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2012-15481

  • Federal Register, Volume 77 Issue 124 (Wednesday, June 27, 2012)[Federal Register Volume 77, Number 124 (Wednesday, June 27, 2012)]

    [Proposed Rules]

    [Pages 38229-38236]

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

    [FR Doc No: 2012-15481]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 43

    RIN 3038-AD84

    Rules Prohibiting the Aggregation of Orders To Satisfy Minimum

    Block Sizes or Cap Size Requirements, and Establishing Eligibility

    Requirements for Parties to Block Trades

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Notice of proposed rulemaking.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'') is

    issuing a notice of proposed rulemaking to add certain provisions to

    part 43 of the Commission's regulations pertaining to block trades in

    swap contracts. The provisions would: (i) Prohibit the aggregation of

    orders for different trading accounts in order to satisfy the minimum

    block size or cap size requirements, except for orders aggregated by

    certain commodity trading advisors (``CTAs''), investment advisers and

    foreign persons (as described in this release), if such person has more

    than $25,000,000 in total assets under management (``AUM''); (ii)

    provide that parties to a block trade must individually qualify as

    eligible contract participants (``ECPs''), except where a designated

    contract market allows certain CTAs, investment advisers and foreign

    persons (as described in this release), to transact block trades for

    customers who are not ECPs, if such CTA, investment adviser or foreign

    person has more than $25,000,000 in total AUM; and (iii) require that

    persons transacting block trades on behalf of customers must receive

    prior written instruction or consent from the customer to do so.

    DATES: Comments must be received on or before July 27, 2012.

    ADDRESSES: You may submit comments, identified by RIN number [TBD], by

    any of the following methods:

    The agency's Web site: 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 you believe is exempt from disclosure under the Freedom of

    Information Act, a petition for confidential treatment of the exempt

    information may be submitted according to the procedures established in

    Sec. 145.9 of the Commission's regulations.\1\

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    \1\ See 17 CFR 145.9.

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    Commenters to this notice of proposed rulemaking are requested to

    refrain from providing comments with respect to the provisions in part

    43 of the Commission's regulations that are beyond the scope of this

    notice of proposed rulemaking. The Commission only plans to address

    those comments that are responsive to the policies, merits and

    substance of the proposed provisions set forth in this notice of

    proposed rulemaking.

    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: Nancy Markowitz, Deputy Director,

    Division of Market Oversight, 202-418-5453, nmarkowitz@cftc.gov; Nadia

    Zakir, Special Counsel, Division of Market Oversight, 202-418-5720,

    nzakir@cftc.gov; Laurie Gussow, Attorney-Advisor, 202-418-7623,

    lgussow@cftc.gov; George Pullen, Economist, Division of Market

    Oversight, 202-418-6709, gpullen@cftc.gov; Esen Onur, Economist, Office

    of the Chief Economist, 202-418-6146, eonur@cftc.gov; or Herminio

    Castro,

    [[Page 38230]]

    Counsel, Office of General Counsel, 202-418-6705, hcastro@cftc.gov,

    Commodity Futures Trading Commission, Three Lafayette Center, 1155 21st

    Street NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    A. The Dodd-Frank Act

    On July 21, 2010, President Obama signed 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 ``Act'') \4\ to establish a comprehensive, new regulatory framework

    for swaps and security-based swaps. This legislation was enacted to

    reduce risk, increase transparency and promote market integrity within

    the financial system by, inter alia: (1) Providing for the registration

    and comprehensive regulation of swap dealers (``SDs'') and major swap

    participants (``MSPs''); (2) imposing mandatory clearing and trade

    execution requirements on standardized derivative products; (3)

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

    enhancing the Commission's rulemaking and enforcement authorities with

    respect to, among others, all registered entities and intermediaries

    subject to the Commission's oversight.

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    \2\ See Public Law 111-203, 124 Stat. 1376 (2010).

    \3\ The short title of Title VII of the Dodd-Frank Act is the

    ``Wall Street Transparency and Accountability Act of 2010.''

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

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    Section 727 of the Dodd-Frank Act enacted section 2(a)(13) of the

    CEA, which authorizes and requires the Commission to promulgate

    regulations for the real-time public reporting of swap transaction and

    pricing data.\5\ Among other things, sections 2(a)(13)(E)(ii) and (iii)

    of the CEA respectively require the Commission to prescribe regulations

    specifying ``the criteria for determining what constitutes a large

    notional swap transaction (block trade) for particular markets and

    contracts'' and ``the appropriate time delay for reporting large

    notional swap transactions (block trades) to the public.'' \6\

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    \5\ See generally CEA section 2(a)(13), 7 U.S.C. 2(a)(13).

    \6\ See CEA sections 2(a)(13)(E)(ii) and (iii).

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    B. The Initial Proposal

    In order to implement the various statutory requirements imposed

    under section 2(a)(13) of the CEA, the Commission published an initial

    notice of proposed rulemaking on December 7, 2010 (the ``Initial

    Proposal'').\7\ As relevant to this notice of proposed rulemaking, the

    Initial Proposal proposed: (1) Definitions for the terms ``large

    notional off-facility swap'' and ``block trade''; \8\ (2) a method for

    determining the appropriate minimum block sizes for large notional off-

    facility swaps and block trades; \9\ and (3) a framework for timely

    reporting of such transactions and trades.\10\

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    \7\ See Real-Time Public Reporting of Swap Transaction Data, 75

    FR 76,139 (Dec. 7, 2010), as corrected in Real-Time Public Reporting

    of Swap Transaction Data Correction, 75 FR 76,930 (Dec. 10, 2010)

    (``Initial Proposal'').

    \8\ The Initial Proposal defined the term ``large notional

    swap''. See proposed Sec. 43.2(l), 75 FR 76,171. The Adopting

    Release finalized the term as ``large notional off-facility swap'',

    to denote, in relevant part, that the swap is not executed pursuant

    to SEF or DCM rules and procedures. See Sec. 43.2, 77 FR 1182, 1244

    (Jan. 9, 2012) (``Adopting Release''). Specifically, the Adopting

    Release defined the term as an ``off-facility swap that has a

    notional or principal amount at or above the appropriate minimum

    block size applicable to such publicly reportable swap transaction

    and is not a block trade as defined in Sec. 43.2 of the

    Commission's regulations.'' Id.

    The final definition of ``block trade'' in the Adopting Release

    is similar to how that term was defined in the Initial Proposal. See

    proposed Sec. 43.2(f), 75 FR 76,171. The Adopting Release defines

    the term ``block trade'' as a publicly reportable swap transaction

    that: ``(1) [i]nvolves a swap that is listed on a [SEF or DCM]; (2)

    [o]ccurs away from the [SEF's or DCM's] trading system or platform

    and is executed pursuant to the [SEF's or DCM's] rules and

    procedures; (3) has a notional or principal amount at or above the

    appropriate minimum block size applicable to such swap; and (4) [i]s

    reported subject to the rules and procedures of the [SEF or DCM] and

    the rules described in [part 43], including the appropriate time

    delay requirements set forth in Sec. 43.5.'' See Sec. 43.2, 77 FR

    1,243.

    \9\ See proposed Sec. 43.5, 75 FR 76174-76.

    \10\ Proposed Sec. 43.5(k)(1) in the Initial Proposal provided

    that the time delay for the public dissemination of data for a block

    trade or large notional off-facility swap shall commence at the time

    of execution of such trade or swap. See 75 FR 76,176. Proposed Sec.

    43.5(k)(2) provided that the time delay for standardized block

    trades and large notional off-facility swaps (i.e., swaps that fall

    under CEA Section 2(a)(13)(C)(i) and (iv)) would be 15 minutes from

    the time of execution. Id. The Initial Proposal did not provide

    specific time delays for large notional off-facility swaps (i.e.,

    swaps that fall under Section 2(a)(13)(C)(ii) and (iii)). Instead,

    proposed Sec. 43.5(k)(3) provided that such swaps shall be reported

    subject to a time delay that may be prescribed by the Commission.

    Id.

    The Adopting Release established time delays for the public

    dissemination of block trades and large notional off-facility swaps

    in Sec. 43.5. See 77 FR 1247-49.

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    Among other requirements contained in the Initial Proposal,

    proposed Sec. 43.5(b)(1) provided that eligible parties to a block

    trade (or large notional swap) must be ECPs,\11\ except that a

    designated contract market (``DCM'') may allow a CTA acting in an asset

    managerial capacity and registered pursuant to Section 4n of the Act,

    or a principal thereof, including any investment adviser who satisfies

    the criteria of Sec. 4.7(a)(2)(v), or a foreign person performing a

    similar role or function and subject as such to foreign regulation, to

    transact block trades for customers who are not eligible contract

    participants (``non-ECPS''), if such CTA, investment adviser or foreign

    person has more than $25,000,000 in total AUM. The proposed rule

    further required that a person transacting a block trade on behalf of a

    customer must receive written instruction or prior consent from the

    customer to do so.

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    \11\ See CEA Section 1a(18).

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    Furthermore, proposed Sec. 43.5(m) of the Initial Proposal

    prohibited the aggregation of orders for different trading accounts in

    order to satisfy the minimum block size requirement, except if done on

    a DCM by a CTA acting in an asset managerial capacity and registered

    pursuant to Section 4n of the Act, or a principal thereof, including

    any investment adviser who satisfies the criteria of Sec.

    4.7(a)(2)(v), or a foreign person performing a similar role or function

    and subject as such to foreign regulation, if such CTA, investment

    adviser or foreign person has more than $25,000,000 in total AUM.

    The Commission issued the Initial Proposal for public comment for a

    period of 60 days, but later reopened the comment period for an

    additional 45 days.\12\

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    \12\ The initial comment period for the Initial Proposal closed

    on February 7, 2011. The comment periods for most proposed

    rulemakings implementing the Dodd-Frank Act--including the proposed

    part 43 rules--subsequently were reopened for the period of April 27

    through June 2, 2011.

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    1. Comments in Response to the Initial Proposal

    The Commission received four comment letters in response to the

    proposed aggregation rule. The American Benefits Council and the

    Committee on the Investment of Employee Benefit Assets stated that

    qualified investment advisers who are not CTAs should be able to

    aggregate block trade orders for different trading accounts.\13\

    Tradeweb commented that the CTAs that trade on SEFs should also be

    permitted to aggregate trades of behalf of their customers for purposes

    of block trades.\14\ J.P. Morgan commented that the proposed rule

    appears to reflect a concern that private negotiation offers less

    protection to unsophisticated

    [[Page 38231]]

    investors than trading through the central market, and that since all

    entities that transact in the OTC market already must be ECPs, the

    analogous concern about customer protection in the swaps market is

    already addressed.\15\ In related comments, the Wholesale Market

    Brokers Association (Americas) (``WMBA'') commented that ``work-up'' or

    ``join-the-trade'' periods be permitted and recognized to satisfy the

    block trade requirement.\16\

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    \13\ The American Benefits Council and the Committee on the

    Investment of Employee Benefit Assets comment letter at 3 (Feb. 7,

    2011). The comment letter specifically requested that the rule be

    revised such that the words ``including any'' from the second

    sentence are deleted and replaced with the word ``an.''

    \14\ Tradeweb comment letter at 5 (Feb. 7, 2011).

    \15\ J.P. Morgan comment letter at 9, n. 13 (Jan. 12, 2011).

    \16\ WMBA comment letter at 4-5 (Feb. 7, 2011) (commenting that

    ``the public dissemination of incremental activity that would

    otherwise constitute a block trade could jeopardize identification

    of counterparties and materially reduce market liquidity.'')

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    C. The Adopting Release and Further Proposal

    On January 9, 2012, the Commission issued a notice of final

    rulemaking \17\ (``Adopting Release'') that finalized several

    provisions that were proposed in the Initial Proposal pertaining to,

    among other things, the reporting, public dissemination and

    recordkeeping requirements applicable to certain swap transactions.\18\

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    \17\ Real-Time Public Reporting of Swap Transaction Data, 77 FR

    1,182 (Jan. 9, 2012).

    \18\ Commenters are directed to the Adopting Release for a

    discussion of the issues addressed therein. See id.

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    Based on the public comments received in response to the Initial

    Proposal, in the Adopting Release the Commission agreed that additional

    analysis was necessary prior to issuance of final rules for appropriate

    minimum block sizes, and accordingly determined not to make final its

    proposed Sec. 43.5 rules specifying the criteria for determining block

    trade sizes. Instead, the Commission intended to issue a separate

    notice of proposed rulemaking that would specifically address the

    appropriate criteria for determining appropriate minimum block trade

    sizes in light of data and comments received.\19\ On March 15, 2012,

    the Commission decided to further propose (``Further Proposal'')

    certain other block trade provisions that were included with the

    Initial Proposal.\20\

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    \19\ See id. at 1,185.

    \20\ Commenters are directed to the Further Proposal for a

    discussion of the issues addressed therein. See ``Procedures to

    Establish Appropriate Minimum Block Sizes for Large Notional Off-

    Facility Swaps and Block Trades,'' 77 FR 15,460 (Mar. 15, 2012). The

    comment period for the Further Proposal ended on May 14, 2012.

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    After it issued the Further Proposal, the Commission determined

    that the aggregation provision and the provision that specified the

    eligible parties to a block trade, including the proposed requirement

    that persons transacting block trades on behalf of customers must

    receive prior written instruction or consent from the customer to do

    so, were inadvertently omitted from the Further Proposal. These

    provisions are the subject of this notice of proposed rulemaking.

    II. Notice of Proposed Rulemaking

    A. Proposed Sec. 43.6(h)(6)--Aggregation

    Proposed Sec. 43.6(h)(6) would prohibit the aggregation of orders

    for different trading accounts in order to satisfy the minimum block

    size or cap size requirements, except that aggregation is permissible

    if done on a DCM or SEF by a person who: (i)(A) is a CTA registered

    pursuant to Section 4n of the Act or exempt from such registration

    under the Act, or a principal thereof, and who has discretionary

    trading authority or directs client accounts, (B) is an investment

    adviser who has discretionary trading authority or directs client

    accounts and satisfies the criteria of Sec. 4.7(a)(2)(v) of this

    chapter, or (C) is a foreign person who performs a similar role or

    function as the persons described in (A) or (B) and is subject as such

    to foreign regulation, and (ii) has more than $25,000,000 in total AUM.

    The prohibition of aggregation of orders for different trading

    accounts in order to meet the minimum block size or cap size

    requirements is an integral element in ensuring the integrity of block

    trading principles, and in preserving the basis for the anonymity

    associated with cap sizes. As defined in the Adopting Release, a block

    trade is a publicly reportable transaction that: (1) Involves a swap

    that is listed on a registered SEF or DCM; (2) occurs away from the

    registered SEF's or DCM's trading system or platform (and is executed

    pursuant to the rules of such SEF or DCM); (3) has a notional or

    principal amount at or above the appropriate minimum block size

    applicable to such swap; and (4) is reported subject to the rules and

    procedures of the SEF or DCM and Commission regulations, including the

    appropriate time delay requirements.\21\ While block transactions are

    conducted pursuant to the rules of a SEF or DCM, by definition these

    transactions occur away from the SEF's or DCM's trading system or

    platform, where there is no pre-trade transparency. If too many trades

    were permitted to be aggregated and thus executable as blocks, the CEA

    objectives of increased transparency and price discovery for swaps

    trading could be undermined.\22\ By prohibiting aggregation of orders

    for different accounts to meet the minimum block size requirement, the

    proposed rule would protect the principles of block trading, and would

    help to prevent potential circumvention of exchange-trading and of the

    real-time reporting obligations associated with non-block transactions.

    By presumption, the aggregation of orders for different accounts to

    meet the minimum block size threshold would be prohibited.

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    \21\ See 77 FR 1,243.

    \22\ J.P. Morgan Comment letter at 5 (Jan. 12, 2011).

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    Indeed, in the futures market, all block trade rules approved by

    the Commission have included an aggregation prohibition (with the

    discrete exception of block trades done through certain CTAs).

    Accordingly, in the futures market, where market participants have

    engaged in block transactions for years, DCMs that permit block trading

    have rules that prohibit the aggregation of orders for different

    trading accounts to meet the minimum block size requirement.\23\

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    \23\ The following DCMs have rules permitting block trading:

    Cantor Futures Exchange, L.P. (rule IV-16); CBOE Futures Exchange

    LLC (rule 415); Chicago Board of Trade (rule 526); CME (rule 526);

    ELX Futures, L.P. (rule IV-16); Eris Exchange, LLC (rule 601); Green

    Exchange, LLC (rule 602); ICE Futures (rule 4.31); Nasdaq OMX

    Futures Exchange, Inc. (rule E23); New York Mercantile Exchange,

    Inc. (rule 526); NYSE Liffe US, LLC (rule 423); and OneChicago LLC

    Futures Exchange (rule 417). Each of the aforementioned DCMs also

    have rules prohibiting aggregation of orders to meet minimum block

    transaction size: Cantor Futures Exchange, L.P. (rule IV-16(K));

    CBOE Futures Exchange LLC (rule 415(a)(i)); Chicago Board of Trade

    (rule 526A); CME (rule 526A); ELX Futures, L.P. (rule IV-16(a));

    Eris Exchange, LLC (rule 601(b)(1)); Green Exchange, LLC (rule

    602(a)); ICE Futures (rule 4.31(a)(ii)(B)); Nasdaq OMX Futures

    Exchange, Inc. (rule E23(d)); New York Mercantile Exchange, Inc.

    (rule 526A); NYSE Liffe US, LLC (rule 423(a)(1)); and OneChicago LLC

    Futures Exchange (rule 418(a)(i)).

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    As proposed in this release, the rule also would prohibit

    aggregation in order to meet the cap size requirements. A cap size is

    defined in the Further Proposal as the maximum notional or principal

    amount of a publicly reportable swap transaction that is publicly

    disseminated.\24\ A transaction that meets the cap size requirement

    would be eligible to mask the total size of the transaction if it

    equals or exceeds the cap size for a given swap category.\25\ The

    Commission adopted cap sizes in order to help to protect the anonymity

    of counterparties' market positions and business transactions, and to

    mitigate the potential impact that real-time public reporting of

    extraordinarily large positions could have in reducing market

    [[Page 38232]]

    liquidity.\26\ By preventing aggregation of orders to meet the cap size

    requirement, the proposed rule will help to ensure that cap sizes are

    used for the specific purpose for which they are intended

    (extraordinarily large positions), and will help to prevent potential

    circumvention of the real-time reporting obligations.

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    \24\ 77 FR 15,516.

    \25\ 77 FR 15,489-90.

    \26\ Id.

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    The proposed rule further provides that aggregation of orders for

    different trading accounts for purposes of the block size or cap size

    requirements may be permitted on a DCM or SEF if done by a person who:

    (i)(A) Is a CTA who is registered pursuant to Section 4n of the Act or

    is exempt from registration under the Act, or a principal thereof, and

    has discretionary trading authority or directs client accounts, (B) is

    an investment adviser who has discretionary trading authority or

    directs client accounts and satisfies the criteria of Sec.

    4.7(a)(2)(v) of the Commission's regulations, or (C) is a foreign

    person who performs a similar role or function to the persons described

    in (A) or (B) and is subject as such to foreign regulation, and (ii)

    has more than $25,000,000 in total AUM. As noted above, DCMs that

    permit block trading in connection with futures contracts currently

    prohibit aggregation of orders to meet the block size requirement, and

    a majority of these DCMs have substantially similar rules that allow

    aggregation in such context if done by certain CTAs, investment

    advisers and foreign persons.\27\

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    \27\ A majority of DCMs currently maintain similar rules

    permitting certain CTAs, investment advisors and foreign persons to

    aggregate. See, e.g., CME Rulebook, rule 526 (providing an exception

    for block transactions by permitting aggregation if done by a CTA

    registered or exempt from registration under the Act, including

    without limitation, any investment adviser registered or exempt from

    registration under the Investment Adviser's Act of 1940 * * *

    provided that such advisers have total AUM exceeding $25 million and

    the block trade is suitable for the customers of such advisors. See

    also, CBOE Futures Exchange LLC (rule 415(a(i)); Chicago Board of

    Trade (rule 526I); CME (rule 526I); ELX Futures, L.P. (rule IV-

    16(a)); Eris Exchange, LLC (rule 601(b)(10)); Green Exchange, LLC

    (rule 602(j)); ICE Futures ((rule 4.31(a)(ii)(B)); Nasdaq OMX

    Futures Exchange, Inc., (rule E23); New York Mercantile Exchange,

    Inc. (rule 526I); NYSE Liffe US, LLC (rule 423(a)(i)); and

    OneChicago LLC Futures Exchange (rule 417(a)(i)).

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    The Commission is seeking comments on whether this exception to the

    prohibition of aggregation of orders is appropriate in the context of

    the swaps market. The Commission seeks comments on whether such an

    exception should be available to other categories of Commission

    registrants, and if so, why? Additionally, the Commission seeks

    comments on whether the $25 million AUM requirement for the specified

    account controllers is appropriate in the context of block transactions

    for swaps? Further, the Commission seeks comments on whether the $25

    million AUM requirement should include only swaps assets, or be based

    per asset class, or be different for the five asset classes of swaps?

    In addition to these specific questions, the Commission requests

    comments on all aspects of this notice of proposed rulemaking.

    B. Proposed Sec. 43.6(i)--Eligible Block Trade Parties

    The Commission is also proposing under new Sec. 43.6(i)(1) a

    provision that describes the eligible parties to a block trade. The

    proposed provision provides that parties to a block trade must be

    ``eligible contract participants,'' as that term is defined under

    Section 1a(18) of the CEA and the Commission's regulations. The

    proposed rule includes an exception to the ECP requirement by providing

    that a DCM may allow: (i) A CTA registered pursuant to Section 4n of

    the Act, or exempt from registration under the Act, or a principal

    thereof, who has discretionary trading authority or directs client

    accounts, (ii) an investment adviser who has discretionary trading

    authority or directs client accounts and satisfies the criteria of

    Sec. 4.7(a)(2)(v) of the Commission's regulations, or (iii) a foreign

    person who performs a similar role or function to the persons described

    in (i) or (ii) and is subject as such to foreign regulation, to

    transact block trades for customers who are not ECPs, if such CTA,

    investment adviser or foreign person has more than $25,000,000 in total

    AUM.\28\

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    \28\ Parties that are non-ECPs may not enter into any swap

    transactions, including blocks, except on or subject to the rules of

    a DCM. Specifically, section 2(e) of the CEA provides that ``[i]t

    shall be unlawful for any person, other than an eligible contract

    participant, to enter into a swap unless the swap is entered into

    on, or subject to the rules of, a board of trade designated as a

    contract market under section 5.'' 7 U.S.C. 2(e).

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    In the current futures market, all DCMs require that parties to

    block trades must be ECPs. A majority of these DCMs permit certain

    CTAs, investment advisers and foreign persons to transact a block trade

    on behalf of their non-ECP customers. The proposed rule, including the

    limited exception, is currently reflected in the rulebooks of numerous

    DCMs that permit block trading in the futures market.\29\

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    \29\ Most DCMs that permit block trading require that parties to

    the block trade must be ECPs with a limited exception for CTAs. The

    following DCMs have rules excepting CTAs from the requirement that

    parties to a block trade must be ECPs: CBOE Futures Exchange LLC

    (rule 415(a)(ii)); Chicago Board of Trade (rule 526I); CME (rule

    526I); ELX Futures, L.P. (rule IV-16(c)); Eris Exchange, LLC (rule

    601(b)(10)); Green Exchange, LLC (rule 602(a) and (j)); ICE Futures

    (rule 4.31(a)(i)); Nasdaq OMX Futures Exchange, Inc., (rule E23(d));

    New York Mercantile Exchange, Inc. (rule 526I); NYSE Liffe US, LLC

    (rule 423(a)(ii)); and OneChicago LLC Futures Exchange (rule

    417(a)(ii)).

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    Proposed Sec. 43.6(i)(2) further provides that a person

    transacting a block trade on behalf of a customer must receive prior

    written instruction or consent from the customer to do so. Such

    instruction or consent may be provided in a power of attorney or

    similar document by which the customer provides the person with

    discretionary trading authority or the authority to direct the trading

    in its account. This rule also is substantially similar to the block

    trading rules maintained by existing DCMs.

    III. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that agencies

    consider whether the rules they propose will have a significant

    economic impact on a substantial number of small entities and, if so,

    provide a regulatory flexibility analysis respecting the impact.\30\

    The RFA focuses on direct impact to small businesses and not on

    indirect impacts on these businesses, which may be tenuous and

    difficult to discern.\31\ The CFTC believes that this proposal would

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

    entities.

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    \30\ See 5 U.S.C. 601 et seq.

    \31\ See Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 (2001);

    Am. Trucking Assns. v. EPA, 175 F.3d 1027, 1043 (D.C. Cir. 1985);

    Mid-Tex Elec. Coop., Inc. v. FERC, 773 F.2d 327, 340 (DC Cir. 1985).

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    1. Effect of the Proposed Rulemaking

    This release proposes a rule that would prohibit the aggregation of

    orders for different trading accounts in order to satisfy the minimum

    block size, or cap size requirement. The proposed rule further provides

    that aggregation is permissible if done on a DCM or SEF by a person

    who: (i)(A) Is a CTA who is registered pursuant to Section 4n of the

    Act, or is exempt from registration under the Act, or a principal

    thereof, and has discretionary trading authority or directs client

    accounts, (B) is an investment adviser who has discretionary trading

    authority or directs client accounts and satisfies the criteria of

    Sec. 4.7(a)(2)(v) of the Commission's regulations, or (C) is a foreign

    person who performs a similar role or function to the persons described

    in (A) or (B) and is subject as such to foreign regulation, and (ii)

    has more than $ 25,000,000 in total AUM.

    [[Page 38233]]

    This release also proposes under new Sec. 43.6(i)(1) a provision

    that describes the eligible parties to a block trade. The proposed rule

    provides that parties to a block trade must be ``eligible contract

    participants,'' as that term is defined under Section 1a(18) of the CEA

    and the Commission's regulations. The proposed rule further provides

    that a DCM may allow: (i) A CTA who is registered pursuant to Section

    4n of the Act, or exempt from registration under the Act, or a

    principal thereof, who has discretionary trading authority or directs

    client accounts, (ii) an investment adviser who has discretionary

    trading authority or directs client accounts and satisfies the criteria

    of Sec. 4.7(a)(2)(v) of the Commission's regulations, or (iii) a

    foreign person who performs a similar role or function to the persons

    described in (i) or (ii) and is subject as such to foreign regulation,

    to transact block trades on behalf of their customers who are not

    eligible contract participants, if such CTA, investment adviser or

    foreign person has more than $25,000,000 in total AUM.

    The CFTC is of the view that this proposal may affect primarily the

    following entities: DCMs, futures commission merchants (``FCMs''),

    ECPs, swap dealers, major swap participants, certain CTAs, SEFs and

    certain investment advisers. The majority of entities impacted by this

    proposed rulemaking have been determined by the Commission not to be

    small entities. To the extent that a small number of small entities may

    be affected by the proposed rules, the Commission believes, as

    described below, that the proposed rules would not have a significant

    economic impact on a substantial number of such entities.

    2. Specific Entities That May Be Small Entities

    As noted above, the Commission has previously determined that DCMs,

    FCMs, and ECPs are not small entities for purposes of the Regulatory

    Flexibility Act.\32\ Certain other entities that may be affected by

    this rulemaking, including SDs, MSPs and SEFs, have been certified by

    the Commission not to be small entities in other recent rulemakings

    implementing the requirements of the Dodd-Frank Act.\33\

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

    \32\ See, respectively and as indicated, 47 FR 18618, 18619,

    Apr. 30, 1982 (DCMs, CPOs, FCMs, and large traders); and, 66 FR

    20740, 20743, Apr. 25, 2001 (ECPs).

    \33\ See respectively, Registration of Swap Dealers and Major

    Swap Participants, 77 FR 2613, 2620 (Jan. 19, 2012) (swap dealers

    and major swap participants); Requirements for Derivatives Clearing

    Organizations, Designated Contract Markets, and Swap Execution

    Facilities Regarding the Mitigation of Conflicts of Interest, 75 FR

    63732, 63746 (Oct. 18, 2010) (SEFs); Further Definition of ``Swap,''

    ``Security-Based Swap,'' and ``Security-Based Swap Agreement'';

    Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 76 FR

    29818, 29868 (May 23, 2011) (Products).

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

    a. Entities affected under Sec. 43.6(h)(6): FCMs, CTAs, and

    investment advisers.

    As noted above, the CFTC previously has determined that registered

    FCMs are not small entities for purposes of the RFA based upon, among

    other things, the registration requirements that FCMs must meet,

    including certain minimum financial requirements that enhance the

    protection of customers' segregated funds and protect the financial

    condition of FCMs generally.\34\ With respect to certain CTAs \35\ and

    investment advisers who would not be permitted to aggregate under the

    proposed rule, the Commission notes that the same provisions embodied

    in the proposed rule are currently required by DCM rules (under rules

    accepted by the Commission) and thus, such entities currently must

    comply with the same aggregation prohibition. Thus, all DCMs that

    permit aggregation for purposes of the block size requirement, only

    permit aggregation by CTAs, investment advisers and foreign persons

    that have more than $25,000,000 in total AUM. Accordingly, the

    Commission believes that this rule does not impact entities that

    heretofore have not been able to aggregate. To the extent that certain

    CTAs and investment advisers with less than $25,000,000 AUM are not

    currently permitted to aggregate, the Commission's codification of

    these rules would not have any significant economic impact on a

    substantial number of small entities.

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

    \34\ See supra note 32.

    \35\ The Commission may determine on a case-by-case basis

    whether CTAs are not small entities for the purpose of the RFA based

    upon a case by case determination. See 47 FR 18618, 18620 (Apr. 30,

    1982).

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

    b. Entities affected under Sec. 43.6(i)(1): Certain non-ECP

    participants on DCMs, certain investment advisors, and FCMs.

    New Sec. 43.6(i)(1) provides that parties to a block trade must be

    ``eligible contract participants,'' \36\ as that term is defined under

    Section 1a(18) of the CEA and Sec. 1.3 of the Commission's

    regulations, except for certain CTAs, investment advisers or foreign

    persons performing a similar role or function having more than

    $25,000,000 in total AUM, which may transact block trades for customers

    who are not ECPs. As indicated above, certain CTAs and investment

    advisers that have less than $25,000,000 in AUM would not be covered

    under the proposed rule because the provision embodied in the proposed

    rule is substantially the same as is currently required by DCM rules

    (under rules accepted by the Commission). Similarly, any non-ECP

    participants who trade on DCMs also would be prohibited under current

    DCM rules from directly entering into a block transaction unless their

    qualifying CTA, investment adviser, or foreign person acts on their

    behalf. To the extent that these entities are not currently permitted

    to aggregate, the Commission's codification of these rules would not

    have any significant economic impact on a substantial number of small

    entities. Accordingly, the Chairman, on behalf of the Commission,

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

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

    small businesses. Nonetheless, the Commission specifically requests

    comment on the economic impact that this notice of proposed rulemaking

    may have on small entities.

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

    \36\ ECPs have been determined not to be small entities. See 66

    FR 20740, 20743 (Apr. 25, 2001).

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

    B. Paperwork Reduction Act

    The purposes of the Paperwork Reduction Act of 1995, 44 U.S.C. 3501

    et seq. (``PRA'') are, among other things, to minimize the paperwork

    burden to the private sector, ensure that any collection of information

    by a government agency is put to the greatest possible uses, and

    minimize duplicative information collections across the government.\37\

    The PRA applies to all information, ``regardless of form or format,''

    that a government is ``obtaining, causing to be obtained, [or]

    soliciting'' and requires ``disclosure to third parties or the public,

    of facts or opinions,'' when the information collection calls for

    ``answers to identical reporting or recordkeeping requirements imposed,

    on ten or more persons[.]'' \38\ The PRA requirements have been

    determined to include not only mandatory but also voluntary information

    collections, and include both written and oral communications.\39\

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

    \37\ See 44 U.S.C. 3501.

    \38\ 44 U.S.C. 3502.3(A)(i).

    \39\ See 5 CFR 1320.3(c)(1).

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

    The proposed rules would not impose any new recordkeeping or

    information collection requirements, or other collections of

    information that require approval of the Office of Management and

    Budget (``OMB'') under the PRA. The proposed rules are covered by

    existing collection requirements and would not change existing

    collection

    [[Page 38234]]

    requirements.\40\ The Commission invites public comment on the accuracy

    of its estimate that no additional recordkeeping or information

    collection requirements or changes to existing collection requirements

    would result from the rules proposed herein.

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

    \40\ See 77 FR 1182 (Jan. 9, 2012), as amended by the Further

    Proposal. OMB has assigned control number 3038-0070 to the existing

    collection of information, which is titled ``Part 43--Real-Time

    Public Reporting.''

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

    C. Cost-Benefit Considerations

    Section 15(a) of the CEA \41\ requires the Commission to consider

    the costs and benefits of its actions before promulgating a regulation

    or issuing an order under the CEA. Section 15(a) further specifies that

    the costs and benefits shall be evaluated in light of the following

    five broad areas of market and public concern: (1) Protection of market

    participants and the public; (2) efficiency, competitiveness, and

    financial integrity of futures markets; (3) price discovery; (4) sound

    risk management practices; and (5) other public interest

    considerations. The Commission considers the costs and benefits

    resulting from its discretionary determinations with respect to the

    Section 15(a) factors.

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

    \41\ 7 U.S.C. 19(a).

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

    The baseline for the Commission's assessment of costs and benefits

    attributable to its discretionary actions in this rulemaking is the

    costs and benefits that would otherwise exist today (i.e., post-Dodd-

    Frank Act enactment) absent this Commission action. The Commission

    recognizes that before the Dodd-Frank Act, swap transactions were

    executed over-the-counter and were not publicly reported. One of the

    implications of the Dodd-Frank Act is that most swap transactions are

    required to be publicly disseminated by SDRs as soon as technologically

    practicable, unless the notional value of the swap transaction meets

    the minimum block trade threshold.\42\ That is the baseline for the

    Commission's proposed assessment of costs and benefits in this release.

    The Commission proposes that costs and benefits with respect to block

    trade thresholds are already accounted for in the Further Proposal and

    that this rule only considers the additional costs and benefits

    relevant to proposed Sec. 43.6(h)(6) and proposed Sec. 43.6(i).

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

    \42\ The Commission notes that for an initial interim period, as

    outlined in Sec. 43.5 of the Adopting Release, all transactions

    will be treated as block trades and will enjoy delayed reporting

    temporarily.

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

    1. Costs and Benefits Relevant to Proposed Sec. 43.6(h)(6)--

    Aggregation

    The Commission is proposing Sec. 43.6(h)(6) to specify that,

    except as otherwise provided, it is impermissible to aggregate orders

    for different accounts in order to satisfy minimum block trade or cap

    size requirements. The proposed rule further provides that aggregation

    may be permitted on a DCM or SEF if done by a person who: (i)(A) Is a

    CTA who is registered pursuant to Section 4n of the Act or is exempt

    from registration under the Act, or a principal thereof, and has

    discretionary trading authority or directs client accounts, (B) is an

    investment adviser who has discretionary trading authority or directs

    client accounts and satisfies the criteria of Sec. 4.7(a)(2)(v) of the

    Commission's regulations, or (C) is a foreign person who performs a

    role or function similar to the persons described in (A) or (B) and is

    subject as such to foreign regulation, and (ii) has more than

    $25,000,000 in total AUM.

    Costs

    The Commission expects that there will be some incremental cost

    attendant to compliance with proposed Sec. 43.6(h)(6), and seeks data

    from the public in order to quantify the same. The Commission believes

    that the overall benefits to the market of allowing for the aggregation

    of orders under certain circumstances (i.e., if done on a designated

    contract market or a swap execution facility by certain CTAs,

    investment advisers or foreign persons) will mitigate costs of reduced

    market liquidity that could result from execution of such transactions

    away from the centralized marketplace. The Commission also expects

    there to be some advisors who will be prohibited from aggregating

    orders for different trading accounts in order to satisfy the minimum

    block size, or cap size requirements. The Commission also proposes that

    as a result of some advisors not being allowed to aggregate, there

    might be some minimal unquantifiable cost associated with a decrease in

    competition among such traders in the market. The Commission seeks

    comment on these and any other costs that may result from this

    proposal. In particular, and as noted above, the WMBA claimed in its

    comment letter that ``work-up'' or ``join-the-trade'' periods be

    permitted to satisfy the block trade requirements, and that ``the

    public dissemination of incremental activity that would otherwise

    constitute a block trade could jeopardize identification of

    counterparties and materially reduce market liquidity.'' \43\ The

    Commission seeks comment on the costs and benefits of the rules

    proposed in this release with respect to the specific implications

    claimed by WMBA.

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

    \43\ WMBA comment letter at 4-5 (Feb. 7, 2011).

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

    Benefits

    The proposed rule is designed, in large part, to prevent

    circumvention of the exchange trading requirements and of the real-time

    reporting obligations associated with non-block transactions. Absent

    this prohibition, the goals of the Commission's regulations regarding

    block trading, namely increased transaction transparency, better price

    discovery and improved competitiveness in the markets as well as better

    risk management, could be frustrated by those whose trades individually

    fail to meet the minimum block trade threshold (and cap size threshold

    as a result), but nevertheless achieve the benefits intended for

    extraordinarily large positions by aggregating those individual trades.

    In other words, such entities would be able to evade the exchange-

    trading and reporting obligations that are integral to price

    transparency. The Commission seeks comment on these and any other

    benefits that may result from this proposal.

    Section 15(a) Factors

    (1) Protection of market participants and the public.

    The Commission believes that the proposed rule would protect market

    participants from unfair practices by preventing trades that do not

    meet the minimum block trade threshold from enjoying extended reporting

    times. This requirement would mean that trades that are not

    extraordinarily large, and hence, that do not need extra reporting time

    would not qualify as block trades and would be made public as soon as

    technologically practicable. Hence, the proposed rule would increase

    transparency of non-block transactions, and thus, would protect market

    participants by informing their trading determinations through

    increased transparency and price discovery.

    (2) Efficiency, competitiveness, and financial integrity of the

    futures markets.

    The Commission expects the prohibition of aggregation of trades to

    improve efficiency and competitiveness in the markets by allowing more

    trades to be reported without the time delay that is applied to

    qualifying block trades. This requirement would mean that a higher

    number of trades would be eligible for real time reporting, and that

    [[Page 38235]]

    would increase market transparency as well as promote competition in

    the swap markets. The rule also would protect the integrity of the

    derivatives market by ensuring that smaller trades, which do not

    qualify as block transactions, are executed on the trading system where

    there is pre-trade and post-trade transparency.

    The Commission also recognizes that advisors who are prohibited

    from aggregating orders in order to satisfy the minimum block size or

    cap size requirements might not trade at the most favorable prices in

    the market, which might have a negative effect on the number of such

    traders in the market. While the Commission expects that competition in

    the market may be negatively affected as a result of prohibiting

    aggregation, the Commission anticipates that the positive effects of

    the proposed rule on competition outweigh its negative effects.

    (3) Price discovery.

    The Commission expects the proposed rule to improve price discovery

    in the swap markets by preventing aggregation of trades and as a result

    promoting more trades to be publicly reported as soon as

    technologically practicable. This would result in enhanced swap market

    price discovery, since market participants and the public would be able

    to observe real-time pricing information for a higher percentage of

    transactions in the market. In addition, the Commission expects that

    the rule would enhance price discovery by ensuring that smaller trades,

    which do not qualify as block transactions, are executed on the trading

    system where there is pre-trade and post-trade transparency and where

    buyers and sellers may make informed trading decisions based on the

    market's transparency.

    (4) Sound risk management practices.

    The Commission anticipates that the proposed criteria, if adopted,

    would likely result in enhanced price discovery as discussed above.

    With better and more accurate data, swap market participants would

    likely be better able to measure and manage risk. The Commission

    proposes that if the prohibition of aggregation of trades was not

    adopted, swap transactions may not be reported to an SDR ``as soon as

    technologically practicable.'' The Commission also proposes that by

    preventing this delay in the reporting period of a swap transaction to

    an SDR, the Commission will possess the information it needs to monitor

    the transfer and positions of risk among counterparties in the swaps

    market.

    (5) Other public interest considerations.

    The Commission has not identified any other public interest

    considerations regarding the proposed rule.

    2. Costs and Benefits Relevant to Proposed Sec. 43.6(i)--Eligible

    Block Trade Parties

    Costs

    Proposed Sec. 43.6(i)(1) requires that parties to a block trade

    must be eligible contract participants, as defined under the CEA and

    Commission regulations, except that a DCM may allow: (i) A CTA

    registered pursuant to Section 4n of the Act or exempt from

    registration under the Act, or a principal thereof, and who has

    discretionary trading authority or directs client accounts, (ii) an

    investment adviser who has discretionary trading authority or directs

    client accounts and satisfies the criteria of Sec. 4.7(a)(2)(v) of the

    Commission's regulations, or (iii) a foreign person who performs a

    similar role or function to the persons described in (i) or (ii) and is

    subject as such to foreign regulation, to transact block trades for

    customers who are not eligible contract participants, if such CTA,

    investment adviser or foreign person has more than $25,000,000 in total

    AUM. This proposed rule codifies, in part, the requirement under

    Section 2(e) of the CEA, which requires that ``[i]t shall be unlawful

    for any person, other than an eligible contract participant, to enter

    into a swap unless the swap is entered into on, or subject to the rules

    of * * * a designated contract market.'' In addition, the provisions

    allowing certain entities (as described in this release) to enter into

    block trades on behalf of their non-ECP customers on DCMs is

    substantially similar to the existing DCM rules that allow block

    trading in the futures market.

    Proposed Sec. 43.6(i)(2) further provides that no person may

    conduct a block trade on behalf of a customer unless the person

    receives prior written instruction or consent to do so. The proposed

    rule further provides that such instruction or consent may be provided

    in the power of attorney or similar document by which the customer

    provides the person with discretionary trading authority or the

    authority to direct the trading in its account. The Commission is of

    the view that the cost associated with the written instruction or

    consent is minimal. The Commission estimates that a prior written

    instruction or consent requirement would impose an initial non-

    recurring burden of approximately 2 personnel hours at an approximate

    cost of $155.54 for each CTA, investment adviser or foreign person.\44\

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

    \44\ Using wage rate estimates based on salary information for

    the securities industry compiled by the Securities Industry and

    Financial Markets Association (``SIFMA''), the estimate is

    calculated as follows: Compliance manager at 2 hours. A senior

    programmer's adjusted hourly wage is $77.77, estimated using the

    following calculations:

    (1) [(2009 salary + bonus) * (salary growth per professional

    type, 2009-2010)] = Estimated 2010 total annual compensation. The

    most recent data provided by the SIFMA report describe the 2009

    total compensation (salary + bonus) by professional type, the growth

    in base salary from 2009 to 2010 for each professional type, and the

    2010 base salary for each professional type; thus, the Commission

    estimated the 2010 total compensation for each professional type,

    but, in the absence of similarly granular data on salary growth or

    compensation from 2010 to 2011 and beyond, did not estimate dollar

    costs beyond 2010.

    (2) [(Estimated 2010 total annual compensation)/(1,800 annual

    work hours)] = Hourly wage per professional type.

    (3) [(Hourly wage) * (Adjustment factor for overhead and other

    benefits, which the Commission has estimated to be 1.3)] = Adjusted

    hourly wage per professional type.

    (4) [(Adjusted hourly wage) * (Estimated hour burden for

    compliance)] = Dollar cost of compliance for each hour burden

    estimate per professional type.

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

    Benefits

    The Commission has determined that the benefits of proposed Sec.

    43.6(i) are significant. The proposed rule, if adopted, would allow

    customers who are not ECPs to engage in block trade transactions

    through certain entities as outlined in the rule. By permitting certain

    CTAs, investment advisers and foreign persons to transact swaps on

    behalf of non-ECP customers, the rule provides important safeguards for

    non-ECPs when entering into block transactions in swaps. The Commission

    believes that access to block trades would allow customers who are not

    ECPs to diversify their risk or improve their investment strategies. In

    addition, the Commission also anticipates the access to block trades

    for non-ECPs to increase their participation in swap markets,

    increasing liquidity in the markets for everyone.

    Section 15(a) Factors

    (1) Protection of market participants and the public.

    The Commission does not anticipate the proposed rule to have any

    significant effect on the protection of market participants and the

    public.

    (2) Efficiency, competitiveness, and financial integrity of the

    futures markets.

    The Commission expects the proposed rule to improve competitiveness

    in the markets by allowing customers who are not ECPs to have access to

    block trades through certain CTAs, investment advisers and

    [[Page 38236]]

    foreign persons. The Commission anticipates an increase in

    competitiveness due to the fact that more customers would use the swap

    markets as a result of this rule. An increased participation in a

    market would also serve to increase liquidity, as well as competition,

    in that market.

    (3) Price discovery.

    The Commission does not anticipate the proposed rule to have any

    significant effect on price discovery in the market.

    (4) Sound risk management practices.

    The Commission does not anticipate the proposed rule to have any

    significant effect on risk management practices.

    (5) Other public interest considerations.

    The Commission has not identified any other public interest

    considerations regarding the proposed rule.

    The Commission requests comments on its cost and benefit

    considerations with respect to the proposed rule, and any alternatives.

    The Commission specifically requests that commenters provide data from

    which the Commission may quantify the costs or benefits of the proposed

    rule.

    IV. Rule Text

    List of Subjects in 17 CFR Part 43

    Large notional off-facility trades, Block trades, Appropriate

    minimum block sizes, Real-time public reporting, Public dissemination,

    Cap size, Anonymity, Swap category.

    For the reasons stated in the preamble, the Commodity Futures

    Trading Commission proposes to amend 17 CFR part 43 as set forth below:

    PART 43--[AMENDED]

    1. The authority citation for part 43 shall continue to read as

    follows:

    Authority: 7 U.S.C. 2(a), 12a(5) and 24a, amended by Pub. L.

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

    2. Add section 43.6(h)(6) to part 43 to read as follows:

    Sec. 43.6(h)(6) Aggregation.

    Except as otherwise stated in this paragraph, the aggregation of

    orders for different accounts in order to satisfy the minimum block

    trade size or the cap size requirement is prohibited. Aggregation is

    permissible on a designated contract market or swap execution facility

    if done by a person who:

    (i)(A) Is a commodity trading advisor registered pursuant to

    Section 4n of the Act, or exempt from registration under the Act, or a

    principal thereof, who has discretionary trading authority or directs

    client accounts,

    (B) Is an investment adviser who has discretionary trading

    authority or directs client accounts and satisfies the criteria of

    Sec. 4.7(a)(2)(v) of this chapter, or

    (C) Is a foreign person who performs a similar role or function as

    the persons described in subparagraphs (A) or (B) and is subject as

    such to foreign regulation; and,

    (ii) Has more than $25,000,000 in total assets under management.

    3. Add Section 43.6(i) to part 43 to read as follows:

    Sec. 43.6(i) Eligible Block Trade Parties.

    (1) Parties to a block trade must be ``eligible contract

    participants,'' as defined in Section 1a(18) of the Act and the

    Commission's regulations. However, a designated contract market may

    allow: (i) A commodity trading advisor registered pursuant to Section

    4n of the Act, or exempt from registration under the Act, or a

    principal thereof, who has discretionary trading authority or directs

    client accounts, (ii) an investment adviser who has discretionary

    trading authority or directs client accounts and satisfies the criteria

    of Sec. 4.7(a)(2)(v) of this chapter, or (iii) a foreign person who

    performs a similar role or function as the persons described in (i) or

    (ii) of this paragraph and is subject as such to foreign regulation, to

    transact block trades for customers who are not eligible contract

    participants if such commodity trading advisor, investment adviser or

    foreign person has more than $25,000,000 in total assets under

    management.

    (2) A person transacting a block trade on behalf of a customer must

    receive prior written instruction or consent from the customer to do

    so. Such instruction or consent may be provided in the power of

    attorney or similar document by which the customer provides the person

    with discretionary trading authority or the authority to direct the

    trading in its account.

    Issued in Washington, DC, on June 20, 2012, by the Commission.

    David A. Stawick,

    Secretary of the Commission.

    Appendix to Rules Prohibiting the Aggregation of Orders To Satisfy

    Minimum Block Sizes or Cap Size Requirements, and Establishing

    Eligibility Requirements for Parties to Block Trades

    Commission Voting Summary

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

    Federal Regulations.

    On this matter, Chairman Gensler and Commissioners Sommers,

    Chilton, O'Malia and Wetjen voted in the affirmative; no

    Commissioner voted in the negative.

    [FR Doc. 2012-15481 Filed 6-26-12; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: June 27, 2012