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