2015-25029

Federal Register, Volume 80 Issue 191 (Friday, October 2, 2015)

[Federal Register Volume 80, Number 191 (Friday, October 2, 2015)]

[Rules and Regulations]

[Pages 59575-59578]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 2015-25029]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 15, 18, 36, 40, 140

RIN 3038-AE10

Repeal of the Exempt Commercial Market and Exempt Board of Trade

Exemptions

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'')

is taking final action to revise its regulations by removing the part

36 regulations. Those regulations implemented provisions of the

Commodity Exchange Act (``CEA'') that established exempt boards of

trade and exempt commercial markets--two categories of derivatives-

trading platforms that were eliminated from the CEA by the Dodd-Frank

Wall Street Reform and Consumer Protection Act (the ``Dodd-Frank

Act''). This action also removes various cross-references in other

Commission regulations implicating exempt boards of trade and exempt

commercial markets.

DATES: This rulemaking is effective on October 2, 2015.

FOR FURTHER INFORMATION CONTACT: Commodity Futures Trading Commission,

Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581;

Dana R. Brown, Division of Market Oversight, telephone (202) 418-5093

and email [email protected]

SUPPLEMENTARY INFORMATION:

I. Background

On July 21, 2010, President Obama signed the Dodd-Frank Act into

law. \1\ Title VII of the Dodd-Frank Act \2\ amended the CEA \3\ to

establish a comprehensive framework for the regulation of over-the-

counter derivatives, also known as swaps. Among other reforms, Title

VII requires that any person who operates a facility to trade swaps

register as a designated contract market (``DCM'') or a swap execution

facility (``SEF''); \4\ the latter is a category of trading market

newly established under the law. Concurrently, Title VII eliminated

from the CEA two categories of exempt markets for the trading of

derivatives originally established in the CEA by the Commodity Futures

Modernization Act of 2000 (``CFMA''): \5\ exempt commercial markets

(``ECMs'') and exempt boards of trade (``EBOTs'').

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\1\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).

\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may

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

2010.''

\3\ 7 U.S.C. 1 et seq. (2012).

\4\ Dodd-Frank Act Section 733 (amending the CEA to add new

section 5h).

\5\ Public Law 106-554, 114 Stat. 2763 (December 21, 2000).

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Under the CFMA's revisions to the CEA, ECMs could trade exempt

commodities \6\ (i.e. any commodity other than an excluded commodity

\7\ and agricultural commodities) on electronic trading facilities

between eligible commercial entities \8\ without complying with

comprehensive designation criteria and core principles that were

applicable to designated contract markets. A facility that elected to

operate as an ECM was generally exempt from regulation, but was still

required to comply with certain informational and recordkeeping

requirements, if the market satisfied the conditions for the exemption

found in Sections 2(h)(3) through (5) of the CEA, 7 U.S.C. 2(h)(3)-(5),

including a requirement that the ECM notify the Commission of its

intent to rely upon the exemption.\9\

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\6\ See CFMA Section 101(4) (amending CEA to add definition of

``Exempt Commodity,'' currently codified as CEA Section 1(a)(20), 7

U.S.C. 1a(20) (2012).

\7\ ``Excluded Commodity'' is also a statutorily defined term,

currently codified as CEA Section 1(a)(19), 7 U.S.C. 1a(19) (2012).

Generally characterized, the term captures, among other things

specified financial instruments, measures, and indexes (e.g.,

securities and security indexes, currencies, interest rates, debt

instruments, and credit ratings); any ``other rate, differential,

index, or measure of economic or commercial risk, return or value''

not substantially based on the value of a narrow commodity group or

solely based on a commodity or commodities with no cash value; and

other economic or commercial indexes, or occurrences and

contingencies associated with an economic consequence, beyond the

control of parties to the relevant contract, agreement or

transaction.

\8\ The definition of ``Eligible Commercial Entity'' is found in

Section 1a(17) of the CEA. 7 U.S.C. 1a(17) (2006).

\9\ The Commission's part 36 regulations established similar

requirements for EBOTs.

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Under CEA Section 5d, 7 U.S.C. 7a-3, EBOTs were facilities that

traded commodities (other than securities or securities indexes) that

had a nearly inexhaustible deliverable supply and either no cash market

or a cash market so liquid that any contract traded on the commodity

was highly unlikely to be susceptible to manipulation. EBOT

transactions were limited to eligible contract participants \10\ and

subject to minimal trading prohibitions, including anti-fraud and anti-

manipulation restrictions. EBOTs were required to file notice with the

Commission of their election to operate as an EBOT.\11\

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\10\ The definition of ``Eligible Contract Participant'' is

found in Section 1a(18) of the CEA, 7 U.S.C. 1a(18) (2012).

\11\ The Commission's Part 36 regulations established similar

requirements for ECMs.

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Section 723 of the Dodd-Frank Act repealed CEA Section 2(h)(3) as

it then existed,\12\ thus eliminating the ECM category. Section 734 of

the Dodd-Frank Act similarly repealed CEA Section 5d,\13\ thus

eliminating the EBOT category. Both Sections 723 and 734 of the Dodd-

Frank Act contain grandfather provisions allowing existing ECMs and

EBOTs to petition the Commission to continue to operate as ECMs and

EBOTs subject to the requirements of the CEA Sections 2(h)(3) and 5d,

respectively, for a limited period of time.\14\ Pursuant to these

grandfather provisions, the Commission issued an order in September

2010 granting petitioning ECMs and EBOTs up to one year of grandfather

relief from the general effective date of the Dodd-Frank Act amendments

to the CEA (``Grandfather Relief Order'').\15\

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\12\ The Dodd-Frank Act amended Section 2(h) of the CEA

effective July 16, 2011, H.R. 4173, Section 723(a)(1), Public Law

111-203, 124 Stat. 1376, by striking existing subsection (h)--

``Transactions in exempt commodities'' and inserting new subsection

(h)--``Clearing requirement'' not addressed to exempt commercial

markets.

\13\ The Dodd-Frank Act repealed Section 5d of the CEA effective

July 16, 2011, H.R. 4173, Section 734(a), Public Law 111-203, 124

Stat. 1376 (2010).

\14\ ECMs and EBOTs were permitted to continue operations until

July 16, 2012 pursuant to a grandfather relief order issued by the

Commission pursuant to Sections 723(c)(2)(B) and 734(c)(2) of the

Dodd-Frank Act, respectively.

\15\ 75 FR 56513 (September 16, 2010).

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Subsequent to the Grandfather Relief Order, the Commission issued a

series

[[Page 59576]]

of orders \16\ and Commission staff issued various no-action letters

\17\ that effectively extended expiration of the relief provided to

ECMs and EBOTs in the Grandfather Relief Order. Collectively, the

Grandfather Relief Order and subsequent Commission orders and staff no-

action letters allowed ECMs and EBOTs, as well as other markets that

relied on various pre-Dodd-Frank Act provisions of the CEA,\18\ to

continue operations under a regulatory status quo and, thus, ensured

that industry practices would not be unduly disrupted during the

transition to the new Dodd-Frank Act regulatory regime.\19\

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\16\ 76 FR 42522 (July 19, 2011), 76 FR 80233 (December 23,

2011), and 77 FR 41260 (July 13, 2012).

\17\ CFTC No-Action Letter No. 12-48 (December 11, 2012),

available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-48.pdf and CFTC No-Action

Letter No. 13-28 (June 17, 2013), available at: http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-28.pdf.

\18\ See e.g., CEA Sections 2(d), 2(e), 2(g), 2(h), and 5d.

\19\ The Commission orders and no-action letters were generally

structured to permit transactions and relevant persons and entities

to continue to rely on various CEA exemptive and excluding

provisions in place prior to July 16, 2011 subject to other

conditions, various anti-fraud and anti-manipulation prohibitions

and the expiration of exemptive relief orders as various Dodd-Frank

Act implementing regulations became effective.

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The Grandfather Relief Order and various subsequent Commission

orders have all expired, and entities that previously operated as ECMs

or EBOTs are seeking registration to become either DCMs or SEFs to

continue their operations. Accordingly, the Commission is removing all

references to the Commission exemptive orders from Title 17 of the Code

of Federal Regulations.

As discussed in section III.A. below, the Commission is publishing

this final rule pursuant to the Administrative Procedure Act, 5 U.S.C.

553(b)(A), which provides that the requirements for notice and

opportunity for public comment do not apply to ``rules of agency

organization, procedure, or practice . . . .'' \20\ The rulemaking

conforms the Commission's regulations to the statutory requirements of

the CEA by removing provisions that are of no legal effect because they

concern exempt market categories that Congress, through the Dodd-Frank

Act, removed from the statute; the Commission has no authority or

discretion under the statute to retain the ECM and EBOT category

designations in its regulations. As such, the amendments effected

through this rulemaking--which have no impact on substantive rights or

obligations under the CEA, as amended by the Dodd-Frank Act--are

entirely ministerial and procedural in nature.

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\20\ See 5 U.S.C. 553(b) & (c).

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II. Amended Regulations

A. Part 36

The Commission is removing part 36 of its regulations in its

entirety in order to reflect the Dodd-Frank Act's elimination of the

two categories of exempt markets--ECMs and EBOTs--from the CEA.

B. Parts 15, 18, 40, and 140

The Commission is removing from parts 15, 18, 40, and 140 all

references to the Grandfather Relief Orders added to the Commission's

regulations by Adaptation of Regulations To Incorporate Swaps

rulemaking,\21\ as the authority under which those orders were issued

has expired, and is removing all references in the Commission's

regulations to the terms ECMs, EBOTs, and electronic trading facilities

(as sometimes used in the Commission's regulations to refer to

ECMs).\22\

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\21\ Adaptation of Regulations To Incorporate Swaps, 77 FR 66288

(November 2, 2012).

\22\ The Commission proposed and finalized rules in the

``Adaptation of Regulations to Incorporate SEFs'' to make a number

of conforming amendments to integrate the Commission's regulations

more fully with the new swaps framework created by the Dodd-Frank

Act. 77 FR 66288 (November 2, 2012).

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1. Regulation 15.05: Designation of agent for foreign persons.

The Commission is removing from regulation 15.05 all references to

contracts identified in part 36.

2. Regulation 18.05: Maintenance of books and records.

The Commission is removing from regulation 18.05 all references to

ECMs and EBOTs.

3. Regulation 40.8: Availability of public information.

The Commission is removing from regulation 40.8 all references to

electronic trading facilities on which significant price discovery

contracts are traded or executed.

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

The Commission is removing from Appendix D to part 40 the reference

to electronic trading facilities with a significant price discovery

contract.

5. Regulation 140.99: Requests for exemptive, no-action and

interpretative letters.

The Commission is removing from regulation 140.99 all references to

ECMs and EBOTs.

III. Administrative Compliance

A. Administrative Procedure Act

The Administrative Procedure Act (``APA'') \23\ generally requires

a Federal agency to publish notice of a proposed rulemaking in the

Federal Register and allow opportunity for public comment before

propounding a final rule.\24\ This requirement does not apply, however,

to non-legislative rules of ``agency organization, procedure, or

practice.'' \25\ In this case, the revisions to the Commission's

regulations in this rulemaking do not establish any new substantive or

legislative rules. Rather, this final rule makes technical amendments

to various Commission regulations to reflect the fact that Congress has

eliminated the ECM and EBOT category designations from the CEA. As

such, the amendments effected through this rulemaking--which have no

impact on substantive rights or obligations under the CEA, as amended

by the Dodd-Frank Act--are entirely ministerial and procedural in

nature. This final rule shall become effective upon publication in the

Federal Register.

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\23\ 5 U.S.C. 551 et seq.

\24\ See 5 U.S.C. 553(b) & (c).

\25\ See 5 U.S.C. 553(b)(A).

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B. Regulatory Flexibility Act

The Regulatory Flexibility Act requires the Commission to consider

whether the regulations it adopts will have a significant economic

impact on a substantial number of small entities.\26\ The Commission

certifies that this rulemaking will have no significant impact on a

substantial number of small entities as defined in the Regulatory

Flexibility Act.\27\ There is no additional submission required as a

result of this action. Accordingly, the Commission is not obligated to

conduct a regulatory flexibility analysis for this rulemaking.

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\26\ See 5 U.S.C. 601 et seq.

\27\ See id.

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C. Paperwork Reduction Act

The Commission may not conduct or sponsor, and a respondent is not

required to respond to, a collection of information contained in a

rulemaking unless the information collection displays a currently valid

control number issued by the Office of Management and Budget (``OMB'')

pursuant to the Paperwork Reduction Act.\28\ This rulemaking contains

no collection of information that obligates the Commission to obtain a

control number from OMB.

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\28\ See 44 U.S.C. 3501 et seq.

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[[Page 59577]]

D. Cost-Benefit Considerations

1. Introduction

Section 15(a) of the CEA requires the Commission to consider the

costs and benefits of its actions before promulgating a regulation

under the CEA or issuing certain orders.\29\ Section 15(a) further

specifies that the 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. The Commission considers the costs and benefits

resulting from its discretionary determinations with respect to the

Section 15(a) factors.

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\29\ 7 U.S.C. 19(a).

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The Commission is removing its Part 36 regulations and amending

Sec. Sec. 15.05, 18.05, 40.8, Appendix D to part 40, and Sec. 140.00.

Part 36 originally implemented provisions of the pre-Dodd-Frank CEA

that established EBOTs and ECMs--two categories of derivatives-trading

platforms that were eliminated from the CEA by the Dodd-Frank Act--

while the other regulations contained references to ECM and EBOTs. The

Commission is using the CEA, as amended by the Dodd-Frank Act, as the

baseline for assessing whether and to what extent costs or benefits are

likely to flow from the amendments, and is only considering the costs

and benefits of its discretionary actions permissible within the

parameters of the statute.

2. Costs

Since the Dodd-Frank Act eliminated ECMs and EBOTs from the CEA,

the Commission lacks authority to make or retain provisions for them

within its regulations. Accordingly, there are no costs to the industry

or the public associated with the amendments to remove implementing

language for ECMs and EBOTs in part 36 and obsolete, vestigial

references to ECMs and EBOTs in parts 15, 18, 40, and 140.

3. Benefits

The Commission believes that market participants and the public

will benefit from these ministerial rule amendments since they

eliminate obsolete, vestigial provisions and references that otherwise

could be construed to give rise to confusing inconsistencies between

the Commission's regulations and the provisions of the CEA, as amended

by the Dodd-Frank Act.

4. Section 15(a) Factors

Protection of market participants and the public. By squaring its

regulations with Dodd-Frank Act amendments to the CEA eliminating

authorization for ECMs and EBOTs, the Commission believes it is

furthering the interest of protecting market participants and the

public. These amendments eliminate potential for confusion that

otherwise might arise from retaining outdated provisions addressed to

statutorily-obsolesced trading platforms.

Efficiency, competitiveness, and financial integrity of futures

markets. The Commission believes that the amendments will not

materially affect the efficiency, competitiveness, and financial

integrity of futures markets.

Price discovery. The Commission believes that the amendments will

not materially affect the price discovery process.

Sound risk management practices. The Commission believes that the

amendments will not materially affect sound risk management practices.

Other public interest considerations. The Commission believes that

the amendments will not materially affect other public interest

considerations.

List of Subjects

17 CFR Part 15

Brokers, Reporting and recordkeeping requirements.

17 CFR Part 18

Reporting and recordkeeping requirements.

17 CFR Part 36

Commodity futures.

17 CFR Part 40

Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 140

Authority delegations (government agencies), Conflicts of interest,

Organization and functions (government agencies).

For the reasons stated in the preamble, under the authority of

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection

Act, Public Law 111-203, 124 Stat. 1376 (2010), the Commodity Futures

Trading Commission amends 17 CFR chapter I as set forth below:

PART 15--REPORTS--GENERAL PROVISIONS

0

1. The authority citation for part 15 continues to read as follows:

Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a,

9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall

Street Reform and Consumer Protection Act, Pub. L. 111-203, 124

Stat. 1376 (2010).

0

2. Revise paragraph (a) of Sec. 15.05 to read as follows:

Sec. 15.05 Designation of agent for foreign persons.

(a) For purposes of this section, the term ``futures contract''

means any contract for the purchase or sale of any commodity for future

delivery, traded or executed on or subject to the rules of any

designated contract market, or for the purposes of paragraph (i) of

this section, a reporting market (including all agreements, contracts

and transactions that are treated by a clearing organization as

fungible with such contracts); the term ``option contract'' means any

contract for the purchase or sale of a commodity option, or as

applicable, any other instrument subject to the Act, traded or executed

on or subject to the rules of any designated contract market, or for

the purposes of paragraph (i) of this section, a reporting market

(including all agreements, contracts and transactions that are treated

by a clearing organization as fungible with such contracts); the term

``customer'' means any person for whose benefit a foreign broker makes

or causes to be made any futures contract or option contract; and the

term ``communication'' means any summons, complaint, order, subpoena,

special call, request for information, or notice, as well as any other

written document or correspondence.

* * * * *

PART 18--REPORTS BY TRADERS

0

3. The authority citation for part 18 continues to read as follows:

Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t,

12a, and 19, as amended by Title VII of the Dodd-Frank Wall Street

Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376

(2010).

Sec. 18.05 [Amended]

0

4. Amend Sec. 18.05 as follows:

0

a. Remove paragraphs (a)(3) and (a)(4);

0

b. In paragraph (a)(2), add the word ``and'' after the semicolon at the

end of the paragraph; and

0

c. Redesignate paragraph (a)(5) as paragraph (a)(3).

PART 36--[REMOVED AND RESERVED]

0

5. Remove and reserve part 36.

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PART 40--PROVISIONS COMMON TO REGISTERED ENTITIES

0

6. The authority citation for part 40 continues to read as follows:

Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a 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. 40.8 [Amended]

0

7. Amend Sec. 40.8 by removing and reserving paragraph (b).

0

8. Revise Appendix D to part 40 to read as follows:

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 in a format and manner specified by the Secretary

of the Commission to 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).

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 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.

PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

0

9. The authority citation for part 140 continues to read as follows:

Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), 13(d), 13(e), and

16(b).

0

10. Revise paragraph (d)(2)(i) of Sec. 140.99 to read as follows:

Sec. 140.99 Requests for exemptive, no-action and interpretative

letters.

* * * * *

(d) * * *

(2)(i) A request for a Letter relating to the provisions of the Act

or the Commission's rules, regulations or orders governing designated

contract markets, registered swap execution facilities, registered swap

data repositories, registered foreign boards of trade, the nature of

particular transactions and whether they are exempt or excluded from

being required to be traded on one of the foregoing entities, made

available for trading determinations, position limits, hedging

exemptions, position aggregation treatment or the reporting of market

positions shall be filed with the Director, Division of Market

Oversight, Commodity Futures Trading Commission, Three Lafayette

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

* * * * *

Issued in Washington, DC, on September 28, 2015, by the

Commission.

Christopher J. Kirkpatrick,

Secretary of the Commission.

NOTE: The following appendix will not appear in the Code of

Federal Regulations.

Appendix To Repeal of the Exempt Commercial Market and Exempt Board of

Trade Exemptions--Commission Voting Summary

On this matter, Chairman Massad and Commissioners Bowen and

Giancarlo voted in the affirmative. No Commissioner voted in the

negative.

[FR Doc. 2015-25029 Filed 10-1-15; 8:45 am]

BILLING CODE 6351-01-P

 

Last Updated: October 2, 2015