2010-27533

FR Doc 2010-27533[Federal Register: November 2, 2010 (Volume 75, Number 211)]

[Proposed Rules]

[Page 67282-67301]

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

[DOCID:fr02no10-15]

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

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 40

RIN 3038-AD07

Provisions Common to Registered Entities

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

``CFTC'') is proposing rules to implement new statutory provisions

enacted under Title VII of the Dodd-Frank Wall Street Reform and

Consumer Protection Act (``Dodd-Frank Act'') and amend existing rules

affected by the passage of the Dodd-Frank Act. These proposed rules

apply to designated contract markets (``DCMs''), derivatives

[[Page 67283]]

clearing organizations (``DCOs''), swap execution facilities (``SEFs'')

and swap data repositories (``SDRs''). The proposed rules implement the

new statutory framework for certification and approval for new

products, new rules and rule amendments submitted to the Commission by

registered entities. Furthermore, the proposed rules prohibit event

contracts based on certain excluded commodities, establish special

procedures for certain rule changes proposed by systemically important

derivatives clearing organizations (``SIDCOs''), and provide for the

tolling of review periods for certain novel derivative products pending

the resolution of jurisdictional determinations.

DATES: Submit comments on or before January 3, 2011.

ADDRESSES: You may submit comments, identified by RIN number, by any of

the following methods:

Agency Web site, via its Comments Online process: http://

comments.cftc.gov. Follow the instructions for submitting comments

through the Web site.

Mail: David A. Stawick, Secretary of the Commission,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581

Hand Delivery/Courier: Same as mail above.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow instructions for submitting comments.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that is exempt from disclosure under the Freedom of

Information Act, a petition for confidential treatment of the exempt

information may be submitted according to the procedures established in

CFTC Regulation 145.9.\1\ The Commission reserves the right, but shall

have no obligation, to review, pre-screen, filter, redact, refuse or

remove any or all of your submission from http://www.cftc.gov that it

may deem to be inappropriate for publication, such as obscene language.

All submissions that have been redacted or removed that contain

comments on the merits of the rulemaking will be retained in the public

comment file and will be considered as required under the

Administrative Procedure Act and other applicable laws, and may be

accessible under the Freedom of Information Act.

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

\1\ 17 CFR 145.9.

FOR FURTHER INFORMATION CONTACT: Bella Rozenberg, Special Counsel,

Division of Market Oversight (``DMO''), at 202-418-5119 or

[email protected], Riva Spear Adriance, Associate Director for Market

Review, DMO at 202-418-5494 or [email protected], in each case, also

at the Commodity Futures Trading Commission, Three Lafayette Centre,

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

1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

II. The Proposed Amendments to Part 40 of the Commission's

Regulations

a. Definitions

b. Listing and accepting products for trading or clearing by

certification

c. Voluntary submission of new products for Commission review

and approval

d. Amendments to terms or conditions of enumerated agricultural

contracts

e. Voluntary submission of rules for Commission review and

approval

f. Self-certification of rules

g. Delegations

h. Availability of public information

i. Special certification procedures for submission of rules by

systemically important derivatives clearing organizations

j. Review of event contracts based on certain excluded

commodities

k. Tolling of review period pending jurisdictional determination

III. Related Matters

a. Regulatory Flexibility Act

b. Paperwork Reduction Act

c. Cost Benefit Analysis

I. Background

On July 21, 2010, President Obama signed the Dodd-Frank Act.\2\

Title VII of the Dodd-Frank Act \3\ amended the Commodity Exchange Act

(``Act'') \4\ to establish a comprehensive new regulatory framework for

swaps and security-based swaps. The legislation was enacted to reduce

risk, increase transparency, and promote market integrity within the

financial system by, among other things: (1) Providing for the

registration and comprehensive regulation of swap dealers and major

swap participants; (2) imposing clearing and trade execution

requirements on standardized derivative products; (3) creating robust

recordkeeping and real-time reporting regimes; and (4) enhancing the

Commission's rulemaking and enforcement authorities with respect to,

among others, all registered entities and intermediaries subject to the

Commission's oversight.

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

\2\ See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/

OTCDERIVATIVES/index.htm.

\3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

be cited as the ``Wall Street Transparency and Accountability Act of

2010.''

\4\ 7 U.S.C. 1 et seq.

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

Section 745 of the Dodd-Frank Act amends Section 5c of the Act to

provide for new rule, rule amendment and product certification and

approval procedures, which are applicable to DCMs and DCOs, as well as

new registered entities, SEFs and SDRs.\5\ Section 745 of the Dodd-

Frank Act also authorizes the Commission to prohibit the listing of

event contracts based on certain excluded commodities if such contracts

involve one or more activities enumerated in the Dodd-Frank Act.

Furthermore, Section 745 of the Dodd-Frank Act authorizes the

Commission to prohibit contracts based on similar activities if they

are determined by rule or regulation to be contrary to the public

interest. Section 806(e)(1) of the Dodd-Frank Act requires that a SIDCO

\6\ provide the Commission with 60 days advance notice of any proposed

changes to rules, procedures or operations that could materially affect

the nature or level of risk presented by a SIDCO. Finally, the

Commission proposes to toll the review period of novel derivative

products pending a determination as to whether the Commission or the

Securities and Exchange Commission (``SEC'') has jurisdiction over

novel derivative products.

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

\5\ The Dodd-Frank Act created new registered entities,

including SEFs and SDRs. Issues related to the regulation of these

entities will be addressed in other rulemakings issued by the

Commission.

\6\ A SIDCO is a DCO that has been designated as a systemically

important financial market utility by the Financial Stability

Oversight Council pursuant to Section 804 of the Dodd-Frank Act.

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

The Commission proposes a number of changes in order to enhance its

ability to administer the Act, as amended, ensure consistency with

various new requirements of the Dodd-Frank Act and clarify the

regulatory obligations imposed on market participants. Specifically,

the Commission proposes to amend sections 40.1 through 40.8 and adopt

new sections 40.10 through 40.12 \7\ to amend the definitions,

establish certification and approval procedures for the rules and

products of registered entities, including SIDCOs, prohibit event

contracts based on certain excluded commodities, and codify statutory

requirements relating to tolling of the review period pending SEC and

CFTC jurisdictional determinations.

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

\7\ Commission regulations referred to herein are found at 17

CFR 1.

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

[[Page 67284]]

Although Section 745 of the Dodd-Frank Act does not provide a

statutory deadline for promulgation of final rules, Part 40 of the

Commission's regulations currently is inconsistent with certain

provisions of Section 745. In addition, since, as noted, the Dodd-Frank

Act created new registered entities, SEFs and SDRs, the rule

certification procedures for these new registered entities must be in

place by the time these entities begin operating. Therefore, Part 40

should be amended by July 15, 2011, the date when relevant provisions

of the Dodd-Frank Act become effective.

The Commission requests comment on all aspects of the proposed

rules, as well as comment on the specific provisions and issues

highlighted in the discussion below.

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

a. Section 40.1 Definitions

To implement the requirements of the Dodd-Frank Act and to ensure

the Commission's ability to administer Part 40, the Commission proposes

a number of amendments to the definitions found in Sec. 40.1. The

Commission proposes to add definitions for ``dormant swap execution

facilities'' and ``dormant swap data repositories'' to provide

consistency with the extant Sec. 40.1definitions for dormant DCMs and

dormant DCOs. Also, the Commission proposes to delete the definition of

a ``dormant derivatives trading execution facility'' since this entity

was eliminated by the Dodd-Frank Act.

Further, the Commission proposes to revise the definition of

``emergency'' to include an occurrence or circumstance that threatens

the timely collection and payment of funds in connection with clearing

and settlement by a derivatives clearing organization. In addition, the

Commission proposes to incorporate references to swap transactions

where appropriate to ensure consistency in application of Part 40 to

both current and new registered entities. The Commission also proposes

to delete the existing restriction on Commission review of rules

relating to margin levels currently included in the definition of

rule.\8\ The restriction is no longer appropriate as Section 736 of the

Dodd-Frank Act amends Section 8a(7) of the Act to permit the Commission

to alter or supplement the rules of a registered entity by issuing

rules, regulations or orders regarding margin requirements. By

necessity, such action requires the Commission to be able to review a

DCO's rules ``relating to the setting of levels of margin'' in the

first instance, even though the Commission itself is not authorized to

``set specific margin amounts'' under Section 8(a)(7). Finally, the

Commission proposes to revise the definition of ``terms and

conditions'' to add a new paragraph (j)(15) to include specific

information relating to swaps proposed to be cleared by a DCO. By

supplementing other provisions of paragraph (j) that are relevant to

swaps, the Commission seeks to clarify the types of information that

may differentiate swaps from futures contracts. These include, for

example, the following: notional value; relevant dates, tenor, and day

count conventions; stub, premium, or initial cash flow components; and

payment and reset frequency.

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

\8\ The restriction in the current regulations reflects an

ambiguity in the Act as modified by the Commodity Futures

Modernization Act (``CFMA''). Prior to enactment of the CFMA in

2000, Section 5a(a)(12)(A) of the Act required that all changes to

contract terms and conditions be submitted to the Commission for

approval ``except those rules relating to the setting of levels of

margin.'' In Section 113 of the CFMA, Congress removed Section

5a(a)(12)(A), allowing registered entities to amend their rules by

self-certification. The new provision did not retain any reference

to margin rules. However, Section 8(a)(7) was not amended by the

CFMA, and retained a provision that allowed the Commission to alter

or supplement the rules of a registered entity, except for rules

relating to ``the setting of levels of margin,'' thereby creating

uncertainty as to whether registered entities could adopt or change

margin rules without certifying those rules to the Commission.

Because there was no indication that Congress intended to alter the

special status of rules relating to the setting of margin levels,

the Commission resolved this ambiguity by excluding the setting of

margin levels from the definition of ``rule.'' Section 8(a)(7)(D)

now permits the Commission to require the changes with respect to

margin requirements provided that the Commission's rules,

regulations or orders (i) are limited to protecting the financial

integrity of a DCO, (ii) are designed for risk management purposes

to protect the financial integrity of transactions, and (iii) do not

set specific margin amounts.

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

b. Section 40.2 Listing and accepting products for trading or clearing

by certification

Section 5c(c) of the Act permits registered entities to list for

trading or accept for clearing any new product by providing to the

Commission a written certification that the new product, rule, or rule

amendment complies with the Act and Commission regulations. Under

current Sec. 40.2, prior to listing or accepting products for trading

or clearing by certification, the Commission requires, among other

things, that registered entities provide the terms and conditions of

their products and certify that submitted products comply with the Act

and Commission regulations. The Commission also requires that

registered entities provide, only if requested by Commission staff,

additional information relating to whether the contract meets the

requirements of the Act or the Commission's regulations or policies

thereunder.

Further, the Act permits registered entities to list for trading

only those products that are not susceptible to manipulation and have

appropriate position limitations or position accountability for

speculators. To assist registered entities in demonstrating compliance

with these Core Principles and to better ensure the integrity of

certified products, the Commission proposes two amendments to Sec.

40.2.

The Commission proposes to amend Sec. 40.2 to require registered

entities to include in their submission documentation relied on to

establish the basis for compliance with the applicable provisions of

the Act and the Commission's regulations thereunder, including the Core

Principles for registered entities. The proposed amendments to Sec.

40.2 will increase the timeliness and efficiency of Commission review.

The Commission has always required that registered entities have

evidence supporting their certification of compliance with the Act

available for Commission review.\9\

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

\9\ For instance, in January 2006, when the Commission issued

Technical and Clarifying Amendments to Rules for Exempt Markets,

Derivatives Transaction Execution Facilities and Designated Contract

Markets, and Procedural Changes for Derivatives Clearing

Organization Registration Applications, it required DCMs to provide

documentation demonstrating compliance with the Act and the

Commission's regulations. It expressly stated, ``DCMs are

responsible in the first instance, and the Commission is ultimately

responsible in its oversight role, for assuring that DCM products

and rules comply with applicable designation criteria and Core

Principles. When a DCM self-certifies a product or rule, it is, in

effect, pledging that the product or rule does meet those standards.

Assuming the DCM is acting in good faith, it must have some

reasonable basis for making that pledge * * * [and therefore] * * *

when reasonable questions arise, it should not be burdensome for a

DCM to share information regarding the reasonable basis underlying

the new product or a rule with the Commission or its staff.'' See 71

FR 1956 (Jan. 12, 2006).

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

Based on these experiences, the Commission proposes to amend Sec.

40.2(a) to require a registered entity to include in its submission any

documentation relied on to establish the basis for compliance with the

Act and the Commission's regulations thereunder, including the

applicable Core Principles. For DCM and SEF submissions of new products

and product amendments, the Commission expects submissions to include

documentation demonstrating that the product is not readily susceptible

to manipulation (Core Principle 3 for

[[Page 67285]]

DCMs and SEFs) and that associated position limits or position

accountability provisions are necessary and appropriate (Core Principle

5 for DCMs and Core Principle 4 for SEFs). Proposed Sec. Sec. 40.3,

40.5, and 40.6 contain a similar requirement for submission of new

products, rules and rule amendments.

The Commission believes that before self-certifying that a new

contract complies with the Act and the Commission's regulations, a

registered entity should conduct an appropriate due diligence review to

support that assertion. Furthermore, the Commission believes that any

such review should generate some form of documentation at the

registered entity substantiating the review, including information used

and sources consulted to reach the conclusion supporting self-

certification. Therefore, the Commission believes that the inclusion of

such information in the self-certified submission itself should not be

burdensome for registered entities that are conducting appropriate due

diligence reviews before making such submissions.

Further, the Commission proposes a new Sec. 40.2 requirement that

registered entities examine potential legal issues associated with the

listing of products and include certain representations with their

submissions. The reason for these requirements is that certain

commodity futures and option products are based on measures or linked

to information that may be subject to bona fide intellectual property

rights claims. Commodity futures and option contracts, such as those

based on emission credits, can also be based on underlying markets that

are constructs of Federal or state regulations. In these and other

circumstances, the Commission has an interest in verifying that

registered entities have an adequate understanding of the legal

conditions and constraints that may have a material impact on the

trading of these types of products. Accordingly, the Commission

proposes to add Sec. 40.2(a)(3)(vi) to require that certified product

submissions be accompanied by a written statement verifying that the

registered entity has undertaken a due diligence review of the legal

conditions, including conditions relating to contractual and

intellectual property rights, that may affect the trading of the

product underlying the contract. Finally, the Commission proposes in

Sec. 40.2(a)(3)(vii) to require a registered entity to certify that

the registered entity has posted a copy of the pending product

certification submission on the registered entity's Web site at the

time of the filing. This will permit market participants to receive

prompt notice of new rules filed with the Commission.

c. Section 40.3 Voluntary submission of new products for Commission

review and approval

Although the Dodd-Frank Act does not specifically require that the

Commission amend Sec. 40.3, the Commission believes that the

amendments described below are necessary to enhance the Commission's

ability to administer the Act. Similar to its proposed amendments to

Sec. 40.2, described above, the Commission proposes to amend Sec.

40.3 to require DCMs, DCOs, and SEFs to include with their requests for

new product approval all documentation relied upon to determine that

the new product complies with applicable Core Principles.

In addition, similar to proposed Sec. 40.2(a)(3)(vi), proposed

Sec. 40.3(a)(9) requires registered entities to submit a written

statement that they have undertaken a due diligence review of the legal

conditions, including conditions relating to contractual and

intellectual property rights, that may affect the trading of the

product. These additional requirements should expedite Commission

review. Moreover, parallel to proposed Sec. Sec. 40.2(a)(3)(vii) and

40.6(a)(2), proposed Sec. 40.3(a)(10) requires a registered entity to

certify that the registered entity has posted a copy of the pending

product certification submission on the registered entity's Web site at

the time of the filing. As mentioned above, this will allow market

participants to receive prompt notice of pending requests for product

approval. Also, to provide the overall consistency with the

requirements of the Dodd-Frank Act, proposed Sec. 40.3(d)(1)

authorizes the Commission to extend the review period if the product

raises novel or complex issues.

Finally, the Commission notes that the standard for review and

approval for new products remains unchanged; that is, the Commission

shall approve a new product unless the terms and conditions of such

product would violate the Act or the Commission's regulations

thereunder.

d. Section 40.4 Amendments to terms or conditions of enumerated

agricultural products

The Commission proposes a number of technical amendments to clarify

existing regulatory obligations imposed on the DCMs that trade

contracts based on an agricultural commodity listed in Section 1a(9) of

the Act.

Pursuant to Section 5c(c)(2)(B) of the Act, rules that materially

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

based on an agricultural commodity enumerated in Section 1a(9) of the

Act, must be approved by the Commission prior to implementation. A

finding of materiality is, by statute, at the reasonable discretion of

the Commission. Through prior rulemaking, the Commission has enumerated

several rule categories in Sec. 40.4(b) that are deemed not to be

material for purposes of Section 5c(c)(2)(B) of the Act and thus not

subject to prior approval. The Commission has separately enumerated

several categories of registered entities' rules in Sec. 40.6(d) that

need not be approved by, or certified with, the Commission prior to

implementation. Exchange 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.

Since there is substantial overlap between the categories of rules

deemed not to be material under Sec. 40.4(b) and the categories of

rules enumerated in Sec. 40.6(d), the Commission proposes to amend

Sec. 40.4(b) to refer to Sec. 40.6(d) for the purpose of identifying

rules that are deemed by the Commission not to be material under

Section 5c(c)(2)(B) of the Act. Such rules would qualify for

implementation under Sec. 40.6 without prior approval or

certification.

In addition, the Commission proposes to clarify that changes in

trading hours in Sec. 40.4(b)(3) and changes required to comply with

an order of an adjudicative or regulatory body in Sec. 40.4(b)(4),

while not material for purposes of Section 5c(c)(2)(B) of the Act, must

be implemented through a prior certified submission under Sec. 40.6(a)

because of their potential effects on the operations of a DCM.

e. Section 40.5 Voluntary submission of rules for Commission review and

approval

Section 745 of the Dodd-Frank Act establishes a new standard for

the review of new rules or rule amendments. That standard, as codified

in proposed Sec. 40.5(b), requires the Commission to approve a new

rule or rule amendment unless the rule or rule amendment is

inconsistent with the Act or the Commission's regulations promulgated

thereunder. In determining whether a rule is inconsistent with the Act,

the Commission may also consider, for example, whether the new rule or

rule amendment potentially disrupts market integrity, or increases

systemic risk.

The Commission also proposes amendments to the information required

to be submitted when requesting

[[Page 67286]]

approval of amendments to the terms and conditions of a product under

Sec. 40.5. Consistent with Sec. 40.2 and Sec. 40.3, the Commission

proposes to amend Sec. 40.5(a)(7) to require a registered entity

submitting an amendment of a product's terms and conditions to include

with its submission the documentation relied upon to establish the

basis for compliance with the Act and the Commission's regulations

thereunder, including the applicable Core Principles.

Additionally, similar to Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10)

and 40.6 (a)(2), the Commission proposes in Sec. 40.5(a)(6) to require

registered entities to certify that the registered entity has posted a

copy of the pending product certification submission on the registered

entity's Web site at the time of the filing. This will permit market

participants to receive prompt notice of new requests for approval

filed with the Commission. The Commission intends to continue its

current practice of publishing all requests for Commission review and

approval on its Web site. Finally, proposed Sec. 40.5(a)(11) requires

registered entities, in connection with the submission of a request for

changes to a product's terms or conditions, to submit a written

statement that they have undertaken a due diligence review of the legal

conditions, including conditions relating to contractual and

intellectual property rights, that may affect the trading of the

product, similar to the statement required in Sec. Sec. 40.2 and 40.3.

f. Section 40.6 Self-certification of rules

Section 745 of the Dodd-Frank Act amended Section 5c(c) of the Act

to include a new 10-day certification review period for all rules and

rule amendments submitted to the Commission by registered entities and

to permit the Commission to stay the certification of rules or rule

amendments that, among other things, present novel or complex issues

that require additional time to analyze. The Commission proposes to

codify these new certification provisions in Sec. 40.6, as follows.

To implement the amended procedures for self-certification of rules

described in Section 745 of the Dodd-Frank Act, the Commission proposes

in Sec. 40.6(a)(3) to require registered entities to submit self-

certifications at least ten business days before the projected

effective date. A rule certification will become effective ten business

days after the Commission receives the certification, unless the

Commission notifies the registered entity, within 10 business days,

that it is staying the certification pursuant to Sec. 40.6(c).

Parallel to proposed Sec. 40.5(a), proposed Sec. 40.6(a) requires

a registered entity to certify that the registered entity has posted a

copy of the pending product certification submission on the registered

entity's Web site at the time of the filing. This will permit market

participants to receive prompt notice of new rules or rule amendments

filed with the Commission. The Commission intends to continue its

current practice of publishing the self-certified rules on its Web

site.

Further, in proposed Sec. 40.6(a)(6), the Commission clarifies the

distinction between rules that establish standards and authorize

appropriate parties to respond to an emergency--which must be submitted

to the Commission prior to implementation--and rules that implement a

response to a particular emergency--which, in certain circumstances,

may be submitted to the Commission after implementation.

Similar to Sec. Sec. 40.2, 40.3 and 40.5, proposed Sec.

40.6(a)(7)(v) requires that amendments to the terms and conditions of a

product be accompanied by documentation relied upon to establish the

basis for compliance with the Act and the regulations thereunder,

including the applicable Core Principles.

As is proposed for Sec. Sec. 40.2, 40.3 and 40.5 and discussed

above, the Commission proposes to amend Sec. 40.6(a)(7)(viii) to

require registered entities to include with their certification of any

changes to a product's terms and conditions, a written statement that

they have undertaken a due diligence review of legal conditions

relating to futures or options trading based on the underlying product

or instrument.

Under proposed Sec. 40.6(b), a new rule or rule amendment will

become effective ten business days after the certified rule or rule

amendment is received by the Commission, unless the Commission notifies

the registered entity that it is staying the certification. Generally,

a DCM seeking to adopt a program (such as a program to address

conflicts of interest), which is in substance the same as a program

previously approved by the Commission, or an exchange seeking to change

a rule establishing trading hours or seeking to modify the terms and

conditions of a listed contract for which it has provided sufficient

evidence of compliance with Core Principles, may self-certify and,

without Commission action, implement the proposed rule or rule

amendment after ten business days.

Proposed Sec. 40.6(c)(1) stays the certification of a rule if the

Commission determines that the new rule or rule amendment presents

novel or complex issues, is certified with an inadequate explanation,

or is potentially inconsistent with the Act or the Commission's

regulations thereunder. Once the Commission issues a notification of

stay to the registered entity, the Commission will have 90 days to

conduct a review. The rule will be certified upon expiration of the 90-

day review period unless the Commission objects to the certification.

If the Commission decides to lift the stay prior to the expiration of

the 90-day review period, the Commission will notify the registered

entity of its action.

The Commission also notes that the new stay provision in proposed

Sec. 40.6(c)(1) is distinct from the stay provision presently in

effect under current Sec. 40.6(b), which the Commission proposes to

move to Sec. 40.6(c)(4). The latter provision, which implements

Commission authority under section 8a(7) of the Act, permits the

Commission to stay the effectiveness of a rule or rule amendment that

already has been implemented pursuant to the self-certification

procedures in Sec. 40.6(a). Conversely, the new stay provision in

proposed Sec. 40.6(c)(1), pursuant to the Commission's new authority

in Section 745 of the Dodd-Frank Act, authorizes a stay of the

certification itself and would be issued during the review process,

thereby possibly preventing the certified rule or rule amendment from

ever becoming effective in the first instance.

A stay of a rule certification may be appropriate, for example,

where a registered entity certifies a rule that raises unique issues

not previously reviewed by Commission staff. In addition, the

Commission believes that new rules or rule amendments may raise a

number of complex issues if they appear to have a material impact on

the futures market or the underlying cash market. Thus such rules are

more likely to be subject to an extended review period to allow the

Commission to adequately identify and address complex regulatory

issues. For example, the Commission may need more than ten business

days to determine whether a proposed market maker incentive program

appropriately encourages market liquidity and does not have unnecessary

anticompetitive effects. Staff might also need more than ten business

days to analyze whether deliverable supplies of an underlying commodity

are sufficient to support a proposed change to a spot month speculative

position limit on a physical-delivery contract. The above mentioned

[[Page 67287]]

examples of submissions often raise a number of complex issues that may

require an extended review period.

Proposed Sec. 40.6(c)(2) provides for a 30-day public comment

period, within the 90-day review period, whenever the Commission

determines to stay a new rule or rule amendment and take it under

further review. Under proposed Sec. 40.6(c)(2), the Commission would

provide notice of the comment period by posting the notice and the new

rule or rule amendment submission on the Commission's Web site.\10\

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

\10\ It is the Commission's intention to promptly post the

notice and new rule or rule amendment in order to commence the

public comment period as soon as possible within the 90-day review

period. This will maximize the amount of time after the comment

period closes for the submitter to respond to public comments and

possibly revise its proposed rule or rule amendment and for the

Commission to thoroughly consider the issues raised by the new rule

or rule amendment.

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

The Commission believes that publication of the notice of the 30-

day comment period on the Commission's Web site, www.cftc.gov, will

provide the public and market participants with the timely opportunity

to comment on new rules or rule amendment submissions. The Commission

routinely uses its Web site to disseminate information regarding

Commission activities and industry filings.\11\ Web site publication

would facilitate public comment while allowing Commission staff

adequate time to assess comments and complete a substantive analysis

within the statutory 90-day time frame. Finally, the Commission

anticipates enhancements to its Web site publication procedures to

promptly inform interested members of the public of stayed rules

through email notifications on the Commission's Web site.

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

\11\ In addition, the Commission's Web site provides a link for

signing up to receive press releases issued by the Office of Public

Affairs. This service enables members of the public to be apprised

of the opening of comment periods in a timely manner.

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

The Commission is also exploring the possibility of having

registered entities file rule certifications, as well as other types of

submissions, through a portal located at www.cftc.gov. The Commission

believes that allowing registered entities to file rule certifications

in this manner will simplify the filing process and also provide the

public with close to real-time access to new rules and rule amendments

submitted to the Commission for review. The Commission is determining

the technological requirements necessary to implement this filing

process. Once the Commission has formulated a process for submitting

certifications through the Commission's Web site, the Commission will

notify the public and establish a timeline to implement new electronic

filing procedures.

The Commission proposes several amendments to Sec. 40.6(d).

Specifically, the Commission proposes to permit registered entities to

implement reductions to a contract's minimum tick size without approval

by or certification to the Commission, in order to maintain consistency

between Sec. Sec. 40.4(b) and 40.6(d). The Commission in proposed

Sec. 40.6(d)(2)(v), requires that fee changes associated with market

making or other incentive programs be submitted for Commission review

under Sec. 40.6(a). Finally, the Commission also proposes that changes

to the terms of all options, including options on agricultural

products, options on futures, and options on physicals, that relate to

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

listing of strike price on a discretionary basis, be implemented

without certification or notice under Sec. 40.6(d)(3).

g. Section 40.7 Delegations

To ensure that the review process is conducted in an efficient

manner, the Commission proposes to amend Sec. 40.7 to delegate to the

Director of the Division of Clearing and Intermediary Oversight and,

separately, to the Director of the Division of Market Oversight, after

consultation with the General Counsel or the General Counsel's

designee, the authority to extend the review of new contracts, rules

and rule amendments submitted to the Commission pursuant to Sec.

40.3(d) and Sec. 40.5(d) and the authority to stay the certification

of new rules or rule amendments pursuant to Sec. 40.6(c), when the

submission raises novel or complex issues that require additional time

to analyze, is of major economic significance or is potentially

inconsistent with the Act or Commission Regulations.

Furthermore, the Commission proposes to delegate to the Director of

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

the Director of the Division of Market Oversight the authority to stay

or to extend the review of new products, new rules and rule amendments

pursuant to Sec. 40.3 (d) or Sec. 40.5(d) or Sec. 40.6(c), when the

submission is incomplete or accompanied by an inadequate explanation.

Finally, proposed Sec. 40.7(a)(1)(iii) delegates to the Director

of the Division of Clearing and Intermediary Oversight or the

Director's designee, subject to the concurrence of the General Counsel

or the General Counsel's designee, all determinations under proposed

Sec. 40.10 with respect to a SIDCO's proposed change in rules,

procedures or operations that could materially affect the nature or

level of risks presented by the SIDCO. This includes a determination

that the proposed change is consistent with the Act and the

Commission's regulations, and the purposes of the Dodd-Frank Act and

any applicable rules, orders or standards prescribed under Section

805(a) of the Dodd-Frank Act.

h. Section 40.8 Availability of public information

This section describes information that the Commission will make

public and provides for procedures for requesting confidential

treatment of part 40 submissions to the Commission. The Commission

proposes to retain reference to an electronic trading facility on which

significant price discovery contracts are traded or executed in Sec.

40.8 until July 20, 2012. Although the Dodd-Frank Act eliminated these

entities, they are allowed to continue operation until July 20, 2012,

pursuant to grandfather relief issued by the Commission.\12\

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

\12\ See 75 FR 56513 (Sept. 16, 2010).

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

In addition, the Commission proposes to amend Sec. 40.8 to include

new registered entities, SEFs and SDRs. Confidential treatment requests

will be considered pursuant to part 145 of the Commission's

regulations.\13\

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

\13\ 17 CFR part 145.

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

i. Section 40.10 Special certification procedures for submission of

rules by systemically important derivatives clearing organizations

To implement the provisions of Section 806(e) of the Dodd-Frank

Act, proposed Sec. 40.10(a) would require a SIDCO to provide the

Commission with advance notice of any proposed change to its rules,

procedures or operations that could ``materially affect the nature or

level of risks'' presented by the SIDCO. The SIDCO would be required to

provide the notice not less than 60 days in advance of the proposed

change. Submission of proposed changes would be subject to the filing

requirements of Sec. 40.6(a)(1), as well as the Web site publication

requirements under Sec. 40.6(a)(2). In addition to providing

information required under Sec. 40.6(a)(7), the notice would have to

describe the nature of the change, the expected effects on risks to the

SIDCO, its clearing members, and the market, and how the SIDCO planned

to manage those risks. Under proposed 40.10(a)(2), concurrent with

providing the Commission with the advance notice or

[[Page 67288]]

any request or other information related to the advance notice, the

SIDCO would be required to provide the Board of Governors of the

Federal Reserve System with a copy of such notice, request or other

information.

Under proposed Sec. 40.10(b), changes that could materially affect

the nature or level of risks would be defined as those as to which

there is a reasonable possibility that the changes could substantially

affect the performance of essential clearing and settlement functions

or the overall nature or level of risk presented by the SIDCO. Such

changes could include, but would not be limited to, changes that

materially affect financial resources, participant and product

eligibility, risk management (including matters relating to margin and

stress testing), daily or intraday settlement procedures, default

procedures, system safeguards (business continuity and disaster

recovery), and governance. Materiality would be determined on a case-

by-case basis. If a SIDCO were to determine that a proposed change was

not material and it did not file an advance notice, but the Commission

determined that the change was material, the Commission could require

the SIDCO to withdraw the proposed change and provide advance notice

pursuant to Sec. 40.10.

The Commission requests comment on the proposed materiality

standard in general and, more specifically, whether another approach to

defining materiality would be more effective. The Commission further

requests comment on whether, as an alternative to the proposed

approach, the standard in proposed paragraph (b) should set forth

examples of changes that would be considered to be non-material and

could be treated in accordance with the provisions of Sec. 40.6. The

Commission solicits recommendations regarding what types of changes

might be identified as non-material. At a minimum, the Commission would

consider deeming to be non-material changes those listed in Sec.

40.6(c) (proposed to be redesignated as Sec. 40.6(d)) and that are

relevant to SIDCOs.\14\ The Commission notes that while this list of

non-material changes is useful in the broader context of all rule

changes that could be submitted under the certification procedures of

Sec. 40.6, the fact that the Dodd-Frank Act and Sec. 40.10 already

establish a materiality threshold makes the existing list of non-

material changes less meaningful for purposes of Sec. 40.10. The

Commission believes that any further refinement of what might be

considered non-material for purposes of Sec. 40.10 would have to be

appropriately circumscribed so as to be specific enough to provide

useful guidance for SIDCOs, while remaining broad enough so as not to

inappropriately limit the types of changes that the Commission would

consider material and subject to the procedures of Sec. 40.10.

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

\14\ Non-material changes include, for example, corrections of

typographical errors, renumbering, periodic updates to identifying

information about approved entities and other such non-substantive

revisions of a product's terms and conditions that have no effect on

the economic characteristics of the product. See Sec.

40.6(c)(2)(i).

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

Under proposed Sec. 40.10(c), the Commission may require a SIDCO

to provide further information to assess the nature or level of any

risks associated with the proposed change and the sufficiency of any

proposed risk management technique.

Further, under proposed Sec. 40.10(d), within 60 days from the

date the Commission received a notice of a proposed change, the

Commission would inform a SIDCO if it objects to the proposed change on

the grounds that the change is not consistent with the Act or the

Commission's regulations, or the purposes of the Dodd-Frank Act or any

applicable rules, orders, or standards prescribed under Section 805(a)

of the Dodd-Frank Act. If the Commission were to require further

information, the Commission would have an additional 60 days after the

date the Commission received the requested information, to inform the

SIDCO of any objection to the proposed change. The Commission may ask

for additional information more than once. In such case, the review

period would be extended 60 days from the date that the information

pertaining to the last request was received.

Proposed Sec. 40.10(e) would allow a SIDCO to implement a proposed

rule change if the review period lapsed without Commission action.

Proposed Sec. 40.10(f) would allow the Commission, during the 60-

day review period, to extend the review period for an additional 60

days if the proposed change raised novel or complex issues. For

example, if the Commission does not request additional information but

extends the review period 60 days upon receiving the advance notice,

the maximum review period would be 120 days after receipt of the

advance notice. On the other hand, if the Commission requests and

obtains additional information 30 days after receiving the notice and

then extends the review period 60 days in order to consider complex or

novel issues, then the Commission would have a maximum of 150 days to

reach a determination after receipt of the advance notice.

Proposed Sec. 40.10(g) would permit a SIDCO to implement a

proposed change prior to the expiration of the review period if it

received a notification in writing from the Commission that the

Commission does not object to the proposed change and authorizes the

SIDCO to implement the change. Such authorization may be subject to

conditions imposed by the Commission.

Proposed Sec. 40.10(h) would permit a SIDCO to implement a change

without providing 60 days advance notice to the Commission if the SIDCO

determined that an emergency exists and immediate implementation of the

change was necessary for the SIDCO to continue to provide its services

in a safe and sound manner. The SIDCO would be required to notify the

Commission of the emergency change as soon as practicable, but no later

than 24 hours after implementation of the change. The notification must

provide the information required in an advance notice, as well as

describe the nature of the emergency and explain why the emergency

change was necessary for the SIDCO to continue to provide its services

in a safe and sound manner. Under the proposed regulation, the

Commission could require modification or rescission of the emergency

change if the Commission determined that the change was not consistent

with the Act or the Commission's regulations or the purposes of the

Dodd-Frank Act, or any applicable rules, orders, or standards

prescribed under section 805(a) of the Dodd-Frank Act.

Finally, the Commission requests comment on whether there are any

substantive changes to rules, procedures, or operations that should not

be permitted to be adopted under emergency circumstances without prior

notice to the Commission. For example, should there be restrictions on

a SIDCO's ability to demand significantly higher assessments from

clearing members on an emergency basis?

j. Section 40.11 Review of event contracts based on certain excluded

commodities

Section 745(b) of the Dodd-Frank Act authorizes the Commission to

prohibit the listing, trading, or clearing of agreements, contracts,

transactions or swaps that are based upon an occurrence, extent of a

concurrence, or contingency (other than a change in the price, rate,

value, or level of a commodity not described in Section 1a(19)(i) of

the Act) that is beyond the control of the parties to the relevant

contract, agreement, or transaction and associated with financial,

commercial, or economic consequence, as defined in

[[Page 67289]]

Section 1a(19)(iv) of the Act, if the contract involves terrorism,

assassination, war, gaming, an activity that is unlawful under any

Federal or State law, or any similar activity that the Commission

determines, by rule or regulation, to be contrary to the public

interest.

Pursuant to this authority, the Commission proposes new Sec.

40.11(a)(1) to prohibit the listing, trading, or clearing of any above

mentioned agreements, contracts, transactions or swaps. In addition,

the Commission proposes new Sec. 40.11(a)(2) to prohibit the listing,

trading, or clearing of any agreements, contracts, transactions or

swaps involving activities similar to those enumerated in Sec.

40.11(a)(1) and that the Commission determines, by rule or regulation,

to be contrary to the public interest.

If during the review process for a product submitted under Sec.

40.2 or Sec. 40.3, the Commission determines that such product may

involve an activity that is enumerated in Sec. 40.11(a), the

Commission will request that the registered entity suspend the listing

or trading of the contract and will conduct a 90-day review to

determine whether the product violates Sec. 40.11(a). Upon completion

of its review, the Commission will issue an order, as required by

Section 745(b) of the Dodd-Frank Act, finding either that the product

violates or does not violate the prohibitions in proposed Sec.

40.11(a).

k. Section 40.12 Tolling of review period pending jurisdictional

determination

Under Section 718(a) of the Dodd-Frank Act, a registered entity

certifying, submitting for approval, or otherwise filing a proposal to

list a product having elements of both a security and a derivative may

provide notice of its proposal both to the Commission and the

Securities and Exchange Commission. However, under Section 718(a)(1)(B)

of the Dodd-Frank Act, if the registered entity chooses not to provide

such notice, then the Commission must notify the Securities and

Exchange Commission of the submission and accompany such notice with a

copy of the registered entity's complete filing if it determines that

the proposal has elements of both securities and futures. If either

Commission requests a jurisdictional determination pursuant to Section

718 of the Dodd-Frank Act, the Commission will toll the applicable

product certification or approval review period until the issuance of a

final determination order.

If the Commission or the Securities and Exchange Commission seeks

judicial review of a jurisdictional determination, proposed Sec. 40.12

stays the challenged order, as well as the review period for the

product, until the United States Court of Appeals for the District of

Columbia Circuit issues a final determination pursuant to Section

718(b) of the Dodd-Frank Act, or until there is resolution of an appeal

of that determination. The submission review period will resume only

upon a finding that the Commission has jurisdiction over the

submission.

l. Revision of Appendices to Part 40

The Commission proposes to revise the appendices to Part 40 to

clarify the new regulatory requirements and to provide consistency with

the overall requirements of the Act, as amended by the Dodd-Frank Act.

The present content of Appendix A relates solely to the listing of

certain futures contracts by DCMs and not to the listing of contracts

by registered entities generally. Accordingly, the Commission proposes

to delete the content of Appendix A, currently titled ``Guideline No.

1,'' from part 40. The substance of the appendix will be incorporated

into part 38 as part of a separate rulemaking.

In addition, the Commission proposes to move and incorporate the

current language in Appendix B, currently titled, ``Schedule of Fees,''

into Appendix A. The Commission proposes to reserve Appendix B for a

future rulemaking. Appendix C remains reserved.

The Commission proposes minor amendments to the submission cover

sheet and instructions provided in Appendix D to part 40. The proposed

submission cover sheet has been modified to include SEFs and SDRs. The

amended cover sheet will be posted on the Commission's Web site upon

publication of the final rules. The Commission also proposes to amend

the instructions in Appendix D to clarify that registered entities must

describe the substance of the submission with enough specificity to

characterize all material aspects of the filing. A description of the

submission should allow a party reading it to ascertain the subject and

effect of the submission. For example, a description of ``Market

Regulation Advisory'' does not provide the reader with sufficient

information to understand what the particular Advisory addresses or its

effect, thereby rendering the description less useful. A clear and

informative description will facilitate and expedite the posting of the

submission on the Commission's Web site. As noted above, the Commission

is exploring whether an electronic submission system can be established

and made available to registered entities in the near future. The

Commission is seeking the public's view on whether automated submission

of rules, rule amendments, and products might be facilitated by a Web

site portal dedicated to this purpose.

III. Related Matters

a. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') \15\ requires that

agencies consider whether the rules they propose will have a

significant economic impact on a substantial number of small entities

and, if so, provide a regulatory flexibility analysis respecting the

impact.\16\ The proposed rules detailed in this release would require

DCOs, DCMs, SEFs and SDRs to submit to the Commission, before they

become effective, new products, new rules, and rule amendments, with a

self-certification that the rules comply with the Act and Commission

regulations. The requirements for the self-certification are not

complex, and may be satisfied by the completion of a cover sheet with a

detailed explanation of the filing. These self-certification rules will

not impose a significant economic impact on any entity.

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

\15\ 5 U.S.C. 601 et seq.

\16\ 5 U.S.C. 601 et seq.

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

Moreover, the Commission previously determined that DCOs and DCMs

are not ``small entities'' for purposes of the RFA.\17\ The Commission

has not determined whether SEFs and SDRs, new registered entities

created by the Dodd-Frank Act, are small entities. The Dodd-Frank Act

defines an SDR to mean any person that collects and maintains

information or records with respect to transactions or positions in, or

the terms and conditions of, swaps entered into by third parties for

the purpose of providing a centralized recordkeeping facility for

swaps. The Dodd Frank Act defines a SEF to mean a trading system or

platform in which multiple participants have the ability to execute or

trade swaps by accepting bids and offers made by multiple participants

in the facility or system, through any means of interstate commerce,

including any trading facility that facilitates the execution of swaps

between persons and is not a DCM.\18\

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

\17\ 47 FR 18618, 18619 (April 30, 1982) and 66 FR 45604, 45609

(August 29, 2001).

\18\ See Section 721 of the Dodd-Frank Act. The Commission

anticipates proposing regulations that would further specify those

entities that must register as a SEF. The Commission does not

believe that such proposals would alter its determination that a SEF

is not a ``small entity'' for purposes of the RFA.

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

[[Page 67290]]

The Commission previously determined that DCMs and DCOs are not

``small entities'' for purposes of the RFA. The Commission's reasoning

included the fact that the Commission designates a contract market or a

DCO only when the entity meets specific criteria, including the

expenditure of sufficient resources to establish and maintain adequate

self-regulatory programs. Likewise, the Commission will register an

entity such as a SEF or an SDR only after the entity has met a number

of criteria, including the expenditure of sufficient resources to

establish and maintain an adequate self-regulatory program.\19\ Because

SEFs and SDRs will be required to demonstrate compliance with Core

Principles, many of which are similar to those applicable to DCMs and

DCOs, the Commission hereby determines that SEFs and SDRs are not

``small entities'' for the purposes of the RFA.

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

\19\ See Core Principle 2 applicable to SEFs under Section 733

of the Dodd-Frank Act and Core Principles 1-3 applicable to SDRs

under Section 728 of the Dodd-Frank Act.

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

Accordingly, the Chairman, on behalf of the Commission, hereby

certifies pursuant to 5 U.S.C. Sec. 605(b) that the proposed rules

will not have a significant impact on a substantial number of small

entities. The Commission invites the public to comment on all aspects

of this Regulatory Flexibility Analysis.

b. Paperwork Reduction Act

The Commission may not conduct or sponsor, and a registered entity

is not required to respond to, a collection of information unless it

displays a currently valid Office of Management and Budget (``OMB'')

control number. Proposed amendments to Sec. Sec. 40.2, 40.3, 40.5 and

40.6 will impose new information collection requirements within the

meaning of the Paperwork Reduction Act \20\ on registered entities, as

will new proposed Sec. Sec. 40.10 and 40.12. Accordingly, the

Commission has requested that OMB approve and assign a new control

number for the proposed collections of information. In connection with

its request, the Commission has submitted this notice of proposed

rulemaking along with supporting documentation for OMB's review in

accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this

collection of information is Part 40, Provisions Common to Registered

Entities, OMB control number 3038-D07. If adopted, responses to this

new collection of information will be mandatory.

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

\20\ 44 U.S.C. 3501 et seq.

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

The Commission will protect proprietary information according to

the Freedom of Information Act and 17 CFR part 145, ``Commission

Records and Information.'' In addition, section 8(a)(1) of the Act

strictly prohibits the Commission, unless specifically authorized by

the Act, from making public ``data and information that would

separately disclose the business transactions or market positions of

any person and trade secrets or names of customers.'' The Commission

also is required to protect certain information contained in a

government system of records according to the Privacy Act of 1974, 5

U.S.C. 552a.

1. Information Provided by Reporting Entities/Persons

The proposed rules require DCMs, DCOs, and new registered entities,

SEFs and SDRs, to collect and submit to the Commission new rules,

amended rules and new products pursuant to the procedures outlined in

proposed Sec. Sec. 40.2, 40.3, 40.5, 40.6, 40.10, and 40.12. The

Commission proposes these information collection requirements in order

to give effect to various notice, rule certification, and rule approval

provisions of the Dodd-Frank Act.

The Commission estimated the proposed information collection

burdens on registered entities below. These estimates account for (1)

the number of respondents; (2) the number of responses required of each

respondent; (3) the average hours required to produce each response;

and (4) the aggregate annual reporting burden. The Commission estimates

that the aggregate effect of proposed Sec. Sec. 40.2, 40.3, 40.5,

40.6, 40.10, and 40.12 will be to increase the overall information

collection burden on registered entities by approximately 8,300 hours

per year, resulting mostly from the preparation of materials to be

filed with the Commission in connection with the listing of products or

the certification or approval of rules and rule amendments. The

Commission estimates that there will be 70 designated or registered

entities that would be required to file documentation with the

Commission on a periodic basis.

Proposed Sec. Sec. 40.5 and 40.6 require each registered entity to

comply with new certification and approval requirements when seeking to

implement new rules or rule amendments, including changes to product

terms or conditions. In addition, to ensure that market participants

are promptly notified of product and rule submissions to the

Commission, proposed Sec. Sec. 40.2(a)(3)(vii), 40.3(a)(10),

40.5(a)(6), and 40.6(a)(2) require registered entities to state that

they posted a copy of the certification or request for approval on the

registered entity's Web site at the time of the filing with the

Commission.

Estimated number of respondents: 45.

Annual responses by each respondent: 120.

Estimated average hours per response: 2.52.

Aggregate annual reporting burden: 13,608.

Proposed Sec. 40.10 requires SIDCOs to provide to the Commission

60 days advance notice of proposed changes to rules, procedures or

operations that could materially affect the nature or level of risks

presented by the SIDCO.

Estimated number of respondents: 4.

Annual responses by each respondent: 2.

Estimated average hours per response: 5.

Aggregate annual reporting burden: 40.

Proposed Sec. 40.12 requires registered entities to provide notice

to the Commission and the Securities and Exchange Commission when

certifying, submitting for approval, or otherwise filing a proposal to

list a product having elements of both a security and a derivative.

Estimated number of respondents: 17.

Annual responses by each respondent: 34.

Estimated average hours per response: 2.52.

Aggregate annual reporting burden: 1,456.

The Commission invites public comment on the accuracy of its

estimate of the collection requirements that would result from the

proposed regulations.

2. Information Collection Comments

The Commission invites the public and other federal agencies to

comment on the information collection requirements proposed in this

notice. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits

comments to: (1) Evaluate whether the proposed collections of

information are necessary for the proper performance of the functions

of the Commission, including whether the information will have

practical utility; (2) evaluate the accuracy of the estimated burden of

the proposed information collection requirements, including the degree

to which the methodology and the assumptions that the Commission

employed were valid; (3) determine whether there are ways to enhance

the quality, utility, or clarity of the

[[Page 67291]]

information proposed to be collected; and (4) minimize the burden of

the proposed collections of information on DCMs, SEFs, DCOs, and SDRs,

for example through implementation of an electronic rule and product

submission system.

Comments may be submitted directly to the Office of Information and

Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at

[email protected] Please provide the Commission with a copy

of submitted comments so that they can be summarized and addressed in

the final rule. Refer to the Addresses section of this notice of

proposed rulemaking for comment submission instructions to the

Commission. A copy of the supporting statements for the collections of

information discussed above may be obtained by visiting RegInfo.gov.

OMB is required to make a decision concerning the collection of

information between 30 and 60 days after publication of this release.

Consequently, a comment to OMB is best assured of receiving full

consideration only if received by OMB (and the Commission) within 30

days of publication of this notice of proposed rulemaking.

c. 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 or

orders.\21\ By its terms, Section 15(a) does not require the Commission

to quantify the costs and benefits of a new regulation or to determine

whether the benefits of the proposed regulation outweigh its costs.

Rather, Section 15(a) requires the Commission to ``consider the costs

and benefits'' of its proposed regulation. Section 15(a) further

specifies that costs and benefits 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. In conducting its analysis, the Commission may, in its

discretion, give greater weight to any one of the five enumerated areas

and it may determine that, notwithstanding its costs, a particular rule

is necessary to protect the public interest or to effectuate any of the

provisions or to accomplish any of the purposes of the Act.\22\

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

\21\ 7 U.S.C. 19(a).

\22\ See, e.g., Fisherman's Doc Co-op., Inc v. Brown, 75 F.3d

164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336

(DC Cir. 1985) (noting that an agency has discretion to weigh

factors in undertaking cost-benefit analysis).

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

As discussed above, the proposed regulations require registered

entities, including DCMs, SEFs, DCOs, and SDRs, to comply with new

certification and approval procedures when submitting products and

rules for Commission review. These procedures are mandatory pursuant to

the Dodd-Frank Act. The Commission has determined that the costs

associated with the self-certification and submission for Commission

review of new products, new rules, and rule amendments will not

negatively affect the efficiency, competitiveness, and financial

integrity of the futures and swaps markets, particularly because of the

time limits that Congress has imposed on Commission review. The

Commission will have 10 days to review new products, new rules, and

rule amendments, and only 90 days if it stays a rule to issue a rule

approval or disapproval.

The Commission believes that the benefits of the rulemaking are

significant. The Commission's certification and approval procedures

ensure that registered entities do not enact rules that may be

anticompetitive, unfair to market participants, or otherwise

detrimental to the public interest. In addition, the special

certification procedures for SIDCOs and certain event contracts

implement Section 745 of the Dodd-Frank Act and ensure that the

Commission has adequate time and information to analyze the registered

entity's proposal and to consider the broader implications of

permitting the entity to implement the rule or list the product. The

SIDCO notice requirement, in particular, may be crucially important to

the Commission's oversight of sound risk management practices and to

its efforts to mitigate systemic risks, whereas the proposed event

contract provisions, consistent with the intent of Congress, prevent

individuals from speculating on activities that are harmful to national

security and potentially detrimental to the stability of the futures

markets and their price discovery function. Finally, the Commission's

notice requirements with respect to the submission of novel derivative

products promote cooperation between the Commission and the SEC and

facilitate more effective and less duplicative regulation of registered

entities.

For these reasons, the Commission believes that the certification

and approval procedures proposed in this notice are needed to fulfill

the requirements of the Dodd-Frank Act in order to protect market

participants and to ensure the continued competitiveness and financial

integrity of the futures and derivative markets.

The Commission invites public comment on its cost-benefit

considerations. Commenters are also invited to submit any data or other

information that they may have quantifying or qualifying the costs and

benefits of the proposal with their comment letters.

List of Subjects in 17 CFR Part 40

Commodity futures, Contract markets, Designation application,

Reporting and recordkeeping requirements, Swap execution facility, Swap

data repository, Systemically important derivatives clearing

organization, Rule approval, Rule certification, Review of certain

event contracts.

In light of the foregoing, and pursuant to authority in the Act,

and, in particular, Sections 3, 5, 5c(c) and 8a(5) of the Act, the

Commission hereby proposes to revise Part 40 of Title 17 of the Code of

Federal Regulations to read as follows:

PART 40--PROVISIONS COMMON TO REGISTERED ENTITIES

Sec.

40.1 Definitions.

40.2 Listing and accepting products for trading or clearing by

certification.

40.3 Voluntary submission of new products for Commission review and

approval.

40.4 Amendments to terms or conditions of enumerated agricultural

products.

40.5 Voluntary submission of rules for Commission review and

approval.

40.6 Self-certification of rules.

40.7 Delegations.

40.8 Availability of public information.

40.9 Corporate governance [Reserved]

40.10 Special certification procedures for submission of rules by

systemically important derivatives clearing organizations.

40.11 Review of event contracts based on certain excluded

commodities.

40.12 Tolling of review period pending jurisdictional determination.

Appendix A to Part 40--Schedule of Fees

Appendix B to Part 40--[Reserved]

Appendix C to Part 40--[Reserved]

Appendix D to Part 40--Submission Cover Sheet and Instructions

Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 12, as amended by

Titles VII and VIII of the Dodd-Frank Wall Street Reform and

Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

Sec. 40.1 Definitions.

As used in this part:

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

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

[[Page 67292]]

business hour of 4:45 p.m.; business hour means any hour between 8:15

a.m. and 4:45 p.m.. Business day and business hour are 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, instrument, swap or any

such commodity futures or option contract with respect to all future or

option expiries, listed on a designated contract market, a swap

execution facility or cleared by a registered derivatives clearing

organization, that has no open interest and in which no trading has

occurred for a period of twelve complete calendar months following a

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

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

and originally certified to, 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, swap or other

agreement, contract, transaction or instrument of a dormant designated

contract market, swap execution facility or a dormant derivatives

clearing organization; or

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

contract, swap, transaction or instrument not otherwise dormant that a

designated contract market, a swap execution facility or a derivatives

clearing organization self-declares through certification to be

dormant.

(c) Dormant designated contract market means any designated

contract market on which no trading has occurred during the period of

twelve consecutive calendar months, preceding the first day of the most

recent calendar month; 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

consecutive calendar months.

(d) Dormant derivatives clearing organization means any derivatives

clearing organization registered pursuant to Section 5b of the Act 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 swap data repository means any registered swap data

repository on which no data has resided for a period of twelve

consecutive calendar months, preceding the most recent calendar month.

(f) Dormant swap execution facility means any swap execution

facility on which no trading has occurred for a period of twelve

consecutive calendar months, preceding the first day of the most recent

calendar month; provided, however, no swap execution facility shall be

considered to be dormant if its initial and original Commission order

of registration was issued within the preceding 36 consecutive calendar

months.

(g) Dormant rule means:

(1) Any registered entity rule which remains unimplemented for

twelve consecutive calendar months following a certification with, or

an approval by, the Commission; or

(2) Any rule or rule amendment of a dormant designated contract

market, dormant swap execution facility, dormant swap data repository

or dormant derivatives clearing organization.

(h) 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, swaps or transactions or the timely collection and payment

of funds in connection with clearing and settlement by a derivatives

clearing organization, including:

(1) Any manipulative or attempted manipulative activity;

(2) Any actual, attempted, or threatened corner, squeeze,

congestion, or undue concentration of positions;

(3) Any circumstances which may materially affect the performance

of agreements, contracts, swaps or transactions, including failure of

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

(4) 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 or clearing and settlement; and

(5) Any other circumstance which may have a severe, adverse effect

upon the functioning of a registered entity.

(i) Rule means any constitutional provision, article of

incorporation, bylaw, rule, regulation, resolution, interpretation,

stated policy, terms and conditions, trading protocol, agreement or

instrument corresponding thereto, including those that authorize a

response or establish standards for responding to a specific emergency,

in whatever form adopted, and any amendment or addition thereto or

repeal thereof, made or issued by a registered entity or by the

governing board thereof or any committee thereof.

(j) Terms and conditions means any definition of the trading unit

or the specific commodity underlying a swap or a contract for the

future delivery of a commodity or commodity option contract,

specification of cash settlement or delivery standards and procedures,

and establishment of buyers' and sellers' rights and obligations under

the swap or contract. Whenever possible, all proposed swap or contract

terms and conditions should conform to industry standards or those

terms and conditions adopted by comparable contracts. Terms and

conditions include provisions relating to the following:

(1) Quality and other standards that define the commodity or

instrument underlying the contract;

(2) Quantity standards or other provisions related to swap or

contract size;

(3) Any applicable premiums or discounts for delivery of nonpar

products;

(4) Trading hours, trading months and the listing of swaps or

contracts;

(5) The pricing basis, minimum price fluctuations, and maximum

price fluctuations;

(6) Any price limits, trading halts, or circuit breaker provisions,

and procedures for the establishment of daily settlement prices;

(7) Position limits, position accountability standards, and

position reporting requirements;

(8) Delivery points and locational price differentials;

(9) Delivery standards and procedures, including fees related to

delivery or the delivery process; alternatives to delivery and

applicable penalties or sanctions for failure to perform;

(10) If cash settled; the definition, composition, calculation and

revision of the cash settlement price or index;

[[Page 67293]]

(11) Payment or collection of commodity option premiums or margins;

(12) Option exercise price, if it is constant, and method for

calculating the exercise price, if it is variable;

(13) Threshold prices for an option contract, the existence of

which is contingent upon those prices;

(14) Any restrictions or requirements for exercising an option; and

(15) With respect to swaps cleared by a derivatives clearing

organization, specifications including but not limited to:

(i) Notional values;

(ii) Relevant dates, tenor, and day count conventions;

(iii) Index;

(iv) Relevant prices, rates or coupons;

(v) Currency;

(vi) Stub, premium, or initial cash flow components along with

subsequent life cycle events;

(vii) Payment and reset frequency;

(viii) Business calendars;

(ix) Accrual type; and

(x) Spread or points.

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

certification.

(a) A designated contract market or a swap 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 part or that remains dormant subsequent to being submitted

under this section or approved under Sec. 40.3 of this part. A

derivatives clearing organization must comply with the submission

requirements of this section prior to accepting for clearing a product

that is not listed or traded on a designated contract market,

derivatives clearing organization or a swap execution facility and has

not been approved for clearing under Sec. 40.3 or Sec. 40.5 of this

part or that remains dormant subsequent to being submitted under this

section or approved under Sec. 40.5 of this part. A submission shall

comply with the following conditions:

(1) The designated contract market, or the swap execution facility,

or the derivatives clearing organization has filed its submission

electronically in a format specified by the Secretary of the Commission

with the Secretary of the Commission at [email protected], and with

the relevant branch chief at the regional office having local

jurisdiction over the registered entity;

(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

(3) The submission includes:

(i) A copy of the submission cover sheet in accordance with the

instructions in Appendix D to this part;

(ii) A copy of the product's rules, including all rules related to

its terms and conditions, or the rules establishing the terms and

conditions of the listed product that make it acceptable for clearing;

(iii) The intended listing date;

(iv) A certification by the designated contract market, the swap

execution facility, or the derivatives clearing organization that the

product to be listed complies with the Act and Commission regulations

thereunder;

(v) The documentation relied on to establish the basis for

compliance with the applicable provisions of the Act and the

Commission's regulations thereunder, including the Core Principles;

(vi) A written statement verifying that the registered entity has

undertaken a due diligence review of the legal conditions, including

conditions that relate to contractual and intellectual property rights,

which may materially affect the trading of the product;

(vii) Certification that the registered entity posted a notice of

pending product certification with the Commission and a copy of the

submission, concurrent with the filing of a submission with the

Commission, on the registered entity's Web site. Information which the

registered entity seeks to keep confidential may be redacted from the

documents published on the registered entity's Web site, but must be

republished consistent with any determination made pursuant to Sec.

40.8(c)(4);

(viii) A request for confidential treatment, if appropriate, as

permitted under Sec. 40.8.

(b) Additional information. If requested by Commission staff, a

registered entity shall provide any additional evidence, information or

data that demonstrates that the contract meets, initially or on a

continuing basis, all of the requirements of the Act and the

Commission's regulations and policies thereunder.

(c) Stay. The Commission may stay the listing of a contract

pursuant to paragraph (a) of this section during the pendency of

Commission proceedings for filing a false certification or during the

pendency of a petition to alter or amend the contract terms and

conditions pursuant to Section 8a(7) of the Act. The decision to stay

the listing of a contract in such circumstances shall not be delegable

to any employee of the Commission.

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, a

designated contract market, a swap execution facility, or a derivatives

clearing organization may request that the Commission approve a new or

dormant product prior to listing the product for trading or clearing,

or if a product was initially submitted under Sec. 40.2 of this part,

subsequent to listing the product for trading or clearing. A submission

requesting approval shall:

(1) Be filed electronically with the Secretary of the Commission at

[email protected], and with the regional office of the Commission

having local jurisdiction over the registered entity in a format

specified by the Secretary of the Commission;

(2) Include a copy of the submission cover sheet in accordance with

the instructions in Appendix D to this part;

(3) Include a copy of the rules that set forth the contract's terms

and conditions;

(4) Include the documentation relied on to establish the basis for

compliance with the applicable provisions of the Act and the

Commission's regulations thereunder, including the Core Principles;

(5) Describe any agreements or contracts entered into with other

parties that enable the registered entity to carry out its

responsibilities;

(6) Include the certifications required in Sec. 41.22 for product

approval of a commodity that is a security future or a security futures

product as defined in Sections 1a(44) or 1a(45) of the Act,

respectively, and, if applicable, include the notice required in Sec.

40.12(a) for the listing of novel derivative products;

(7) Include, if appropriate, a request for confidential treatment

as permitted under Sec. 40.8;

(8) Include the filing fee required under Appendix A to this part;

(9) Include a written statement verifying that the registered

entity has undertaken a due diligence review of the legal conditions,

including conditions relating to contractual and intellectual property

rights, that may materially affect the trading of the product;

(10) Certify that the registered entity posted a notice of pending

request for approval of new product with the Commission and a copy of

the submission, concurrent with the filing of a submission with the

Commission, on the registered entity's Web site. Information which the

registered entity seeks to keep confidential may be redacted from the

documents published

[[Page 67294]]

on the registered entity's Web site, but must be republished consistent

with any determination made pursuant to Sec. 40.8(c)(4);

(11) Include, if requested by Commission staff, additional

evidence, information or data demonstrating that the contract meets,

initially or on a continuing basis, all of the requirements of the Act,

or other requirements for designation or registration under the Act or

the Commission's regulations or policies thereunder. The registered

entity shall submit the requested information by the open of business

on the date that is two business days from the date of request by

Commission staff.

(b) Standard for review and approval. The Commission shall approve

a new product unless the terms and conditions of the product violate

the Act or the Commission's regulations.

(c) Forty-five day review. All products submitted for Commission

approval under this paragraph shall be deemed approved by the

Commission 45 days after receipt by the Commission, or at the

conclusion of an extended period as provided under paragraph (d) of

this section, unless notified otherwise within the applicable period,

if:

(1) The submission complies with the requirements of paragraph (a)

of this section; and

(2) The submitting entity does not amend the terms or conditions of

the product or supplement the request for approval, except as requested

by the Commission or for correction of typographical errors,

renumbering or other non-substantive revisions, during that period. Any

voluntary, substantive amendment by the submitting entity will be

treated as a new submission under this section.

(d) Extension of time. The Commission may extend the 45 day review

period in paragraph (c) of this section for:

(1) An additional 45 days, if the product raises novel or complex

issues that require additional time for review in which case, the

Commission shall notify the registered entity within the initial 45 day

review period and shall briefly describe the nature of the specific

issues for which additional time for review is required; or

(2) Any extended review period to which the registered entity

agrees in writing.

(e) Notice of non-approval. The Commission at any time during its

review under this section may notify the registered entity that it will

not, or is unable to, approve the product. This notification will

briefly specify the nature of the issues raised and the specific

provision of the Act or the Commission's regulations, including the

form or content requirements of paragraph (a) of this section, that the

product violates, appears to violate or potentially violates but which

cannot be ascertained from the submission.

(f) Effect of non-approval. (1) Notification to a registered entity

under paragraph (e) of this section of the Commission's determination

not to approve a product does not prejudice the entity from

subsequently submitting a revised version of the product for Commission

approval or from submitting the product as initially proposed pursuant

to a supplemented submission.

(2) Notification to a registered entity under paragraph (e) of this

section of the Commission's refusal to approve a product shall be

presumptive evidence that the entity may not truthfully certify under

Sec. 40.2 that the same, or substantially the same, product does not

violate the Act or the Commission's regulations thereunder.

Sec. 40.4 Amendments to terms or conditions of enumerated

agricultural products.

(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(j), of

a contract for future delivery in an agricultural commodity enumerated

in Section 1a(9) of the Act, or of an option on such a contract or

commodity.

(b) The following rules or rule amendments are not material and

should not be submitted under this section:

(1) Changes that are enumerated in Sec. 40.6(d)(2) may be

implemented without prior approval or certification if implemented

pursuant to the notification procedures of Sec. 40.6(d);

(2) Changes that are enumerated in Sec. 40.6(d)(3)(ii) may be

implemented without prior approval or certification or notification as

permitted pursuant to Sec. 40.6(d)(3);

(3) Changes in trading hours may be implemented without prior

approval if implemented pursuant to the procedures of Sec. 40.6(a);

(4) Changes required to comply with a binding order of a court of

competent jurisdiction, or a rule, regulation or order of the

Commission or of another federal regulatory authority, may be

implemented without prior approval if implemented pursuant to the

procedures of Sec. 40.6(a); or

(5) Any other rule:

(i) The text of which has been submitted for review at least ten

business days prior to its implementation and that has been labeled

``Non-Material Agricultural Rule Change;''

(ii) For which the designated contract market has provided an

explanation as to why it considers the rule ``non-material,'' and any

other information that may be beneficial to the Commission in analyzing

the merits of the entity's claim of non-materiality; and

(iii) With respect to which the Commission has not notified the

contract market during the review period that the rule appears to

require or does require prior approval under this section, may be

implemented without prior approval if implemented under the procedures

of Sec. 40.6(a).

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, a registered entity may request that the Commission approve a new

rule, rule amendment or dormant rule prior to implementation of the

rule, or if the request was initially submitted under Sec. Sec. 40.2

or 40.6 of this part, subsequent to implementation of the rule. A

request for approval shall:

(1) Be filed electronically with the Secretary of the Commission at

[email protected], and with the regional office of the Commission

having local jurisdiction over the registered entity in a format

specified by the Secretary of the Commission;

(2) Include a copy of the submission cover sheet in accordance with

the instructions in Appendix D to this part;

(3) Set forth the text of the rule or rule amendment (in the case

of a rule amendment, deletions and additions must be indicated);

(4) Describe the proposed effective date of the rule or rule

amendment and any action taken or anticipated to be taken to adopt the

proposed rule by the registered entity or by its governing board or by

any committee thereof, and cite the rules of the entity that authorize

the adoption of the proposed rule;

(5) Explain the operation, purpose, and effect of the proposed

rule, including, as applicable, a description of the anticipated

benefits to market participants or others, any potential

anticompetitive effects on market participants or others, and how the

rule fits into the registered entity's framework of self-regulation;

(6) Certify that the registered entity posted a notice of pending

rule with the Commission and a copy of the

[[Page 67295]]

submission, concurrent with the filing of a submission with the

Commission, on the registered entity's Web site. Information which the

registered entity seeks to keep confidential may be redacted from the

documents published on the registered entity's Web site but must be

republished consistent with any determination made pursuant to Sec.

40.8(c)(4);

(7) Include the documentation relied on to establish the basis for

compliance with the applicable provisions of the Act and the

Commission's regulations thereunder, including the Core Principles;

(8) Provide additional information which may be beneficial to the

Commission in analyzing the new rule or rule amendment. If a proposed

rule affects, directly or indirectly, the application of any other rule

of the registered entity, the pertinent text of any such rule must be

set forth and the anticipated effect described;

(9) Describe briefly any substantive opposing views expressed to

the registered entity by governing board or committee members, members

of the entity or market participants with respect to the new rule or

rule amendment that were not incorporated into the new rule or rule

amendment;

(10) Identify any Commission regulation that the Commission may

need to amend, or sections of the Act or the Commission's regulations

that the Commission may need to interpret, in order to approve the new

rule or rule amendment. To the extent that such an amendment or

interpretation is necessary to accommodate a new rule or rule

amendment, the submission should include a reasoned analysis supporting

the amendment to the Commission's regulation or the interpretation;

(11) Include, for all products, a written statement verifying that

the registered entity has undertaken a due diligence review of the

legal conditions, including conditions relating to contractual and

intellectual property rights, which may materially affect the trading

of such product or products, if the proposed rule specifically relates

to one or more listed products;

(12) As appropriate, include a request for confidential treatment

as permitted under the procedures of Sec. 40.8;

(b) Standard for review and approval. The Commission shall approve

a new rule or rule amendment unless the rule or rule amendment is

inconsistent with the Act or the Commission's regulations.

(c) Forty-five day review. (1) All rules submitted for Commission

approval under paragraph (a) of this section shall be deemed approved

by the Commission under section 5c(c) of the Act 45 days after receipt

by the Commission, or at the conclusion of such extended period as

provided under paragraph (d) of this section, unless the registered

entity is notified otherwise within the applicable period, if:

(i) The submission complies with the requirements of paragraph (a)

of this section;

(ii) The registered entity does not amend the proposed rule or

supplement the submission, except as requested by the Commission,

during the pendency of the review period other than for correction of

typographical errors, renumbering or other non-substantive revisions.

Any amendment or supplementation not requested by the Commission will

be treated as the submission of a new filing under this section.

(2) The Commission shall commence the review period in paragraph

(c) of this section for a compliant submission under Sec. 40.4(b)(5)

ten business days after its receipt.

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

may further extend the review period in paragraph (c) of this section

for any approval request for:

(1) An additional 45 days, if the proposed rule raises novel or

complex issues that require additional time for review or is of major

economic significance, the submission is incomplete or the requestor

does not respond completely to Commission questions in a timely manner,

in which case, the Commission shall notify the submitting registered

entity within the initial forty-five day review period and shall

briefly describe the nature of the specific issues for which additional

time for review shall be required; or

(2) Any period, beyond the additional 45 days provided in Sec.

40.5(d)(1), to which the registered entity agrees in writing.

(e) Notice of non-approval. Any time during its review under this

section, the Commission may notify the registered entity that it will

not, or is unable to, approve the new rule or rule amendment. This

notification will briefly specify the nature of the issues raised and

the specific provision of the Act or the Commission's regulations,

including the form or content requirements of this section, with which

the new rule or rule amendment is inconsistent or appears to be

inconsistent with the Act or the Commission's regulations.

(f) Effect of non-approval. (1) Notification to a registered entity

under paragraph (e) of this section does not prevent the registered

entity from subsequently submitting a revised version of the proposed

rule or rule amendment for Commission review and approval or from

submitting the new rule or rule amendment as initially proposed in a

supplemented submission; the revised submission will be reviewed

without prejudice.

(2) Notification to a registered entity under paragraph (e) of this

section of the Commission's determination not to approve a proposed

rule or rule amendment of a registered entity shall be presumptive

evidence that the entity may not truthfully certify that the same, or

substantially the same, proposed rule or rule amendment under Sec.

40.6(a) of this section.

(g) Expedited approval. Notwithstanding the provisions of paragraph

(c) of this section, changes to a proposed rule or a rule amendment,

including changes to terms and conditions of a product that are

consistent with the Act and Commission regulations and with standards

approved or established by the Commission may be approved by the

Commission at such time and under such conditions as the Commission

shall specify in the written notification, provided, however, that the

Commission may, at any time, alter or revoke the applicability of such

a notice to any particular product or rule amendment.

Sec. 40.6 Self-certification of rules.

(a) Required certification. A registered entity shall comply with

the following conditions prior to implementing any rule that has not

obtained Commission approval under Sec. 40.5 of this part, that

remains dormant subsequent to being submitted under this section or

approved under Sec. 40.5 of this part, or that is submitted under

Sec. 40.10 of this part, except as otherwise provided by Sec.

40.10(a):

(1) The registered entity has filed its submission electronically

in a format specified by the Secretary of the Commission with the

Secretary of the Commission at [email protected] and with the

relevant branch chief at the regional office having local jurisdiction

over the registered entity.

(2) The registered entity has provided a certification that the

registered entity posted a notice of pending certification with the

Commission and a copy of the submission, concurrent with the filing of

a submission with the Commission, on the registered entity's Web site.

Information that the registered entity seeks to keep confidential may

be redacted from the documents published on the registered entity's Web

site, but it must be republished consistent with

[[Page 67296]]

any determination made pursuant to Sec. 40.8(c)(4).

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

not later than the open of business on the business day that is 10

business days prior to the registered entity's implementation of the

rule or rule amendment.

(4) The Commission has not stayed the submission pursuant to Sec.

40.6(c).

(5) The rule or rule amendment is not a rule or rule amendment of a

designated contract market that materially changes a term or condition

of a contract for future delivery of an agricultural commodity

enumerated in section 1a(4) of the Act or an option on such a contract

or commodity in a delivery month having open interest;

(6) Emergency rule certifications. (i) New rules or rule amendments

that establish standards for responding to an emergency must be

submitted pursuant to Sec. 40.6(a);

(ii) 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

(7) The rule submission shall include:

(i) A copy of the submission cover sheet in accordance with the

instructions in Appendix D to this part (in the case of a rule or rule

amendment that responds to an emergency, ``Emergency Rule

Certification'' should be noted in the Description section of the

submission coversheet);

(ii) The text of the rule (in the case of a rule amendment,

deletions and additions must be indicated);

(iii) The date of intended implementation;

(iv) A certification by the registered entity that the rule

complies with the Act and the Commission's regulations thereunder;

(v) The documentation relied on to establish the basis for

compliance with the applicable provisions of the Act and the

Commission's regulations thereunder, including the Core Principles;

(vi) A brief explanation of any substantive opposing views

expressed to the registered entity by governing board or committee

members, members of the entity or market participants, that were not

incorporated into the rule, or a statement that no such opposing views

were expressed;

(vii) As appropriate, a request for confidential treatment pursuant

to the procedures provided in Sec. 40.8;

(viii) For amendments to a product's terms or conditions, a written

statement certifying that the registered entity has undertaken a due

diligence review of the legal conditions, including conditions relating

to contractual and intellectual property rights, that may materially

affect the trading of the product.

(8) The registered entity shall provide, if requested by Commission

staff, additional evidence, information or data that may be beneficial

to the Commission in conducting a due diligence assessment of the

filing and the registered entity's compliance with any of the

requirements of the Act or the Commission's regulations or policies

thereunder.

(b) Review by the Commission. The Commission shall have 10 business

days to review the new rule or rule amendment before the new rule or

rule amendment is deemed certified and can be made effective, unless

the Commission notifies the registered entity during the 10-business

day review period that it intends to issue a stay of the certification

under paragraph (c) of this section.

(c) Stay--(1) Stay of certification of new rule or rule amendment.

The Commission may stay the certification of a new rule or rule

amendment submitted pursuant to paragraph (a) of this section by

issuing a notification informing the registered entity that the

Commission is staying the certification of the rule or rule amendment

on the grounds that the new rule or rule amendment presents novel or

complex issues that require additional time to analyze, the rule is

accompanied by an inadequate explanation or the rule is potentially

inconsistent with the Act or the Commission's regulations thereunder.

The Commission will have 90 days from the date of the notification to

conduct the review. The decision to stay the certification of a rule in

such circumstances shall be delegable pursuant to Sec. 40.7 of this

part.

(2) Public comment. The Commission shall provide a 30-day comment

period, within the 90-day period while the stay is in effect as

described in paragraph (c)(1) of this section. The Commission shall

publish a notice of the 30-day comment period on the Commission Web

site. Comments from the public shall be submitted as specified in that

notice.

(3) Expiration of a stay of certification of new rule or rule

amendment. A new rule or rule amendment subject to a stay pursuant to

paragraph (c) shall become effective, pursuant to the certification, at

the expiration of the 90-day review period described in paragraph

(c)(1) of this section unless the Commission withdraws the stay prior

to that time, or the Commission notifies the registered entity during

the 90-day time period that it objects to the proposed certification on

the grounds that the proposed rule or rule amendment is inconsistent

with the Act or the Commission's regulations.

(4) Stay of effectiveness of rules or rule amendments already

implemented. The Commission may stay the effectiveness of an

implemented rule during the pendency of Commission proceedings for

filing a false certification or during the pendency of a petition to

alter or amend the rule pursuant to section 8a(7) of the Act. The

decision to stay the effectiveness of a rule in such circumstances

shall not be delegable to any employee of the Commission.

(d) Notification of rule amendments. Notwithstanding the rule

certification requirement of Section 5c(c)(1) of the Act and paragraph

(a) of this section, a registered entity may place the following rules

or rule amendments into effect on the following business day without

certification to the Commission if the following conditions are met:

(1) The registered entity provides to the Commission at least

weekly a summary notice of all rule amendments made effective pursuant

to this paragraph during the preceding week. Such notice must be

labeled ``Weekly Notification of Rule Amendments'' and need not be

filed for weeks during which no such actions have been taken. One copy

of each such submission shall be furnished electronically in a format

specified by the Secretary of the Commission; and

(2) The rule governs:

(i) Non-substantive revisions. Corrections of typographical errors,

renumbering, periodic routine updates to identifying information about

approved entities and other such non-substantive revisions of a

product's terms and conditions that have no effect on the economic

characteristics of the product;

(ii) Delivery standards set by third parties. Changes to grades or

standards of commodities deliverable on a product that are established

by an independent third party and that are incorporated by reference as

product terms, provided that the grade or standard is not established,

selected or calculated solely for use in connection with futures or

option trading and such changes do not affect deliverable supplies or

the pricing basis for the product;

[[Page 67297]]

(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 (d)(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 paragraph

(d)(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) Fees. Fees or fee changes, other than fees or fee changes

associated with market making or trading incentive programs, that:

(A) Total $1.00 or more per contract, and

(B) Are established by an independent third party or are unrelated

to delivery, trading, clearing or dispute resolution.

(vi) Survey lists. Changes to lists of banks, brokers, dealers, or

other entities that provide price or cash market information to an

independent third party and that are incorporated by reference as

product terms;

(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 weigh masters, assayers, and inspectors) at a delivery

location, pursuant to previously certified or Commission approved

standards or criteria;

(ix) Trading months. The initial listing of trading months, which

may qualify for implementation without notice pursuant to (d)(3)(ii)(H)

of this section, within the currently established cycle of trading

months; or

(x) Minimum tick. Reductions in the minimum price fluctuation (or

``tick'').

(3) Notification of rule amendments not required. Notwithstanding

the rule certification requirements of section 5c(c)(1) of the Act and

paragraph (a) of this section, a registered entity may place the

following rules or rule amendments into effect without certification or

notice to the Commission if the following conditions are met:

(i) The registered entity maintains documentation regarding all

changes to rules; and

(ii) The rule governs:

(A) Transfer of membership or ownership. Procedures and forms for

the purchase, sale or transfer of membership or ownership, but not

including qualifications for membership or ownership, any right or

obligation of membership or ownership or dues or assessments;

(B) Administrative procedures. The organization and administrative

procedures of a registered entity governing bodies such as a Board of

Directors, Officers and Committees, but not voting requirements, Board

of Directors or Committee composition requirements or procedures,

decision making procedures, use or disclosure of material non-public

information gained through the performance of official duties, or

requirements relating to conflicts of interest;

(C) Administration. The routine, daily administration, direction

and control of employees, requirements relating to gratuity and similar

funds, but not guaranty, reserves, or similar funds; declaration of

holidays, and changes to facilities housing the market, trading floor

or trading area;

(D) Standards of decorum. Standards of decorum or attire or similar

provisions relating to admission to the floor, badges, or visitors, but

not the establishment of penalties for violations of such rules; and

(E) Fees. Fees or fee changes, other than fees or fee changes

associated with market making or trading incentive programs, that:

(1) Are less than $1.00; or

(2) Relate to matters such as dues, badges, telecommunication

services, booth space, real time quotations, historical information,

publications, software licenses or other matters that are

administrative in nature.

(F) Securities indexes. Routine changes to the composition,

computation or method of security selection of an index that is

referenced and defined in the product's rules, and which is made by an

independent third party.

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

compliance with the daily reporting requirements of Sec. 16.01 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 of this chapter,

the initial listing of trading months which are within the currently

established cycle of trading months.

Sec. 40.7 Delegations.

(a) Procedural matters. (1) The Commission hereby delegates, until

it orders otherwise, to the Director of the Division of Clearing and

Intermediary Oversight and, separately, to the Director of the Division

of Market Oversight, to be exercised by either Director, as

appropriate, or by such employees of the Commission that either

Director may designate from time to time, the following authorities,

with the concurrence of the General Counsel or the General Counsel's

delegate:

(i) To request, pursuant to Sec. 40.3(c)(2) or Sec. 40.5(c)(1)(B)

of this part, that the registered entity requesting approval amend the

proposed product, rule or rule amendment, or supplement the submission

to the Commission;

(ii) To notify the registered entity, pursuant to Sec. 40.3(e) or

Sec. 40.5(e) of this part, that the Commission is not approving, or is

unable to approve, the proposed product, rule or rule amendment;

(iii) To make all determinations reserved to the Commission in

Sec. 40.10.

(2) The Commission hereby delegates, until it orders otherwise, to

the Director of the Division of Clearing and Intermediary Oversight

and, separately, to the Director of the Division of Market Oversight,

to be exercised by either Director, as appropriate, or by such

employees of the Commission that either Director may designate from

time to time, the following authorities, after consultation with the

Office of General Counsel or the General Counsel's delegate to notify a

registered entity:

(i) Pursuant to Sec. 40.3(d) of this part, that the time for

review of the submission has been extended because the product raises

novel or complex issues that require additional time for review;

(ii) Pursuant to Sec. 40.5(d) of this part, that the time for

review of the submission has been extended because the proposed rule or

rule amendment raises novel or complex issues that require additional

time for review or is of major economic significance;

(iii) Pursuant to Sec. 40.6(c) of this part, that the proposed

rule or rule amendment has been stayed because there exist novel or

complex issues that require additional time to analyze, or there is

potential inconsistency with the Act or the Commission's regulations.

(3) The Commission hereby delegates, until it orders otherwise, to

the Director

[[Page 67298]]

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

to the Director of the Division of Market Oversight, to be exercised by

either Director, as appropriate, or by such employees of the Commission

that either Director may designate from time to time, the authority to

notify a registered entity, pursuant to Sec. 40.3(d) or Sec. 40.5(d)

of this part, that the time for review of the submission has been

extended, or that a rule certified pursuant to Sec. 40.6(c) has been

stayed, because the submission is incomplete or provides an inadequate

explanation.

(4) Emergency rules. The Commission hereby delegates to the

Director of the Division of Market Oversight and, separately, to the

Director of the Division of Clearing and Intermediary Oversight, to be

exercised by either Director, as appropriate, or by such other employee

or employees of the Commission that either Director may designate from

time to time, authority to receive notification of emergency rules

under Sec. 40.6(a)(6)(ii) of this part.

(5) The Commission hereby delegates to the Director of the Division

of Market Oversight, to be exercised by the Director or by such

employees of the Commission that the Director may designate from time

to time, with the concurrence of the General Counsel or the General

Counsel's delegate, the authority to determine whether a rule change

submitted by a designated contract market for a materiality

determination under Sec. 40.4(b)(5) of this part is not material (in

which case it may be reported pursuant to the provisions of Sec.

40.6(d) of this part), or is material, in which case he or she shall

notify the registered entity that the rule change must be submitted for

the Commission's prior approval.

(b) Approval authority. The Commission hereby delegates, until it

orders otherwise, to the Director of the Division of Clearing and

Intermediary Oversight and, separately, to the Director of the Division

of Market Oversight, to be exercised by either Director, as

appropriate, or by such employees of the Commission that either

Director may designate from time to time, with the concurrence of the

General Counsel or the General Counsel's delegate, the authority to

approve, pursuant to section 5c(c)(3) of the Act and Sec. 40.5 of this

part, rules or rule amendments of a registered entity that:

(1) Relate to, but do not substantially change, the quantity,

quality, or other delivery specifications, procedures, or obligations

for delivery, cash settlement, or exercise under an agreement, contract

or transaction approved for trading by the Commission; daily settlement

prices; clearing position limits; requirements or procedures for

governance of a registered entity; procedures for transfer trades;

trading hours; minimum price fluctuations; and maximum price limit and

trading suspension provisions;

(2) Reflect routine modifications that are required or anticipated

by the terms of the rule of a registered entity;

(3) Establish or amend speculative limits or position

accountability provisions that are in compliance with the requirements

of the Act and the Commission's regulations;

(4) Are in substance the same as a rule of the same or another

registered entity which has been approved previously by the Commission

pursuant to section 5c(c)(3) of the Act;

(5) Are consistent with a specific, stated policy or interpretation

of the Commission; or

(6) Relate to the listing of additional trading months of approved

contracts.

(c) Notwithstanding the provisions of this section, the Director of

the Division of Clearing and Intermediary Oversight and, separately,

the Director of the Division of Market Oversight may submit to the

Commission for its consideration any matter that has been delegated

pursuant to this section.

(d) Nothing in this section shall be deemed to prohibit the

Commission, at its election, from exercising any of the authority

delegated pursuant to this section.

Sec. 40.8 Availability of public information.

(a) The following sections of all applications to become a

designated contract market, a swap execution facility, a derivatives

clearing organization, or a swap data repository shall be made publicly

available: Transmittal letter, proposed rules, the applicant's

regulatory compliance narrative, documents establishing the applicant's

legal status, documents setting forth the applicant's corporate and

governance structure, and any other part of the application not covered

by a request for confidential treatment.

(b) The following submissions provided by an electronic trading

facility on which significant price discovery contracts are traded or

executed will be public: Rulebook, the facility's regulatory compliance

chart, documents establishing the facility's legal status, documents

setting forth the facility's governance structure, and any other parts

of the submissions not covered by a request for confidential treatment

(Sec. 40.8(b) will be removed on July 20, 2012).

(c) A registered entity's filing of new products pursuant to the

self-certification procedures of Sec. 40.2 of this part, new products

for Commission review and approval pursuant to Sec. 40.3 of this part,

new rules and rule amendments for Commission review and approval

pursuant to Sec. 40.4 or Sec. 40.5 of this part, and new rules and

rule amendments pursuant to the self-certification procedures of Sec.

40.6 and Sec. 40.10 of this part shall be treated as public

information unless accompanied by a request for confidential treatment.

If a registered entity files a request for confidential treatment, the

following procedures shall apply:

(1) A detailed written justification of the confidential treatment

request must be filed simultaneously with the request for confidential

treatment. The form and content of the detailed written justification

shall be governed by Sec. 145.9 of this chapter;

(2) All material for which confidential treatment is requested must

be segregated in an Appendix to the submission;

(3) The submission itself must indicate that material has been

segregated and, as appropriate, an additional redacted version

provided;

(4) Commission staff may make an initial determination with respect

to the request for confidential treatment without regard to whether a

request for the information has been sought under the Freedom of

Information Act;

(5) All requests for confidential treatment shall be subject to the

process provided by Sec. 145.9 of this chapter.

(6) A submitter of information under this part may appeal an

adverse decision by staff to the Commission's Office of General

Counsel. The form and content of such appeal shall be governed by Sec.

145.9(g) of this chapter.

(7) The grant of any part of a request for confidential treatment

under this section may be reconsidered if a subsequent request under

the Freedom of Information Act is made for the information

(d) Commission staff will not consider confidential treatment

requests for information that is required to be made public under

Section 5(d)(7) of the Act. The terms and conditions of a product

submitted to the Commission pursuant to Sec. 40.2, Sec. 40.3 or Sec.

40.5 of this part shall be made publicly available at the time of

submission.

[[Page 67299]]

Sec. 40.9 Corporate Governance [Reserved]

Sec. 40.10 Special certification procedures for submission of rules

by systemically important derivatives clearing organizations.

(a) Advance notice. A registered derivatives clearing organization

that has been designated by the Financial Stability Oversight Council

as a systemically important derivatives clearing organization shall

provide notice to the Commission not less than 60 days in advance of

any proposed change to its rules, procedures, or operations that could

materially affect the nature or level of risks presented by the

systemically important derivatives clearing organization. A notice

submitted under this section shall be subject to the filing

requirements of Sec. 40.6(a)(1) and the Web site publication

requirements of Sec. 40.6(a)(2).

(1) The notice of a proposed change shall provide the information

required to be submitted under Sec. 40.6(a)(7) and shall specifically

describe:

(i) The nature of the change and expected effects on risks to the

systemically important derivatives clearing organization, its clearing

members, or the market; and

(ii) How the systemically important derivatives clearing

organization plans to manage any identified risks.

(2) Concurrent with providing the Commission with the advance

notice or any request or other information related to the advance

notice, the systemically important derivatives clearing organization

shall provide the Board of Governors of the Federal Reserve System with

a copy of such notice, request or other information.

(b) Materiality. The term ``materially affect the nature or level

of risks presented,'' when used to qualify determinations on a change

to rules, procedures, or operations of a systemically important

derivatives clearing organization, means matters as to which there is a

reasonable possibility that the change could affect the performance of

essential clearing and settlement functions or the overall nature or

level of risk presented by the systemically important derivatives

clearing organization. Such changes may include, but are not limited

to, changes that materially affect financial resources, participant and

product eligibility, risk management (including matters relating to

margin and stress testing), daily or intraday settlement procedures,

default procedures, system safeguards (business continuity and disaster

recovery), and governance. If a systemically important derivatives

clearing organization determines that a proposed change is not material

and therefore does not file an advance notice under this Sec. 40.10,

but the Commission determines that the change is material, the

Commission may require the systemically important derivatives clearing

organization to withdraw the proposed change and provide notice

pursuant to this section.

(c) Further information. The Commission may require the

systemically important derivatives clearing organization to provide any

further information necessary to assess the effect the proposed change

would have on the nature or level of risks associated with the

systemically important derivatives clearing organization's payment,

clearing, or settlement activities and the sufficiency of any proposed

risk management techniques.

(d) Notice of objection. A systemically important derivatives

clearing organization shall not implement a change to which the

Commission has an objection on the grounds that the proposed change is

not consistent with the Act or the Commission's regulations, or the

purposes of the Dodd-Frank Act or any applicable rules, orders, or

standards prescribed under Section 805(a) of the Dodd-Frank Act. The

Commission will notify the systemically important derivatives clearing

organization in writing of any objection regarding the proposed change

within 60 days from the later of:

(1) The date that the notice of the proposed change was received;

or

(2) The date the Commission received any further information it had

requested for consideration of the notice.

(e) Implementation of change absent Commission objection. A

systemically important derivatives clearing organization may implement

a change if it has not received an objection to the proposed change

within 60 days from the later of:

(1) The date that the Commission received the notice of proposed

change; or

(2) The date the Commission received any further information it had

requested for consideration of the notice.

(f) Extended review. The Commission may, during the 60-day review

period, extend the review period if the proposed change raises novel or

complex issues. A notification by the Commission pursuant to this

paragraph will extend the review for an additional 60 days. Any

extension under this paragraph will extend the time periods under

paragraphs (d) and (e) of this section for an additional 60 days.

(g) Change allowed earlier if notified of no objection. A

systemically important derivatives clearing organization may implement

a change in less than 60 days from the date the Commission receives the

notice of proposed change or the date the Commission receives any

further information it has requested, if the Commission notifies the

systemically important derivatives clearing organization in writing

that it does not object to the proposed change and authorizes

implementation of the change on an earlier date, subject to any

conditions imposed by the Commission.

(h) Emergency changes. A systemically important derivatives

clearing organization may implement a change that would otherwise

require advance notice under this section if it determines that an

emergency exists and immediate implementation of the change is

necessary for the systemically important derivatives clearing

organization to continue to provide its services in a safe and sound

manner.

(1) The systemically important derivatives clearing organization

shall provide notice of any such emergency change to the Commission as

soon as practicable, which shall be no later than 24 hours after

implementation of the change.

(2) The notice of an emergency change shall:

(i) Provide the information required for advance notice as set

forth in paragraph (a) of this section;

(ii) Describe the nature of the emergency; and

(iii) Describe the reason the change was necessary for the

systemically important derivatives clearing organization to continue to

provide its services in a safe and sound manner.

(3) The Commission may require modification or rescission of the

emergency change if it finds that the change is not consistent with the

Act or the Commission's regulations, or the purposes of the Dodd-Frank

Act or any applicable rules, orders, or standards prescribed under

Section 805(a) of the Dodd-Frank Act.

Sec. 40.11 Review of event contracts based on certain excluded

commodities.

(a) Prohibition. A registered entity shall not list for trading or

clearing on or through the registered entity any of the following:

(1) An agreement, contract, transaction, or swap based on an

excluded commodity, as defined in Section 1a(19)(iv) of the Act, that

involves, relates to, or references terrorism, assassination, war,

gaming, or an activity that is unlawful under any State or Federal law;

or

[[Page 67300]]

(2) An agreement, contract, transaction, or swap based on an

excluded commodity, as defined in Section 1a(19)(iv) of the Act, which

involves, relates to, or references an activity that is similar to an

activity enumerated in Sec. 40.11(a)(1) of this part, and that the

Commission determines, by rule or regulation, to be contrary to the

public interest.

(b) [Reserved.]

(c) 90-day review and approval of certain event contracts. The

Commission may determine, based upon a review of the terms or

conditions of a submission under Sec. 40.2 or Sec. 40.3, that an

agreement, contract, transaction, or swap based on an excluded

commodity, as defined in Section 1a(19)(iv) of the Act, which may

involve, relate to, or reference an activity enumerated in Sec.

40.11(a)(1) or Sec. 40.11(a)(2), be subject to a 90-day review. The

90-day review shall commence from the date the Commission notifies the

registered entity of a potential violation of Sec. 40.11(a).

(1) The Commission shall request that a registered entity suspend

the listing or trading of any agreement, contract, transaction, or swap

based on an excluded commodity, as defined in Section 1a(19)(iv) of the

Act, which may involve, relate to, or reference an activity enumerated

in Sec. 40.11(a)(1) or Sec. 40.11(a)(2), during the Commission's 90-

day review period. The Commission shall post on the Web site a

notification of the intent to carry out a 90-day review.

(2) Final determination. The Commission shall issue an order

approving or disapproving an agreement, contract, transaction, or swap

that is subject to a 90-day review under Sec. 40.11(c) no later than

90 days subsequent to the date that the Commission commences review, or

if applicable, at the conclusion of such extended period agreed to or

requested by the registered entity.

Sec. 40.12 Tolling of review period pending jurisdictional

determination.

(a) Notice of novel derivative products. (1) A registered entity

certifying, submitting for approval, or otherwise filing a proposal to

list, trade, or clear an agreement, contract, transaction, or swap

having elements of both a security and a derivative, including a

contract for the sale of a commodity for future delivery, may provide

notice of its proposal to the Commission and the Securities and

Exchange Commission with a statement that written notice has been

provided to both agencies through an appropriate means provided in each

Commission's regulations.

(2) If concurrent notice is not provided pursuant to Sec.

40.12(a)(1), the Commission shall notify the Securities and Exchange

Commission of the registered entity's submission of a novel derivative

product and accompany such notice with a copy of the submission. The

Commission shall determine whether a particular submission is a novel

derivative product requiring notice to the Securities and Exchange

Commission not later than five business days subsequent to the date

that the registered entity submits the product for Commission review.

(b) Tolling of review period. Upon receipt of a request for a

jurisdictional determination, pursuant to Section 718(a)(2) of the

Dodd-Frank Act, by the Commission or the Securities and Exchange

Commission, the product certification or the approval review period for

the submitted agreement, contract, transaction, or swap shall be tolled

until a final determination order is issued.

(1) The Commission will provide the registered entity with a

written notice of stay pending issuance of a final determination order

by the Commission or the Securities and Exchange Commission.

(2) The submission review period will resume upon the Commission's

or the Securities and Exchange Commission's issuance of a final

determination order finding that the Commission has jurisdiction over

the submission.

(3) Determination order. A final determination, for purposes of

Sec. 40.12(b) of this part, shall be a determination order issued by

the Commission or the Securities and Exchange Commission pursuant to

Section 718(a)(3) of the Dodd-Frank Act.

(c) Judicial review of determination order. The filing of a

petition by a complaining Commission, pursuant to Section 718(b) of the

Dodd-Frank Act, shall operate as a stay of the agency order.

(1) The stay shall remain in effect until the date on which the

United States Court of Appeals for the District of Columbia Circuit

issues a final determination pursuant to Section 718(b)(4) of the Dodd-

Frank Act, or until such date that there is a final disposition of an

appeal of that determination.

(2) The submission review period shall resume upon issuance of a

final determination, as described in Sec. 40.12(c)(1), that the

Commission has jurisdiction over the submission.

Appendix A to Part 40--Schedule of Fees

(a) Applications for product approval. Each application for

product approval under Sec. 40.3 must be accompanied by a check or

money order made payable to the Commodity Futures Trading Commission

in an amount to be determined annually by the Commission and

published in the Federal Register.

(b) Checks and applications should be sent to the attention of

the Office of the Secretariat, Commodity Futures Trading Commission,

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

No checks or money orders may be accepted by personnel other than

those in the Office of the Secretariat.

(c) Failure to submit the fee with an application for product

approval will result in return of the application. Fees will not be

returned after receipt.

Appendix B to Part 40--[Reserved]

Appendix C to Part 40--[Reserved]

Appendix D to Part 40--Submission Cover Sheet and Instructions

(a) A properly completed submission cover sheet shall accompany

all rule and product submissions submitted electronically by a

registered entity to the Secretary of the Commodity Futures Trading

Commission, at [email protected] in a format specified by the

Secretary of the Commission. A properly completed submission cover

sheet shall include all of the following:

1. Identifier Code (optional)--A registered entity Identifier

Code at the top of the cover sheet, if applicable. Such codes are

commonly generated by registered entities to provide an identifier

that is unique to each filing (e.g., NYMEX Submission 03-116).

2. Date--The date of the filing.

3. Organization--The name of the organization filing the

submission (e.g., CBOT).

4. Filing as a--Check in the appropriate box indicating that the

rule or product is being submitted by a designated contract market

(DCM), derivatives clearing organization (DCO), swap execution

facility (SEF), or swap data repository (SDR), electronic trading

facility with a significant price discovery contract (the term will

be removed on July 20, 2012).\1\

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

\1\ Even though ECM-SPDC was eliminated by the Dodd-Frank Act,

the Commission proposes to retain references to this entity in the

cover sheet since ECM may be allowed to operate until July 20, 2012,

pursuant to grandfather relief issued by the Commission. See 75 FR

56513 (Sept. 16, 2010).

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

5. Type of Filing--An indication as to whether the filing is a

new rule, rule amendment or new product. The registered entity

should check the appropriate box to indicate the applicable category

under that heading.

6. Rule Numbers--For rule filings, the rule number(s) being

adopted or modified in the case of rule amendment filings.

7. Description--For rule or rule amendment filings a description

of the new rule or rule amendment, including a discussion of its

expected impact on the

[[Page 67301]]

registered entity, market participants, and the overall market. The

narrative should describe the substance of the submission with

enough specificity to characterize all material aspects of the

filing.

(b) Other Requirements--A submission shall comply with all

applicable filing requirements for proposed rules, rule amendments,

or products. The filing of the submission cover sheet does not

obviate the registered entity's responsibility to comply with

applicable filing requirements (e.g., rules submitted for Commission

approval under Sec. 40.5 must be accompanied by an explanation of

the purpose and effect of the proposed rule along with a description

of any substantive opposing views).

(c) Checking the box marked ``confidential treatment requested''

on the Submission Cover Sheet does not obviate the submitter's

responsibility to comply with all applicable requirements for

requesting confidential treatment in Sec. 40.8 and, where

appropriate, Sec. 145.9 of this chapter, and will not substitute

for notice or full compliance with such requirements.

Issued in Washington, DC, on October 26, 2010, by the

Commission.

David A. Stawick,

Secretary of the Commission.

Note: The following attachment will not appear in the Code of

Federal Regulations.

Statement of Chairman Gary Gensler Provisions Common to Registered

Entities October 26, 2010

I support the proposal to publish for comment the proposed rule

on the Commission's process for certification and approval of rules

and new products for designated contract markets (DCMs), derivatives

clearing organizations (DCOs), swap execution facilities (SEFs) and

swap data repositories (SDRs). The Dodd-Frank Act establishes

enhanced procedures for Commission review and certification of new

rules, rule amendments and products. Today's rule gives important

procedural guidance to registered entities on how to comply with

Congress's mandate for the Commission's review of new rules and

products.

[FR Doc. 2010-27533 Filed 11-1-10; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: November 2, 2010