[Federal Register: November 23, 2007 (Volume 72, Number 225)]
[Rules and Regulations]
[Page 65658-65659]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23no07-4]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 38
RIN 3038-AC28
Conflicts of Interest in Self-Regulation and Self-Regulatory
Organizations
AGENCY: Commodity Futures Trading Commission (``Commission'')
ACTION: Final rule; notice of stay.
-----------------------------------------------------------------------
SUMMARY: On January 31, 2007, the Commission adopted Acceptable
Practices for Section 5(d)(15) (``Core Principle 15'') of the Commodity
Exchange Act. The new Acceptable Practices were published in the
Federal Register on February 14, 2007, and became effective on March
16, 2007. On March 26, 2007, the Commission published certain proposed
amendments to the Acceptable Practices in an effort to clarify the
definition of ``public director'' contained therein.\1\ The Commission
has yet to act upon the proposed amendments, which are central to every
element of the Acceptable Practices. Accordingly, the Commission hereby
notifies all designated contract markets (``DCMs'') that, until further
notice, the Acceptable Practices contained in paragraph (b) of Core
Principle 15 in Appendix B to 17 CFR part 38 are stayed indefinitely.
---------------------------------------------------------------------------
\1\ Under the Acceptable Practices, the definition of ``public
director'' is also relevant to members of DCM regulatory oversight
committees (all of whom must be public directors) and to members of
DCM disciplinary panels (panelists need not be directors, but must
include at least one member who meets certain elements of the
definition of public director).
DATES: Effective November 23, 2007, paragraph (b) of Core Principle 15
in Appendix B to 17 CFR part 38 is stayed indefinitely. The Commission
will publish a new Federal Register document lifting the stay on a
---------------------------------------------------------------------------
future date.
FOR FURTHER INFORMATION CONTACT: Rachel F. Berdansky, Acting Deputy
Director for Market Compliance, 202-418-5429, or Sebastian Pujol
Schott, Special Counsel, 202-418-5641, Division of Market Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, Washington, DC 20581.
SUPPLEMENTARY INFORMATION: On January 31, 2007 the Commission adopted
its first Acceptable Practices for Core Principle 15. The Acceptable
Practices are structured in four parts, including three operational
provisions. The operational provisions include: (1) DCM boards of
directors composed of at least 35% public directors; (2) board-level
regulatory oversight committees (``ROC'') consisting exclusively of
public directors; and (3) disciplinary panels including at least one
public person. The Acceptable Practices also include an important
fourth provision which defines ``public director'' and also impacts ROC
members and disciplinary panel members. All three operational
provisions of the Acceptable Practices are dependent upon the
definition of public director.
The Acceptable Practices were published in the Federal Register on
February 14, 2007, with an effective date of March 16, 2007. The
Commission stated at that time that it would survey all DCMs within six
months to evaluate their plans for compliance with Core Principle 15.
The Commission further stated that all DCMs would be granted the lesser
of two years or two regularly scheduled board elections to fully
implement the new Acceptable Practices or otherwise demonstrate full
compliance with Core Principle 15.
On March 26, 2007, the Commission published proposed amendments to
the definition of DCM ``public director,'' which, as noted above, also
impacts ROC and disciplinary panel members. The comment period for the
proposed amendments ended on April 25, 2007.
[[Page 65659]]
Six comment letters were received, including letters from the National
Futures Association; the Futures Industry Association; the CBOE Futures
Exchange; the Chicago Board of Trade; the Chicago Mercantile Exchange
and Kansas City Board of Trade writing jointly; and Mr. Dennis Gartman.
The comments received were studied carefully and are under advisement
by the Commission. However, the Commission has yet to take final action
on the proposed amendments.
Until such time as the definition of ``public director'' is
finalized, the operational provisions of the Acceptable Practices,
which are dependent on the definition, cannot be properly applied by
DCMs or enforced by the Commission. Recognizing this fact, and in order
to carefully consider its next steps, the Commission has determined to
stay the Acceptable Practices for Core Principle 15 adopted on January
31, 2007. Accordingly, the two-year compliance period is also stayed.
Related Matters
A. Cost-Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its actions in advance of issuing any new
regulation or order.\2\ More specifically, Section 15(a) states that
the costs and benefits of a proposed rule or order shall be evaluated
with regard to 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. In conducting its analysis, the Commission may
give greater weight to any one of the five enumerated areas of market
and public concern and determine, notwithstanding potential costs, that
the implementation of a particular rule or order is necessary or
appropriate to protect the public's interest or to effectuate or
accomplish any of the provisions or purposes of the Act.\3\
---------------------------------------------------------------------------
\2\ 7 U.S.C. 19(a).
\3\ Fishermen's Dock Co-op., Inc. v. Brown, 75 F.3d 164 (4th
Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336 (D.C. Cir.
1985) (agency has discretion to weigh factors in undertaking costs-
benefits analyses).
---------------------------------------------------------------------------
On February 14, 2007, the Commission published its first Acceptable
Practices for Core Principle 15. The four-part Acceptable Practices,
described above, were designed to facilitate the reduction of conflicts
of interest in DCMs' decision making processes.\4\ Although the
Acceptable Practices became effective on March 16, 2007, the Commission
established a phase-in period for DCMs to implement the Acceptable
Practices or to otherwise come into full compliance with Core Principle
15. The phase-in period extended well beyond the date of effectiveness
and consisted of the lesser of two years or two regularly scheduled
board elections.
---------------------------------------------------------------------------
\4\ 72 FR 6936 (February 14, 2007).
---------------------------------------------------------------------------
On March 26, 2007, the Commission published proposed amendments to
one element of the new Acceptable Practices--the definition of ``public
director.'' To date, the Commission has yet to act upon the proposed
amendments. The Commission recognizes that the operational provisions
of Acceptable Practices cannot be properly applied by DCMs until the
definition of ``public director'' is resolved. Accordingly, the
Commission has determined, for the purpose of regulatory clarity, to
stay the Acceptable Practices for Core Principle 15 and thereby lift
any potential compliance costs associated with those Acceptable
Practices.
B. Paperwork Reduction Act of 1995
The stay of the effective date of the Acceptable Practices for Core
Principle 15 reduces the information collection burden to levels
previously approved by the Office of Management and Budget (OMB). The
OMB control number for this collection is 3038-0052. The Commission has
submitted the required Paperwork Reduction Act Change Worksheet (OMB-
83C) to OMB to reflect the change.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires
federal agencies, in promulgating rules, to consider the impact of
those rules on small entities. The stay of the effective date for the
Acceptable Practices for Core Principle 15 affects DCMs. The Commission
has previously determined that DCMs are not small entities for purposes
of the Regulatory Flexibility Act.\5\ Accordingly, the acting Chairman,
on behalf of the Commission, hereby certifies pursuant to 5 U.S.C.
605(b) that the stay of the Acceptable Practices will not have a
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------
\5\ See Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618, 18619 (Apr. 30, 1982).
---------------------------------------------------------------------------
Therefore, paragraph (b) of Core Principle 15 in Appendix B to 17
CFR part 38 is stayed indefinitely.
Issued in Washington, DC, on November 16, 2007, by the
Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E7-22878 Filed 11-21-07; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: November 23, 2007