Font Size: AAA // Print // Bookmark

e7-15370

  • [Federal Register: August 13, 2007 (Volume 72, Number 155)]

    [Proposed Rules]

    [Page 45185-45191]

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

    [DOCID:fr13au07-18]

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

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

    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Parts 36 and 40

    RIN 3038-AC39

    Amendments Pertinent to Registered Entities and Exempt Commercial

    Markets

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rulemaking.

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

    SUMMARY: The proposed regulations expand the set of persons delegated

    by the Commission with the authority to issue exempt commercial market

    (ECM) special calls to include the Director of the Division of

    Enforcement and that Director's designees. The proposed regulations

    clarify the process for listing, clearing, or implementing registered

    entity products or rules, including dormant products and rules, and

    amend the definition of emergency to clarify that persons other than

    members of the governing board of a registered entity may declare an

    emergency on behalf of the governing board. The proposed regulations

    also clarify the duration of the rule approval period for designated

    contract market (DCM) rules that may change a material term or

    condition of a contract based on the agricultural commodities

    enumerated in section 1a(4) of the Commodity Exchange Act (CEA or Act).

    Finally, the proposed regulations clarify how far in advance of

    implementation registered entities must submit self-certified contracts

    and rules to the Commission, and identify three additional categories

    of rules that a registered entity may implement without filing

    certified submissions or receiving prior Commission approval.

    DATES: Comments must be received by September 12, 2007.

    ADDRESSES: Comments should be sent to the Commodity Futures Trading

    Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington,

    DC 20581, attention: Office of the Secretariat. Comments may be sent by

    facsimile to 202.418.5521, or by e-mail to secretary@cftc.gov.

    Reference should be made to the ``Amendments Pertinent to Registered

    Entities and Exempt Commercial Markets.'' Comments may also be

    submitted through the Federal eRulemaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov

    .

    FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office

    of the Director (telephone 202.418.5578, e-mail bfekrat@cftc.gov),

    Division of Market Oversight, Commodity Futures Trading Commission,

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

    SUPPLEMENTARY INFORMATION:

    I. Introduction

    The Commodity Futures Trading Commission (Commission) published

    comprehensive final regulations for trading facilities on August 10,

    2001.\1\ The final regulations codified the procedural provisions

    common to exempt boards of trade and ECMs operating pursuant to

    sections 5d or 2(h)(3) through (5) of the Act, respectively, in part 36

    of the Commission's regulations. The final regulations also codified

    the procedural provisions common to DCMs, derivatives transaction

    execution facilities (DTEF), and derivatives clearing organizations

    (DCO) in part 40 of the Commission's regulations, and further

    established the regulatory framework necessary to implement and

    interpret the provisions of the CEA, as amended by the Commodity

    Futures Modernization Act of 2000 (CFMA),\2\ pertinent to trading

    facilities. Based upon its subsequent experience in administering the

    Act, the Commission herein proposes several amendments to parts 36 and

    40 of the Commission's regulations to better implement the Act and

    provide clearer direction as to the Commission's regulatory

    requirements thereunder.

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

    \1\ 66 FR 42256 (August 10, 2001).

    \2\ Pub. L. 106-554, 114 Stat. 2763 (December 21, 2000).

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

    II. Exempt Commercial Markets

    The CFMA created a qualified exemption from the Commission's

    jurisdiction for transactions executed or traded on ECMs. Section

    2(h)(3) of the Act, which was added by the CFMA, applies the exemption

    to transactions in exempt commodities executed or traded on an

    electronic trading facility that are entered into on a principal-to-

    principal basis solely between persons that are eligible commercial

    entities.\3\ The CEA specifically reserves the applicability of the

    Commission's antifraud and antimanipulation authority to transactions

    executed or traded on ECMs in section 2(h)(4) of the Act \4\ and gives

    the Commission the authority to issue ECM special calls for information

    to, among other things, enforce that authority.\5\

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

    \3\ 7 U.S.C. 2(h)(3).

    \4\ 7 U.S.C. 2(h)(4).

    \5\ 7 U.S.C. 2(h)(5).

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

    In July 2004, the Commission amended regulation 36.3(b), which

    governs the Commission's access to ECM transaction data, to improve the

    quality of accessible information relevant to its antifraud and

    antimanipulation authority.\6\ In that rulemaking, the Commission

    stated that aberrant price behavior on ECMs may require further

    Commission investigation and the eventual use of the Commission's

    special call authority to identify wrongful conduct.\7\ The authority

    to issue special calls to ECMs currently is delegated to the Directors

    of

    [[Page 45186]]

    the Division of Market Oversight (DMO) and the Division of Clearing and

    Intermediary Oversight and their designees. Given the importance of the

    authority to issue special calls to the Commission's ability to enforce

    its reserved antifraud and antimanipulation authority with respect to

    ECM transactions, the Commission herein proposes to amend regulation

    36.3 to expand the set of persons with delegated authority to issue

    special calls pursuant to section 2(h)(5)(B)(iii) of the Act to include

    the Director of the Division of Enforcement and that Director's

    designees.

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

    \6\ 69 FR 43285 (July 20, 2004).

    \7\ Id. at 43289.

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

    III. Proposed Amendments to Part 40 of the Commission's Regulations

    A. Self-Certification, Approval, and Dormancy

    Part 40 of the Commission's regulations currently does not clearly

    indicate that the procedural requirements for listing, clearing or

    implementing dormant contracts and rules \8\ are identical to the

    requirements established for initial submissions of contracts and rules

    that have never been approved by, or certified with, the Commission.\9\

    The current product and rule filing provisions of part 40 also do not

    clearly indicate that a DCM or DCO, in general, must choose either to

    comply with the rule approval process established in part 40 or, in the

    alternative, the certification process established in part 40 prior to

    listing, clearing, or implementing any product or rule, including any

    product or rule that has become dormant.\10\ The Commission therefore

    proposes to amend the language in regulations 40.2(a), 40.3(a),

    40.4(a), 40.5(a) and 40.6(a) to clarify that a DCM or DCO in general

    must choose either to list, clear, or implement a product or rule,

    including any dormant product or rule, pursuant to the self-

    certification provisions of part 40 or, in the alternative, pursuant to

    the process established in part 40 for receiving the Commission's prior

    approval.\11\

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

    \8\ The Commission defines a dormant contract as a contract or

    product without open interest that, after the expiration of a

    thirty-six month development period following initial certification

    or approval, has not traded in the preceding twelve consecutive

    calendar months. 17 CFR 40.1(b). The Commission defines a dormant

    rule as a rule that has remained unimplemented for twelve

    consecutive calendar months following the rule's initial

    certification with, or approval by, the Commission. 17 CFR 40.1(f).

    \9\ This alignment of procedural requirements is based, in part,

    on the premise that certain contracts and rules, which have remained

    inactive or unimplemented for a significant period of time, may no

    longer contain terms that are consistent with the Commission's

    regulations and prevailing market conditions. 67 FR 62783, 62784

    (October 9, 2002).

    \10\ The Commission's regulations do not require a DTEF to

    either certify or submit for Commission approval a product or rule

    prior to listing or implementation. However, a DTEF, which is

    generally subject to notice filing requirements, may choose to self-

    certify products or rules or submit them for Commission approval

    pursuant to the procedures established in part 40 of the

    Commission's regulations. See 17 CFR 37.7.

    \11\ DCM rules that will materially change a term or condition

    of a contract with open interest that is based on an agricultural

    commodity enumerated in section 1a(4) of the Act must be approved by

    the Commission prior to implementation. 7 U.S.C. 7a-2(c)(2)(B).

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

    B. Dormant Registered Entities, Contracts, and Rules

    The Commission has applied the concept of dormancy to registered

    entities by defining a dormant market or clearing organization as a

    registered entity that has been designated by, or registered with, the

    Commission for a period of thirty-six months or more but has not served

    as a facility for the trading or clearing of transactions for a period

    of twelve consecutive calendar months.\12\ The Commission recognizes

    that a significant period of inactivity can potentially have a negative

    impact on a registered entity's ability to implement rules and list and

    clear contracts in a manner that remains consistent with current market

    conditions, the Commission's regulations, and self-regulatory best

    practices.\13\ Accordingly, the Commission has deemed that upon a

    registered entity becoming dormant, its rules and contracts shall also

    become dormant.\14\

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

    \12\ See 17 CFR 40.1.

    \13\ See 47 FR 29515 (July 7, 1982).

    \14\ See 71 FR 1953, 1960 (January 12, 2006).

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

    In contrast to this view, the current language of the Commission's

    regulations implies that the earliest possible time that a rule can

    become dormant, regardless of whether a registered entity has entered

    into dormancy, is at the end of a twelve month implementation

    period.\15\ Similarly, the current language of the Commission's

    regulations implies that the earliest possible time that a contract can

    become dormant, regardless of whether a registered entity has entered

    into dormancy and absent affirmative action on the part of the

    registered entity, is at the end of a thirty-six month contract

    development period. To remedy any uncertainty, the Commission proposes

    to amend regulation 40.1(b), the definition of dormant product or

    contract, and regulation 40.1(f), the definition of a dormant rule, to

    clearly establish that the dormancy of a registered entity will

    automatically and separately trigger the dormancy of that entity's

    contracts and rules. In addition, the Commission is proposing a

    technical amendment to the definition of a dormant DCM, DTEF, and DCO

    in regulation 40.1 to conform the language used to define those terms

    to the proposed amendments of regulations 40.1(b) and 40.1(f).

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

    \15\ The term ``rule'' is defined to include any registered

    entity (DCM, DTEF, or DCO) ``* * * rule, regulation, resolution,

    interpretation, stated policy, term and condition * * * in whatever

    form adopted, and any amendment or addition thereto or repeal

    thereof * * *'' 17 CFR 40.1(h).

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

    C. Definition of Emergency

    The Commission's regulations give registered entities the ability

    to implement rules in response to an emergency without certifying, or

    receiving the Commission's approval of, such rules prior to

    implementation.\16\ The current definition of emergency implies that

    the full governing board of a registered entity must itself make the

    determination as to whether a circumstance is an emergency before

    operating under emergency procedures.\17\ This notice of rulemaking

    proposes to amend Commission regulation 40.1(g), the definition of

    emergency, to clarify that persons other than members of the governing

    board may determine that a particular occurrence or circumstance

    constitutes an emergency. In a letter commenting on a previous notice

    of proposed rulemaking, the New York Mercantile Exchange (NYMEX)

    suggested that the full governing board of an exchange, under emergency

    conditions, may not be able to issue an opinion in a timely manner to

    address an emergency.\18\ In such a situation, it may be optimal for a

    duly authorized subcommittee or exchange official to have the ability

    to respond to fast developing emergency conditions.

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

    \16\ See 17 CFR 40.6(a)(2).

    \17\ See 17 CFR 40.1(g).

    \18\ See letter from James A. Newsome, President, NYMEX, to Jean

    A. Webb, Secretary of the Commission (September 26, 2005) (on file

    with the Commission), available at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov/foia/comment05/foi05_004_1page2.htm

    .

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

    The Commission is in agreement with NYMEX. Accordingly, the

    Commission proposes to amend the definition of emergency in part 40 to

    clarify that duly authorized persons may determine whether a particular

    occurrence or circumstance is an emergency that ``requires immediate

    action and threatens or may threaten such things as the fair and

    orderly trading in, or the liquidation of or delivery pursuant to, any

    agreements, contracts or transactions.'' \19\ The amendment would

    require that the rules of the registered entity specify in detail (1)

    the persons

    [[Page 45187]]

    authorized to issue an emergency opinion on behalf of the governing

    board; and (2) the procedures for the exercise of such authority.\20\

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

    \19\ 17 CFR 40.1(g).

    \20\ The Commission also proposes to amend the definition of

    emergency to clarify the definition's applicability to all

    registered entities, including DCOs.

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

    D. Commission Review and Approval of Registered Entity Rules

    In contrast to other registered entity rules that may be

    implemented pursuant to the self-certification process established in

    part 40, DCM rules that, as determined by the Commission, materially

    change a term or condition of a contract with open interest that is

    based on an agricultural commodity enumerated in section 1a(4) of the

    Act must be approved by the Commission prior to implementation.\21\

    Since a finding of materiality is by statute at the reasonable

    discretion of the Commission, part 40 affords DCMs the opportunity to

    request a materiality opinion from the Commission for rules that a

    submitting DCM characterizes as non-material. Upon request the

    Commission will determine whether a DCM rule submitted under regulation

    40.4(b)(9) at least ten business days prior to implementation is

    material within the meaning of section 5c(c) of the Act.\22\

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

    \21\ 7 U.S.C. 7a-2(c).

    \22\ Id.

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

    DCMs often simultaneously request that agricultural rule changes be

    reviewed for materiality, and if found to be material, approved by the

    Commission. Currently, Commission regulation 40.5 does not clearly

    specify when the approval period commences with respect to rules

    submitted for materiality review under the process framed by regulation

    40.4(b)(9).\23\ To establish certainty, the amendments to regulation

    40.5 propose to commence the rule approval period at the conclusion of

    the 10-day materiality review period under regulation 40.4(b)(9). The

    Commission believes that commencing the approval period at this point

    is appropriate because the determination as to whether a registered

    entity rule should be approved (that is whether a rule is consistent

    with the Act and the Commission's regulations thereunder) requires an

    analysis that is qualitatively different from the analysis required to

    determine whether the same rule is material within the meaning of

    section 5c(c) of the Act.

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

    \23\ See 17 CFR 40.4(b) and 40.5(b).

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

    E. Listing of Products and the Implementation of Registered Entity

    Rules

    1. The Timing of Submissions

    The Commission understands that there may be some confusion as to

    how far in advance of implementation registered entities must submit

    self-certified products and rules to the Commission. Commission

    regulations 40.2(a) and 40.6(a) provide that such submissions must be

    filed electronically with the Commission at or before the close of

    business on the business day preceding implementation. Questions have

    arisen as to whether these provisions refer to the Commission's

    business day or the business day of the submitting registered entity.

    The proposed regulations clarify that the specified date is the

    Commission's business day. For clarity and in order to ensure proper

    notice of certified products and rules, the Commission proposes to

    define business day in part 40 and add language to Commission

    regulations 40.2(a) and 40.6(a) to expressly require the filing of

    certified submissions with the Commission at least one full Commission

    business day prior to implementation.\24\ In addition, to ensure that

    the appropriate operating divisions of the Commission have the ability

    to access electronic copies of submissions at the time of filing, the

    proposed regulations add the e-mail addresses

    submissions@cftc.gov and DMOSubmissions@cftc.gov to, and specify each regional branch chief in,

    Commission regulations 40.2(a)(1) and 40.6(a)(2) as additional

    mandatory recipients of electronically filed submissions.

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

    \24\ These proposed amendments are consistent with other

    Commission regulations that exclude the day on which a notice is

    given or an event occurs in computing time periods that begin upon

    the occurrence of that notice or event. See 17 CFR 1.3(b) and 10.5.

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

    2. Implementing Registered Entity Rules Without Certification

    a. Additional Rule Categories. As discussed above, the Commission's

    regulations generally permit a registered entity to implement a new or

    dormant rule without seeking prior Commission approval by certifying to

    the Commission that the rule complies with the Act and the regulations

    thereunder on the business day preceding implementation.\25\ Registered

    entities, however, are not required to file certified submissions prior

    to implementing several categories of registered entity rules that are

    enumerated in regulation 40.6(c)(2).\26\ Registered entity rules that

    come within these categories typically are limited in scope and are

    implemented under enabling rules that have already been approved by, or

    certified with, the Commission. In order to lessen the burden placed on

    registered entities as well as better utilize Commission resources, the

    Commission proposes to codify several additional registered entity rule

    categories that may be implemented without prior certification or

    Commission approval if subsequently included in a weekly notification

    of rule changes under regulation 40.6(c)(2). The Commission proposes to

    add (1) changes in trading months with no open interest that are

    consistent with previously approved or certified standards; (2) changes

    in lists of producers' brands or markings that are made pursuant to

    previously approved or certified standards or criteria relating to

    quality specifications, and for existing delivery locations, (3)

    changes in lists of approved delivery facilities and delivery service

    providers that are made pursuant to previously approved or certified

    standards or criteria \27\ to the categories of rules enumerated in

    regulation 40.6(c)(2).

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

    \25\ See 17 CFR 40.6(a).

    \26\ 17 CFR 40.6(c)(2).

    \27\ Commission regulation 40.4(b)(2) identifies rules that are

    changes in lists of approved delivery facilities as immaterial. In

    conformance with the proposed amendments to regulation 40.6(c)(2),

    the Commission proposes to amend regulation 40.4(b)(2) to also

    identify rules that are changes to lists of approved delivery

    service providers as immaterial.

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

    A registered entity's ability to notice file changes that relate to

    trading months under proposed regulation 40.6(c)(2) only extends to

    trading months within currently established cycles of trading months.

    By way of example, assume that the currently established cycle of

    trading months for a particular contract is December, March, May, July

    and September. Under the proposed regulations, the listing of a new

    trading month, such as November, would not qualify for notice filing

    under regulation 40.6(c) while an earlier than anticipated listing of a

    July contract could properly be notice filed. With respect to

    producers, facilities and service providers, the Commission reviews the

    relevant enabling standards and criteria to ensure their consistency

    with cash market practices and to ensure that their terms do not

    unreasonably restrain trade by inappropriately prohibiting the open

    participation of certain producers,

    [[Page 45188]]

    facilities or service providers.\28\ The identification of producers'

    brands and enumerated delivery facilities and service providers at a

    delivery location does not alter certified or Commission approved

    qualifying delivery standards or criteria, nor does it change exchange

    procedures that verify compliance with those standards or criteria. The

    Commission therefore proposes to be kept apprised of changes in lists

    of approved producers' brands or markings, changes in lists of delivery

    location delivery facilities and service providers, and changes in

    trading months with no open interest that are consistent with

    previously certified or approved standards through weekly notices of

    rule changes filed under regulation 40.6(c)(2) as opposed to requiring

    that such changes be certified with or approved by the Commission prior

    to implementation.\29\

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

    \28\ See 17 CFR part 40, Appendix A (Application for Designation

    of Physical Delivery Futures Contracts).

    \29\ Registered entities must be able to cite registered entity

    rules that establish standards and criteria that are both

    substantive and clearly identifiable in any such submission made

    under regulation 40.6(c)(2).

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

    b. Implementing Rules without Notification. Rule changes that may

    appear in a weekly notification pursuant to regulation 40.6(c)(2)(iv)

    also include ``[c]hanges to option contract rules relating to the

    strike price listing procedures, strike price intervals, and the

    listing of strike prices on a discretionary basis.'' \30\ The

    Commission currently receives substantially the same information under

    part 16 of the Commission's regulations, which specifies the daily

    reporting requirements that apply to DCMs.\31\ In particular,

    regulation 16.01(b) stipulates that each reporting market must submit

    to the Commission on a daily basis various trade data, including trade

    volume, open interest and price information for all listed option

    strike prices, including discretionary prices.\32\

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

    \30\ 17 CFR 40.6(c)(iv).

    \31\ See 17 CFR part 16.

    \32\ 17 CFR 16.01(b).

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

    In January 2006, DMO staff granted no-action relief to permit DCMs

    to satisfy the regulation 40.6(c)(2)(iv) notification requirement by

    complying with the daily reporting requirements of regulation 16.01 of

    the Commission's regulations.\33\ In order to codify the no-action

    relief granted by DMO and avoid duplicative regulatory requirements,

    the Commission proposes to amend regulation 40.6(c)(2)(iv) and add

    paragraph (G) to regulation 40.6(c)(3)(ii) to allow registered entities

    that are in compliance with regulation 16.01(b) to implement the

    specified changes relating to option contract strike prices without

    either prior approval, certification or inclusion in a weekly

    notification to the Commission.\34\

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

    \33\ See CFTC Staff Letter 06-01 (January 9, 2006).

    \34\ In July of 2006, the Commission adopted final rules to

    permit the trading of futures contracts based on corporate debt

    securities. 71 FR 39541 (July 13, 2006) (Debt Futures Release). The

    Commission herein proposes a technical amendment that conforms

    regulation 40.6(c)(2)(iii) to the adoption of the Debt Futures

    Release by replacing that regulation's reference to stock indexes

    with a reference to securities indexes, a general term that includes

    both equity and debt securities. Proposed regulation 40.6(c)(2)(iii)

    includes a reference to regulation 40.6(c)(3)(ii)(F) to alert

    registered entities that certain rule changes relating to securities

    indexes may be implemented pursuant to notification or without such

    notice if implemented under regulation 40.6(c)(3).

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

    The Commission is making a similar proposal with respect to

    registered entity rules denoting changes to contract trading months

    within currently established cycles of trading months to the categories

    of rules that may be implemented pursuant to a regulation 40.6(c)(2)

    notification filing.\35\ As with rules that are changes to option

    contract strike prices, the Commission currently receives adequate

    notification of the same information under regulation 16.01(a). In

    order to avoid duplicative regulatory requirements, the Commission

    proposes to add paragraph (H) to regulation 40.6(c)(3)(ii) to provide

    that registered entities that are in compliance with regulation

    16.01(a) may implement changes to the listing of contract trading

    months with no open interest, other than the delisting of contract

    trading months or the relisting of temporarily delisted contract

    trading months, without prior approval, certification or inclusion in a

    weekly notification to the Commission.\36\

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

    \35\ As discussed in the previous subsection, the Commission is

    proposing to add such rules to the categories of rules that may be

    implemented without certification or prior Commission approval if

    subsequently included in a regulation 40.6(c)(2) weekly notification

    of rule changes.

    \36\ In addition, the Commission proposes a technical amendment

    to the heading of regulation 40.6, and that rule's references to

    DCMs and DCOs, to clarify the potential applicability of that

    regulation to all registered entities, including DTEFs.

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

    IV. Related Matters

    A. Cost Benefit Analysis

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

    costs and benefits of its actions before issuing new regulations under

    the Act. Section 15(a) does not require the Commission to quantify the

    costs and benefits of new regulations or to determine whether the

    benefits of the proposed regulations outweigh their costs. Rather,

    section 15(a) requires the Commission to consider the cost and benefits

    of the subject regulations. Section 15(a) further specifies that the

    costs and benefits of the proposed regulations shall be evaluated in

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

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

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

    sound risk management practices; and (5) other public interest

    considerations. The Commission may, in its discretion, give greater

    weight to any one of the five enumerated areas of concern and may, in

    its discretion, determine that, notwithstanding its costs, a particular

    regulation is necessary or appropriate to protect the public interest

    or to effectuate any of the provisions or to accomplish any of the

    purposes of the Act.

    The proposed regulations expand the set of persons delegated by the

    Commission with the authority to issue ECM special calls to include the

    Director of the Division of Enforcement and that Director's designees.

    The proposed rules do not expand the basis for issuing ECM special

    calls; rather, they simply expand the set of persons authorized to

    issue such special calls. There are no regulatory costs imposed by this

    extension of delegated special call authority.

    The proposed regulations clarify that a DCM or DCO must generally

    choose either to comply with the rule approval process established in

    part 40 of the Commission's regulations or, in the alternative, the

    certification process established in part 40, prior to listing or

    clearing any product, or implementing any rule, including any product

    or rule that has become dormant. The proposed regulations also clearly

    establish that the dormancy of a registered entity will automatically

    and separately trigger the dormancy of that entity's contracts and

    rules. These clarifications are consistent with current Commission

    practice, do not impose any regulatory cost, and serve the public

    interest by facilitating regulatory certainty for persons subject to

    the Act and the Commission's regulations thereunder.

    The proposed regulations clarify that the definition of emergency

    allows persons other than members of the governing board of a

    registered entity to declare an emergency on behalf of the governing

    board. The proposed regulations expressly recognize that the governing

    board of an exchange under emergency conditions may not be able to

    issue an opinion in a timely manner to address an emergency.

    Accordingly, the Commission's proposed definition of emergency in part

    40 clearly permits

    [[Page 45189]]

    duly authorized persons to determine whether a particular occurrence or

    circumstance is an emergency. The proposed regulations facilitate the

    ability of registered entities to undertake timely action in response

    to emergency events and thereby better protect market participants and

    the financial integrity of transactions executed and cleared on

    registered entities. The proposed regulations also limit the potential

    costs that may arise from any misuse of authority by requiring

    registered entities to adopt detailed procedural rules to effectuate

    the exercise of this delegated authority.

    The proposed regulations clearly set forth the duration of the rule

    approval period for DCM rules that may change a material term or

    condition of a contract based on the agricultural commodities

    enumerated in section 1a(4) of the Act by proposing to commence the

    rule approval period at the conclusion of the 10-day materiality review

    period under regulation 40.4(b)(9). Commencing the approval period at

    this point gives the Commission additional time to effectively

    discharge its separate regulatory responsibilities to review registered

    entity rule changes for their impact on contracts with open interest

    and to determine whether such changes are consistent with the Act and

    the Commission's regulations thereunder. The proposed review period is

    consistent with current Commission regulatory practice and should not

    place any additional cost or burden on submitting DCMs.

    The proposed regulations address how far in advance of

    implementation registered entities must submit self-certified contracts

    and rules to the Commission pursuant to regulations 40.2(a) and 40.6(a)

    by clarifying that the date specified in those regulations refers to

    the Commission's business day. The proposed regulations ensure that

    there is at least one full Commission business day between the

    submission of a certified product or rule and such product or rule's

    listing or implementation. The proposed regulations provide regulatory

    clarity and impose no additional cost or burden.

    The proposed regulations lessen the burden placed on registered

    entities as well as better utilize Commission resources by codifying

    several additional rule categories that may be implemented without

    prior certification or Commission approval if noticed to the Commission

    through other required filings or disclosure requirements or

    subsequently included in a weekly notification of rule changes to the

    Commission under regulation 40.6(c)(2). The proposed regulations add

    lists of approved producers' brands or markings, changes in lists of

    approved delivery facilities and delivery service providers, certain

    changes in contract trading months, and certain specified changes to

    option contract strike prices to the categories of rules may be

    implemented without prior certification or Commission approval, or as

    applicable, notification. Registered entity rules that come within

    these categories typically are limited in scope and are implemented

    under enabling rules that have already been approved by, or certified

    with, the Commission. Permitting their implementation without

    certification or approval, or as applicable, notification, avoids

    unnecessary or duplicative regulatory requirements and better utilizes

    the Commission's resources.

    B. The Regulatory Flexibility Act

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

    requires that agencies consider the impact of their regulations on

    small businesses. The requirements related to the proposed amendments

    fall mainly on registered entities. The Commission has previously

    determined that registered entities are not ``small entities'' for the

    purposes of the RFA.\37\ In addition, these proposed regulations,

    collectively, tend to relieve regulatory burdens. Accordingly, the

    Chairman, on behalf of the Commission, hereby certifies, pursuant to 5

    U.S.C. 605(b), that the actions proposed to be taken herein will not

    have a significant economic impact on a substantial number of small

    entities.

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

    \37\ See 47 FR 18618 (April 30, 1982).

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

    C. Paperwork Reduction Act

    When publicizing proposed regulations, the Paperwork Reduction Act

    (PRA) of 1995 (44 U.S.C. 3501 et seq.) imposes certain requirements on

    Federal agencies (including the Commission) in connection with their

    conducting or sponsoring any collection of information as defined by

    the PRA. The information collection requirements associated with the

    proposed regulations are administered under Office of Management and

    Budget control numbers 3038-0022 and 3038-0054. These proposed

    amendments to parts 36 and 40 of the Commission's regulations would not

    impose any new or additional recordkeeping or information collection

    requirement that would require the approval of the Office of Management

    and Budget under 44 U.S.C. 3501, et seq. Accordingly, the PRA is

    inapplicable. We solicit comment on the accuracy of our estimate that

    no additional recordkeeping or information collection requirements or

    changes to existing collection requirements would result from the

    amendments proposed herein.

    List of Subjects

    17 CFR Part 36

    Commodity futures.

    17 CFR Part 40

    Commodity futures, Reporting and recordkeeping requirements.

    In consideration of the foregoing, and pursuant to the authority

    contained in the Act, and, in particular, sections 2, 4, 5, 5a, 5b, 5c,

    5d and 8a of the Act, the Commission hereby proposes to amend Chapter I

    of Title 17 of the Code of Federal Regulations as follows:

    PART 36--EXEMPT MARKETS

    1. The authority citation for part 36 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c, and 12a, as amended by the

    Commodity Futures Modernization Act of 2000, Appendix E of Pub. L.

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

    2. In Sec. 36.3, revise paragraphs (b)(3)(ii) to read as follows:

    Sec. 36.3 Exempt commercial markets.

    * * * * *

    (b) * * *

    (3) * * *

    (ii) The Commission hereby delegates, until the Commission orders

    otherwise, the authority to make special calls as set forth in section

    2(h)(5)(B)(iii) of the Act to the Directors of the Divisions of Market

    Oversight, the Division of Clearing and Intermediary Oversight, and the

    Division of Enforcement to be exercised by each such Director or by

    such other employee or employees as the Director may designate. The

    Directors may submit to the Commission for its consideration any matter

    that has been delegated in this paragraph. Nothing in this paragraph

    prohibits the Commission, at its election, from exercising the

    authority delegated in this paragraph.

    * * * * *

    PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES

    TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING

    ORGANIZATIONS

    3. The authority citation for part 40 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 7a-1, 7a-2, 8 and

    12a, as amended by

    [[Page 45190]]

    appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    4. In Sec. 40.1, revise paragraph (a) through (g) to read as

    follows:

    Sec. 40.1 Definitions.

    * * * * *

    (a) Business day means the same-day period of time starting at the

    business hour of 8:15 a.m. and ending at the business hour of 4:45

    p.m.; business hour means any hour between 8:15 a.m. and 4:45 p.m.,

    Eastern Standard Time or Eastern Daylight Savings Time, whichever is

    currently in effect in Washington, DC, on all days except Saturdays,

    Sundays and federal holidays in Washington, DC.

    (b) Dormant contract or dormant product means:

    (1) Any agreement, contract, transaction, or instrument, or any

    commodity futures or option contract with respect to all future or

    option expiries that has no open interest and in which no trading has

    occurred for a period of twelve complete calendar months following a

    certification with, or approval by, the Commission; provided, however,

    that no contract or instrument under this paragraph (b)(1) initially

    and originally certified with, or approved by, the Commission within

    the preceding 36 complete calendar months shall be considered to be

    dormant; or

    (2) Any commodity futures or option contract or other agreement,

    contract, transaction or instrument of a dormant registered entity; or

    (3) Any commodity futures or option contract or other agreement,

    contract, transaction or instrument not otherwise dormant that a

    registered entity self-declares through certification to be dormant.

    (c) Dormant designated contract market means any designated

    contract market on which no trading has occurred for a period of twelve

    complete calendar months; provided, however, no designated contract

    market shall be considered to be dormant if its initial and original

    Commission order of designation was issued within the preceding 36

    complete calendar months.

    (d) Dormant derivatives clearing organization means any derivatives

    clearing organization that has not accepted for clearing any agreement,

    contract or transaction that is required or permitted to be cleared by

    a derivatives clearing organization under Sections 5b(a) and 5b(b) of

    the Act, respectively, for a period of twelve complete calendar months;

    provided, however, no derivatives clearing organization shall be

    considered to be dormant if its initial and original Commission order

    of registration was issued within the preceding 36 complete calendar

    months.

    (e) Dormant derivatives transaction execution facility means any

    derivatives transaction execution facility on which no trading has

    occurred for a period of twelve complete calendar months; provided,

    however, no derivatives transaction execution facility shall be

    considered to be dormant if its initial and original Commission order

    of designation was issued within the preceding 36 complete calendar

    months.

    (f) Dormant rule means:

    (1) Any registered entity rule which remains unimplemented for

    twelve complete calendar months following a certification with, or an

    approval by, the Commission; or

    (2) Any rule or rule amendment of a dormant registered entity.

    (g) Emergency means any occurrence or circumstance that, in the

    opinion of the governing board of a registered entity, or a person or

    persons duly authorized to issue such an opinion on behalf of the

    governing board of a registered entity under circumstances and pursuant

    to procedures that are specified by rule, requires immediate action and

    threatens or may threaten such things as the fair and orderly trading

    in, or the liquidation of or delivery pursuant to, any agreements,

    contracts or transactions, including:

    (1) Any manipulative or attempted manipulative activity; any

    actual, attempted, or threatened corner, squeeze, congestion, or undue

    concentration of positions;

    (2) Any circumstances which may materially affect the performance

    of agreements, contracts or transactions, including failure of the

    payment system or the bankruptcy or insolvency of any participant; or

    (3) Any action taken by any governmental body, or any other

    registered entity, board of trade, market or facility which may have a

    direct impact on trading; and any other circumstance which may have a

    severe, adverse effect upon the functioning of a registered entity.

    * * * * *

    5. In Sec. 40.2, revise the heading and paragraphs (a)

    introductory text, (a)(1) and (a)(2) to read as follows:

    Sec. 40.2 Listing and accepting products for trading or clearing by

    certification.

    (a) Unless permitted otherwise by Sec. 37.7 of this chapter, a

    designated contract market or a registered derivatives transaction

    execution facility must comply with the submission requirements of this

    section prior to listing a product for trading that has not been

    approved under Sec. 40.3 of this chapter or that remains dormant

    subsequent to being submitted under this section or approved under

    Sec. 40.3 of this chapter. A registered clearing organization must

    comply with the submission requirements of this section prior to

    accepting a product for clearing that is not traded on a registered

    entity and has not been approved for clearing under Sec. 40.5 of this

    chapter or that remains dormant subsequent to being submitted under

    this section or approved under Sec. 40.5 of this chapter. A submission

    shall comply with the following conditions:

    (1) The registered entity has filed its submission electronically

    with the Secretary of the Commission at submissions@cftc.gov, the

    Division of Market Oversight at DMOSubmissions@cftc.gov, and the

    relevant branch chief at the regional office having local jurisdiction

    over the registered entity, in a format specified by the Secretary of

    the Commission;

    (2) The Commission has received the submission at its headquarters

    by the open of business on the business day preceding the product's

    listing or acceptance for clearing; and

    * * * * *

    6. In Sec. 40.3, revise paragraph (a) introductory text to read as

    follows:

    Sec. 40.3 Voluntary submission of new products for Commission review

    and approval.

    (a) Request for approval. Pursuant to Section 5c(c) of the Act and

    Sec. Sec. 37.7 and 38.4 of this chapter, a designated contract market

    or registered derivatives transaction execution facility may request

    that the Commission approve a new or dormant product prior to listing

    the product for trading, or if initially submitted under Sec. 40.2 of

    this chapter, subsequent to listing the product for trading. A

    submission requesting approval shall:

    * * * * *

    7. In Sec. 40.4, revise paragraph (a) and (b)(2) to read as

    follows:

    Sec. 40.4 Amendments to terms or conditions of enumerated

    agricultural contracts.

    (a) Notwithstanding the provisions of this part, a designated

    contract market must submit for Commission approval under the

    procedures of Sec. 40.5, prior to its implementation, any rule or

    dormant rule that, for a delivery month having open interest, would

    materially change a term or condition, as defined in Sec. 40.1(i), of

    a contract for future delivery in an agricultural commodity enumerated

    in Section 1a(4) of the Act, or of an option on such a contract or

    commodity.

    * * * * *

    [[Page 45191]]

    (b) * * *

    (2) For each delivery location, changes in lists of approved

    delivery facilities and delivery service providers, including

    weighmasters and inspectors, pursuant to previously set standards or

    criteria;

    8. In Sec. 40.5, revise paragraphs (a) introductory text and (c)

    introductory text to read as follows:

    Sec. 40.5 Voluntary submission of rules for Commission review and

    approval.

    (a) Request for approval of rules. Pursuant to Section 5c(c) of the

    Act and Sec. Sec. 37.7, 38.4 and 39.4 of this chapter, a registered

    entity may request that the Commission approve a new or dormant rule

    prior to implementation, or if initially submitted under Sec. Sec.

    40.2 or 40.6 of this chapter, subsequent to implementation. A

    submission requesting approval shall:

    * * * * *

    (c) Commencement and extension of time for review. The Commission

    shall commence the review period in paragraph (b) of this section ten

    business days after receipt of a compliant submission under Sec.

    40.4(b)(9) and further may extend the review period in paragraph (b) of

    this section for:

    * * * * *

    9. Amend Sec. 40.6 as follows:

    A. Remove the term ``designated contract market or registered

    derivatives clearing organization'' and add in its place the term

    ``registered entity'' in paragraphs (a)(2), (c)(1), and (c)(3)(i);

    B. Remove the term ``designated contract market or a registered

    derivatives clearing organization'' and add in its place the term

    ``registered entity'' in paragraph (c) introductory text;

    C. Remove the term ``designated contract markets and registered

    derivatives clearing organizations'' and add in its place the term

    ``registered entities'' in paragraph (c)(3) introductory text;

    D. Remove the term ``contract market or a derivatives clearing

    organization's'' and add in its place the term ``registered entity's''

    in paragraph (c)(3)(ii)(B); and

    E. In addition, revise the heading and paragraphs (a), (c)(2)(iii),

    and (c)(2)(iv), and add paragraphs (c)(2)(vii) through (c)(2)(ix),

    (c)(3)(ii)(G) and (c)(3)(ii)(H) to read as follows:

    Sec. 40.6 Self-certification of rules.

    (a) Required certification. Unless permitted otherwise by Sec.

    37.7 of this chapter, a registered entity must comply with the

    following conditions prior to the implementation of any rule that has

    not obtained Commission approval under Sec. 40.5 of this chapter or

    that remains dormant subsequent to being submitted under this section

    or approved under Sec. 40.5 of this chapter:

    (1) * * *

    (2) The registered entity has filed its submission electronically

    with the Secretary of the Commission at submissions@cftc.gov, the

    Division of Market Oversight at DMOSubmissions@cftc.gov, and the

    relevant branch chief at the regional office having local jurisdiction

    over the registered entity, in a format specified by the Secretary of

    the Commission, and the Commission has received the submission at its

    headquarters by the open of business on the business day preceding

    implementation of the rule; provided, however, rules or rule amendments

    implemented under procedures of the governing board to respond to an

    emergency as defined in Sec. 40.1, shall, if practicable, be filed

    with the Commission prior to the implementation or, if not practicable,

    be filed with the Commission at the earliest possible time after

    implementation, but in no event more than twenty-four hours after

    implementation; and

    * * * * *

    (c) * * *

    (2) * * *

    (iii) Index products. Routine changes in the composition,

    computation, or method of selection of component entities of an index

    (other than routine changes to securities indexes to the extent that

    such changes are not described in paragraph (c)(3)(ii)(F) of this

    section) referenced and defined in the product's terms, that do not

    affect the pricing basis of the index, which are made by an independent

    third party whose business relates to the collection or dissemination

    of price information and which was not formed solely for the purpose of

    compiling an index for use in connection with a futures or option

    product;

    (iv) Option contract terms. Changes to option contract rules, which

    may qualify for implementation without notice pursuant to section

    (c)(3)(ii)(G) of this section, relating to the strike price listing

    procedures, strike price intervals, and the listing of strike prices on

    a discretionary basis;

    (v) * * *

    (vii) Approved brands. Changes in lists of approved brands or

    markings pursuant to previously certified or Commission approved

    standards or criteria;

    (viii) Delivery facilities and delivery service providers. Changes

    in lists of approved delivery facilities and delivery service

    providers, including weighmasters, assayers, and inspectors, pursuant

    to previously certified or Commission approved standards or criteria;

    or

    (ix) Trading Months. Changes to the listing of trading months,

    which may qualify for implementation without notice pursuant to section

    (c)(3)(ii)(H), within the currently established cycle of trading months

    which do not have open interest.

    (3) * * *

    (ii) * * *

    (G) Option contract terms. For registered entities that are in

    compliance with the daily reporting requirements of Sec. 16.01(b) of

    this chapter, changes to option contract rules relating to the strike

    price listing procedures, strike price intervals, and the listing of

    strike prices on a discretionary basis.

    (H) Trading Months. For registered entities that are in compliance

    with the daily reporting requirements of Sec. 16.01(a) of this

    chapter, changes to the listing of trading months which are within the

    currently established cycle of trading months and which do not have

    open interest.

    * * * * *

    Issued in Washington, DC, on August 1, 2007 by the Commission.

    Eileen A. Donovan,

    Acting Secretary of the Commission.

    [FR Doc. E7-15370 Filed 8-10-07; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: August 13, 2007



See Also:

OpenGov Logo

CFTC's Commitment to Open Government

Gavel and Book

Follow the Status of Enforcement Actions