Font Size: AAA // Print // Bookmark

2010-31579

  • FR Doc 2010-31579[Federal Register: December 17, 2010 (Volume 75, Number 242)]

    [Rules and Regulations]

    [Page 78892-78896]

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

    [DOCID:fr17de10-5]

    =======================================================================

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

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 44

    RIN 3038-AD29

    Reporting Certain Post-Enactment Swap Transactions

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Interim final rule; request for comment.

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

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

    ``CFTC'') is publishing for comment an interim final rule to implement

    new statutory provisions introduced by Title VII of the Dodd-Frank Wall

    Street Reform and Consumer Protection Act (``Dodd-Frank Act''). Section

    723 of the Dodd-Frank Act amends Section 2 of the Commodity Exchange

    Act (``CEA'' or the ``Act'') by adding new Section 2(h)(5)(B), which

    directs that rules adopted by the Commission under this section shall

    provide for the reporting of ``transition'' swaps--that is, swaps

    entered into on or after the date of enactment of the Dodd-Frank Act

    and prior to the effective date of swap data reporting rules to

    implement Section 2(h)(5)(B)--to a registered swap data repository

    (``SDR'') or to the Commission. Each category of data is subject to a

    reporting timetable specified in Section 2(h)(5). The Commission

    intends shortly to notice for comment substantive rules implementing

    the swap data reporting provisions of Section 2(h)(5)(B). In order to

    ensure the preservation of data pending implementation of such rules,

    the Commission is today adopting an interim final rule directing

    specified counterparties to post-enactment, or transition, swap

    transactions entered into prior to the effective date of the swap data

    reporting and recordkeeping rules implementing Section 2(h)(5)(B) of

    the CEA to retain information pertaining to the terms of such swaps.

    DATES: This interim final rule is effective December 17, 2010. Comments

    on all aspects of the interim final rule must be received on or before

    January 18, 2011.

    ADDRESSES: You may submit comments, identified by RIN number 3038-AD29,

    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: Address to 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 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 of the

    Commission's Regulations.\1\

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

    \1\ 17 CFR 145.9.

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

    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: Susan Nathan, Senior Special Counsel,

    Division of Market Oversight, Commodity Futures Trading Commission,

    1155 21st Street, NW., Washington, DC 20581, at (202) 418-5133.

    SUPPLEMENTARY INFORMATION: The Commission is adopting an interim final

    rule under part 44 of its regulations under the Commodity Exchange Act

    and is soliciting comments on all aspects of the rule. The Commission

    will carefully consider all comments received and will address them, as

    applicable, in connection with the permanent reporting rules to be

    adopted under the Dodd-Frank Act.

    I. Background

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

    Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\2\

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

    (``CEA'' or the ``Act'') \4\ to establish a comprehensive new

    regulatory framework for swaps and security-based swaps. The

    legislation was enacted to reduce risk, increase transparency, and

    promote market integrity within the financial system by, among other

    things: (1) Providing for the registration and comprehensive regulation

    of swap dealers and major swap participants; (2) imposing clearing and

    trade execution requirements on standardized derivative products; (3)

    creating robust recordkeeping and real-time reporting regimes; and (4)

    enhancing the Commission's rulemaking and enforcement authorities with

    respect to, among others, all registered entities and intermediaries

    subject to the Commission's oversight.

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

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

    Act, Public Law 111-203, 124 Stat. 1376 (2010), hereinafter cited as

    ``Dodd-Frank Act.'' 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.

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

    Among other things, the Dodd-Frank Act requires that swaps be

    reported to a registered SDR \5\ or to the Commission if there is no

    registered SDR that would accept the swap. Section 723 of the Dodd-

    Frank Act adds to the CEA new Section 2(h)(5)(B), to require that

    transition swaps be reported to a registered SDR or the Commission

    according to specified timetables. As described below, pursuant to its

    authority under Sections 4r and 2(h)(5)(A) of the CEA the Commission

    previously has adopted an interim final rule addressing the reporting

    timetable for swaps entered into prior to the enactment of the Dodd-

    Frank Act the terms of which had not expired by that date.

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

    \5\ The term ``swap data repository'' is defined in Section

    1a(48) of the CEA to mean ``any person that collects and maintains

    information or records with respect to transactions or positions in,

    or the terms and conductions of, swaps entered into by third parties

    for the purpose of providing a centralized recordkeeping facility

    for swaps.''

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

    Separately, Section 729 of the Dodd-Frank Act established in new

    Section 4r(a)(2)(A) a transition rule applicable to pre-enactment

    swaps, providing for the reporting, by a date certain, of each swap

    entered into before the date of enactment of the Dodd-Frank Act, the

    [[Page 78893]]

    terms of which had not expired as of that date.\6\ Section 4r(a)(2)(B)

    directs the Commission to promulgate an interim final rule within 90

    days of the date of enactment of the Dodd-Frank Act providing for the

    reporting of each swap entered into before the date of enactment. On

    October 14, 2010, the Commission published in part 44 of its

    regulations an interim final rule instructing specified counterparties

    to pre-enactment swaps to report data to a registered SDR or to the

    Commission by the compliance date to be established in reporting rules

    to be promulgated under CEA Section 2(h)(5), and advising such

    counterparties of the necessity, inherent in the reporting requirement,

    to preserve information pertaining to the terms of such swaps until

    reporting can be effectuated under permanent rules. The reporting

    requirements established by Section 4r and Sec. Sec. 44.00-44.02 of

    the Commission's Regulations will remain in effect until the effective

    date of the permanent reporting rules to be adopted by the Commission

    pursuant to Section 2(h)(5) of the CEA.\7\

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

    \6\ The statute provides that reporting must occur either (i) 30

    days after issuance of the interim final rule; or (ii) such other

    date as the Commission determines to be appropriate.

    \7\ See Interim Final Rule for Reporting Pre-Enactment Swap

    Transactions, 75 FR 63080, Oct. 14, 2010.

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

    Section 4r did not mandate an interim final rulemaking addressing

    reporting provisions for transition swap transactions entered into on

    or after the date of enactment of the Dodd-Frank Act and prior to the

    effective date of the swap data reporting rule to implement the

    provisions of Section 2(h)(5)(B). The instant interim final rule is

    intended to provide clarity and guidance with respect to such swaps by

    (i) establishing that transition swaps \8\ be subject to Section

    2(h)(5)(B)'s reporting requirements and to Commission regulations to be

    promulgated thereunder; and (ii) advising potential counterparties to

    such swaps that implicit in this reporting requirement is the need to

    retain relevant data.

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

    \8\ The term ``transition swap'' refers to a swap executed on or

    after the date of enactment of the Dodd-Frank Act and before the

    effective date of the swap data reporting and recordkeeping rules

    implementing Section 2(h)(5)(B) of the CEA. As discussed infra.,

    Sections 2(h)(5)(A) and 4r describe as a separate category of swaps

    those executed prior to the enactment of the Dodd-Frank Act, the

    terms of which had not expired by that date (``pre-enactment

    swaps'').

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

    The Commission intends to establish permanent data recordkeeping

    and reporting requirements for transition swaps in a separate

    rulemaking under Section 2(h)(5)(B) of the CEA.\9\ The Commission

    anticipates that its rulemaking for transition swaps will address

    specifically the records, information and data regarding transition

    swaps that must be retained and the timeframe for reporting such

    information to a registered SDR or to the Commission.

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

    \9\ See Notice of Proposed Rulemaking Relating to Swap Data

    Recordkeeping and Reporting Requirements n. 10, approved for

    publication by the Commission at an open meeting on November 19,

    2010 and expected to be published shortly in the Federal Register

    (to be codified at 17 CFR part 45). Rules adopted by the Commission

    under this section shall provide for the reporting of swap data as

    follows:

    (A) Swaps entered into on or before the date of the enactment of

    this subsection shall be reported to a registered swap data

    repository or the Commission no later than 180 days after the

    effective date of this subsection.

    (B) Swaps entered into on or after such date of enactment shall

    be reported to a registered swap data repository or the Commission

    no later than the later of--

    (i) 90 days after such effective date; or

    (ii) Such other time after entering into the swap as the

    Commission may prescribe by rule or regulation.

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

    II. The Scope of the Interim Final Rule

    This interim final rule will apply to all swaps entered into on or

    after the date of enactment of the Dodd-Frank Act and before the

    effective date of the swap data reporting and recordkeeping rules

    implementing Section 2(h)(5)(B) of the CEA.

    1. Reporting Obligations

    The Commission expects that the reporting obligations outlined in

    Sec. 44.03 will implicate swap transaction information and data that

    counterparties normally retain as sound business practice. Interim

    Sec. 44.03 establishes that reporting requirements are applicable to

    transition swaps and describes the information that would be reported

    to a registered SDR or to the Commission with respect to such

    transaction: (i) A copy of the transaction confirmation in electronic

    form, if available, or in written form if there is no electronic copy;

    (ii) if available, the time the transaction was executed; and (iii)

    additional information of the character described in Section 4

    (``Record Preservation'') below.

    In addition, Interim Sec. 44.03 provides that a designated

    counterparty \10\ to a transition swap \11\ must provide to the

    Commission on request any information relating to such transaction

    during the time that this interim final rule is in effect. The

    Commission expects that such information would vary depending upon the

    needs of the Commission and may include actual as well as summary trade

    data. Such summary data may include a description of a swap dealer's

    counterparties or the total number of post-enactment pre-effective swap

    transactions entered into by the dealer and some measure of the

    frequency and duration of those contracts. The Commission believes that

    this requirement will facilitate its ability to understand and evaluate

    the current market for swaps and may inform its analysis of other

    required rulemakings under the Dodd-Frank Act.

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

    \10\ The reporting obligations of specified counterparties are

    delineated in Section 4r(a)(3) of the CEA, as amended. Unlike

    certain other provisions of Section 4r, these obligations are not

    limited to pre-enactment swaps.

    \11\ The term ``transition swap'' is defined in Sec. 44.00(c)

    of the Commission's Regulations to mean ``any swap entered into

    after the enactment of the Dodd-Frank Act of 2010 (July 21, 2010)

    and prior to the effective date of the swap data reporting and

    recordkeeping rules implemented pursuant to Section 2(h)(5)(B)'' of

    the CEA.

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

    2. Reporting Party

    Section 4r(a)(3) of the CEA specifies the party obligated to report

    a particular swap transaction. Specifically, this section provides,

    with respect to a swap in which only one counterparty is a swap dealer

    or major swap participant, that entity must report the swap. With

    respect to a swap in which one counterparty is a swap dealer and the

    other counterparty is a major swap participant, the swap dealer is

    responsible for reporting the swap. With respect to any other swap, the

    counterparties shall select one of them to report the swap. Interim

    Sec. 44.03 incorporates these provisions.

    3. Effective Date for Reporting Transition Swaps

    Section 2(h)(5)(B) of the CEA requires that rules adopted by the

    Commission shall provide for the reporting of data for transition swaps

    no later than the later of 90 days after the effective date of the

    Dodd-Frank Act \12\ or such other time after entering into the swap as

    the Commission may prescribe. Section 4r(a)(2)(C) establishes that the

    reporting obligations described in Section 4r shall be effective on the

    enactment of that section--July 21, 2010. In a July 15, 2010 floor

    statement, Senator Lincoln addressed inconsistencies between Sections

    4r and 2(h)(5), emphasizing that the provisions of these two sections

    ``should be interpreted as complementary to one another to assure

    consistency between them. This is particularly true with respect to

    issues such as the effective dates of these reporting requirements.''

    \13\ Accordingly,

    [[Page 78894]]

    Section 4r(a)(2)(C) should be read to require that the reporting

    obligations of Section 2(h)(5)(B) became effective on enactment of the

    Dodd-Frank Act and that counterparties who are or may become subject to

    this obligation should, as of that date, be prepared to report swap

    data relating to post-enactment pre-effective swaps at such time as

    reporting is required: the later of 90 days after July 15, 2011 or such

    other time after entering into the swap as the Commission may

    prescribed by rule. The Commission believes that this result achieves

    Senator Lincoln's goal of assuring consistency between the legislative

    provisions embodied in Sections 4r and 2(h)(5).

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

    \12\ As relevant here, the effective date is 360 days after the

    enactment of the Dodd-Frank Act--July 15, 2011.

    \13\ Lincoln, ``Wall Street Transparency and Accountability,''

    Congressional Record (July 15, 2010) at S5923.

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

    4. Record Preservation

    While neither Section 4r nor Section 2(h)(5) expressly requires

    that counterparties retain data related to transition swaps, implicit

    in the reporting requirements established by these provisions is the

    necessity for counterparties to these transactions to retain

    information and data related to the terms of each transaction so that

    it may subsequently be reported. In this regard, Sec. 44.03 includes a

    Note to paragraphs (a)(1) and (a)(2) advising potential counterparties

    to a post-enactment pre-effective swap transaction to retain all

    information and documents relating to the terms of the transaction, to

    the extent and in such form as they presently exist. The Commission

    expects that counterparties to existing swaps routinely retain,

    consistent with reasonable business practice, information including but

    not limited to: (i) Any information necessary to identify and value the

    transaction (e.g., underlying asset and tenor); (ii) the date and time

    of execution of the transaction; (iii) volume (e.g., notional or

    principal amount); (iv) information relevant to the price and payment

    of the transaction until the swap is terminated, reaches maturity, or

    is novated; (v) whether the transaction was accepted for clearing by

    any clearing agency or derivatives clearing organization, and if so,

    the identity of such agency or organization; (vi) any modification(s)

    to the terms of the transaction; and (vii) the final confirmation of

    the transaction.

    The Commission believes that counterparties that may be required to

    report transition swap transactions should preserve such information in

    order to ensure that they will be able to comply with the reporting

    requirements of Interim Sec. 44.03 as well as with permanent reporting

    rules to be promulgated under CEA Section 2(h)(5). The Commission is

    mindful that the data retention requirement may be perceived as

    burdensome, and in that regard the Note attempts to limit the data to

    material information that may be expected to assist the Commission in

    performing its oversight functions under the CEA. In addition, to

    ensure that important information relating to the terms of such swaps

    may be retained with minimal burden on the counterparties, the Note

    does not require any counterparty to a transition swap transaction to

    create new records, and permits records to be retained in their

    existing format. Similarly, the Commission recognizes that information

    that the counterparty does not have prior to the effective date of the

    interim final rule cannot be reported.

    III. Request for Comments

    The Commission requests comments on the questions outlined below:

    1. Should the date on which data concerning transition swaps is

    required to be reported to a registered swap data repository or to the

    Commission be more than 90 days following the July 15, 2011 effective

    date of the Dodd-Frank Act? If so, what date(s) should the Commission

    consider and why?

    2. Should the date for such reporting be different for reporting

    counterparties who are swap dealers or major swap participants than it

    is for reporting counterparties who are not swap dealers or major swap

    participants?

    3. What information should be reported with respect to transition

    swaps? Who would use this information, and for what purpose(s)?

    4. Should data reporting for transition swaps be asset-class

    specific?

    5. What methods of data accuracy verification should be used for

    transition swap data?

    6. Should the Commission's permanent rules concerning data

    reporting for transition swaps between counterparties who are not swap

    dealers or swap participants specify how such counterparties should

    determine which counterparty will report the swap data? If so, what

    factors should govern this choice?

    7. The Note to the interim final rule advises that counterparties

    retain, in their existing format, all information and documents

    relating to the terms of the transition swap, including but not limited

    to certain data elements. What documents and data typically are kept by

    swap market participants to memorialize their transactions? In what

    format? How long are such records currently maintained by market

    participants?

    8. What additional records should be kept, if any, and what burdens

    or costs would the retention of such information entail?

    In addition to the specific requests for comment above, the

    Commission welcomes comment on all aspects of the interim final rule

    and invites interested persons to submit written presentations of

    views, data and arguments on all aspects of the interim final rule.

    IV. Related Matters

    A. Administrative Procedure Act

    The Administrative Procedure Act \14\ (``APA'') generally requires

    an agency to publish notice of a proposed rulemaking in the Federal

    Register.\15\ This requirement does not apply, however, when the agency

    ``for good cause finds * * * that notice and public procedure are

    impracticable, unnecessary, or contrary to the public interest.'' \16\

    Moreover, while the APA requires generally that an agency publish an

    adopted rule in the Federal Register 30 days before it becomes

    effective, this requirement does not apply if the agency finds good

    cause to make the rule effective sooner.\17\

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

    \14\ 5 U.S.C. 553.

    \15\ 5 U.S.C. 553(b).

    \16\ Id.

    \17\ 5 U.S.C. 553(d).

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

    By way of background, Section 729 of the Dodd-Frank Act amended the

    CEA to add new Section 4r, which in turn requires the Commission to

    adopt, within 90 days of enactment of the Dodd-Frank Act, an interim

    final rule providing for the reporting of swaps entered into before the

    date of enactment of the Dodd-Frank Act the terms of which had not

    expired as of that date. In response to that mandate, the Commission

    adopted in new part 44 of the CEA an interim final rule whose purpose

    was to establish reporting requirements for pre-enactment unexpired

    swaps and to serve as notice to potential reporting entities of a

    subsequent requirement to report certain data \18\ associated with such

    swaps. This interim rule provides notice to counterparties to preserve

    data associated with transition swaps until the Commission issues

    permanent reporting and recordkeeping rules for all swaps pursuant to

    CEA Section 2(h)(5).\19\

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

    \18\ 75 FR 63080 (Oct. 14, 2010).

    \19\ Id. at 63084.

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

    The Commission is mindful that the Dodd-Frank Act did not mandate

    an interim final rule relating to transition swaps (those entered into

    after the date of enactment of the Act and prior to its effective

    date), although such swaps will in the future be subject to a permanent

    reporting requirement

    [[Page 78895]]

    pursuant to new Section 2(h)(5)(B) of the CEA. The Commission believes

    that these circumstances similarly warrant notice to potential

    counterparties of a present obligation to retain data relating to such

    swaps until the Commission issues permanent rules pursuant to Section

    2(h)(5)(B). Moreover, the Commission believes that issuance of such a

    rule as an interim final rule serves the public interest. The

    availability of this data will facilitate the Commission's ability to

    understand and evaluate the current market for swaps and may inform its

    analysis of other required rulemaking under the Dodd-Frank Act; any

    delay in adopting such rules likely will result in a substantial loss

    of significant swap data. Accordingly, the Commission believes that

    good cause exists under 5 U.S.C. 553(b) and (d) because delay in

    clarifying the potential scope of Section 2(h)(5)'s reporting and

    record preservation obligations likely will result in a substantial

    loss of material data relating transition swaps that would assist the

    Commission in performing its oversight and analytic functions under the

    CEA.

    B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') provides that 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 from the Office of Management and Budget (``OMB'').\20\ OMB has

    not yet assigned a control number to the new collection. As described

    below, the Interim Final Rule will result in new collection of

    information requirements within the meaning of the PRA.

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

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

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

    1. Reporting Requirements

    The Commission has determined that this interim final rulemaking

    will not impose on swap counterparties any new reporting requirements

    that would be collections of information requiring the approval of the

    Office of Management and Budget (``OMB'') under the Paperwork Reduction

    Act (``PRA'').\21\ The Commission intends to propose permanent

    reporting requirements associated with Section 723 of the Dodd-Frank

    Act, at which time the Commission will issue a notice of proposed

    rulemaking, seek comments on the proposed reporting requirements, and

    seek OMB approval for the collections of information as provided by 5

    CFR 1320.8 and 1320.11.

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

    \21\ 44 U.S.C. 3501 et seq.

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

    2. Recordkeeping Requirements

    In order to comply with the reporting requirements contained in

    Sec. 44.03, and in anticipation of permanent recordkeeping and

    reporting requirements to be adopted by the Commission pursuant to

    Section 2(h)(5)(B) of the CEA, each potential counterparty to a

    transition swap that may be required to report such transaction should

    retain information relating to the terms of the swap transaction. The

    Commission believes that this recordkeeping element, while not

    explicit, is considered to be a collection of information within the

    meaning of the PRA. The Commission therefore is submitting this

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

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

    collection of information is ``Regulation 44.03--Interim Final Rule for

    Reporting Certain Post-Enactment Swap Transactions. OMB control number

    3038-NEW.''

    The Commission will, by separate action, publish in the Federal

    Register a notice and request for comment on the paperwork burden

    associated with the recordkeeping element of this interim final rule in

    accordance with 5 CFR 1320.8. If approved, this new collection of

    information will be mandatory.

    C. Cost-Benefit Analysis

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

    costs and benefits of its action before issuing a new regulation or

    order under the Act. By its terms, Section 15(a) does not require the

    Commission to quantify the costs and benefits of its action or to

    determine whether the benefits of the action outweigh its costs.

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

    costs and benefits'' of the subject rule or order. Section 15(a)

    further specifies that the costs and benefits of Commission regulations

    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 the market for

    listed derivatives; (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 of concern and may, in its discretion, determine that

    notwithstanding its costs, a particular regulation is necessary or

    appropriate to protect the public interest or to effectuate any of the

    provisions or accomplish any of the purposes of the CEA.

    Title VII of the Dodd-Frank Act requires the Commission to

    undertake a number of rulemakings to implement the regulatory framework

    for swaps dictated by that Act, including the reporting of swap

    transactions. This interim final rule implements the Dodd-Frank Act by

    providing clarity and guidance with respect to the reporting of

    transition swaps by (i) establishing that transition swaps will be

    subject to Section 2(h)(5)(B)'s reporting requirements and to

    Commission regulations to be promulgated thereunder; and (ii) advising

    potential counterparties to such transition swaps that implicit in this

    reporting requirement is the present obligation to retain data for

    reporting at a time to be determined by rules promulgated under Section

    2(h)(5)(B). This interim final rule will enable the Commission to

    obtain data on transition swaps and will also ensure the preservation

    of such data until permanent recordkeeping and reporting rules are

    issued by the Commission. The availability of data relating to

    transition swaps will enable the Commission to gain a better

    understanding of the swap market--including the size and scope of that

    market. This understanding ultimately will lead to a more robust and

    transparent environment for the swaps market. Further, the Commission

    expects this rule to make available information that could inform the

    Commission's decision-making with respect to the rules it is required

    to implement under the Dodd-Frank Act.

    The Note to Interim Sec. 44.03(a)(1) and (2) addresses the

    retention of records relating to transition swaps. Although there are

    recordkeeping costs associated with retention of existing swap

    transaction information, the Commission has crafted the Interim Final

    Rule to be efficient in terms of these costs. The Interim Rule does not

    require market participants to modify data for retention purposes, and

    the information that is to be reported should be information that is

    already kept by swap counterparties in their normal course of

    business--and it may be reported in the format in which it is kept.

    Moreover, counterparties must report the time of execution only to the

    extent such information is available.

    The recordkeeping and reporting rules that the Commission is

    required to adopt under new CEA Section 2(h)(5)(B) will apply to

    transition swaps. Accordingly, in adopting this Interim Rule the

    Commission has sought to limit the burden on market participants by

    [[Page 78896]]

    not imposing substantial or potentially conflicting reporting

    requirements.

    D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

    requires federal agencies, in promulgating rules, to consider the

    impact of those rules on small entities. The term ``rule'' under the

    RFA is defined as ``any rule for which the agency publishes a general

    notice of proposed rulemaking pursuant to Section 553(b) of this title,

    or any other law * * *.'' \22\ However, a general notice of proposed

    rulemaking under Section 553(b) does not apply ``when the agency for

    good cause finds (and incorporates the finding and a brief statement of

    reasons therefor) in the rules [issued] that notice and public

    procedure thereon are impracticable, unnecessary or contrary to the

    public interest.'' \23\ As noted above, the Commission believes that

    good cause exists under 5 U.S.C. 553(b) because delay in clarifying the

    scope of 2(h)(5)'s reporting and record preservation obligations will

    likely result in a substantial loss of material data relating to post-

    enactment pre-effective swaps that would assist the Commission in

    performing its oversight functions under the CEA.

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

    \22\ 5 U.S.C. 601(2).

    \23\ 5 U.S.C. 553(b).

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

    List of Subjects in 17 CFR Part 44

    Swap markets, Counterparties, Reporting and Recordkeeping

    requirements.

    0

    In consideration of the foregoing, and pursuant to the authority in the

    Commodity Exchange Act, as amended, and in particular Sections 2(h)(5),

    4r(a) and 12a(5), the Commission hereby proposes to amend Chapter 1 of

    Title 17 of the Code of Federal Regulations by amending part 44 as

    follows:

    PART 44--INTERIM FINAL RULE FOR PRE-ENACTMENT SWAP TRANSACTIONS

    Authority and Issuance

    0

    1. The authority citation for part 44 shall continue to read as

    follows:

    Authority: 7 U.S.C. 2(h)(5), 4r and 12a(5), as amended by Title

    VII of the Wall Street Reform and Consumer Protection Act (Dodd-

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

    0

    2. Section 44.00 is amended by redesignating paragraphs (c) through (e)

    as paragraphs (d) through (f) and by revising paragraph (c) to read as

    follows:

    Sec. 44.00 Definition of terms used in Part 44 of this chapter.

    * * * * *

    (c) Transition swap means any swap entered into after the enactment

    of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the

    effective date of the swap data reporting and recordkeeping rule

    implemented under Section 2(h)(5)(B) of the CEA.

    * * * * *

    0

    3. Section 44.03 is added to read as follows:

    Sec. 44.03 Reporting transition swaps to a swap data repository or to

    the Commission.

    (a) A counterparty to a post-enactment pre-effective swap

    transaction shall:

    (1) As required by the reporting rules required to be adopted

    pursuant to Section 2(h)(5)(B) of the Commodity Exchange Act, report

    data related to a transition swap to a registered swap data repository

    or the Commission by the compliance date established in such reporting

    rules or within 60 days after an appropriate swap data repository

    becomes registered with the Commission and commences operations to

    receive and maintain data related to such swap, whichever occurs first,

    the following information with respect to the swap transaction:

    (i) A copy of the transaction confirmation, in electronic form if

    available, or in written form if there is no electronic copy;

    (ii) The time, if available, that the transaction was executed; and

    (2) Report to the Commission on request, in the form and manner

    prescribed by the Commission, any information relating to the swap

    transaction.

    Note to Paragraphs (a). In order to comply with the reporting

    requirements contained in paragraphs (a)(1) and (a)(2) of this

    section, each counterparty to a post-enactment pre-effective swap

    transaction that may be required to report such transaction should

    retain, in its existing format, all information and documents, to

    the extent and in such form as they exist on the effective date of

    this section, relating to: the terms of a swap transaction,

    including but not limited to any information necessary to identify

    and value the transaction (e.g., underlying asset and tenor); the

    date and time of execution of the transaction; volume (e.g.,

    notional or principal amount); information relevant to the price and

    payment for the transaction until the swap is terminated, reaches

    maturity or is novated; whether the transaction was accepted for

    clearing and, if so, the identity of such clearing organization; any

    modification(s) to the terms of the transaction; and the final

    confirmation of the transaction.

    (b) Reporting party. The counterparties to a swap transaction shall

    report the information required under paragraph (a) of this section as

    follows:

    (1) Where only one counterparty to a swap transaction is a swap

    dealer or a major swap participant, the swap dealer or major swap

    participant shall report the transaction;

    (2) Where one counterparty to a swap transaction is a swap dealer

    and the other counterparty is a major swap participant, the swap dealer

    shall report the transaction; and

    (3) Where neither counterparty to a swap transaction is a swap

    dealer or a major swap participant, the counterparties to the

    transaction shall select the counterparty who will report the

    transaction.

    Issued in Washington, DC, on December 9, 2010, by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Interim Final Rule for Reporting Certain Post-Enactment

    Swap Transactions--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 interim final rulemaking regarding the reporting

    timetable for swaps entered into after the date of enactment of the

    Dodd-Frank Act but prior to the effective date of swap data reporting

    rules, or ``transition'' swaps. The interim final rule is intended to

    ensure that data and information related those transition swaps will be

    preserved until reporting to swap data repositories or regulators can

    occur. The rule is indeed to prevent a substantial loss of data on

    transition swaps and to assist the Commission in performing its

    oversight functions under the Commodity Exchange Act.

    [FR Doc. 2010-31579 Filed 12-16-10; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: December 17, 2010