June 14, 2011
Good morning Mr. Chairman and Commissioners.
First, I would like to thank the members of the OGC team that have worked very hard on this order: Harold Hardman, Terry Arbit, Carlene Kim, Neal Kumar, Sue McDonough, and Mark Higgins. I also would like to thank the Divisions for their helpful comments and support on this project.
The proposed order before you today clarifies how the Commodity Exchange Act will apply to swaps as of July 16, 2011, the general effective date of the Title VII of the Dodd-Frank Act.
Section 754 of Dodd-Frank provides that, unless otherwise provided, provisions of the Act that require a rulemaking are effective no sooner than the earlier of 60 days after the rulemaking is completed, or 360 days after enactment, which is July 16, 2011. Many provisions fall into this category. Examples of such provisions include the registration of swap dealers and major swap participants, margin and capital requirements, and external business conduct standards for swap dealers and MSPs. Although the Commission has issued proposed rules to implement these provisions, these rulemakings will not be completed by July 16. Because these provisions will not become effective until after the rulemakings have been completed and implementing dates established, the proposed Order does not include relief from these provisions as of July 16.
We have provided the Commission with a list of the provisions that require a rulemaking.
Provisions that do not require a rulemaking are effective on the general effective date. Thus, certain provisions of the Dodd-Frank Act will become effective immediately on July 16, while others will be phased-in over a period of time. The proposed Order before the Commission would provide clarity to market participants and the public regarding which provisions of the CEA as amended by the Dodd-Frank Act will apply during this transition, and those which will not.
The draft proposed Order proposed to grant exemptive relief in two parts.
Part one of the draft order proposes to address provisions that would go into effect on July 16, but that reference terms such as “swap,” “swap dealer,” “major swap participant,” or “eligible contract participant” that the Dodd-Frank Act requires the Commission and the Securities and Exchange Commission to “further define.” These definitional rulemakings will not be in place by July 16. Accordingly, the draft order proposes to temporarily exempt persons or entities from complying with these provisions until the earlier of the effective date of the definitional rulemaking for such terms or December 31, 2011. The exemption would apply only to the extent the provision specifically relates to entities or instruments such as swaps, swap dealers, major swap participants, and eligible contract participants.
Part two of the draft order proposes to address provisions of the Commodity Exchange Act that will apply to certain transactions in exempt or excluded commodities (primarily financial and energy commodities) as a result of the repeal of various CEA exemptions and exclusions as of July 16, 2011, specifically Commodity Exchange Act sections 2(d), 2(e), 2(g), 2(h) and 5d as well. The Commission is proposing to temporarily exempt such transactions until the repeal or replacement of certain of the Commission’s regulations or December 31, 2011, whichever is earlier.
The proposed exemptive order would be issued under section 712(f) of the Dodd-Frank Act, which specifically authorizes the Commission to issue exemptive orders in preparation for the effective date of the Dodd-Frank Act, and section 4(c) of the CEA, which provides the Commission with exemptive authority for many provisions of the CEA. As required by section 4(c), if approved by the Commission, the proposed Order would be subject to a period of notice and comment. In light of the impending July 16 effective date, the proposed Order would provide for a 14-day public comment period. This would provide the Commission and staff sufficient time to analyze the public comments and issue a final Order, as appropriate, prior to the July 16 effective date.
The proposed Order does not provide relief from all of the provisions of the CEA that will become effective on July 16. The staff has also provided a list of those provisions for which relief is not being provided. Examples of such provisions include the core principles for designated contract markets, the core principles for derivatives clearing organizations, and the prohibition on disruptive trading practices.
There are a few provisions in the CEA that will apply as of the effective date and for which the Commission does not have authority to issue exemptive relief under section 4(c). The staff is considering whether to issue no action relief from these provisions.
Before concluding, I would like to also highlight several limitations on the scope of the proposed temporary relief in both parts.
Last Updated: June 15, 2011