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2012-11838

  • Federal Register, Volume 77 Issue 95 (Wednesday, May 16, 2012)[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]

    [Proposed Rules]

    [Pages 28819-28824]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2012-11838]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Chapter 1

    Second Amendment to July 14, 2011 Order for Swap Regulation

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of Proposed Amendment.

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    SUMMARY: On July 14, 2011, the Commodity Futures Trading Commission

    (``CFTC'' or the ``Commission'') issued a final order (``July 14

    Order'') that granted temporary exemptive relief from certain

    provisions of the Commodity Exchange Act (``CEA'') that otherwise would

    have taken effect on the general effective date of title VII of the

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

    Frank Act'')--July 16, 2011. On December 23, 2011, the Commission

    amended the July 14 Order to extend the potential latest expiration

    date of the July 14 Order from December 31, 2011 to July 16, 2012, and

    added provisions to account for the repeal and replacement (as of

    December 31, 2011) of part 35 of the Commission's regulations (the

    ``First Amended July 14 Order''). In this Notice of Proposed Amendment

    (``Notice''), the Commission proposes to further modify the temporary

    exemptive relief provided in the First Amended July 14 Order by: (1)

    Removing references to the entities terms, including ``swap dealer,''

    ``major swap participant,'' and ``eligible contract participant'' in

    light of the final, joint CFTC-SEC rulemaking further defining them

    issued on April 18, 2012; (2) extending the potential latest expiration

    date of the July 14 Order to December 31, 2012, or, depending on the

    nature of the relief, such other compliance date as may be determined

    by the Commission; (3) allowing the clearing of agricultural swaps, as

    described herein; and (4) removing any reference to the exempt

    commercial market (``ECM'') and exempt board of trade (``EBOT'')

    grandfather relief previously issued by the Commission. Only comments

    pertaining to these proposed amendments to the First Amended July 14

    Order, as amended (the ``Second Amended July 14 Order''), will be

    considered.

    DATES: Submit comments on or before May 30, 2012.

    ADDRESSES: Comments may be submitted, referenced as ``Effective Date

    Amendments,'' by any of the following methods:

    Agency Web site, via its Comments Online process at 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.

    Please submit your comments using only one method.

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

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

    www.cftc.gov. You should submit only information that you wish to make

    available publicly. If you wish the Commission to consider information

    that may be exempt from disclosure under the Freedom of Information

    Act, a petition for confidential treatment of the exempt information

    may be submitted according to the established procedures in Sec. 145.9

    of the Commission's regulations, 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 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: Mark D. Higgins, Counsel, (202) 418-

    5864, mhiggins@cftc.gov, Office of the General Counsel; David Van

    Wagner, Chief Counsel, (202) 418-5481, dvanwagner@cftc.gov, Division of

    Market Oversight; Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street NW., Washington, DC 20581; or Anne Polaski,

    Special Counsel, (312) 596-0575, apolaski@cftc.gov, Division of

    Clearing and Risk; Commodity Futures Trading Commission, 525 West

    Monroe, Chicago, Illinois 60661.

    SUPPLEMENTARY INFORMATION:

    On July 14, 2011, the Commission exercised its exemptive authority

    under CEA section 4(c) \1\ and its authority under section 712(f) of

    the Dodd-Frank Act by issuing a final order (the ``July 14 Order'')

    that addressed the potential that the final, joint CFTC-SEC rulemakings

    further defining the terms in sections 712(d) \2\ and 721(c) \3\ would

    not be in effect as of July 16, 2011 (i.e., the general effective date

    set forth in section 754 of the Dodd-Frank Act).\4\ In so doing, the

    Commission sought to address concerns that had been raised about the

    applicability of various regulatory requirements to certain agreements,

    contracts, and transactions after July 16, 2011, and thereby ensure

    that current practices would not be unduly disrupted during the

    transition to the new regulatory regime.\5\

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

    \2\ Section 712(d)(1) provides: ``Notwithstanding any other

    provision of this title and subsections (b) and (c), the Commodity

    Futures Trading Commission and the Securities and Exchange

    Commission, in consultation with the Board of Governors [of the

    Federal Reserve System], shall further define the terms `swap',

    `security-based swap', `swap dealer', `security-based swap dealer',

    `major swap participant', `major security-based swap participant',

    and `security-based swap agreement' in section 1a(47)(A)(v) of the

    Commodity Exchange Act (7 U.S.C. 1a(47)(A)(v)) and section 3(a)(78)

    of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(78)).''

    \3\ Section 721(c) provides: ``To include transactions and

    entities that have been structured to evade this subtitle (or an

    amendment made by this subtitle), the Commodity Futures Trading

    Commission shall adopt a rule to further define the terms `swap',

    `swap dealer', `major swap participant', and `eligible contract

    participant'.''

    \4\ Effective Date for Swap Regulation, 76 FR 42508 (issued and

    made effective by the Commission on July 14, 2011; published in the

    Federal Register on July 19, 2011). Section 712(f) of the Dodd-Frank

    Act states that ``in order to prepare for the effective dates of the

    provisions of this Act,'' including the general effective date set

    forth in section 754, the Commission may ``exempt persons,

    agreements, contracts, or transactions from provisions of this Act,

    under the terms contained in this Act.'' Section 754 specifies that

    unless otherwise provided in Title VII, provisions requiring a

    rulemaking become effective ``not less than 60 days after

    publication of the final rule'' (but not before July 16, 2011).

    \5\ Concurrent with the July 14 Order, the Commission's Division

    of Clearing and Intermediary Oversight (which is now two divisions--

    the Division of Clearing and Risk (``DCR'') and the Division of Swap

    Dealer and Intermediary Oversight (``DSIO'')) and the Division of

    Market Oversight (``DMO'') (together ``the Divisions'') identified

    certain provisions of the Dodd-Frank Act and CEA as amended that

    would take effect on July 16, 2011, but that may not be eligible for

    the exemptive relief provided by the Commission in its July 14

    Order--specifically, the amendments made to the CEA by Dodd-Frank

    Act sections 724(c), 725(a), and 731. On July 14, 2011, the

    Divisions issued Staff No-Action Relief addressing the application

    of these provisions after July 16, 2011. Available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/11-04.pdf.

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    [[Page 28820]]

    For those same reasons, on December 23, 2011, the Commission

    published in the Federal Register a final order, the First Amended July

    14 Order, amending the July 14 Order in two ways.\6\ First, the

    Commission extended the potential latest expiry date from December 31,

    2011 to July 16, 2012 or, depending on the nature of the relief, such

    other compliance date as may be determined by the Commission,\7\ to

    address the potential that, as of December 31, 2011, the aforementioned

    joint CFTC-Securities and Exchange Commission (``SEC'') joint

    rulemakings would not be effective. Second, the Commission included

    within the relief set forth in the First Amended July 14 Order any

    agreement, contract or transaction that fully meets the conditions in

    part 35 as in effect prior to December 31, 2011. This amendment

    addressed the fact that such transactions, which were not included

    within the scope of the original July 14 Order because the exemptive

    rules in part 35 covered them at that time, required temporary relief

    because part 35 would not be available as of December 31, 2011.\8\ In

    so doing, the Commission clarified that new part 35 and the exemptive

    relief issued in the First Amended July 14 Order, and any interaction

    of the two, do not operate to expand the pre-Dodd-Frank Act scope of

    transactions eligible to be transacted on either an ECM or EBOT to

    include transactions in agricultural commodities.

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    \6\ Amendment to July 14, 2011 Order for Swap Regulation, 76 FR

    80233 (Dec. 23, 2011).

    \7\ The Commission clarified that while the exemption set forth

    in the second part of the First Amended July 14 Order generally

    shall expire upon the earlier of July 16, 2012 or such other

    compliance date as may be determined by the Commission, it modified

    that alternative condition to provide that the exemption will not

    expire prior to July 16, 2012 in certain circumstances.

    Specifically, the Commission stated that no other compliance date

    will be determined (and thus, the exemption will remain in effect

    until July 16, 2012) for agreements, contracts, and transactions

    (and for persons offering, entering into, or rendering advice or

    rendering other services with respect to, such agreements, contracts

    or transactions) that: (1) Are executed on an ECM or EBOT that is

    operating under the terms of the Commission's Order Regarding the

    Treatment of Petitions Seeking Grandfather Relief for Exempt

    Commercial Markets and Exempt Boards of Trade, 75 FR 56513, Sept.

    16, 2010 (the ECM/EBOT Grandfather Order''), and that complies with

    all of the applicable conditions of the ECM/EBOT Grandfather Order;

    and (2) are cleared by a Commission-registered derivatives clearing

    organization (``DCO''). Concurrent with the First Amended July 14

    Order, the Divisions also issued a new staff no-action letter

    further addressing the applicability of the amendments made to the

    CEA by Dodd-Frank Act sections 724(c), 725(a), and 731. The

    Commission staff has informed the Commission that it is separately

    considering whether to issue a no-action letter in which the staff

    would state that it would not recommend that the Commission commence

    an enforcement action against markets or market participants for

    failure to comply with the above-referenced provisions over a period

    of time co-extensive with that set forth in the Second Amended July

    14 Order, as proposed herein.

    \8\ The Commission promulgated a rule pursuant to section

    723(c)(3) of the Dodd-Frank Act, and CEA sections 4(c) and 4c(b),

    that, effective December 31, 2011, repealed the existing part 35

    relief and replaced it with new Sec. 35.1 of the Commission's

    regulations. See Agricultural Swaps, 76 FR 49291 (Aug. 10, 2011).

    Rule 35.1 generally provides that ``agricultural swaps may be

    transacted subject to all provisions of the CEA, and any Commission

    rule, regulation or order thereunder, that is otherwise applicable

    to swaps. [It] also clarifies that by issuing a rule allowing

    agricultural swaps to transact subject to the laws and rules

    applicable to all other swaps, the Commission is allowing

    agricultural swaps to transact on [designated contract markets

    (``DCMs''), swap execution facilities (``SEFs'')], or otherwise to

    the same extent that all other swaps are allowed to trade on DCMs,

    SEFs, or otherwise.'' Id. at 49296.

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    In this Notice, the Commission is proposing to further amend the

    First Amended July 14 Order in the following four ways.\9\ First, in

    light of the final, joint CFTC-SEC rulemaking further defining the

    entities terms in sections 712(d), including ``swap dealer,'' ``major

    swap participant,'' and ``eligible contract participant,'' issued on

    April 18, 2012,\10\ the Commission is removing references to those

    terms in this proposed Second Amended July 14 Order. Second, the

    Commission is proposing to extend the latest potential expiry date from

    July 16, 2012 to December 31, 2012 or, depending on the nature of the

    relief, such other compliance date as may be determined by the

    Commission. The extension would ensure that market practices will not

    be unduly disrupted during the transition to the new regulatory regime.

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    \9\ As proposed, the Second Amended July 14 Order.

    \10\ CFTC-SEC, Further Definition of ``Swap Dealer'',

    ``Security-Based Swap Dealer'', ``Major Swap Participant'', ``Major

    Security-Based Swap Participant'', and ``Eligible Contract

    Participant'' (issued Apr. 18, 2012) (to be codified at 17 CFR pt.

    1), available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister041812b.pdf.

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    Third, the Commission is proposing to further amend the First

    Amended July 14 Order to provide that agricultural swaps, whether

    entered into bilaterally, on a DCM, or a SEF, may be cleared in the

    same manner that any other swap may be cleared and without the need for

    the Commission to issue any further exemption under section 4(c) of the

    CEA.\11\ This amendment is intended to harmonize the First Amended July

    14 Order and the final rules amending part 35 of the Commission's

    regulations, to the extent that the July 14 Order, as amended,

    maintained the pre-Dodd-Frank part 35 prohibition against the clearing

    of agricultural swaps. While the proposed Second Amended July 14 Order

    would remove the clearing prohibition for agricultural swaps, this

    proposal would not permit agricultural swaps to be entered into or

    executed on an ECM or EBOT. The Commission notes that ECMs and EBOTs

    both operate some form of trading facility without any self-regulatory

    responsibilities. The Commission generally believes that any form of

    exchange trading in agricultural swaps should only be permitted in a

    self-regulated environment. In other words, unlike exempt and excluded

    commodities, which were allowed to be transacted on a trading facility

    (i.e., platform-traded) in an unregulated environment under the CEA

    prior to the Dodd-Frank Act and now during the transition to the Dodd-

    Frank Act regulatory regime, agricultural swaps, which were not allowed

    to be platform-traded on an ECM or EBOT under the CEA prior to Dodd-

    Frank Act, may not be platform-traded during the transition to the

    Dodd-Frank Act regulatory regime. Accordingly, under this proposed

    amendment and in conjunction with 17 CFR part 35, as effective on and

    after December 31, 2011, the Commission confirms that agricultural

    swaps may only be entered into or executed bilaterally, on a DCM,\12\

    or on a SEF.\13\

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    \11\ 7 U.S.C. 6(c).

    \12\ See December 23 Order, 76 FR at 80236, note 11 (Dec. 23,

    2011).

    \13\ See 17 CFR 35.1(b).

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    In connection with swaps executed on a DCM (whether agricultural

    swaps or otherwise), the Commission clarifies that a DCM may list such

    swaps for trading under the DCM's rules related to futures contracts

    without exemptive relief.\14\ As required for futures, a DCM must

    submit such swaps to the Commission under either Sec. 40.2 (listing

    products for trading by certification) \15\ or Sec. 40.3 (voluntary

    submission of new products for Commission review and approval) \16\ of

    the Commission's regulations. Swaps that are traded on a DCM are

    required to be cleared by a DCO.\17\ In order for a DCO to be able to

    clear a swap listed for trading on a

    [[Page 28821]]

    DCM, the DCO must be eligible to clear such swap pursuant to Sec.

    39.5(a)(1) or (2),\18\ and must submit the swap to the Commission

    pursuant to Sec. 39.5(b).\19\

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    \14\ See 76 FR at 80236, note 22 (Dec. 23, 2011).

    \15\ 17 CFR 40.2.

    \16\ 17 CFR 40.3.

    \17\ See 7 U.S.C. 5(d)(11)(A).

    \18\ 17 CFR 39.5(a).

    \19\ 17 CFR 39.5(b).

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    Fourth, the Commission is proposing to further amend the First

    Amended July 14 Order to remove any reference to the ECM/EBOT

    Grandfather Order, which expires on July 16, 2012.\20\ After July 16,

    2012, ECMs and EBOTs, as well as markets that rely on pre-Dodd-Frank

    CEA section 2(d)(2) (``2(d)(2) Markets''), will only be able to rely on

    the Second Amended July 14 Order, as proposed herein. The relief for

    ECMs and EBOTs, as well as for 2(d)(2) Markets, granted under the

    proposed Second Amended July 14 Order shall expire upon the effective

    date of the DCM or SEF final rules, whichever is later, unless the ECM

    or EBOT, or 2(d)(2) Markets, files a DCM or SEF application on or

    before the effective date of the DCM or SEF final rules, in which case

    the relief shall remain in place during the pendency of the

    application.\21\ For these purposes, an application will be considered

    no longer pending upon the application being approved, provisionally

    approved,\22\ withdrawn, or denied.

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    \20\ The Commission issued the ECM/EBOT Grandfather Order

    pursuant to Sections 723(c) and 734(c) of the Dodd-Frank Act which

    authorized the Commission to permit ECMs and EBOTs respectively to

    continue to operate pursuant to CEA Sections 2(h)(3) and 5d for no

    more than one year after the general effective date of the Dodd-

    Frank Act's amendments to the CEA.

    \21\ The Commission currently receives notice filings from ECMs

    and EBOTs, and thus has a general familiarity with the nature and

    number of markets operating pursuant to ECM and EBOT exemptive

    relief. See 17 CFR 36.2(b) and 17 CFR 36.3(a). In order for the

    Commission to gain a similar familiarity with 2(d)(2) Markets, and

    to facilitate their eventual transition to registered DCM or

    registered SEF status, the Commission strongly encourages 2(d)(2)

    Markets intending to operate pursuant to the exemptive relief

    proposed in this Second Amended Order to provide the Commission with

    notice of their operations (or intent to so operate) on or before

    July 16, 2012, or as reasonably soon thereafter as is practicable.

    Any such notice should be sent to the Commission's Division of

    Market Oversight, 1155 21st St. NW., Washington, DC 20581 (or

    electronically, to DMOLetters@cftc.gov), and should include the name

    and address of the 2(d)(2) Market, and the name and telephone number

    of a contact person. The Commission anticipates that such notice

    will assist the Commission in its preparation to review any

    subsequent application for registration, or provisional

    registration, as a SEF or DCM submitted by such 2(d)(2) Market.

    Notwithstanding the provision of such notice, the Commission notes

    that any subsequent SEF or DCM registration application by a 2(d)(2)

    Market will still undergo a separate, complete, and independent

    evaluation by the Commission, just as will every SEF and/or DCM

    application submitted by an ECM and/or EBOT.

    \22\ For these purposes, an application is ``provisionally

    approved'' on the date that such provisional approval becomes

    effective such that the ECM, EBOT, or 2(d)(2) Market may then rely

    on such provisional approval to operate as a DCM or SEF, as

    applicable.

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    The Commission seeks comment on all aspects of this proposal.

    Related Matters

    A. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') \23\ imposes certain

    requirements on Federal agencies (including the Commission) in

    connection with conducting or sponsoring any collection of information

    as defined by the PRA. The proposed Second Amended July 14 Order will

    not require a new collection of information from any persons or

    entities that will be subject to the final order.

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    \23\ 44 U.S.C. 3507(d).

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    B. Cost-Benefit Considerations

    Section 15(a) of the CEA \24\ requires the Commission to consider

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

    CEA. CEA section 15(a) further specifies that costs and benefits shall

    be evaluated in light of five broad areas of market and public concern:

    (1) Protection of market participants and the public; (2) efficiency,

    competitiveness, and financial integrity of futures markets; (3) price

    discovery; (4) sound risk management practices; and (5) other public

    interest considerations.

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    \24\ 7 U.S.C. 19(a).

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    The Commission proposes that there are no significant, if any,

    costs associated with this proposed amendment. This is so because the

    proposed order is permissive--that is, it provides additional time

    beyond that provided for in the First Amended July 14 Order for persons

    to comply with any substantive or administrative requirements being

    imposed elsewhere.

    The Commission further proposes that, as discussed above, the

    primary benefits of this proposal include that it ensures that market

    practices will not be unduly disrupted during the transition to the new

    regulatory regime, and removes any actual or perceived inconsistency

    between Commission orders and rules with regard to agricultural swaps.

    The Commission requests comments on the consideration of costs and

    benefits of the proposed amendments discussed in this Notice.

    Proposed Second Amended July 14 Order

    The Commission proposes a Second Amended July 14 Order to read as

    follows:

    The Commission, to provide for the orderly implementation of the

    requirements of Title VII of the Dodd-Frank Act, pursuant to sections

    4(c) and 4c(b) of the CEA and section 712(f) of the Dodd-Frank Act,

    hereby issues this Order consistent with the determinations set forth

    above, which are incorporated in this final order, as amended, by

    reference, and:

    (1) Exempts, subject to the conditions set forth in paragraph (4),

    all agreements, contracts, and transactions, and any person or entity

    offering, entering into, or rendering advice or rendering other

    services with respect to, any such agreement, contract, or transaction,

    from the provisions of the CEA, as added or amended by the Dodd-Frank

    Act, that reference one or more of the terms regarding instruments

    subject to further definition under sections 712(d) and 721(c) of the

    Dodd-Frank Act, which provisions are listed in Category 2 of the

    Appendix to this Order; provided, however, that the foregoing

    exemption:

    a. Applies only with respect to those requirements or portions of

    such provisions that specifically relate to such referenced terms; and

    b. With respect to any such provision of the CEA, shall expire upon

    the earlier of: (i) The effective date of the applicable final rule

    further defining the relevant term referenced in the provision; or (ii)

    December 31, 2012.

    (2) Agricultural Commodity Swaps. Exempts, subject to the

    conditions set forth in paragraph (4), all agreements, contracts, and

    transactions in an agricultural commodity, and any person or entity

    offering, entering into, or rendering advice or rendering other

    services with respect to, any such agreement, contract, or transaction,

    from the provisions of the CEA, if the agreement, contract, or

    transaction complies with part 35 of the Commission's regulations as in

    effect prior to December 31, 2011, including any agreement, contract,

    or transaction that complies with such provisions then in effect

    notwithstanding that:

    a. The agreement, contract, or transaction may be part of a

    fungible class of agreements that are standardized as to their material

    economic terms; and/or

    b. The creditworthiness of any party having an actual or potential

    obligation under the agreement, contract, or transaction would not be a

    material consideration in entering into or determining the terms of the

    agreement, contract, or transaction i.e., the agreement, contract, or

    transaction may be cleared.

    [[Page 28822]]

    This exemption shall expire upon the earlier of (i) December 31,

    2012; or (ii) such other compliance date as may be determined by the

    Commission.

    (3) Exempt and Excluded Commodity Swaps. Exempts, subject to the

    conditions set forth in paragraph (4), all agreements, contracts, and

    transactions, and any person or entity offering, entering into, or

    rendering advice or rendering other services with respect to, any such

    agreement, contract, or transaction, from the provisions of the CEA, if

    the agreement, contract, or transaction complies with part 35 of the

    Commission's regulations as in effect prior to December 31, 2011,

    including any agreement, contract, or transaction in an exempt or

    excluded (but not agricultural) commodity that complies with such

    provisions then in effect notwithstanding that:

    a. The agreement, contract, or transaction may be executed on a

    multilateral transaction execution facility;

    b. The agreement, contract, or transaction may be cleared;

    c. Persons offering or entering into the agreement, contract or

    transaction may not be eligible swap participants, provided that all

    parties are eligible contract participants as defined in the CEA prior

    to the date of enactment of the Dodd-Frank Act;

    d. The agreement, contract, or transaction may be part of a

    fungible class of agreements that are standardized as to their material

    economic terms; and/or

    e. No more than one of the parties to the agreement, contract, or

    transaction is entering into the agreement, contract, or transaction in

    conjunction with its line of business, but is neither an eligible

    contract participant nor an eligible swap participant, and the

    agreement, contract, or transaction was not and is not marketed to the

    public;

    Provided, however, that:

    a. Such agreements, contracts, and transactions in exempt or

    excluded commodities (and persons offering, entering into, or rendering

    advice or rendering other services with respect to, any such agreement,

    contract, or transaction) fall within the scope of any of the CEA

    sections 2(d), 2(e), 2(g), 2(h), and 5d provisions or the line of

    business provision as in effect prior to July 16, 2011; and

    b. This exemption shall expire upon the earlier of: (i) December

    31, 2012; or (ii) such other compliance date as may be determined by

    the Commission; except that, for agreements, contracts, and

    transactions executed on an exempt commercial market (``ECM''), exempt

    board of trade (``EBOT''), or pursuant to CEA section 2(d)(2) as in

    effect prior to July 16, 2011 (``2(d)(2) Market''), this exemption

    shall expire upon the earlier of (i) December 31, 2012; or (ii) the

    effective date of the designated contract market (``DCM'') or swap

    execution facility (``SEF'') final rules, whichever is later, unless

    the ECM, EBOT, or 2(d)(2) Market files a DCM or SEF registration

    application on or before the effective date of the DCM or SEF final

    rules, in which case the relief shall remain in place during the

    pendency of the application. For these purposes, an application will be

    considered no longer pending when the application has been approved,

    provisionally approved, withdrawn, or denied.

    (4) Provided that the foregoing exemptions in paragraphs (1), (2),

    and (3) above shall not:

    a. Limit in any way the Commission's authority with respect to any

    person, entity, or transaction pursuant to CEA sections 2(a)(1)(B), 4b,

    4o, 6(c), 6(d), 6c, 8(a), 9(a)(2), or 13, or the regulations of the

    Commission promulgated pursuant to such authorities, including

    regulations pursuant to CEA section 4c(b) proscribing fraud;

    b. Apply to any provision of the Dodd-Frank Act or the CEA that

    became effective prior to July 16, 2011;

    c. Affect any effective or compliance date set forth in any

    rulemaking issued by the Commission to implement provisions of the

    Dodd-Frank Act;

    d. Limit in any way the Commission's authority under section 712(f)

    of the Dodd-Frank Act to issue rules, orders, or exemptions prior to

    the effective date of any provision of the Dodd-Frank Act and the CEA,

    in order to prepare for the effective date of such provision, provided

    that such rule, order, or exemption shall not become effective prior to

    the effective date of the provision; and

    e. Affect the applicability of any provision of the CEA to futures

    contracts or options on futures contracts, or to cash markets.

    In its discretion, the Commission may condition, suspend,

    terminate, or otherwise modify this Order, as appropriate, on its own

    motion. This final order, as amended, shall be effective immediately.

    Issued in Washington, DC, on May 10, 2012 by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendices to Proposed Order Amending the Second Amendment to July 14,

    2011 Order for Swap Regulation--Commission Voting Summary and

    Statements of Commissioners

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

    Federal Regulations

    On this matter, Chairman Gensler and Commissioner Sommers, Chilton,

    O'Malia and Wetjen voted in the affirmative; no Commissioner voted in

    the negative.

    Appendix 1--Chairman Gary Gensler

    I support the proposed exemptive order regarding the effective

    dates of certain Dodd-Frank Wall Street Reform and Consumer Protection

    Act (Dodd-Frank Act) provisions. Today's proposed exemptive order makes

    four changes to the exemptive order issued on December 19, 2011.

    First, the proposed exemptive order extends the sunset date from

    July 16, 2012, to December 31, 2012.

    Second, the Commodity Futures Trading Commission (CFTC) and the

    Securities and Exchange Commission have now completed the rule further

    defining the term ``swap dealer'' and ``securities-based swap dealer.''

    Thus, the proposed exemptive order no longer provides relief as it once

    did until those terms were further defined. The Commissions are also

    mandated by the Dodd-Frank Act to further define the term ``swap'' and

    ``securities-based swap.'' The staffs are making great progress, and I

    anticipate the Commissions will take up this final definitions rule in

    the near term. Until that rule is finalized, the proposed exemptive

    order appropriately provides relief from the effective dates of certain

    Dodd-Frank provisions.

    Third, in advance of the completion of the definitions rule, market

    participants requested clarity regarding transacting in agricultural

    swaps. The proposed exemptive order allows agricultural swaps cleared

    through a derivatives clearing organization or traded on a designated

    contract market to be transacted and cleared as any other swap. This is

    consistent with the agricultural swaps rule the Commission already

    finalized, which allows farmers, ranchers, packers, processors and

    other end-users to manage their risk.

    Fourth, unregistered trading facilities that offer swaps for

    trading were required under Dodd-Frank to register

    [[Page 28823]]

    as swap execution facilities (SEFs) or designated contract markets by

    July of this year. These facilities include exempt boards of trade,

    exempt commercial markets and markets excluded from regulation under

    section 2(d)(2). Given the Commission has yet to finalize rules with

    regard to SEFs, this proposed order gives these platforms additional

    time for such a transition.

    Appendix 2--Statement of Commissioner Scott D. O'Malia

    I concur in support of the Commission's proposal to further modify

    the temporary exemptive relief provided in the Commission's final order

    dated July 14, 2011 (the ``July 14 Order'').\25\ In the July 14 Order,

    the Commission addressed concerns raised by industry regarding the

    applicability of various regulatory requirements to agreements,

    contracts and transactions after the effective date of Title VII of the

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

    Act''). Today's proposal would, among other things, extend the

    temporary exemptive relief from last extension date (i.e., July 16,

    2012) to December 31, 2012.\26\

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

    \25\ See Effective Date for Swap Regulation, 76 FR 42508 (issued

    and made effective by the Commission on July 14, 2011; published in

    the Federal Register on July 19, 2011).

    \26\ The proposed amendment to the July 14 Order also seeks to:

    (1) Remove references to the entities terms in Sections 712(d) of

    the Dodd-Frank Act, including ``swap dealer,'' ``major swap

    participant,'' and ``eligible contract participant'' in light of the

    final, joint CFTC-Securities and Exchange Commission rulemaking

    further defining those terms on April 18, 2012; (2) allow the

    clearing of agricultural swaps; and (3) removing any reference to

    the exempt commercial market and exempt board of trade grandfather

    relief previously issued by the Commission.

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

    Based on the Chairman's statements at a recent industry

    conference,\27\ I am supportive of the Commission's proposed amendment

    to the July 14 Order to the delay application until the end of the year

    or until the implementation. However, I understand that unless the

    Commission focuses on its priorities, it seems unlikely we can meet

    this schedule.

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

    \27\ See Commodity Futures Trading Commission Chairman Gary

    Gensler, Remarks before International Swaps and Derivatives

    Association's 27 Annual General Meeting (May 2, 2012), available at

    http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-112.

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

    Assuming that we complete all Dodd-Frank Act-related rules, orders

    and guidance by the end of 2012, I think this proposed amendment is

    appropriate and will provide the industry with needed comfort that the

    new swaps regulatory regime will not unduly disrupt current market

    practices.

    Notwithstanding today's proposed amendment, I believe that market

    participants continue to seek guidance regarding the timing of the

    Commission's remaining rules. I frequently hear that the Commission's

    rules are not sequenced in a manner that provides them with the

    certainty they need to make budgeting, investment and hiring decisions.

    For that reason, I have included along with my statement a list of

    the remaining Commission rules, orders and guidance, as well as a

    timetable of when I understand the Commission expects to vote on those

    rules, orders and guidance. I have developed this list and timetable

    based on my knowledge and through my conversations with Commission

    staff. I strongly urge the public to provide comments on this list and

    timetable. I also ask that the public answer whether: (1) The

    Commission's year-end deadline is achievable; and (2) the sequencing of

    these rules, orders and guidance is appropriate?

    While I support the proposed amendment to the July 14 Order, I

    believe that the Commission's accelerated rulemaking schedule will

    likely result in many unforeseen perils. For example, to address many

    of the problems arising out of the Commission's final rulemaking for

    large trader reporting for physical commodity swaps, the Commission

    issued temporary and conditional relief and a guidebook. These actions

    were intended to act as a Band-Aid fixing what the Commission could

    have addressed in the final rulemaking if it were not rushed.

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    [FR Doc. 2012-11838 Filed 5-15-12; 8:45 am]

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    Last Updated: May 16, 2012