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, [email protected], Office of the General Counsel; David Van
Wagner, Chief Counsel, (202) 418-5481, [email protected], 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, [email protected], 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/idc/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/idc/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 [email protected]), 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\
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\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.
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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.
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\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.
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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