FR Doc E8-12579[Federal Register: June 5, 2008 (Volume 73, Number 109)]
[Notices]
[Page 31979-31981]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jn08-29]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
RIN 3038-AC52
Exemptive Order for SPDR[reg] Gold Futures Contracts
AGENCY: Commodity Futures Trading Commission.
ACTION: Final order.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is exempting certain transactions in physically delivered futures
contracts based on SPDR[reg] Gold Shares
(SPDR[reg] gold futures contracts) from those provisions of
the Commodity Exchange Act (CEA or Act),\1\ and the Commission's
regulations thereunder, that are inconsistent with the trading and
clearing of SPDR[reg] gold futures contracts as security
futures. The exemption is conditioned on the compliance of transactions
in SPDR[reg] gold futures contracts with the requirements
established for the trading and clearing of security futures. The
authority for the issuance of this exemption is found in Section 4(c)
of the Act.\2\
---------------------------------------------------------------------------
\1\ 7 U.S.C. 1 et seq.
\2\ 7 U.S.C. 6(c).
---------------------------------------------------------------------------
DATES: Effective June 5, 2008.
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. Background
In correspondence dated October 26, 2007, OneChicago, LLC
(OneChicago or the Exchange),\3\ a board of trade designated with the
Commission pursuant to Sections 5 and 6(a) of the Act, proposed and
requested Commission approval to list for trading SPDR[reg]
gold futures contracts as security futures.\4\ OneChicago is notice-
registered with the Securities and Exchange Commission (SEC) as a
national securities exchange under Section 6(g) of the Securities
Exchange Act of 1934 ('34 Act) for the purpose of listing and trading
security futures products. The approval request was filed pursuant to
Section 5c(c)(2) of the Act and Commission Regulations 40.5 and
41.23.\5\ OneChicago submitted its request for approval under the 45-
day fast-track review period established by Commission Regulation 40.5.
The fast-track review period for the Exchange's submission was
scheduled to expire on December 10, 2007. The review period was
extended by the Director of the Division of Market Oversight, pursuant
to Regulations 40.5(c) and 40.7(a)(1), to January 24, 2008 on the
grounds that the SPDR[reg] gold futures contracts raised
novel and complex issues that required additional time for review.\6\
By letter dated January 23, 2008, the Exchange, upon the request of the
Commission's staff, voluntarily extended the review period to March 17,
2008. By letter dated February 26, 2008, the Exchange voluntarily
extended the review period to April 30, 2008.\7\ By letter dated April
28, 2008, the Exchange further voluntarily extended the review period
to May 30, 2008.
---------------------------------------------------------------------------
\3\ OneChicago is jointly owned by the CME Group, Inc., IB
Exchange Corp., and the Chicago Board Options Exchange.
\4\ In accordance with Section 2(a)(9)(B)(i) of the Act,
Commission staff forwarded the new contract filing to the Securities
and Exchange Commission, the U.S. Department of Treasury and the
Board of Governors of the Federal Reserve System on October 29,
2007. No comments were received in response to this correspondence.
On January 4, 2008, the Exchange filed a rule amendment concerning
minimum price fluctuations to supplement its initial submission.
\5\ 7 U.S.C. 7a-2(c)(2), 17 CFR 40.5, 41.23.
\6\ Commission Regulations 40.5(c) and 40.7(a)(1) allow the
Commission, and certain staff acting pursuant to delegated
authority, to extend the 45-day fast-track review period by an
additional 45 days if a product raises novel or complex issues
requiring additional time for review. 17 CFR 40.5(c), 40.7(a)(1).
\7\ Section 5c(c) of the Act requires the Commission to approve
any designated contract market instrument submitted for approval
within 90 days after the submission of the request unless (1) it
finds that the trading or clearing of the instrument would violate
the Act (or the Commission's regulations), or (2) the person
submitting the request for approval agrees to extend the period of
review beyond the 90 day time limitation.
---------------------------------------------------------------------------
On March 14, 2008, the Commission published for public comment in
the Federal Register a proposal to exempt, pursuant to Section 4(c) of
the Act, SPDR[reg] gold futures contracts from those
provisions of the CEA, and the Commission's regulations thereunder,
that are inconsistent with the trading and clearing of
SPDR[reg] gold futures contracts as security futures.\8\ The
Commission proposed to issue the exemption in order to facilitate the
Exchange's request for contract approval. No formal comments were
submitted in response to the Commission's publication.\9\
---------------------------------------------------------------------------
\8\ Proposed Exemptive Order for ST [SPDR[reg]] Gold
Futures Contracts, 73 FR 13876 (March 14, 2008) (Proposed Order).
Effective May 21, 2008, the streetTRACKS[reg] Gold Trust
has been restyled as the SPDR[reg] Gold Trust.
Consequently, on May 22, 2008 the Exchange filed a rule amendment to
reflect that change.
\9\ A thorough summary of the Trust's operations is provided in
the Proposed Order.
---------------------------------------------------------------------------
II. CEA Section 4(c) Exemptive Order
In accordance with the Memorandum of Understanding entered into
between the CFTC and the SEC on March 11, 2008, and in particular the
addendum thereto concerning Principles Governing the Review of Novel
Derivative Products, the Commission believes that novel derivative
products that implicate areas of overlapping regulatory concern should
be permitted to trade in either or both a CFTC or SEC regulated
environment, in a manner consistent with laws and regulations
(including the appropriate use of all available exemptive and
interpretive authority). The Commission has determined to use
[[Page 31980]]
its authority under Section 4(c) of the Act, as proposed, to exempt
transactions in SPDR[reg] gold futures contracts from those
provisions of the Act and the Commission's regulations thereunder that,
if the underlying were considered to be a commodity that is not a
security, would be inconsistent with the trading and clearing of
SPDR[reg] gold futures contracts as security futures.\10\
Section 4(c)(1) of the CEA empowers the Commission to ``promote
responsible economic or financial innovation and fair competition'' by
exempting any transaction or class of transactions \11\ from any of the
provisions of the Act upon determining that the exemption would be
consistent with the public interest.\12\ Section 4(c)(2) of the Act
provides that the Commission may grant exemptions only when it
determines that the requirements for which an exemption is being
provided should not be applied to the agreements, contracts or
transactions at issue; that the exemption is consistent with the public
interest and the purposes of the Act; that the agreements, contracts or
transactions will be entered into solely between appropriate persons;
and that the exemption will not have a material adverse effect on the
ability of the Commission or any designated contract market or
derivatives transaction execution facility to discharge its regulatory
or self-regulatory responsibilities under the CEA.\13\ With respect to
the term ``appropriate persons,'' Section 4(c)(3) of the Act enumerates
several categories of appropriate persons and provides in subparagraph
(K) that the term shall include ``[s]uch other persons that the
Commission determines to be appropriate in light of * * * the
applicability of appropriate regulatory protections.''
---------------------------------------------------------------------------
\10\ The Commission recently issued a similar order with respect
to exchange-traded credit default products. See Order Exempting the
Trading and Clearing of Certain Credit Default Products Pursuant to
the Exemptive Authority in Section 4(c) of the Commodity Exchange
Act, 72 FR 32079 (June 11, 2007).
\11\ Covered transactions are subject to certain exceptions not
relevant here.
\12\ Section 4(c)(1) of the CEA, 7 U.S.C. Sec. 6(c)(1),
provides in full that:
In order to promote responsible economic or financial innovation
and fair competition, the Commission by rule, regulation, or order,
after notice and opportunity for hearing, may (on its own initiative
or on application of any person, including any board of trade
designated or registered as a contract market or derivatives
transaction execution facility for transactions for future delivery
in any commodity under section 7 of this title) exempt any
agreement, contract, or transaction (or class thereof) that is
otherwise subject to subsection (a) of this section (including any
person or class of persons offering, entering into, rendering advice
or rendering other services with respect to, the agreement,
contract, or transaction), either unconditionally or on stated terms
or conditions or for stated periods and either retroactively or
prospectively, or both, from any of the requirements of subsection
(a) of this section, or from any other provision of this chapter
(except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this
title, except that the Commission and the Securities and Exchange
Commission may by rule, regulation, or order jointly exclude any
agreement, contract, or transaction from section 2(a)(1)(D) of this
title), if the Commission determines that the exemption would be
consistent with the public interest.
\13\ Section 4(c)(2) of the CEA, 7 U.S.C. 6(c)(2), provides in
full that:
The Commission shall not grant any exemption under paragraph (1)
from any of the requirements of subsection (a) of this section
unless the Commission determines that--
(A) The requirement should not be applied to the agreement,
contract, or transaction for which the exemption is sought and that
the exemption would be consistent with the public interest and the
purposes of this Act; and
(B) The agreement, contract, or transaction--
(i) Will be entered into solely between appropriate persons; and
(ii) Will not have a material adverse effect on the ability of
the Commission or any contract market or derivatives transaction
execution facility to discharge its regulatory or self-regulatory
duties under this Act.
---------------------------------------------------------------------------
In enacting Section 4(c) of the Act, Congress noted that the goal
of the provision ``is to give the Commission a means of providing
certainty and stability to existing and emerging markets so that
financial innovation and market development can proceed in an effective
and competitive manner.'' \14\ SPDR[reg] gold futures
contracts are novel instruments and the Commission believes that this
is an appropriate case for issuing an exemption, as proposed, without
making a finding as to the nature of these particular instruments.
Accordingly, given the potential usefulness of SPDR[reg]
gold futures contracts to the significant market for the Trust's
Shares, as well as all gold-linked markets, the Commission herein
exempts transactions in SPDR[reg] gold futures contracts
traded on OneChicago, and the clearing of such contracts as security
futures, from the provisions of the Act, and the Commission's
regulations thereunder, to the extent necessary to permit them to be so
traded and cleared. In the Commission's opinion, the issuance of this
exemptive order is in the public interest and is consistent with the
purposes of the Act, because it will likely foster both financial
innovation by bringing an innovative derivatives product to market, and
competition by not potentially excluding other similarly innovative
products from trading on regulated futures markets. In addition,
SPDR[reg] gold futures contracts, when traded as security
futures pursuant to this exemption and the Commission's subsequent or
concurrent approval of the Exchange's submissions, will be subject to
regulation by both the SEC and the Commission.\15\ The implementation
of an exemption, under these circumstances, will not erode appropriate
regulatory protections, and thus SPDR[reg] gold futures
contracts will be traded by appropriate persons. Nor will this
exemption impair the ability of the Commission or OneChicago to
discharge any regulatory or self-regulatory duty under the Act.
---------------------------------------------------------------------------
\14\ H.R. Conf. Rep. No. 102-978, 1992 U.S.C.C.A.N. 3179, at
3213 (H.R. Conf. Rep.).
\15\ 7 U.S.C. 2(a)(1)(A). Security futures are subject to joint
regulation by the CFTC and the SEC under Section 2(a)(1)(D) of the
CEA, 7 U.S.C. 2(a)(1)(D).
---------------------------------------------------------------------------
This Order is subject to termination or revision, on a prospective
basis, if the Commission determines upon further information that this
exemption is not consistent with the public interest. If the Commission
believes such exemption becomes detrimental to the public interest, the
Commission may revoke this Order on its own motion.
III. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \16\ 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. This exemptive order does not
require a new collection of information from any entity that would be
subject to the order.
---------------------------------------------------------------------------
\16\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------
B. Cost-Benefit Analysis
Section 15(a) of the CEA, as amended by Section 119 of the
Commodity Futures Modernization Act of 2000,\17\ requires the
Commission to consider the costs and benefits of its action before
issuing an order under the CEA. Section 15(a) of the Act further
specifies that costs and benefits shall be evaluated in light of the
following five broad areas of market and public concern: protection of
market participants and the public; efficiency, competitiveness, and
financial integrity of futures markets; price discovery; sound risk
management practices; and other public interest considerations. By its
terms, Section 15(a) does not require the Commission to quantify the
costs and benefits of an order or to determine whether the benefits of
the order outweigh its costs. Rather, Section 15(a) simply requires the
Commission to ``consider the costs and benefits'' of its action. The
Commission may give greater weight to any one of the five enumerated
areas and could in its discretion determine
[[Page 31981]]
that, notwithstanding potential costs, a particular order 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 CEA.
---------------------------------------------------------------------------
\17\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------
In the Proposed Order, the Commission analyzed the costs and
benefits associated with the implementation of an exemption under
Section 4(c) of the Act. The Commission invited public comment on its
analysis of the costs and benefits associated with the issuance of an
exemptive order under Section 4(c) of the Act.\18\ No comments were
submitted to the Commission.
---------------------------------------------------------------------------
\18\ Proposed Order at 13870.
---------------------------------------------------------------------------
After considering the factors presented in this release, the
Commission has determined to issue this Order.
Issued in Washington, DC, on May 30, 2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-12579 Filed 6-4-08; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: August 18, 2011