44464 Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 

1See 75 FR 67277 (Nov. 2, 2010). 

2Commission regulations referred to herein are 

found at 17 CFR Ch. 1. 

I. Background 

Section 101(a)(2)(C) of the CPSIA (15 

U.S.C. 1278a(a)(2)(C)) provides that, as 

of August 14, 2011, children’s products 

may not contain more than 100 ppm of 

lead unless the Commission determines 

that such a limit is not technologically 

feasible. The Commission may make 

this determination only after notice and 

a hearing and after analyzing the public 

health protections associated with 

substantially reducing lead in children’s 

products. Section 101(d) of the CPSIA 

(15 U.S.C 1278a(d)) provides that a lead 

limit shall be deemed technologically 

feasible with regard to a product or 

product category if: 

(1) A product that complies with the 

limit is commercially available in the 

product category; 

(2) technology to comply with the 

limit is commercially available to 

manufacturers or is otherwise available 

within the common meaning of the 

term; 

(3) industrial strategies or devices 

have been developed that are capable or 

will be capable of achieving such a limit 

by the effective date of the limit and that 

companies, acting in good faith, are 

generally capable of adopting; or 

(4) alternative practices, best 

practices, or other operational changes 

would allow the manufacturer to 

comply with the limit. 

On July 27, 2010, we published a 

notice in the Federal Register (75 FR 

43942), requesting comment and 

seeking information concerning the 

technological feasibility of meeting the 

100 ppm lead content limit for 

children’s products that are not 

otherwise excluded from the lead 

content limits under 16 CFR 1500.87 

through 1500.91. After initial 

consideration of the comments and 

information received in response to the 

July 27, 2010 notice, we published a 

notice in the Federal Register (76 FR 

4641) on January 26, 2011, announcing 

that we would be conducting a public 

hearing to receive views from all 

interested parties about the 

technological feasibility of meeting the 

100 ppm lead content limit for 

children’s products and associated 

public health considerations. The 

hearing was held on February 16, 2011. 

On March 9, 2011, we published 

another notice in the Federal Register 

(76 FR 12944), reopening the hearing 

record to allow hearing participants to 

submit relevant studies and 

supplementary data in response to 

additional questions from certain 

Commissioners. 

Participants who submitted comments 

and hearing testimony regarding the 

technological feasibility of meeting the 

100 ppm lead content limit and 

associated public health considerations 

included consumers, consumer groups, 

manufacturers, retailers, associations, 

and laboratories. Comments submitted 

in this proceeding are available at 

http://www.regulations.gov, under 

Docket No. CPSC–2010–0080. The video 

webcast of the hearing, as well as the 

presentations and written comments 

from the hearing, are available at the 

CPSC web site: http://www.cpsc.gov/ 

webcast/previous.html. A transcript of 

the hearing and supplemental 

information provided by hearing 

participants are also available at http:// 

www.regulations.gov, docket CPSC– 

2010–0080. 

II. Technological Feasibility of 100 ppm 

We evaluated the technological 

feasibility of the 100 ppm lead content 

limit for children’s products based on 

available technical information, written 

public comments, public hearing oral 

comments, and other available 

information. CPSC staff’s analysis 

regarding the technological feasibility of 

materials and products to meet the 100 

ppm lead content limit is contained in 

the staff briefing package available on 

the CPSC Web site at: http:// 

www.cpsc.gov/library/foia/foia11/brief/ 

lead100tech.pdf and http:// 

www.cpsc.gov/library/foia/foia11/brief/ 

100ppmlead.pdf. We evaluated the 

technological feasibility of meeting the 

100 ppm lead content limit in materials 

such as plastics, glass, and metals; 

reviewed the economic impacts of 

reducing the lead content limit from 300 

ppm to 100 ppm; and considered the 

public comments received in this 

proceeding, including comments on 

public health protectiveness, economic 

burdens, availability of compliant 

materials, and variability in test results. 

Based upon this analysis, the staff could 

not recommend that the Commission 

make a determination that it is not 

technologically feasible for a product or 

product category to meet the 100 ppm 

lead content limit for children’s 

products under section 101(d) of the 

CPSIA. No such determination has been 

made by the Commission. Therefore, all 

children’s products sold, offered for 

sale, manufactured for sale, distributed 

in commerce, or imported for sale in the 

United States must meet the 100 ppm 

lead content limit beginning August 14, 

2011 as statutorily mandated by the 

CPSIA unless otherwise excluded under 

16 CFR 1500.87 through 1500.91. With 

respect to bicycles and related products 

and youth motorized recreational 

vehicles, a stay of enforcement 

regarding the lead content in certain 

parts, including metal components, is 

currently in effect until December 31, 

2011 (76 FR 6765). 

Dated: July 18, 2011. 

Todd A. Stevenson, 

Secretary, Consumer Product Safety 

Commission. 

[FR Doc. 2011–18510 Filed 7–25–11; 8:45 am] 

BILLING CODE 6355–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 39 and 140 

RIN 3038–AD00 

Process for Review of Swaps for 

Mandatory Clearing 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is adopting regulations to 

implement certain provisions of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank 

Act). These regulations establish the 

process by which the Commission will 

review swaps to determine whether the 

swaps are required to be cleared. 

DATES: Effective September 26, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Eileen A. Donovan, Special Counsel, 

202–418–5096, edonovan@cftc.gov, 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On November 2, 2010, the 

Commission published proposed 

regulations to implement certain 

provisions of the Dodd-Frank Act 

regarding the mandatory clearing of 

swaps.1 The Commission is hereby 

adopting Regulation 39.5 2 to establish 

procedures for: (1) Determining the 

eligibility of a DCO to clear swaps; (2) 

the submission of swaps by a DCO to 

the Commission for a mandatory 

clearing determination; (3) Commissioninitiated reviews of swaps; and (4) 

staying a clearing requirement. 

Section 723(a)(3) of the Dodd-Frank 

Act provides that ‘‘it shall be unlawful 

for any person to engage in a swap 

unless that person submits such swap 


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Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 44465 

3See Section 2(h)(1)(A) of the CEA, 7 U.S.C. 

2(h)(1)(A). 

4See Section 5c(c)(5)(C)(iii) of the CEA, 7 U.S.C. 

7a–2(c)(5)(C)(iii). 

5The Commission also reviewed the proposed 

rule of the Securities and Exchange Commission 

concerning the process for submissions for review 

of security-based swaps for mandatory clearing. See 

75 FR 82490 (Dec. 30, 2010). 

6See Section 2(h)(2)(B)(ii) of the CEA, 7 U.S.C. 

2(h)(2)(B)(ii). 

7Section 5b(c)(2) sets out the core principles with 

which a DCO must comply to maintain its 

registration with the Commission. 

for clearing to a derivatives clearing 

organization [(DCO)] that is registered 

under [the CEA] or a [DCO] that is 

exempt from registration under [the 

CEA] if the swap is required to be 

cleared.’’ 3 The Commission’s final 

regulations implement Section 

723(a)(3), which also requires the 

Commission to adopt rules for the 

review of a swap, or group, category, 

type, or class of swaps (collectively, 

‘‘swaps’’) to make a determination as to 

whether the swaps are required to be 

cleared. The final regulations also 

implement Section 745(b) of the DoddFrank Act, insofar as it directs the 

Commission to prescribe criteria, 

conditions, or rules under which the 

Commission will determine the initial 

eligibility or the continuing 

qualification of a DCO to clear swaps.4

II. Comments on the Notice of Proposed 

Rulemaking 

The Commission received eighteen 

comments during the 60-day public 

comment period following publication 

of the notice of proposed rulemaking, 

and eight additional comments during 

the 30-day reopened public comment 

period that covered many of the 

Commission’s rulemakings under the 

Dodd-Frank Act. The Commission 

considered each of these comments in 

formulating the final regulations.5

A. Swaps Listed for Clearing by a DCO 

Prior to the Enactment of the DoddFrank Act 

Section 723(a)(3) of the Dodd-Frank 

Act provides that swaps listed for 

clearing by a DCO as of the date of 

enactment of the Dodd-Frank Act 

(referred to hereinafter as ‘‘preenactment swaps’’) shall be considered 

submitted to the Commission.6 Once a 

swap is submitted to the Commission, 

the Commission must review it within 

90 days to determine whether it is 

required to be cleared. Accordingly, 

Section 723(a)(3) required a 

Commission determination on preenactment swaps within 90 days after 

July 21, 2010, the date of enactment of 

the Dodd-Frank Act. However, before 

the deadline was reached, each DCO 

that was clearing pre-enactment swaps 

agreed to an extension of the deadline 

until after the Commission had adopted 

the regulations discussed herein. 

In its comment letter, the American 

Federation of State, County and 

Municipal Employees (AFSCME) 

recommended that the Commission 

provide for public notice and comment 

for pre-enactment swaps in a manner 

similar to that put forward in the 

proposed regulations for the swaps that 

DCOs will submit going forward. CME 

Group, Inc. (CME) recommended that a 

DCO not be required to make any 

submission to the Commission for preenactment swaps or for swaps that a 

DCO cleared before the effective date of 

the clearing requirement. Sungard 

Energy & Commodities (Sungard) 

inquired as to whether pre-enactment 

swaps being considered submitted 

means that the DCO is not required to 

submit the supporting information 

required in proposed Regulation 

39.5(b)(3), that the DCO is automatically 

eligible to clear the swap, and that the 

DCO is permitted to continue clearing 

while the Commission conducts its 

review. 

In response to these comments, the 

Commission notes its intention to apply 

the final regulations to all swaps 

submitted or considered submitted to 

the Commission, including the preenactment swaps. Shortly after the 

enactment of the Dodd-Frank Act, 

Commission staff contacted those DCOs 

identified as clearing swaps and 

requested that they submit information 

similar to that which will be required 

under Regulation 39.5(b)(3). After the 

final regulations take effect and the 

Commission has verified that the 

previously submitted information is 

accurate and complete, the Commission 

will post the submissions for public 

comment as required. The Commission 

confirms that a DCO that is clearing preenactment swaps may continue to clear 

them and does not have to wait for a 

determination from the Commission as 

to whether the swaps are required to be 

cleared. 

B. Eligibility of a DCO To Clear Swaps 

Under Regulation 39.5(a), a DCO 

would be presumed eligible to accept 

for clearing any swap that is within a 

group, category, type, or class of swaps 

that the DCO already clears. This 

presumption of eligibility would be 

subject to Commission review, and if 

the Commission determines that the 

swap is not within a group, category, 

type, or class of swaps that the DCO 

already clears, the DCO would be 

required to request a determination by 

the Commission of its eligibility to clear 

the swap. A DCO that plans to accept for 

clearing any swap that is not within a 

group, category, type, or class of swaps 

that the DCO already clears also would 

be required to request a determination 

by the Commission of its eligibility to 

clear the swap. A swap generally would 

be considered to be ‘‘within a group, 

category, type, or class of swaps that the 

DCO already clears’’ if the terms of the 

swap are substantially similar to the 

terms of a swap, group, category, type or 

class of swaps that the DCO already 

clears, and clearing the swap will not 

require any changes to the DCO’s risk 

management framework. 

The Financial Services Roundtable 

(FSR) commented that a DCO’s 

authority to clear swaps transactions 

should not be conditioned on its ability 

to clear the entire market volume of 

such swaps transactions, and therefore 

the reference to mandatory clearing 

should be deleted from Regulation 

39.5(b)(3)(i). As proposed, Regulation 

39.5 (b)(3)(i) required the DCO’s 

submission to the Commission to 

include ‘‘[a] statement that the [DCO] is 

eligible to accept the swap, or group, 

category, type or class of swaps for 

clearing and, if the Commission 

determines that the swap, or group, 

category, type, or class of swaps is 

required to be cleared, the [DCO] will be 

able to maintain compliance with 

section 5b(c)(2) of the Act.’’ 7 Therefore, 

as FSR noted, the DCO would be 

required to have the ability to clear the 

entire market volume for any swap, or 

group, category, type or class of swaps 

that it planned to accept for clearing. In 

the final regulation, the Commission is 

maintaining the reference to mandatory 

clearing but revising Regulation 

39.5(b)(3)(i) as follows (added text in 

italics): ‘‘A statement that the [DCO] is 

eligible to accept the swap, or group, 

category, type or class of swaps for 

clearing and describes the extent to 

which, if the Commission were to 

determine that the swap, or group, 

category, type, or class of swaps is 

required to be cleared, the [DCO] will be 

able to maintain compliance with 

section 5b(c)(2) of the Act.’’ The revised 

regulation would not require the 

Commission to find a DCO ineligible to 

clear a swap if the DCO is unable to 

clear the entire market volume of such 

swap transactions, but the Commission 

would take the DCO’s inability to clear 

the entire market into consideration in 

determining whether the swap must be 

cleared. 

The International Swaps and 

Derivatives Association (ISDA) asked 

the Commission to confirm that it 


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44466 Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 

8See 75 FR 63113 (Oct. 14, 2010) (financial 

resources); 75 FR 63732 (Oct. 18, 2010) (conflicts 

of interest); 75 FR 77576 (Dec. 13, 2010) (general 

regulations); 75 FR 78185 (Dec. 15, 2010) 

(information management); 76 FR 722 (Jan. 6, 2011) 

(governance); 76 FR 3698 (Jan. 20, 2011) (risk 

management); and 76 FR 13101 (Mar. 10, 2011) 

(participant and product eligibility). 

intends for a DCO eligibility review to 

be separate from and precede a swap 

review, and that the intent is not to 

commence both reviews 

simultaneously. LCH.Clearnet Group 

(LCH) urged the Commission to decouple the determination that a DCO 

may clear a swap from the 

determination that a swap should be 

subject to a mandatory clearing 

obligation. Similarly, Sungard asked for 

clarification as to whether a DCO can 

begin accepting a new swap for clearing 

once eligibility for clearing is 

established, independent of the review 

for mandatory clearing. 

The Commission confirms that it 

intends for a DCO eligibility review to 

be separate from and precede a review 

of swaps that the DCO plans to accept 

for clearing. The Commission also 

confirms that a DCO may begin 

accepting a new swap for clearing once 

the DCO’s eligibility for clearing is 

established and the submission 

requirements of Regulation 39.5(b) have 

been met, as discussed further below. 

Michael Greenberger recommended 

that a DCO be required to state with 

specificity in its written request the 

sufficiency of its financial resources and 

its ability to manage the risks associated 

with clearing the swap. Chris Barnard 

stated that sufficient evidence 

indicating that the DCO would be able 

to maintain compliance with the 

requirements of section 5b(c)(2) of the 

CEA, or a CFTC review to determine the 

DCO’s ability, should be required for all 

DCOs planning to accept swaps for 

clearing. 

The Commission notes that it has 

proposed separate regulations that will 

impose new requirements on DCOs, 

including financial resources and risk 

management requirements, for 

maintaining compliance with the core 

principles applicable to DCOs set out in 

section 5b(c)(2).8 Therefore, even if a 

DCO is presumed eligible, or 

determined to be eligible, to accept 

swaps for clearing, the Commission will 

be monitoring the DCO’s eligibility on 

an ongoing basis through the 

requirements of those regulations. 

C. A DCO’s Notice to Its Members of a 

Swap Submission 

Regulation 39.5(b)(3)(xi) requires a 

DCO’s swap submission to include a 

‘‘description of the manner in which the 

[DCO] has provided notice of the 

submission to its members and a 

summary of any opposition to the 

submission expressed by the members.’’ 

In the notice of proposed rulemaking, 

the Commission invited comment on 

whether the regulation should prescribe 

a specific manner in which a DCO must 

provide notice to its members, and 

whether the regulation should prescribe 

a specific period of time between the 

notice to members and the submission 

to the Commission to allow time for 

members to make their views on the 

submission known. Section 723(a)(3) of 

the Dodd-Frank Act only requires the 

DCO to provide notice to its members of 

the submission; it does not require the 

DCO to provide its members with the 

opportunity to comment. 

The Air Transport Association of 

America (ATA) requested that the 

Commission require a DCO to provide 

in its submission a description of how 

the DCO has notified market 

participants of the submission and of 

any opposition expressed by such 

market participants. Although the 

Commission will accept public 

comment on the DCO’s submission, 

ATA believes by that time the DCO may 

have made important, and sometimes 

irreversible, decisions with regard to its 

proposed clearing offering. 

The Alternative Investment 

Management Association Limited 

(AIMA) stated that the Commission 

should require a DCO’s members to pass 

on to their customers all details about a 

submission by the DCO to the 

Commission and encourage those 

customers to provide comments to the 

Commission. 

Better Markets, Inc. suggested 

requiring a DCO to provide notice to the 

Commission and the public when 

considering clearing a new class of 

swaps, rather than only providing notice 

when a decision to submit has been 

made. Better Markets also recommended 

that the Commission require a DCO to 

solicit input from customers and the 

public to enable a full and fair 

consideration of a submission and to 

include member comments in support 

of a submission in addition to 

comments in opposition. Additionally, 

Better Markets commented that a DCO 

should be required to provide notice to 

the Commission and the public of a 

decision not to submit a swap for 

clearing, including comments for and 

against submission. 

The FSR expressed the view that the 

DCO and its clearing members will be 

in the best position to determine 

appropriate notice and voting 

procedures with respect to these 

matters. 

Freddie Mac recommended that the 

Commission require DCOs to provide 

pre-submission notice of any clearing 

proposal and a meaningful opportunity 

to comment to all interested 

stakeholders, rather than merely to the 

DCO’s own members. 

Mr. Greenberger suggested that it 

would be preferable for the regulations 

to prescribe a specific manner and 

timeline for notice, so that the notice is 

given with sufficient time and in the 

proper manner to gather all of the 

appropriate objections by DCO 

members. 

IntercontinentalExchange, Inc. (ICE) 

observed that the requirement that a 

DCO provide to the Commission a 

summary of any opposition to a swap 

submission expressed by its members 

has the effect of creating two comment 

periods (including the Commission’s 30- 

day public comment period), thus 

extending the timeline for a DCO to 

submit swaps for mandatory clearing. 

ICE proposed that the Commission 

adopt a 30-day comment period as 

sufficient for input from all members 

and require the DCO to include only a 

statement of any opposition from the 

DCO’s board as part of its submission. 

Mr. Barnard recommended that the 

Commission change the wording under 

Regulation 39.5(b)(3)(xi) and require the 

DCO to provide a summary of ‘‘any 

comments on the submission expressed 

by the members’’ rather than just ‘‘any 

opposition to the submission expressed 

by the members,’’ in order to promote 

fairness. 

In response to these comments, the 

Commission is replacing the words 

‘‘opposition to’’ with the words ‘‘views 

on,’’ revising the text of Regulation 

39.5(b)(3)(xi) to read as follows: ‘‘A 

description of the manner in which the 

[DCO] has provided notice of the 

submission to its members and a 

summary of any views on the 

submission expressed by the members.’’ 

Further, the Commission clarifies that 

the regulations do not require a DCO to 

solicit the views of its members or the 

public on the submission, because all 

interested parties will have the 

opportunity to comment during the 

Commission’s 30-day public comment 

period. However, if the members do 

make their views known directly to the 

DCO, the DCO is required to share a 

summary of that information with the 

Commission under Regulation 

39.5(b)(3)(xi). 

D. Public Comment Process for Swap 

Submissions 

In the notice of proposed rulemaking, 

the Commission stated that, upon 

receiving a DCO’s swap submission, the 


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Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 44467 

Commission would begin its 90-day 

review by posting the submission on the 

Commission Web site for a 30-day 

public comment period, as required by 

the Dodd-Frank Act. The Commission 

invited comment regarding the 

appropriateness and sufficiency of 

providing notice of the submission on 

the Commission Web site as compared 

to publishing notice of the submission 

in the Federal Register. 

AFSCME, Americans for Financial 

Reform, Mr. Greenberger, and Mr. 

Barnard recommended that the 

Commission publish submissions both 

on the Commission Web site and in the 

Federal Register to provide the fullest 

disclosure possible. ATA supported the 

Commission’s use of its Web site to 

provide notice of submissions but 

recommended that, at the time a 

submission is posted, the Commission 

send a notification to the same 

subscribers that receive notifications of 

Federal Register notices. The 

Commission is accepting the 

recommendation to publish submissions 

both on the Commission Web site and 

in the Federal Register. Accepting this 

recommendation does not require any 

changes to the text of proposed 

Regulation 39.5(b)(4), which states that 

the submission ‘‘will be made available 

to the public and posted on the 

Commission website.’’ Publication of 

the submission in the Federal Register 

will make the submission available to 

the public, and the Commission will 

have a link to the Federal Register 

notice on its Web site. 

In other comments on the public 

comment process for swap submissions, 

Freddie Mac recommended that the 

Commission extend the period for 

notice and comment beyond 30 days, 

and ISDA suggested that the 

Commission extend the public comment 

period to 45 days. The Commission has 

decided to keep the comment period at 

30 days, the minimum required by the 

Dodd-Frank Act, because the 

Commission typically will have just 90 

days to review the swap submission. 

The Commission is concerned that 

extending the comment period by 

regulation may not leave sufficient time 

for the Commission to carefully 

consider the comments received and 

conduct a thorough review. 

Nevertheless, the Commission expects 

that it will extend the comment period 

on a case-by-case basis, because the 

Commission is allowed to extend the 

90-day review period if the submitting 

DCO agrees to an extension. 

Finally, the National Milk Producers 

Federation (NMPF) commented that the 

regulations would invite DCOs to lay 

claim to swaps and categories of swaps, 

leaving all actual and potential future 

end users only 30 days to become aware 

of, and respond to, such claims. The 

Commission notes that all public 

comments received on a swap 

submission, not just the DCO’s views, 

will be considered in making a 

mandatory clearing determination and, 

as discussed above, the Commission 

will allow more than 30 days for 

comments when possible on a case-bycase basis. 

E. Contents of a DCO’s Swap 

Submission 

Regulation 39.5(b) sets out the process 

for DCOs to follow when submitting a 

swap, or group, category, type or class 

of swaps to the Commission, including 

what information a DCO must include 

in the submission to assist the 

Commission in its review. 

In its comment letter, LCH 

encouraged the Commission to amend 

the supporting information 

requirements under Regulation 

39.5(b)(3), such that a DCO is required 

to include in its submission only that 

information which is necessary for 

determining the suitability of a swap for 

clearing and the eligibility of a DCO to 

clear that swap. LCH believes that a 

DCO should not have to provide the 

information required to support the 

determination of whether a swap should 

be subject to a clearing requirement. 

LCH commented that the determination 

that a DCO may clear a swap should be 

separate from, and independent of, any 

determination that a swap should be 

subject to mandatory clearing. LCH 

recommended that certain words be 

deleted from the text of proposed 

Regulations 39.5(b)(3)(ii)(A),(C), and (D), 

and that proposed Regulation 

39.5(b)(3)(viii) be deleted, because, in 

LCH’s view, a DCO would not have 

access to the information required. 

Similarly, CME commented that the 

Commission should limit the breadth of 

the submission required by a DCO 

seeking approval to clear a swap to only 

addressing whether clearing the swap 

comports with the DCO core principles. 

CME stated that the Commission’s 

proposed regulations would impose 

costs and obligations that would 

effectively undermine the purposes of 

the Dodd-Frank Act and that, in effect, 

the Commission is attempting to charge 

a DCO that wishes to list a new swap 

with the obligation to collect and 

analyze massive amounts of information 

so that the Commission can perform its 

statutory duty of determining whether 

the swap should be subject to the 

mandatory clearing requirement. In a 

second comment letter, CME expressed 

concern that the regulations conflate the 

‘‘voluntary clearing determination’’ and 

the ‘‘mandatory clearing determination’’ 

for swaps. CME also revised its earlier 

comments on the information required 

for the submission and recommended 

that the Commission delete proposed 

Regulations 39.5(b)(3)(ii), (vii), (viii), 

and (x) in their entirety and proposed 

Regulation 39.5(b)(3)(vi) in part. 

In response to LCH and CME’s 

comments, the Commission is deleting 

proposed Regulations 39.5(b)(3)(vii), 

(viii), and (x) in their entirety and 

proposed Regulation 39.5(b)(3)(vi) in 

part, and renumbering proposed 

Regulations 39.5(b)(3)(ix) and (xi) as 

Regulations 39.5(b)(3)(vii) and (viii), 

respectively, due to the removal of the 

other provisions. As a result of this 

revision, a DCO will only be required to 

submit information to the Commission, 

such as product specifications and risk 

management procedures, which a DCO 

should have gathered and considered in 

making its own decision to accept a 

particular swap for clearing. The 

Commission is also adding Regulation 

39.5(b)(3)(ix), which would require a 

DCO to submit ‘‘[a]ny additional 

information specifically requested by 

the Commission.’’ This will allow the 

Commission to request any information 

not required by Regulation 39.5(b) if 

needed on a case-by-case basis. 

The Commission is declining to delete 

Regulation 39.5(b)(3)(ii) or revise it in 

accordance with LCH’s comments. 

Regulation 39.5(b)(3)(ii), as proposed, 

requires a DCO to submit to the 

Commission a ‘‘statement that includes, 

but is not limited to, information 

regarding the swap, or group, category, 

type, or class of swaps that is-sufficient 

to provide the Commission a reasonable 

basis to make a quantitative and 

qualitative assessment of the following 

factors,’’ and then lists the five factors 

set out in Section 723(a)(3) of the DoddFrank Act that the Commission is 

required to take into account in 

reviewing a swap submission. LCH had 

suggested editing these factors for 

purposes of the required statement. For 

example, LCH had suggested editing 

proposed Regulation 39.5(b)(3)(ii)(A), 

which reads ‘‘[t]he existence of 

significant outstanding notional 

exposures, trading liquidity, and 

adequate pricing data,’’ to read as ‘‘[t]he 

existence of adequate pricing data.’’ The 

Commission does not believe it is 

appropriate to change the wording that 

is used in the Dodd-Frank Act. 

Instead, in response to LCH’s 

comments, the Commission is revising 

the introductory language of Regulation 

39.5(b)(3)(ii) to read, in part: ‘‘A 

statement that includes, but is not 

limited to, information that will assist 


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44468 Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 

9The Commission has proposed to amend 

Regulation 40.2 to implement certain provisions of 

the Dodd-Frank Act. See 75 FR 67282 (Nov. 2, 

2010). 

the Commission in making a 

quantitative and qualitative assessment 

of the following factors * * *.’’ The 

Commission believes this change will 

require a DCO to address each of the 

five factors only to the extent that the 

DCO is reasonably able to do so. For 

example, with regard to the factor in 

Regulation 39.5(b)(3)(ii)(A) cited above, 

if LCH is only able to provide 

information regarding the existence of 

adequate pricing data, then that is the 

only information that LCH would be 

required to provide. 

Some DCOs believe that certain swaps 

that are accepted for clearing may be 

obviously unsuitable for mandatory 

clearing and therefore a DCO should 

only have to submit swaps to the 

Commission for review at the discretion 

of the DCO or the Commission. The 

Dodd-Frank Act, however, does not give 

either the DCO or the Commission such 

discretion. As previously noted, a DCO 

is required to submit to the Commission 

each swap, or any group, category, type, 

or class of swaps that it plans to accept 

for clearing, and the Commission is 

required to review each submission and 

determine whether clearing is required. 

Nevertheless, the Commission would 

encourage a DCO to use the statement 

required by Regulation 39.5(b)(3)(ii) to 

express its views as to whether the 

swaps being submitted should be 

subject to a clearing requirement. 

The Commission believes it is 

necessary to clarify that a ‘‘voluntary 

clearing determination’’ is not required 

before a DCO may accept swaps for 

clearing. The Commission had expected 

that a DCO that wished to accept swaps 

for clearing would be permitted to do so 

after meeting the eligibility 

requirements of Regulation 39.5(a) and 

the submission requirements of 

Regulations 39.5(b) and 40.2,9 the latter 

of which applies to DCOs accepting 

products for clearing by certification. 

Under Regulation 40.2, if the 

Commission has received the 

submission required under that section 

by the open of business on the business 

day preceding the product’s acceptance 

for clearing, then the DCO may begin 

clearing the product as planned. 

However, the Commission recognizes 

that it would be burdensome to require 

a DCO to comply with two different 

submission requirements before it could 

accept swaps for clearing. Accordingly, 

the Commission has decided to 

eliminate the provision in Regulation 

40.2 concerning DCOs and only require 

compliance with Regulation 39.5. The 

Commission has also added paragraph 

(b)(4) to Regulation 39.5 to require, like 

Regulation 40.2, that a DCO’s 

submission must be received by the 

Commission by the open of business on 

the business day preceding the 

acceptance of the swap, or group, 

category, type, or class of swaps for 

clearing. This change clarifies that a 

DCO, which must be eligible or 

presumed eligible to clear any swap or 

group, category, type, or class of swaps 

that it plans to accept for clearing, may 

begin clearing such swaps shortly after 

it has made its submission to the 

Commission and does not have to wait 

until the Commission has made a 

determination on mandatory clearing. 

In other comments regarding the 

DCO’s swap submission, the American 

Benefits Council (ABC) recommended 

that the submission be required to 

include a specific analysis of the costs 

and burdens of clearing on market 

participants, and Better Markets 

proposed that the regulations clearly 

state that the additional statements and 

materials the DCO must include with its 

submission are not intended to increase 

the number of factors to be taken into 

account by the Commission in its 

review beyond the five factors set forth 

in the Dodd-Frank Act. The Commission 

believes a better approach to assessing 

the costs and burdens of clearing on 

market participants is by requesting 

public comment on the issue during its 

reviews of DCO swap submissions. The 

Commission also believes that the 

information that a DCO will be required 

to provide with its submission is clearly 

intended to aid the Commission in its 

assessment of the five factors set forth 

in the Dodd-Frank Act. 

F. Group, Category, Type or Class of 

Swaps 

Regulation 39.5(b)(2) encourages a 

DCO to submit swaps to the 

Commission by ‘‘group, category, type 

or class of swaps,’’ language taken from 

Section 723(a)(3) of the Dodd-Frank Act. 

Several commenters expressed concern 

about how ‘‘group, category, type or 

class of swaps’’ will be defined. The 

Coalition for Derivatives End-Users 

expressed concern that these groups or 

categories could be defined too broadly, 

without due consideration of the 

important differences between swaps 

within these groups or categories. ABC 

stated its opposition to the Commission 

adopting any clearing requirement that 

covers a group, category, type or class of 

swaps unless the Commission reviews 

each swap within the group, category, 

type or class and determines that each 

swap should be cleared. 

How the Commission defines a 

particular group, category, type or class 

of swaps for purposes of a clearing 

requirement will be informed by: (1) 

How it is defined by the DCO in its 

submission (for those swaps submitted 

by a DCO); (2) the comments received 

by the Commission during the public 

comment period; (3) the five factors 

enumerated in the Dodd-Frank Act that 

the Commission is required to take into 

account; and (4) the Commission’s own 

analysis during its review. The 

Commission will review each swap 

within a group, category, type or class 

of swaps to the extent the Commission 

believes it is necessary to make the 

proper determination on mandatory 

clearing. 

G. Factors the Commission Must Take 

Into Account When Reviewing Swaps 

Section 723(a)(3) of the Dodd-Frank 

Act requires the Commission, in 

reviewing a swap or swaps on its own 

initiative, or a swap submission, to take 

into account the following factors, also 

set out in Regulation 39.5(b)(3)(ii): (1) 

The existence of significant outstanding 

notional exposures, trading liquidity, 

and adequate pricing data; (2) the 

availability of rule framework, capacity, 

operational expertise and resources, and 

credit support infrastructure to clear the 

contract on terms that are consistent 

with the material terms and trading 

conventions on which the contract is 

then traded; (3) the effect on the 

mitigation of systemic risk, taking into 

account the size of the market for such 

contract and the resources of the DCO 

available to clear the contract; (4) the 

effect on competition, including 

appropriate fees and charges applied to 

clearing; and (5) the existence of 

reasonable legal certainty in the event of 

the insolvency of the relevant DCO or 

one or more of its clearing members 

with regard to the treatment of customer 

and swap counterparty positions, funds, 

and property. 

In a comment letter, AIMA expressed 

its view that the third factor, the effect 

on the mitigation of systemic risk, 

should override other considerations. 

Better Markets proposed that the 

regulations make clear that a given level 

of contract-specific systemic risk 

avoided by mandatory clearing does not 

constitute a threshold for a 

determination by the Commission 

because the Dodd-Frank Act in no way 

suggests that only contract types that by 

themselves pose a risk to the financial 

system should be cleared. 

The Coalition for Derivatives EndUsers urged the Commission to give 

significant weight to a swap’s liquidity 

in assessing whether that swap should 


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10Section 731 of the Dodd-Frank Act (Section 

4s(e)(1) of the CEA) requires rules imposing capital 

and margin for bank swap dealers and bank major 

swap participants to be set jointly by prudential 

regulators and gives the Commission authority to 

adopt rules imposing capital and margin for nonbank swap dealers and non-bank major swap 

participants. The Commission would consult with 

the prudential regulators before taking action under 

Regulation 39.5(c)(3)(iii). 

11The Commission has proposed margin and 

capital requirements for certain swap dealers and 

major swap participants. See 76 FR 23732 (Apr. 28, 

2011) (Margin Requirements for Uncleared Swaps 

for Swap Dealers and Major Swap Participants) and 

76 FR 27802 (May 12, 2011) (Capital Requirements 

of Swap Dealers and Major Swap Participants). 

12The Commission has proposed requirements 

governing the end-user exception to mandatory 

clearing of swaps. See 75 FR 80747 (Dec. 23, 2010). 

be subject to mandatory clearing and to 

consider the link between the clearing 

requirement and the trading 

requirement. The FSR requested that the 

Commission consider the changes in the 

trading market structure being effected 

by the Dodd-Frank Act and related 

regulations in evaluating mandatory 

clearing decisions. The FSR is 

concerned that a trading system that 

limits participation will also reduce 

liquidity in the system because, due to 

the trading requirements for cleared 

swaps, counterparties will not have the 

option to complete trades off-exchange 

when on-exchange trading is 

unattractive or unavailable. 

ISDA provided detailed comments on 

each of the five factors and encouraged 

the Commission to interpret these 

criteria strictly. Sungard proposed that 

the Commission apply some form of 

concentration test in determining 

whether a swap should be mandated for 

clearing out of concern that if the 

market for a swap is too heavily 

concentrated in the hands of a few 

market makers on the supply side, or a 

handful of hedgers or speculators on the 

demand side, such concentration would 

hamper discovery of the market clearing 

price and impose liquidity risk on the 

DCO. 

CME commented that the proposed 

regulations do not state how the 

Commission will decide which swaps 

will be subject to a clearing 

requirement. CME believes that the 

Commission is required to make public 

how it will make this critical 

determination, because it would allow 

market participants to anticipate which 

swaps will be required to be cleared and 

may incentivize market participants to 

voluntarily submit those swaps for 

clearing in advance of any requirement 

that they be submitted for clearing. 

The National Corn Growers 

Association (NCGA) and Natural Gas 

Supply Association (NGSA) encouraged 

the Commission to acknowledge that 

swaps that are not liquid over their full 

terms should not be required to be 

cleared because such swaps do not meet 

the Dodd-Frank Act’s requirement of 

trading liquidity for swaps to be subject 

to the mandatory clearing requirement. 

In particular, NCGA and NGSA 

suggested that the Commission 

acknowledge that it will not require 

illiquid long-term swaps to be split up 

into various components in order to 

extract one or more clearable 

components, since the Dodd-Frank Act 

provides no authority for such a 

requirement. 

As required by the Dodd-Frank Act, 

the Commission will take each of the 

five factors and the information 

submitted by the DCO into account 

when making a mandatory clearing 

determination, as well as these 

comments and any comments received 

during the public comment period that 

will be a part of each review. The 

Commission does not believe it would 

be appropriate to address these 

comments at this time, as they are 

beyond the scope of the regulations. 

H. Commission-Initiated Reviews of 

Swaps 

Section 723(a)(3) of the Dodd-Frank 

Act and Regulation 39.5(c) require the 

Commission, on an ongoing basis, to 

review swaps that have not been 

accepted for clearing by a DCO to make 

a determination as to whether the swaps 

should be required to be cleared. 

AIMA suggested that it may be 

desirable to have a set frequency of 

reviews that the Commission must carry 

out, and that parties other than DCOs be 

allowed to request that the Commission 

initiates a review. AIMA recommended 

the Commission use the same criteria to 

assess a swap under a Commissioninitiated review as it would for a DCOsubmitted review. Finally, AIMA 

opined that there should be no 

prohibitions placed on trading a swap 

that would be subject to a mandatory 

clearing requirement if a DCO existed to 

clear the contract, and requested greater 

clarity as to possible solutions the 

Commission will consider to encourage 

DCOs to begin clearing a new class of 

swaps. 

The Commission does not think it 

would be prudent to have a set 

frequency of Commission-initiated 

reviews at this time. The Commission 

anticipates that the initial mandatory 

clearing determinations would only 

involve swaps that are either already 

being cleared or that a DCO wants to 

clear. Once those determinations are 

made, the Commission will be in a 

better position to assess that portion of 

the swaps market that remains 

uncleared. The Commission can confirm 

that it will use the same criteria to 

assess a swap for both Commissioninitiated and DCO-submitted reviews, 

and encourages all parties to make 

recommendations as to swaps that 

would be appropriate for a Commissioninitiated review. Finally, the 

Commission notes that, under 

Regulation 39.5(c)(3), for any swap that 

would otherwise be subject to a clearing 

requirement except that no DCO has 

accepted it for clearing, the Commission 

may ‘‘take such actions as the 

Commission determines to be necessary 

and in the public interest * * *, ’’ and 

it will make such determinations on a 

case-by-case basis, after taking into 

consideration any comments received 

pursuant to the 30-day public comment 

period provided for in Regulation 

39.5(c)(2). 

I. Capital and Margin Requirements for 

Uncleared Swaps 

Regulation 39.5(c)(3)(iii) provides 

that, if the Commission identifies a 

swap or group, category, type, or class 

of swaps that would otherwise be 

subject to a clearing requirement except 

that no DCO has accepted it for clearing, 

the Commission may take such actions 

as it ‘‘determines to be necessary and in 

the public interest, which may include 

requiring the retaining of adequate 

margin or capital by parties to the swap, 

group, category, type, or class of 

swaps.’’ This language is taken directly 

from Section 723(a)(3) of the DoddFrank Act.10

ISDA sought clarification that the 

Commission’s authority is restricted to 

requiring the retention of adequate 

margin or capital only for swap 

transactions that are not otherwise 

exempt from the clearing requirements. 

First, the Commission notes that, with 

respect to swap dealers and major swap 

participants, it will not impose margin 

or capital requirements under 

Regulation 39.5(c)(iii) that differ from 

final Commission regulations on margin 

or capital for uncleared swaps.11

Further, the Commission does not 

foresee that it would take action under 

Regulation 39.5(c)(3)(iii) to impose 

margin or capital requirements on any 

swap counterparty permitted, under 

final Commission regulations, to 

exercise the end-user exception to 

mandatory clearing of swaps.12

J. Stay of Clearing Requirement 

Under Regulation 39.5(d), after 

making a determination that a swap or 

group, category, type, or class of swaps 

is required to be cleared, the 

Commission, on application of a 

counterparty to a swap or on its own 

initiative, may stay the clearing 


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44470 Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 

requirement until it completes a review 

of the terms of the swap and the clearing 

arrangement. Upon completion of the 

review, the Commission could 

determine, subject to any terms or 

conditions as the Commission 

determines to be appropriate, that the 

swap must be cleared, or that the 

clearing requirement will not apply but 

clearing may continue on a nonmandatory basis. 

FHLB suggested that the right to 

request a stay would be more 

meaningful for market participants if the 

regulation enumerated certain factors 

that the Commission will consider in 

granting such a stay or an exemption 

from the clearing requirement. FHLB 

recommended that the Commission 

consider the following factors: DCO 

credit risk, lack of relationships with 

DCO clearing members, and unique/ 

special characteristics of transactions. 

The FSR noted that there is no 

discussion in the Dodd-Frank Act or the 

notice of proposed rulemaking with 

respect to the time period for the 

issuance of the stay after an application 

has been made and believes a delay in 

the issuance of such a stay would defeat 

the purpose of the mechanism, 

especially in circumstances where 

complying with a mandatory clearing 

requirement may not be feasible. The 

FSR encouraged the Commission to 

adopt a policy to issue a stay within one 

business day of any request for a stay, 

unless the request on its face appears to 

be frivolous, so as to avoid any lengthy 

market disruption while the 

Commission determines whether the 

stay should be granted. Additionally, 

because the Commission may stay a 

mandatory clearing requirement on its 

own initiative, the FSR recommended 

that the Commission allow DCOs, 

DCMs, and SEFs to request a stay, 

because these entities will be in key 

positions to identify developing market 

disturbances related to mandatory 

clearing. 

Mr. Greenberger commented that a 

counterparty’s written request for a stay 

should be very specific and the 

involvement of the DCO in aiding the 

investigation should be substantial. 

ISDA suggested that the clearing 

requirement should be stayed in the 

following circumstances: In the absence 

of competition; when there is an 

unresolved clearing member default at 

the only DCO then clearing the relevant 

product; when no DCO has elected to 

clear the product; or when a product 

becomes so illiquid as to threaten the 

DCO’s ability to calculate margin or 

manage defaults. 

The Commission does not believe it 

would be prudent to enumerate the 

factors that it would consider in 

determining whether to stay a clearing 

requirement. Doing so could potentially 

limit the Commission’s ability to 

respond to unforeseen or unusual 

circumstances. Likewise, the 

Commission is declining to adopt a 

deadline by which it must respond to a 

request for a stay. The Commission 

would respond to such requests in a 

timely manner and, if any situation 

developed that would necessitate the 

immediate staying of a clearing 

requirement, the Commission would not 

be required to await a request for a stay 

in order to take action. Finally, the 

Commission notes that it would expect 

to consult with DCOs, DCMs, and SEFs 

as appropriate before it would stay a 

clearing requirement. 

K. Additional Comments 

The Commission received many 

comments that did not pertain to the 

aspects of the regulations discussed 

above. In particular, many of these 

comments related to the clearing of 

swaps in general, rather than the 

process for review of swaps for 

mandatory clearing. 

ABC expressed concern that, if a 

clearing mandate is too broad, entities 

could be precluded from customizing 

swaps to hedge very specific risks. ABC 

encouraged the Commission to clarify 

that it would not constitute illegal 

evasion for an entity to enter into a 

swap that would be subject to a clearing 

mandate but for the fact that the swap 

contains a unique tailored term adopted 

for a bona fide business or investment 

reason, even if that term prevented the 

swap from being accepted for clearing 

by any DCO. 

The Coalition for Derivatives EndUsers urged the Commission to avoid 

regulations that would serve to 

discourage end-users from using 

customized transactions, and thereby 

preserve end-users’ ability to enter into 

transactions that are tailored to meet 

specific economic and accounting 

objectives. 

The FSR stated that the need to 

establish appropriate hedges may 

require financial entities to enter into 

transactions that are similar to swaps 

that are subject to a mandatory clearing 

requirement, but are not themselves 

eligible for clearing. In such 

circumstances, the FSR believes the 

presumption should be that the terms of 

the swap were determined to support 

the hedge and not to evade the 

mandatory clearing requirement. In 

addition, the FSR encouraged the 

Commission to provide exemptions 

from the clearing requirement for any 

swaps entered into prior to the adoption 

of the relevant clearing requirement due 

to the costs and burdens involved in 

transitioning swaps into a clearing 

arrangement, especially where such 

swaps have terms that differ from the 

standardized terms established by the 

DCO for cleared swaps. Lastly, the FSR 

expressed its belief that the Commission 

needs to address whether entering into 

amendments to, and assignments and 

novations of, existing swap transactions 

will be considered to be ‘‘engaging in a 

swap,’’ which could require them to be 

cleared. 

Freddie Mac urged that the 

Commission should clarify that the 

Dodd-Frank Act requires parties to a 

swap subject to the clearing requirement 

to submit a swap for clearing but does 

not require parties to terminate or 

unwind swaps that fail to clear. Freddie 

Mac believes that the uncertainty of 

whether a swap may be terminated after 

execution would increase systemic risk 

and that allowing uncleared swaps 

subject to mandatory clearing to become 

OTC swaps would reduce uncertainty 

and not substantially increase systemic 

risk. 

The Financial Services Agency of the 

Government of Japan asked the 

Commission to confirm that, as the 

Commission phases in the central 

clearing requirement, it would only be 

applied if both parties of such swaps are 

U.S. institutions. If this treatment could 

not be made permanent, at the very least 

they would formally request that such a 

transitional arrangement be made until 

the end of 2012. 

NCGA and NGSA stated that the 

Commission should clarify in its final 

rule that, after the mandatory clearing 

provisions go into effect, a 

determination that a swap is required to 

be cleared will not apply retroactively to 

swaps that are open as of the date of 

such determination. They believe that 

retroactive application would impose 

substantial undue logistical burdens and 

transactional costs on market 

participants by requiring them to 

reexamine their portfolios each time a 

new determination is made and then 

arrange with counterparties to have 

affected swaps transferred for clearing. 

NMPF recommended that the process 

for reviewing swaps for mandatory 

clearing not be so heavily weighted 

toward a determination that swaps be 

mandatorily cleared. NMPF believes 

that DCOs have an interest in such a 

determination, and will have the 

preponderance of input in a 90-day 

determination process. Thus NMPF 

believes that weight must be put on the 

other side for the process to be fair. 

In addition to the comments 

discussed above, the Commission 


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13 7 U.S.C. 19(a). 

14See, 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). 

received multiple comments 

recommending that the Commission 

exempt interaffiliate transactions from 

mandatory clearing, and offering 

thoughts on how the Commission 

should implement a clearing 

requirement. The Commission notes 

that all of these comments go beyond 

the limited scope of these regulations, 

and it will consider how to address 

them outside of this rulemaking. 

L. Effective Date 

Upon the effective date of this rule: 

(1) Any swap or group, category, type, 

or class of swaps listed for clearing by 

a DCO shall be considered submitted to 

the Commission, in accordance with 

Section 2(h)(2)(B)(ii) of the CEA; (2) the 

Commission will review the 

submissions and make the required 

determinations under Sections 

2(h)(2)(B)(iii), (C), and (D); (3) the 

Commission may initiate its own 

reviews under Section 2(h)(2)(A); and 

(4) DCOs shall submit swaps that they 

plan to accept for clearing under Section 

2(h)(2)(B)(i), and the Commission will 

review the submissions and make the 

required determinations under Sections 

2(h)(2)(B)(iii), (C), and (D). 

III. Cost-Benefit Considerations 

Section 15(a) of the CEA 13 requires 

the Commission to consider the costs 

and benefits of its action before 

promulgating a regulation under the 

CEA. Section 15(a) 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 CEA.14

The Commission invited but did not 

receive public comments specific to its 

cost-benefit estimates and 

considerations within the initial 

comment period following the 

publication of the Commission’s notice 

of proposed rulemaking. The 

Commission also invited the public ‘‘to 

submit any data or other information 

that [it] may have quantifying or 

qualifying the costs and benefits of the 

proposal with their comment letters.’’ 

The Commission received no such data 

or other information. The Commission 

did, however, receive comments 

generally discussing the ‘‘burden’’ 

associated with the submission process 

proposed in this regulation. 

The Commission has considered the 

costs and the benefits of these final 

regulations, as amended below, in light 

of each area of public concern specified 

in Section 15(a) of the CEA. In this 

regard, the Commission would like to 

note that it has discussed the costs and 

benefits of its regulations throughout the 

narrative discussion of its regulations 

above and generally views the costbenefit considerations of this final 

rulemaking to be an extension of that 

discussion. The Commission would also 

like to note that its Paperwork 

Reduction Act estimates have informed 

its analysis of the costs of the final 

regulations and that any information 

collection costs have been considered 

an important component of the overall 

compliance costs associated with final 

Regulation 39.5. 

Consideration of the five broad areas 

is set out immediately below, followed 

by a discussion of the comments 

received in response to the proposal that 

relate to the costs and benefits of the 

regulations. The Commission has 

determined that the public benefits 

associated with each of its final 

regulations promulgated in this release 

outweigh the costs. 

1. Protection of Market Participants and 

the Public 

This regulation provides an orderly 

framework for determining the 

eligibility of a DCO to clear swaps that 

it plans to accept for clearing; for DCOs 

submitting swaps to the Commission for 

review; for Commission-initiated 

reviews of swaps; and for staying a 

clearing requirement. An orderly 

framework for such a review and 

determination reduces uncertainty 

while collecting relevant information in 

order to make an informed decision, 

which protects all market participants. 

Maintaining the Commission’s 

prerogative to engage in Commissioninitiated reviews may also enhance risk 

management for the financial system as 

a whole because it will encourage 

parties to swap transactions to seek to 

have their swaps cleared, rather than 

face the uncertainty of not knowing 

what action the Commission may take at 

the conclusion of its review. 

Lastly, the notice of proposed 

rulemaking required DCOs to include 

various types of information in their 

submissions, including an analysis of 

the effect of a clearing requirement on 

the market ‘‘including the potential 

effect on market liquidity, trading 

activity, use of swaps by direct and 

indirect market participants, and any 

potential market disruption.’’ This final 

regulation eliminates some of these 

requirements, thereby transferring the 

responsibility to collect and analyze this 

information to the Commission. The 

Commission has determined that this 

approach will provide the same benefits 

to market participants and the public 

while being less costly for DCOs. 

2. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

The final regulations require a DCO to 

submit swaps to the Commission ‘‘to the 

extent reasonable and practicable to do 

so, by group, category, type or class of 

swaps.’’ The Commission believes this 

will make the review process more 

efficient, allowing the Commission to 

move more swaps into clearing quickly, 

which in turn will promote clarity in 

the markets and contribute to their 

efficiency and integrity. 

The final regulations also provide an 

opportunity for the public to comment 

on DCO submissions and require DCOs 

to relay both negative and positive 

feedback they receive from market 

participants. To the extent that the 

feedback summarized by DCOs is 

complete and accurate or that the public 

submits feedback directly to the 

Commission, this provides ample 

opportunity for broad input into 

mandatory clearing decisions. This 

greater transparency and public 

participation increases the likelihood 

that all important costs and benefits of 

mandatory clearing will be identified 

and weighed by the Commission. 

3. Price Discovery 

The process outlined in the 

regulations will move more swaps into 

clearing, which will facilitate price 

discovery in the swap markets. 

4. Sound Risk Management Procedures 

The proposed regulations also 

required DCOs to obtain independent 

validation of the scalability of their 

‘‘risk management policies, systems, 

and procedures, including the margin 

methodology, settlement procedures, 

and default management procedures.’’ 

The Commission finds that this would 

increase cost to DCOs and has 

determined that there is an alternative 

that will be less costly and will likely 

achieve similar benefits. Specifically, 


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15See 75 FR 67277, 67278 (Nov. 2, 2010). 

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

17 47 FR 18618 (Apr. 30, 1982). 

18See 66 FR 45605, 45609 (August 29, 2001). 

19See 75 FR 67277, 67280 (Nov. 2, 2010). 

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

DCOs will be required to evaluate the 

scalability of their risk management 

policies, systems, and procedures to 

comply with the DCO core principles 

and additional proposed risk 

management regulations that may be 

promulgated. 

5. Other Public Interest Considerations 

An orderly framework for the review 

of swaps and determination on 

mandatory clearing will facilitate 

moving swaps quickly into clearing, 

which is likely to reduce risk to the 

financial system. 

Public comments. In its notice of 

proposed rulemaking, the Commission 

solicited comment from the public.15

Comments relating to costs and benefits 

are summarized below, together with 

corresponding responses. 

The National Milk Producers 

Federation suggested that small farmers 

will bear a disproportionate share of the 

costs associated with mandatory 

clearing. The subject of this rulemaking 

is not the costs to small farmers 

associated with mandatory clearing but 

the process a DCO must follow in order 

to submit a swap or group, category, 

type, or class of swaps to the 

Commission for a determination as to 

whether the swap must be cleared. 

Moreover, the National Milk Producers 

Federation did not specify how and to 

what extent this disproportionate cost 

will manifest itself. In this final 

regulation, the Commission has 

determined that an orderly review of 

swaps, a review mandated by Congress, 

reduces risk and increases certainty and 

therefore will reduce costs by making 

sure such swaps are quickly and 

properly vetted. Furthermore, the 

Commission has considered these 

concerns and believes that they should 

be addressed as each swap or group, 

category, type, or class of swaps is 

considered for mandatory clearing. The 

regulations create an opportunity for 

these concerns to be raised by the public 

for a period of 30 days as each swap 

submission is being reviewed. If there 

are particular swaps for which members 

of the public believe this concern is 

relevant, they are encouraged to bring 

that to the Commission’s attention 

during the public comment period and 

these factors will be weighed as 

decisions about mandatory clearing are 

made. In addition, the Commission has 

proposed separate regulations that 

create an exception to mandatory 

clearing for end users, which may 

address some of these concerns. 

CME commented that the information 

required in the proposed regulations 

would be costly for the DCOs to gather 

and analyze. This concern has been 

addressed in the final regulations by 

eliminating the requirements that DCOs 

submit independent validation of the 

scalability of their risk management 

policies, systems, and procedures, and 

by eliminating the requirement that 

DCOs conduct an analysis of the effect 

of a clearing requirement on the market. 

The final regulations now only require 

the submission of some of the 

information that the Commission 

assumes a DCO would have gathered 

and considered in making its own 

decision to accept a particular swap for 

clearing. 

The Coalition for Derivative EndUsers, expressed concern that central 

clearing and required margins for 

cleared swaps will be expensive for 

market participants and could be 

considered an inefficient use of 

resources. These comments are beyond 

the scope of this rule, which focuses 

exclusively on the process for reviewing 

swaps. 

The Coalition for Derivative EndUsers also expressed concern that the 

indirect as well as the direct costs of 

mandatory clearing should be 

considered when reviewing swaps. The 

Commission agrees that it is important 

to take the full range of costs as well as 

the benefits into account when 

considering mandatory clearing of a 

swap. As previously noted, the 

regulations establish a public comment 

process through which those costs and 

benefits may be raised and given due 

consideration. If there are any ancillary 

costs related to mandatory clearing of a 

specific swap or group, category, type, 

or class of swaps that the public 

believes are either unlikely to be 

recognized or particularly problematic, 

the Commission encourages comments 

to that effect. Comments that quantify 

the referenced costs or that offer specific 

scenarios are particularly helpful in that 

regard. 

The Coalition for Derivative EndUsers further suggested that the high 

cost to a DCO of submitting a swap to 

the Commission will put U.S.-based 

DCOs at a competitive disadvantage to 

foreign DCOs. The Coalition for 

Derivative End-Users did not illustrate 

how and to what extent a U.S.-based 

DCO will be disadvantaged nor specify 

to what extent non-U.S.-based DCOs 

offer the similar functionality, liquidity 

or risk profiles in comparison to U.S.- 

based DCOs. However, concerns over 

the costs of submission have been 

addressed in the final regulations by 

reducing the DCO’s submission 

requirements and the attendant costs. 

Freddie Mac expressed concern that 

uncertainty about whether swaps that 

are rejected for clearing by DCOs have 

to be unwound could generate losses for 

organizations using those swaps for 

hedging purposes. This concern goes 

beyond the limited scope of these 

regulations, and the Commission will 

consider how to address it outside of 

this rulemaking. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires Federal agencies, in 

promulgating rules, to consider whether 

those rules 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 rules 

adopted herein will affect DCOs. The 

Commission has previously established 

certain definitions of ‘‘small entities’’ to 

be used by the Commission in 

evaluating the impact of its rules on 

small entities in accordance with the 

RFA.17 The Commission has previously 

determined that DCOs are not small 

entities for the purpose of the RFA.18

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that these 

rules will not have a significant 

economic impact on a substantial 

number of small entities. The Chairman 

made the same certification in the 

proposed rulemaking,19 and the 

Commission did not receive any 

comments on the RFA in relation to the 

proposed rulemaking. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 20 imposes certain requirements 

on Federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid control 

number. This rulemaking imposes new 

collection of information requirements 

within the meaning of the PRA. 

Accordingly, the Commission requested, 

but the Office of Management and 

Budget (OMB) has not yet assigned, a 

control number for the new collection of 

information. However, OMB has 

assigned the reference number 201011– 

3038–002 in the interim. The 


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Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 44473 

Commission has submitted this final 

rule along with supporting 

documentation for OMB’s review. 

Responses to this collection of 

information will be mandatory. 

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 CEA strictly prohibits the 

Commission, unless specifically 

authorized by the CEA, 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 is also 

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 

These regulations require DCOs to 

collect and submit to the Commission 

information concerning swaps they plan 

to accept for clearing. The Commission 

is adopting these information collection 

requirements in order to give effect to 

certain provisions of the Dodd-Frank 

Act. 

Each DCO will determine for itself 

whether and how often it will accept a 

new swap or group, category, type, or 

class of swaps for clearing, which will 

require a submission of the required 

information to the Commission. The 

regulations direct DCOs to submit swaps 

to the Commission, to the extent 

reasonable and practicable to do so, by 

group, category, type, or class of swaps, 

thereby reducing the number of 

submissions a DCO would be required 

to make. The Commission’s notice of 

proposed rulemaking therefore 

estimated one annual response per 

respondent. Commission staff estimated 

that each DCO would expend 40 hours 

to prepare each filing required under the 

proposed regulations, which was 

estimated based on the Commission’s 

prior experience with DCOs and their 

preparation of filings for the 

Commission’s review. This burden may 

be reduced under the final regulations, 

which do not require a DCO to include 

as much information in its submission 

as the proposed regulations would have. 

Commission staff estimated that it 

would receive filings from up to 12 

respondents annually, which assumes 

that each DCO would make an average 

of one filing per year. Accordingly, the 

burden in terms of hours would in the 

aggregate be 40 hours annually per 

respondent and 480 hours annually for 

all respondents. 

Commission staff estimated that each 

respondent could expend up to $4000 

annually, based on an hourly wage rate 

of $100, to comply with the proposed 

regulations. This would result in an 

aggregated cost of $48,000 per annum 

(12 respondents × $4,000). 

2. Information Collection Comments 

The Commission did not receive any 

comments on the PRA in relation to the 

proposed rulemaking. 

List of Subjects 

17 CFR Part 39 

Business and industry, Commodity 

futures, Reporting and recordkeeping 

requirements. 

17 CFR Part 140 

Authority delegations (Government 

agencies), Conflict of interests, 

Organization and functions 

(Government agencies). 

For the reasons stated in the 

preamble, amend 17 CFR parts 39 and 

140 as follows: 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

■ 1. The authority citation for part 39 is 

revised to read as follows: 

Authority: 7 U.S.C. 7a–1 as amended by 

Pub. L. 111–203, 124 Stat. 1376. 

■ 2. Redesignate § 39.5 as § 39.8 and add 

new § 39.5 to read as follows: 

§ 39.5 Review of swaps for Commission 

determination on clearing requirement. 

(a) Eligibility to clear swaps. (1) A 

derivatives clearing organization shall 

be presumed eligible to accept for 

clearing any swap that is within a 

group, category, type, or class of swaps 

that the derivatives clearing 

organization already clears. Such 

presumption of eligibility, however, is 

subject to review by the Commission. 

(2) A derivatives clearing organization 

that wishes to accept for clearing any 

swap that is not within a group, 

category, type, or class of swaps that the 

derivatives clearing organization already 

clears shall request a determination by 

the Commission of the derivatives 

clearing organization’s eligibility to 

clear such a swap before accepting the 

swap for clearing. The request, which 

shall be filed electronically with the 

Secretary of the Commission, shall 

address the derivatives clearing 

organization’s ability, if it accepts the 

swap for clearing, to maintain 

compliance with section 5b(c)(2) of the 

Act, specifically: 

(i) The sufficiency of the derivatives 

clearing organization’s financial 

resources; and 

(ii) The derivative clearing 

organization’s ability to manage the 

risks associated with clearing the swap, 

especially if the Commission determines 

that the swap is required to be cleared. 

(b) Swap submissions. (1) A 

derivatives clearing organization shall 

submit to the Commission each swap, or 

any group, category, type, or class of 

swaps that it plans to accept for 

clearing. The derivatives clearing 

organization making the submission 

must be eligible under paragraph (a) of 

this section to accept for clearing the 

submitted swap, or group, category, 

type, or class of swaps. 

(2) A derivatives clearing organization 

shall submit swaps to the Commission, 

to the extent reasonable and practicable 

to do so, by group, category, type, or 

class of swaps. The Commission may in 

its reasonable discretion consolidate 

multiple submissions from one 

derivatives clearing organization or 

subdivide a derivatives clearing 

organization’s submission as 

appropriate for review. 

(3) The submission shall be filed 

electronically with the Secretary of the 

Commission and shall include: 

(i) A statement that the derivatives 

clearing organization is eligible to 

accept the swap, or group, category, 

type, or class of swaps for clearing and 

describes the extent to which, if the 

Commission were to determine that the 

swap, or group, category, type, or class 

of swaps is required to be cleared, the 

derivatives clearing organization will be 

able to maintain compliance with 

section 5b(c)(2) of the Act; 

(ii) A statement that includes, but is 

not limited to, information that will 

assist the Commission in making a 

quantitative and qualitative assessment 

of the following factors: 

(A) The existence of significant 

outstanding notional exposures, trading 

liquidity, and adequate pricing data; 

(B) The availability of rule framework, 

capacity, operational expertise and 

resources, and credit support 

infrastructure to clear the contract on 

terms that are consistent with the 

material terms and trading conventions 

on which the contract is then traded; 

(C) The effect on the mitigation of 

systemic risk, taking into account the 

size of the market for such contract and 

the resources of the derivatives clearing 

organization available to clear the 

contract; 

(D) The effect on competition, 

including appropriate fees and charges 

applied to clearing; and 

(E) The existence of reasonable legal 

certainty in the event of the insolvency 

of the relevant derivatives clearing 

organization or one or more of its 


wreier-aviles on DSKDVH8Z91PROD with RULES
44474 Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 

clearing members with regard to the 

treatment of customer and swap 

counterparty positions, funds, and 

property; 

(iii) Product specifications, including 

copies of any standardized legal 

documentation, generally accepted 

contract terms, standard practices for 

managing any life cycle events 

associated with the swap, and the extent 

to which the swap is electronically 

confirmable; 

(iv) Participant eligibility standards, if 

different from the derivatives clearing 

organization’s general participant 

eligibility standards; 

(v) Pricing sources, models, and 

procedures, demonstrating an ability to 

obtain sufficient price data to measure 

credit exposures in a timely and 

accurate manner, including any 

agreements with clearing members to 

provide price data and copies of 

executed agreements with third-party 

price vendors, and information about 

any price reference index used, such as 

the name of the index, the source that 

calculates it, the methodology used to 

calculate the price reference index and 

how often it is calculated, and when 

and where it is published publicly; 

(vi) Risk management procedures, 

including measurement and monitoring 

of credit exposures, initial and variation 

margin methodology, methodologies for 

stress testing and back testing, 

settlement procedures, and default 

management procedures; 

(vii) Applicable rules, manuals, 

policies, or procedures; 

(viii) A description of the manner in 

which the derivatives clearing 

organization has provided notice of the 

submission to its members and a 

summary of any views on the 

submission expressed by the members 

(a copy of the notice to members shall 

be included with the submission); and 

(ix) Any additional information 

specifically requested by the 

Commission. 

(4) The Commission must have 

received the submission by the open of 

business on the business day preceding 

the acceptance of the swap, or group, 

category, type, or class of swaps for 

clearing. 

(5) The submission will be made 

available to the public and posted on 

the Commission Web site for a 30-day 

public comment period. A derivatives 

clearing organization that wishes to 

request confidential treatment for 

portions of its submission may do so in 

accordance with the procedures set out 

in § 145.9(d) of this chapter. 

(6) The Commission will review the 

submission and determine whether the 

swap, or group, category, type, or class 

of swaps described in the submission is 

required to be cleared. The Commission 

will make its determination not later 

than 90 days after a complete 

submission has been received, unless 

the submitting derivatives clearing 

organization agrees to an extension. The 

determination of when such submission 

is complete shall be at the sole 

discretion of the Commission. In making 

a determination that a clearing 

requirement shall apply, the 

Commission may impose such terms 

and conditions to the clearing 

requirement as the Commission 

determines to be appropriate. 

(c) Commission-initiated reviews. (1) 

The Commission, on an ongoing basis, 

will review swaps that have not been 

accepted for clearing by a derivatives 

clearing organization to make a 

determination as to whether the swaps 

should be required to be cleared. In 

undertaking such reviews, the 

Commission will use information 

obtained pursuant to Commission 

regulations from swap data repositories, 

swap dealers, and major swap 

participants, and any other available 

information. 

(2) Notice regarding any 

determination made under paragraph 

(c)(1) of this section will be made 

available to the public and posted on 

the Commission Web site for a 30-day 

public comment period. 

(3) If no derivatives clearing 

organization has accepted for clearing a 

particular swap, group, category, type, 

or class of swaps that the Commission 

finds would otherwise be subject to a 

clearing requirement, the Commission 

will: 

(i) Investigate the relevant facts and 

circumstances; 

(ii) Within 30 days of the completion 

of its investigation, issue a public report 

containing the results of the 

investigation; and 

(iii) Take such actions as the 

Commission determines to be necessary 

and in the public interest, which may 

include requiring the retaining of 

adequate margin or capital by parties to 

the swap, group, category, type, or class 

of swaps. 

(d) Stay of clearing requirement. (1) 

After making a determination that a 

swap, or group, category, type, or class 

of swaps is required to be cleared, the 

Commission, on application of a 

counterparty to a swap or on its own 

initiative, may stay the clearing 

requirement until the Commission 

completes a review of the terms of the 

swap, or group, category, type, or class 

of swaps and the clearing arrangement. 

(2) A counterparty to a swap that 

wishes to apply for a stay of the clearing 

requirement for that swap shall submit 

a written request to the Secretary of the 

Commission that includes: 

(i) The identity and contact 

information of the counterparty to the 

swap; 

(ii) The terms of the swap subject to 

the clearing requirement; 

(iii) The name of the derivatives 

clearing organization clearing the swap; 

(iv) A description of the clearing 

arrangement; and 

(v) A statement explaining why the 

swap should not be subject to a clearing 

requirement. 

(3) A derivatives clearing organization 

that has accepted for clearing a swap, or 

group, category, type, or class of swaps 

that is subject to a stay of the clearing 

requirement shall provide any 

information requested by the 

Commission in the course of its review. 

(4) The Commission will complete its 

review not later than 90 days after 

issuance of the stay, unless the 

derivatives clearing organization that 

clears the swap, or group, category, 

type, or class of swaps agrees to an 

extension. 

(5) Upon completion of its review, the 

Commission may: 

(i) Determine, subject to any terms 

and conditions as the Commission 

determines to be appropriate, that the 

swap, or group, category, type, or class 

of swaps must be cleared; or 

(ii) Determine that the clearing 

requirement will not apply to the swap, 

or group, category, type, or class of 

swaps, but clearing may continue on a 

non-mandatory basis. 

PART 140—ORGANIZATION, 

FUNCTIONS, AND PROCEDURES OF 

THE COMMISSION 

■ 3. The authority citation for part 140 

continues to read as follows: 

Authority: 7 U.S.C. 2 and 12a. 

■ 4. In § 140.94, revise paragraph (a)(5) 

and add new paragraph (a)(6) to read as 

follows: 

§ 140.94 Delegation of authority to the 

Director of the Division of Clearing and 

Intermediary Oversight. 

(a) * * * 

(5) All functions reserved to the 

Commission in § 5.14 of this chapter; 

and 

(6) All functions reserved to the 

Commission in §§ 39.5(b)(2) and (d)(3) 

of this chapter. 

* * * * * 


wreier-aviles on DSKDVH8Z91PROD with RULES
Federal Register / Vol. 76, No. 143 / Tuesday, July 26, 2011 / Rules and Regulations 44475 

Issued in Washington, DC, on July 19, 

2011, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Process for Review of 

Swaps for Mandatory Clearing— 

Commission Voting Summary and 

Statements of Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Sommers, 

Chilton and O’Malia voted in the 

affirmative; no Commissioner voted in 

the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the final rulemaking to 

establish a process for the review and 

designation of swaps for mandatory 

clearing. One of the primary goals of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act was to lower 

risk by requiring standardized swaps to 

be centrally cleared. The final rule is 

consistent with the congressional 

requirement that derivatives clearing 

organizations be eligible to clear swaps 

and that the public has an opportunity 

for input before a swap is subject to 

mandatory clearing. 

[FR Doc. 2011–18663 Filed 7–25–11; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Food and Drug Administration 

21 CFR Parts 201 and 341 

[Docket No. FDA–1995–N–0031 (Formerly 

Docket No. 1995N–0205)] 

RIN 0910–AF32 

Labeling for Bronchodilators To Treat 

Asthma; Cold, Cough, Allergy, 

Bronchodilator, and Antiasthmatic 

Drug Products for Over-the-Counter 

Human Use 

AGENCY: Food and Drug Administration, 

HHS. 

ACTION: Final rule. 

SUMMARY: The Food and Drug 

Administration (FDA) is amending the 

final monograph (FM) for over-thecounter (OTC) bronchodilator drug 

products to add additional warnings 

(e.g., an ‘‘Asthma alert’’) and to revise 

the indications, warnings, and 

directions in the labeling of products 

containing the ingredients ephedrine, 

ephedrine hydrochloride, ephedrine 

sulfate, epinephrine, epinephrine 

bitartrate, racephedrine hydrochloride, 

and racepinephrine hydrochloride. FDA 

is issuing this final rule after 

considering data and information 

submitted in response to the Agency’s 

proposed labeling revisions for these 

products. This final rule is part of FDA’s 

ongoing review of OTC drug products. 

DATES: Effective Date: This regulation is 

effective January 23, 2012. 

Compliance Date: The compliance 

date for all products, regardless of 

annual sales, is January 23, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Elaine Abraham, Center for Drug 

Evaluation and Research, Food and 

Drug Administration, 10903 New 

Hampshire Ave., Bldg. 22, Rm. 5410, 

Silver Spring, MD 20993, 301–796– 

2090. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Changes to the Labeling of OTC Drug 

Products Used To Treat Asthma 

II. History of the Development of the 1986 

Final Monograph 

III. Amendments to the 1986 Final 

Monograph Proposed by FDA 

IV. FDA’s Response to Comments Received 

About the Proposed Labeling Changes 

V. Additional Consumer-Friendly Changes 

FDA Made to the Labeling 

VI. FDA’s Final Conclusions on Warnings 

and Other Labeling Information for OTC 

Bronchodilator Drug Products 

A. Implementation Date for New Labeling 

B. Statement About Warnings 

VII. Analysis of Impacts 

A. Introduction and Summary 

1. Introduction 

2. Summary 

B. Need for Regulation 

C. Benefits 

D. Costs 

1. Relabeling Costs 

2. Switching Costs 

3. Estimated Total Costs 

E. Summary of Costs and Benefits 

F. Analysis of Regulatory Alternatives to 

the Final Rule 

G. Regulatory Flexibility Analysis 

1. Description and Number of Affected 

Small Entities 

2. Economic Effect on Small Entities 

3. Additional Flexibility Considered 

VIII. Paperwork Reduction Act of 1995 

IX. Environmental Impact 

X. Federalism 

XI. References 

I. Changes to the Labeling of OTC Drug 

Products Used To Treat Asthma 

This rulemaking amends the FM for 

OTC bronchodilator drug products used 

to treat asthma. The ‘‘Indications,’’ 

‘‘Warnings’’ and ‘‘Directions’’ portions 

of the Drug Facts label are being 

changed to help consumers better 

understand how to use these products 

and when it is appropriate to seek 

treatment from a doctor for their asthma. 

The ‘‘Indications’’ section now 

recommends use only for temporary 

relief of mild symptoms of intermittent 

asthma. Changes to both the ‘‘Warnings’’ 

and ‘‘Directions’’ sections emphasize 

that consumers should not exceed the 

recommended dose or duration of use 

with these drug products. The 

‘‘Warnings’’ section is being changed to 

make it clearer that consumers whose 

symptoms worsen or do not improve 

should see a doctor. The ‘‘Indications,’’ 

‘‘Warnings’’ and ‘‘Directions’’ portions 

of the Drug Facts label have also been 

revised to use language that is more 

readily understood by the average 

consumer. 

II. History of the Development of the 

1986 Final Monograph 

In the Federal Register of September 

9, 1976 (41 FR 38312), FDA published 

an advance notice of proposed 

rulemaking (ANPR) under 21 CFR 

330.10(a)(6) to establish a monograph 

for OTC cold, cough, allergy, 

bronchodilator, and antiasthmatic drug 

products. The ANPR included the 

recommendations of the Advisory 

Review Panel on OTC Cold, Cough, 

Allergy, Bronchodilator, and 

Antiasthmatic Drug Products (the 

Panel), the advisory review panel 

responsible for evaluating data on the 

active ingredients in this drug class. The 

Panel recommended that ephedrine and 

epinephrine preparations be placed in 

Category I (generally recognized as safe 

and effective or GRASE) for OTC 

bronchodilator use (41 FR 38312 at 

38370 through 38372). 

FDA concurred with the Panel’s 

recommendations and subsequently 

published the proposed rule in the 

Federal Register of October 26, 1982, 

(47 FR 47520) and the FM for OTC 

bronchodilator drug products in the 

Federal Register of October 2, 1986, (51 

FR 35326). FDA included the following 

active ingredients in the FM: 

• ‘‘Ephedrine ingredients’’ (i.e., 

ephedrine, ephedrine hydrochloride, 

ephedrine sulfate, and racephedrine 

hydrochloride) 

• ‘‘Epinephrine ingredients’’ (i.e., 

epinephrine, epinephrine bitartrate, 

and racepinephrine hydrochloride) 

In subsequent rulemaking documents 

for this category, including this final 

rule, the term ‘‘ephedrine ingredients’’ 

refers to the four active ephedrine 

ingredients, the term ‘‘epinephrine 

ingredients’’ refers to the three active 

epinephrine ingredients, and the term 

‘‘OTC bronchodilator drug products’’ 


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