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]

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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.

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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 [email protected]

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 [email protected]),

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.

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

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

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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\

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

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

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

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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.

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

\7\ Id. at 43289.

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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\

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\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).

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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\

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\12\ See 17 CFR 40.1.

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

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

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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).

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\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).

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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.

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\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

.

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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\

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\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.

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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\

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

\22\ Id.

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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.

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

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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

[email protected] and [email protected] 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.

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\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.

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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).

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\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.

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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\

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\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).

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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\

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

\31\ See 17 CFR part 16.

\32\ 17 CFR 16.01(b).

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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\

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\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).

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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\

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\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.

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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.

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

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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 [email protected], the

Division of Market Oversight at [email protected], 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 [email protected], the

Division of Market Oversight at [email protected], 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