier stage. This is particularly important in connection with a DCO

    that clears swaps, in light of the increased risk that swaps may pose

    to DCOs.\17\

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    \17\ The Commission notes that DCOs may be subject to additional

    reporting requirements that are not covered by Core Principle J and

    therefore are not addressed in proposed Sec. 39.19, e.g.,

    requirements for reporting to a swap data repository under proposed

    part 45 of the Commission's regulations.

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    Unless otherwise specified by the Commission or its designee, any

    stated time in these proposed regulations would be Central time for

    information concerning DCOs located in that time zone, and Eastern time

    for information concerning all other DCOs (including clearing

    organizations registered as DCOs but located outside the United

    States).\18\

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    \18\ See proposed Sec. 39.19(b)(2).

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    1. Information Required on a Daily Basis

    Currently, the Commission receives initial margin data from

    several, but not all DCOs and not necessarily on a daily basis. The

    Commission receives variation margin data through the Shared Market

    Information System (SHAMIS), which is maintained by The Clearing

    Corporation, a subsidiary of IntercontinentalExchange, Inc. However,

    the Commission has found it difficult to obtain a complete data set

    from SHAMIS on a regular basis and in the necessary format. Moreover,

    not all DCOs participate in SHAMIS. The Commission is therefore

    proposing regulations that would require reporting by all DCOs on a

    daily basis. By requiring both sets of data as well as intraday initial

    margin calls \19\ to be reported directly to the Commission, the

    Commission would be better positioned to conduct risk surveillance

    activities efficiently, to monitor the financial health of the DCO, and

    to detect any unusual activity in a timely manner.

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    \19\ See infra discussion of proposed Regulation 39.19(c)(4)(v)

    which would require intraday reporting of initial margin calls at

    Section II.A.4.(e) of this notice.

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    Proposed Sec. 39.19(c)(1)(i) would require a DCO to report both

    the initial margin requirement for each clearing member, by customer

    origin and house origin,\20\ and the initial margin on deposit for each

    clearing member, by origin. Proposed Sec. 39.19(c)(1)(ii) would

    require a DCO to report the daily variation margin collected and paid

    by the DCO. The report would separately list the mark-to-market amount

    collected from or paid to each clearing member, by origin.\21\

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    \20\ In a separate rulemaking, the Commission is proposing to

    define the terms ``customer account or customer origin'' and ``house

    account or house origin'' in proposed Sec. 39.1(b). ``Customer

    account or customer origin'' would be defined as a clearing member's

    account held on behalf of customers, as defined in Sec. 1.3(k) of

    the Commission's regulations, and would clarify that a customer

    account is also a futures account, as that term is defined by Sec.

    1.3(vv). ``House account or house origin'' would be defined as a

    clearing member's combined proprietary accounts, as defined in Sec.

    1.3(y).

    \21\ This requirement would apply to options transactions only

    to the extent a DCO uses futures-style margining for options.

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    Proposed Sec. 39.19(c)(1)(iii) would require the DCO to report all

    other cash flows relating to clearing and settlement including, but not

    limited to, option premiums and payments related to swaps such as

    coupon amounts, collected from or paid to each clearing member, by

    origin. This data, supplementing the initial margin and variation

    margin data, would provide the Commission with a more complete picture

    of the financial risk profile of the DCO and its clearing members.

    Proposed Sec. 39.19(c)(1)(iv) would require a DCO to report the

    end-of-day positions for each clearing member, by origin. Although the

    Commission currently receives large trader reports that are essential

    to an understanding of significant financial risk exposures, receipt of

    the proposed reports directly from the DCO would facilitate the ability

    of the Commission to evaluate the risk of each DCO as well as the

    aggregate financial risk across all DCOs.

    Proposed Sec. 39.19(c)(1) would require the report to be compiled

    as of the end of each trading day and to be submitted to the Commission

    by 10 a.m. the following business day. Although the proposed daily

    reporting requirements would be new, the Commission notes that in the

    ordinary course of a DCO conducting its clearing and settlement

    business, the information required to be reported is already known or

    is readily ascertainable by a DCO.

    2. Information Required on a Quarterly Basis

    The Commission recently proposed a new Sec. 39.11(f)(1) under

    which, at the end of each fiscal quarter, or at any time upon

    Commission request, a DCO would be required to report to the

    Commission: (i) The amount of financial resources necessary to meet the

    requirements set forth in the regulation; and (ii) the value of each

    financial resource available to meet those requirements.\22\ The DCO

    would have to include with the report its financial statements,

    including the balance sheet, income statement, and statement of cash

    flows of the DCO or its parent company. If one of the financial

    resources a DCO is using to meet the regulation's requirements is a

    guaranty fund, the DCO would also have to report the value

    [[Page 78188]]

    of each individual clearing member's guaranty fund deposit. Proposed

    Sec. 39.11(f)(3) would require a DCO to provide the Commission with

    sufficient documentation that explains both the methodology it used to

    calculate its financial requirements and the basis for its

    determinations regarding valuation and liquidity. The DCO also would

    have to provide copies of any agreements establishing or amending a

    credit facility, insurance coverage, or other arrangement that

    evidences or otherwise supports its conclusions.

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    \22\ See 75 FR 63113 (Oct. 14, 2010) (proposing DCO financial

    resources requirements pursuant to Core Principle B).

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    By this notice, the Commission is proposing a new Sec. 39.19(c)(2)

    under which a DCO would be required to report its financial resources

    in accordance with proposed Sec. 39.11(f). The Commission notes that

    certain significant changes in financial resources would trigger

    additional reporting requirements under proposed Sec.

    39.19(c)(4)(i).\23\

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    \23\ See infra discussion of proposed Sec. 39.19(c)(4)(i) at

    Section II.A.4.(a) of this notice.

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    3. Information Required on an Annual Basis

    Proposed Sec. 39.19(c)(3)(i) would require a DCO's chief

    compliance officer to submit the annual compliance report required by

    Section 725(b) of the Dodd-Frank Act \24\ and proposed Sec. 39.10.\25\

    The form and content of the annual compliance report would be codified

    in proposed Sec. 39.10.

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    \24\ Section 5b(i) of the CEA, 7 U.S.C. 7a-1(i).

    \25\ Section 39.10 is being proposed in a separate notice of

    proposed rulemaking.

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    Proposed Sec. 39.19(c)(3)(ii) would require a DCO to provide the

    Commission with audited year-end financial statements of the DCO, or if

    there are no financial statements available for the DCO itself, the

    consolidated audited year-end financial statements of the DCO's parent

    company.

    Proposed Sec. 39.19(c)(3)(iii) would require a DCO to submit to

    the Commission concurrently, the annual compliance report and audited

    financial statements required by (c)(3)(i) and (ii), respectively, not

    later than 90 days after the end of the DCO's fiscal year. The DCO

    would be able to request from the Commission an extension of time to

    submit either report, provided the DCO's failure to submit the report

    in a timely manner could not be avoided without unreasonable effort or

    expense. Extensions of the deadline would be granted at the discretion

    of the Commission.

    4. Event-Specific Reporting

    (a) Decrease in Financial Resources

    Proposed Sec. 39.19(c)(4)(i) would alert the Commission in a

    timely manner of a significant decrease in the value of a DCO's

    financial resources and the reason for the decrease, e.g., whether such

    a decrease is an indicator of inadequate financial resources or if it

    is merely the result of a corresponding decrease in the margin

    requirements of the DCO. A DCO would be required to report certain

    decreases of the financial resources required to be maintained by

    proposed Sec. 39.11(a) or, as applicable if the DCO is a SIDCO,

    proposed Sec. 39.29(a): \26\ (1) A 10 percent decrease from the total

    value of the financial resources reported on the last quarterly report

    submitted under proposed Sec. 39.11(f); or (2) a 10 percent decrease

    from the total value of the financial resources as of the close of the

    previous business day. Reporting a decrease from the last quarterly

    report is intended to capture a situation where a DCO has a gradual

    decrease of financial resources. Reporting a decrease from the previous

    business day is intended to capture a situation where the DCO would

    experience a sudden decrease in financial resources over a short period

    of time. Although in such a situation the DCO may still have financial

    resources on hand that are greater in value than what was reported on

    the most recent quarterly report, the Commission believes that such a

    rapid drop in the value of a DCO's financial resources is a situation

    that warrants notice to the Commission. The Commission invites comment

    on possible alternatives regarding what would be considered a

    significant drop in the value of financial resources and whether there

    should be alternative reporting requirements.

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    \26\ Proposed Sec. 39.11(a) would require a DCO to maintain

    sufficient financial resources to: (1) Meet its financial

    obligations to its clearing members notwithstanding a default by the

    clearing member creating the largest financial exposure for the DCO

    in extreme but plausible market conditions, and (2) cover its

    operating costs for at least one year, calculated on a rolling

    basis. Proposed Sec. 39.29(a) would establish a different default

    resources standard for SIDCOs, requiring a SIDCO to maintain

    sufficient financial resources to meet its financial obligations to

    its clearing members notwithstanding a default by the two clearing

    members creating the largest combined financial exposure for the

    SIDCO in extreme but plausible market conditions. See 75 FR at

    63118-19.

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    The DCO would be required to report each such decrease to the

    Commission no later than one business day following the day the 10

    percent threshold was reached. The report would have to include the

    total value of the financial resources: (1) As of the close of business

    the day the 10 percent threshold was reached; and (2) if reporting a 10

    percent decrease from the previous business day, the total value of the

    financial resources immediately prior to the 10 percent drop. This

    would include a breakdown of the value of each financial resource

    available as reported in each (1) and (2) above, calculated in

    accordance with the requirements of proposed Sec. 39.11(d) or, as

    applicable if the DCO is a SIDCO, Sec. 39.29(b),\27\ including the

    value of each individual clearing member's guaranty fund deposit, if

    the DCO reports guaranty fund deposits as a financial resource. The

    report would also include a detailed explanation for the decrease.

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    \27\ Proposed Sec. 39.11(d)(2) and Sec. 39.29(b) address

    valuation of clearing member assessments for purposes of calculating

    default resources. See 75 FR at 63119-20.

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    (b) Decrease in Ownership Equity

    Proposed Sec. 39.19(c)(4)(ii) would require a DCO to notify the

    Commission of an event which the DCO knows or should reasonably know

    will cause a decrease of 20 percent in ownership equity from the last

    reported ownership equity balance. This notice would be required to be

    provided no later than two business days prior to the event. The last

    reported ownership equity balance would generally be on the quarterly

    or audited financial statements that would be required to be submitted

    by proposed Sec. 39.19(c)(2) \28\ or proposed Sec.

    39.19(c)(3)(ii),\29\ respectively. For events which the DCO did not

    know, and reasonably could not know, would cause a decrease of 20

    percent prior to the event occurring, the DCO would be able to report

    the triggering event no later than two business days after the decrease

    in ownership equity. Reports submitted prior to an event would have to

    include pro forma financial statements, reflecting the DCO's estimated

    future financial condition following the anticipated decrease and

    details describing the reason for the anticipated decrease. Reports

    submitted after the event would have to include current financial

    statements and details describing the reason for the decrease.

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    \28\ See supra discussion of proposed Sec. 39.19(c)(2) at

    Section II.A.2. of this notice.

    \29\ See supra discussion of proposed Sec. 39.19(c)(3)(ii) at

    Section II.A.3. of this notice.

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    Proposed Sec. 39.19(c)(4)(ii) is intended to alert the Commission

    of major planned events that would significantly affect ownership

    equity, most of which are events the DCO would have advance knowledge

    of, such as a reinvestment of capital, dividend payment, or major

    acquisition. The report would notify the Commission of such an event

    and would allow the Commission to

    [[Page 78189]]

    evaluate its effect on the financial health of the DCO. The Commission

    invites commenters to propose alternative reporting requirements which

    would also provide the Commission with this type of information.

    (c) Six-Month Liquid Asset Requirement

    The Commission recently proposed a new Sec. 39.11(e)(2) which

    would establish a six-month liquid asset requirement. It would require

    DCOs to maintain unencumbered liquid financial assets in the form of

    cash or highly liquid securities equal to six months operating

    costs.\30\ In this notice, the Commission is proposing a new Sec.

    39.19(c)(4)(iii) that would require immediate notice to the Commission

    when a DCO knows or reasonably should know of a deficit in the six-

    month liquid asset requirement of proposed Sec. 39.11(e)(2). The

    Commission believes that immediate notification of a DCO's deficit in

    the six-month liquid asset requirement is critical because of its

    potential impact on the ability of the DCO to continue to operate as a

    going concern.

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    \30\ See 75 FR at 63116.

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    (d) Change in Working Capital

    Proposed Sec. 39.19(c)(4)(iv) would require notice to the

    Commission no later than two business days after a DCO's working

    capital becomes negative. Working capital is defined as current assets

    minus current liabilities. The notice would include a balance sheet

    that reflects the DCO's working capital and an explanation as to the

    reason for the negative balance. The Commission believes that it is

    essential that it be made aware, in a timely manner, when a DCO has

    negative working capital, as this development can be an indicator of

    the declining financial health of a DCO.

    The Commission invites comment as to whether this is a meaningful

    indicator of a DCO's financial condition, if there are alternative or

    additional measures that might be applied, and if the timing for

    notification is appropriate given the information to be provided.

    (e) Intraday Initial Margin Calls to Clearing Members

    Proposed Sec. 39.19(c)(4)(v) would require a DCO to report any

    intraday initial margin calls to clearing members. While proposed Sec.

    39.19(c)(1), discussed above, would provide the Commission with initial

    margin and daily variation margin data, the Commission would not

    receive that data until the following business day. Learning of an

    intraday initial margin call soon after the call would assist the

    Commission in determining whether certain clearing member positions

    could affect the ability of a DCO to meet its end-of-day financial

    obligations in a timely manner. This data would alert the Commission to

    positions that could pose greater risk. This is especially important

    given that intraday initial margin calls are unusual and are often due

    to increasing position size. The Commission invites commenters to

    recommend other possible reporting solutions that could serve to inform

    the Commission of a clearing member that is potentially building up

    position size during the current trading day.

    The report would have to be submitted no later than 1 hour

    following the margin call and would have to separately list each

    request and include the name of the clearing member, the amount

    requested and the account origin.

    The Commission notes that while this may impose an occasional

    reporting requirement on DCOs, many DCOs already have such reports

    generated for submission to a clearing member's depository as a request

    for intraday funds. The primary burden would be arranging a mechanism

    that would allow submission of these reports to the Commission in a

    timely manner. Thus, the Commission believes that it would be a de

    minimis burden.

    (f) Delay in Collection of Initial Margin

    Proposed Sec. 39.19(c)(4)(vi) would require the DCO to immediately

    notify the Commission when it has not received additional initial

    margin that it requested from a clearing member, in a timely manner.

    The proposed reporting requirement is intended to alert the Commission

    of a development that could be an indicator of a potential clearing

    member default. Payment of additional initial margin would be

    considered late if the DCO has not received payment within the time

    frame allowed by the DCO's rules and procedures.\31\ The Commission

    invites comment on this reporting requirement and the time frame used

    in determining when a payment is not considered timely.

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

    \31\ The DCO's rules and procedures are required to be submitted

    to the Commission under Section 5c(c) of the CEA, 7 U.S.C. 7a-2(c),

    and Sec. 40.6. Such information is required to be made available to

    clearing members and the public under Core Principle L and proposed

    Sec. 39.21. See infra Section II.C. of this notice.

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

    (g) Management of Clearing Member Positions

    Proposed Sec. Sec. 39.19(c)(4)(vii)-(ix) would require a DCO to

    apprise the Commission of different levels of financial distress of a

    clearing member, and the status of the DCO's actions to manage the

    risks associated with the clearing member's financial situation. The

    DCO would be required to report situations where a clearing member's

    position(s) must be reduced, transferred or liquidated, or where the

    clearing member defaults.

    Proposed Sec. 39.19(c)(4)(vii) would require a DCO to immediately

    notify the Commission of the DCO's request to a clearing member to

    reduce its positions because the DCO has determined that the clearing

    member has exceeded its exposure limit, that the clearing member has

    failed to meet an initial or variation margin call, or that it has

    failed to fulfill any other financial obligation to the DCO. The notice

    would have to include: (A) The name of the clearing member; (B) the

    time the clearing member was contacted; (C) the number of positions by

    which the DCO requested the clearing member to reduce its position

    size; (D) the contracts that are the subject of the request; and (E)

    the reason for the request.

    Proposed Sec. 39.19(c)(4)(viii) would require a DCO to immediately

    notify the Commission of the DCO's determination that any position the

    DCO carries for one of its clearing members must be liquidated

    immediately or transferred immediately, or that the trading of any

    account of a clearing member can be only for the purposes of

    liquidation because that clearing member has failed to meet an initial

    or variation margin call or failed to fulfill any other financial

    obligation to the DCO. The notice would have to include: (A) The name

    of the clearing member; (B) the time the clearing member was contacted;

    (C) the contracts that are subject to the determination; (D) the number

    of positions that are subject to the determination; and (E) the reason

    for the determination.

    The provisions of proposed Sec. 39.19(c)(4)(viii) are

    substantially similar to the requirements of Sec. 1.12(f)(1) of the

    Commission's regulations. Accordingly, the Commission is proposing to

    remove Sec. 1.12(f)(1) and redesignate it as proposed Sec.

    39.19(c)(4)(viii) in substantially the same form. The difference would

    be that while Sec. 1.12(f)(1) applies only to a DCO's determination

    concerning a clearing member that is a registered futures commission

    merchant (FCM) or registered leverage transaction merchant, proposed

    Sec. 39.19(c)(4)(viii) would apply to all DCO clearing members, even

    those that are not registrants.

    [[Page 78190]]

    Proposed Sec. 39.19(c)(4)(ix) would require a DCO to immediately

    notify the Commission of the default of a clearing member. An event of

    default would be determined in accordance with the rules of the DCO.

    The notice of default would have to include: (A) The name of the

    clearing member; (B) the contracts the clearing member defaulted upon;

    (C) the number of positions the clearing member defaulted upon; and (D)

    the amount of the unmet financial obligation.

    (h) Change in Ownership or Corporate or Organizational Structure

    Proposed Sec. 39.19(c)(4)(x) is intended to provide advance notice

    to the Commission of major ownership, corporate, or organizational

    changes of a DCO. The DCO would be required to report any anticipated

    ownership, corporate, or organizational changes of the DCO or its

    parent company that would: (i) Result in at least a 10 percent change

    of ownership of the DCO; (ii) create a new subsidiary of the DCO or the

    parent company; (iii) eliminate a current subsidiary of the DCO or its

    parent company; or (iv) result in a transfer of all or substantially

    all of its assets, including its registration as a DCO, to another

    legal entity (e.g., as a result of a reincorporation, or corporate

    merger). Such changes could include, but would not be limited to, the

    DCO's change of corporate structure from a partnership to a

    corporation, or from a member owned company to a publicly held company,

    or a change in corporate domicile. The report would include: (1) A

    chart outlining the new ownership or corporate or organizational

    structure, (2) a brief description of the purpose and impact of the

    change; and (3) any relevant agreements effecting the change and

    corporate documents such as new articles of incorporation and bylaws.

    With respect to a corporate change that results in a transfer of all or

    substantially all of a DCO's assets, the informational requirements of

    proposed Sec. 39.19(c)(4)(x)(B) would be satisfied by the DCO's

    compliance with proposed Sec. 39.3(h)(3).\32\

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    \32\ In a separate proposed rulemaking, the Commission is

    proposing procedures for the transfer of a DCO's registration and

    open interest under proposed Sec. 39.3(h).

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

    Because a DCO is likely to be aware of such changes well in advance

    of their effective date, the proposed regulation would require the

    report to be submitted to the Commission no later than three months

    prior to the anticipated change. The Commission is allowing an

    exception to the three-month prior notice requirement if the DCO does

    not know and reasonably could not have known of the anticipated change

    three months prior to that change. In such event, the DCO would be

    required to immediately report such change to the Commission as soon as

    it knows of the change. The Commission requests comment on whether the

    three-month notice period is appropriate or whether a different notice

    period should be required.

    Proposed Sec. 39.19(c)(4)(x)(D) would require a second report to

    the Commission of the consummation of the corporate or organizational

    change no later than 2 business days following the effective date of

    the change.

    The Commission notes that there may be differences in the proposed

    notification requirements for changes in the ownership or corporate or

    organizational structure of DCOs, designated contract markets, swap

    execution facilities, and swap data repositories.\33\ The Commission

    requests comment on the proposed reporting requirements under Sec.

    39.19(c)(4)(x), generally, and, more specifically, the extent to which

    there should be uniformity or differentiation in notification

    procedures applied to different types of registrants.

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

    \33\ Such requirements would be proposed in separate

    rulemakings, each for a specific registrant.

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

    (i) Change in Key Personnel

    Proposed Sec. 39.19(c)(4)(xi) would require a DCO to report to the

    Commission the departure or addition of persons who are key personnel,

    as defined in proposed Sec. 39.1(b), no later than two business days

    following any such change. As applicable when a position is vacated,

    the report would include the name of the person who will assume the

    duties of the position on a temporary basis until a permanent

    replacement fills the position.

    Key personnel would be defined by proposed Sec. 39.1(b) as

    personnel who play a significant role in the operation of the DCO,

    provision of clearing and settlement services, risk management, or

    oversight of compliance with the CEA and Commission regulations. Key

    personnel would include, but would not be limited to, those persons who

    are or perform the functions of any of the following: The chief

    executive officer; president; chief compliance officer; chief operating

    officer; chief risk officer; chief financial officer; chief technology

    officer; and emergency contacts or persons who are responsible for

    business continuity and disaster recovery.\34\ The term ``emergency''

    would have the same meaning as defined in Sec. 40.1(g), which the

    Commission has proposed to revise and redesignate as Sec. 40.1(h).\35\

    The Commission intends to require listing key personnel on a DCO's

    initial application in furtherance of the applicant's representation

    that it can satisfy the requirements of Core Principle B, i.e., that it

    will have adequate managerial resources.\36\ From a practical

    standpoint, notification of any changes of key personnel, particularly

    those responsible for handling emergency situations, is important for

    purposes of the Commission's general oversight of each DCO, as well as

    its ability to establish contact with key personnel in a timely manner,

    as circumstances may warrant.

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

    \34\ In a separate rulemaking, the Commission is proposing to

    adopt this definition for ``key personnel'' in a new Sec. 39.1(b).

    \35\ See 75 FR 67282, 67292 (Nov. 2, 2010) (provisions common to

    registered entities; proposing to revise and redesignate Sec.

    40.1(g) as Sec. 40.1(h)). The term ``emergency'' is currently

    defined as:

    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 or transactions, 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 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;

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

    effect upon the functioning of a registered entity.

    17 CFR 40.1(g).

    \36\ See Section 5b(c)(2)(B)(i) of the CEA; 17 USC 7a-

    1(c)(2)(B)(i) (requiring each DCO to have ``adequate financial,

    operational, and managerial resources, as determined by the

    Commission, to discharge each responsibility of the derivatives

    clearing organization''). The Commission expects to include in a

    future rulemaking revised instructions for DCO applications which

    will include a requirement that applicants list key personnel and

    emergency contacts.

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

    (j) Credit Facility Funding Arrangement Change

    Under proposed Sec. 39.19(c)(4)(xii), a DCO would be required to

    notify the Commission of material changes in a credit facility funding

    arrangement, if the DCO has one in place. A credit facility funding

    arrangement is generally used as a stop-gap measure in an emergency

    situation such as to provide liquidity during a clearing member default

    or to temporarily provide the DCO with adequate operating funds.\37\

    [[Page 78191]]

    Thus, it is essential for the Commission to be promptly notified of

    changes that would affect the DCO's immediate access to cash. Under the

    proposed regulation, a DCO would have to notify the Commission no later

    than one business day after a DCO changes a credit facility funding

    arrangement, is notified that such an arrangement has changed, or knows

    or reasonably should know that the arrangement will change, including

    but not limited to a change in lender, change in the size of the

    facility, change in expiration date, or any other material changes or

    conditions.

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

    \37\ See 75 FR at 63116 (proposing that a DCO may use a

    committed line of credit or similar facility to meet the liquidity

    requirements set forth in proposed Sec. 39.11(e)(1) and

    39.11(e)(2)).

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

    (k) Rule Enforcement

    As mandated by Core Principle H, proposed Sec. 39.19(c)(4)(xiii)

    would require a DCO to report to the Commission regarding rule

    enforcement activities and sanctions imposed against clearing members.

    More specifically, it would require a DCO to notify the Commission no

    later than two business days after the DCO (A) initiates a rule

    enforcement action against a clearing member, or (B) imposes sanctions

    against a clearing member. The Commission notes that while an exchange

    has 30 days within which to notify the Commission of a decision

    pursuant to which a disciplinary action has become final,\38\ a DCO

    taking disciplinary action against a clearing member is a less common

    occurrence, and the clearing member's offense could potentially impact

    the financial integrity of the DCO. Thus, the Commission believes that

    it should be notified of such actions, sooner. Nonetheless, the

    Commission requests comment on whether a 30-day reporting period would

    be more appropriate under proposed Sec. 39.19(c)(4)(xiii).

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

    \38\ See 17 CFR 9.11(a).

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

    (l) Financial Condition and Events

    Proposed Sec. 39.19(c)(4)(xiv) is intended to alert the Commission

    of certain events and situations that may affect the financial

    integrity of a DCO. Under the proposed regulation, a DCO would be

    required to immediately notify the Commission after the DCO knows or

    reasonably should know of: (A) The institution of any legal proceedings

    which may have a material adverse financial impact on the DCO; (B) any

    event, circumstance or situation that would not otherwise be required

    to be reported under Sec. 39.19 and that would materially impede the

    DCO's ability to comply with part 39 of the Commission's regulations;

    and (C) any material adverse change in the financial condition of any

    clearing member that would not otherwise be required to be reported

    under Sec. 39.19. These requirements would place an affirmative duty

    on the DCO to be aware of and monitor such events, and would permit the

    DCO to exercise its discretion in determining which events rise to the

    level of requiring notification to the Commission.

    Proposed Sec. 39.19(c)(4)(xv) would require a DCO, when it

    discovers or is notified by an independent public accountant of the

    existence of any material inadequacy, to give notice of such material

    inadequacy within 24 hours, and within 48 hours after giving such

    notice to file a written report stating what steps have been and are

    being taken to correct the material inadequacy. Proposed Sec.

    39.19(c)(4)(xv) is consistent with Sec. 1.12(d), a similar requirement

    for FCMs and introducing brokers.

    5. Technical Amendments

    Sections 39.5(a) and (b) require certain reports from a DCO upon

    request by the Commission. The Commission is proposing redesignating

    Sec. 39.5(a) and (b) as proposed Sec. 39.19(c)(5)(i) and (ii),

    respectively, in substantially the same form. The Commission believes

    that the addition of proposed Sec. 39.19 as the DCO reporting

    regulation would make that section the appropriate placement for the

    provisions of Sec. 39.5(a) and (b). Section 39.5(a), which is proposed

    as new Sec. 39.19(c)(5)(i), requires that, upon request by the

    Commission, a DCO file with the Commission such information related to

    its business as a clearing organization, including information relating

    to trade and clearing details, in the form and manner and within the

    time as specified by the Commission in the request. Section 39.5(b),

    which is proposed as new Sec. 39.19(c)(5)(ii), requires that, upon

    request by the Commission, a DCO file with the Commission a written

    demonstration, containing such supporting data, information and

    documents, in the form and manner and within such time as the

    Commission may specify, that the DCO is in compliance with one or more

    core principles and the relevant provisions of part 39, as specified in

    the request.

    Section 39.5(c) currently requires a DCO to submit large trader

    reports in circumstances where they are not required to be filed by

    FCMs, clearing members or others.\39\ The Commission is proposing to

    remove Sec. 39.5(c) because the data from such large trader reports

    would be available pursuant to a combination of other large trader

    reporting requirements and the requirements of proposed Sec.

    39.19(c)(1).\40\

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

    \39\ Section 39.5(c) states:

    Information regarding transactions by large traders cleared by a

    derivatives clearing organization shall be filed with the

    Commission, in a form and manner acceptable to the Commission, by

    futures commission merchants, clearing members, foreign brokers or

    registered entities other than a derivatives clearing organization,

    as applicable. Provided, however, that if no such person or entity

    is required to file large trader information with the Commission,

    such information must be filed with the Commission by a derivatives

    clearing organization.

    17 CFR 39.5(c).

    \40\ See supra discussion of proposed daily reporting

    requirements at Section II.A.1. of this notice.

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

    Section 39.5(d) currently requires, upon special call, reports by

    certain persons for positions cleared on a DCO.\41\ The Commission is

    proposing to redesignate Sec. 39.5(d) as Sec. 21.04 because part 21

    (Special Calls) is the appropriate placement for this provision.\42\ As

    such, the Commission also proposes to redesignate current Sec. 21.04

    as Sec. 21.05 and add Sec. 21.06 which would delegate its authority

    under proposed Sec. 21.04 to the Director of the Division of Clearing

    and Intermediary Oversight.\43\

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

    \41\ Section 39.5(d) states:

    Upon special call by the Commission, each futures commission

    merchant, clearing member or foreign broker shall provide

    information to the Commission concerning customer accounts or

    related positions cleared on a derivatives clearing organization or

    other multilateral clearing organization in the form and manner and

    within the time specified by the Commission in the special call.

    17 CFR 39.5(d).

    \42\ In a recent proposed rulemaking, the Commission proposed to

    renumber Sec. 39.5 as Sec. 39.6. See 75 FR 67277, 67281 (Nov. 2,

    2010) (process for review of swaps for mandatory clearing).

    Renumbering would no longer be necessary if the requirements of

    Sec. 39.5 are redesignated as proposed in this notice. (As

    discussed in this section, the Commission is proposing to: (1)

    Redesignate Sec. 39.5(a) as Sec. 39.19(c)(5)(i); (2) redesignate

    Sec. 39.5(b) as Sec. 39.19(c)(5)(ii); (3) remove Sec. 39.5(c);

    (4) redesignate Sec. 21.04 as Sec. 21.05; (5) redesignate Sec.

    39.5(d) as Sec. 21.04; and (6) add Sec. 21.06). Additionally, the

    earlier proposal to redesignate Sec. Sec. 39.6 and 39.7 as

    Sec. Sec. 39.7 and 39.8, respectively, would no longer be

    necessary. See 75 FR at 67281. The Commission notes that it intends

    to propose a revised and renumbered part 39 in conjunction with an

    upcoming notice of proposed rulemaking.

    \43\ This delegation provision is the same as the delegation

    provision for the Director of the Division of Market Oversight in

    current Sec. 21.04.

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

    B. Recordkeeping Requirements

    To implement Core Principle K, the Commission proposes to codify

    the requirements of the core principle such that each DCO will have to

    maintain records of all activities related to its business as a DCO in

    the form and manner acceptable to the Commission for a period of not

    less than five years. To clarify this general standard by way of

    example, and to supplement pre-existing recordkeeping requirements

    [[Page 78192]]

    imposed by various Commission regulations,\44\ the Commission is

    proposing to list examples of information subject to the recordkeeping

    requirement.

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

    \44\ For example, Sec. Sec. 1.26 and 1.27 impose recordkeeping

    requirements for DCOs and FCMs related to the investment of customer

    funds.

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

    Proposed Sec. 39.20(a)(1) would require a DCO to maintain records

    of all cleared transactions, including swaps. This is information that

    a DCO already maintains in the ordinary course of its business as a

    clearing house.

    More specifically, proposed Sec. 39.20(a)(2) would require a DCO

    to retain all information necessary to record allocation of bunched

    orders for cleared swaps. This provision would highlight an important

    recordkeeping component of swaps clearing.

    Proposed Sec. 39.20(a)(3) would require a DCO to maintain records

    of all information required to be generated, created, or reported under

    part 39. This would include, but would not be limited to, the results

    of and the methodology used for all tests, reviews, and calculations in

    connection with setting and evaluating margin levels, determining the

    value and adequacy of financial resources, and establishing settlement

    prices.

    Proposed Sec. 39.20(a)(4) would require a DCO to maintain records

    of all rules and procedures of the DCO. Specifically, the DCO would be

    required to maintain records of all rules and procedures required to be

    submitted pursuant to part 39 and part 40 of the Commission's

    regulations, including all proposed changes in rules, procedures or

    operations of SIDCOs, subject to proposed Sec. 40.10.\45\

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

    \45\ See 75 FR 67282 (Nov. 2, 2010) (proposing amendments to

    part 40 of the Commission's regulations).

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

    Proposed Sec. 39.20(a)(5) would require a DCO to maintain any data

    or documentation required by the Commission or the DCO to be submitted

    to the DCO by its clearing members, or by any other person in

    connection with the DCO's clearing and settlement activities.

    Proposed Sec. 39.20(b)(1) would require a DCO to maintain records

    required by the Commission's regulations in accordance with the

    provisions of Sec. 1.31 (books and records; keeping and inspection),

    for a period of not less than five years. However, there is an

    exception in proposed Sec. 39.20(b)(2) that would require each DCO

    that clears swaps to maintain swap data in accordance with the

    requirements of part 45 (swap data repositories) of the Commission's

    regulations.

    C. Public Information

    To implement Core Principle L, the Commission proposes to codify

    the requirements of the core principle, requiring DCOs to provide or

    make available certain information to the public and to market

    participants.

    1. Availability of Information

    Proposed Sec. 39.21(a) would require each DCO to provide to market

    participants sufficient information to enable the market participants

    to identify and evaluate accurately the risks and costs associated with

    using the services of the DCO.\46\ In furtherance of this objective,

    each DCO would be required to have clear and comprehensive rules and

    procedures. Proposed Sec. 39.21(b) would require each DCO to make

    information concerning the rules and the operating and default

    procedures governing the clearing and settlement systems of the DCO

    available to market participants.\47\

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

    \46\ See Section 5b(c)(2)(L)(i) of the CEA; 7 U.S.C. 7a-

    1(c)(2)(L)(i).

    \47\ See Section 5b(c)(2)(L)(ii) of the CEA; 7 U.S.C. 7a-

    1(c)(2)(L)(ii).

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

    2. Public Disclosure

    Proposed Sec. 39.21(c) would require each DCO to disclose publicly

    and to the Commission information concerning: (1) The terms and

    conditions of each contract, agreement, and transaction cleared and

    settled by the DCO; (2) each clearing and other fee that the DCO

    charges its clearing members; (3) the DCO's margin methodology; (4) the

    size and composition of the financial resource package available in the

    event of a clearing member default; (5) daily settlement prices,

    volume, and open interest for each contract, agreement or transaction

    cleared or settled by the DCO; (6) the DCO's rules and procedures for

    defaults pursuant to proposed Sec. 39.16; \48\ and (7) any other

    matter that is relevant to participation in the clearing and settlement

    activities of the DCO.\49\

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

    \48\ In a future proposed rulemaking, the Commission intends to

    propose a new Sec. 39.16 to implement DCO Core Principle G,

    regarding default rules and procedures. See Section 5b(c)(2)(G) of

    the CEA; 7 U.S.C. 7a-1(c)(2)(G).

    \49\ See Section 5b(c)(2)(L)(iii) of the CEA, 7 U.S.C. 7a-

    1(c)(2)(L)(iii).

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

    Under proposed Sec. 39.21(d) the DCO would be required to make its

    rulebook, a list of all current clearing members, and the information

    listed in proposed Sec. 39.21(c) readily available to the general

    public, in a timely manner, by posting such information on the DCO's

    website, unless otherwise permitted by the Commission. The information

    that would be required by proposed Sec. 39.21(c)(5) would have to be

    made available to the public no later than the business day following

    the day to which the information pertains.

    D. Information Sharing

    Proposed Sec. 39.22 would require each DCO to enter into, and

    abide by the terms of, each appropriate and applicable domestic and

    international information-sharing agreement and to use relevant

    information obtained from each such agreement in carrying out the risk

    management program of the DCO. Proposed Sec. 39.22 would codify the

    statutory provisions of Core Principle M. The Commission believes that

    the language affords each DCO the appropriate level of discretion

    regarding the appropriate information-sharing agreements to enter into

    and the rules to abide by, and it does not perceive a need to

    articulate more specific requirements. The Commission requests comment

    on this approach.

    III. Effective Date

    The Commission is proposing that the requirements proposed in this

    notice become effective 180 days from the date the final rules are

    published in the Federal Register. The Commission believes that this

    would give DCOs adequate time to implement the technology and the

    procedures necessary to fulfill the proposed reporting requirements.

    This period of time also would be sufficient to allow for compliance

    with the recordkeeping, public information and information sharing

    requirements. The Commission requests comment on whether 180 days is an

    appropriate time frame for compliance with the proposed rules. The

    Commission further requests comment on possible alternative effective

    dates and the basis for any such alternative date.

    IV. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) 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.\50\

    The rules proposed by the Commission will affect only DCOs (some of

    which will be designated as SIDCOs). The Commission has previously

    established certain definitions of ``small entities'' to be used by the

    Commission in evaluating the impact of its regulations on small

    [[Page 78193]]

    entities in accordance with the RFA.\51\ The Commission has previously

    determined that DCOs are not small entities for the purpose of the

    RFA.\52\ Accordingly, the Chairman, on behalf of the Commission, hereby

    certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not

    have a significant economic impact on a substantial number of small

    entities.

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

    \50\ 5 U.S.C. 601 et seq.

    \51\ 47 FR 18618 (Apr. 30, 1982).

    \52\ See 66 FR 45604, 45609 (Aug. 29, 2001).

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

    B. Paperwork Reduction Act

    An agency may not conduct or sponsor, and a person is not required

    to respond to, a collection of information unless it displays a

    currently valid control number. OMB has not yet assigned a control

    number to the new collection. The Paperwork Reduction Act of 1995 (PRA)

    \53\ imposes certain requirements on Federal agencies (including the

    Commission) in connection with their conducting or sponsoring any

    collection of information as defined by the PRA. This proposed

    rulemaking would result in new collection of information requirements

    within the meaning of the PRA. The Commission therefore is submitting

    this proposal to the Office of Management and Budget (OMB) for review.

    If adopted, responses to this collection of information would be

    mandatory. 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 CEA strictly prohibits the Commission, unless specifically

    authorized by the CEA, 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

    is also required to protect certain information contained in a

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

    U.S.C. 552a.

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

    \53\ 44 U.S.C. 3501 et seq.

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

    1. Information Provided by Reporting Entities/Persons

    The proposed regulations require each respondent to file

    information with the Commission (1) periodically, on a daily,

    quarterly, and annual basis,\54\ (2) as specified events occur, and (3)

    upon Commission request.\55\

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

    \54\ Quarterly financial resources reports and annual compliance

    reports are the subjects of separate Paperwork Reduction Act

    submissions in connection with other proposed rulemakings.

    \55\ Reports submitted upon Commission request are current

    requirements.

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

    For daily reports, these would result in an estimated total of 12

    initial responses and 250 responses per respondent on an annual basis.

    Commission staff estimates that respondents could expend up to $690

    initially and $1,400 annually, based on an hourly rate ranging from $46

    to $56, to comply with the proposed regulations. This would result in

    an aggregated cost of $8,280 initially (12 respondents x $690) and

    $16,800 per annum (12 respondents x $1,400).

    For annual reports, these would result in an estimated total of 1

    response per respondent on an annual basis. Commission staff estimates

    that respondents could expend up to $482,110 annually, based on an

    hourly rate of $185, to comply with the proposed regulations. This

    would result in an aggregated cost of $5,785,320 per annum (12

    respondents x $482,110).\56\

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

    \56\ This amount reflects the estimated cost of preparing

    audited annual financial statements, an activity which many, if not

    all, respondents already perform on an annual basis.

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

    For event-specific reports, these would result in an estimated

    total of 4 responses per respondent on an annual basis. Commission

    staff estimates that respondents could expend up to $1,680 annually,

    based on an hourly rate of $75, to comply with the proposed

    regulations. This would result in an aggregated cost of $20,160 per

    annum (12 respondents x $1,680).\57\

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

    \57\ This amount reflects the estimated cost of putting systems

    in place which would alert a respondent of certain event-specific-

    reporting requirements. It is expected, however, that most

    respondents already have most, if not all, of these systems in

    place. Additionally, this amount takes into account the preparation

    of reports such as the pro forma financial statement for a decrease

    in ownership equity, a document which a respondent would most likely

    already have produced in connection with whatever specific event the

    respondent anticipated would cause a decrease in ownership equity.

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

    For recordkeeping requirements, these would result in an estimated

    total of 1 response per respondent on an annual basis. Commission staff

    estimates that respondents could expend up to $1,000 annually, based on

    an hourly rate of $10, to comply with the proposed regulations. This

    would result in an aggregated cost of $12,000 per annum (12 respondents

    x $1,000).

    2. Information Collection Comments

    The Commission invites the public and other federal agencies to

    comment on any aspect of the reporting and recordkeeping burdens

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

    solicits comment in order to: (i) Evaluate whether the proposed

    collection of information is necessary for the proper performance of

    the functions of the Commission, including whether the information will

    have practical utility; (ii) evaluate the accuracy of the Commission's

    estimate of the burden of the proposed collection of information; (iii)

    determine whether there are ways to enhance the quality, utility, and

    clarity of the information to be collected; and (iv) minimize the

    burden of the collection of information on those who are to respond,

    including through the use of automated collection techniques or other

    forms of information technology.

    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 all comments can be summarized and

    addressed in the final rule preamble. 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 document in the Federal Register. Therefore, a comment is best

    assured of having its full effect if OMB receives it within 30 days of

    publication.

    C. Cost-Benefit Analysis

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

    costs and benefits of its actions before issuing a rulemaking under the

    CEA. By its terms, Section 15(a) does not require the Commission to

    quantify the costs and benefits of a rule or to determine whether the

    benefits of the rulemaking outweigh its costs; rather, it requires that

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

    Section 15(a) further specifies that the 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. The Commission may in its discretion give

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

    discretion determine that, notwithstanding its costs, a particular rule

    is necessary or appropriate to protect the public interest or to

    effectuate any of the provisions or to

    [[Page 78194]]

    accomplish any of the purposes of the CEA.

    Summary of proposed requirements. The proposed regulations would

    implement the reporting, recordkeeping, public information, and

    information-sharing requirements for DCOs under the CEA, as amended by

    the Dodd-Frank Act.

    Costs. With respect to costs, the Commission has determined that

    the costs of the new reporting requirements are not expected to be

    significant given that the information required to be reported is

    readily available to the DCO and, in certain instances, is already

    being reported to the Commission. The incremental increases in

    operating costs will have a negligible effect on the markets'

    efficiency, effectiveness and financial competitiveness.

    Benefits. With respect to benefits, the Commission has determined

    that receiving such data required by the daily, annual and event-

    specific reporting requirements in a timely manner and in one format

    would further the Commission's goal of monitoring the financial health

    and financial integrity of DCOs and whether a DCO's financial and risk

    management practices are effective. It would also assist the Commission

    in taking prompt action as necessary to identify insipient problems and

    address them at an earlier stage. This would further the goal of

    avoiding systemic risk due to the default of a clearing member and

    thereby protect market participants and the public and serve the public

    interest by promoting sound risk management practices. Similarly, the

    recordkeeping requirements allow for making certain records available

    for Commission inspection, which helps further the goals of the

    reporting requirements and is necessary for the Commission to

    effectively monitor a DCO's financial integrity and compliance with the

    CEA and Commission regulations. The public information requirements

    serve the public interest by facilitating the dissemination of

    important information about the DCO, including its clearing and

    settlement activities and default procedures. Information-sharing

    requirements promote cooperation among industry participants,

    facilitating more effective risk management.

    Public Comment. The Commission invites public comment on its cost-

    benefit considerations. Commentators are also invited to submit any

    data or other information that they may have quantifying or qualifying

    costs and benefits of the Proposal with their comment letters.

    List of Subjects

    17 CFR Part 1

    Brokers, Commodity futures, Consumer protection.

    17 CFR Part 21

    Brokers, Commodity futures, Reporting and recordkeeping

    requirements

    17 CFR Part 39

    Definitions, commodity futures, reporting and recordkeeping

    requirements, swaps.

    For the reasons stated in the preamble, the Commission proposes to

    amend 17 CFR parts 1, 21 and 39 as follows:

    PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    Authority and Issuance

    1. The authority citation for part 1 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,

    6i, 6k, 6m, 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, 13a-1,

    16, 16a, 19, 21, 23, and 24, as amended by the Dodd-Frank Wall

    Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

    Stat. 1376 (2010).

    2. In Sec. 1.12, remove and reserve paragraph (f)(1).

    PART 21--SPECIAL CALLS

    Authority and Issuance

    3. The authority for part 21 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 6g, 6i, 6k, 6m,

    6n, 7, 7a, 12a, 19 and 21, as amended by the Dodd-Frank Wall Street

    Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376

    (2010); 5 U.S.C. 552 and 552(b), unless otherwise noted.

    4. Redesignate Sec. 21.04 as Sec. 21.05.

    5. Add Sec. 21.06 to read as follows:

    Sec. 21.06 Delegation of authority to the Director of the Division of

    Clearing and Intermediary Oversight.

    The Commission hereby delegates, until the Commission orders

    otherwise, the special call authority set forth in Sec. 21.04 to the

    Director of the Division of Clearing and Intermediary Oversight to be

    exercised by such Director or by such other employee or employees of

    such Director as designated from time to time by the Director. The

    Director of the Division of Clearing and Intermediary Oversight may

    submit to the Commission for its consideration any matter which has

    been delegated in this paragraph. Nothing in this section shall be

    deemed to prohibit the Commission, at its election, from exercising the

    authority delegated in this section to the Director.

    PART 39--DERIVATIVES CLEARING ORGANIZATIONS

    Authority and Issuance

    6. The authority for part 39 is proposed to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6d, 7a-1,7a-2, and 7b as amended

    by the Dodd-Frank Wall Street Reform and Consumer Protection Act,

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

    7. Add Sec. 39.19 to read as follows:

    Sec. 39.19 Reporting.

    (a) In general. Each derivatives clearing organization shall

    provide to the Commission the information specified in this section and

    any other information that the Commission deems necessary to conduct

    its oversight of a derivatives clearing organization.

    (b) Submission of reports. (1) Unless otherwise specified by the

    Commission or its designee, each derivatives clearing organization

    shall submit the information required by this section to the Commission

    electronically and in a form and manner prescribed by the Commission.

    (2) Time zones. Unless otherwise specified by the Commission or its

    designee, any stated time in this section is Central time for

    information concerning derivatives clearing organizations located in

    that time zone, and Eastern time for information concerning all other

    derivatives clearing organizations.

    (c) Reporting requirements. Each registered derivatives clearing

    organization shall provide to the Commission or other person as may be

    required or permitted by this paragraph the information specified

    below:

    (1) Daily reporting. A report containing the information specified

    by this paragraph (c)(1), which shall be compiled as of the end of each

    trading day and shall be submitted to the Commission by 10 a.m. on the

    following business day:

    (i) Initial margin requirements and initial margin on deposit for

    each clearing member, by customer origin and house origin;

    (ii) Daily variation margin, separately listing the mark-to-market

    amount collected from or paid to each clearing member, by customer

    origin and house origin;

    (iii) All other daily cash flows relating to clearing and

    settlement including, but not limited to, option premiums and payments

    related to swaps such as coupon amounts, collected from or paid to each

    clearing member, by customer origin and house origin; and

    [[Page 78195]]

    (iv) End-of-day positions for each clearing member, by customer

    origin and house origin.

    (2) Quarterly reporting. A report of the derivatives clearing

    organization's financial resources as required by Sec. 39.11(f);

    provided that, additional reports may be required by paragraph

    (c)(4)(i) of this section or Sec. 39.11(f).

    (3) Annual reporting. (i) Annual report of chief compliance

    officer. The annual report of the chief compliance officer required by

    Sec. 39.10.

    (ii) Audited financial statements. Audited year-end financial

    statements of the derivatives clearing organization or, if there are no

    financial statements available for the derivatives clearing

    organization itself, the consolidated audited year-end financial

    statements of the derivatives clearing organization's parent company.

    (iii) Time of report. The reports required by this paragraph (c)(3)

    shall be submitted concurrently to the Commission not more than 90 days

    after the end of the derivatives clearing organization's fiscal year;

    provided that, a derivatives clearing organization may request from the

    Commission an extension of time to submit either report, provided the

    derivatives clearing organization's failure to submit the report in a

    timely manner could not be avoided without unreasonable effort or

    expense. Extensions of the deadline will be granted at the discretion

    of the Commission.

    (4) Event-specific reporting. (i) Decrease in financial resources.

    If there is a decrease of 10 percent in the total value of the

    financial resources required to be maintained by the derivatives

    clearing organization under Sec. 39.11(a) or, as applicable, Sec.

    39.29(a), either from the last quarterly report submitted under Sec.

    39.11(f) or from the value as of the close of the previous business

    day, the derivatives clearing organization shall report such decrease

    to the Commission no later than one business day following the day the

    10 percent threshold was reached. The report shall include:

    (A) The total value of the financial resources:

    (1) as of the close of business the day the 10 percent threshold

    was reached, and

    (2) if reporting a decrease in value from the previous business

    day, the total value of the financial resources immediately prior to

    the 10 percent decline;

    (B) A breakdown of the value of each financial resource reported in

    each of paragraph (4)(i)(A)(1) and (2), calculated in accordance with

    the requirements of Sec. 39.11(d) or, as applicable, Sec. 39.29(b),

    including the value of each individual clearing member's guaranty fund

    deposit if the derivatives clearing organization reports guaranty fund

    deposits as a financial resource; and

    (C) A detailed explanation for the decrease.

    (ii) Decrease in ownership equity. No later than two business days

    prior to an event which the derivatives clearing organization knows or

    should reasonably know will cause a decrease of 20 percent or more in

    ownership equity from the last reported ownership equity balance as

    reported on a quarterly or audited financial statements required to be

    submitted by paragraph (c)(2) or (c)(3)(ii), respectively, of this

    section, but in any event no later than two business days after such

    decrease in ownership equity for events that caused the decrease for

    which the derivatives clearing organization does not know and

    reasonably should not have known about prior to the event. The report

    shall include:

    (A) Pro forma financial statements reflecting the DCO's estimated

    future financial condition following the anticipated decrease for

    reports submitted prior to the anticipated decrease and current

    financial statements for reports submitted after such a decrease; and

    (B) Details describing the reason for the decrease or anticipated

    decrease in the balance.

    (iii) Six-month liquid asset requirement. Immediate notice when a

    derivatives clearing organization knows or reasonably should know of a

    deficit in the six-month liquid asset requirement of Sec. 39.11(e)(2).

    (iv) Change in working capital. No later than two business days

    after working capital becomes negative; the notice shall include a

    balance sheet that reflects the derivatives clearing organization's

    working capital and an explanation as to the reason for the negative

    balance.

    (v) Intraday initial margin calls. (A) Reporting requirement. Any

    intraday initial margin call to a clearing member.

    (B) Required information. The report shall separately list each

    request and include the name of the clearing member, the amount

    requested and the account origin.

    (C) Time of report. The report shall be submitted to the Commission

    no later than 1 hour following the margin call.

    (vi) Delay in collection of initial margin. Immediate notice when a

    derivatives clearing organization has not received additional initial

    margin that it requested from a clearing member within the time frame

    allowed by the derivatives clearing organization's rules and

    procedures.

    (vii) Request to clearing member to reduce its positions. Immediate

    notice, of a derivatives clearing organization's request to a clearing

    member to reduce its positions because the derivatives clearing

    organization has determined that the clearing member has exceeded its

    exposure limit, has failed to meet an initial or variation margin call,

    or has failed to fulfill any other financial obligation to the

    derivatives clearing organization. The notice shall include:

    (A) The name of the clearing member;

    (B) The time the clearing member was contacted;

    (C) The number of positions by which the derivatives clearing

    organization requested the clearing member to reduce its position size;

    (D) All contracts that are the subject of the request; and

    (E) The reason for the request.

    (viii) Determination to transfer or liquidate positions. Immediate

    notice, of a determination that any position a derivatives clearing

    organization carries for one of its clearing members must be liquidated

    immediately or transferred immediately, or that the trading of any

    account of a clearing member shall be only for the purposes of

    liquidation because that clearing member has failed to meet an initial

    or variation margin call or has failed to fulfill any other financial

    obligation to the derivatives clearing organization. The notice shall

    include:

    (A) The name of the clearing member;

    (B) The time the clearing member was contacted;

    (C) The contracts that are subject to the determination;

    (D) The number of positions that are subject to the determination;

    and

    (E) The reason for the determination.

    (ix) Default of a clearing member. Immediate notice, upon the

    default of a clearing member. An event of default shall be determined

    in accordance with the rules of the derivatives clearing organization.

    The notice of default shall include:

    (A) The name of the clearing member;

    (B) The contracts the clearing member defaulted upon;

    (C) The number of positions the clearing member defaulted upon; and

    (D) The amount of the financial obligation.

    (x) Change in ownership or corporate or organizational structure.

    (A) Reporting requirement. Any anticipated change in the ownership or

    corporate or organizational structure of the derivatives clearing

    organization or its parent company that would:

    [[Page 78196]]

    (1) Result in at least a 10 percent change of ownership of the

    derivatives clearing organization,

    (2) create a new subsidiary or eliminate a current subsidiary of

    the derivatives clearing organization or its parent company, or

    (3) result in the transfer of all or substantially all of its

    assets, including its registration as a derivatives clearing

    organization to another legal entity.

    (B) Required information. The report shall include: A chart

    outlining the new ownership or corporate or organizational structure; a

    brief description of the purpose and impact of the change; and any

    relevant agreements effecting the change and corporate documents such

    as articles of incorporation and bylaws. With respect to a corporate

    change for which a derivatives clearing organization submits a request

    for approval to transfer its derivatives clearing organization

    registration and open interest under Sec. 39.3(h) of this part, the

    informational requirements of this paragraph (c)(4)(x)(B) shall be

    satisfied by the derivatives clearing organization's compliance with

    Sec. 39.3(h)(3).

    (C) Time of report. The report shall be submitted to the Commission

    no later than three months prior to the anticipated change; provided

    that the derivatives clearing organization may report the anticipated

    change to the Commission later than three months prior to the

    anticipated change if the derivatives clearing organization does not

    know and reasonably could not have known of the anticipated change

    three months prior to the anticipated change. In such event, the

    derivatives clearing organization shall immediately report such change

    to the Commission as soon as it knows of such change.

    (D) Confirmation of change report. The derivatives clearing

    organization shall report to the Commission the consummation of the

    change no later than 2 business days following the effective date of

    the change.

    (xi) Change in key personnel. No later than two business days

    following the departure, or addition of persons who are key personnel

    as defined in Sec. 39.1(b), a report that includes, as applicable, the

    name of the person who will assume the duties of the position on a

    temporary basis until a permanent replacement fills the position.

    (xii) Credit facility funding arrangement change. No later than one

    business day after a derivatives clearing organization changes a credit

    facility funding arrangement it may have in place, is notified that

    such arrangement has changed, or knows or reasonably should have known

    that the arrangement will change, including but not limited to a change

    in lender, change in the size of the facility, change in expiration

    date, or any other material changes or conditions.

    (xiii) Rule enforcement. Notice of action taken, no later than two

    business days after the derivatives clearing organization:

    (A) Initiates a rule enforcement action against a clearing member;

    or

    (B) Imposes sanctions against a clearing member.

    (xiv) Financial condition and events. Immediate notice after the

    derivatives clearing organization knows or reasonably should have known

    of:

    (A) The institution of any legal proceedings which may have a

    material adverse financial impact on the derivatives clearing

    organization;

    (B) Any event, circumstance or situation that materially impedes

    the derivatives clearing organization's ability to comply with this

    part and is not otherwise required to be reported under this section;

    or

    (C) A material adverse change in the financial condition of any

    clearing member that is not otherwise required to be reported under

    this section.

    (xv) Financial statements material inadequacies. If a derivatives

    clearing organization discovers or is notified by an independent public

    accountant of the existence of any material inadequacy, such

    derivatives clearing organization must give notice of such material

    inadequacy within 24 hours, and within 48 hours after giving such

    notice file a written report stating what steps have been and are being

    taken to correct the material inadequacy.

    Sec. 39.5(a) [Redesignated as Sec. 39.19(c)(5)(i)]

    8. Redesignate Sec. 39.5(a) as Sec. 39.19(c)(5)(i).

    9. Redesignate Sec. 39.5(b) as Sec. 39.19(c)(5)(ii) and revise to

    read as follows:

    Sec. 39.19 Reporting.

    * * * * *

    (c) * * *

    (5) * * *

    (ii) Upon request by the Commission, a derivatives clearing

    organization shall file with the Commission a written demonstration,

    containing such supporting data, information and documents, in the form

    and manner and within such time as the Commission may specify, that the

    derivatives clearing organization is in compliance with one or more

    core principles and relevant provisions of this part, as specified in

    the request.

    Sec. 39.5(d) [Redesignated as Sec. 21.04]

    10. Redesignate Sec. 39.5(d) as Sec. 21.04.

    Sec. 39.5 [Amended]

    11. Remove Sec. 39.5(c) and reserve the section.

    12. Add Sec. 39.20 to read as follows:

    Sec. 39.20 Recordkeeping.

    (a) Requirement to maintain information. Each derivatives clearing

    organization shall maintain records of all activities related to its

    business as a derivatives clearing organization. Such records shall

    include, but are not limited to, records of:

    (1) All cleared transactions, including swaps.

    (2) All information necessary to record allocation of bunched

    orders for cleared swaps;

    (3) All information required to be created, generated, or reported

    under this part 39, including but not limited to the results of and

    methodology used for all tests, reviews, and calculations in connection

    with setting and evaluating margin levels, determining the value and

    adequacy of financial resources, and establishing settlement prices;

    (4) All rules and procedures required to be submitted pursuant to

    this part 39 and part 40 of this chapter, including all proposed

    changes in rules, procedures or operations subject to Sec. 40.10 of

    this chapter; and

    (5) Any data or documentation required by the Commission or by the

    derivatives clearing organization to be submitted to the derivatives

    clearing organization by its clearing members, or by any other person

    in connection with the derivatives clearing organization's clearing and

    settlement activities.

    (b) Form and manner of maintaining information. (1) In general. The

    records required to be maintained by this chapter shall be maintained

    in accordance with the provisions of Sec. 1.31 of this chapter, for a

    period of not less than 5 years, except as provided in paragraph (b)(2)

    of this section.

    (2) Exception for swap data. Each derivatives clearing organization

    that clears swaps must maintain swap data in accordance with the

    requirements of part 45 of this chapter.

    15. Add Sec. 39.21 to read as follows:

    Sec. 39.21 Public information.

    (a) In general. Each derivatives clearing organization shall

    provide to market participants sufficient information to enable the

    market participants to identify and evaluate accurately the risks and

    costs associated with using the services of the derivatives clearing

    organization. In furtherance of this objective, each

    [[Page 78197]]

    derivatives clearing organization shall have clear and comprehensive

    rules and procedures.

    (b) Availability of information. Each derivatives clearing

    organization shall make information concerning the rules and the

    operating and default procedures governing the clearing and settlement

    systems of the derivatives clearing organization available to market

    participants.

    (c) Public disclosure. Each derivatives clearing organization shall

    disclose publicly and to the Commission information concerning:

    (1) The terms and conditions of each contract, agreement, and

    transaction cleared and settled by the derivatives clearing

    organization;

    (2) Each clearing and other fee that the derivatives clearing

    organization charges its clearing members;

    (3) The margin-setting methodology;

    (4) The size and composition of the financial resource package

    available in the event of a clearing member default;

    (5) Daily settlement prices, volume, and open interest for each

    contract, agreement, or transaction cleared or settled by the

    derivatives clearing organization;

    (6) The derivatives clearing organization's rules and procedures

    for defaults in accordance with Sec. 39.16 of this part; and

    (7) Any other matter that is relevant to participation in the

    clearing and settlement activities of the derivatives clearing

    organization.

    (d) Publication of information. The derivatives clearing

    organization shall make its rulebook, a list of all current clearing

    members and the information listed in paragraph (c) of this section

    readily available to the general public, in a timely manner, by posting

    such information on the derivatives clearing organization's website,

    unless otherwise permitted by the Commission. The information required

    in paragraph (c)(5) of this section shall be made available to the

    public no later than the business day following the day to which the

    information pertains.

    16. Add Sec. 39.22 to read as follows:

    Sec. 39.22 Information sharing.

    Each derivatives clearing organization shall enter into, and abide

    by the terms of, each appropriate and applicable domestic and

    international information-sharing agreement, and shall use relevant

    information obtained from each such agreement in carrying out the risk

    management program of the derivatives clearing organization.

    Issued in Washington, DC, on December 1, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Information Management Requirements for Derivatives

    Clearing Organizations--Commission Voting Summary and Statements of

    Commissioners

    Note: The following appendices will not appear in the Code of

    Federal Regulations

    Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn,

    Sommers, Chilton and O'Malia voted in the affirmative. No

    Commissioner voted in the negative.

    Appendix 2--Statement of Chairman Gary Gensler

    I support the proposed rulemaking concerning information

    management, recordkeeping and reporting requirements for derivatives

    clearing organizations. The requirements would enable the Commission

    to conduct financial risk surveillance more efficiently and

    effectively. Further, they would promote transparency to the

    regulators, enhancing the Commission's ability to detect and resolve

    potential concerns before they escalate into major problems. The

    rule also fulfills Congress's direction that clearinghouses be

    required to make settlement prices and open interest public in all

    their contracts on a daily basis.

    The proposed reporting rules apply uniform standards to all

    DCOs, thereby helping to avoid inconsistency in DCO reporting. The

    recordkeeping requirements are rooted in sound business practices,

    and the public information requirements serve the public interest by

    promoting transparency and disclosure. By codifying the information-

    sharing core principle into the Commission's regulations, the

    Commission would reaffirm its commitment to promoting cooperation

    among industry participants in carrying out risk management

    functions.

    [FR Doc. 2010-31131 Filed 12-14-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: December 20, 2010



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