15460 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

1See 17 CFR 145.9. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 43 

RIN 3038–AD08 

Procedures To Establish Appropriate 

Minimum Block Sizes for Large 

Notional Off-Facility Swaps and Block 

Trades 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Further notice of proposed 

rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission is proposing 

regulations to implement certain 

statutory provisions enacted by Title VII 

of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act. 

Specifically, in accordance with section 

727 of the Dodd-Frank Act, the 

Commission is proposing regulations 

that would define the criteria for 

grouping swaps into separate swap 

categories and would establish 

methodologies for setting appropriate 

minimum block sizes for each swap 

category. In addition, the Commission is 

proposing further measures under the 

Commission’s regulations to prevent the 

public disclosure of the identities, 

business transactions and market 

positions of swap market participants. 

DATES: Comments must be received on 

or before May 14, 2012. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD08, 

by any of the following methods: 

• The agency’s Web site, at http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to www.cftc.gov. You 

should submit only information that 

you wish to make available publicly. If 

you wish the Commission to consider 

information that you believe is exempt 

from disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the Commission’s regulations.1

Commenters to this further notice of 

proposed rulemaking are requested to 

refrain from providing comments with 

respect to the provisions in part 43 of 

the Commission’s regulations that are 

beyond the scope of this proposed 

rulemaking. The Commission only plans 

to address those comments that are 

responsive to the policies, merits and 

substance of the proposed provisions set 

forth in this further notice of proposed 

rulemaking. 

Throughout this further notice of 

proposed rulemaking, the Commission 

requests comment in response to several 

specific questions. For convenience, the 

Commission has numbered each of 

these requests for comment. The 

Commission asks that, in submitting 

comments, commenters kindly identify 

the specific number of each request to 

which their comments are responsive. 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from www.cftc.gov that it may deem to 

be inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of the 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: Carl 

E. Kennedy, Counsel, Office of the 

General Counsel, 202–418–6625, 

c_kennedy@cftc.gov; or George Pullen, 

Economist, Division of Market 

Oversight, 202–418–6709, 

gpullen@cftc.gov; Commodity Futures 

Trading Commission, Three Lafayette 

Center, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. The Dodd-Frank Act 

B. The Initial Proposal 

C. Public Comments in Response to the 

Initial Proposal 

1. Public Comments Regarding the 

Proposed Determination of Appropriate 

Minimum Block Sizes 

2. Public Comments Regarding the 

Proposed Anonymity Protections 

3. Public Comments Regarding 

Implementation 

D. Analysis of Swap Market Data; Issuance 

of the Adopting Release 

II. Further Proposal—Block Trades 

A. Policy Goals 

B. Summary of the Proposed Approach 

C. Proposing Criteria for Distinguishing 

Among Swap Categories in Each Asset 

Class 

1. Interest Rate and Credit Asset Classes 

a. Background 

b. Interest Rate Swap Categories 

i. Interest Rate Swap Data Summary 

ii. Interest Rate Swap Data Analysis 

c. Credit Swap Categories 

i. Credit Swap Data Summary 

ii. Credit Swap Data Analysis 

2. Swap Category in the Equity Asset Class 

3. Swap Categories in the FX Asset Class 

4. Swap Categories in the Other 

Commodity Asset Class 

D. Proposed Appropriate Minimum Block 

Size Methodologies for the Initial and 

Post-Initial Periods 

1. Methodology for Determining the 

Appropriate Minimum Block Sizes in the 

Interest Rate and Credit Asset Classes 

2. Treatment of Swaps Within the Equity 

Asset Class 

3. Methodologies for Determining the 

Appropriate Minimum Block Sizes in the 

FX Asset Class 

a. Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the FX Asset Class 

b. Post-Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the FX Asset Class 

4. Methodologies for Determining 

Appropriate Minimum Block Sizes in the 

Other Commodity Asset Class 

a. Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the Other Commodity 

Asset Class (Other Than Natural Gas and 

Electricity Swaps Proposed To Be Listed 

in Appendix B to Part 43) 

b. Initial Period Methodology for Natural 

Gas and Electricity Swaps in the Other 

Commodity Asset Class Proposed To Be 

Listed in Appendix B to Part 43 

c. Post-Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the Other Commodity 

Asset Class 

5. Special Provisions for the Determination 

of Appropriate Minimum Block Sizes for 

Certain Types of Swaps 

a. Swaps With Optionality 

b. Swaps With Composite Reference Prices 

c. Physical Commodity Swaps 

d. Currency Conversion 

e. Successor Currencies 

E. Procedural Provisions 

1. Proposed § 43.6(a) Commission 

Determination 

2. Proposed § 43.6(f)(3) and(4) Publication 

and Effective Date of Post-Initial 

Appropriate Minimum Block Sizes 

3. Proposed § 43.6(g) Notification of 

Election 

4. Proposed § 43.7 Delegation of Authority 

III. Further Proposal—Anonymity Protections 

for the Public Dissemination of Swap 

Transaction and Pricing Data 

A. Policy Goals 

B. Establishing Notional Cap Sizes for 

Swap Transaction and Pricing Data To 

Be Publicly Disseminated in Real-Time 

1. Policy Goals for Establishing Notional 

Cap Sizes 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15461 

2See Public Law 111–203, 124 Stat. 1376 (2010). 

3The short title of Title VII of the Dodd-Frank Act 

is the ‘‘Wall Street Transparency and 

Accountability Act of 2010.’’ 

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

5See generally CEA section 2(a)(13), 7 U.S.C. 

2(a)(13). 

6CEA section 2(a)(13)(A). 

2. Proposed Amendments Related to Cap 

Sizes—§ 43.2 Definitions and § 43.4 

Swap Transaction and Pricing Data To 

Be Publicly Disseminated in Real-Time 

a. Initial Cap Sizes 

b. Post-Initial Cap Sizes and the 75-Percent 

Notional Amount Calculation 

c. Alternative Cap Size Calculations 

C. Masking the Geographic Detail of Swaps 

in the Other Commodity Asset Class 

1. Policy Goals for Masking the Geographic 

Detail for Swaps in the Other 

Commodity Asset Class 

2. Proposed Amendments to § 43.4 

3. Application of Proposed § 43.4(d)(4)(iii) 

and Proposed Appendix E to Part 43— 

Geographic Detail for Delivery or Pricing 

Points 

a. U.S. Delivery of Pricing Points 

i. Natural Gas and Related Products 

ii. Petroleum and Products 

iii. Electricity and Sources 

iv. All Remaining Other Commodities 

b. Non-U.S. Delivery or Pricing Points 

c. Basis Swaps 

4. Further Revisions to Part 43 

a. Additional Contracts Added to 

Appendix B to Part 43 

b. Technical Revisions to Part 43 

IV. Regulatory Flexibility Act 

A. Potential Economic Impact—Proposed 

§ 43.6(g)—Notification of Election 

B. Identification of Duplicative, 

Overlapping or Conflicting Federal Rules 

C. Alternatives to Proposed Rules That 

Will Have an Impact 

D. Certification 

V. Paperwork Reduction Act 

A. Background 

B. Description of the Collection 

1. Proposed § 43.6(g)—Notification of 

Election 

2. Proposed Amendments to §§ 43.4(d)(4) 

and 43.4(h) 

C. Request for Comments on Collection 

VI. Cost-Benefit Considerations 

A. Introduction 

B. The Requirements of Section 15(a) 

C. Structure of the Commission’s Analysis; 

Cost Estimation Methodology 

D. Background; Objectives of This Further 

Proposal 

E. Costs and Benefits Relevant to the Block 

Trade Rules Section of the Further 

Proposal (§§ 43.6(a)–(f) and (h)) 

1. Costs and Benefits Relevant to the 

Proposed Criteria and Methodology 

a. Proposed § 43.6(a) Commission 

Determination 

b. Proposed § 43.6(b) Swap Category 

c. Proposed §§ 43.6(c)–(f) and (h) Methods 

for Determining Appropriate Minimum 

Block Sizes 

d. Proposed §§ 43.6(a)–(f) and (h) Costs 

Relevant to the Proposed Criteria and 

Methodology 

e. Benefits Relevant to Proposed §§ 43.6(a)– 

(f) and (h) 

f. Application of the Section 15(a) Factors 

to Proposed §§ 43.6(a)–(f) and (h) 

i. Protection of Market Participants and the 

Public 

ii. Efficiency, Competitiveness and 

Financial Integrity of Markets 

iii. Price Discovery 

iv. Sound Risk Management Practices 

v. Other Public Interest Considerations 

g. Specific Questions Regarding the 

Proposed Criteria and Methodology 

2. Cost-Benefit Considerations Relevant to 

the Proposed Block Trade/Large Notional 

Off-Facility Swap Election Process 

(Proposed § 43.6(g)) 

a. Costs Relevant to the Proposed Election 

Process (Proposed § 43.6(g)) 

i. Incremental, Non-Recurring Expenditure 

to a Non-Financial End-user, SEF or 

DCM To Update Existing Technology 

ii. Incremental, Non-Recurring Expenditure 

to a Non-Financial End-User, SEF or 

DCM To Provide Training to Existing 

personnel and Update Written Policies 

and Procedures 

iii. Incremental, Recurring Expenses to a 

Non-Financial End-User, DCM or SEF 

Associated With Incremental 

Compliance, Maintenance and 

Operational Support in Connection With 

the Proposed Election Process 

iv. Incremental, Non-Recurring 

Expenditure to an SDR To Update 

Existing Technology To Capture and 

Publicly Disseminate Swap Data for 

Block Trades and Large Notional OffFacility Swaps 

b. Benefits Relevant to the Proposed 

Election Process (Proposed § 43.6(g)) 

c. Application of the Section 15(a) Factors 

to Proposed § 43.6(g) 

i. Protection of Market Participants and the 

Public 

ii. Efficiency, Competitiveness and 

Financial Integrity 

iii. Price Discovery 

iv. Sound Risk Management Practices 

v. Other Public Interest Considerations 

d. Specific Questions Regarding the 

Proposed Election Process 

F. Costs and Benefits Relevant to Proposed 

Anonymity Protections (Amendments to 

§§ 43.4(d)(4) and (h)) 

1. Proposed Amendments to § 43.4(d)(4) 

2. Proposed Amendments to § 43.4(h) 

3. Costs Relevant to the Proposed 

Amendments to §§ 43.4(d)(4) and (h) 

4. Benefits Relevant to the Proposed 

Amendments to § 43.4 

5. Application of the Section 15(a) Factors 

to the Proposed Amendments to § 43.4 

a. Protection of Market Participants and the 

Public 

b. Efficiency, Competitiveness and 

Financial Integrity 

c. Price Discovery 

d. Sound Risk Management Practices 

e. Other Public Interest Considerations 

6. Specific Questions Regarding the 

Proposed Amendments to § 43.4 

VII. Example of a Post-Initial Appropriate 

Minimum Block Size Determination 

Using the 50-Percent Notional Amount 

Calculation 

VIII. List of Commenters Who Responded to 

the Initial Proposal 

I. Background 

A. The Dodd-Frank Act 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).2 Title VII of the 

Dodd-Frank Act 3 amended the 

Commodity Exchange Act (‘‘CEA’’) 4 to 

establish a comprehensive, new 

regulatory framework for swaps and 

security-based swaps. This legislation 

was enacted to reduce risk, increase 

transparency and promote market 

integrity within the financial system by, 

inter alia: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers (‘‘SDs’’) and 

major swap participants (‘‘MSPs’’); (2) 

imposing mandatory clearing and trade 

execution requirements on standardized 

derivative products; (3) creating robust 

recordkeeping and real-time reporting 

regimes; and (4) enhancing the 

Commission’s rulemaking and 

enforcement authorities with respect to, 

among others, all registered entities and 

intermediaries subject to the 

Commission’s oversight. 

Section 727 of the Dodd-Frank Act 

created section 2(a)(13) of the CEA, 

which authorizes and requires the 

Commission to promulgate regulations 

for the real-time public reporting of 

swap transaction and pricing data.5

Section 2(a)(13)(A) provides that the 

definition of ‘‘real-time public 

reporting’’ means reporting ‘‘data 

relating to a swap transaction, including 

price and volume, as soon as 

technologically practicable after the 

time at which the swap transaction has 

been executed.’’ 6 Section 2(a)(13)(B) 

states that the purpose of section 

2(a)(13) is ‘‘to authorize the Commission 

to make swap transaction and pricing 

data available to the public in such form 

and at such times as the Commission 

determines appropriate to enhance price 

discovery.’’ 

In general, section 2(a)(13) of the CEA 

directs the Commission to prescribe 

regulations ‘‘providing for the public 

availability of transaction and pricing 

data’’ for certain swaps. Section 2(a)(13) 

also places two other statutory 

requirements on the Commission that 

are relevant to this further notice of 

proposed rulemaking (‘‘Further 

Proposal’’). First, sections 2(a)(13)(E)(ii) 

and (iii) of the CEA respectively require 

the Commission to prescribe regulations 

specifying ‘‘the criteria for determining 

what constitutes a large notional swap 

transaction (block trade) for particular 

markets and contracts’’ and ‘‘the 

appropriate time delay for reporting 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
15462 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

7See CEA sections 2(a)(13)(E)(ii) and (iii). Section 

2(a)(13)(E) explicitly refers to the swaps described 

only in sections 2(a)(13)(C)(i) and 2(a)(13)(C)(ii) of 

the CEA (i.e., clearable swaps, including swaps that 

are exempt from clearing). As noted in the 

Commission’s Initial Proposal (as defined below) 

and its Adopting Release (as defined below), the 

Commission interprets the provisions in section 

2(a)(13)(E) to apply to all categories of swaps 

described in section 2(a)(13)(C) of the CEA. 

8CEA section 2(a)(13)(E)(iv). Similarly, section 

5h(f)(2)(C) of the CEA directs a registered swap 

execution facility (‘‘SEF’’) to set forth rules for block 

trades for swap execution purposes. 

9This provision does not cover swaps that are 

‘‘determined to be required to be cleared but are not 

cleared.’’ See CEA section 2(a)(13)(C)(iv). 

10 156 Cong. Rec. S5921 (daily ed. July 15, 2010) 

(Statement of Sen. Blanche Lincoln). 

11See Real-Time Public Reporting of Swap 

Transaction Data, 75 FR 76,139, Dec. 7, 2010, as 

corrected in Real-Time Public Reporting of Swap 

Transaction Data Correction, 75 FR 76,930, Dec. 10, 

2010. Interested persons are directed to the Initial 

Proposal for a full discussion of each of the 

proposed part 43 rules. 

12The Initial Proposal defined the term ‘‘large 

notional swap.’’ See proposed § 43.2(l), 75 FR 

76,171. The Adopting Release finalized the term as 

‘‘large notional off-facility swap,’’ to denote, in 

relevant part, that the swap is not executed 

pursuant to a SEF or designated contract market’s 

(‘‘DCM’’) rules and procedures. See § 43.2, 77 FR 

1,182, 1,244, Jan. 9, 2012 (‘‘Adopting Release’’). 

Specifically, the Adopting Release defined the term 

as an ‘‘off-facility swap that has a notional or 

principal amount at or above the appropriate 

minimum block size applicable to such publicly 

reportable swap transaction and is not a block trade 

as defined in § 43.2 of the Commission’s 

regulations.’’ Id. Throughout this Further Proposal, 

the Commission uses the term ‘‘large notional offfacility swap’’ as adopted in the Adopting Release. 

The Initial Proposal’s definition of ‘‘block trade’’ 

was similar to the final definition in the Adopting 

Release. See proposed § 43.2(f), 75 FR 76,171. The 

Adopting Release defines the term ‘‘block trade’’ as 

a publicly reportable swap transaction that: ‘‘(1) 

[i]nvolves a swap that is listed on a SEF or DCM; 

(2) [o]ccurs away from the [SEF’s or DCM’s] trading 

system or platform and is executed pursuant to the 

[SEF’s or DCM’s] rules and procedures; (3) has a 

notional or principal amount at or above the 

appropriate minimum block applicable to such 

swap; and (4) [i]s reported subject to the rules and 

procedures of the [SEF or DCM] and the rules 

described in [part 43], including the appropriate 

time delay requirements set forth in § 43.5.’’ See 

§ 43.2, 77 FR 1,243. 

13See proposed § 43.5, 75 FR 76,174–76. 

14Proposed § 43.5(k)(1) in the Initial Proposal 

provided that the time delay for the public 

dissemination of data for a block trade or large 

notional off-facility swap shall commence at the 

time of execution of such trade or swap. See 75 FR 

76,176. Proposed § 43.5(k)(2) provided that the time 

delay for standardized block trades and large 

notional off-facility swaps (i.e., swaps that fall 

under CEA Section 2(a)(13)(C)(i) and (iv)) would be 

15 minutes from the time of execution. Id. The 

Initial Proposal did not provide specific time delays 

for large notional off-facility swaps (i.e., swaps that 

fall under Section 2(a)(13)(C)(ii) and (iii)). Instead, 

proposed § 43.5(k)(3) provided that the time delay 

for such swaps shall be reported subject to a time 

delay that may be prescribed by the Commission. 

Id. 

The Adopting Release established time delays for 

the public dissemination of block trades and large 

notional off-facility swaps in § 43.5. See 77 FR 

1,247–49. 

15The distribution test, described in proposed 

§ 43.5(g)(1)(i) of the Initial Proposal, required that 

an SDR take the rounded transaction sizes of all 

trades executed over a period of time for a 

particular swap instrument and create a distribution 

of those trades. An SDR would then determine the 

minimum threshold amount as an amount that is 

greater than 95 percent of the notional or principal 

transaction sizes for the swap instrument for an 

applicable period of time. See 75 FR 76,175. 

16The multiple test, described in proposed 

§ 43.5(g)(1)(ii) in the Initial Proposal, required that 

an SDR multiply the block trade multiple by the 

‘‘social size’’ of a particular swap instrument. 

Proposed § 43.2(x) defined ‘‘social size’’ as the 

greatest of the mean, median or mode for a 

particular swap instrument. The Commission 

proposed a block trade multiple of five. Id. 

17See proposed § 43.2(y), 75 FR 76,172. For the 

reasons described in section II.B. infra, the 

Commission is proposing to use the term ‘‘swap 

category’’ instead of ‘‘swap instrument.’’ The 

Commission is of the view that the term swap 

category is a more descriptive term to convey the 

concept of a grouping of swap contracts that would 

be subject to the same appropriate minimum block 

size. 

18See 75 FR 76,176. 

19See 75 FR 76,174. 

large notional swap transactions (block 

trades) to the public.’’ 7 In promulgating 

regulations under section 2(a)(13), 

section 2(a)(13)(E)(iv) directs the 

Commission to take into account 

whether public disclosure of swap 

transaction and pricing data will 

‘‘materially reduce market liquidity.’’ 8

The second statutory requirement 

relevant to this Further Proposal is 

found in sections 2(a)(13)(E)(i) and 

2(a)(13)(C)(iii) of the CEA. Section 

2(a)(13)(E)(i) requires the Commission to 

protect the identities of counterparties 

to mandatorily-cleared swaps, swaps 

excepted from the mandatory clearing 

requirement and voluntarily-cleared 

swaps. Section 2(a)(13)(C)(iii) of the 

CEA requires the Commission to 

prescribe rules that maintain the 

anonymity of business transactions and 

market positions of the counterparties to 

an uncleared swap.9 Indeed, Congress 

sought to ‘‘ensure that the public 

reporting of swap transaction and 

pricing data [would] not disclose the 

names or identities of the parties to 

[swap] transactions.’’ 10

In carrying out these two statutory 

requirements under section 2(a)(13), the 

Commission issued a notice of proposed 

rulemaking. A discussion of that notice 

is described immediately below. 

B. The Initial Proposal 

On December 7, 2010, the 

Commission published in the Federal 

Register a notice of proposed 

rulemaking to implement section 

2(a)(13) of the CEA (the ‘‘Initial 

Proposal’’), which included, among 

others, specific provisions pursuant to 

sections 2(a)(13)(E)(i)–(iv) and 

2(a)(13)(C)(iii).11 In the Initial Proposal, 

the Commission set out proposed 

provisions to satisfy the statutory 

requirements discussed above. With 

respect to the first statutory 

requirement, the Commission proposed: 

(1) Definitions for the terms ‘‘large 

notional off-facility swap’’ and ‘‘block 

trade’’ 12; (2) a method for determining 

the appropriate minimum block sizes 

for large notional off-facility swaps and 

block trades; 13 and (3) a framework for 

timely reporting of such transactions 

and trades.14 Proposed § 43.5(g) 

provided that registered swap data 

repositories (‘‘SDRs’’) shall be 

responsible for calculating the 

appropriate minimum block size for 

each ‘‘swap instrument’’ using the 

greater result of the distribution test 15

and the multiple test.16 Proposed 

§ 43.2(y) broadly defined ‘‘swap 

instrument’’ as ‘‘a grouping of swaps in 

the same asset class with the same or 

similar characteristics.’’ 17 Proposed 

§ 43.5(h) provided that for any swap 

listed on a SEF or DCM, the SEF or DCM 

must set the appropriate minimum 

block trade size.18

With respect to the second statutory 

requirement relevant to this Further 

Proposal, the Initial Proposal set forth 

several provisions to address issues 

pertinent to protecting the identities of 

parties to a swap. Essentially, these 

proposed provisions sought to protect 

the identities of parties to a swap 

through the limited disclosure of 

information and data relevant to the 

swap. In particular, proposed 

§ 43.4(e)(1) in the Initial Proposal 

provided that an SDR could not publicly 

report swap transaction and pricing data 

in a manner that discloses or otherwise 

facilitates the identification of a party to 

a swap. Proposed § 43.4(e)(2) would 

have placed a requirement on SEFs, 

DCMs and reporting parties to provide 

an SDR with a specific description of 

the underlying asset and tenor of a 

swap. This proposed section also 

included a qualification with respect to 

the reporting of the specific description. 

In particular, this section provided that 

‘‘[the] description must be general 

enough to provide anonymity but 

specific enough to provide for a 

meaningful understanding of the 

economic characteristics of the 

swap.’’ 19 This qualification would have 

applied to all swaps. 

In the Initial Proposal, the 

Commission acknowledged that swaps 

that are executed on or pursuant to the 

rules of a SEF or DCM do not raise the 

same level of concerns in protecting the 

identities, business transactions or 

market positions of swap counterparties 

since these swaps generally lack 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15463 

20See 75 FR 76,151 (‘‘In contrast, for those swaps 

that are executed on a swap market, the 

Commission believes that since such contracts will 

be listed on a particular trading platform or facility, 

it will be unlikely that a party to a swap could be 

inferred based on the reporting of the underlying 

asset and therefore parties to swaps executed on 

swap markets must report the specific underlying 

assets and tenor of the swap.’’). 

21See 75 FR 76,150–51. 

22See 75 FR 76,174. 

23See 75 FR 76,150. The Initial Proposal further 

provided that the requirement in proposed 

§ 43.4(e)(2) was separate from the requirement that 

a reporting party report swap data to an SDR 

pursuant to section 2(a)(13)(G) of the CEA. See 75 

FR 76,174. 

24See 75 FR 76,152. 

25The initial comment period for the Initial 

Proposal closed on February 7, 2011. The comment 

periods for most proposed rulemakings 

implementing the Dodd-Frank Act—including the 

proposed part 43 rules—subsequently were 

reopened for the period of April 27 through June 

2, 2011. 

26The interested parties who either submitted 

comment letters or met with Commission staff 

included end-users, potential swap dealers, asset 

managers, industry groups/associations, potential 

SDRs, a potential SEF, multiple law firms on behalf 

of their clients and a DCM. Of the 105 comment 

letters submitted in response to the Initial Proposal, 

42 letters focused on various issues relating to block 

trades and large notional off-facility swaps. Of the 

40 meetings, five meetings focused on various 

issues relating to block trades and large notional offfacility swaps. All comment letters received in 

response to the Initial Proposal may be found on the 

Commission’s Web site at: http:// 

comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=919. 

27A list of the full names and abbreviations of 

commenters who responded to the Initial Proposal 

and who the Commission refers to in this Further 

Proposal is included in section VI below. As noted 

above, letters from these commenters and others 

submitted in response to the Initial Proposal are 

available through the Commission’s Web site at 

http://comments.cftc.gov/PublicComments/ 

CommentList.aspx?id=919. 

28See, e.g., Freddie Mac CL at 2; ICI CL at 2; ABC/ 

CIEBA CL at 1–2; ISDA/SIFMA CL at 2–4; Cleary 

Gottlieb CL at 6; JP Morgan CL at 2; WMBAA CL 

at 3. 

29See, e.g., Cleary Gottlieb CL at 4–5; SIFMA/ 

AFME/ASIFMA CL at 12; AII CL at 3–5. In their 

joint comment letter, for example, ISDA and SIFMA 

urged the Commission to conduct an empirical 

study on the impact of post-trade transparency on 

the over-the-counter (‘‘OTC’’) markets prior to 

finalizing the rulemaking. See ISDA/SIFMA CL at 

4–5. In addition, ISDA and SIFMA argued that the 

Commission should conduct a three-month study, 

during which time the Commission should 

prescribe interim block trade rules. Id. 

30Commenters did not agree on what constitutes 

a sufficient period of time to obtain a 

comprehensive view of liquidity. See, e.g., ISDA/ 

SIFMA CL at 4 (three months); but see AII CL at 

4 (one year); ABC/CIEBA CL at 5–6 (at least one 

year); UBS (six month consultation period). 

31See, e.g., UBS CL at 1; AII CL at 4; SIFMA/ 

AFME/ASIFMA CL at 11–13; BlackRock CL at 3– 

4; Hunton & Williams CL at 20; Cleary Gottlieb CL 

at 4–6; CCMR CL at 4; Coalition of Derivatives EndUsers CL at 4–7; MFA CL at 3–4; MetLife CL 

at 2–3. 

32See, e.g., BlackRock CL at attachment 3; 

Coalition of Derivatives End-Users CL at 2–4. 

33See, e.g., UBS CL at 1; Coalition of Derivatives 

End-Users CL at 2–4; Cleary Gottlieb CL at 5–6; 

SIFMA AMG CL at 5; Goldman CL at 3–4; ICI CL 

at 3. 

34See e.g., JP Morgan CL at 9; BlackRock CL at 

4; Goldman CL at 5. 

35See, e.g., Goldman CL at 5 (‘‘[W]e encourage the 

[Commission] to modify the multiple test by 

eliminating the mean prong. Defining the social size 

of a swap category with reference to the mean of 

transaction sizes would make the calculation 

susceptible to skewing * * *.’’). See also JPM CL 

Continued 

customization.20 As a result, the 

Commission provided that SEFs and 

DCMs should tailor the description 

required by proposed section 43.2(e) 

depending on the asset class and place 

of execution of each swap. 

In contrast, the Commission 

acknowledged that the public 

dissemination of a description of the 

specific underlying asset and tenor of 

swaps that are not executed on or 

pursuant to the rules of a SEF or DCM 

(i.e., swaps that are executed bilaterally) 

may result in the unintended disclosure 

of the identities, business transactions 

or market positions of swap 

counterparties, particularly for swaps in 

the other commodity asset class.21 To 

address this issue, the Commission 

proposed in § 43.4(e)(2) that an SDR 

publicly disseminate a more general 

description of the specific underlying 

asset and tenor.22 In the Initial Proposal, 

the Commission provided a 

hypothetical example of how an SDR 

could mask or otherwise protect the 

underlying asset from public disclosure 

in a manner too specific so as to divulge 

the identity of a swap counterparty. The 

Commission, however, did not set forth 

a specific manner in which SDRs should 

carry out this requirement.23

To further protect the identities, 

business transactions or market 

positions of swap counterparties, 

proposed § 43.4(i) of the Initial Proposal 

included a rounding convention for all 

swaps, which included a ‘‘notional cap’’ 

provision. The proposed notional cap 

provision provided, for example, that if 

the notional size of a swap is greater 

than $250 million, then an SDR only 

would publicly disseminate a notation 

of ‘‘$250+’’ to reflect the notional size of 

the swap.24

The Commission issued the Initial 

Proposal for public comment for a 

period of 60 days, but later reopened the 

comment period for an additional 45 

days.25 The comments that were 

submitted in response to the Initial 

Proposal are discussed in the section 

that follows. 

C. Public Comments in Response to the 

Initial Proposal 

After issuing the Initial Proposal, the 

Commission received 105 comment 

letters and held 40 meetings with 

interested parties regarding the 

proposed provisions.26 The commenters 

provided general and specific comments 

relating to the proposed provisions 

regarding the determination of 

appropriate minimum block sizes and 

anonymity protections for the identities, 

business transactions and market 

positions of swap counterparties.27

Subsection 1 below sets out a discussion 

of the comments submitted in response 

to the Initial Proposal regarding the 

provisions that pertain to the 

determination of appropriate minimum 

block sizes. Subsection 2 below sets out 

a discussion of the comments submitted 

in response to the Initial Proposal 

regarding the proposed provisions that 

provide anonymity protections for the 

identities, business transactions or 

market positions of swap counterparties. 

Subsection 3 below sets out a discussion 

of the comments submitted in response 

to the Initial Proposal regarding the 

implementation of proposed part 43. 

1. Public Comments Regarding the 

Proposed Determination of Appropriate 

Minimum Block Sizes 

In terms of general comments, many 

commenters argued that the potential 

effects of the large notional off-facility 

swap and block trade provisions 

(including the provisions regarding the 

appropriate time delay) would adversely 

affect market liquidity.28 Several 

commenters generally argued that the 

Commission’s proposed methodology 

was not supported by actual swap 

market data.29 In support of these 

comments, a few commenters also 

argued that the Commission should 

examine swap markets over a sufficient 

period of time to obtain a 

comprehensive view of market 

liquidity.30 Other commenters also 

contended that the proposed 

methodology to determine appropriate 

minimum block sizes would increase 

transaction costs if the appropriate 

minimum block sizes are set too large or 

if time delays are not long enough.31

Some commenters made specific 

recommendations regarding the 

Commission’s proposed method for 

determining appropriate minimum 

block sizes for large notional off-facility 

swaps and block trades.32 For example, 

four commenters proffered alternative 

methods in which to group or categorize 

swaps for the purposes of the 

appropriate minimum block size 

determination.33 Ten commenters 

recommended ways to modify the 

multiple test.34 Specifically, four 

commenters suggested that the 

Commission remove the mean from the 

calculation of social size.35 Several of 


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at 8, UBS CL at 2, Federal National Mortgage 

Association CL at 2. 36See, e.g., UBS CL at 2 (multiple of 2); JP Morgan 

CL at 9 (multiple of 2). But see MetLife CL at 5 

(multiple of 1.5). 

37See e.g., PIMCO CL at 4; SIFMA AMG CL at 

4; UBS CL at 2. 

38See, e.g., BlackRock CL at 4; SIFMA AMG CL 

at 5; Vanguard CL at 5 . See also UBS CL at 2. 

39See, e.g., BlackRock CL at 4 (use 75th 

percentile); SIFMA AMG CL at 5 (recommending 

‘‘somewhere in the range of the 66th to 80th 

percentiles’’); Vanguard CL at 5 (80th percentile); JP 

Morgan CL at 9 (50th percentile). See also UBS CL 

at 2. 

40See PIMCO CL at 3 (for interest rate swaps, 

‘‘$250 million for swaps of 0–2 years, $200 million 

for swaps of 2–5 years, $100 million for swaps of 

6–10 years, $75 million for swaps of 11–20 years, 

and $50 million for swaps over 20 years.’’); AII CL 

at 5 (‘‘For interest rate swaps 0–5 year interest rate 

swaps, it may be appropriate to set the limit at 

approximately $100 million. For 5–10 year interest 

rate swaps, the threshold might be approximately 

$50 million and for 10–30 year interest rate swaps, 

the appropriate threshold could be approximately 

$25 million.’’); BlackRock CL at attachment 3 (for 

interest rate swaps, ‘‘$300K DV01 (approximately 

$350 million 10 year equivalent)’’). 

41See BlackRock CL at attachment 3. See also 

SIFMA/AFME/ASIFMA CL at 12 (recommending 

criteria for swaps and other instruments in the FX 

asset class). 

42See CME CL at 12. 

43See id. 

44See id. 

45 Id. at 13. 

46See, e.g., Freddie Mac CL at 2; Barclays CL at 

2; ICI CL at 2–3; ISDA/SIFMA CL at 3–4; Vanguard 

CL at 4; TriOptima CL at 5; CCMR CL at 3. 

47See ISDA/SIFMA CL at 3–4; Vanguard CL at 4; 

TriOptima CL at 5; Freddie Mac CL at 2; Barclays 

CL at 2; ICI CL at 2–3; CCMR CL at 3. 

48See note 17 supra for the Commission’s 

proposal to use the term ‘‘swap category’’ instead 

of ‘‘swap instrument.’’ 

49See ISDA/SIFMA CL at 4; Coalition of 

Derivatives End-Users CL at 4. 

50See Morgan Stanley CL at 11. 

51See Vanguard CL at 5. 

52See TriOptima CL at 5. 

53See UBS CL at 2. 

54See e.g., Sutherland CL at 4–5; PIMCO CL at 

3; Cleary Gottlieb CL at 5; Bracewell & Giuliani CL 

at 2–7; DTCC CL at 12; FINRA CL at 5; Dominion 

CL at 6–9; Commission staff meeting with Argus 

Media, Inc. on Feb. 3, 2011. See also ISDA and 

SIFMA, Block trade reporting over-the-counter 

derivatives markets, 6 (Jan. 2011), available at 

http://www.isda.org/speeches/pdf/Block-TradeReporting.pdf. 

55See, e.g., Dominion CL at 5–6; PIMCO CL at 3; 

ABC/CEIBA CL at 16; WMBAA CL at 10; MFA CL 

at 2–3; Coalition for Derivatives End-Users CL at 10; 

Sutherland CL at 5; Argus CL at 3–4; ATA CL at 

5; Sadis Goldberg CL at 2–4. 

56See, e.g., Sutherland CL at 5; Coalition for 

Derivatives End-Users CL at 10; ATA CL at 5. 

57See, e.g., Argus CL at 3–4 (‘‘In situations where 

only a few entities trade a certain type of 

underlying asset, real-time reporting may 

inadvertently reveal the identity of the swap 

participants, particularly where the underlying 

these commenters also suggested that 

the Commission use a multiple of less 

than five, with a multiple of two as the 

most often suggested alternative.36

Ten commenters also recommended 

that the Commission alter the 

distribution test in a way that they 

would support it as a test, which should 

be used individually or used in 

combination with the multiple test.37

The majority of these commenters 

suggested that the Commission use a 

lower percentage than the proposed 

95th percentile.38 Specifically, these 

commenters suggested a percentile 

between the 50th and 80th percentile.39

A few commenters focused their 

recommendations on the methodologies 

that an SDR would use to calculate the 

appropriate minimum block sizes for 

specific asset classes. For example, three 

commenters made specific 

recommendations regarding the 

calculation and criteria of large notional 

off-facility swaps and block trades in the 

interest rate swap market.40 A third 

commenter made specific 

recommendations regarding the 

calculation and criteria of large notional 

off-facility swaps and block trades in the 

credit default swap market.41

One commenter shared its view 

regarding whether the block trade rules 

that are applied in the futures markets 

are an appropriate analogy for 

determining appropriate minimum 

block sizes in related swaps markets. In 

its comment letter to the Initial 

Proposal, this commenter argued that 

the appropriate minimum block sizes in 

place for the futures market should be 

used as a comparison for determining 

appropriate minimum block sizes in the 

swaps market.42 The commenter stated 

that where an economically-equivalent 

futures contract is listed on a DCM, then 

the rules establishing appropriate 

minimum block sizes for a swap should 

be comparable to such futures 

contracts.43 The commenter also 

suggested that the Commission use 

comparable futures contracts in 

determining, inter alia, appropriate 

minimum block sizes and reporting and 

recordkeeping requirements.44 The 

commenter warned otherwise that, if the 

Commission was to adopt a different 

approach, then such action would 

unintentionally ‘‘[tilt] the playing field 

in favor of one class of instruments.’’ 45

The commenter further argued that this 

consequence would not be consistent 

with Congress’s intent when it enacted 

the Dodd-Frank Act. 

In contrast, other commenters 

suggested that the appropriate minimum 

block sizes in place for futures contracts 

would be an inappropriate comparative 

measure for the swaps market.46 Some 

of these commenters, for example, 

argued that the futures market is not an 

appropriate basis for setting appropriate 

minimum block sizes for block trades 

and large notional off-facility swaps 

because the swap market is significantly 

different than the futures market.47

Many commenters to the Initial 

Proposal contended that the 

Commission should determine 

appropriate minimum block sizes based 

on the liquidity of a ‘‘swap 

instrument.’’ 48 Two commenters 

suggested that markets with differing 

levels of liquidity should be subject to 

different block size methodologies.49

Another commenter suggested that a 

volume of less than five transactions per 

day be used to classify certain swap 

categories as illiquid and therefore 

subject to lower relative block size 

thresholds.50 Yet another commenter 

suggested utilizing a benchmark volume 

level to classify swaps within an asset 

class for the purpose of determining 

appropriate block sizes.51 One 

commenter suggested considering the 

turnover in a market to determine 

appropriate block sizes and time 

delays.52 Finally, another commenter 

recommended that the Commission 

review historical swap transaction data 

and consult with market participants in 

determining a liquidity spectrum for 

each swap category, with liquidity 

determined based on the average 

number of transactions per day (based 

on true risk transfer) over the preceding 

six months and the number of market 

makers regularly trading the 

instrument.53

2. Public Comments Regarding the 

Proposed Anonymity Protections 

Several commenters expressed 

concerns that the Initial Proposal did 

not address possible disclosure of the 

identities, business transactions and 

market positions of swap 

counterparties.54 Many commenters 

stated that the failure to adequately 

protect the identities and business 

transactions of the counterparties in 

connection with transacting block trades 

or large notional off-facility swaps 

would result in harm to the market.55

These commenters argued that the 

proposal would increase the risk that 

sophisticated market participants or 

some counterparties would be able to 

detect either the asset being offset or the 

identity of the end-user doing the 

offsetting, notwithstanding the 

anonymity protections proposed in the 

Initial Proposal.56 According to these 

commenters, this issue is of particular 

concern when a swap market 

participant enters into multiple swap 

transactions to place a large offsetting 

position and some or all of those 

transactions involve thinly-traded 

products or illiquid markets.57 Under 


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asset is a commodity.’’); see also Dominion CL at 

5–6; Sutherland CL at 5; Coalition for Derivatives 

End-Users CL at 10. 

58See, e.g., Argus CL at 3–4; ATA CL at 5; 

Dominion CL at 5–6; Sadis Goldberg CL at 2–4. 

59 Id. See note 58 supra. 

60 JP Morgan CL at 12–14 (‘‘The masking rule is 

similar in concept to the so-called ‘5+ rule’ in 

TRACE. Under TRACE, transactions involving 

bonds in excess of $5 [m]illion are reported as ‘5+’ 

* * *.’’); see also WMBAA CL at 10; ABC/CIEBA 

CL at 8–9. 

61See JP Morgan CL at 12–13. 

62See WMBAA CL at 10. 

63See, e.g., ABC/CIEBA CL at 9 (‘‘We ask the 

Commission adopt a rule * * * which will require 

that the volume of those swaps which are not block 

trades be disseminated in the form of ranges.’’). 

64See MS CL at 3. 

65See Argus CL at 1–3. 

66See 75 FR 76,150–76,151. 

67See Argus CL at 1–3. 

68See Argus CL at 1–3; Coalition for Derivatives 

End-Users CL at 8–9; Dominion CL at 6–9; Cleary 

Gottlieb CL at 5; MS CL at 3; Bracewell & Giuliani 

CL at 2–7. See also Commission staff meeting with 

NFPEEU, June 11, 2011. 

69See, e.g., Barclays Capital CL at 5; World 

Federation of Exchanges CL at 2; ISDA/SIFMA CL 

at 11–12; and Cleary Gottlieb CL at 18–19. 

70See, e.g., Freddie Mac CL at 2–3; Barclays 

Capital CL at 5. 

71See CCMR CL at 2–4. Accord Freddie Mac CL 

at 2–3 (‘‘As the Commission collects data about the 

liquidity of the swaps market and the effects of the 

Commission’s reporting rules, it may be appropriate 

to revisit the initial parameters for block trade 

reporting in order to further increase 

transparency.’’). 

72See SDMA CL at 3. 

73Commission staff also consulted with the staffs 

of several other federal financial regulators in 

connection with the issuance of this Further 

Proposal. 

74A detailed discussion of the Commission staff’s 

review and analysis process is set out below in 

section II.B.1.a. of this Further Proposal. 

75See ISDA, Costs and Benefits of Mandatory 

Electronic Execution Requirements for Interest Rate 

Products, 24 (ISDA Discussion Paper No. 2, Nov. 

2011), available at http://www2.isda.org/

attachment/Mzc0NA==/ISDA%20Mandatory%20

Electronic%20Execution%20Discussion%20

Paper.pdf. This paper cited the Commission’s 

notice of proposed rulemaking with respect to SEFs 

(Core Principles and Other Requirements for Swap 

Execution Facilities, 76 FR 1,214, 1,220, Jan. 7, 

2011) and the Initial Proposal. 

76See Block trade reporting for over-the-counter 

derivatives markets, note 54 supra. 

77See Joint Public Roundtable on Issues Related 

to the Schedule for Implementing Final Rules for 

Swaps and Security-Based Swaps Under the DoddFrank Wall Street Reform and Consumer Protection 

Act, 76 FR 23,211, Apr. 26, 2011. A copy of the 

transcript is accessible at: http://www.cftc.gov/ucm/ 

groups/public/@newsroom/documents/file/csjac_

transcript050211.pdf. 

78See 77 FR 1,182. 

those circumstances, the commenters 

asserted that the parties to a swap 

would face an increased risk that their 

identities or transactions would be 

revealed to the public in violation of 

sections 2(a)(13)(E)(i) and 2(a)(13)(C)(iv) 

of the CEA.58 The commenters 

concluded that, as a result, swap 

counterparties could experience 

difficulty in offsetting their positions at 

a competitive price.59

To address concerns regarding limited 

disclosure, several commenters 

recommended that the Commission 

establish a ‘‘masking rule.’’ 60 For 

example, one commenter suggested that 

the Commission set masking thresholds 

at or near the level that represents the 

dividing line between retail and 

institutional trades.61 Another 

commenter suggested that the 

Commission develop a masking rule for 

the swaps market that is similar to the 

one established by the Financial 

Industry Regulatory Authority 

(‘‘FINRA’’) for the bond market.62 These 

commenters suggested, however, that 

the Commission establish alternative 

methodologies to ensure limited public 

disclosure of swap transaction and 

pricing data.63

Some commenters expressed general 

concerns regarding anonymity as well as 

specific concerns with respect to swaps 

in the other commodity asset class. One 

commenter provided specific examples 

of how the identities of the 

counterparties could be revealed by 

publicly disseminating information 

relating to energy products.64 Another 

commenter suggested the use of broad 

geographic regions when publicly 

disseminating data for commodity 

swaps with very specific underlying 

assets or delivery points (e.g., natural 

gas) in order to protect the anonymity of 

the parties to these swaps.65 In 

commenting on the hypothetical 

example provided in the Initial 

Proposal,66 the commenter suggested 

that instead of reporting Lake Charles, 

Louisiana as the delivery point, an SDR 

could publicly disseminate ‘‘Louisiana’’ 

or ‘‘Gulf Coast.’’ 67

Six commenters argued that the 

proposed anonymity provisions are not 

sufficient for certain swaps or certain 

markets (e.g., large, bespoke trades 

offsetting energy assets; illiquid 

contracts entered into by non-financial 

end-users; etc.). These commenters 

further argued that the public 

dissemination requirement in the Initial 

Proposal may result in undue harm to 

the swap market by increasing the risk 

of public disclosure of the identities, 

business transactions and market 

positions of swap counterparties.68

3. Public Comments Regarding 

Implementation 

In the Initial Proposal, the 

Commission solicited comments in 

response to specific questions regarding 

the implementation of real-time public 

reporting, including, inter alia, the 

timetable in which the Commission 

would require the public dissemination 

of swap transaction and pricing data for 

block trades and large notional offfacility swaps. In response to the Initial 

Proposal, several commenters suggested 

that the Commission phase-in the block 

trade thresholds and time delays, 

starting with lower thresholds and 

longer time delays.69 These commenters 

further suggested that the Commission 

phase-in stricter methodologies and 

time delays over time.70 For example, 

one commenter stated in its comment 

letter that the Commission should 

specify appropriate minimum block 

sizes in advance and readjust those sizes 

over time in order to provide certainty 

to the market.71 In contrast, another 

commenter argued that the Commission 

should use data that is currently 

available to set appropriate minimum 

block sizes without any delay.72

Following the close of the comment 

period, the Commission took several 

actions in consideration of the 

comments received regarding the 

proposed methodology to determine 

appropriate minimum block sizes, the 

proposed anonymity protections and the 

proposed implementation approach.73 A 

discussion of the Commission’s actions 

and their impact on this Further 

Proposal is set out immediately below. 

D. Analysis of Swap Market Data; 

Issuance of the Adopting Release 

In consideration of the public 

comments submitted in response to the 

Initial Proposal, the Commission 

obtained and analyzed swap data in 

order to better understand the trading 

activity of swaps in certain asset 

classes.74 The Commission also 

reviewed additional information, 

including a recent study pertaining to 

the mandatory execution requirements 

and post-trade transparency concerns 

that arose out of two of the 

Commission’s proposed rulemakings,75

as well as a report issued by two 

industry trade associations on block 

trade reporting in the swaps market.76 In 

addition, the Commission and the 

Securities and Exchange Commission, 

held a two-day public roundtable on 

Dodd-Frank Act implementation on 

May 2 and 3, 2011 (‘‘Public 

Roundtable’’).77 During the Public 

Roundtable and in comment letters 

submitted in support thereof, interested 

parties recommended that the 

Commission adopt a phased-in 

approach with respect to the 

establishment of block trade rules. 

Recently, the Commission issued the 

Adopting Release that finalized several 

provisions that were proposed in the 

Initial Proposal.78 Those provisions, 


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79The Adopting Release includes final 

definitions for the following terms: (1) Block trade; 

(2) large notional off-facility swap; (3) appropriate 

minimum block size; and (4) asset class. As noted 

above, the Adopting Release did not define the term 

swap instrument. This Further Proposal puts forth 

a new term swap category, which groups swaps for 

the purpose of determining whether a swap 

transaction qualifies as a large notional off-facility 

swap or block trade. See note 17 supra. 

80See § 43.2 of the Commission’s regulations. 77 

FR 1,244. The Adopting Release finalized the 

definition of ‘‘reporting party’’ as a ‘‘party to a swap 

with the duty to report a publicly reportable swap 

transaction in accordance with this part [43] and 

section 2(a)(13)(F) of the [CEA].’’ 77 FR 1,244. 

81See 77 FR 1,244. 

82 In several places in the Adopting Release, the 

Commission stated that it plans to address these 

requirements in a separate, forthcoming release. 

See, e.g., 77 FR 1,185, 1,191, 1,193 and 1,217. This 

Further Proposal is that release. 

Commenters to this Further Proposal are 

requested to refrain from providing comments with 

respect to the provisions adopted in the Adopting 

Release. Those provisions are not the subject of this 

Further Proposal. The Commission will not address 

the policy merits or substance of those provisions 

in its final rulemaking to this Further Proposal. 

83 In considering the benefits and effects of 

enhanced market transparency, the Commission 

notes that the ‘‘guiding principle in setting 

appropriate block trade levels [is that] the vast 

majority of swap transactions should be exposed to 

the public market through exchange trading.’’ 

Congressional Record—Senate, S5902, S5922 (July 

15, 2010). 

84See e.g., CEA section 2(a)(13)(B) (‘‘The purpose 

of this section is to authorize the Commission to 

make swap transaction and pricing data available to 

the public in such form and at such times as the 

Commission determines appropriate to enhance 

price discovery.’’). 

85CEA section 2(a)(13)(E)(iv). See also CEA 

section 5h(f)(2)(C) (concerning the treatment of 

block trades for execution purposes). 

86As used in this Further Proposal, an ‘‘outsize 

swap transaction’’ is a transaction that, as a 

function of its size and the depth of the liquidity 

of the relevant market (and equivalent markets), 

leaves one or both parties to such transaction 

unlikely to transact at a competitive price. 

87The Commission’s proposed SEF rulemaking, 

would require pre-trade transparency for swap 

transactions that: (1) Are subject to the mandatory 

clearing requirement; (2) involves a swap that a SEF 

makes available to trade; and (3) are not block 

trades. See proposed § 37.9(a)(2)(v), 76 FR 1,220. 

This Further Proposal also would require SEFs to 

utilize the Commission’s rules for block trades (i.e., 

the subject matter of this Further Proposal) in 

determining the trading procedures that apply to 

swap transactions. Therefore, swap transactions 

exceeding an appropriate minimum block size 

would therefore be exempt from the mandatory 

trading requirements. 

88The price of such a transaction would reflect 

market conditions for the underlying commodity or 

reference index and the liquidity premium for 

executing the swap transaction. The time delays in 

part 43 of the Commission’s regulations will protect 

end-users and liquidity providers from the expected 

price impact of the disclosure of publicly reportable 

swap transactions. Trading that exploits the need of 

traders to reduce or offset their positions has been 

defined in financial economics literature as 

‘‘predatory trading.’’ See e.g., Markus Brunnermeier 

and Lasse Heje Pedersen, Predatory Trading, 

Journal of Finance LX 4, Aug. 2005, available at 

http://pages.stern.nyu.edu/∼lpederse/papers/ 

predatory_trading.pdf. 

89The Commission is proposing the same phasedin approach for determining cap sizes. For a more 

detailed discussion of the Commission’s proposed 

approach with respect to cap sizes, see section III 

of this Further Proposal infra. 

The two-period, phased-in approach would 

become effective after the implementation of the 

part 43 provisions in the Adopting Release. Until 

the date on which the proposed provisions in this 

Further Proposal become effective, all swaps would 

be subject to a time delay pursuant to the provisions 

in part 43. 

once effective, will implement, among 

other things: (1) Several definitions 

proposed in the Initial Proposal relevant 

to this Further Proposal 79; (2) the scope 

of part 43; (3) the reporting 

responsibilities of the parties to each 

swap; (4) the requirement that SDRs 

publicly disseminate swap transaction 

and pricing data; (5) the data fields that 

SDRs will publicly disseminate; (6) the 

time-stamping and recordkeeping 

requirements of SDRs, SEFs, DCMs and 

the ‘‘reporting party’’ to each swap 80; 

(7) the interim time delays for public 

dissemination and the time delays for 

public dissemination of large notional 

off-facility swaps and block trades; and 

(8) interim notional cap sizes for all 

swaps that are publicly disseminated.81

Based on the public comments 

received in response to the Initial 

Proposal, and in order to successfully 

implement the real-time public 

reporting regulatory framework 

established in the Adopting Release, the 

Commission has decided to further 

propose provisions that: (1) Specify the 

criteria for determining swap categories 

and methodologies for determining the 

appropriate minimum block sizes for 

large notional off-facility swaps and 

block trades; and (2) provide increased 

protections to the identities of swap 

counterparties to large swap 

transactions and certain other 

commodity swaps, which were not fully 

addressed in the Adopting Release.82

In section II of this Further Proposal, 

the Commission sets out its proposal 

with respect to the criteria for 

determining swap categories and the 

methodologies for determining 

appropriate minimum block sizes for 

block trades and large notional offfacility swaps. In section III of this 

Further Proposal, the Commission sets 

out its proposal with respect to 

methodologies that provide anonymity 

to the swap counterparties to large swap 

transactions and certain other 

commodity swaps. 

II. Further Proposal—Block Trades 

A. Policy Goals 

In section 2(a)(13) of the CEA, 

Congress intended that the Commission 

consider both the benefits of enhanced 

market transparency and the effects 

such transparency would have on 

market liquidity.83 The Commission 

anticipates that the public 

dissemination of swap transaction and 

pricing data will generally reduce costs 

associated with price discovery and 

prevent information asymmetries 

between market makers and end users.84

The Commission is of the view that the 

benefits of enhanced market 

transparency are not boundless, 

particularly in swap markets with 

limited liquidity. As noted above, 

section 2(a)(13)(E)(iv) of the CEA places 

constraints on the requirements for the 

real-time public reporting of swap 

transaction and pricing data. 

Specifically, this section provides that 

the Commission shall ‘‘take into account 

whether the public disclosure [of swap 

transaction and pricing data] will 

materially reduce market liquidity.’’ 85

The Commission believes that the 

publication of detailed information 

regarding ‘‘outsize swap transactions’’ 86

could expose swap counterparties to 

higher trading costs.87 In this regard, the 

publication of detailed information 

about an outsize swap transaction may 

alert the market to the possibility that 

the original liquidity provider to the 

outsize swap transaction will be reentering the market to offset that 

transaction.88 Other market participants 

might be alerted to the liquidity 

provider’s need to offset risk and 

therefore would have a strong incentive 

to exact a premium from the liquidity 

provider. As a result, liquidity providers 

possibly could be deterred from 

becoming counterparties to outsize 

swap transactions if swap transaction 

and pricing data is publicly 

disseminated before liquidity providers 

can offset their positions. The 

Commission anticipates that, in turn, 

this result could negatively affect 

market liquidity in the swaps market. In 

consideration of these potential 

outcomes, this Further Proposal seeks to 

provide maximum transparency while 

taking into account reductions in market 

liquidity through more detailed criteria 

to establish: (1) Swap categories 

(relative to the definition of swap 

instrument in the Initial Proposal); and 

(2) a phased-in approach to determining 

appropriate minimum block sizes for 

block trades and large notional offfacility swaps. A summary of the 

Commission’s proposed approach is 

described below. 

B. Summary of the Proposed Approach 

The Commission is proposing a twoperiod, phased-in approach to 

implement of regulations for 

determining appropriate minimum 

block sizes.89 That is, the Commission is 


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90The Commission is proposing that swaps in the 

equity asset class do not qualify as block trades and 

large notional off-facility swaps. See proposed 

§ 43.6(d). Otherwise, the Commission is prescribing 

swap categories for each asset class as set forth in 

proposed § 43.6(b). These swap categories would 

remain the same during the initial and post-initial 

periods. 91The Commission notes SEFs and DCMs would 

not be prohibited under this Further Proposal from 

setting block sizes for swaps at levels that are higher 

than the appropriate minimum block sizes as 

determined by the Commission. 

92A discussion of the term ‘‘economically 

related’’ is set forth below in section II.C.4 of this 

Further Proposal. 

93See Swap Data Recordkeeping and Reporting 

Requirements, 77 FR 2,136, 2,196, Jan. 13, 2012. 

The Commission is currently of the view, however, 

that data is per se reliable if it is collected by an 

SDR for an asset class after the respective 

compliance date for such asset class as set forth in 

part 45 of the Commission’s regulations. 

94 In particular, the Commission is proposing a 

67-percent notional amount calculation, which is 

discussed in more detail infra in section II.D.1 of 

this Further Proposal. 

95Proposed § 43.6(b) does not set out a definition 

for the term ‘‘swap category.’’ Instead, proposed 

§ 43.6(b) sets out the provisions that group swaps 

within each asset class with common risk and 

liquidity profiles, as determined by the 

Commission. 

96These objectives are specific to the 

determination of appropriate swap category criteria 

and are intended to promote the general policy 

goals described above in section II.A.of this Further 

Proposal. 

97See § 43.2, 77 FR 1,243. 

98 In the Adopting Release, the Commission 

determined that cross-currency swaps are a part of 

the interest rate asset class. See 77 FR 1,193. The 

Commission noted that this determination is 

consistent with industry practice. See id. 

proposing to phase-in its regulations 

during an initial period and thereafter 

on an ongoing basis (i.e., the post-initial 

period) so that market participants can 

better adjust their swap trading 

strategies to manage risk, secure new 

technologies and make necessary 

arrangements in order to comply with 

part 43. The Commission is proposing 

two provisions relating to the 

Commission’s determination of 

appropriate minimum block sizes: (1) 

Initial appropriate minimum block sizes 

under proposed § 43.6(e); and (2) postinitial appropriate minimum block sizes 

under proposed § 43.6(f). 

In proposed § 43.6(e), the Commission 

is establishing initial appropriate 

minimum block sizes for each category 

of swaps within the interest rate, credit, 

foreign exchange (‘‘FX’’) and other 

commodity asset classes.90 The 

Commission has listed the prescribed 

initial appropriate minimum block sizes 

in proposed appendix F to part 43 based 

on these swap categories.91 For interest 

rate and credit swaps, the Commission 

reviewed actual market data and has 

prescribed initial appropriate minimum 

block sizes for swap categories in these 

asset classes based on that data. For the 

other asset classes, the Commission did 

not have access to relevant market data. 

As such, during the initial period, the 

Commission is proposing to use a 

methodology based on whether a swap 

or swap category is ‘‘economically 

related’’ to a futures contract.92 Swaps 

and swap categories that are not 

economically related to a futures 

contract would remain subject to a time 

delay (i.e., treated as block trades or 

large notional off-facility swaps, as 

applicable, regardless of notional 

amount). All initial appropriate 

minimum block sizes in proposed 

appendix F to part 43 would become 

effective 60 days following the 

publication in the Federal Register of a 

final rule adopting the provisions set 

forth in this Further Proposal. 

In proposed § 43.6(f)(1), the 

Commission provides that the duration 

of this initial period would be no less 

than one year after an SDR has collected 

reliable data for a particular asset class 

as determined by the Commission. 

During the initial period, the 

Commission would review reliable data 

for each asset class. For the purposes of 

this proposed provision, reliable data 

would include all data collected by an 

SDR for each asset class in accordance 

with the compliance chart in the 

adopting release to part 45 of the 

Commission’s regulations.93 The 

proposed initial period would expire 

following the publication of a 

Commission determination of postinitial appropriate minimum block sizes 

in accordance with the publication 

process set forth in proposed 

§§ 43.6(f)(3) and (4). Thereafter, the 

Commission would set post-initial 

appropriate minimum block sizes for 

swap categories no less than once each 

calendar year using the calculation 

methodology set forth in proposed 

§ 43.6(c)(1).94

The Commission is also proposing 

special rules for determining 

appropriate minimum block sizes in 

certain instances. In particular, in 

proposed § 43.6(d), the Commission 

prescribes special rules for swaps in the 

equity asset class. In proposed § 43.6(h), 

the Commission is establishing special 

rules for determining appropriate 

minimum block sizes in certain 

circumstances including, for example, 

rules for converting currencies and rules 

for determining whether a swap with 

optionality qualifies for block trade or 

large notional off-facility swap 

treatment. 

Section C below describes the 

Commission’s proposed approach to 

establish swap categories across the five 

asset classes. A discussion of the 

Commission’s proposed methodologies 

to determine appropriate minimum 

block sizes follows in section D. 

C. Proposing Criteria for Distinguishing 

Among Swap Categories in Each Asset 

Class 

The Commission is proposing to use 

the term ‘‘swap category’’ to convey the 

concept of a grouping of swap contracts 

that would be subject to a common 

appropriate minimum block size.95

Specifically, the Commission is 

proposing specific criteria for defining 

swap categories in each asset class. 

These proposed criteria are intended to 

address the following two policy 

objectives: (1) Categorizing together 

swaps with similar quantitative or 

qualitative characteristics that warrant 

being subject to the same appropriate 

minimum block size; and (2) 

minimizing the number of the swap 

categories within an asset class in order 

to avoid unnecessary complexity in the 

determination process.96 In the 

Commission’s view, balancing these 

policy objectives and considering the 

characteristics of different types of 

swaps within an asset class are 

necessary in establishing appropriate 

criteria for determining swap categories 

within each asset class. The five asset 

classes established by the Commission 

in the Adopting Release are discussed 

briefly in the paragraph below, followed 

by a discussion of the proposed swap 

category criteria for each asset class. 

Section 43.2 of the Commission’s 

regulations currently defines ‘‘asset 

class’’ as ‘‘a broad category of 

commodities, including without 

limitation, any ‘excluded commodity’ as 

defined in section 1a(19) of the [CEA], 

with common characteristics underlying 

a swap.’’ 97 Section 43.2 also identifies 

the following five swap asset classes: 

interest rates; 98 equity; credit; FX; 99

and other commodities.100

In this Further Proposal, the 

Commission is proposing to breakdown 

each asset class further into separate 

swap categories for the purpose of 

determining appropriate minimum 

block sizes for such categories. During 

the initial and post-initial periods, the 

Commission would group swaps in the 

five asset classes into the prescribed 

swap categories as set forth in proposed 

§ 43.6(b). In the subsections that follow, 

the Commission discusses in detail the 

proposed criteria for further delineating 

groups of swaps in the interest rate, 

credit, equity, FX, and other commodity 


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99To the extent that FX swaps or forwards, or 

both, are excluded from the definition of ‘‘swap’’ 

pursuant to a determination by United States 

Department of the Treasury (‘‘Treasury’’), the 

requirements of section 2(a)(13) of the CEA would 

not apply to those transactions, and such 

transactions would not be subject to part 43 of the 

Commission’s regulations. Treasury issued a 

proposed determination on April 29, 2011, in 

which it stated that FX swaps and forwards would 

be excluded from the definition of ‘‘swap,’’ and 

thereby exempt from certain requirements 

established in the Dodd-Frank Act, including 

registration and clearing. See Determination of 

Foreign Exchange Swaps and Foreign Exchange 

Forwards Under the Commodity Exchange Act, 76 

FR 25,774, May 5, 2011. Treasury’s proposed 

determination may also be found at http:// 

www.treasury.gov/initiatives/wsr/Documents/ 

FX%20Swaps%20and%20Forwards%20NPD.pdf. 

The CEA provides, however, that, even if 

Treasury determines that FX swaps and forwards 

may be excluded from the definition of ‘‘swap’’, 

these transactions still are not excluded from 

regulatory reporting requirements to an SDR. 

Nonetheless, as stated, such transactions would not 

be subject to part 43 of the Commission’s 

regulations. See 77 FR 1,188. Treasury has proposed 

to act pursuant to the authority in section 721 of 

the Dodd-Frank Act that permits a determination 

that certain FX swaps and forwards should not be 

regulated as swaps and are not structured to evade 

the Dodd-Frank Act. The Commission has noted 

that, as proposed, Treasury’s determination would 

exclude FX swaps and forwards, as defined in CEA 

section 1a, but would not apply to FX options or 

non-deliverable forwards. FX instruments that are 

not covered by Treasury’s final determination 

would still be subject to part 43 of the 

Commission’s regulations. 

100The Adopting Release defines the term ‘‘other 

commodity’’ to mean any commodity that is not 

categorized in the other asset classes as may be 

determined by the Commission. See 77 FR 1,244. 

The definition of asset class in § 43.2 also provides 

that the Commission may later determine that there 

are other asset classes not identified currently in 

that section. See 77 FR 1,243. 

101As used in the Further Proposal, the tenor of 

a swap refers to the amount of time from the 

effective or start date of a swap to the end date of 

such swap. In circumstances where the effective or 

start date of the swap was different from the trade 

date of the swap, the Commission used the later 

occurring of the two dates to determine tenor. 

102As generally used in the industry, the term 

‘‘conventional spread’’ represents the equivalent of 

a swap dealer’s quoted spread (i.e., an upfront fee 

based on a fixed coupon and using standard 

assumptions such as auctions and recovery rates. 

More information regarding the use of this term can 

be found at Markit, The CDS Big Bang: 

Understanding the Changes to the Global CDS 

Contract and North American Conventions, at 

http://www.markit.com/cds/announcements/ 

resource/cds_big_bang.pdf, (Mar. 2009), at 19. 

103Section 8(a) of the CEA protects non-public, 

transaction-level data from public disclosure. 

Section 8(a)(1) provides, in relevant part, that ‘‘the 

Commission may not publish data and information 

that would separately disclose the business 

transactions or market positions of any person and 

trade secrets or names of customers * * *.’’ To 

assist commenters, this Further Release includes 

various tables and summary statistics depicting the 

ODSG data in aggregate forms. In the discussion 

that follows, the Commission additionally has 

described the methodology it employed in 

reviewing, analyzing and drawing conclusions 

based on the ODSG data. 

104See OTC Derivatives Supervisors Group— 

Federal Reserve Bank of New York, http:// 

www.ny.frb.org/markets/ 

otc_derivatives_supervisors_group.html (last visited 

Jan. 15, 2012). The ODSG was formed ‘‘in order to 

address the emerging risks of inadequate 

infrastructure for the rapidly growing market in the 

credit derivatives * * *.’’ The ODSG works directly 

with market participants to plan, monitor and 

coordinate industry progress toward collective 

commitments made by firms. 

105The G–14 banks are: Bank of America-Merrill 

Lynch; Barclays Capital; BNP Paribas; Citigroup; 

Credit Suisse; Deutsche Bank AG; Goldman Sachs 

& Co.; HSBC Group; J.P. Morgan; Morgan Stanley; 

The Royal Bank of Scotland Group; Societe 

Generale; UBS AG; and Wells Fargo Bank, N.A. 

106The interest rate swap data was limited to 

transactions and events submitted to the 

MarkitWire platform. MarkitWire is a trade 

confirmation service offered by MarkitSERV. 

107The Warehouse Trust, a subsidiary of DTCC 

DerivSERV LLC, is regulated as a member of the 

U.S. Federal Reserve System and as a limited 

purpose trust company by the New York State 

Banking Department. The Warehouse Trust 

provides the market with a trade database and 

centralized electronic infrastructure for post-trade 

processing of OTC credit derivatives contracts over 

their entire lifecycle. See DTCC, The Warehouse 

Trust Company, About the Warehouse Trust 

Company, http://www.dtcc.com/about/subs/ 

derivserv/warehousetrustco.php. (last visited Jan. 

31, 2012). 

108The Warehouse Trust data contained 

‘‘allocation-level data,’’ which refers to refers to 

transactional data that does not distinguish between 

isolated transactions and transactions that, although 

documented separately, comprise part of a larger 

transaction. 

The Commission notes the work of other 

regulators in aggregating observations believed to be 

part of a single transaction. See Kathryn Chen, et 

al., Federal Reserve Bank of New York Staff Report, 

An Analysis of CDS Transactions: Implications for 

Public Reporting, (Sept. 2011), at 25, http:// 

www.newyorkfed.org/research/staff_reports/ 

sr517.html. The Commission notes that this 

allocation-level information could produce a 

downward bias in the notional amounts of the swap 

transactions in the data sets provided by the ODSG. 

In turn, this downward bias would produce smaller 

appropriate minimum block trade sizes relative to 

a data set that, if available with appropriate 

execution time stamps, would reflect the aggregate 

notional amount of swaps completed in a single 

transaction. 

109 ‘‘Publicly reportable swap transaction’’ means, 

unless otherwise provided in this part: (1) Any 

executed swap that is an arm’s-length transaction 

between two parties that results in a corresponding 

change in the market risk position between the two 

parties; or (2) any termination, assignment, 

novation, exchange, transfer, amendment, 

conveyance, or extinguishing of rights or 

obligations of a swap that changes the pricing of the 

swap. Examples of an executed swap that does not 

fall within the definition of publicly reportable 

swap transaction may include: (1) Certain internal 

swaps between 100-percent-owned subsidiaries of 

the same parent entity; and (2) portfolio 

compression exercises. These examples represent 

swaps that are not at arm’s length, but that do result 

in a corresponding change in the market risk 

position between two parties. See 77 FR 1,244. 

110The excluded records represented activities 

such as option exercises or assignments for 

physical, risk optimization or compression 

transactions, and amendments or cancellations that 

were assumed to be mis-confirmed. A transaction 

was assumed to be mis-confirmed when it was 

canceled without a fee, which the Commission has 

inferred was the result of a confirmation correction. 

The Commission also excluded interest rate 

transactions that were indicated as assignments, 

asset classes into separate swap 

categories. 

Request for Comment 

Q1. Should the Commission provide 

for special swap categories and 

appropriate minimum block size 

methodologies for bilateral versus 

cleared swap transactions? If so, why? 

1. Interest Rate and Credit Asset Classes 

a. Background 

The Commission was able to obtain 

and review non-public swap data to 

make inferences about patterns of 

trading activity, price impact and 

liquidity in the market for swaps in the 

interest rate and credit asset classes. 

Based on that review, the Commission 

is proposing criteria for determining 

swap categories in these two asset 

classes. Specifically, the Commission is 

proposing to define swap categories for: 

(1) Interest rate swaps based on unique 

combinations of tenor 101 and currency; 

and (2) credit default swaps (‘‘CDS’’) 

based on unique combinations of tenor 

and conventional spreads.102

The Commission obtained 

transaction-level data for these asset 

classes from two third-party service 

providers with the assistance of the 

Over-the-Counter Derivatives 

Supervisors Group (‘‘ODSG’’).103 The 

ODSG was established in 2005 and is 

chaired by the Federal Reserve Bank of 

New York. The ODSG is comprised of 

domestic and international supervisors 

of representatives from major OTC 

derivatives market participants.104 In 

particular, the ODSG coordinated with 

the ‘‘G–14 banks’’ in order to gain 

written permission to access the nonpublic swap data.105

MarkitSERV, a post-trade processing 

company jointly owned by Markit and 

The Depository Trust & Clearing 

Corporation (‘‘DTCC’’), provided the 

interest rate swap data set. The interest 

rate swap data set covered transactions 

confirmed on the MarkitWire platform 

between June 1, 2010 and August 31, 

2010 where at least one party was a G– 

14 Bank.106

The Warehouse Trust Company LLC 

(‘‘The Warehouse Trust’’) provided the 

CDS data set.107 The CDS data set 

covered CDS transactions for a threemonth period beginning on May 1, 2010 

and ending on July 31, 2010.108

b. The Commission filtered both data 

sets in order to analyze only transactionlevel data corresponding to ‘‘publicly 

reportable swap transactions,’’ as 

defined in § 43.2 of the Adopting 

Release.109 As such, the Commission 

excluded from its analysis duplicate and 

non-price forming transactions.110 The 


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terminations, and structurally excluded records 

since the Commission was unable to determine if 

these records were price-forming. The Commission 

also excluded CDS transactions that were notated 

as single name transactions. The data sets also 

included transaction records created for workflow 

purposes (and therefore redundant), duplicates and 

transaction records resulting from name changes or 

mergers. 

111The Commission calculated the average daily 

exchange rates between relevant currencies and the 

U.S. dollar for the relevant three-month period 

covered by the data. This average daily exchange 

rate was then applied to the notional amounts for 

non-U.S. dollar denominated swap transactions. 

112The Commission only reviewed relevant 

transaction records in the interest rate swap data 

set. As noted above, the Commission excluded 

duplicate and non-price forming transactions from 

its review. See note 110 supra for a list of excluded 

transaction records. 

113See the International Organization for 

Standardization (ISO) standard ISO 4217 for 

information on the currency codes used by the 

Commission. For information on floating rate 

indexes, see also ISDA, 2006 Definitions (2006), and 

supplements. 

114 In producing Table 1, the Commission 

counted tenors for swaps with an end date within 

four calendar days of a complete month relative to 

the swap’s start date as ending on the nearest 

complete month. 

Commission also converted the notional 

amount of each swap transaction into a 

common currency denominator the U.S. 

dollar.111 Interest Rate Swap Categories. 

i. Interest Rate Swap Data Summary 

The filtered transaction records in the 

interest rate swap data set contained 

166,874 transactions with a combined 

notional value of approximately $45.4 

trillion dollars.112 These transactions 

included trades with a wide range of 

notional amounts, 28 different 

currencies, eight product types, 57 

different floating rate indexes and tenors 

ranging from under one week to 55 

years. Summary statistics of the filtered 

interest rate swap data set are presented 

in Table 1.113

TABLE 1—SUMMARY STATISTICS FOR THE INTEREST RATE SWAP DATA SET BY PRODUCT TYPE, CURRENCY, FLOATING

INDEX AND TENOR 114

Number of 

transactions 

Percentage of 

total 

transactions 

Notional 

amount 

(billions of 

USD) 

Percentage of 

total notional 

amount 

(%) 

Product Type: 

Single Currency Interest Rate Swap ........................................................ 128,658 77 16,276 36 

Over Night Index Swap (OIS) ................................................................... 12,816 8 16,878 37 

Forward Rate Agreement (FRA) .............................................................. 5,936 4 7,071 16 

Swaption ................................................................................................... 11,042 7 2,256 5 

Other ......................................................................................................... 8,395 5 2,909 6 

Currency: 

European Union Euro Area euro (EUR) ................................................... 46,412 28 18,648 41 

United States dollar (USD) ....................................................................... 50,917 31 11,377 25 

United Kingdom pound sterling (GBP) ..................................................... 16,715 10 7,560 17 

Japan yen (JPY) ....................................................................................... 19,502 12 4,253 9 

Other ......................................................................................................... 33,301 20 3,553 8

Floating Index: 

USD–LIBOR–BBA .................................................................................... 48,651 29 9,411 21 

EUR–EURIBOR–Reuters ......................................................................... 39,446 24 9,495 21 

EUR–EONIA–OIS–COMPOUND .............................................................. 6,517 4 9,122 20 

JPY–LIBOR–BBA ..................................................................................... 19,194 12 4,010 9 

GBP–LIBOR–BBA .................................................................................... 12,835 8 2,419 5 

GBP–WMBA–SONIA–COMPOUND ......................................................... 2,014 1 5,123 11 

Other ......................................................................................................... 38,190 23 5,809 13 

Tenor: 

1 Month ..................................................................................................... 3,171 2 11,859 26 

3 Month ..................................................................................................... 10,229 6 11,660 26 

6 Month ..................................................................................................... 2,822 2 1,701 4 

1 Year ....................................................................................................... 9,522 6 3,484 8 

2 Year ....................................................................................................... 16,450 10 3,347 7 

3 Year ....................................................................................................... 9,628 6 1,488 3 

5 Year ....................................................................................................... 26,139 16 2,712 6 

7 Year ....................................................................................................... 6,599 4 661 1 

10 Year ..................................................................................................... 34,000 20 2,746 6 

30 Year ..................................................................................................... 9,616 6 448 1 

Other ......................................................................................................... 38,671 23 5,284 12 

Sample Totals ................................................................................... 166,847 100 45,390 100 

Table 2 below sets out the notional 

amounts of the interest rate swap data 

set organized by product type, currency, 

floating index and tenor. The table also 

includes the notional amounts in each 

percentile of a distribution of the data 

set. 


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115MarkitSERV anonymized the identities of the 

counterparties and indicated whether a G–14 bank 

was a party to the swap transaction. Summary 

statistics relating to these anonymous numbers 

included: (1) Total count of unique counterparties 

was equal to approximately 300; (2) the average 

notional size of transactions involving two G–14 

banks was equal to approximately $280 million; (3) 

the average notional size of transactions involving 

both a G–14 bank and a non G–14 bank (which 

traded at least 100 swap transactions) was equal to 

approximately $260 million. 

116The Commission alternatively considered 

using tenor solely to determine interest rate swap 

categories. While this alternative approach would 

result in fewer swap categories (and would be based 

on the strongest single variable indicator of notional 

size in statistical regressions performed by the 

Commission on the interest rate swap data set), it 

may result in overbroad swap categories treating, 

for example, interest rate swaps denominated in 

U.S. dollars the same as those denominated in 

Polish zlotys, despite relative liquidity differences. 

As a result, this alternative approach may result in 

the super-major currency-denominated interest rate 

swaps setting the block size for all other currencies 

because of the super-major currency’s relatively 

higher trading frequency. See note 123 infra for the 

Commission’s definition of ‘‘super-majority 

currency.’’ 

117Through the performance of statistical 

regressions on the interest rate swap data set, the 

Commission found that tenor was the single 

strongest indicator of variations in notional 

amounts. 

118The Commission chose to extend the tenor 

groups about one-half month beyond the commonly 

observed tenors to group similar tenors together and 

capture variations in day counts. The Commission 

added an additional 15 days beyond a multiple of 

one year to the number of days in each group to 

avoid ending each group on specific years. 

TABLE 2—NOTIONAL AMOUNTS OF INTEREST RATE SWAP DATA SET ORGANIZED BY PRODUCT TYPE, CURRENCY, 

FLOATING INDEX AND TENOR

[In millions of USD] 

Mean 

notional 

amount 

Percentiles 

5th 10th 25th 50th 75th 90th 95th 

Product Type: 

Single Currency Interest Rate Swap .................................... 127 4 9 23 52 117 252 438 

OIS ........................................................................................ 1,293 6 13 63 341 1,261 3,784 5,282 

FRA ....................................................................................... 1,168 90 133 266 631 1,039 2,000 3,018 

Swaption ............................................................................... 204 3 20 50 100 226 500 642 

Other ..................................................................................... 346 * 1 23 89 250 631 1,132 

Currency: 

EUR ...................................................................................... 400 6 15 38 91 249 631 1,617 

USD ...................................................................................... 221 5 12 31 89 200 500 1,000 

GBP ...................................................................................... 435 1 1 15 57 167 755 1,698 

JPY ....................................................................................... 221 11 13 28 57 124 339 790 

Other ..................................................................................... 108 4 6 13 30 78 175 308 

Floating Index: 

USD–LIBOR–BBA ................................................................ 192 5 12 30 76 180 500 803 

EUR–EURIBOR–Reuters ..................................................... 241 8 17 38 79 189 416 757 

EUR–EONIA–OIS–COMPOUND .......................................... 1,385 4 10 61 315 1,261 3,784 6,306 

JPY–LIBOR–BBA ................................................................. 211 11 12 28 57 113 339 658 

GBP–LIBOR–BBA ................................................................ 181 1 4 23 54 151 377 755 

GBP–WMBA–SONIA–COMPOUND ..................................... 2,450 75 113 283 1,509 3,018 6,037 9,055 

Other ..................................................................................... 152 2 4 12 31 88 264 500 

Tenor: 

1 Month ................................................................................. 3,523 37 252 1,251 2,522 3,784 7,546 12,074 

3 Month ................................................................................. 1,081 11 38 208 604 1,250 2,000 3,018 

6 Month ................................................................................. 581 19 49 150 377 747 1,261 1,892 

1 Year ................................................................................... 348 20 31 70 151 341 755 1,261 

2 Year ................................................................................... 205 10 16 39 111 243 453 631 

3 Year ................................................................................... 154 10 16 44 95 169 315 500 

5 Year ................................................................................... 107 5 9 25 63 113 226 316 

7 Year ................................................................................... 105 7 13 29 57 113 221 315 

10 Year ................................................................................. 83 5 10 23 50 95 175 252 

30 Year ................................................................................. 47 4 7 18 26 50 95 132 

Other ..................................................................................... 249 2 4 15 50 126 340 883 

The Commission also analyzed the 

interest rate swap data set to classify the 

counterparties into broad groups.115 The 

Commission’s analysis of the interest 

rate swap data set revealed that 

approximately 50 percent of 

transactions were between buyers and 

sellers who were both identified as G– 

14 banks and that these transactions 

represented a combined notional 

amount of approximately $22.85 trillion 

or 50 percent of the relevant IRS data 

set’s total combined notional amount. 

ii. Interest Rate Swap Data Analysis 

As noted above, the Commission is 

proposing swap categories in the 

interest rate asset class based on tenor 

and underlying currency. The 

Commission is of the view that these 

criteria would meet the objectives of 

grouping swaps with economic 

similarity and reducing unnecessary 

complexity for market participants in 

determining whether their swaps are 

classified within a particular swap 

category. Tenors were associated with 

concentrations of liquidity at commonly 

recognized points along the yield curve. 

In general, the Commission observed 

that transactions in the data set (and 

related market liquidity) tended to 

cluster at certain tenors.116

The Commission is proposing interest 

rate swap tenor groupings based on two 

observations regarding the data in the 

interest rate swap data set.117 First, the 

Commission observed that pricenotation conventions and points of 

concentrated transaction activity 

correspond with specific tenors (e.g., 

three months, six months, one year, two 

years, etc.). Second, the Commission 

observed a similarity in the transaction 

amounts within a given tenor grouping 

(e.g., longer-dated tenors in the data set 

generally had lower average notional 

sizes). Based on these observations, 

table 3 below details the proposed tenor 

groups for the interest rate asset class. 


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119The Commission considered alternative 

approaches of using the individual floating rate 

indexes or currencies to determine swap categories 

in the interest rate asset class. These alternative 

approaches would have the benefit of being more 

correlated to an underlying curve than the 

recommended currency and tenor groupings. The 

data contained 57 floating rate indexes and 28 

currencies, which would result in 456 and 224 

categories respectively, after sorting by the eight 

identified tenor groups. The Commission 

anticipates, however, that grouping swaps using 

individual rates or currencies would not 

substantially increase the explanation of variations 

in notional amounts, while it could result in cells 

with relatively few observations in some currencytenor categories. Hence, the Commission does not 

believe there would be a significant benefit to offset 

the additional compliance burden that a more 

granular approach would impose on market 

participants. 

120Non-major currencies represent less than two 

percent of the total notional and about 10 percent 

of the transactions. These currencies typically do 

not have corresponding futures markets. 

121Super-major currencies represent over 92 

percent of the total notional amounts and 80 

percent of the total transactions in the data set. It 

is noteworthy that these currencies have welldeveloped futures markets for general interest rates 

and exchange rates. 

122Major currencies represent about six percent 

of the total notional amount and about 10 percent 

of the transactions. Some of these currencies host 

liquid futures markets for interest rates, and all 

exhibit liquid foreign exchange markets. 

123The Commission selected these currencies for 

inclusion in the definition of major currencies 

based on the relative liquidity of these currencies 

in the interest rate and FX futures markets. The 

Commission is of the view that this list of 

currencies is consistent, in part, with the 

Commission’s existing regulations in § 15.03(a), 

which defines ‘‘major foreign currency as ‘‘the 

currency, and the cross-rates between the 

currencies, of Japan, the United Kingdom, Canada, 

Australia, Switzerland, Sweden and the European 

Monetary Union.’’ 17 CFR 15.03(a). 

124Table 5 does not include swap categories with 

less than 200 transactions in order to preserve the 

anonymity of the parties to these transactions. 

TABLE 3—PROPOSED TENOR GROUPS FOR INTEREST RATES ASSET CLASS 118

Tenor group Tenor greater than And tenor less than or equal to 

1 ........................................... .......................................................................................... Three months (107 days). 

2 ........................................... Three months (107 days) ................................................ Six months (198 days). 

3 ........................................... Six months (198 days) .................................................... One year (381 days). 

4 ........................................... One year (381 days) ....................................................... Two years (746 days). 

5 ........................................... Two years (746 days) ..................................................... Five years (1,842 days). 

6 ........................................... Five years (1,842 days) .................................................. Ten years (3,668 days). 

7 ........................................... Ten years (3,668 days) ................................................... 30 years (10,973 days). 

8 ........................................... 30 years (10,973 days).

Similarly, through its analysis of the 

interest rate swap data set, the 

Commission found that the currency 

referenced in a swap explains a 

significant amount of variation in 

notional size and, hence, can be used to 

categorize interest rate swaps given this 

relationship.119 The Commission is 

proposing currency groupings after 

considering: (1) Price-notation 

conventions; (2) the relative 

development of currency groups in the 

interest rate and FX futures markets; (3) 

the relative swap transaction total 

notional amounts and transaction 

volumes of each currency group; and (4) 

the relative average transaction notional 

amounts and lack of evidence of large 

transacted notional amounts or 

substantial volume of each currency 

group.120 After considering these 

factors, the Commission is proposing 

three currency categories for the interest 

rate asset class: (1) Super-major 

currencies, which are currencies with 

large volume and total notional 

amounts; 121 (2) major currencies, which 

generally exhibit moderate volume and 

total notional amounts; 122 and (3) nonmajor currencies, which generally 

exhibit moderate to very low volume 

and notional amounts. 

Table 4 below summarizes the 

Commission’s three proposed currency 

swap categories. 

TABLE 4—PROPOSED CURRENCY CATEGORIES FOR INTEREST RATES ASSET CLASS

Currency category Component currencies 

Super-Major Currencies ....... United States dollar (USD), European Union Euro Area euro (EUR), United Kingdom pound sterling (GBP), and 

Japan yen (JPY). 

Major Currencies 123 ............. Australia dollar (AUD), Switzerland franc (CHF), Canada dollar (CAD), Republic of South Africa rand (ZAR), Republic of Korea won (KRW), Kingdom of Sweden krona (SEK), New Zealand dollar (NZD), Kingdom of Norway 

krone (NOK) and Denmark krone (DKK). 

Non-Major Currencies .......... All other currencies. 

Table 5 below presents details on the 

sample characteristics of the interest 

rate swap data set organized by currency 

and tenor swap categories. 

TABLE 5—SAMPLE CHARACTERISTICS OF PROPOSED INTEREST RATE SWAP CATEGORIES 124

Currency category Tenor group Number of 

transactions 

Percent of 

transactions 

(%) 

Notional 

(billions of 

USD) 

Percent of 

total notional 

(%) 

Super-major ......................................................................... 1 11,394 7 22,347 50 

Super-major ......................................................................... 2 2,563 2 1,813 4 

Super-major ......................................................................... 3 6,277 4 3,302 7 

Super-major ......................................................................... 4 12,395 7 3,420 8 

Super-major ......................................................................... 5 32,148 19 4,818 11 

Super-major ......................................................................... 6 42,675 26 4,220 9 

Super-major ......................................................................... 7 24,237 15 1,433 3 

Super-major ......................................................................... 8 1,857 1 56 0 


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125This approach would yield an appropriate 

minimum block size for super-major currency 

interest rate swaps with a less than 21 day tenor of 

$13 billion based on the 67-percent notional 

amount calculation proposed in § 43.6(c)(1). The 

appropriate minimum block size for interest rate 

TABLE 5—SAMPLE CHARACTERISTICS OF PROPOSED INTEREST RATE SWAP CATEGORIES 124—Continued 

Currency category Tenor group Number of 

transactions 

Percent of 

transactions 

(%) 

Notional 

(billions of 

USD) 

Percent of 

total notional 

(%) 

Major .................................................................................... 1 2,305 1 1,818 4 

Major .................................................................................... 2 445 0 124 0 

Major .................................................................................... 3 2,113 1 302 1 

Major .................................................................................... 4 2,639 2 226 1 

Major .................................................................................... 5 5,380 3 293 1 

Major .................................................................................... 6 3,707 2 129 0 

Major .................................................................................... 7 704 0 19 0 

Major .................................................................................... 8 <200 

Non-Major ............................................................................ 1 403 0 64 0 

Non-Major ............................................................................ 2 247 0 26 0 

Non-Major ............................................................................ 3 2,073 1 165 0 

Non-Major ............................................................................ 4 3,354 2 256 1 

Non-Major ............................................................................ 5 5,873 4 116 0 

Non-Major ............................................................................ 6 3,935 2 41 0 

Non-Major ............................................................................ 7 <200 ........................ ........................ ........................

Non-Major ............................................................................ 8 <200 ........................ ........................ ........................

Table 6 below sets out the notional 

amounts of the interest rate swap data 

set organized by currency and tenor 

categories. The table includes the mean 

notional amount of each currency and 

tenor category, as well as the notional 

amounts in each percentile of a 

distribution of the data set. 

TABLE 6—NOTIONAL AMOUNTS OF INTEREST RATE SWAP DATA SET ORGANIZED BY THE PROPOSED INTEREST RATE

SWAP CATEGORIES

[In millions of USD] 

Currency group Tenor 

group Mean 

Transactions percentiles 

5th 10th 25th 50th 75th 90th 95th 

Super-major ...................................................................... 1 1,961 10 36 500 1,000 2,260 4,000 6,306 

Super-major ...................................................................... 2 708 13 41 200 500 883 1,500 2,260 

Super-major ...................................................................... 3 526 47 75 150 272 565 1,179 1,809 

Super-major ...................................................................... 4 276 19 43 100 176 304 565 848 

Super-major ...................................................................... 5 150 9 21 50 100 158 301 482 

Super-major ...................................................................... 6 99 6 12 30 54 100 204 305 

Super-major ...................................................................... 7 59 1 5 14 31 63 126 200 

Super-major ...................................................................... 8 30 0 0 1 13 37 65 118 

Major ................................................................................ 1 789 80 133 175 312 573 921 1,313 

Major ................................................................................ 2 279 50 70 120 210 350 480 921 

Major ................................................................................ 3 143 13 26 52 97 175 264 438 

Major ................................................................................ 4 86 9 16 33 66 104 184 240 

Major ................................................................................ 5 54 4 8 19 44 72 109 145 

Major ................................................................................ 6 35 4 7 13 23 46 72 96 

Major ................................................................................ 7 27 5 7 11 20 31 49 75 

Major ................................................................................ 8 <200 

Non-major ......................................................................... 1 160 19 37 64 129 225 315 450 

Non-major ......................................................................... 2 106 16 23 39 72 145 233 311 

Non-major ......................................................................... 3 79 8 22 31 56 102 157 224 

Non-major ......................................................................... 4 76 6 9 16 27 50 78 108 

Non-major ......................................................................... 5 20 2 4 8 14 23 39 54 

Non-major ......................................................................... 6 10 2 2 4 8 13 21 29 

Non-major ......................................................................... 7 <200 ............ ............ ............ ............ ............ ............ ............

Non-major ......................................................................... 8 <200 ............ ............ ............ ............ ............ ............ ............

Request for Comment 

Q2. Please provide comments 

regarding the Commission’s proposed 

two criteria (tenor and underlying 

currency type) for determining swap 

categories in the interest rate asset class. 

Q3. As a variation of the proposed 

approach, should specific currencies as 

proposed to be assigned be moved to 

other proposed currency categories? 

Q4. As a second variation to the 

proposed approach, the Commission is 

considering, for super-major currency 

interest rate swaps, bifurcating the less 

than three month tenor category into 

two separate swap categories: (1) A 

swap category composed of super-major 

currency interest rate swaps with a less 

than 21 day tenor; and (2) a swap 

category composed of super-major 

currency interest rate swaps with a 

greater than 21 day tenor, but less than 

three month tenor (107 days). The 

Commission requests comment on the 

appropriateness of this variation.125


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swaps with a tenor of 21 days to three months 

would remain at $6.4 billion in the super-major 

currency swap category. See proposed appendix F 

to part 43 of the Commission’s regulations infra. 

126The Commission found that the precision of 

an approach utilizing the above-mentioned tenor 

groupings along with individual currencies was 

only marginally improved. 

127See note 109 supra. 

128The CDS index transactions in the data set 

made up approximately 33 percent of the total 

filtered records and 75 percent of the CDS markets’ 

notional amount for the three months of data 

provided. The data set contained over 250 different 

reference indexes; 400 reference index and tenor 

combinations; and 450 reference index, tenor, and 

tranche combinations. The data set also contained 

three different currencies: USD (53%), EUR (46%), 

and JPY (1%). The Commission notes that in all but 

a handful of records, each reference index 

transaction was denoted in a single currency. 

129Those indexes were: (1) ABX.HE; (2) CDX.EM; 

(3) CDX.NA.HY; (4) CDX.NA.IG; (5) 

CDX.NA.IG.HVOL; (6) CDX.NA.XO; (7) CMBX.NA; 

(8) IOS.FN30; (9) iTRAXX Asia ex-Japan HY; (10) 

iTRAXX Asia ex-Japan IG; (11) iTRAXX Australia; 

(12) iTRAXX Europe Series; (13) iTRAXX Europe 

Subs; (14) iTRAXX Japan 80; (15) iTRAXX Japan 

HiVol; (16) iTRAXX Japan Series; (17) iTRAXX 

LEVX Senior; (18) iTRAXX SOVX Asia; (19) 

iTRAXX SOVX CEEMA; (20) iTRAXX Western 

Europe; (21) LCDX.NA; (22) MCDX.NA; (23) 

PO.FN30; (24) PRIMEX.ARM; (25) PRIMEX.FRM; 

and (26) TRX.NA. 

Q5. As a third variation to the 

proposed approach, the Commission 

considered floating rate index, product 

type, duration equivalents, tenor, 

individual currencies,126 and currency 

categories in determining the economic 

similarities among the swaps in the 

interest rate asset class before settling on 

tenor and currency groupings as the sole 

criteria. Should the Commission use one 

or more of these other characteristics in 

addition to, or instead of, the proposed 

swap categories in the interest rate asset 

class? 

Q6. The proposed interest rate swap 

categories generally resulted in the 

grouping of swaps characterized by 

similar market activity—i.e., high, 

medium, and low volumes and notional 

sizes. The Commission requests 

comment as to whether other measures 

of market activity or swap 

characteristics should be used to group 

or validate the grouping of swaps. 

Q7. What considerations should the 

Commission take into account related to 

the approach for calculating the tenor of 

back-dated swaps (i.e., those swaps in 

which the start date is prior to the 

execution date)? How should back-dated 

swaps be categorized for the purposes of 

determining the tenor? 

Q8. Should the Commission consider 

expanding or contracting the number of 

currency categories, and, if so, which 

currencies should be placed in each 

category? The Commission asks 

commenters to describe any specific 

recommendations and include market 

data in support of such 

recommendations. 

c. Credit Swap Categories 

i. Credit Swap Data Summary 

The CDS data set contained 98,931 

CDS index records that would fall 

within the definition of publicly 

reportable swap transaction,127 with a 

combined notional value of 

approximately $4.6 trillion dollars.128

The CDS data set contained transactions 

based on 26 broad credit indexes.129 Of 

those indexes, each of the iTraxx Europe 

Series and the Dow Jones North 

America investment grade CDS indexes 

(‘‘CDX.NA.IG’’) served as the basis for 

over 20 percent of the total number of 

transactions and over 33 percent of the 

total notional value in the relevant CDS 

data set. Table 7 sets out summary 

statistics of the CDS data set and 

includes those CDS indexes with greater 

than five transactions per day on 

average. 

TABLE 7—SUMMARY STATISTICS BY CDS INDEX NAME

Names Number of 

transactions 

Percentage of 

total 

transactions 

(%) 

Notional 

amount 

(in millions of 

USD) 

Percentage of 

total notional 

amount 

(%) 

ITRAXX EUROPE SERIES 13 V1 .................................................................. 18,287 18.48 1,138,362 24.83 

CDX.NA.IG.14 .................................................................................................. 12,611 12.75 1,083,974 23.64 

ITRAXX EUROPE XO SERIES 13 V1 ............................................................ 8,713 8.81 153,365 3.34 

CDX.NA.HY.14 ................................................................................................ 7,984 8.07 172,599 3.76 

ITRAXX EUROPE SENIOR FINANCIALS SERIES 13 V1 ............................. 4,774 4.83 187,978 4.10 

CDX.NA.IG.9 .................................................................................................... 4,134 4.18 388,650 8.48 

ITRAXX EUROPE XO SERIES 13 V2 ............................................................ 3,959 4.00 66,894 1.46 

CDX.NA.IG.9 TRANCHE ................................................................................. 3,357 3.39 112,411 2.45 

ITRAXX SOVX CEEMEA SERIES 3 V1 ......................................................... 3,252 3.29 32,291 0.70 

CDX.EM.13 ...................................................................................................... 3,052 3.08 34,952 0.76 

ITRAXX SOVX WESTERN EUROPE SERIES 3 V1 ...................................... 2,377 2.40 74,068 1.62 

ITRAXX AUSTRALIA SERIES NUMBER 13 V1 ............................................. 2,138 2.16 31,540 0.69 

ITRAXX EUROPE SERIES 9 V1 ..................................................................... 1,893 1.91 188,364 4.11 

ITRAXX EUROPE SUB FINANCIALS SERIES 13 V1 .................................... 1,779 1.80 50,241 1.10 

ITRAXX EUROPE SERIES 9 V1 TRANCHE .................................................. 1,577 1.59 50,269 1.10 

ITRAXX JAPAN SERIES NUMBER 13 V1 ..................................................... 1,406 1.42 19,100 0.42 

ITRAXX ASIA EX-JAPAN IG SERIES NUMBER 13 V1 ................................. 1,319 1.33 15,856 0.35 

ITRAXX SOVX ASIA PACIFIC SERIES 3 V1 ................................................. 1,001 1.01 11,666 0.25 

ITRAXX EUROPE HIVOL SERIES 13 V1 ....................................................... 788 0.80 30,585 0.67 

CMBX.NA.AAA.1 ............................................................................................. 463 0.47 13,384 0.29 

ITRAXX EUROPE SERIES 12 V1 .................................................................. 452 0.46 71,161 1.55 

CMBX.NA.AJ.3 ................................................................................................ 392 0.40 6,332 0.14

CMBX.NA.AAA.2 ............................................................................................. 381 0.39 8,433 0.18 

LCDX.NA.14 .................................................................................................... 380 0.38 7,063 0.15 

MCDX.NA.14 ................................................................................................... 350 0.35 2,798 0.06 

CMBX.NA.AAA.4 ............................................................................................. 337 0.34 6,024 0.13 

CMBX.NA.A.1 .................................................................................................. 332 0.34 3,834 0.08 

IOS.FN30.500.09 ............................................................................................. 317 0.32 7,836 0.17

Total .......................................................................................................... 87,805 88.75 3,970,029 86.59 


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130Each transaction record contained up to 75 

fields identifying information such as the 

anonymized counterparty identifier, trade date, 

submit date, transaction type, RED code (i.e., the 

particular index series, version, or vintage), 

notional amount, notional currency, fixed rate, 

confirm date, spread, points upfront and several 

other variables. 

131The RED code is the industry standard 

identifier for CDS contracts. RED codes are nine 

character codes (similar to CUSIP codes for 

securities) where the first six characters refer to the 

reference entity (or index) when the last three 

characters refer to the reference obligation, that is, 

the version or series of an index, and where the first 

five characters refer to the reference entity (or 

index) when the last four refer to the vintage of an 

index. RED codes are used by DTCC to confirm CDS 

trades on the DTCC Deriv/SERV platform. See also 

Markit Credit Indices, A Primer, Nov. 2008, 30, 

available at https://www.markit.com/news/ 

Credit%20Indices%20Primer.pdf. 

132Two times the ‘‘social size’’ see note 16 supra, 

for the relevant CDS data set was $93 million, 

covered 87 percent of the number of transactions, 

and 49 percent of the cumulative notional amount. 

Five times the social size, or $230 million, covered 

97 percent of transactions and 75 percent of the 

cumulative notional amount. 

133The Commission used the rounding 

convention set forth in § 43.4(g) of the 

Commission’s regulations. 

134 In descending order and in millions of dollars, 

the ten most frequently traded rounded notional 

amounts included: 32 (the mode); 10; 25; 13; 50; 63; 

5; 100; 6; and 20. 

135The Commission notes that the CDS data set 

was anonymized by The Warehouse Trust, but 

counterparties were identified by a number value 

and an account number in one of the following 

eleven groups: Asset managers, bank, custodian, 

dealer, financial services, G14 dealer, hedge fund, 

insurance, non-financial, other, and pension plan. 

Summary statistics relating to these identifiers 

included: (1) Total count of buyer account 

identifiers equal to approximately 1,900; (2) total 

count of seller account identifiers equal to 

approximately 1,700; (3) total count of unique buyer 

and seller account identifiers equal to 

approximately 2,600; (4) total count of buyers equal 

to approximately 600; (5) total count of sellers equal 

to approximately 500; and (6) total count of unique 

buyers and sellers equal to approximately 700. The 

CDS data set identified counterparties as belonging 

to one of the eleven groups, and the average 

notional size of transactions in the eight tenor 

groups which contained more than 100 transactions 

ranging from approximately $19 million to $92 

million. 

136The Commission notes that the CDS data set 

only included transaction records where a G–14 

bank was one of the counterparties, and did not 

include transaction records with two buy-side 

counterparties. A natural bias was present in the 

percentage of market share that G–14 banks have in 

the CDS market. 

137The Commission assessed the possibility of 

applying the tenor categories proposed for swaps in 

the interest rate asset class to the distribution of 

notional sizes in the CDS indexes and anticipates 

the level of granularity proposed to categorize 

swaps in the interest rate asset class by tenor would 

be inappropriate for the CDS index market. The 

Commission anticipates that this level of 

granularity would be inappropriate because the vast 

majority of CDS index transactions in the data set 

were for five years (or approximately 1,825 days). 

Based on the concentration of CDS index 

transactions in five-year tenors, the Commission is 

proposing a six tenor bands for CDS indexes. 

138For example, based on the observed CDS data 

set, off-the-run swaps (i.e., previous five-year tenor 

swaps for corporate credit default index swaps) 

have less than five years to maturity and displayed 

different trading patterns than the five-year, on-therun swaps. 

139For example, based on the observed CDS data 

set, the majority of municipal credit default index 

swaps traded with tenors of around 10 years. 

140See note 102 supra for a definition of 

conventional spread. 

141The Commission is proposing partition levels 

by a qualitative examination of multiple histogram 

distributions of the traded and fixed spreads from 

the CDS data set. This qualitative examination was 

confirmed through a partition test (using JMP 

software), including both before and after 

controlling for the effects of tenor on the 

distribution. The Commission observed that 175 

bps explained the greatest difference in means of 

the two data sets resulting from a single partition 

of the data. The Commission also observed that 350 

bps was an appropriate partition for CDS index 

transactions with spreads over 175 bps. 

142Table 8 uses tenor and spread criteria 

discussed above, in a standardized, least squared 

regression utilizing observed log notional amounts. 

The Commission identified the 

following seven terms as the most 

relevant for the purposes of the 

Commission’s analysis: 130 (1) Notional 

amount; (2) notional currency; (3) 

tranche indicator; (4) fixed rate; (5) 

tenor; (6) spread; and (7) RED code.131

Summary statistics for the relevant CDS 

data set included: Average notional 

amount of approximately $46 million; 

median notional amount of 

approximately $24 million; mode 

notional amount of approximately $32 

million; and skewness of 13 and 

kurtosis over 450, indicating that the 

sample’s notional amounts were not 

normally distributed.132 After 

rounding,133 the smallest 25 percent of 

transactions had notional values of $9 

million or less and the largest five 

percent of trades had notional values 

greater than $150 million. The swaps 

with the top ten most frequently traded 

notional sizes accounted for nearly 65 

percent of all transactions and 40 

percent of the total notional value.134

The Commission also analyzed the 

CDS data set to classify the 

counterparties into broad groups.135 The 

Commission’s analysis of the CDS data 

set revealed that approximately 55 

percent of transactions were between 

buyers and sellers who were both 

identified as G–14 banks and that these 

transactions represented a combined 

notional amount of approximately $3.1 

trillion, or 66 percent of the relevant 

CDS data set’s total combined notional 

amount.136

ii. Credit Swap Data Analysis 

As noted above, the Commission is 

proposing to use tenor and conventional 

spread criteria to define swap categories 

for CDS indexes. The Commission 

anticipates that these proposed criteria 

would provide an appropriate way to 

group swaps with economic similarities 

and to reduce unnecessary complexity 

for market participants in determining 

whether their swaps are classified 

within a particular swap category. The 

Commission is proposing the following 

six broad tenor groups in the credit asset 

class: (1) Zero to two years (0–746 days); 

(2) over two to four years (747–1,476 

days); (3) over four to six years (1,477– 

2,207 days) (which include the five-year 

tenor); (4) over six to eight-and-a-half 

years (2,208–3,120 days); (5) over eightand-a-half to 12.5 years (3,121–4,581 

days) and (6) greater than 12.5 years 

(4,581 days).137 The Commission added 

an additional 15 days to each tenor 

group beyond a multiple of one year in 

order to avoid ending each group on 

specific years. 

The Commission is proposing these 

swap categories based on the way 

transactions in the CDS data set 

clustered towards the center of each 

tenor band. While the majority of 

transactions in the CDS data set 

consisted of corporate credit default 

index swaps with a five-year tenor, the 

Commission found that trading of 

corporate credit default index swaps 

also occurred in other tenor ranges.138

The Commission believes that its 

proposed approach is appropriate since 

CDS on indexes other than corporate 

indexes (e.g., asset backed indexes, 

municipal indexes, sovereign indexes) 

may also trade at tenors other than five 

years.139

With respect to the conventional 

spread criterion, the Commission is 

proposing ranges of spread values based 

on the Commission’s review of the 

distribution of spreads in the entire CDS 

data set.140 In particular, the 

Commission observed that the relevant 

CDS data set partitioned at the 175 basis 

points (‘‘bps’’) and 350 bps levels.141

The Commission found that significant 

differences existed in the CDS data set 

between CDS indexes with spread 

values under 175 bps and those in the 

other two swap categories. Table 8 

shows the summary statistics of the 

proposed criteria to determine swap 

categories for swaps in the credit asset 

class.142


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143The Commission notes that the investment 

grade of an underlying asset is a material economic 

term of each CDS contract. When reviewing the 

CDS data set, the Commission considered using 

investment grade as an alternative criterion through 

which to group CDS into separate swap categories. 

The Commission, however, is of the view that using 

this alternative criterion would be inappropriate in 

light of the statutory prohibition against references 

to credit ratings in federal regulations. This 

prohibition is set forth in section 939 of the DoddFrank Act. 

Section 939A(a) of the Dodd-Frank Act provides, 

in relevant part, that ‘‘each Federal agency shall, to 

the extent applicable, review—(1) any regulation 

issued by such agency that requires the use of an 

assessment of the creditworthiness of a security or 

money market instrument; and (2) any references to 

or requirement in such regulations regarding credit 

ratings.’’ In addition, section 939A(b) further 

provides that ‘‘[e]ach such agency shall modify any 

such regulations identified by the review * * * to 

remove any reference to or requirement of reliance 

on credit ratings and to substitute in such 

regulations such standard of credit-worthiness as 

each respective agency shall determine as 

appropriate for such regulations.’’ 15 U.S.C. 78o–7 

note. 

Pursuant to the directive set forth in section 939A 

of the Dodd-Frank Act, the Commission has issued 

final rules removing all references to credit ratings 

in the Commission’s regulations. See 76 FR 78,776, 

Dec. 19, 2011; 76 FR 44,262, July 25, 2011. 

144While the underlying indexes and the RED 

codes helped explain average notional size in the 

CDS data set, the Commission is of the view—based 

on the large number of currently offered indexes, 

the frequency with which new indexes may be 

created, and the large number of RED codes—that 

such an approach may not be practicable and may 

impose unnecessary complexity on market 

participants trying to determine what appropriate 

minimum block sizes apply to what transactions. 145 In the CDS market, a ‘‘tranche’’ means a 

particular segment of the loss distribution of the 

underlying CDS index. For example, tranches may 

be specified by the loss distribution for equity, 

mezzanine (junior) debt, and senior debt on the 

referenced entities. The Commission found that the 

tranche-level data was even more granular than 

index-level data. Similarly, the Commission 

anticipates that grouping the relevant CDS data set 

in tranche criterion may not be practicable because 

it may produce too many swap categories and as a 

result would impose unnecessary complexity on 

market participants. 

146An on-the-run CDS index represents the most 

recently issued version of an index. For example, 

every six months, Dow Jones selects 125 investment 

grade entities domiciled in North America to make 

up the Dow Jones North American investment grade 

index (‘‘CDX.NA.IG’’). Each new CDX.NA.IG index 

is given a new series number while market 

participants continue to trade the old or ‘‘off-therun’’ CDX.NA.IG series. The Commission observed 

that an on-the-run index series was more actively 

traded than off-the-run index series. Each version 

or series of an index had a distinct group of tenors 

and, in most cases, the five year tenor was most 

active. The index provider determines the 

composition of each index though a defined list of 

reference entities. The index provider has 

discretion to change the composition of the list of 

reference entities for each new version or series of 

an index. In its analysis of the CDS data set, the 

Commission generally observed either no change or 

a small change (ranging from one percent to ten 

percent) of existing composition in the reference 

entities underlying a new version or series of an 

index. Because of these two dynamics (tenor and 

index composition), the CDS data set contained 

transactions within a given index with different 

versions and series that were in some instances 

identical and in others not identical across varying 

tenors. While the off-the-run transactions were 

generally larger on average than the on-the-run 

transactions, trading activity in the on-the-run 

indexes was more active than in the off-the-run 

indexes. 

The Commission decided not to use this level of 

detail for grouping CDS indexes into categories 

because: (i) The underlying components of swaps 

with differing versions or series based on the same 

named index are broadly similar, if not the same, 

indicative of economic substitutability across 

versions or series; (ii) differences in the average 

notional amount across differing versions or series 

were explained by differences in tenor; and (iii) and 

using versions or series as the criterion for defining 

CDS swap categories may result in an unnecessary 

level of complexity. 

147Although the Commission was not able to 

examine non-anonymized data, the Commission did 

observe differences of approximately 50 percent 

from the average notional amount for transactions 

involving different groups based on the 

counterparty identifiers provided by The 

Warehouse Trust. The Commission, however, 

believes that it would be neither practical nor 

equitable to base a swap category and related 

appropriate minimum block size based on the 

predominant business activity of a counterparty. 

TABLE 8—CDS INDEX SAMPLE STATISTICS BY PROPOSED SWAP CATEGORY CRITERIA

Spread 

Sum of notional 

amounts (in billions of 

USD) 

Number of trades 

<175 ................................................................................................................................................. 3,761 59,887 

175-to-350 ........................................................................................................................................ 233 11,045 

350> ................................................................................................................................................. 577 27,998 

Tenor (in calendar days): 

0–746 ........................................................................................................................................ 146 1,421 

747–1,476 ................................................................................................................................. 569 6,774 

1,477–2,207 .............................................................................................................................. 3,490 79,357 

2,208–3,120 .............................................................................................................................. 159 2,724 

3,121–4,581 .............................................................................................................................. 18 497 

4,582+ ....................................................................................................................................... 190 8,157 

Request for Comment 

Q9. The Commission seeks comment 

on all aspects of its proposed approach 

to define swap categories for the credit 

asset class for the purpose of setting 

appropriate minimum block sizes. More 

specifically, the Commission seeks 

comment as to whether the proposed 

grouping, alternatives or some other 

combination of alternatives offer the 

best means to identify swap categories. 

Q10. As an alternative to the proposed 

criteria, should the Commission use 

other criteria? 143 The Commission 

considered the following alternative 

criteria: (1) The underlying reference 

CDS index or the more specific RED 

code (of which there were hundreds); 144

(2) the tranche level; 145 (3) on-the-run 

versus off-the-run version or series; 146

and (4) the difference in the average 

notional amounts of transactions by 

groupings of counterparties.147

Q11. As another alternative, the 

Commission seeks comment on the 

possibility of establishing two swap 

categories in the credit asset class based 

on ‘‘activity groupings’’ of notional 

amounts of transactions: A ‘‘more active 

group’’; and a ‘‘less active group.’’ The 

more active group would be calculated 

by ordering, from most to least, the sum 

of non-rounded notional amounts of all 

swaps reported to SDRs by a CDS index 

(e.g., CDX.NA.IG) and then selecting the 

CDS indexes represented in the first 50 

percent of aggregate notional amount. If 

only one index accounted for the first 50 

percent of aggregate notional amount, 

then the next largest index also would 

be included in the more active group. 

The less active group would be 

comprised of the remainder of all credit 

index transactions that are not within 

the more active group. Should the 

Commission use this activity grouping 

approach to categorize CDS indexes? If 

so, how should the Commission 

determine appropriate minimum block 

sizes and cap sizes? 

Q12. As a third alternative, the 

Commission seeks comment on the 

possibility of establishing swap 

categories in the credit asset class based 

on sector groupings of the underlying 

reference entities. Under this alternative 

approach, the Commission would group 

the CDS index market into the following 

four sectors: Corporate; sovereign; 

municipal; and mortgage-backed 

security. An index with a mix of sectors 

represented in the reference entities 


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148As used in this Further Proposal, the term 

‘‘regulatory arbitrage’’ means engaging in financial 

structuring or a series of transactions without 

economic substance in order to avoid unwelcome 

regulation or to exploit inconsistencies in 

regulations. 

149Under this alternative approach, ‘‘publiclylisted’’ equity indexes would be defined as equity 

swaps with reference prices economically related to 

equity indexes with publicly available index 

weightings. ‘‘Custom equity index swaps,’’ in 

contrast, would be defined as equity swaps that 

utilize reference prices that are not economically 

related to equity indexes with publicly known 

index weightings. This alternative approach would 

be based on the premise that a custom equity index 

swap would have a higher probability of being 

subject to liquidity risk. 

150For example, if an equity index is composed 

of the weighted average of ten equity components, 

A Corp., B Corp., C Corp., D Corp., E Corp., F Corp., 

G Corp., H Corp., I Corp., and J Corp. corresponding 

to a market capitalization on the day prior to the 

related swap transaction of $100 million, $200 

million, $300 million, $400 million, $500 million, 

$200 million, $100 million, $200 million, $300 

million, and $500 million, respectively, then it 

would result in an average market capitalization of 

$280 million. This alternative approach is premised 

on market capitalization serving as indicia of cash 

market liquidity for derivatives on the index. 

151Under ISDA’s Master Confirmation Templates, 

‘‘open market’’ references ISDA annexes with 

underlying shares or indices in Australia, Hong 

Kong, New Zealand or Singapore. ‘‘Closed market’’ 

references ISDA annexes with underlying shares or 

indices in India, Indonesia, Korea, Malaysia, 

Taiwan and Thailand. For more information, see 

ISDA, ISDA Equity Derivatives, ISDA Master 

Confirmation Templates (by region), http:// 

www.isda.org/c_and_a/equity_der.html#defs. 

Under this alternative, other countries outside of 

Asia could be added to the list in a similar fashion. 

152This approach would result in fewer swap 

categories, thereby easing administrative burdens 

related to determining the appropriate swap 

category corresponding to a swap. At the same time, 

however, this approach would require the use of a 

common denominator currency (e.g., the U.S. 

dollar) for determining the applicable notional 

amount. This would imply a currency conversion, 

thereby increasing administrative burdens 

associated with currency conversions. 

153This approach would be predicated on 

expected differing liquidity and notional size 

distributions between FX swaps with differing 

tenors. 

would be categorized by the sector 

representing the majority of entities. 

The Commission is of the view that in 

addition to these four distinct sectors, a 

fifth catch-all group (other) would be 

necessary to categorize any new swap 

index that either does not fall into any 

of these four enumerated sectors or is in 

mixed sectors not predominated by a 

single sector. 

Q13. As a fourth alternative, should 

the Commission consider basing swap 

categories for the credit asset class on 

individual CDS indexes? For example, 

CDX.NA.IG would constitute its own 

swap category. 

Q14. Should the Commission 

combine aspects of the above 

alternatives? For example, should the 

Commission distinguish between onthe-run and off-the-run series under an 

index grouping approach? The 

Commission seeks comment on whether 

distinguishing between on-the-run and 

off-the-run series and tenor would be 

appropriate under this approach, given 

the underlying economic similarity of 

swaps utilizing the same underlying 

CDS index. 

2. Swap Category in the Equity Asset 

Class 

The Commission is proposing a single 

swap category for swaps in the equity 

asset class. The Commission is 

proposing this approach based on: (1) 

The existence of a highly liquid 

underlying cash market; (2) the absence 

of time delays for reporting block trades 

in the underlying equity cash market; 

(3) the small relative size of the equity 

index swaps market relative to the 

futures, options, and cash equity index 

markets; and (4) the Commission’s goal 

to protect the price discovery function 

of the underlying equity cash market 

and futures market by ensuring that the 

Commission does not create an 

incentive to engage in regulatory 

arbitrage among the cash, swaps, and 

futures markets.148

Request for Comment 

Q15. Please provide specific 

comments regarding the Commission’s 

proposed approach with respect to 

having one swap category in the equity 

asset class. 

Q16. As an alternative to the proposed 

approach, should the Commission 

establish one or more swap categories 

for swaps in the equity asset class based 

on any of the following criteria or a 

combination of such criteria: (1) Tenor; 

(2) publicly-listed equity indexes and 

custom equity indexes; 149 (3) market 

capitalization of the underlying index 

components; 150 and/or (4) whether a 

swap is based on an ‘‘open market’’ 

versus a ‘‘closed market’’? 151

Q16.a. If the Commission follows the 

alternative approach to use tenor as a 

criterion to distinguish between swap 

categories, how should the Commission 

address the practice of long-tenured 

swaps that are terminated prior to 

maturity? 

3. Swap Categories in the FX Asset Class 

The Commission proposes to establish 

swap categories for the FX asset class 

based on unique currency combinations. 

The Commission bases this approach on 

the observation that FX swaps and 

instruments with identical currency 

combinations draw upon the same 

liquidity pools. The Commission 

proposes in §§ 43.6(b)(4)(i) and (b)(4)(ii) 

to distinguish between FX swaps and 

instruments based on the existence of a 

related futures contract. Accordingly, 

the Commission would establish swap 

categories under proposed § 43.6(b)(4)(i) 

based on the unique currency 

combinations of super-major currencies, 

major currencies and the currencies of 

Brazil, China, Czech Republic, Hungary, 

Israel, Mexico, New Zealand, Poland, 

Russia, and Turkey (e.g., euro (EUR) and 

Canadian dollar (CAD) combination 

would be a separate swap category; 

Swedish kronor (SEK) and U.S. dollar 

(USD) combination would be a separate 

swap category; etc.). These currency 

combinations currently have sufficient 

liquidity in the underlying futures 

market, which may suggest that there 

may be sufficient liquidity in the swaps 

market for these currency combinations. 

In proposed § 43.6(b)(4)(ii), the 

Commission would establish swap 

categories based on unique currency 

combinations not included in proposed 

§ 43.6(b)(4)(i). 

Request for Comment 

Q17. The Commission requests 

specific comments, data and analysis in 

respect of its proposed approach to 

determining swap categories for the FX 

asset class. 

Q18. As an alternative to the proposal, 

should the Commission establish swap 

categories based on currency class 

pairings? In other words, swap 

categories that correspond to: (i) Supermajor-to-super-major; (ii) super-majorto-major; (iii) super-major-to-non-major; 

(iv) major-to-major; (v) major-to-nonmajor; and (vi) non-major-to-non-major 

currency class pairings? 152

Q18.a. Should the Commission 

develop currency and tenor swap 

categories similar to what it is proposing 

for swaps in the interest rate asset class? 

The currency and tenor categories could 

be adjusted to reflect current trading 

activity in the FX swap and instrument 

markets. 

Q19. In the post-initial period, should 

the Commission include tenor as a 

criterion for distinguishing FX swap 

categories? For example, should the 

Commission separate FX swaps with 

short-dated tenors (e.g., less than one or 

three months) from those with longdated tenors (e.g., greater than one or 

three months)? 153

Q20. The Commission is considering 

as a variation of its proposed approach 

to characterize certain swap categories 

within the FX asset class as 

‘‘infrequently transacted.’’ Infrequentlytransacted swaps would exhibit all or 

some of the following features: (1) The 

constituent swap or swaps to which 

they are economically related are not 


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154The Commission considered applying a 

methodology resulting in less relative transparency 

to such infrequently transacted swap categories 

(e.g., a 50-percent notional amount calculation). 

155 In the Adopting Release, the Commission 

explained: ‘‘For the purposes of part 43, swaps are 

economically related, as described in 

§ 43.4(d)(4)(ii)(B), if such contract utilizes as its sole 

floating reference price the prices generated directly 

or indirectly from the price of a single contract 

described in appendix B to part 43.’’ 77 FR 1,211. 

Further, the Commission explained that ‘‘an 

‘indirect’ price link to an Enumerated Physical 

Commodity Contract or an Other Contract described 

in appendix B to part 43 includes situations where 

the swap reference price is linked to prices of a 

cash-settled contract described in appendix B to 

part 43 that itself is cash-settled based on a 

physical-delivery settlement price to such 

contract.’’ Id. at n.289. 

156For example, a swap utilizing the Platts Gas 

Daily/Platts IFERC reference price is economically 

related to the Henry Hub Natural Gas (NYMEX) 

(futures) contract because it is based on the same 

commodity at the same delivery location as that 

underlying the Henry Hub Natural Gas (NYMEX) 

(futures) contract. 

157For example, a swap utilizing the Standard 

and Poor’s (‘‘S&P’’) 500 reference price is 

economically related to the S&P 500 Stock Index 

futures contract because it is based on the same 

cash market price series. 

158The Commission is proposing to amend § 43.2 

to define ‘‘reference price’’ as a floating price series 

(including derivatives contract and cash market 

prices or price indices) used by the parties to a 

swap or swaption to determine payments made, 

exchanged or accrued under the terms of a swap 

contract. The Commission is proposing to use this 

term in connection with the establishment of a 

method through which parties to a swap transaction 

may elect to apply the lowest appropriate minimum 

block size applicable to one component swap 

category of such swap transaction. 

159The Commission is proposing to add 13 

contracts to appendix B to part 43, as described in 

detail in section III.C.4 infra. Each of these 

additional swap contracts would be categorized in 

its own other commodity swap grouping. 

160Specifically, these additional other commodity 

swap categories would be based on the following 

futures contracts: CME Cheese; CBOT Distillers’ 

Dried Grain; CBOT Dow Jones-UBS Commodity 

Index Excess Return; CBOT Ethanol; CME Frost 

Index; CME Goldman Sachs Commodity Index 

(GSCI) (GSCI Excess Return Index); NYMEX Gulf 

Coast Gasoline; NYMEX Gulf Coast Sour Crude Oil; 

NYMEX Gulf Coast Ultra Low Sulfur Diesel; CME 

Hurricane Index; CME International Skimmed Milk 

Powder; NYMEX New York Harbor Ultra Low 

Sulfur Diesel; CBOT Nonfarm Payroll; CME Rainfall 

Index; CME Snowfall Index; CME Temperature 

Index; CME U.S. Dollar Cash Settled Crude Palm 

Oil; and CME Wood Pulp. 

161This distinction is noteworthy because 

proposed § 43.6(e)(3) provides that ‘‘[p]ublicly 

reportable swap transactions described in 

§ 43.6(b)(5)(i) that are economically related to a 

futures contract in appendix B to this part [43] shall 

not qualify to be treated as block trades or large 

notional off-facility swaps (as applicable) [during 

the initial period], if such futures contract is not 

subject to a designated contract market’s block 

trading rules.’’ See the discussion of this proposed 

provision in section II.D.4(a) infra. 

executed on, or pursuant to the rules of, 

a SEF or DCM; (2) few market 

participants have transacted in these 

swaps or in economically-related swaps; 

or (3) few swap transactions are 

executed during a historic period in 

these swaps or in economically-related 

swaps.154

4. Swap Categories in the Other 

Commodity Asset Class 

The Commission proposes to 

determine swap categories in the other 

commodity asset class based on 

groupings of economically related 

swaps under proposed §§ 43.6(b)(5)(i) 

and (ii) and based on groupings of 

swaps sharing a common product type 

under proposed § 43.6(b)(5)(iii). Swap 

contracts and futures contracts that are 

economically related to one another—as 

defined by the Commission in a 

proposed amendment to § 43.2—are 

economic substitutes that should be 

subject to the same appropriate 

minimum block sizes or block trade 

rules for futures contracts, as 

applicable.155 Accordingly, the 

Commission is proposing to define 

‘‘economically related’’ in § 43.2 as a 

direct or indirect reference to the same 

commodity at the same delivery 

location or locations,156 or with the 

same or substantially similar cash 

market price series.157 The Commission 

anticipates that this proposed definition 

would: (1) Ensure that swap contracts 

with shared reference price 

characteristics indicating economic 

substitutability (i.e., an ability to offset 

some or all of the risks across swaps in 

a specific category) are grouped together 

within a common swap category; and (2) 

provide further clarity as to which 

swaps are described in 

§ 43.4(d)(4)(ii)(B).158 This definition 

would apply to the use of the term 

‘‘economically related’’ throughout all 

of part 43 of the Commission’s 

regulations. 

Under proposed § 43.6(b)(5)(i), the 

Commission would establish separate 

swap categories for swaps that are 

economically related to one of the 

contracts listed on appendix B to part 

43. Appendix B to part 43 currently lists 

28 enumerated physical commodity 

contracts and other contracts (i.e., Brent 

Crude Oil (ICE)) for which an SDR must 

ensure the public dissemination of the 

actual underlying asset for the 

applicable publicly reported swap 

transactions under § 43.4(d)(4)(ii) of the 

Commission’s regulations.159 The 

Commission previously has identified 

these other commodity contracts as: (1) 

Having high levels of open interest and 

significant cash flow; and (2) serving as 

a reference price for a significant 

number of cash market transactions. The 

Commission is proposing to establish an 

initial appropriate minimum block size 

for the swap categories corresponding to 

each of these contracts to the extent that 

a DCM has set a block trade size for 

such a contract. 

Under proposed § 43.6(b)(5)(ii), the 

Commission would establish swap 

categories based on swaps in the other 

commodity asset class that are: (1) Not 

economically related to one of the 

futures or swap contracts listed in 

appendix B to part 43; (2) futures 

related; and (3) economically related to 

the relevant futures contract that is 

subject to the block trade rules of a 

DCM. Proposed § 43.6(b)(5)(ii) lists the 

futures contracts to which these swap 

categories are economically related; 160

these swap categories would include 

any swap that is economically related to 

such contracts. The swap categories 

established by proposed § 43.6(b)(5)(i) 

(discussed in the paragraphs above) 

differ from the swap categories 

established by proposed § 43.6(b)(5)(ii) 

in that the former may be economically 

related to futures contracts that are not 

subject to the block trade rules of a 

DCM, whereas the latter are 

economically related to futures 

contracts that are subject to the block 

trade rules of a DCM.161

Under proposed § 43.6(b)(5)(iii), the 

Commission would establish swap 

categories for all other commodity 

swaps that are not categorized under 

proposed §§ 43.6(b)(5)(i) or (ii). These 

swaps are not economically related to 

one of the contracts listed in appendix 

B to part 43 or in proposed 

§ 43.6(b)(5)(ii). In particular, the 

Commission would determine the 

appropriate swap category based on the 

product types described in appendix D 

to part 43 to which the underlying 

asset(s) of the swap would apply or 

otherwise relate. Proposed appendix D 

to part 43 establishes ‘‘Other 

Commodity Groups’’ and certain 

‘‘Individual Other Commodities’’ within 

those groups. To the extent that there is 

an ‘‘Individual Other Commodity’’ 

listed, the Commission would deem the 

‘‘Individual Other Commodity’’ as a 

separate swap category. For example, 

regardless of whether the underlying 

asset to an off-facility swap is ‘‘Sugar 

No. 16’’ or ‘‘Sugar No. 5,’’ the 

underlying asset would be grouped as 

‘‘Sugar.’’ The Commission thereafter 

would set the appropriate minimum 

block size for each of the swap 

categories listed in appendix D to 

part 43. 

In circumstances where a swap does 

not apply or otherwise relate to a 

specific ‘‘Individual Other Commodity’’ 

listed under the ‘‘Other Commodity 

Group’’ in appendix D to part 43, the 

Commission would categorize such 

swap as falling under the respective 


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162This approach would be predicated on 

expected differing liquidity and notional size 

distributions between other commodity swaps with 

differing tenors. 163These additional product types would allow 

the Commission to set an appropriate minimum 

block size for a swap category based on a 

distribution of transactions with more similar 

underlying physical commodity market 

characteristics. For example, swaps utilizing a 

reference price based on an aluminum or iron 

underlier would be included in the same ‘‘other 

base metal’’ swap category. Under this variation to 

the proposed approach, there could be additional 

specific product types corresponding to specific 

commodities not included in proposed appendix D 

to part 43 (e.g., aluminum or iron). 164An ‘‘HHI score’’ would be defined as the sum 

of the squared percentages, in whole numbers, of 

relative positions or transactions on the long or 

short side of a grouping of swap positions or 

transactions during a specified period. This 

alternative approach would be based on the 

distribution of percentages of positions or 

transactions held or executed by non-affiliated 

market participants on the long and short side of 

a swap market. In addition, this alternative 

approach would be predicated on the notion that 

reduced market concentration is indicative of a 

degree market liquidity depth that warrants greater 

transparency because of reduced liquidity concerns, 

as well as reduced concerns with the anonymity of 

transactions in such swap categories. 

165This figure would be the simple average of the 

HHI score on the short and long sides of a swap 

market based on the concentration of open interest 

on either side of such a market. 

166The Commission may consider applying a 

methodology resulting in less relative transparency 

to concentrated swap categories (e.g., a 50-percent 

notional amount calculation). 

‘‘Other’’ swap categories. For example, 

an emissions swap would be categorized 

as ‘‘Emissions,’’ while a swap in which 

the underlying asset is aluminum would 

be categorized as ‘‘Base Metals—Other.’’ 

Additionally, in circumstances where 

the underlying asset of swap does not 

apply or otherwise relate to an 

‘‘Individual Other Commodity’’ or an 

‘‘Other’’ swap category, the Commission 

would categorize such swap as either 

‘‘Other Agricultural’’ or ‘‘Other NonAgricultural.’’ 

Request for Comment 

Q21. The Commission requests 

specific comments, data and analysis 

with respect to its proposed approach 

for determining swap categories for the 

other commodity asset class. 

Q22. Does the proposed definition of 

economically related appropriately 

capture swaps that are economic 

substitutes within a single swap 

category? Should the Commission 

define economically related to mean 

swaps that have historically correlated 

changes in daily prices within a swap 

category (e.g., a correlation coefficient of 

0.95 or greater)? This alternative 

approach would be based on the notion 

that historical correlation is indicative 

of economic substitutability. 

Q23. In the post-initial period, should 

the Commission include tenor as a 

criterion for determining swap 

categories for the other commodity asset 

class? For example, should the 

Commission separate other commodity 

swaps with short-dated tenors (e.g., less 

than one or three months) from those 

with long-dated tenors (e.g., greater than 

one or three months)? 162

Q24. As a variation of the proposal, 

should the Commission create 

additional product types in order to 

provide specific swap categories for 

commodities not specifically listed in 

proposed appendix D to part 43? 163

Q25. As a variation of the proposal, 

should the Commission further refine 

the swap categories in § 43.6(b)(5)(iii) 

(i.e., those based on product types listed 

in proposed appendix D to part 43) on 

the basis of geography? If so, on what 

basis and for which product types? 

Q26. As a variation on the proposed 

approach, should the Commission 

include inflation index futures contracts 

in proposed § 43.6(b)(5)(ii)? 

Q27. As an alternative approach, the 

Commission is considering 

characterizing certain swap categories 

within the other commodity asset class 

as ‘‘infrequently transacted.’’ This 

alternative approach is consistent with 

the approach discussed in Q20 above. 

Q27.a. Should this alternative 

approach apply to asset classes in 

addition to the FX and other commodity 

asset classes? 

Q28. As another alternative, should 

the Commission consider dividing the 

swaps in the other commodity asset 

class into swap categories based on 

relative market concentration? For 

example, a variation of the HerfindahlHirschman Index (‘‘HHI’’) based on the 

average daily or average month-end HHI 

score to determine swap categories for 

the other commodity asset class? 164

Would a daily or month-end average 

long-short swap position HHI 165 for a 

three-year rolling window (beginning 

with a minimum of one year and adding 

one year of data for each calculation 

until a total of three years of data is 

accumulated) of lower than 2,500, 

2,000, or 1,500 be indicative of a market 

that is not concentrated? 166

Q28.a. Should the Commission use 

this approach for other asset classes? 

D. Proposed Appropriate Minimum 

Block Size Methodologies for the Initial 

and Post-Initial Periods 

The Commission is proposing a 

tailored approach for determining 

appropriate minimum block sizes 

during the initial and post-initial 

periods for each asset class. In the 

subsections below, the Commission sets 

out a more detailed discussion of the 

appropriate minimum block 

methodologies for swaps within: (1) The 

interest rate and credit asset classes; (2) 

the single swap category in the equity 

asset class; (3) swap categories in the FX 

asset class; and (4) swap categories in 

the other commodity asset class. 

Thereafter, the Commission discusses 

special rules for determining the 

appropriate minimum block sizes across 

asset classes. For convenience, the chart 

immediately below summarizes swap 

categories and calculation 

methodologies that the Commission is 

proposing for each asset class. 

PROPOSED APPROACH

Asset class Swap category criteria Initial implementation period Post-initial implementation 

period 167

Interest Rates ................................ By unique currency and tenor 

grouping 168.

67-percent notional amount calculation by swap category 169.67-percent notional amount calculation by swap category.170

Credit ............................................. By tenor and conventional spread 

grouping 171.

FX .................................................. By numerated FX currency combinations (i.e., futures related) 172.Based on DCM futures block size 

by swap category 173.

By non-enumerated FX currency 

combinations (i.e., non-futures 

related) 174.

All trades may be treated as block 

trades 175.


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167This post-initial implementation period would 

commence at a minimum of one year after the 

initial period. Thereafter, the Commission would 

determine appropriate minimum block sizes a 

minimum of once annually. See proposed 

§ 43.6(f)(1). 168See proposed § 43.6(b)(1). 169See proposed § 43.6(c)(1). 170See proposed § 43.6(f)(2). 171See proposed § 43.6(b)(2). 172See proposed § 43.6(b)(4)(i). 173See proposed § 43.6(e)(1). 174See proposed § 43.6(b)(4)(ii). 175See proposed § 43.6(e)(2). 176See proposed § 43.6(b)(5)(i). 177See proposed § 43.6(e)(1). 178See proposed § 43.6(b)(5)(i). 179See proposed § 43.6(e)(3). 180See proposed § 43.6(b)(5)(i). 181See proposed § 43.6(e)(3). 182See proposed § 43.6(b)(5)(ii). 183See proposed § 43.6(e)(1). 

184See proposed § 43.6(b)(5)(iii) and the product 

types groupings listed in proposed appendix D to 

part 43. 

185See proposed § 43.6(e)(2). 

186See proposed § 43.6(b)(3). 

187See proposed § 43.6(d). 

188See proposed § 43.6(f)(1). 

189Proposed § 43.6(c)(1) describes the 67-percent 

notional amount calculation. Proposed § 43.6(e)(1) 

provides the provisions relating to the methodology 

for determining appropriate minimum block sizes 

during the initial period for swaps in the interest 

rate and credit asset classes, inter alia. 190See note 109 supra for the definition of 

publicly reportable swap transaction. Since the 

Commission is proposing to determine all 

appropriate minimum block sizes based on reliable 

data for all publicly reportable swap transactions 

within a specific swap category, the Commission 

does not view the fact that more than one SDR may 

collect such data as raising any material concerns. 191See proposed amendment to § 43.2 and the 

discussion infra in this section. 

PROPOSED APPROACH—Continued 

Asset class Swap category criteria Initial implementation period Post-initial implementation 

period 167

Other Commodity ........................... By economically-related Appendix 

B to part 43 contract if the swap 

is (1) futures related and (2) the 

relevant futures contract is subject to DCM block trade 

rules 176.

Based on DCM futures block size 

by swap category 177.

By economically-related Appendix 

B to part 43 contract if the swap 

is: (1) futures related and (2) 

the relevant futures contract is 

not subject to DCM block trade 

rules 178.

No trades may be treated as 

blocks 179.

By economically-related Appendix 

B to part 43 contract if the swap 

is (1) a listed natural gas or 

electricity swap contract and (2) 

the relevant Appendix B contract is not futures related 180.

Appropriate minimum block size 

equal to $25 million 181.

By swaps that are economically 

related to the list of 18 contracts listed in § 43.6(b)(5)(ii) 182.

Based on DCM futures block size 

by swap category 183.

By Appendix D to part 43 commodity group, for swaps not 

economically related to a contract listed in Appendix B to part 

43 or to the list of 18 contracts 

listed in § 43.6(b)(5)(ii) 184.

All trades may be treated as block 

trades 185.

Equity ............................................. All equity swaps 186 ...................... No trades may be treated as blocks.187

Request for Comment 

Q29. The Commission requests 

general comment regarding its proposed 

methodologies to determine appropriate 

minimum block sizes in both 

implementation periods. 

Q29.a. In the post-initial period, 

should the Commission consider using 

the previous period’s appropriate 

minimum block size or one of the 

alternative calculation methodologies 

(as discussed in Q35 below) if the 

calculated appropriate minimum block 

size during the current period is 

extraordinarily high or low, or where 

the number of transactions in a swap 

category is small (e.g., less than 60 

transactions each six month period)? 

Q30. Should the updates of postinitial appropriate minimum block sizes 

and related calculations occur at regular 

periods of time? If so, is the proposed 

time frame for updating the appropriate 

minimum block sizes sufficient? 188

Q31. During the initial period, should 

the Commission update the appropriate 

minimum block sizes based on the 

methodologies or alternatives described 

in this proposed rulemaking? 

1. Methodology for Determining the 

Appropriate Minimum Block Sizes in 

the Interest Rate and Credit Asset 

Classes 

The Commission is proposing to use 

a 67-percent notional amount 

calculation to determine initial and 

post-initial appropriate minimum block 

sizes for swaps in the interest rate and 

credit asset classes pursuant to 

proposed §§ 43.6(c)(1) and 43.6(e)(1).189

The 67-percent notional amount 

calculation is a methodology under 

which the Commission would: (step 1) 

Select all of the publicly reportable 

swap transactions within a specific 

swap category using a rolling three-year 

window of data beginning with a 

minimum of one year’s worth of data 

and adding one year of data for each 

calculation until a total of three years of 

data is accumulated ;190 (step 2) convert 

to the same currency or units and use 

a ‘‘trimmed data set;’’ 191 (step 3) 

determine the sum of the notional 

amounts of swaps in the trimmed data 

set; (step 4) multiply the sum of the 

notional amount by 67 percent; (step 5) 

rank order the observations by notional 

amount from least to greatest; (step 6) 

calculate the cumulative sum of the 

observations until the cumulative sum 

is equal to or greater than the 67-percent 

notional amount calculated in step 4; 

(step 7) select the notional amount 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
15480 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

192For example, if the observed notional amount 

is $1,250,000, the amount should be increased to 

$1,300,000. This adjustment is made to assure that 

at least 67 percent of the total notional amount of 

transactions in a trimmed data set are publicly 

disseminated in real time. 

193The proposed calculation stands in contrast to 

the proposed 95th percentile-based distribution test 

set out in the Initial Proposal. See the discussion 

supra in section I.B. of this Further Proposal. 

194See note 83 supra. This phased-in approach 

seeks to improve transparency while not having a 

negative impact on market liquidity. 

195 7 U.S.C. 2(a)(13)(E)(iv). 

196A measure of central tendency, also known as 

a measure of location, in a distribution is a single 

value that represents the typical transaction size. 

Two such measures are the mean and the median. 

For a general discussion of statistical methods, see 

e.g., Wilcox, R. R., Fundamentals of Modern 

Statistical Methods (Springer 2d ed. 2010), (2010). 

197The Commission is actively considering the 

use of a 50-percent notional amount calculation 

methodology in the initial and/or post-initial 

periods. The rule text for the 50-percent notional 

amount calculation would be nearly identical to 

proposed § 43.6(c)(1) and (2), except for the 

insertion of ‘‘50-percent’’ where appropriate. 

associated with that observation; (step 

8) round the notional amount of that 

observation to two significant digits, or 

if the notional amount associated with 

that observation is already significant to 

two digits, increase that notional 

amount to the next highest rounding 

point of two significant digits 192; and 

(step 9) set the appropriate minimum 

block size at the amount calculated in 

step 8. An example of how the 

Commission would apply this proposed 

methodology is set forth in section VII 

of this Further Proposal. 

There were three swap categories in 

the interest rate and credit asset classes, 

which contained less than 30 

transaction records that would meet the 

definition of publicly reportable swap 

transaction. For these swap categories, 

the Commission is proposing to use the 

lowest appropriate minimum block size 

for their respective asset classes based 

on the respective data set. The three 

swap categories are: (1) Interest rate 

swap category major currency/30 years 

+; (2) interest rate swap category nonmajor currency/30 years +; and (3) CDS 

index swap category 350 bps/six-toeight years and six months. If the 

Commission were to use the proposed 

67-percent notional calculation method, 

then two of the three swap categories 

would have resulted in appropriate 

minimum block sizes higher than those 

proposed. The remaining swap category 

contained no data. 

The proposed 67-percent notional 

amount calculation is intended to 

ensure that within a swap category, 

approximately two-thirds of the sum 

total of all notional amounts are 

reported on a real-time basis. Thus, this 

approach would ensure that market 

participants have a timely view of a 

substantial portion of swap transaction 

and pricing data to assist them in 

determining, inter alia, the competitive 

price for swaps within a relevant swap 

category. The Commission anticipates 

that enhanced price transparency would 

encourage market participants to 

provide liquidity (e.g., through the 

posting of bids and offers), particularly 

when transaction prices moves away 

from the competitive price. The 

Commission also anticipates that 

enhanced price transparency thereby 

would improve market integrity and 

price discovery, while also reducing 

information asymmetries enjoyed by 

market makers in predominately opaque 

swap markets.193

In the Commission’s view, using the 

proposed 67-percent notional amount 

calculation also would minimize the 

potential impact of real-time public 

reporting on liquidity risk. The 

Commission views this calculation 

methodology as an incremental 

approach to achieve real-time price 

transparency in swap markets. The 

Commission believes that its 

methodology represents a more tailored 

and incremental step (relative to the 

approach set out in the Initial Proposal) 

towards achieving the goal of ‘‘a vast 

majority’’ of swap transactions 

becoming subject to real-time public 

reporting.194

As noted above, CEA section 

2(a)(13)(E)(iv) directs the Commission to 

take into account whether the public 

disclosure of swap transaction and 

pricing data ‘‘will materially reduce 

market liquidity.’’ 195 If market 

participants reach the conclusion that 

the Commission has set appropriate 

minimum block sizes for a specific swap 

category in a way that will materially 

reduce market liquidity, then those 

participants are encouraged to submit 

data in support their conclusion. In 

response to such a submission, the 

Commission has the legal authority to 

take action by rule or order to mitigate 

the potential effects on market liquidity 

with respect to swaps in that swap 

category. In addition, if through its own 

surveillance of swaps market activity, 

the Commission becomes aware that an 

appropriate minimum block size would 

reduce market liquidity for a specific 

swap category, then under those 

circumstances the Commission may 

exercise its legal authority to take action 

by rule or order to mitigate the potential 

effects on marketing liquidity with 

respect to swaps in that swap category. 

As referenced above, the Commission 

is proposing to amend § 43.2 of the 

Commission’s regulations to define the 

term ‘‘trimmed data set’’ as a data set 

that has had extraordinarily large 

notional transactions removed by 

transforming the data into a logarithm 

with a base of ten (Log10), computing the 

mean, and excluding transactions that 

are beyond four standard deviations 

above the mean. Proposed § 43.6(c) uses 

this term in connection with the 

calculations that the Commission would 

undertake in determining appropriate 

minimum block sizes and cap sizes. 

The Commission is proposing to use 

a trimmed data set since it believes that 

removing the largest transactions, but 

not the smallest transactions, may 

provide a better data set for establishing 

the appropriate minimum block size, 

given that the smallest transactions may 

reflect liquidity available to offset large 

transactions. Moreover, in the context of 

setting a block trade level (or large 

notional off-facility swap level), a 

method to determine relatively large 

swap transactions should be 

distinguished from a method to 

determine extraordinarily large 

transactions; the latter may skew 

measures of the central tendency of 

transaction size (i.e., transactions of 

usual size) away from a more 

representative value of the center.196

Therefore, trimming the data set 

increases the power of these statistical 

measures. 

Request for Comment 

Q32. Please provide specific comment 

regarding the Commission’s proposed 

approach to determine appropriate 

minimum block sizes for swaps in the 

interest rates and credit asset classes. 

Q32.a. Is the Commission’s proposed 

approach reasonable with respect to 

those swap categories for which there 

were less than 30 transaction records? Is 

there another appropriate minimum 

block size (either higher or lower) that 

the Commission should use for these 

swap categories? If so, then why? 

Should the Commission continue to use 

this approach in the post-initial period 

by determining whether there are less 

than 30 transaction records within a sixmonth period? 

Q33. As a variation of the proposed 

approach, should the Commission use a 

50-percent notional amount calculation 

methodology for determining the 

appropriate block sizes for these asset 

classes? If so, please explain why. If so, 

what affects would a 50-percent 

notional amount calculation have on the 

costs imposed on, and the benefits that 

would inure to, market participants and 

registered entities? 197 Are there some 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15481 

198Using the ODSG data for interest rate swaps, 

the Commission notes that the proposed 67-percent 

notional amount calculation would result in 94 

percent of trades being reported in real-time, 

compared with 86 percent of trades that would be 

reported in real-time under the alternative 50- 

percent notional amount calculation. 

Using the ODSG data for CDS, the Commission 

notes that the proposed 67-percent notional amount 

calculation would result in 94 percent of trades 

being reported in real-time, compared with 85 

percent of trades that would be reported in realtime under the alternative 50-percent notional 

amount calculation. 

parts of the swaps market for which 50- 

percent notional amount calculation 

would be a more appropriate 

methodology (e.g., actively-traded swap 

categories in the interest rates and credit 

asset classes)? The following two charts 

compare the proposed initial 

appropriate minimum block sizes (using 

the 67-percent notional amount 

calculation) for swaps in the interest 

rate and credit asset classes with 

appropriate minimum block sizes that 

would result if the Commission were to 

use the 50-percent notional amount 

calculation.198

COMPARISON OF INITIAL APPROPRIATE MINIMUM BLOCK SIZES

[Interest rate swaps] 

Currency group Tenor greater than Tenor less than or equal to 50% Notional 

(in millions) 

67% Notional 

(in millions) 

Super-Major ................................... ....................................................... Three months (107 days) ............. 3,800 6,400 

Super-Major ................................... Three months (107 days) ............. Six months (198 days) ................. 1,200 1,900 

Super-Major ................................... Six months (198 days) ................. One year (381 days) .................... 1,100 1,600 

Super-Major ................................... One year (381 days) .................... Two years (746 days) ................... 460 750 

Super-Major ................................... Two years (746 days) ................... Five years (1,842 days) ................ 240 380 

Super-Major ................................... Five years (1,842 days) ................ Ten years (3,668 days) ................ 170 290 

Super-Major ................................... Ten years (3,668 days) ................ 30 years (10,973 days) ................ 120 210 

Super-Major ................................... 30 years (10,973 days) ................ ....................................................... 67 130 

Major ............................................. ....................................................... Three months (107 days) ............. 700 970 

Major ............................................. Three months (107 days) ............. Six months (198 days) ................. 440 470 

Major ............................................. Six months (198 days) ................. One year (381 days) .................... 220 320 

Major ............................................. One year (381 days) .................... Two years (746 days) ................... 130 190 

Major ............................................. Two years (746 days) ................... Five years (1,842 days) ................ 88 110 

Major ............................................. Five years (1,842 days) ................ Ten years (3,668 days) ................ 49 73 

Major ............................................. Ten years (3,668 days) ................ 30 years (10,973 days) ................ 37 50 

Major ............................................. 30 years (10,973 days) ................ ....................................................... 15 22 

Non-Major ...................................... ....................................................... Three months (107 days) ............. 230 320 

Non-Major ...................................... Three months (107 days) ............. Six months (198 days) ................. 150 240 

Non-Major ...................................... Six months (198 days) ................. One year (381 days) .................... 110 160 

Non-Major ...................................... One year (381 days) .................... Two years (746 days) ................... 54 79 

Non-Major ...................................... Two years (746 days) ................... Five years (1,842 days) ................ 27 40 

Non-Major ...................................... Five years (1,842 days) ................ Ten years (3,668 days) ................ 15 22 

Non-Major ...................................... Ten years (3,668 days) ................ 30 years (10,973 days) ................ 16 24 

Non-Major ...................................... 30 years (10,973 days) ................ ....................................................... 15 22 

COMPARISON OF INITIAL APPROPRIATE MINIMUM BLOCK SIZES

[Credit default swaps] 

Spread group 

(basis points) Traded tenor greater than Traded tenor less than or equal to 50% Notional 67% Notional 

Less than or equal to 175 ............. ....................................................... Two years (746 days) ................... 320 510 

Less than or equal to 175 ............. Two years (746 days) ................... Four years (1,477 days) ............... 200 300 

Less than or equal to 175 ............. Four years (1,477 days) ............... Six years (2,207 days) ................. 110 190 

Less than or equal to 175 ............. Six years (2,207 days) ................. Eight years and six months (3,120 

days).

110 250 

Less than or equal to 175 ............. Eight years and six months (3,120 

days).

Twelve years and six months 

(4,581 days).

130 130 

Less than or equal to 175 ............. Twelve years and six months 

(4,581 days).

....................................................... 46 110 

Greater than 175 and less than or 

equal to 350.

....................................................... Two years (746 days) ................... 140 210 

Greater than 175 and less than or 

equal to 350.

Two years (746 days) ................... Four years (1,477 days) ............... 82 130 

Greater than 175 and less than or 

equal to 350.

Four years (1,477 days) ............... Six years (2,207 days) ................. 32 36 

Greater than 175 and less than or 

equal to 350.

Six years (2,207 days) ................. Eight years and six months (3,120 

days).

20 26 

Greater than 175 and less than or 

equal to 350.

Eight years and six months (3,120 

days).

Twelve years and six months 

(4,581 days).

26 64 

Greater than 175 and less than or 

equal to 350.

Twelve years and six months 

(4,581 days).

....................................................... 63 120 

Greater than 350 ........................... ....................................................... Two years (746 days) ................... 66 110 

Greater than 350 ........................... Two years (746 days) ................... Four years (1,477 days) ............... 41 73 

Greater than 350 ........................... Four years (1,477 days) ............... Six years (2,207 days) ................. 26 51 

Greater than 350 ........................... Six years (2,207 days) ................. Eight years and six months (3,120 

days).

13 21 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
15482 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

199Although this alternative approach presents 

several limitations (e.g., the impact of collecting 

market depth data on a regular basis), the 

Commission considers this alternative to be a viable 

option to its proposed approach discussed above. 

200Swap contracts would be determined to have 

pre-trade price transparency if they have 

electronically displayed and executable bids and 

offers along with displayed available volumes for 

execution. 

201CEA sections 4g(b), 4g(d), 5(d)(1), 5(d)(10) and 

5(d)(18) authorize the Commission to request this 

data from a DCM. CEA sections 5h(f)(5) and 

5h(f)(10) authorize the Commission to request this 

data from a SEF. The Commission would request 

such data as part of a special call process. 

202Note that this is a snapshot observation for a 

single moment in time. The Commission is not 

specifying which second within the minute would 

be analyzed when taking a snapshot of market 

depth. 

203These periods may vary from day to day and 

from contract to contract and would be defined on 

the 48 30-minute periods set to the top and bottom 

of each hour of each day (e.g., 1–1:29 p.m. 1:30– 

1:59 p.m., etc.). In instances when tie occurs in 

identifying the four 30-minute periods based on 

executed notional volumes, preference would first 

be given to the period with the largest total notional 

volume for the largest bid and offer. If a tie still 

results, then preference would be given to the 

period with the smallest difference in bids minus 

asks. Lastly, if a tie is still remains, then the period 

of time after and nearest to 12 p.m. New York time 

would be selected. 

204The range would be determined by the average 

of the largest bid and offer for that observation plus 

or minus three time the average bid-ask spread (as 

determined in step 5) for all 120 observations. 

205 In practice, the natural logarithm of the 

notional value is preferred over the nominal value 

to reduce the effect of skewness on sample 

statistics. In addition to classical statistical 

methods, the calculation of the confidence interval 

may be improved by using ‘‘bootstrapping’’ 

methods to estimate the distribution of the average 

notional trade size. See generally, Bradley Efron, 

Bootstrap Methods: Another Look at the Jackknife, 

Ann. Statist. Vol. 7, No. 1 (1979), 1–26, http://

projecteuclid.org/DPubS?service=UI&version=1.0&

verb=Display&handle=euclid.aos/1176344552 (last 

visited Jan. 31, 2012). 

206The confidence interval test assumes sufficient 

data is available in a swap category such that a 

normal distribution is a good approximation to 

compute an interval estimate. To the extent that the 

actual distribution diverges significantly from a 

normal distribution, the interval estimate may not 

reflect the probability at the desired (95 percent) 

confidence interval. In which case, other methods 

such as ‘‘bootstrapping’’ may be necessary to 

compute the confidence intervals around the full 

sample average notional size. The Commission 

notes the ODSG data sets were not normally 

distributed, but were nearly symmetric after 

trimming. Further, according to a TABB Group 

survey, many market participants expected the 

average notional transaction size to decline, which 

would have implied change in the distribution. See 

the presentation of Kevin McPartland, Principal, 

Tabb Group, CFTC Technology Advisory 

COMPARISON OF INITIAL APPROPRIATE MINIMUM BLOCK SIZES—Continued 

[Credit default swaps] 

Spread group 

(basis points) Traded tenor greater than Traded tenor less than or equal to 50% Notional 67% Notional 

Greater than 350 ........................... Eight years and six months (3,120 

days).

Twelve years and six months 

(4,581 days).

13 21 

Greater than 350 ........................... Twelve years and six months 

(4,581 days).

....................................................... 41 51 

Q34. As another variation of the 

proposed methodology, should the 

Commission change specific aspects of 

its methodology? 

Q34.a. For example, should the 

Commission define the term ‘‘trimmed 

data set’’ to exclude greater or fewer 

extremely large transactions from the 

data set used to determine appropriate 

minimum block sizes? Or, should the 

term be defined to exclude transactions 

that are three or five standard deviations 

beyond the mean? If so, should this be 

done for all asset classes? 

Q34.b. Should the Commission use 

another method for excluding outliers? 

Q35. As an alternative to the proposed 

67-percent notional amount calculation 

methodology, should the Commission 

use any of the following in the initial 

and/or post-initial periods: 

Q35.a. As an alternative approach, 

should the Commission determine 

appropriate minimum block sizes based 

on a measure of market depth and 

breadth? Market depth and breadth is 

one of several approaches in which the 

Commission could preserve market 

liquidity.199 Under this alternative, 

market depth and breadth would be 

determined using the following 

methodology: (step 1) Identify swap 

contracts with pre-trade price 

transparency within a swap category 200; 

(step 2) calculate the total executed 

notional volumes for each swap contract 

in the set from step 1 and calculate the 

sum total for the swap category over the 

look back period; (step 3) collect a 

market depth snapshot 201 of all of the 

bids and offers once each minute for the 

pre-trade price transparency set of 

contracts identified in step 1 202; (step 4) 

identify the four 30-minute periods that 

contain the highest amount of executed 

notional volume each day for each 

contract of the pre-trade price 

transparency set identified in step 1 and 

retain 120 observations related to each 

30-minute period for each day of the 

look-back period 203; (step 5) determine 

the average bid-ask spread over the 

look-back period of one year by 

averaging the spreads observed between 

the largest bid and executed offer for all 

the observations identified in step 3; 

(step 6) for each of the observations 120 

observations determined in step 4, 

calculate the sum of the notional 

amount of all orders collected from step 

3 that fall within a range,204 calculate 

the average of all of these observations 

for the look-back period and divide by 

two; (step 7) to determine the trimmed 

market depth, calculate the sum of the 

market depth determined in step 6 for 

all swap contracts within a swap 

category; (step 8) to determine the 

average trimmed market depth, use the 

executed notional volumes determined 

in step 2 and calculate a notional 

volume weighted average of the notional 

amounts determined in step 6; (step 9) 

using the calculations in steps 7 and 8, 

calculate the market breadth based on 

the following formula—market breadth 

= averaged trimmed market depth + 

(trimmed market depth¥average 

trimmed market depth) × .75; (step 10) 

set the appropriate minimum block size 

equal to the lesser of the values from 

steps 8 and 9. Would the Commission 

have to establish special swap categories 

for this approach? Would the collection 

of snapshots from a central limit order 

book be too burdensome (i.e., costly and 

time consuming) for DCMs and SEFs? 

What are the costs and benefits of 

adopting this approach? 

Q35.b. Should the Commission use a 

confidence interval test for calculating 

the appropriate minimum block sizes 

for these asset classes? 

The confidence interval test calculates 

the minimum notional value as the 

point where the publicly disseminated 

average notional size is within the 95- 

percent confidence interval using the 

following process: (step 1) Select the 

swap transaction data for a specific 

swap category; (step 2) convert to the 

same currency or units and determine 

the transaction distribution of notional 

amounts using the natural logarithm 

and trimmed data set for the swap 

category 205; (step 3) calculate the 

average notional size and the 95-percent 

confidence interval around this 

average 206; (step 4) drop the largest 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15483 

Committee Meeting, Dec. 13, 2011, available at 

http://www.cftc.gov/PressRoom/Events/opaevent

_tac121311. 

207The Commission is also considering dropping 

transactions in one-percent increments until the 

sample average moves outside the 95-percent 

confidence interval. The Commission would then 

drop transactions within the last one-percent 

increment until the actual transaction is found that 

moves the sample mean outside of the confidence 

interval. 

208Brown, R.L., J. Durbin, and J.M. Evans, 

‘‘Techniques for Testing the Constancy of 

Regression Relationships over Time,’’ Journal of the 

Royal Statistical Society, B, 37, 149–163 (1975). 

209 If the Commission were applying this 

methodology to the initial period, then a rolling 

three-year window of data, beginning with a 

minimum of one year’s worth of data, may not be 

available. In that case, the Commission would use 

the ODSG data where applicable. 

210As with the confidence interval test, this test 

assumes a normal distribution, and as such, will 

follow similar procedures to those outlined in note 

206 supra. 

211For example, the Commission would order all 

publicly reportable swap transactions in a swap 

category by notional amount. After ordering these 

swap transactions, the Commission would set the 

appropriate minimum block size at the notional 

amount that corresponds to the 80th percentile. See 

note 15 supra for a discussion of the distribution 

test, which was proposed in the Initial Proposal. 

212The Commission is considering using a 

measure of the average volume in time (‘‘AVIT’’) to 

determine the minimum block size since liquidity 

may not be directly observable in the market and 

historical trading volume is one indicator of (or 

proxy for) liquidity. Incorporating a measure of 

liquidity into the calculation of block sizes is 

important given that section 2(a)(13)(E)(iv) of the 

CEA requires the Commission to take into account 

whether public disclosure will materially reduce 

market liquidity. Moreover, calculating the AVIT 

for a 15-minute time period may serve as a proxy 

for the expected volume that could normally be 

transacted in the time between a block trade being 

executed and being publicly reported. See 7 U.S.C. 

2(a)(13)(E)(iv). 

213The transactions in the data sets for the 

interest rate and credit asset classes which the 

Commission is using in the initial period are not 

time stamped. However, SDRs will receive timestamped swap transactions under real time 

reporting rules, which will then be remitted to the 

Commission. 

214 In the post-initial period when time-stamped 

transaction data will be available, the Commission 

could use a calculation based on actual transaction 

times. For example, the average volume could be 

calculated for each clock hour (e.g., 8:00–:859 a.m.) 

in each business day by summing the notional sizes 

of all transactions for a 12-month time period in 

each clock hour and dividing by the total number 

of business days. Thereafter, the Commission would 

calculate the 15-minute volume. 

215The Commission believes a composite test 

may increase the flexibility (i.e., robustness) of 

setting minimum block sizes by using methods 

which are more appropriate in certain 

circumstances. For example, the Commission 

recognizes that certain methods may have 

limitations, including statistical breakdown points 

given certain distributions of transactions. Hence, it 

may be that no single test optimally sets block sizes 

under all distributions of transactions. A composite 

test may be more appropriate than any single test 

in setting block sizes across the wide variety of 

products that comprise the various swap categories 

and asset classes. In the event sample sizes are 

small, methods such as the social size, 50-percent 

distribution test, and AVIT may not produce results 

Continued 

remaining transaction from the 

distribution 207; (step 5) conditional on 

the full-sample 95-percent confidence 

interval, calculate the sample average 

notional size using the data resulting 

from step 4; (step 6) if the sample 

average notional size is not outside of 

the 95-percent confidence interval, 

repeat steps 4 and 5 until it is just 

outside of the 95-percent confidence 

interval; (step 7) once the sample 

average notional size is outside the 95- 

percent confidence interval, set the 

minimum notional value equal to the 

notional value; (step 8) round the 

notional amount of that observation to 

two significant digits, or if the notional 

amount associated with that observation 

is already significant to two digits, 

increase that notional amount to the 

next highest rounding point of two 

significant digits; and (step 9) set the 

appropriate minimum block size equal 

to the largest transaction of the 

distribution for which the sample 

average notional size was still within 

the 95-percent confidence interval. 

What are the costs and benefits 

associated with using this alternative 

approach? 

Q35.c. Should the Commission use a 

stability test that makes use of 

‘‘CUSUM’’ and/or ‘‘CUSUM of Square’’ 

methods? 208 The Commission would 

define the stability test calculation as a 

process whereby the Commission 

would: (step 1) In the post-initial 

period, select swap transaction data for 

a specific swap category over a specified 

period (e.g., a rolling window of three 

years of such data at one year 

intervals) 209; (step 2) trim the 

extraordinarily large notional 

transactions from the swap transaction 

data by converting the data series into 

natural logarithm value equivalents, 

determining the mean, and excluding 

transactions that are beyond four 

standard deviations above the mean; 

(step 3) reposition the largest 

transactions back into a time-ordered 

trade sequence based on the reporting 

delay using one-percent sample 

increments of the largest transactions; 

(step 4) measure stability of this 

repositioning by calculating the fraction 

of observations violating the 95-percent 

confidence interval in the ‘‘CUSUM’’ 

and ‘‘CUSUM of Squares’’ methods 210; 

and (step 5) identify the increment that 

causes the least change in stability of 

the average notional trade size 

compared to a non-repositioned 

sequence. The notional size cutoff for 

this increment would become the 

appropriate minimum block size in that 

swap category. If the test above does not 

produce a disruption in the stability of 

the average notional trade size, then the 

Commission would use the 67-percent 

notional amount calculation 

methodology. What are the costs and 

benefits associated with using this 

alternative approach? 

Q35.d. Should the Commission utilize 

a percentile-based methodology to 

determine appropriate minimum block 

sizes that would focus on the number of 

trades? 211

Q35.e. Should the Commission use a 

measure of average volume in a given 

time period 212 as a proxy for liquidity 

in order to calculate the appropriate 

minimum block size? The Commission 

is considering two alternatives for 

calculating appropriate minimum block 

size using this methodology: (1) Setting 

the initial appropriate minimum block 

size using daily volume when timestamped transactions are not available; 

or (2) setting the post-initial block sizes 

once time-stamped transactions become 

available.213 The methodology for 

setting initial appropriate minimum 

block size in the swap categories in the 

interest rate and credit asset classes 

would use the ODSG data sets to 

calculate the minimum notional value 

for a block using the following 

procedure for a given swap category: 

(step 1) Sum the notional volume of all 

trades within the swap category for each 

day for the ODSG data set; (step 2) 

calculate an estimate of the average 

volume in a 15-minute time period for 

each day by dividing the sum from step 

1 by 32 (there are 32, 15-minute 

increments in an 8-hour time period, 

which is the presumed active trading 

period) 214; (step 3) calculate the daily 

average for the ODSG data set by 

summing each day’s estimated 15- 

minute average volume calculated in 

step 2 and dividing it by the total 

number of business days in the ODSG 

data set; and (step 4) multiply the daily 

average of the 15-minute average 

volume in time (‘‘AVIT’’) by a factor of 

two to determine the minimum block 

size. 

Q35.f. As a variation of the AVIT 

methodology, should the Commission 

instead examine the volume of a portion 

of trades? For example, should the 

Commission examine volumes during 

the most active periods of a day, month 

or quarter? Or should the Commission 

only examine volume associated with a 

net change in position by counterparties 

during the delay period or the end of the 

day? 

Q35.g. Should the Commission 

consider using a combination of the 

proposed and alternative tests as part of 

a composite test? 215 A composite test 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
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that adequately differentiate large swap transactions 

in need of block consideration. In addition, the 95% 

confidence interval test could be included in a 

composite test to ensure that the level of 

transparency provided by the real-time publicly 

reported tape is representative of the actual data. 

216See note 15 supra. 

217For example, shredding by market participants 

may cause a marked decrease in the average 

notional size of transactions as a participant 

executes numerous smaller transactions as opposed 

to a single large transaction. It is possible that even 

as total notional volume in a market increases, and 

by assumption liquidity increases, measures of 

average trade size fall, causing calculations based 

on the notional distribution of transactions to 

suggest lower block sizes. If shredding becomes 

standard practice in a market, then using only the 

social size or the 67-percent notional amount 

calculation method would result in low minimum 

block sizes which would not reflect the true size of 

a transaction and would not adequately determine 

what constitutes ‘‘large notional swap transactions’’ 

(i.e., block trades) in particular markets. Section 

2(a)(13)(E)(ii) of the CEA requires that the 

Commission ‘‘specify the criteria for determining 

what constitutes a large notional swap transaction 

(block trade) for particular markets and contracts.’’ 

7 U.S.C. 2(a)(13)(E)(ii). 

218See note 16 supra for a description of the 

multiple test. 

would combine a number of methods to 

determine potential block size and 

would include switching rules to select 

the appropriate block size from among 

the methods. An example of a simple 

switching rule is to select the largest 

result from among a number of 

alternative methods. For example, a 

general composite test to calculate the 

block size would consist of setting the 

appropriate minimum block size to the 

greater of the results using (a) 50- 

percent distribution test,216 (b) AVIT 

method and (c) social size. In this 

example, three methods are used and a 

simple switching rule would use the 

largest value resulting from the three 

methods. The example composite test 

ensures that a minimum block size 

would be equal to the larger of the three 

component tests, and thus ensures a 

minimal acceptable level of 

transparency.217 The Commission 

recognizes that alternative switching 

rules may be more appropriate, such as 

taking the lower of two or more 

individual tests or taking the average of 

two or more tests to produce the 

appropriate minimum block size, and 

seeks comments on the use of 

alternative switching methods. The 

Commission invites comments on the 

use of a composite test as an alternative 

to a single method and on whether a 

composite test should be used to 

determine the appropriate minimum 

block size. If so, which methods should 

be included and what switching rule(s) 

should be used? Why would such an 

alternative be appropriate? 

Q35.h. Should the Commission use a 

methodology that takes into 

consideration the impact of trade sizes 

on prices in the swap markets while 

determining post-interim minimum 

block sizes? 

Q35.i. Should the Commission use a 

variation of the multiple test, which was 

proposed in the Initial Proposal? 218 For 

example, should the Commission 

remove one or more of the components 

of the test (i.e., should the Commission 

remove the mean, median or mode)? 

Should the components be weighted? 

Should the multiplier be increased or 

decreased? 

2. Treatment of Swaps Within the 

Equity Asset Class 

The Commission is proposing under 

§ 43.6(d) that all swaps in the equity 

asset class would not qualify for 

treatment as a block trade or large 

notional off-facility swap (i.e., these 

swaps would not be subject to a time 

delay under part 43). As noted above, 

the Commission is proposing this 

approach based on: (1) The existence of 

a highly liquid underlying cash market; 

(2) the absence of time delays for 

reporting block trades in the underlying 

equity cash market; (3) the small relative 

size of the equity index swaps market 

relative to the futures, options and cash 

equity index markets; and (4) the 

Commission’s goal to protect the price 

discovery function of the underlying 

equity cash market and futures market 

by ensuring that the Commission does 

not create an incentive to engage in 

regulatory arbitrage among the cash, 

swaps, and futures markets. 

Request for Comment 

Q36. Please provide specific 

comments regarding the Commission’s 

proposed approach to disallow swaps in 

the equity asset class from being eligible 

for treatment as a block trade or large 

notional off-facility swap. 

Q37. In the alternative, should the 

Commission employ a phased-in 

approach with respect to swaps in the 

equity asset class, whereby during the 

initial period all swaps in this asset 

class would be eligible for treatment as 

block trades or large notional off-facility 

swaps? 

Q37.a. If so, then on what basis would 

the Commission follow this alternative 

approach? 

Q38. As a second alternative, should 

the Commission establish post-initial 

appropriate minimum block sizes for 

swaps in the equity asset class using the 

50-percent notional amount calculation? 

Q38.a. If not a 67-percent notional 

amount calculation, then what other 

calculation methodology could the 

Commission adopt? For example, the 

Commission could establish appropriate 

minimum block sizes for swaps in the 

equity asset class at 0.002 percent of 

average market capitalization for 

publicly-listed equity indexes, and at 

some lower threshold (e.g., 0.00175 

percent) for custom equity indexes in 

recognition of possible marginal 

increased liquidity risk associated with 

these indexes. 

Q38.b. Should the Commission 

establish post-initial appropriate 

minimum block sizes for swaps in the 

equity asset class using one of the 

alternative methodologies discussed in 

Q35 above? 

Q39. As a third alternative, should the 

Commission adopt and then increase 

the 67-percent notional amount 

calculation over time? If so, why? For 

example, for each year after the 

implementation of post-initial 

appropriate minimum block sizes, 

should the notional amount calculation 

threshold increase by five or ten 

percentage points until a maximum of 

95-percent notional amount is reached? 

Is this alternative appropriate for swaps 

in other asset classes? 

Q40. As a fourth alternative, should 

the Commission apply an approach that 

uses a different calculation methodology 

based on the underlying liquidity in a 

swap category to determine the 

calculation methodology used to 

determine the appropriate minimum 

block size? If so, what measures of 

liquidity should the Commission use to 

determine appropriate categorization of 

swap categories into low, medium, or 

high liquidity swaps within the equity 

asset class? Is this alternative 

appropriate for swaps in other asset 

classes? 

Q40.a. Would a 33, 50 and 67-percent 

notional amount calculation be 

appropriate for low, medium, or high 

liquidity swap categories respectively? 

3. Methodologies for Determining the 

Appropriate Minimum Block Sizes in 

the FX Asset Class 

The Commission is proposing to use 

different methodologies for the initial 

and post-initial periods to determine 

appropriate minimum block sizes for 

swaps categories in the FX asset class. 

The Commission’s proposed approach is 

premised on the absence of actual 

market data on which to determine 

appropriate minimum block sizes in the 

initial period. Subsection a. below 

includes a discussion of the initial 

period methodology. Subsection b. 

below includes a discussion of the postinitial period methodology. 


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219The Commission is proposing to amend § 43.2 

to define ‘‘futures related swap’’ to mean a swap (as 

defined in section 1a(47) of the Act and as further 

defined by the Commission in implementing 

regulations) that is economically related to a futures 

contract. 

220For example, if swap A is economically 

related to futures F, and futures F is subject to the 

block trade rules of a DCM that applies at a notional 

amount of $1 million, then swap A would qualify 

for treatment as a block trade or large notional offfacility swap if the notional amount of swap A 

exceeds $1 million. 

221 In situations when two or more DCMs offer for 

trading futures contracts that are economically 

related, the Commission has selected the lowest 

applicable non-zero futures block size as the initial 

appropriate minimum block size. The Commission 

believes that this approach would reduce the 

chance that the appropriate minimum block size 

established by the Commission in the initial period 

would have an unintended adverse effect on market 

liquidity for the relevant swap category. 

222See Q18 supra, which sets forth an alternative 

approach to proposed swap categories based on 

unique currency combinations. 

223The Commission notes further that DCMs 

historically have had the appropriate incentive to 

balance these considerations because they benefit 

from liquidity generally (i.e., commissions from 

transaction volume in block and non-block trades 

provides DCMs with their primary source of 

revenue). 

224The Commission is of the view that the pretrade and post-trade contexts are sufficiently similar 

in that policies directed at balancing transparency 

and liquidity concerns in a pre-trade context are 

relevant in considering what an appropriate balance 

is in the post-trade context. In the pre-trade context, 

block sizes are set near or at the point where a 

trader would be able to offset the risk of an equally 

large transaction without bearing liquidity risk. 

225Core Principle 9 of section 5(d) of the CEA 

provides that a DCM ‘‘shall provide a competitive, 

open, and efficient market and mechanism for 

executing transactions * * *.’’ 7 U.S.C. 7(d)(9). 

Current appendix B to part 38 of the Commission’s 

regulations provides that in order to maintain 

compliance with core principle 9, DCMs allowing 

block trading ‘‘should ensure that the block trading 

does not operate in a manner that compromises the 

integrity of prices or price discovery on the relevant 

market.’’ See 17 CFR 38 app. B. 

226Section 40.6 of the Commission’s regulations 

include a process by which registered entities may 

certify rules or rule amendments that establish or 

change block trade sizes for futures contracts. See 

17 CFR 40.6. 

227Correlations among all members of a group of 

economically related swaps or futures contracts 

may vary, for the purpose of determining 

appropriate minimum block sizes. As a general 

matter, however, such swaps correlate closely in 

price. See § 36.3 of the Commissions regulations. 

228For example, futures based on Canadian dollar 

(CAD) and Australian dollar (AUD) currency 

pairings are not offered on a DCM while Canadian 

dollar/U.S. dollar DCM futures contracts and 

Australian dollar/U.S. dollar futures contracts are 

offered on a DCM. Therefore, the Canadian dollar 

and Australian dollar can be indirectly paired 

through their common relationship with U.S. 

dollar-linked FX futures. 

229For example, the Canadian dollar/U.S. dollar 

DCM futures contract is subject to a block size of 

10,000,000 CAD and the Australian dollar/U.S. 

dollar is subject to a block size of 10,000,000 AUD. 

The Commission would base the appropriate 

minimum block size for AUD/CAD swaps on the 

lower of 10,000,000 CAD and 10,000,000 AUD. 

a. Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the FX Asset Class 

During the initial period, the 

Commission is proposing under 

§ 43.6(e)(1) to set the appropriate 

minimum block sizes for swaps in the 

FX asset class based on whether such 

swap is economically related to a 

futures contract. For futures-related 

swaps in the FX asset class, proposed 

§ 43.6(e)(1) provides that the 

Commission would establish the 

appropriate minimum block sizes for 

futures-related swaps 219 based on the 

block trade size thresholds set by DCMs 

for economically-related futures 

contracts.220 The Commission has set 

forth the initial appropriate minimum 

block sizes in proposed appendix F to 

part 43 of the Commission’s 

regulations.221 The Commission 

anticipates that this approach would 

encompass the most liquid FX swaps 

and instruments, including most supermajor currencies combinations, as well 

as most super-major and major 

currencies combinations. This approach 

also would further encompass many 

important super-major-and-major 

combinations and super-major-and-nonmajor currency combinations.222 The 

Commission believes that this proposed 

approach is appropriate during the 

initial period in the absence of actual 

swap data for two reasons. First, the 

Commission aims to deter regulatory 

arbitrage opportunities with respect to 

swaps that are economically related to 

futures contracts. In the Commission’s 

experience, futures and swap contracts 

that are economically related form one 

part of a larger derivatives market and, 

as such, should be subject to consistent 

block trade regulations (i.e., time delays, 

methodologies for calculating block 

trade sizes, etc.) in order to minimize 

the potential for regulatory arbitrage. 

Second, this proposed approach 

during the initial period would draw 

upon the experience of DCMs in 

considering the potential impacts on 

liquidity risk that enhanced 

transparency may cause in connection 

with futures contract execution.223 The 

Commission understands that DCMs 

have set block sizes primarily in 

consideration of the objectives of 

enhancing pre-trade transparency and 

reducing liquidity risk.224 The 

Commission notes that DCMs are 

required to set block sizes for futures in 

compliance with relevant core 

principles (including Core Principle 

9) 225 and part 40 of the Commission’s 

regulations.226

Swap contracts and futures contracts 

that are economically related—as 

defined by the Commission in the 

proposed amendment to § 43.2—are 

economic substitutes for the purpose of 

determining an appropriate minimum 

block size.227 Where swap positions are 

economically related to futures 

positions, parties would likely have an 

incentive to conduct regulatory arbitrage 

by trading swaps. This incentive is 

created because swap positions provide 

counterparties with the ability to keep 

the nature of their trade confidential. 

Accordingly, the Commission is 

proposing to adopt the same block sizes 

established by DCMs in futures markets 

for futures-related swaps in order to 

ensure consistent levels of market 

transparency across futures and swaps 

markets that are economically related. 

For non-futures related swaps in the 

FX asset class in the initial period of 

implementation, the Commission is 

proposing under § 43.6(e)(2) that all 

non-futures-related swaps in the FX 

asset class would qualify to be treated 

as block trades or large notional offfacility swaps (i.e., these swaps would 

be subject to a time delay under part 43 

of the Commission’s regulations). The 

Commission expects that this provision 

only would apply to the most illiquid 

swaps. 

Request for Comment 

Q41. Please provide specific 

comments regarding the Commission’s 

proposed approach to prescribe initial 

appropriate minimum block sizes for 

swaps in the FX asset class. 

Q41.a. As a variation of the proposed 

approach, should the Commission use a 

‘‘triangulated’’ approach for setting 

specific appropriate minimum block 

sizes in the initial period for FX swaps 

and instruments involving pairings of 

currencies that are not included in a 

single FX futures contract but whose 

currency legs can be indirectly paired 

through a common FX futures contract 

pairing with a third currency? 228 That 

is, the Commission would infer an 

appropriate minimum block size for 

pairings not subject to a common block 

size by comparing the DCM block sizes 

that apply to each pair with respect to 

the U.S. dollar and choosing the lower 

of the two block sizes.229 This approach 

would enable the Commission to 

prescribe an appropriate minimum 

block size for all pairings involving all 

combinations of super-major and major 

currencies (except those involving the 

Danish krone). 

Q42. As an alternative to the proposed 

approach, should the Commission treat 

all FX swaps and instruments in the 

same manner as it is proposing to treat 

all equity swaps under § 43.6(d) (i.e., all 

FX swaps and instruments would not be 

subject to a time delay and as a result 


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230For example, swaps with a tenor of less than 

one or three months. 

231See proposed § 43.6(b)(5)(i). 

232These futures contracts are: CME Cheese; 

CBOT Distillers’ Dried Grain; CBOT Dow Jones-UBS 

Commodity Index Excess Return; CBOT Ethanol; 

CME Frost Index; CME Goldman Sachs Commodity 

Index (GSCI) (GSCI Excess Return Index); NYMEX 

Gulf Coast Gasoline; Gulf Coast Sour Crude Oil; 

NYMEX Gulf Coast Ultra Low Sulfur Diesel; CME 

Hurricane Index; CME International Skimmed Milk 

Powder; NYMEX New York Harbor Ultra Low 

Sulfur Diesel; CBOT Nonfarm Payroll; CME Rainfall 

Index; CME Snowfall Index; CME Temperature 

Index; CME U.S. Dollar Cash Settled Crude Palm 

Oil; and CME Wood Pulp. See proposed 

§ 43.6(b)(5)(ii). 

233See proposed § 43.6(b)(5)(iii). 

234The Commission notes that pursuant to 

proposed § 43.6(b)(5)(i), each of the listed natural 

gas and electricity swap contracts proposed to be 

listed in appendix B to part 43 would be considered 

its own swap category. 

235The futures contracts that are currently listed 

on appendix B to part 43 are the 28 Enumerated 

Reference Contracts plus Brent Crude Oil (ICE). The 

13 swap contracts that the Commission is proposing 

to add to appendix B to part 43 of the Commission’s 

regulations in this Further Proposal are not futures 

contracts. 

236 In situations when two or more DCMs offer for 

trading futures contracts that are economically 

related, the Commission has selected the lowest 

applicable non-zero futures block size among the 

DCMs as the initial appropriate minimum block 

size. The Commission believes that this approach 

would reduce the chance that the appropriate 

minimum block size established by the Commission 

in the initial period would have an unintended 

adverse effect on market liquidity for the relevant 

swap category. 

237These non-futures related swaps are not 

economically related to one of the futures contracts 

listed in proposed appendix B to part 43 or in 

proposed § 43.6(b)(5)(ii). See proposed 

§ 43.6(b)(5)(iii). 

238For example, the Commission could set an 

appropriate minimum block size at $25 million or 

treat all of these swaps as block trades or large 

notional off-facility swaps. 

would have to be publicly disseminated 

as soon as technological practicable)? 

The Commission would premise this 

alternative on: (1) The existence of very 

liquid FX spot, futures and forwards 

markets; and (2) the absence of a 

centralized FX market structure. 

Q43. For longer-dated tenor 

transactions, should the Commission 

establish appropriate minimum block 

sizes at a fraction of the block trade 

sizes set by DCMs? This variation to the 

proposed approach would be based on 

the premise that longer-dated swaps 

may be less liquid. 

Q43.a. If so, then for which specific 

futures-related swap contracts? What is 

an appropriate fraction? For which 

tenors should the fraction apply (e.g., 

tenors beyond three months, one year, 

two years, etc.)? 

b. Post-Initial Methodology for 

Determining Appropriate Minimum 

Block Sizes in the FX Asset Class 

In the post-initial period, the 

Commission is proposing under 

§ 43.6(f)(2) to utilize the 67-percent 

notional amount calculation to 

determine appropriate minimum block 

sizes for swap categories in the FX asset 

class. That is, the Commission would 

group all publicly reportable swap 

transactions in the FX asset class into 

their respective swap categories and 

then apply the 67-percent notional 

amount calculation to determine the 

appropriate minimum block sizes. 

Request for Comment 

Q44. Should the Commission 

continue to utilize the initial 

appropriate minimum block sizes for 

futures-related FX swaps as a minimum 

or floor appropriate minimum block size 

in the post-initial period? Should this 

floor level only apply to short-dated 

tenors? 230

Q45. Should the Commission 

establish post-initial appropriate 

minimum block sizes for swaps in the 

FX asset class using one of the 

alternative methodologies discussed in 

Q35 above? 

4. Methodologies for Determining 

Appropriate Minimum Block Sizes in 

the Other Commodity Asset Class 

The Commission is proposing to use 

different methodologies for the initial 

and post-initial periods to determine 

appropriate minimum block sizes for 

swaps categories in the other 

commodity asset class. The proposed 

methodology for determining the 

appropriate minimum block sizes in the 

initial period differs based on the three 

types of other commodity swap 

categories: (1) Those swaps based on 

contracts listed in appendix B to part 43 

of the Commission’s regulations 231; (2) 

swaps that are economically related to 

certain futures contracts 232; and (3) 

other swaps.233 The Commission has set 

initial appropriate minimum block sizes 

for publicly reportable swap 

transactions in which the underlying 

asset directly references or is 

economically related to the natural gas 

or electricity swap contracts proposed to 

be listed in appendix B to part 43 of the 

Commission’s regulations.234 The 

proposed methodology for determining 

the appropriate minimum block sizes 

for other commodity swaps in the postinitial period follows the same 

methodology used for determining the 

post-initial appropriate minimum block 

sizes in the interest rate, credit and FX 

asset classes. A more detailed 

description of the methodologies during 

the initial and post-initial periods, as 

well as the rules for the special 

treatment of listed natural gas and 

electricity swaps are presented in the 

subsections below. 

a. Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the Other Commodity 

Asset Class (Other Than Natural Gas 

and Electricity Swaps Proposed To Be 

Listed in Appendix B to Part 43) 

With respect to swaps that reference 

or are economically related to one of the 

futures contracts listed in appendix B to 

part 43 235 or proposed § 43.6(b)(5)(ii), 

the Commission would set the 

appropriate minimum block size based 

on the block sizes for related futures 

contracts set by DCMs.236 For swaps 

that reference or are economically 

related to a futures contract listed in 

appendix B to part 43 that is not subject 

to a DCM block trade rule, the 

Commission proposes in § 43.6(e)(3) to 

disallow treatment as a block trade or 

large notional off-facility swap. The 

Commission bases this approach on an 

inference that DCMs have not set block 

trade rules for certain futures contracts 

because of the degree of liquidity in 

those futures markets. 

In the initial period, the Commission 

provides in proposed § 43.6(e)(2) to treat 

all non-futures-related swaps 237 in the 

other commodity asset class as block 

trades or large notional off-facility 

swaps (i.e., these swaps would be 

subject to a time delay under part 43, 

irrespective of notional amount). The 

Commission currently believes that nonfutures-related swaps in the other 

commodity asset class generally have 

lower liquidity in contrast to the more 

liquid interest rate, credit and equity 

asset classes, as well as other 

commodity swaps that are economically 

related to liquid futures contracts (i.e., 

those futures contracts listed in 

proposed appendix B to part 43). 

Request for Comment 

Q46. Should the Commission allow 

swaps that are economically related to 

futures contracts listed on appendix B to 

part 43 (but are not subject to a DCM’s 

block trade rules) to qualify as block 

trades or large notional off-facility 

swaps—i.e., should the Commission not 

finalize § 43.6(e)(3) as proposed? If so, 

how should the Commission determine 

the initial appropriate minimum block 

size for such contracts? 238

Q47. Please provide comment 

regarding the Commission’s current 

belief that non-futures-related swaps in 

the other commodity asset class 

generally have lower liquidity in 

contrast to the more liquid interest rate, 

credit and equity asset classes, as well 


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239See, e.g., Statement of Richard McMahon, on 

Behalf of the Edison Electric Institute, the American 

Gas Association and the Electric Power Supply 

Association, before the Committee on Agriculture, 

U.S. House of Representatives, Mar. 31, 2011 

(‘‘[Utilities and energy companies] need the ability 

to use OTC swaps because existing futures contracts 

cover limited natural gas and electricity delivery 

points. The derivatives market has proven to be an 

extremely effective tool in insulating [their] 

customers from this risk and price volatility. 

Utilities and energy companies use both exchange 

traded and cleared and OTC swaps for natural gas 

and electric power to hedge commercial risk. About 

one-half of our gas swaps and about one-third of our 

power swaps are traded on exchanges.’’). 

240For a discussion of interim and initial cap 

sizes, see section III.A supra of this Further 

Proposal. 

241For example, swaps with a tenor of less than 

one or three months. 

242The Commission is proposing to amend § 43.2 

to define ‘‘swaps with composite reference prices’’ 

as swaps based on reference prices composed of 

more than one reference price that are in differing 

swap categories. The Commission is proposing to 

use this term in connection with the establishment 

of a method through which parties to a swap 

transaction can determine whether a component to 

their swap would qualify the entire swap as a block 

trade or large notional off-facility swap. 

243The Commission is proposing to amend § 43.2 

of the Commission’s regulations by defining the 

term ‘‘physical commodity swap’’ as a swap in the 

other commodity asset class that is based on a 

tangible commodity. 

as in contrast to other commodity swaps 

that are economically related to liquid 

futures contracts. 

b. Initial Period Methodology for 

Natural Gas and Electricity Swaps in the 

Other Commodity Asset Class Proposed 

To Be Listed in Appendix B to Part 43 

For swaps in which the underlying 

asset references or is economically 

related to one of the natural gas or 

electricity swaps listed in appendix B to 

part 43, the Commission is proposing to 

treat such natural gas and electricity 

swaps differently than other publicly 

reportable swap transactions in the 

other commodity asset class when 

setting the initial appropriate minimum 

block sizes. The Commission recognizes 

that traders typically offset their 

positions in the natural gas and 

electricity markets through trading OTC 

forward contracts, swaps, plain vanilla 

options, non-standard options and other 

customized arrangements since existing 

futures contracts listed on DCMs only 

cover a limited number of electricity 

delivery points.239 As discussed in 

section III.C.4 below, the Commission is 

proposing to amend appendix B to part 

43 of the Commission’s regulations to 

add 13 natural gas and electricity swap 

contracts, which the Commission 

previously has determined to be liquid 

contracts serving a price discovery 

function. Accordingly, the Commission 

is proposing that for all swaps that 

reference natural gas or electricity swap 

contracts proposed to be listed in 

appendix B to part 43 of the 

Commission’s regulations, the 

Commission would set the initial 

appropriate minimum block size at $25 

million, which corresponds to the level 

of the interim and initial cap sizes.240

The $25 million initial appropriate 

minimum block size would be applied 

to natural gas and electricity swaps that 

reference or are economically related to 

the natural gas and electricity swap 

contracts proposed to be listed in 

appendix B to part 43 of the 

Commission’s regulations. 

Request for Comment 

Q48. Please provide specific 

comments regarding the Commission’s 

proposed approach to determine the 

initial appropriate minimum block sizes 

for publicly reportable swap 

transactions that reference or are 

economically related to natural gas or 

electricity swap contracts proposed to 

be listed in appendix B to part 43 of the 

Commission’s regulations. 

Q49. Should the initial appropriate 

minimum block size for the publicly 

reportable swap transactions that 

reference the natural gas or electricity 

swaps proposed to be listed be greater 

than or lower than $25 million? If so, 

then why? 

Q50. Should the appropriate 

minimum block sizes for the gas and 

electricity swap contracts proposed to 

be listed in appendix B to part 43 of the 

Commission’s regulations be different 

based on the referenced underlying 

assets? If so, how should the appropriate 

minimum block sizes be differentiated 

and at what levels should the 

appropriate minimum block sizes be 

set? Please provide data to support your 

comment. 

Q51. Are there other swaps within the 

other commodity asset class that should 

be treated in a manner similar to the 

manner being proposed for the publicly 

reportable swap transactions that 

reference or are economically related to 

the natural gas and electricity swap 

contracts proposed to be listed in 

appendix B to part 43 of the 

Commission’s regulations? If so, which 

underlying assets should be treated the 

same and why? 

c. Post-Initial Period Methodology for 

Determining Appropriate Minimum 

Block Sizes in the Other Commodity 

Asset Class 

In the post-initial period, the 

Commission provides in proposed 

§ 43.6(f)(3) to determine appropriate 

minimum block sizes for swaps in the 

other commodity asset class by using 

the 67-percent notional amount 

calculation set forth in proposed 

§ 43.6(c)(1). The 67-percent notional 

amount calculation would be applied to 

publicly reportable swap transactions in 

each swap category observed during the 

appropriate time period. 

Request for Comment 

Q52. The Commission requests 

specific comment regarding its proposed 

methodology to determine post-initial 

appropriate minimum block sizes for 

the swap categories in the other 

commodity asset class. 

Q53. As an alternative to the proposed 

methodology, should the Commission 

continue to utilize the initial 

appropriate minimum block sizes for 

futures-related swaps in the other 

commodity asset class as a minimum or 

floor in the post-initial period? If so, 

then should this floor only apply to 

short-dated tenors? 241

Q54. As another alternative, for the 

swap categories in the other commodity 

class that fall under proposed 

§ 43.6(b)(5)(iii), should the Commission 

group these swaps under a single 

category and apply a single default 

appropriate minimum block size to all 

swaps in the category? 

Q54.a. If so, then should the 

Commission set the default appropriate 

minimum block size without regard to 

observed data or by some other 

mechanism? 

Q54.b. If the Commission sets the 

default appropriate minimum block size 

without regard to observed data, then at 

what levels should the Commission set 

appropriate minimum block sizes? For 

example, should the Commission set the 

appropriate minimum block size at $25 

million? 

5. Special Provisions for the 

Determination of Appropriate Minimum 

Block Sizes for Certain Types of Swaps 

The Commission recognizes the 

complexity of the swap market may 

make it difficult to determine 

appropriate minimum block sizes for 

particular types of swaps under the 

methodologies discussed above. For that 

reason, the Commission is proposing 

§ 43.6(h), which sets out a series of 

special rules that apply to the 

determination of the appropriate 

minimum block sizes for particular 

types of swaps. The Commission is 

proposing special rules in respect of: (a) 

Swaps with optionality; (b) swaps with 

composite reference prices 242; (c) 

‘‘physical commodity swaps’’ 243; (d) 

currency conversions; and (e) successor 


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15488 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

244 In essence, this approach would assume a 

delta factor of one with respect to the underlying 

swap for swaptions. 

245Swaps with composite reference prices are 

composed of reference prices that relate to one 

another based on the difference between two or 

more underlying reference prices—for example, a 

locational basis swap (e.g., a natural gas Rockies 

Basis swap) that utilizes a reference price based on 

the difference between a price of a commodity at 

one location (e.g., a Henry Hub index price) and a 

price at another location (e.g., a Rock Mountains 

index price)). 

246 In other words, swaps with a composite 

reference price composed of reference prices that 

relate to one another based on an additive 

relationship. This term would include swaps that 

are priced based on a weighted index of reference 

prices. 

247See proposed § 43.6(b)(1)(i) and the related 

discussion in section II.B.1. of this Further 

Proposal. 

248See the proposed amendment to § 43.2, 

defining ‘‘super-major currencies.’’ 

249The 17 countries that use the euro are: Austria, 

Belgium, Cyprus, Estonia, Finland, France, 

Germany, Greece, Ireland, Italy, Luxembourg, 

Malta, the Netherlands, Portugal, Slovakia, Slovenia 

and Spain. 

250See proposed § 43.6(h)(6)(i). 

currencies. Each of these special rules is 

discussed in the subsections below. 

a. Swaps With Optionality 

A swap with optionality highlights 

special concerns in terms of 

determining whether the notional size 

of such swap would be treated as a 

block trade or large notional off-facility 

swap. Proposed § 43.6(h)(1) addresses 

these concerns and provides that the 

notional size of swaps with optionality 

shall equal the notional size of the swap 

component without the optional 

component. For example, a LIBOR 3- 

month call swaption with a calculated 

notional size of $9 billion for the swap 

component—regardless of option 

component, strike price, or the 

appropriate delta factor—would have a 

notional size of $9 billion for the 

purpose of determining whether the 

swap would qualify as a block trade or 

large notional off-facility swap.244

The Commission is proposing to take 

this approach with respect to swaps 

with optionality because, in the 

Commission’s view, it provides an 

easily calculable method for market 

participants to ascertain whether their 

swaps with optionality features would 

qualify as a block trade or large notional 

off-facility swap. The Commission is 

aware that this approach does not take 

into account the risk profile of a swap 

with optionality compared to that of a 

‘‘plain-vanilla swap,’’ but believes that 

this approach is reasonable to minimize 

complexity. 

b. Swaps With Composite Reference 

Prices 

Swaps with two or more reference 

prices (i.e., composite reference prices) 

raise concerns as to which reference 

price market participants should use to 

determine whether such swap qualifies 

as a block trade or large notional offfacility swap.245 Proposed § 43.6(h)(2) 

provides that the parties to a swap 

transaction with composite reference 

prices (i.e., two or more reference 

prices) may elect to apply the lowest 

appropriate minimum block size 

applicable to any component swap 

category. This provision also would 

apply to: (1) Locational or grade-basis 

swaps that reflect differences between 

two or more reference prices; and (2) 

swaps utilizing a reference price based 

on weighted averages of component 

reference prices.246 The Commission is 

proposing § 43.6(h)(2) in order to 

provide market participants with a 

straightforward and uncomplicated way 

in which determine whether such swap 

would qualify as a block trade or large 

notional off-facility swap. 

Under proposed § 43.6(h)(2), market 

participants would need to decompose 

their composite reference price swap 

transaction in order to determine 

whether their swap would qualify as a 

block trade or large notional off-facility 

swap. For example, assume that the 

appropriate minimum block sizes for 

futures A-related swaps is $3 million, 

for futures B-related swaps is $800,000, 

for futures C-related swaps is $1.2 

million and for futures D-related swaps 

is $1 million. If a swap is based on a 

composite reference price that itself is 

based on the weighted average of futures 

price A, futures price B, futures price C, 

and futures price D (25% equal 

weightings for each), and the notional 

size of the swap is $4 million (i.e., $1 

million for each component swap 

category), then the swap would qualify 

as a block trade or large notional offfacility swap based on the futures Brelated swap appropriate minimum 

block size. 

c. Physical Commodity Swaps 

Block trade sizes for physical 

commodities are generally expressed in 

terms of notional quantities (e.g., 

barrels, bushels, gallons, metric tons, 

troy ounces, etc.). The Commission is 

proposing a similar convention for 

determining the appropriate minimum 

block sizes for block trades and large 

notional off-facility swaps. In particular, 

proposed § 43.6(h)(3) provides that 

notional sizes for physical commodity 

swaps shall be expressed in terms of 

notional quantities using the notional 

unit measure utilized in the related 

futures contract market or the 

predominant notional unit measure 

used to determine notional quantities in 

the cash market for the relevant, 

underlying physical commodity. This 

approach ensures that appropriate 

minimum block size thresholds for 

physical commodities are not subject to 

volatility introduced by fluctuating 

prices. This approach also eliminates 

complications arising from converting a 

physical commodity transaction in one 

currency into another currency to 

determine qualification for treatment as 

a block trade or large notional offfacility swap. 

d. Currency Conversion 

Under proposed § 43.6(h)(4), the 

Commission provides that when 

determining whether a swap transaction 

denominated in a currency other than 

U.S. dollars qualifies as a block trade or 

large notional off-facility swap, swap 

counterparties and registered entities 

may use a currency exchange rate that 

is widely published within the 

preceding two business days from the 

date of execution of the swap 

transaction in order to determine such 

qualification. This proposed approach 

would enable market participants to use 

a currency exchange rate that they deem 

to be the most appropriate or easiest to 

obtain. 

e. Successor Currencies 

As noted above, the Commission is 

proposing to use currency as a criterion 

to determine swap categories in the 

interest rate asset class.247 The 

Commission is also proposing to classify 

the euro (EUR) as a super-major 

currency, among other currencies.248

Proposed § 43.6(h)(5) provides that for 

currencies that succeed a super-major 

currency, the appropriate currency 

classification for such currency would 

be based on the corresponding nominal 

gross domestic product (‘‘GDP’’) 

classification (in U.S. dollars) as 

determined in the most recent World 

Bank World Development Indicator at 

the time of succession. This proposed 

provision is intended to address the 

possible removal of one or more of the 

17 eurozone member states that use the 

euro.249

Proposed § 43.6(h)(5)(i)–(iii) further 

specifies the manner in which the 

Commission would classify a successor 

currency for each nation that was once 

a part of the predecessor currency. 

Specifically, the Commission proposes 

to use GDP to determine how to classify 

a successor currency. For countries with 

a GDP greater than $2 trillion, the 

Commission would classify the 

successor currency to be a super-major 

currency.250 For countries with a GDP 


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251See proposed § 43.6(h)(6)(ii). 

252See proposed § 43.6(h)(6)(iii). 

greater than $500 billion but less than 

$2 trillion, the Commission would 

classify the successor currency as a 

major currency.251 For nations with a 

GDP less than $500 billion, the 

Commission would classify the 

successor currency as a non-major 

currency.252

Request for Comment 

Q55. The Commission requests 

general comments on its proposed 

special rules in proposed § 43.6(h). 

Q56. As an alternative to the proposed 

method for determining whether a swap 

with optionality would qualify as a 

block trade or large notional off-facility 

swap (i.e., proposed § 43.6(h)(1), should 

the Commission use a delta-equivalent 

or gamma-equivalent approach to 

determine the notional size of swaps 

with optionality? 

Q56.a. What are the direct and 

indirect costs to market participants of 

determining delta or gamma 

equivalents? 

Q57. As an alternative to proposed 

§ 43.6(h)(3), should the Commission 

base notional sizes for physical 

commodities on the notional amount in 

the applicable currency? 

Q58. As an alternative to proposed 

§ 43.6(h)(4), should the Commission 

mandate that market participants use 

the most recent currency exchange rate 

set at some specified time and location 

(e.g., 4 p.m. London time from the 

preceding business day)? This 

alternative approach could provide 

greater certainty as to the appropriate 

conversion rates at the cost of the 

providing market participants with 

greater flexibility. 

Q59. As another alternative to 

proposed § 43.6(h)(4), should the 

Commission publish a currency 

exchange rate on the Commission’s Web 

site in connection with its regular postinitial appropriate minimum block size 

determination? If so, then how should 

the Commission determine the currency 

exchange rate? 

Q60. As an alternative to proposed 

§ 43.6(h)(5), should the Commission 

classify all successor currencies as 

major currencies? 

Q60.a. Some critics have argued that 

too much emphasis is currently placed 

on the importance of GDP as a measure 

of progress. Should the Commission use 

a measure other than GDP (e.g., the 

Index of Sustainable Economic 

Welfare)? 

E. Procedural Provisions 

1. Proposed § 43.6(a) Commission 

Determination 

The Commission is proposing that it 

determine the appropriate minimum 

block size for any swap listed on a SEF 

or DCM, and for large notional offfacility swaps. Proposed § 43.6(a) 

specifically provides that the 

Commission would establish the 

appropriate minimum block sizes for 

publicly reportable swap transactions 

based on the swap categories set forth in 

proposed § 43.6(b) in accordance with 

the provisions set forth in proposed 

§§ 43.6(c), (d), (e), (f) and (h), as 

applicable. In the Commission’s view, 

this proposed approach would be the 

least burdensome from a cost-benefit 

perspective because it significantly 

reduces the direct costs imposed on 

SDRs and other registered entities. As 

noted above, nothing in this Further 

Proposal would prohibit SEFs and 

DCMs from setting block sizes for swaps 

at levels that are higher than the 

appropriate minimum block sizes 

determined by the Commission. 

Request for Comment 

Q61. The Commission requests 

specific comments on its proposal that 

the Commission determine appropriate 

minimum block sizes. 

Q62. In the alternative, should the 

Commission permit SEFs or DCMs to 

determine the appropriate minimum 

block size for swaps that the SEFs or 

DCMs list? Would this alternative lead 

to unnecessary market fragmentation? 

Q62.a. What would be the appropriate 

parameters or guidance that the 

Commission should give to SEFs or 

DCMs in setting appropriate minimum 

block sizes? 

Q62.b. What procedure could the 

Commission use to ensure that there are 

standard appropriate minimum block 

size determinations across all markets? 

2. Proposed § 43.6(f)(3) and(4) 

Publication and Effective Date of PostInitial Appropriate Minimum Block 

Sizes 

Proposed § 43.6(f)(3) provides that the 

Commission would publish the postinitial appropriate minimum block sizes 

on its Web site. Proposed § 43.6(f)(4) 

provides that these sizes would become 

effective on the first day of the second 

month following the date of publication. 

Per proposed § 43.6(f)(1), the 

Commission would publish updated 

post-initial appropriate minimum block 

sizes in the same manner no less than 

once each calendar year. 

Request for Comment 

Q63. The Commission requests 

specific comment on proposed 

§§ 43.6(f)(3) and (4). 

Q64. Instead of publishing initial 

appropriate minimum block sizes 

through proposed appendix F to part 43, 

should the Commission publish these 

initial appropriate minimum block sizes 

on the Commission’s Web site at 

http://www.cftc.gov? This approach 

would ensure that in the post-initial 

period, no confusion arises in terms of 

the method for publication and the 

relevant appropriate minimum block 

sizes. 

3. Proposed § 43.6(g) Notification of 

Election 

Proposed § 43.6(g) sets forth the 

election process through which a 

qualifying swap transaction would be 

treated as a block trade or large notional 

off-facility swap, as applicable. 

Proposed § 43.6(g)(1) establishes a twostep notification process relating to 

block trades. Proposed § 43.6(g)(2) 

establishes the notification process 

relating to large notional off-facility 

swaps. 

Proposed § 43.6(g)(1)(i) contains the 

first step in the two-step notification 

process relating to block trades. In 

particular, this section provides that the 

parties to a publicly reportable swap 

transaction that has a notional amount 

at or above the appropriate minimum 

block size are required to notify the SEF 

or DCM (pursuant to the rules of such 

SEF or DCM) of their election to have 

their qualifying publicly reportable 

swap transaction treated as a block 

trade. With respect to the second step, 

proposed § 43.6(g)(1)(ii) provides that 

the SEF or DCM, as applicable, that 

receives an election notification is 

required to notify the relevant SDR of 

such block trade election when 

transmitting swap transaction and 

pricing data to the SDR for public 

dissemination. 

Proposed § 43.6(g)(2) is very similar to 

the first step set forth in proposed 

§ 43.6(g)(1). That is, proposed 

§ 43.6(g)(2) provides, in part, that a 

reporting party who executes an offfacility swap with an notional amount at 

or above the applicable appropriate 

minimum block size is required to 

notify the relevant SDR of its election to 

treat such swap as a large notional offfacility swap. This section provides 

further that the reporting party is 

required to notify the relevant SDR in 

connection with the reporting party’s 

transmission of swap transaction and 

pricing data to the SDR pursuant to 

§ 43.3 of the Commission’s regulations. 


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15490 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

253See the discussion of post-initial cap sizes in 

section III.B. infra. As noted above, the Commission 

is proposing an amendment to § 43.2 to define the 

term ‘‘cap size’’ as the maximum limit of the 

principal, notional amount of a swap that is 

publicly disseminated. This term applies to the cap 

sizes determined in accordance with the proposed 

amendments to § 43.4(h) of the Commission’s 

regulations. 

254This provision does not cover swaps that are 

‘‘determined to be required to be cleared but are not 

cleared.’’ See 7 U.S.C. 2(a)(13)(C)(iv). 

255The Commission is following the necessary 

procedures for releasing microdata files as outlined 

by the Federal Committee on Statistical 

Methodology: (i) Removal of all direct personal and 

institutional identifiers, (ii) limiting geographic 

detail, and (iii) top-coding high-risk variables which 

are continuous. See Federal Committee on 

Statistical Methodology, Report on Statistical 

Disclosure Limitation Methodology 94 (Statistical 

Policy Working Paper 22, 2d ed. 2005), http:// 

www.fcsm.gov/working-papers/totalreport.pdf. The 

report was originally prepared by the Subcommittee 

on Disclosure Limitation Methodology in 1994 and 

was revised by the Confidentiality and Data Access 

Committee in 2005. 

256See 7 U.S.C. 2(a)(13)(C)(iii). 

257See id. at 2(a)(13)(E)(iv). 

Request for Comment 

Q65. The Commission requests 

specific comments regarding proposed 

§ 43.6(g), the proposed notification 

process for the election to treat a 

qualifying swap transaction as a block 

trade or large notional off-facility swap. 

Q66. As a variation of the proposed 

approach, should the Commission also 

require SEFs, DCMs and reporting 

parties to indicate under which swap 

category they are claiming block trade or 

large notional off-facility swap 

treatment in connection with the 

transmission of an election notification? 

Q67. Are there alternative methods 

through which a reporting party can 

elect to treat its qualifying swap 

transaction as a block trade or large 

notional off-facility? 

Q68. Should the Commission 

establish a special method of election 

for small end-users when those end 

users are the reporting party to a 

qualifying swap transaction? 

4. Proposed § 43.7 Delegation of 

Authority 

Under proposed § 43.7(a), the 

Commission would delegate the 

authority to undertake certain 

Commission actions to the Director of 

the Division of Market Oversight 

(‘‘Director’’) and to other employees as 

designated by the Director from time to 

time. In particular, this proposed 

delegation would grant to the Director 

the authority to determine: (1) The new 

swap categories as described in 

proposed § 43.6(b); (2) the post-initial 

appropriate minimum block sizes as 

described in proposed § 43.6(f); and (3) 

the post-initial cap sizes as described in 

the proposed amendments to § 43.4(h) 

of the Commission’s regulations.253 The 

purpose of this proposed delegation 

provision is to facilitate the 

Commission’s ability to respond 

expeditiously to ever-changing swap 

market and technological conditions. 

The Commission is of the view that this 

delegation would help ensure timely 

and accurate real-time public reporting 

of swap transaction and pricing data 

and further ensure anonymity in 

connection with the public reporting of 

such data. Proposed § 43.7(b) provides 

that the Director may submit to the 

Commission for its consideration any 

matter that has been delegated pursuant 

to this authority. Proposed § 43.7(c) 

provides that the delegation to the 

Director does not prevent the 

Commission, at its election, from 

exercising the delegated authority. 

Request for Comment 

Q69. The Commission requests 

specific comment on its proposed 

delegation of authority to the Director of 

certain Commission actions. 

Q70. Should the Director be given the 

authority to take other actions not 

identified in proposed § 43.7 on behalf 

of the Commission in connection with 

the calculation of post-initial 

appropriate minimum block sizes and 

cap sizes? If so, then what other actions? 

III. Further Proposal—Anonymity 

Protections for the Public 

Dissemination of Swap Transaction and 

Pricing Data 

A. Policy Goals 

Section 2(a)(13)(E)(i) of the CEA 

directs the Commission to protect the 

identities of counterparties to swaps 

subject to the mandatory clearing 

requirement, swaps excepted from the 

mandatory clearing requirement and 

voluntarily cleared swaps. Similarly, 

section 2(a)(13)(C)(iii) of the CEA 

requires that the Commission prescribe 

rules that maintain the anonymity of 

business transactions and market 

positions of the counterparties to an 

uncleared swap.254 In proposed 

amendments to §§ 43.4(h) and 

43.4(d)(4), the Commission is 

prescribing measures to protect the 

identities of counterparties and to 

maintain the anonymity of their 

business transactions and market 

positions in connection with the public 

dissemination of publicly reportable 

swap transactions. The Commission is 

proposing to follow the practices used 

by most federal agencies when releasing 

to the public company-specific 

information—by removing obvious 

identifiers, limiting geographic detail 

(e.g., disclosing the general, non-specific 

geographical information about the 

delivery and pricing points) and 

masking high-risk variables by 

truncating extreme values for certain 

variables (e.g., capping notional 

values).255 Further details about the 

proposals to determine cap sizes and 

applying them to various swap 

categories are described below in 

section III.B of this Further Proposal. 

Further details regarding the limitations 

placed on SDRs in connection with the 

public disclosure of geographic details 

for the other commodity asset class are 

provided below in section III.C of this 

Further Proposal. 

B. Establishing Notional Cap Sizes for 

Swap Transaction and Pricing Data To 

Be Publicly Disseminated in Real-Time 

1. Policy Goals for Establishing Notional 

Cap Sizes 

In addition to establishing appropriate 

minimum block sizes, the Commission 

is also proposing to amend § 43.4(h) to 

establish cap sizes for notional and 

principal amounts that would mask the 

total size of a swap transaction if it 

equals or exceeds the appropriate 

minimum block size for a given swap 

category. For example, if the block size 

for a category of interest rate swaps was 

$1 billion, the cap size was $1.5 billion, 

and the actual transaction had a 

notional value of $2 billion, then this 

swap transaction would be publicly 

reported with a delay and with a 

notional value of $1.5+ billion. 

The proposed cap size provisions are 

consistent with the two relevant 

statutory requirements in section 

2(a)(13) of the CEA. First, the cap size 

provisions would help to protect the 

anonymity of counterparties’ market 

positions and business transactions as 

required in section 2(a)(13)(C)(iii) of the 

CEA.256 Second, the masking of 

extraordinarily large positions also takes 

into consideration the requirement 

under section 2(a)(13)(E)(iv), which 

provides that the Commission take into 

account the impact that real-time public 

reporting could have in reducing market 

liquidity.257

2. Proposed Amendments Related to 

Cap Sizes—§ 43.2 Definitions and § 43.4 

Swap Transaction and Pricing Data To 

Be Publicly Disseminated in Real-Time 

The Commission is proposing an 

amendment to § 43.2 to define the term 

‘‘cap size’’ as the maximum limit of the 

principal, notional amount of a swap 

that is publicly disseminated. This term 

applies to the cap sizes determined in 

accordance with the proposed 


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258See 77 FR 1,247. 

259Sections 43.4(h)(1)–(5) established the 

following interim cap sizes for the corresponding 

asset classes: (1) Interest rate swaps at $250 million 

for tenors greater than zero up to and including two 

years, $100 million for tenors greater than two years 

up to and including 10 years, and $75 million for 

tenors greater than 10 years; (2) credit swaps at 

$100 million; (3) equity swaps at $250 million; (4) 

foreign exchange swaps at $250 million; and (5) 

other commodity swaps at $25 million. 

260See 77 FR 1,215. 

261Leading industry trade associations agree that 

cap sizes are an appropriate mechanism to ensure 

that price discovery remains intact for block trades, 

while also protecting post-block trade risk 

management needs from being anticipated by other 

market participants. See ISDA and SIFMA, Block 

Trade Reporting for Over-the-Counter Derivatives 

Market, Jan. 18, 2011. 

262The Commission does not intend the 

provisions in this Further Proposal to prevent a SEF 

or DCM from sharing the exact notional amounts of 

a swaps transacted on or pursuant to the rules of 

its platform with market participants on such 

platform irrespective of the cap sizes set by the 

Commission. To share the exact notional amounts 

of swaps, the SEF or DCM must comply with 

§ 43.3(b)(3)(i) of the Commission’s regulations. See 

77 FR 1,245. 

263The initial period is the period prior to the 

effective date of a Commission determination to 

establish an applicable post-initial cap sizes. See 

proposed § 43.4(h)(1). 

264See 77 FR 1,249. 

265Section 2(a)(13)(E)(iv) of the CEA requires that 

the Commission ensure that public reporting does 

not materially reduce market liquidity. See 7 U.S.C. 

2(a)(13)(E)(iv). 266See proposed § 43.6(c)(2). 

amendments to § 43.4(h) of the 

Commission’s regulations. 

Section 43.4(h) of the Commission’s 

regulations currently establishes interim 

cap sizes for rounded notional or 

principal amounts for all publicly 

reportable swap transactions. In the 

Adopting Release, the Commission 

finalized § 43.4(h) to provide that the 

notional or principal amounts shall be 

capped in a manner that adjusts in 

accordance with the appropriate 

minimum block size that corresponds to 

a publicly reportable swap 

transaction.258 Section 43.4(h) further 

provides that if no appropriate 

minimum block size exists, then the cap 

size on the notional or principal amount 

shall correspond to the interim cap sizes 

that the Commission has established for 

the five asset classes.259 In § 43.4(h) and 

as described in the Adopting Release, 

the Commission notes that SDRs will 

apply interim cap sizes until such time 

as appropriate minimum block sizes are 

established.260 The Commission 

continues to believe that the interim cap 

sizes for each swap category should 

correspond with the applicable 

appropriate minimum block size, to the 

extent that an appropriate minimum 

block size exists.261

The Commission is now proposing to 

amend § 43.4(h) both to establish initial 

cap sizes for each swap category within 

the five asset classes and also to 

delineate a process for the post-initial 

period through which the Commission 

would establish post-initial cap sizes for 

each swap category.262 This Further 

Proposal would change the term 

‘‘interim’’ as it is used in § 43.4(h) to 

‘‘initial’’ in order to correspond with the 

description of the initial period in 

proposed § 43.6(e). 

a. Initial Cap Sizes 

In the initial period,263 proposed 

§ 43.4(h)(1) sets the cap size for each 

swap category as the greater of the 

interim cap sizes set forth in the 

Adopting Release (existing § 43.4(h)(1)– 

(5)) or the appropriate minimum block 

size for the respective swap category.264

If such appropriate minimum block size 

does not exist, then the cap sizes shall 

be set at the interim cap sizes set forth 

in the Adopting Release (existing 

§ 43.4(h)(1)–(5)). 

b. Post-Initial Cap Sizes and the 75- 

Percent Notional Amount Calculation 

In proposed § 43.6(c)(2), the 

Commission would use the 75-percent 

notional amount calculation as a means 

to set post-initial cap sizes for the 

purpose of reporting block trades or 

large notional off-facility swaps of 

significant size. This calculation 

methodology is different from the 67- 

percent notional amount calculation 

methodology that the Commission 

proposes in § 43.6(c)(1) for determining 

appropriate minimum block sizes. The 

Commission is proposing to use the 

former methodology to set post-initial 

cap sizes because setting cap sizes above 

appropriate minimum block sizes would 

provide additional pricing information 

with respect to large swap transactions, 

which are large enough to be treated as 

block trades (or large notional offfacility swaps), but small enough that 

they do not exceed the applicable postinitial cap size. This additional 

information may enhance price 

discovery by publicly disseminating 

more information relating to market 

depth and the notional sizes of publicly 

reportable swap transactions, while still 

protecting the anonymity of swap 

counterparties and their ability lay off 

risk when executing extraordinarily 

large swap transactions. 

The Commission notes that the 

appropriate minimum block sizes and 

the cap sizes seek to achieve the 

statutory goals set forth in CEA section 

2(a)(13)(E)(iv) in different ways.265

Appropriate minimum block sizes 

achieve this statutory requirement by 

providing market participants 

transacting large notional swaps with a 

time delay in the public dissemination 

of swap transaction and pricing data 

relating to such swaps. As a result of 

these time delays, market participants 

are able to offset the risk associated with 

these swaps. Cap sizes achieve the 

statutory requirement of CEA section 

2(a)(13)(E)(iv) by masking the notional 

size of large transactions permanently 

from public dissemination. As a result, 

market participants conducting 

extraordinarily large swap transactions 

would be able to offset risk since an 

SDR would not publicly disseminate the 

actual notional amount of such 

transactions. 

While appropriate minimum block 

sizes and cap sizes both seek to achieve 

the statutory mandate in CEA section 

2(a)(13)(E)(iv), they also seek to address 

different statutory requirements. As 

noted above, CEA sections 2(a)(13)(E)(ii) 

and (iii) require that the Commission 

specify criteria for determining block 

trades and large notional off-facility 

swaps for the purpose of subjecting 

those trades and swaps to a time delay 

from public dissemination. In addition, 

CEA sections 2(a)(13)(C)(iii) and 

2(a)(13)(E)(i) require that the 

Commission promulgate regulations 

ensuring that public reporting does not 

disclose the identities, business 

transactions and market positions of any 

person. Cap sizes primarily address the 

statutory requirements in CEA sections 

2(a)(13)(C)(iii) and 2(a)(13)(E)(i), while 

appropriate minimum block sizes 

primarily address the statutory 

requirements in 2(a)(13)(E)(ii) and (iii). 

Pursuant to proposed § 43.4(h)(2)(ii), 

the Commission would use a 75-percent 

notional amount calculation to 

determine the appropriate post-initial 

cap sizes for all swap categories.266 For 

the 75-percent notional amount 

calculation, the Commission would 

determine the appropriate cap size 

through the following process, pursuant 

to proposed § 43.6(c)(2): (step 1) Select 

all of the publicly reportable swap 

transactions within a specific swap 

category using a rolling three-year 

window of data beginning with a 

minimum of one year’s worth of data 

and adding one year of data for each 

calculation until a total of three years of 

data is accumulated; (step 2) convert to 

the same currency or units and use a 

trimmed data set; (step 3) determine the 

sum of the notional amounts of swaps 

in the trimmed data set; (step 4) 

multiply the sum of the notional 

amount by 75 percent; (step 5) rank 

order the observations by notional 

amount from least to greatest; (step 6) 

calculate the cumulative sum of the 


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267These are typical of statistical disclosure 

practices used by other Federal agencies as 

described in the Report on Statistical Disclosure 

Limitation Methodology, see note 255 supra. 

268The term ‘‘shredding’’ refers to the practice of 

breaking up a large swap transaction into a number 

of smaller ones. The practice is often done to avoid 

causing a large impact on prices or to conceal the 

existence of a large trade originating from a single 

source. When traders attempt to execute a single 

large trade they may be required to pay a liquidity 

or risk premium to encourage traders on the other 

side of the market to take on the trade. Shredding 

by market participants may cause a marked 

decrease in the average notional size of transactions 

as a participant executes numerous smaller 

transactions as opposed to a single large 

transaction. For a further discussion of shredding, 

see note 217 supra. 

269 In practice, the natural logarithm of the 

notional value is preferred over the nominal value 

to reduce the effect of skewness on sample 

statistics. In addition to classical statistical 

methods, the calculation of the confidence interval 

may be improved by using ‘‘bootstrapping’’ 

methods to estimate the distribution of the average 

notional trade size. 

270The confidence interval test assumes sufficient 

data in a swap category such that a normal 

distribution is a good approximation to compute an 

interval estimate. To the extent the actual 

distribution diverges significantly from a normal 

distribution, the interval estimate may not reflect 

the probability at the desired (95 percent) 

confidence interval. In which case, other methods 

such as ‘‘bootstrapping’’ may be necessary to 

compute the confidence intervals around the full 

sample average notional size. The Commission 

notes the ODSG data sets were not normally 

distributed, but were nearly symmetric after 

transforming the notional size by the natural 

logarithm. Further, according to a TABB Group 

survey, many market participants expected the 

average notional transaction size to decline, which 

may imply a change in the distribution. See the 

presentation of Kevin McPartland, Principal, Tabb 

observations until the cumulative sum 

is equal to or greater than the 75-percent 

notional amount calculated in step 4; 

(step 7) select the notional amount 

associated with that observation; (step 

8) round the notional amount of that 

observation to two significant digits, or 

if the notional amount associated with 

that observation is already significant to 

two digits, increase that notional 

amount to the next highest rounding 

point of two significant digits; and (step 

9) set the appropriate minimum block 

size at the amount calculated in step 8. 

Consistent with the Commission’s 

proposed process to determine the 

appropriate post-initial minimum block 

sizes, proposed § 43.4(h)(3) provides 

that the Commission would publish 

post-initial cap sizes on its Web site. 

Proposed § 43.4(h)(4) provides that 

unless otherwise indicated on the 

Commission’s Web site, the post-initial 

cap sizes would become effective on the 

first day of the second month following 

the date of publication. 

c. Alternative Cap Size Calculations 

In addition to the 75-percent notional 

amount calculation, the Commission is 

considering alternative calculations that 

it would use to set post-initial cap sizes. 

These calculations are based on 

common statistical disclosure controls 

used by other agencies in making data 

publicly available.267

Specifically, the Commission is 

considering the following six alternative 

calculations to the 75-percent notional 

amount calculation of cap sizes during 

the post-initial period: 

• 67-percent Notional Amount 

Calculation with a Floor. As a variation 

of the 75-percent notional amount 

calculation the Commission is 

considering determining post-initial cap 

sizes as the greater of the result of the 

75-percent notional amount calculation 

or the interim cap sizes described in the 

Adopting Release (existing 

§§ 43.4(h)(1)–(5)). The Commission 

recognizes that in certain markets 

‘‘shredding’’ may result in smaller 

transaction sizes,268 thereby impacting 

the resulting cap size as determined 

pursuant to the 75-percent notional 

amount calculation. As a result, postinitial cap sizes could reach levels that 

are significantly lower than those 

adopted as interim cap sizes in 

§ 43.4(h). In order to ensure that the 

public and market participants are 

provided with meaningful data related 

to notional amounts and market depth, 

the Commission believes that requiring 

this variation may appropriately 

enhance price discovery consistent with 

the purpose of CEA section 2(a)(13)(B). 

• Appropriate Minimum Block Size 

with a Floor. The Commission is 

considering whether to set the postinitial cap sizes equal to the greater of 

the post-initial appropriate minimum 

block size or the interim cap sizes 

described in the Adopting Release 

(existing §§ 43.4(h)(1)–(5)). This 

alternative method for determining postinitial cap sizes would directly link the 

post-initial cap sizes to the post-initial 

appropriate minimum block sizes. 

• Number of Non-affiliated Markets 

Participant Calculation. The 

Commission is also considering whether 

to set post-initial cap sizes using a 

calculation that determines the 

minimum notional value cap size based 

on the number of non-affiliated market 

participants who have transactions with 

notional values greater than the cap 

size. This process would determine the 

post-initial cap size through the 

following process: (1) Select the swap 

transaction data for a specific swap 

category; (2) convert to the same 

currency or units and use a trimmed 

data set; (3) determine the transaction 

distribution of notional amounts using 

the trimmed data set for the swap 

category; (4) find the minimum notional 

value where, for transactions with a 

notional value greater than that value, 

there are 10 non-affiliated market 

participants. The Commission 

anticipates that under this alternative 

approach, all market participants from 

the same legal entity would be 

considered as one non-affiliated market 

participant. 

• Non-affiliated Market Participants 

and Minimum Concentration 

Calculation. The Commission is also 

considering whether to set post-initial 

cap sizes using a calculation that 

determines the minimum notional value 

cap size based on number of market 

participants and the market 

concentration of transactions with 

notional sizes above the cap size. This 

process would determine the post-initial 

cap size through the following process: 

(1) Select the swap transaction data for 

a specific swap category; (2) convert to 

the same currency or units and use a 

trimmed data set; (3) determine the 

transaction distribution of notional 

amounts using the trimmed data set for 

the category; (4) find the minimum 

notional size such that the number of 

unique participants in a swap category 

with transactions greater than that value 

exceeds 10, the maximum share of any 

one participant in trades above the 

minimum notional value is less than 25 

percent, or the maximum share of 

notional value by a participant for 

transactions greater than the minimum 

notional value is less than 25 percent. 

• Confidence Interval Test. The 

Commission is also considering whether 

to set post-initial cap sizes using a 

confidence interval test, which 

determines the point at which masking 

one more transaction causes the average 

notional size—calculated from the data 

for all publicly reportable swap 

transactions—to be outside of the 

expected range of the true notional size. 

This alternative test takes into account 

the impact of information loss on the 

transparency for swap transaction and 

pricing data. The confidence interval 

test calculates the minimum notional 

value as the point where the publicly 

disseminated average notional size is 

within the 95-percent confidence 

interval using the following process: 

(step 1) Select the swap transaction data 

for a specific swap category; (step 2) 

convert to the same currency or units 

and determine the transaction 

distribution of notional amounts using 

the logged 269 and trimmed data set for 

the swap category; (step 3) calculate the 

average notional size and the 95-percent 

confidence interval around this 

average; 270 (step 4) drop the largest 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15493 

Group, CFTC Technology Advisory Committee 

Meeting, Dec. 13, 2011, available at http:// 

www.cftc.gov/PressRoom/Events/ 

opaevent_tac121311. 

271The Commission is also considering dropping 

transactions in one-percent increments until the 

sample average moves outside the 95-percent 

confidence interval. The Commission would then 

drop transactions within the last one-percent 

increment until the actual transaction is found that 

moves the sample mean outside of the confidence 

interval. 

272See § 43.4(g), which provides that the notional 

or principal amount of a publicly reportable swap 

transaction, ‘‘as described in appendix A to this 

part [43], shall be rounded and publicly 

disseminated by [an SDR]’’ based on the range of 

notional or principal amounts. 

273See § 43.4(d)(1) of the Commission’s 

regulations. 

274Appendix B to part 43 provides a list of 28 

‘‘Enumerated Physical Commodity Contracts’’ as 

well as one contract under the ‘‘Other Contracts’’ 

heading. See 77 FR 1,182 app. B. 

275Appendix B to part 43 currently lists only 

Brent Crude Oil (ICE) under the ‘‘Other Contracts’’ 

heading. 

remaining transaction from the 

distribution 271; (step 5) conditional on 

the full-sample 95-percent confidence 

interval, calculate the sample average 

notional size using the data resulting 

from step 4; (step 6) if the sample 

average notional size is not outside of 

the 95-percent confidence interval, 

repeat steps 4 and 5 until it is just 

outside of the 95-percent confidence 

interval; and (step 7) once the sample 

average notional size is outside the 95- 

percent confidence interval, set the 

minimum notional value equal to the 

notional value, rounded pursuant to 

§ 43.4(g), of the largest transaction of the 

distribution for which the sample 

average notional size was still within 

the 95-percent confidence interval.272

• Variation of the Confidence Interval 

Test. The Commission is also 

considering a slightly different 

methodology for the confidence interval 

test. This variation still would calculate 

the average of the entire distribution 

using all of the available data and the 

95-percent confidence interval for that 

average. However, instead of completely 

dropping the largest remaining 

transactions (step 4, as referenced in the 

previous alternative) and then 

calculating the sample average notional 

size for the publicly disseminated 

information without any information 

from these ‘‘dropped’’ transactions (step 

5), this alternative methodology would 

use the notional value of the largest 

transaction (that would otherwise have 

been dropped) as though it were the cap 

size and would calculate the average 

notional size of the publicly 

disseminated data by setting the 

notional values above that size equal to 

the cap. This approach would simulate 

the information known by the public if 

the notional value of that last 

transaction was the notional cap size. 

Since the Commission would calculate 

the average of publicly disseminated 

transactions with an approximation of 

the notional value of such transactions 

above the cap size, the cap size would 

be lower than the methodology where 

all information about the size of the 

transaction is dropped from the 

estimation. 

Request for Comment 

Q71. Please provide specific 

comments regarding the Commission’s 

proposed approach regarding cap sizes 

in the initial period. 

Q72. Please provide specific 

comments regarding the Commission’s 

proposed approach to set cap sizes in 

the post-initial period. 

Q73. As an alternative to the proposed 

approach, should initial and post-initial 

cap sizes always be equal to the 

appropriate minimum block size for a 

particular swap category? 

Q74. Please provide comments 

regarding the above-described 

alternative methods for determining 

post-initial cap sizes. 

Q74.a. Specifically, would any of 

these alternatives lead to the 

unintended public disclosure of the 

identities, market positions and 

business transactions of swap 

counterparties? 

Q75. Should the Commission provide 

a fixed cap size for each asset class 

rather than varying the cap size by swap 

category? 

Q76. Should the Commission 

consider using linear sensitivity 

measures or other statistical disclosure 

controls outlined in the Report on 

Statistical Disclosure Limitation 

Methodology from the Federal 

Committee on Statistical Methodology 

to set post-initial cap sizes? 

Q77. Is the definition of a ‘‘nonaffiliated market participant’s as 

described in the alternative methods for 

calculating the post-initial cap sizes the 

correct definition for the purpose of 

calculating the minimum notional 

amounts that are publicly disseminated? 

Q78. Are there other alternative 

methods for determining the post-initial 

notional cap sizes that the Commission 

should consider that are not described 

in this Further Proposal? If yes, please 

explain those methods, as well as any 

data, studies or additional information 

to support such method. 

C. Masking the Geographic Detail of 

Swaps in the Other Commodity Asset 

Class 

1. Policy Goals for Masking the 

Geographic Detail for Swaps in the 

Other Commodity Asset Class 

In the Adopting Release, the 

Commission sets forth general 

protections for the identities, market 

positions and business transactions of 

swap counterparties in § 43.4(d). 

Section 43.4(d) generally prohibits an 

SDR from publicly disseminating swap 

transaction and pricing data in a manner 

that discloses or otherwise facilitates the 

identification of a swap counterparty.273

Notwithstanding that prohibition, 

§ 43.4(d)(3) provides that SDRs are 

required to publicly disseminate data 

that discloses the underlying asset(s) of 

publicly reportable swap transactions. 

Section 43.4(d)(4) contains special 

provisions for swaps in the other 

commodity asset class. These swaps 

raise special concerns because the 

public disclosure of the underlying 

asset(s) may in turn reveal the identities, 

market positions and business 

transactions of the swap counterparties. 

To address these concerns, § 43.4(d)(4) 

limits the types of swaps in the other 

commodity asset class that are subject to 

public dissemination. Specifically, 

§ 43.4(d)(4)(ii) of the Commission’s 

regulations provides that, for publicly 

reportable swap transactions in the 

other commodity asset class, SDRs must 

publicly disseminate the actual 

underlying assets only for: (1) Those 

swaps executed on or pursuant to the 

rules of a SEF or DCM; (2) those swaps 

referencing one of the contracts 

described in appendix B to part 43; and 

(3) those swaps that are economically 

related to one of the contracts described 

in appendix B to part 43.274 Essentially, 

the Commission has determined that 

these three categories of swap have 

sufficient liquidity such that the 

disclosure of the underlying asset would 

not reveal the identities, market 

positions and business transactions of 

the swap counterparties. 

In its Adopting Release, the 

Commission included in appendix B to 

part 43 a list of contracts that, if 

referenced as an underlying asset, 

should be publicly disseminated in full 

without limiting the commodity or 

geographic detail of the asset. In this 

Further Proposal, the Commission is 

proposing to add 13 contracts to 

appendix B to part 43 under the ‘‘Other 

Contracts’’ heading.275 The Commission 

believes that since it previously has 

determined that these 13 contracts have 

material liquidity and price references, 

among other things, the public 

dissemination of the full underlying 

asset for publicly reportable swap 

transactions that reference such 

contracts (and any underlying assets 


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276See 77 FR 1,211. 

277See sections 2(a)(13)(E)(i) and 2(a)(13)(C)(iii) 

of the CEA. 7 U.S.C. 2(a)(13)(C)(iii), (E)(i). 

278Limiting the geographical detail is a typical 

statistical disclosure control used by other federal 

agencies as described in the Report on Statistical 

Disclosure Limitation Methodology, see note 255 

supra. 

279 In addition to proposing limitations on the 

geographic detail for public dissemination of 

underlying assets for certain swaps in the other 

commodity asset class, the Commission is also 

proposing to amend §§ 43.4(g) and (h) to make 

conforming changes. 

280For the purposes of this Further Proposal, 

basis swaps are defined as swap transactions in 

which one leg of the swap references a contract 

described in appendix B to part 43 (or is 

economically related thereto) and the other leg of 

the swap does not. 

281See FERC, National Gas Markets—Overview, 

http://www.ferc.gov/market-oversight/mkt-gas/ 

overview.asp (last viewed Jan. 31, 2012). 

282See FERC, Natural Gas Market Overview: Spot 

Gas Prices, http://www.ferc.gov/market-oversight/ 

mkt-gas/overview/ngas-ovr-avg-spt-ng-pr.pdf 

that are economically related thereto) 

would not disclose the identities, 

market positions and business 

transactions of swap counterparties. 

Pursuant to the Adopting Release, any 

publicly reportable swap transaction in 

the other commodity asset class that is 

excluded under § 43.4(d)(4)(ii) would 

not be subject to the reporting and 

public dissemination requirements for 

part 43 upon the effective date of the 

Adopting Release. The Commission 

noted in the Adopting Release that it 

planned to address the group of other 

commodity swaps that were not subject 

to the rules of part 43 in a forthcoming 

release.276 Accordingly, the Commission 

is proposing rules in this Further 

Proposal to address the public 

dissemination of swap transaction and 

pricing data for the group of other 

commodity swaps that are not covered 

currently by § 43.4(d)(4)(ii). 

The Commission is of the view that 

given the lack of data on the liquidity 

for certain swaps in the other 

commodity asset class, the lack of data 

on the number of market participants in 

these other commodity swaps markets, 

and the statutory requirement to protect 

the anonymity of market participants,277

the public dissemination of less specific 

information for swaps with specific 

geographic or pricing detail may be 

appropriate. The Commission 

anticipates that the public 

dissemination of the exact underlying 

assets for swaps in this group of the 

other commodity asset class may subject 

the identities, market positions and 

business transactions of market 

participants to unwarranted public 

disclosure if additional protections are 

not established with respect to the 

geographic detail of the underlying 

asset. For that reason, the Commission 

is proposing that SDRs mask or 

otherwise disguise the geographic 

details related to the underlying assets 

of a swap in connection with the public 

dissemination of such swap transaction 

and pricing data.278

2. Proposed Amendments to § 43.4 

In order to accommodate the policy 

goals described above, the Commission 

is proposing to add § 43.4(d)(4)(iii) to 

part 43 to establish rules regarding the 

public dissemination of the remaining 

group of swaps in the other commodity 

asset class (i.e., those not described in 

§ 43.4(d)(4)(ii)). In the Commission’s 

view, proposed § 43.4(d)(4)(iii) would 

ensure that the public dissemination of 

swap transaction and pricing data 

would not unintentionally disclose the 

identities, market positions and 

business transactions of any swap 

counterparty to a publicly reportable 

swap transaction in the other 

commodity asset class. In particular, 

proposed § 43.4(d)(4)(iii) provides that 

SDRs must publicly disseminate the 

details about the geographic location of 

the underlying assets of the other 

commodity swaps not described in 

§ 43.4(d)(4)(ii) (i.e., other commodity 

swaps that have a specific delivery or 

pricing point) pursuant to proposed 

appendix E to part 43. Proposed 

appendix E to part 43 is discussed in the 

next subsection to this Further Proposal. 

The Commission recognizes that 

requiring the public dissemination of 

less specific geographic detail for an 

other commodity swap may, to some 

extent, diminish the price discovery 

value of swap transaction and pricing 

data for such swap. The Commission 

anticipates, however, that the public 

dissemination of such data would 

continue to provide the market with 

useful information relating to market 

depth, trading activity and pricing 

information for similar types of swaps. 

Further, sections 2(a)(13)(C)(iii) and 

2(a)(13)(E)(i) of the CEA expressly 

require that the Commission protect the 

identity, market positions and business 

transactions of swap counterparties. 

The Commission is also proposing to 

make conforming amendments to 

§ 43.4(d). Specifically, the Commission 

is proposing to amend the introductory 

language to § 43.4(d)(4)(i) by deleting 

‘‘§ 43.4(d)(4)(ii)’’ and adding in its place 

‘‘§§ 43.4(d)(4)(ii) and (iii)’’ to make clear 

that SDRs have to publicly disseminate 

swaps data under § 43.4(d)(4)(iii) in 

accordance with part 43.279

3. Application of Proposed 

§ 43.4(d)(4)(iii) and Proposed Appendix 

E to Part 43—Geographic Detail for 

Delivery or Pricing Points 

Proposed appendix E to part 43 

includes the system that SDRs must use 

to mask the specific delivery or pricing 

points that are a part of an underlying 

asset in connection with the public 

dissemination of swap transaction and 

pricing data for certain swaps in the 

other commodity asset class. To the 

extent that the underlying asset of a 

publicly reportable swap transaction 

described in proposed § 43.4(d)(4)(iii) 

does not have a specific delivery or 

pricing point, then the provisions of 

proposed § 43.4(d)(4)(iii) and proposed 

appendix E to part 43 would not be 

applicable. Specifically, proposed 

appendix E to part 43 provides topcoding for various geographic regions, 

both in the United States and 

internationally. 

Subsection (a) below includes a 

description of the top-coding U.S. 

regions. Subsection (b) below includes a 

description of the top-coding non-U.S. 

regions. Finally, subsection (c) below 

proposes a system for SDRs to publicly 

disseminate ‘‘basis swaps’’.280

a. U.S. Delivery or Pricing Points 

Table E1 in appendix E to part 43 lists 

the geographic regions that an SDR 

would publicly disseminate for an offfacility swap in the other commodity 

asset class that is described in proposed 

§ 43.4(d)(4)(iii). The Commission is 

proposing that an SDR publicly 

disseminate swap transaction and 

pricing data for certain energy and 

power swaps in the other commodity 

asset class, as described in more detail 

below, in a different manner than the 

remaining other commodities. In order 

to mask the specific delivery or pricing 

detail of these energy and power swaps, 

the Commission is proposing to use 

established regions or markets that are 

associated with these underlying assets. 

i. Natural Gas and Related Products 

In proposed § 43.4(d)(4)(iii) and 

proposed appendix E to part 43, the 

Commission is setting forth a method to 

describe the publicly reportable swap 

transactions that have natural gas or 

related products as an underlying asset 

and have a specific delivery or pricing 

point in the United States. In particular, 

this proposed section would require 

SDRs to publicly disseminate a 

description of the specific delivery or 

pricing point based on one of the five 

industry specific natural gas markets set 

forth by the Federal Energy Regulatory 

Commission (‘‘FERC’’).281 The FERC 

Natural Gas Markets reflect natural 

deviations found in the spot prices in 

different markets.282 The Commission 


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(updated Jan. 1, 2012). In addition, there is 

evidence that the spot prices in these markets and 

the corresponding futures prices are highly 

correlated. D. Murray, Z. Zhu, ‘‘Asymmetric price 

responses, market integration and market power: A 

study of the U.S. natural gas market,’’ Energy 

Economics, 30 (2008) 748–765. 

283The District of Columbia would be included 

in this region, if any specific delivery or pricing 

points existed at the time of this Further Proposal. 

284See FERC, Gas Futures Trading, Natural Gas 

Futures Trading Markets, http://www.ferc.gov/ 

market-oversight/mkt-gas/trading/2011/11-2011- 

gas-tr-fut-archive.pdf. (Nov. 2011). 

285See section III.C.3.a.iv infra. 

286See PADD Map, Appendix A, Petroleum 

Administration for Defense Districts, http:// 

205.254.135.24/pub/oil_gas/petroleum/ 

analysis_publications/oil_market_basics/ 

paddmap.htm. (last viewed Jan. 31, 2012). 

287See U.S. Energy Information Administration 

(EIA)—Petroleum & Other Liquids, http:// 

www.eia.gov/petroleum/data.cfm (last viewed Jan. 

31, 2012). 

288Alternatively, the Commission is considering 

combining the East Coast PADD into one category, 

such that any oil swap with a specific delivery or 

pricing point as PADD 1A (New England), PADD 1B 

(Central Atlantic), or PADD 1C (Lower Atlantic) 

would be publicly disseminated as PADD 1 (East 

Coast). 

289See section III.C.3.a.iv infra. 

290See FERC, Electric Power Markets—Overview, 

http://www.ferc.gov/market-oversight/mkt-electric/ 

overview.asp (last viewed Jan. 31, 2012). 

anticipates that a distinction for natural 

gas is necessary to enhance price 

discovery while protecting the identities 

of the parties, business transactions and 

market positions of market participants. 

The proposed five markets for public 

dissemination of delivery or pricing 

points for natural gas swaps are as 

follows: (i) Midwest (including North 

Dakota, South Dakota, Minnesota, 

Wisconsin, Michigan, Indiana, Illinois, 

Iowa, Nebraska, Kansas, Oklahoma, 

Missouri and Arkansas); (ii) Northeast 

(including Maine, New Hampshire, 

Vermont, Massachusetts, Rhode Island, 

Connecticut, New York, Pennsylvania, 

Kentucky, Ohio, West Virginia, New 

Jersey, Delaware, Maryland and 

Virginia) 283 (iii) Gulf (including 

Louisiana and Texas); (iv) Southeast 

(including Tennessee, North Carolina, 

South Carolina, Georgia, Florida, 

Alabama and Mississippi); and (v) 

Western (including Montana, Wyoming, 

Colorado, New Mexico, Idaho, Utah, 

Washington, Oregon, California, Nevada 

and Arizona). For any other pricing 

points in the United States, SDRs would 

publicly disseminate ‘‘Other U.S.’’ in 

place of the actual pricing or delivery 

point for such natural gas swaps. 

The Commission is considering 

alternatives for how to break down the 

regions or markets with respect to the 

public dissemination of specific 

delivery or pricing points for natural 

gas. The Commission is considering 

using FERC’s Natural Gas Futures 

Trading Markets, which are different 

from the FERC Natural Gas Markets 

described above. The public 

dissemination regions for delivery or 

pricing points for such natural gas 

swaps for this alternative would be as 

follows: (i) Midwest (including North 

Dakota, South Dakota, Minnesota, 

Wisconsin, Michigan, Indiana, Illinois, 

Iowa, Nebraska, Missouri, Ohio and 

Kentucky); (ii) Northeast (including 

Maine, New Hampshire, Vermont, 

Massachusetts, Rhode Island, 

Connecticut, Pennsylvania, West 

Virginia, New York, New Jersey, 

Delaware and Maryland); (iii) South 

Central (including Kansas, Oklahoma, 

Arkansas, Louisiana and Texas); (iv) 

Southeast (including Virginia, 

Tennessee, North Carolina, South 

Carolina, Georgia, Florida, Alabama and 

Mississippi); (v) Western (including 

Montana, Wyoming, Colorado, New 

Mexico, Idaho, Utah, Washington, 

Oregon, California, Nevada and 

Arizona).284 For any other pricing 

points in the United States, SDRs would 

publicly disseminate ‘‘Other U.S.’’ in 

place of the actual pricing or delivery 

point for such natural gas swaps.285

Finally, the Commission is also 

considering whether one of the public 

dissemination methods described for 

the ‘‘All Remaining Other 

Commodities’’ would be appropriate 

with respect to the public dissemination 

for the specific delivery or pricing 

points related to natural gas swaps. 

ii. Petroleum and Products 

In proposed § 43.4(d)(4)(iii) and 

proposed appendix E to part 43, the 

Commission is setting forth a method to 

describe the publicly reportable swap 

transactions that have petroleum 

products as an underlying asset and 

have a specific delivery or pricing point 

in the United States. In particular, this 

proposed section would require SDRs to 

publicly disseminate a description of 

the specific delivery or pricing point 

based on one of the seven Petroleum 

Administration for Defense Districts 

(‘‘PADD’’) regions.286 The PADD regions 

indicate economically and 

geographically distinct regions for the 

purposes of administering oil allocation. 

The Department of Energy’s Energy 

Information Administration (‘‘EIA’’) 

collects and publishes oil supply and 

demand data with respect to the PADD 

regions.287 Accordingly, to provide 

consistency with EIA publications and 

information regarding regional patterns, 

the Commission is proposing that 

specific delivery or pricing points with 

respect to such petroleum product 

swaps are publicly disseminated based 

on PADD regions. 

The PADD regions for public 

dissemination of delivery or pricing 

points for such petroleum product 

swaps are as follows: (i) PADD 1A (New 

England); (ii) PADD 1B (Central 

Atlantic); (iii) PADD 1C (Lower 

Atlantic); (iv) PADD 2 (Midwest); (v) 

PADD 3 (Gulf Coast); (vi) PADD 4 

(Rocky Mountains); and (vii) PADD 5 

(West Coast).288 For any other pricing 

points in the United States, SDRs would 

publicly disseminate the term ‘‘Other 

U.S.’’ in place of the actual pricing or 

delivery point for such petroleum 

product swaps. 

The Commission is also considering 

whether one of the public dissemination 

methods described for the ‘‘All 

Remaining Other Commodities’’ would 

be appropriate with respect to the 

public dissemination for the specific 

delivery or pricing points related to 

petroleum product swaps.289

iii. Electricity and Sources 

In proposed § 43.4(d)(4)(iii), the 

Commission also is setting forth a 

method to describe publicly reportable 

swap transactions that have electricity 

and sources as an underlying asset and 

have a specific delivery or pricing point 

in the United States. In particular, this 

proposed section would require SDRs to 

publicly disseminate the specific 

delivery or pricing point based on a 

description of one of the FERC Electric 

Power Markets.290

The markets for public dissemination 

of delivery or pricing points for such 

electricity swaps are as follows: (i) 

California (CAISO); (ii) Midwest 

(MISO); (iii) New England (ISO–NE); 

(iv) New York (NYISO); (v) Northwest; 

(vi) PJM; (vii) Southeast; (viii) 

Southwest; (ix) Southwest Power Pool 

(SPP); and (x) Texas (ERCOT). For any 

other pricing points in the United 

States, SDRs would publicly 

disseminate the term ‘‘Other U.S.’’ in 

place of the actual pricing or delivery 

point for such electricity and sources 

swaps. 

Alternatively, the Commission is 

considering using the North American 

Electric Reliability Corporation 

(‘‘NERC’’) regions for publicly 

disseminating delivery or pricing points 

for electricity swaps described in 

proposed § 43.4(d)(4)(iii). The NERC 

regions are broader than the FERC 

regions and include much of Canada. 

Specifically, the NERC regions are as 

follows: (i) Florida Reliability 

Coordinating Council (FRCC); (ii) 

Midwest Reliability Organization 

(MRO); (iii) Northeast Power 

Coordinating Council (NPCC); (iv) 


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291See NERC, Key Players: Regional Entities, 

http://www.nerc.com/ 

page.php?cid=1%7C9%7C119 (last visited Jan. 31, 

2012). 

292See U.S. Energy Information Administration, 

U.S. Federal Region Map, http://www.eia.gov/cneaf/ 

electricity/page/channel/fedregstates.html (last 

visited Jan. 31, 2012). 

293See U.S. Department of Commerce, Economics 

and Statistics Administration, Census Bureau, 

Census Regions and Divisions of the United States, 

http://www.census.gov/geo/www/us_regdiv.pdf (last 

viewed Jan. 31, 2012). 

294See note 293 supra. 

295Note that Russia is not included in ‘‘Eastern 

Europe’’ or in ‘‘Northern Asia’’ and instead should 

be publicly disseminated as ‘‘Russia.’’ 

ReliabilityFirst Corporation (RFC); (v) 

SERC Reliability Corporation (SERC); 

(vi) Southwest Power Pool, RE (SPP); 

(vii) Texas Regional Entity (TRE); (viii) 

Western Electricity Coordinating 

Council (WECC).291

Finally, the Commission is also 

considering whether one of the public 

dissemination methods described below 

for the ‘‘All Remaining Other 

Commodities’’ would be appropriate 

with respect to the public dissemination 

for the specific delivery or pricing 

points related to electricity and sources 

swaps. 

iv. All Remaining Other Commodities 

In proposed § 43.4(d)(4)(iii) and 

proposed appendix E to part 43, the 

Commission is setting forth a method to 

describe any swaps in the other 

commodity asset class that do not have 

oil, natural gas or electricity as an 

underlying asset, but have specific 

delivery or pricing points in the United 

States. In particular, the Commission is 

proposing in this section that SDRs 

publicly disseminate information with 

respect to these swaps based on the 10 

federal regions established by the U.S. 

Energy Information Administration 

(‘‘EIA’’). The Commission anticipates 

that the use of the 10 federal regions 

would provide consistency among 

different types of underlying assets in 

the other commodity asset class with 

respect to delivery and pricing point 

descriptions. The Commission 

anticipates, however, that for some 

underlying assets, the public 

dissemination of delivery or pricing 

points by region may still result in 

thinly-populated swap categories. 

The 10 federal regions that SDRs 

would use for public dissemination for 

all remaining other commodity swaps 

are as follows: (i) Region I (including 

Connecticut, Maine, Massachusetts, 

New Hampshire, Rhode Island and 

Vermont); (ii) Region II (including New 

Jersey and New York); (iii) Region III 

(including Delaware, District of 

Columbia, Maryland, Pennsylvania, 

Virginia and West Virginia); (iv) Region 

IV (including Alabama, Florida, Georgia, 

Kentucky, Mississippi, North Carolina, 

South Carolina and Tennessee); (v) 

Region V (including Illinois, Indiana, 

Michigan, Minnesota, Ohio and 

Wisconsin); (vi) Region VI (including 

Arkansas, Louisiana, New Mexico, 

Oklahoma and Texas); (vii) Region VII 

(including Iowa, Kansas, Missouri and 

Nebraska); (viii) Region VIII (including 

Colorado, Montana, North Dakota, 

South Dakota, Utah and Wyoming); (ix) 

Region IX (including Arizona, 

California, Hawaii and Nevada); and (x) 

Region X (including Alaska, Idaho, 

Oregon and Washington).292 The 

Commission is also considering whether 

the use of these 10 federal regions is 

appropriate for the natural gas, oil and/ 

or electricity swap markets as described 

above. 

Alternatively, the Commission is 

considering whether SDRs should 

publicly disseminate information with 

respect to these swaps based on one of 

the four U.S. Census regions.293 The 

Commission is also considering whether 

the use of the four U.S. Census regions 

is appropriate for the natural gas, oil 

and/or electricity swaps markets as 

described above. Using the U.S. Census 

regions, however, might provide fewer 

reporting categories and, as a result, 

market participants and the public may 

lose some price discovery as compared 

to a description system based on the 10 

federal regions. The four U.S. Census 

regions are: (i) Midwest (including 

North Dakota, South Dakota, Minnesota, 

Wisconsin, Michigan, Indiana, Illinois, 

Iowa, Nebraska, Missouri, Ohio, 

Kentucky and Kansas); (ii) Northeast 

(including Maine, New Hampshire, 

Vermont, Massachusetts, Rhode Island, 

Connecticut, New York, Pennsylvania 

and New Jersey); (iii) South (including 

Oklahoma, Arkansas, Louisiana, Texas, 

West Virginia, Maryland, Delaware, 

District of Columbia, Virginia, 

Tennessee, North Carolina, South 

Carolina, Georgia, Florida, Alabama and 

Mississippi); and (iv) West (including 

Montana, Wyoming, Colorado, New 

Mexico, Idaho, Utah, Washington, 

Oregon, California, Nevada, Arizona, 

Alaska and Hawaii).294

Finally, the Commission is 

considering whether it is appropriate to 

publicly disseminate the specific 

delivery or pricing points in the United 

States for certain types of swaps in the 

other commodity asset class that are not 

described in proposed § 43.4(d)(4)(ii). 

Specifically, the Commission is 

considering whether public disclosure 

of such information would disclose the 

identities, business transactions and 

market positions of any persons and 

whether price discovery would be 

enhanced by publicly disseminating 

more specific information. 

b. Non-U.S. Delivery or Pricing Points 

Table E2 in proposed appendix E to 

part 43 provides the appropriate manner 

for SDRs to publicly disseminate nonU.S. delivery or pricing points for all 

publicly reportable swap transactions 

described in the proposed 

§ 43.4(d)(4)(iii). The Commission is of 

the view that SDRs should not publicly 

disseminate the actual location for these 

international delivery or pricing points 

since the public disclosure of such 

information may disclose the identities 

of parties, business transactions and 

market positions of market participants. 

In Table E2, the Commission is 

proposing the countries and regions that 

an SDR must publicly disseminate. In 

proposing the use of these geographic 

breakdowns for the public reporting of 

international delivery or pricing points, 

the Commission considered world 

regions that have significant energy 

consumption, whether ISDA-specific 

documentation exists for a particular 

country, and whether public disclosure 

would compromise the anonymity of 

the swap counterparties. 

The Commission is proposing the 

following international regions for 

publicly disseminating specific delivery 

or pricing points of publicly reportable 

swap transactions described in 

§ 43.4(d)(4)(iii): (i) North America 

(publicly disseminate ‘‘Canada’’ or 

‘‘Mexico’’); (ii) Central America 

(publicly disseminate ‘‘Central 

America’’); (iii) South America (publicly 

disseminate ‘‘Brazil’’ or ‘‘Other South 

America’’); (iv) Europe (publicly 

disseminate ‘‘Western Europe,’’ 

‘‘Northern Europe,’’ ‘‘Southern Europe,’’ 

or ‘‘Eastern Europe’’); (v) Russia 

(publicly disseminate ‘‘Russia’’) 295; (vi) 

Africa (publicly disseminate ‘‘Northern 

Africa,’’ ‘‘Western Africa,’’ ‘‘Eastern 

Africa,’’ ‘‘Central Africa,’’ or ‘‘Southern 

Africa’’); (vii) Asia-Pacific (publicly 

disseminate ‘‘Northern Asia,’’ ‘‘Central 

Asia,’’ ‘‘Eastern Asia,’’ ‘‘Western Asia,’’ 

‘‘Southeast Asia’’ or ‘‘Australia/New 

Zealand/Pacific Islands’’). The 

Commission is considering whether a 

more granular approach is necessary for 

certain regions in order to enhance price 

discovery while still protecting 

anonymity. For example, Mexico, 

Canada and Russia may benefit from a 

more granular public dissemination of 

delivery or pricing points given the 


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296See, e.g., IEA, IEF, OPEC, and IOSCO, Oil 

Price Reporting Agencies, http://www.g20.org/ 

Documents2011/11/IOs%20Report%20on%

20PRA%20Report.pdf. (Oct. 2011). 

amount of energy production in those 

regions. 

Alternatively, the Commission is 

considering a broader approach to the 

public dissemination of non-U.S. 

delivery or pricing points for swaps 

described in proposed § 43.4(d)(4)(iii). 

Specifically, the Commission is 

considering public dissemination of 

only the top-level regions for certain 

regions (e.g., ‘‘Africa’’ instead of ‘‘North 

Africa’’). The Commission is 

considering this alternative approach in 

order to prevent the public disclosure of 

the identities, business transactions and 

market positions of swap counterparties. 

Finally, the Commission is 

considering whether it is appropriate to 

publicly disseminate the specific 

delivery or pricing points outside the 

United States for certain types of swaps 

in the other commodity asset class that 

are not described in § 43.4(d)(4)(ii). 

Specifically, the Commission is 

considering whether public disclosure 

of such information would disclose the 

identities, business transactions and 

market positions of any persons and 

whether price discovery would be 

enhanced by publicly disseminating 

more specific information. 

To the extent that a publicly 

reportable swap transaction described in 

proposed § 43.4(d)(4)(iii) references the 

United States as a whole and not a 

specific delivery or pricing point, 

proposed appendix E would require an 

SDR to publicly disseminate that 

reference. For example, an SDR would 

publicly disseminate a weather swap 

that references ‘‘U.S. Heating Monthly’’ 

as ‘‘U.S. Heating Monthly.’’ 

c. Basis Swaps 

The Commission is proposing to 

require SDRs to ensure that specific 

underlying assets are publicly 

disseminated for basis swaps that 

qualify as publicly reportable swap 

transactions. The Commission 

recognizes that basis swaps exist in 

which one leg of the swap references a 

contract described in appendix B to part 

43 (or is economically related to one 

such contract) and the other leg of the 

swap references an asset or pricing 

point not listed in appendix B to part 

43. With respect to the leg of a basis 

swap that does not reference a contract 

in appendix B to part 43, the 

Commission is proposing to require 

SDRs to publicly disseminate the 

underlying asset of the basis swap 

pursuant to proposed § 43.4(d)(4)(iii) 

and proposed appendix E to part 43. 

That is, § 43.4(d)(4) currently requires 

an SDR to publicly disseminate the 

underlying asset of the leg of the basis 

swap that references a contract listed in 

appendix B to part 43. To the extent that 

a basis swap is executed on or pursuant 

to the rules of a SEF or DCM, an SDR 

would publicly disseminate the specific 

underlying asset (i.e., the top-coding 

provisions of proposed § 43.4(d)(4)(iii) 

would not apply since those basis swaps 

are executed on or pursuant to the rules 

of a SEF or DCM). 

Request for Comment 

Q79. The Commission requests 

specific comment on all aspects of the 

proposed anonymity protections for the 

public dissemination of publicly 

reportable swap transactions in the 

other commodity asset class. 

Q80. As an alternative to the proposed 

approach, should the Commission 

narrow the limited transaction reporting 

detail provisions of proposed 

§ 43.4(d)(4)(iii) to exclude other 

commodity swaps involving many nonaffiliated market participants during a 

sufficiently long observation period—for 

example, an observation period of at 

least one year? This alternative 

approach would be predicated on the 

notion that reduced market 

concentration is indicative of a market 

with very limited or non-existent 

anonymity concerns. 

Q80.a. Would this alternative 

approach enhance price discovery in 

other commodity swap markets by 

providing more granular data to the 

public? 296

Q80.b. Does this approach create a 

risk that SDRs would publicly disclose 

details regarding the identities of swap 

counterparties and their business 

transactions in these markets in light of 

the other anonymity protections (e.g., 

the rounded notional or principal 

amounts provisions of §§ 43.4(g)–(h), 

the applicable cap size provisions, and 

any relevant reporting delay)? 

Q80.c. Should the Commission adopt 

a combination of the alternative 

approach and the proposed top-coding 

approach? If yes, then how should the 

Commission apply the combination of 

these two approaches? 

Q81. Would any of the alternatives in 

the discussion of proposed appendix E 

to part 43 above improve price 

discovery? Would any of these 

alternatives improve anonymity 

protections? 

Q82. From the standpoint of 

enhancing price discovery and 

protecting anonymity, would public 

dissemination of specific delivery or 

pricing points based on the FERC 

Natural Gas Futures Trading Markets be 

a better alternative than the regions 

established by the FERC Natural Gas 

Markets? 

Q83. Would the benefits of using the 

same categories or regions for all types 

of other commodities outweigh the 

potential loss of enhanced price 

discovery and/or the potential increased 

risk of disclosure? 

Q84. Would the proposal to use U.S. 

regions for natural gas products, 

petroleum and products, electricity and 

sources and other commodity groups 

enhance or limit price discovery? 

Would these regions or markets 

adequately protect the identities, 

business transactions and market 

positions of swap counterparties? 

Q85. Would the proposed 

international regions or markets 

adequately protect the identities, 

business transactions and market 

positions of swap counterparties? Is 

there sufficient volume to support these 

different international regions within 

the different types of other 

commodities? 

Q86. Should the international regions 

vary for each of the different types of 

commodities within the other 

commodities asset class (i.e., natural gas 

and related products, petroleum and 

products, electricity and sources, all 

remaining other commodities)? Are 

there specific regions which should be 

identified for each of these different 

types of other commodities? 

Q87. Should the Commission limit 

the proposed requirement for SDRs to 

anonymize delivery and pricing points 

for natural gas and related products to 

only natural gas? 

Q88. Should the Commission limit 

the proposed requirement for SDRs to 

anonymize specific delivery and pricing 

points for electricity and sources to only 

electricity? 

Q89. Should SDRs publicly 

disseminate the delivery or pricing 

point with respect to coal in the same 

manner as the ‘‘All Remaining Other 

Commodities’’? 

Q90. For thinly-traded products or 

illiquid markets, is a less specific 

delivery or pricing point necessary to 

protect anonymity? For example, should 

there only be a distinction between 

‘‘U.S.’’ and ‘‘International?’’ Would such 

a broad description limit price 

discovery to market participants and the 

public? 

Q91. As an alternative approach, 

please provide comments regarding the 

use of the other commodity groupings in 

proposed appendix D to part 43 of the 

Commission regulations as a means to 

top-code the public dissemination of the 

underlying commodities for swaps in 


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297The Commission is proposing to add the 

following SPDC designated contracts to appendix B 

to part 43. The Commission has previously issued 

orders finding that these contracts perform a 

significant price discovery function: AECO 

Financial Basis Contract traded on the 

IntercontinentalExchange, Inc. (‘‘ICE’’) (See 75 FR 

23,697); NWP Rockies Financial Basis Contract 

traded on ICE (See 75 FR 23,704); PG&E Citygate 

Financial Basis Contract traded on ICE (See 75 FR 

23,710); Waha Financial Basis Contract traded on 

ICE (See 75 FR 24,655); Socal Border Financial 

Basis Contract traded on ICE (See 75 FR 24,648); 

HSC Financial Basis Contract traded on ICE (See 75 

FR 24,641); ICE Chicago Financial Basis Contract 

traded on ICE (See 75 FR 24,633); SP–15 Financial 

Day-Ahead LMP Peak Contract traded on ICE (See 

75 FR 42,380); SP–15 Financial Day-Ahead LMP 

Off-Peak Contract traded on ICE (See 75 FR 42,380); 

PJM WH Real Time Peak Contract traded on ICE 

(See 75 FR 42,390); PJM WH Real Time Off-Peak 

Contract traded on ICE (See 75 FR 42,390); Mid-C 

Financial Peak Contract traded on ICE (See 75 FR 

38,469); Mid-C Financial Off-Peak Contract traded 

on ICE (See 75 FR 38,469). 

298The Dodd-Frank Act deleted and replaced 

CEA section 2(h)(7), which contained the five 

criteria for determining a SPDC. The Dodd-Frank 

Act amended CEA section 4a(a) to include CEA 

section 4a(a)(4), which contains a similar version of 

the five criteria for determining a SPDC in the 

context of excessive speculation. 

299See 74 FR 37,988. 300See 5 U.S.C. 601 et seq. 

the other commodity asset class that are 

not described in § 43.4(d)(4)(ii). That is, 

an SDR would publicly disseminate the 

individual other commodity swap 

grouping rather than the specific 

underlying assets. 

Q91.a. Should the Commission apply 

this additional masking to other 

commodity swaps that are not described 

in § 43.4(d)(4)(ii)? If yes, please provide 

specific examples. 

Q91.b. Would the public 

dissemination of proposed ‘‘Individual 

Other Commodity’’ groups per proposed 

appendix D to part 43 of the 

Commission’s regulations enhance price 

discovery? 

Q91.c. Do the swap categories in 

proposed appendix D to part 43 of the 

Commission’s regulations adequately 

mask the actual underlying commodity 

in such a way that would protect the 

anonymity of the identities, market 

positions and business transactions of 

swap counterparties? 

4. Further Revisions to Part 43 

a. Additional Contracts Added to 

Appendix B to Part 43 

Appendix B to part 43 currently lists 

contracts that, if referenced as an 

underlying asset, would require SDRs to 

publicly disseminate the full geographic 

detail of the asset. In the Adopting 

Release, the Commission provided that 

SDRs were required to publicly 

disseminate any underlying asset of a 

publicly reportable swap transaction 

that references or is economically 

related to any contract or contracts 

listed in appendix B to part 43 in the 

same manner. 

As noted above, the Commission is 

proposing to add 13 contracts under the 

‘‘Other Commodity’’ heading in 

appendix B to part 43. The addition of 

these 13 contracts effectively would 

require SDRs to publicly disseminate 

these contracts the same way as the 

other contracts that are currently listed 

in appendix B to part 43. That is, an 

SDR would publicly disseminate the 

actual underlying asset (and any 

underlying asset(s) that are 

economically related) without any 

limitation of the geographic detail. 

The Commission previously has 

determined that these 13 contracts are 

significant price discovery contracts 

(‘‘SPDCs’’) in connection with trading 

on exempt commercial markets 

(‘‘ECMs’’).297 Each of the 13 contracts 

has undergone an analysis in which the 

Commission considered the following 

five criteria: (i) Price linkage (the extent 

to which the contract uses or otherwise 

relies on a daily or final settlement price 

of a contract listed for trade on or 

subject to the rules of a DCM); (ii) 

arbitrage (the extent to which the price 

of the contract is sufficiently related to 

the price of a contract listed on a DCM 

to permit market participants to 

effectively arbitrage between the two 

markets); (iii) material price reference 

(the extent to which, on a frequent and 

recurring basis, bids, offers or 

transactions in a commodity are directly 

based on, or are determined by 

referencing, the prices generated by 

contracts being traded or executed on 

the ECM); (iv) material liquidity (the 

extent to which volume of the contract 

is sufficient to have a material effect on 

other contracts listed for trading); and 

(v) other material factors.298

The Commission anticipates that 

since the Commission already has 

determined these 13 contracts to have 

material liquidity and material price 

reference, among other things, the 

public dissemination of the full 

underlying asset for publicly reportable 

swap transactions that reference such 

contracts (and any underlying assets 

that are economically related thereto) 

would not disclose the identities, 

market positions and business 

transactions of market participants and 

would enhance price discovery in the 

related markets. 

The Commission notes that the 

Commission already has determined 

one additional contract, ‘‘Henry 

Financial LD1 Fixed Price Contract,’’ is 

a SPDC.299 The Commission, however, 

is not proposing to add this contract 

under the heading ‘‘Other Contracts’’ in 

appendix B to part 43. This contract is 

economically related to the ‘‘New York 

Mercantile Exchange Henry Hub Natural 

Gas,’’ which is listed under 

‘‘Enumerated Physical Commodity 

Contracts’’ in appendix B to part 43. 

Therefore, listing this contract again 

would be redundant. 

b. Technical Revisions to Part 43 

In the Adopting Release, the 

Commission states that the transactions 

described §§ 43.4(d)(4)(ii)(A)–(C) are 

meant to be exclusive of one another. 

Under these sections, an SDR is 

required to publicly disseminate the 

underlying asset(s) of a swap in the 

other commodity asset class that is 

executed on or pursuant to the rules of 

a SEF or DCM regardless of whether the 

underlying asset is listed on appendix B 

to part 43 or is economically related to 

such contracts. Accordingly, the 

Commission is proposing a technical 

clarification to § 43.4(d)(4)(ii)(B) to 

clarify the intent that these elements are 

exclusive of one another, as articulated 

in the preamble to the Adopting 

Release. 

Request for Comment 

Q92. How would reporting the 13 

contracts that the Commission is 

proposing to list in appendix B to part 

43 impact price discovery and 

anonymity of those contracts and other 

publicly reportable swap transactions in 

the other commodity asset class? For 

example, does the exact reporting of the 

PJM WH Real Time Peak Contract 

impact the remaining volume of 

publicly reportable swap transactions in 

the other commodity asset class that 

would be publicly disseminated with a 

PJM delivery or pricing point? 

IV. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) was adopted in 1980 to address 

concerns that government regulations 

may have a significant and/or 

disproportionate effect on small 

businesses. To mitigate this risk, the 

RFA requires federal agencies to issue 

an initial and final regulatory flexibility 

analysis for each rule of general 

applicability for which the agency 

issues a general notice of proposed 

rulemaking.300 These analyses must 

describe: (i) The economic impact of the 

proposed rule on small entities, 

including a statement of the objectives 

and the legal bases for the rulemaking; 

(ii) an estimate of the number of small 

entities to be affected; (iii) identification 

of federal rules that may duplicate, 

overlap or conflict with the proposed 


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301See 5 U.S.C. 603, 604. 

302See Whitman v. Am. Trucking Ass’ns, 531 

U.S. 457 (2001); Am. Trucking Assns. v. EPA, 175 

F.3d 1027, 1043 (DC Cir. 1985); Mid-Tex Elec. 

Coop., Inc. v. FERC, 773 F.2d 327, 340 (DC Cir. 

1985). 

303As discussed below, the Commission is of the 

view that registered entities such as SDs and MSPs 

are not small businesses. 

304See 17 CFR part 40 Provisions Common to 

Registered Entities, 75 FR 67,282 (Nov. 2, 2010); see 

also 47 FR 18,618, 18,619, Apr. 30, 1982 and 66 FR 

45,604, 45,609, Aug. 29, 2001. 

305See 77 FR 1,240 (‘‘[T]he Commission 

recognized that the proposed rule could have an 

economic effect on certain single end users, in 

particular those end users that enter into swap 

transactions with another end-user. Unlike the 

other parties to which the proposed rulemaking 

would apply, these end users are not subject to 

designation or registration with or to 

comprehensive regulation by the Commission. The 

Commission recognized that some of these end 

users may be small entities.’’). The term reporting 

party also includes swap dealers and major swap 

participants. 

The Commission previously has determined that 

these entities do fall within the definition of small 

business for the purpose of the RFA. See 75 FR at 

76,170. 

306See 77 FR 1,240. 

307See 77 FR 1,244. 

308See ISDA/SIFMA Jan. 18, 2011, Block trade 

reporting over-the-counter derivatives markets, 13– 

14. See also Costs and Benefits of Mandatory 

Electronic Execution Requirements for Interest Rate 

Products, note 75 supra. (‘‘In contrast with the 

current environment where swap dealers are 

principals on every trade * * *.’’). 

rules; and (iv) a description of any 

significant alternatives to the proposed 

rule that would minimize any 

significant impacts on small 

businesses.301 The RFA focuses on 

direct impact to small businesses and 

not on indirect impacts on these 

businesses, which may be tenuous and 

difficult to discern.302

As noted above, section 2(a)(13)(E)(ii) 

of the CEA directs the Commission to 

prescribe regulations specifying ‘‘the 

criteria for determining what constitutes 

a large notional off-facility swap 

transaction (block trade) for particular 

markets and contracts.’’ In general, 

proposed § 43.6 sets out, inter alia, the 

criteria to determine swap categories 

and the methodologies that the 

Commission would employ in 

determining the appropriate minimum 

block sizes for those swap categories. In 

addition, the proposed amendments to 

§ 43.4 set out a system to mask the 

notional amounts of swaps of relative 

large size, as well as a system to 

anonymize geographic and underlying 

asset detail for certain other commodity 

swaps. The Commission is of the view 

that these proposed provisions would 

impose only one direct requirement on 

businesses, including small 

businesses.303 Proposed 43.6(a) would 

require reporting parties to notify an 

SDR of its election to treat a qualifying 

publicly reportable swap transaction as 

a large notional off-facility swap. The 

Commission anticipates that the direct 

impact of this requirement would not be 

significant for the purposes of the RFA. 

Indeed, proposed § 43.6(g) would 

impose minimal notice requirements on 

market participants that are subject to 

part 43 of the Commission’s regulations. 

A more fulsome analysis of the 

implications that proposed § 43.6(g) 

may have on small businesses is 

described immediately below. 

A. Potential Economic Impact— 

Proposed § 43.6(g)—Notification of 

Election 

Proposed § 43.6(g) contains the 

provisions regarding the election to 

have a swap transaction treated as a 

block trade or large notional off-facility 

swap, as applicable. Proposed 

§ 43.6(g)(1) establishes a two-step 

notification process relating to block 

trades. Proposed § 43.6(g)(2) establishes 

the notification process relating to large 

notional off-facility swaps. 

Proposed § 43.6(g)(1)(i) contains the 

first step in the two-step notification 

process relating to block trades. In 

particular, this section provides that the 

reporting party to a swap that is 

executed at or above the appropriate 

minimum block size is required to 

notify the SEF or DCM (as applicable) of 

its election to have its qualifying swap 

transaction treated as a block trade. 

With respect to the second step, 

proposed § 43.6(g)(1)(ii) provides that 

the SEF or DCM, as applicable, that 

receives an election notification is 

required to notify an SDR of a block 

trade election when transmitting swap 

transaction and pricing data to such 

SDR for public dissemination. 

Proposed § 43.6(g)(2) is similar to the 

first step set forth in proposed 

§ 43.6(g)(1). That is, proposed 

§ 43.6(g)(2) provides, in part, that a 

reporting party who executes a bilateral 

swap transaction that is at or above the 

appropriate minimum block size is 

required to notify the SDR of its election 

to treat such swap as a large notional 

off-facility swap. This section provides 

further that the reporting party is 

required to notify the SDR in connection 

with the reporting party’s transmission 

of swap transaction and pricing data to 

the SDR for public dissemination. 

The second step in the two-step 

process in proposed § 43.6(g)(1) imposes 

direct burdens on SEFs and DCMs. The 

Commission previously has determined 

that these entities are not small 

businesses for the purposes of the 

RFA.304

In contrast, the first step in the twostep process in proposed § 43.6(g)(1) 

and the notification election in 

proposed § 43.6(g)(2) would impose 

direct burdens on parties to a swap, 

which the Commission has determined 

previously may include a percentage of 

small end users that are considered 

small businesses for the purposes of the 

RFA.305 Notwithstanding the imposition 

of this burden, however, the 

Commission anticipates that the 

notification requirements in proposed 

§§ 43.6(g)(1)(i) and 43.6(g)(2) would not 

create significant economic burdens on 

small end users. The Commission 

anticipates that the notification 

requirements imposed in proposed 

§§ 43.6(g)(1)(i) and 43.6(g)(2) will likely 

be automated and electronic. Section 

43.3 of the Commission’s regulations 

already requires these entities to report 

their swap transaction and pricing data 

to an SDR.306 The Commission is of the 

view that requiring these entities to 

include an additional notification or 

field in conjunction with the reporting 

of such data would impose, at best, a 

marginal and incremental cost. 

Moreover, as stated in prior RFA 

determinations, the Commission 

anticipates the percentage of end users 

that would fall within the definition of 

reporting party 307 would likely be 

minimal since, according to industry 

data, most end users transact swaps 

with a swap dealer.308 Thus, the 

percentage of small end users that 

would be required to notify SDRs 

directly of their election to treat a swap 

as a block trade or large notional offfacility swap would not likely be 

significant. 

B. Identification of Duplicative, 

Overlapping or Conflicting Federal 

Rules 

The Commission has not identified 

any existing federal rules exist that are 

duplicative, overlapping or conflicting 

with the provisions in this Further 

Proposal, including the provisions in 

proposed § 43.6(g). 

C. Alternatives to Proposed Rules That 

Will Have an Impact 

Under the RFA, the Commission is 

not required to identify alternatives as a 

result of its determination that the 

provisions in proposed § 43.6(g) would 

not have a significant economic impact 

on a significant number of small 

businesses. 

D. Certification 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies 

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

proposed rules will not have a 


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309See 44 U.S.C. 3501. 

310See 44 U.S.C. 3502. 

311See 5 CFR 1320.3(c)(1). 

312See 44 U.S.C. 3506. 

313The Commission has previously estimated that 

125 SDs and MSPs will register with the 

Commission and 1,000 non-financial end-users (i.e., 

non-SD/non-MSPs) will be required to report swap 

transactions annually. 77 FR 1,229–30. 

314The Commission anticipates that these figures 

will change as a function of changes in the market 

structure and practices in the U.S. swaps markets. 

315The Commission estimates the total number of 

notifications as follows: 125 SDs/MSPs × 1,000 

notifications = 125,000 notifications per year; 1,000 

non-SDs/non-MSPs × 5 notifications = 5,000 

notifications per year; therefore, the total across all 

types of entities would be 130,000 notifications per 

year. 

316The Commission previously has utilized wage 

rate estimates based on average salary and average 

prior year bonus information for the securities 

industry compiled by SIFMA. These wage estimates 

are derived from an industry-wide survey of 

participants and thus reflect an average across 

significant economic impact on a 

substantial number of small businesses. 

Nonetheless, the Commission 

specifically requests comment on the 

economic impact that this Further 

Proposal may have on small businesses. 

V. Paperwork Reduction Act 

A. Background 

The purposes of the Paperwork 

Reduction Act of 1995, 44 U.S.C. 3501 

et seq. (‘‘PRA’’) are, among other things, 

to minimize the paperwork burden to 

the private sector, ensure that any 

collection of information by a 

government agency is put to the greatest 

possible uses, and minimize duplicative 

information collections across the 

government.309 The PRA applies with 

extraordinary breadth to all information, 

‘‘regardless of form or format,’’ 

whenever the government is ‘‘obtaining, 

causing to be obtained [or] soliciting’’ 

information, and includes requires 

‘‘disclosure to third parties or the 

public, of facts or opinions,’’ when the 

information collection calls for 

‘‘answers to identical questions posed 

to, or identical reporting or 

recordkeeping requirements imposed on 

ten or more persons.’’ 310 The PRA 

requirements have been determined to 

include not only mandatory but also 

voluntary information collections, and 

include both written and oral 

communications.311

To effectuate the purposes of the PRA, 

Congress requires all agencies to 

quantify and justify the burden of any 

information collection it imposes.312

This requirement includes submitting 

each collection, whether or not it is 

contained in a rulemaking, to the Office 

of Management and Budget (‘‘OMB’’) for 

review. The OMB submission process 

includes completing a form 83–I and a 

supporting statement with the agency’s 

burden estimate and justification for the 

collection. When an information 

collection is established within a 

rulemaking, the agency’s burden 

estimate and justification should be 

provided in the proposed rulemaking, 

subjecting the proposed information 

collection to the rulemaking’s public 

comment process. 

Proposed § 43.6 and amendments to 

§ 43.4 would result in amendments to 

an existing collection of information 

within the meaning of the PRA in two 

respects. Accordingly, the Commission 

is submitting this Further Proposal to 

the OMB for review pursuant to 44 

U.S.C. 3507(d) and 5 CFR1320.11. OMB 

has assigned control number 3038–0070 

to the existing collection of information, 

which is titled ‘‘Part 43—Real-Time 

Public Reporting.’’ If adopted, then 

responses to this amended collection of 

information would be mandatory. 

B. Description of the Collection 

Recently, the Commission issued the 

Adopting Release, which includes three 

collections of information requirements 

within the meaning of the PRA. The first 

collection of information requirement 

under Part 43 imposed a reporting 

requirement on a SEF or DCM when a 

swap is executed on a trading facility or 

on the parties to a swap transaction 

when the swap is executed bilaterally. 

The second collection of information 

requirement under Part 43 created a 

public dissemination requirement on 

SDRs. The third collection of 

information requirement created a 

recordkeeping requirement for SEFs, 

DCMs, SDRs and any reporting party (as 

such term is defined in part 43 of the 

Commission’s regulations). 

Proposed amendments to § 43.4 and 

proposed § 43.6 would amend the first 

and second collections of information 

within the meaning of the PRA as 

described below. The analysis with 

respect to the amended collections as a 

result of proposed § 43.6 is set out in 

section 1 below. The analysis with 

respect to the amended collections as a 

result of proposed amendments to § 43.4 

is set out in section 2 below. 

1. Proposed § 43.6(g)—Notification of 

Election 

Proposed § 43.6(g) would amend the 

first and second collections of 

information within the meaning of the 

PRA. In particular, proposed § 43.6(g) 

contains the provisions regarding the 

election to have a swap transaction 

treated as a block trade or large notional 

off-facility swap, as applicable. 

Proposed § 43.6(g)(1) establishes a twostep notification process relating to 

block trades. Proposed § 43.6(g)(2) 

establishes the notification process 

relating to large notional off-facility 

swaps. Proposed § 43.6(g) is an essential 

part of this rulemaking because it 

provides the mechanism through which 

market participants will be able to elect 

to treat their qualifying swap transaction 

as a block trade or large notional offfacility swap. 

Proposed § 43.6(g)(1)(i) contains the 

first step in the two-step notification 

process relating to block trades. In 

particular, this section provides that the 

parties to a swap that are executed at or 

above the appropriate minimum block 

size for the applicable swap category are 

required to notify the SEF or DCM (as 

applicable) of their election to have 

their qualifying swap transaction treated 

as a block trade. The Commission 

understands that SEFs and DCMs use 

automated, electronic, and in some 

cases, voice processes to execute swap 

transactions; therefore, the transmission 

of the notification of a block trade 

election also would either be automated, 

electronic or communicated through 

voice. 

The Commission estimates that there 

are 125 SDs and MSPs, and 1,000 other 

non-financial end-user parties.313 The 

Commission estimates that, on average, 

SD/MSP reporting parties would likely 

notify a SEF or DCM of a block trade 

election approximately 1,000 times per 

year while non-SD/MSP reporting 

parties likely would notify a SEF or 

DCM of a block trade election 

approximately five times per year.314

Thus, the Commission estimates that 

there would be 130,000 notifications of 

a block trade election by reporting 

parties under proposed § 43.6(g) each 

year.315

The Commission estimates that the 

burden hours associated with the 

§ 43.6(g)(1)(i) would include: (i) 30 

seconds on average for parties to a swap 

to determine whether a particular swap 

transaction qualifies as a block trade 

based on the appropriate minimum 

block size of the applicable swap 

category; and (ii) 30 seconds on average 

for the parties to electronically transmit 

or otherwise communicate their notice 

of election. SDs, MSPs and reporting 

parties would use existing traders (or 

other professionals earning similar 

salaries) to electronically transmit or 

otherwise communicate their notice of 

election. Based on the Securities 

Industry and Financial Market 

Association’s 2010 Securities Industry 

Salary Survey, the Commission 

estimates that these block traders would 

earn approximately $140.93 per hour in 

total compensation.316 Accordingly, the 


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entities; the Commission notes that the actual costs 

for any individual company or sector may vary from 

the average. 

The Commission estimated the dollar costs of 

hourly burdens for different types of relevant 

professionals using the following calculations: 

(1) [(2009 salary + bonus) * (salary growth per 

professional type, 2009–2010)] = Estimated 2010 

total annual compensation. The most recent data 

provided by the SIFMA report describe the 2009 

total compensation (salary + bonus) by professional 

type, the growth in base salary from 2009 to 2010 

for each professional type, and the 2010 base salary 

for each professional type; therefore, the 

Commission estimated the 2010 total compensation 

for each professional type, but, in the absence of 

similarly granular data on salary growth or 

compensation from 2010 to 2011 and beyond, did 

not estimate dollar costs beyond 2010. 

(2) [(Estimated 2010 total annual compensation)/ 

(1,800 annual work hours)] = Hourly wage per 

professional type.] 

(3) [(Hourly wage) * (Adjustment factor for 

overhead and other benefits, which the Commission 

has estimated to be 1.3)] = Adjusted hourly wage 

per professional type.] 

(4) [(Adjusted hourly wage) * (Estimated hour 

burden for compliance)] = Dollar cost of compliance 

for each hour burden estimate per professional 

type.] 

The sum of each of these calculations for all 

professional types involved in compliance with a 

given element of this Further Proposal represents 

the total cost for each counterparty, reporting party, 

swap dealer, major swap participant, SEF, DCM, or 

SDR, as applicable to that element of the proposal. 

317To comply with the election process in 

proposed § 43.6(g), a market participant likely 

would need to provide training to its existing 

personnel and update its written policies and 

procedures to account for this new process. The 

total annual burden hours equals the total hours for 

swap dealers and major swap participants plus the 

total hours for non-swap dealers and non-major 

swap participants. 

318The underlying adjusted labor cost estimate of 

$140.93 per hour used in this estimate is calculated 

based on the adjusted wages of swap traders. See 

note 316 supra. 

319The estimated costs are based on the 

Commission’s estimate of the incremental, nonrecurring expenditures to reporting entities, 

including non-SD/non-MSPs (i.e., non-financial 

end-users) to: (1) update existing technology, 

including updating its OMS system ($6,761.20); and 

(2) provide training to existing personnel and 

update written policies and procedures ($3,195.00). 

See section VI(E)(2)(a)(i)–(ii) infra. The Commission 

believes that SDs/MSPs would incur similar nonrecurring start-up costs. The Commission has 

previously estimated that 125 SDs and MSPs will 

register with the Commission and 1,000 nonfinancial end-users (i.e., non-SD/non-MSPs) will be 

required to report in a year. See 77 FR 1229–30. 

320The Commission bases this estimate on 58 

projected SEFs and DCMs, each of which will incur 

costs of investing in update technology, including 

updating its OMS system ($6,761.20); and training 

existing personnel and updating written policies 

and procedures ($3,195.00). See section 

VI(E)(2)(a)(i)–(ii) infra. 

321The economic costs associated with entering 

into a third party service arrangement to transmit 

an electronic notice to an SDR are difficult to 

determine. There are too many variables that are 

involved in determining those costs. 

Notwithstanding this difficulty, the Commission 

foresees that, for many reporting parties that 

infrequently trade swaps, the annualized cost of 

entering into a third-party service arrangement of 

this type would likely be less than the total annual 

cost of building an electronic infrastructure to 

transmit electronic notices directly to an SDR. 

322See note 316 supra. 

323The labor hour estimate is calculated as 

follows: (125 SDs/MSPs × 500 notifications) + 

(1,000 non-SDs/non-MSPs × 5 notifications) = 

67,500 notifications × 2 minutes/notification = 

135,000 minutes/60 minutes/hour = 2,255 hours. 

The labor cost estimate is calculated as follows: 

2,255 labor hours × $140.93 per hour total 

compensation = $317,797. 

324The estimated costs are based on the 

Commission’s estimate of the incremental, nonrecurring expenditures to reporting entities, 

including non-SD/non-MSPs (i.e., non-financial 

end-users) to (1) update existing technology, 

including updating its OMS system ($6,761.20); and 

(2) provide training to existing personnel and 

update written policies and procedures ($3,195.00). 

See section VI(E)(2)(a)(i)–(ii) infra. The Commission 

believes that SDs/MSPs would incur similar nonrecurring start-up costs. The Commission has 

previously estimated that 125 SDs and MSPs will 

register with the Commission and 1,000 nonfinancial end-users (i.e., non-SD/non-MSPs) will be 

required to report in a year. 77 FR 1,229–30. 

325See 77 FR at 1,232. 

Commission estimates that the total 

annual burden hour costs associated 

with the first step in proposed 

§ 43.6(g)(1)(i) would be 2,167 hours 317

or $305,396 in total annual burden 

hours costs 318 and $11.2 million in total 

start-up capital costs.319

With respect to the second step, 

proposed § 43.6(g)(1)(ii) provides that 

the SEF or DCM, as applicable, that 

receives an election notification is 

required to notify an SDR of a block 

trade election when transmitting swap 

transaction and pricing data to such 

SDR for public dissemination. As noted 

above, the Commission anticipates that 

SEFs and DCMs would use automated, 

electronic and, in some cases, voice 

processes to execute swap transactions. 

The Commission estimates that there 

will be approximately 58 SEFs and 

DCMs. Accordingly, the Commission 

estimates that the total annual burden 

associated with the second step in 

proposed § 43.6(g)(1)(ii) would be 

approximately $577,460 in nonrecurring annualized capital and startup costs.320 The Adopting Release 

already has addressed the recurring 

annualized costs for the hour burden, as 

well as ongoing operational and 

maintenance costs. 

Proposed § 43.6(g)(2) is similar to the 

first step set forth in proposed 

§ 43.6(g)(1). That is, proposed 

§ 43.6(g)(2) provides, in part, that a 

reporting party who executes a bilateral 

swap transaction that is at or above the 

appropriate minimum block size is 

required to notify the SDR of its election 

to treat such swap as a large notional 

off-facility swap. This section provides 

further that the reporting party is 

required to notify the SDR in connection 

with the reporting party’s transmission 

of swap transaction and pricing data to 

the SDR for public dissemination. The 

Commission anticipates that reporting 

parties may have various methods 

through which they will transmit 

information to SDRs, which would 

include a large notional off-facility swap 

election. Most reporting parties would 

use automated and electronic methods 

to transmit this information; other 

reporting parties, because of the expense 

associated with building an electronic 

infrastructure, may contract with third 

parties (including their swap 

counterparty) to transmit the 

notification of a large notional offfacility swap election. 

The Commission estimates that the 

incremental time and cost burden 

associated with the § 43.6(g)(2) would 

include: (i) One minute for a reporting 

party to determine whether a particular 

swap transaction qualifies as a large 

notional off-facility swap based on the 

appropriate minimum block size of the 

applicable swap category; and (ii) one 

minute for the reporting party (or its 

designee) to electronically transmit or 

communicate through voice processes 

its notice of election. The Commission 

estimates that, of the approximately 

2,255 hours incurred by 125 SDs/MSPs 

and 1,000 non-SD/MSPs, all of those 

hours would be spent by traders and 

market analysts (or designee).321

SIFMA’s report states that traders and 

market analysts make $140.93 per hour 

in total compensation.322

The Commission estimates that, on 

average, each of the estimated 125 SD/ 

MSP counterparties would likely notify 

an SDR of a large notional off-facility 

swap election approximately 500 times 

per year while each of the estimated 

1,000 non-SD/MSP counterparties 

would notify an SDR approximately five 

times per year. Accordingly, the 

Commission estimates that there are, on 

average, approximately 67,500 

notifications large notional off-facility 

swaps under proposed § 43.6 each year. 

Accordingly, the Commission estimates 

that the total annual burden associated 

with proposed § 43.6(g)(2) would be 

approximately 2,255 annual labor hours 

or $317,797 in annual labor costs.323

In addition, the Commission estimates 

that proposed § 43.6(g)(2) would result 

in $11.2 million in non-recurring 

annualized capital and start-up costs.324

The Adopting Release addressed all 

ongoing operational and maintenance 

costs.325

2. Proposed Amendments to 

§§ 43.4(d)(4) and 43.4(h) 

The Commission addresses the public 

dissemination of certain swaps in the 

other commodity asset class in 

§ 43.4(d)(4). Section 43.4(d)(4)(ii) 


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326The Commission estimates that there will be 

5 SDRs, which will collect swaps data in the other 

commodity asset class. Each SDR would collect 

swaps data on approximately 10,000 swap 

transactions in the other commodity asset class. The 

commission estimates that it will take each SDR on 

average approximately 1 minute to publicly 

disseminate swaps data related to these new swap 

transactions. The number of burden hours for these 

SDRs would be 833 hours. As referenced in note 

318 supra, the total labor costs for a swap trader is 

$140.93. Thus, the total number of burden hour 

costs equal the total number of burden hours (833 

burden hours) × $140.93. 

327The Adopting Release calculated and 

addressed the total ongoing burden hours and 

burden hour costs. See 77 FR 1,1232. 

328The economic costs associated with entering 

into a third party service arrangement to transmit 

an electronic notice to an SDR are difficult to 

determine because of too many variables involved 

in determining those costs. Notwithstanding this 

difficulty, the Commission believes that, for many 

reporting parties that infrequently trade swaps, the 

annualized cost of entering into a third-party 

service arrangement of this type would likely be 

less than the total annual cost of building an 

electronic infrastructure to transmit electronic 

notices directly to an SDR. 

329This estimate is calculated as follows: Senior 

Programmer cost ($81.52 adjusted hourly wage × 

250 hours) + Systems Analyst ($54.89 adjusted 

hourly wage × 250 hours) + Compliance Manager 

($77.77 adjusted hourly wage × 250 hours) + 

Compliance Attorney (i.e., Assistant General 

Counsel) ($89.43 adjusted hourly wage × 250 

hours). 

provides that for publicly reportable 

swaps in the other commodity asset 

class, the actual underlying assets must 

be publicly disseminated for: (1) Those 

swaps executed on or pursuant to the 

rules of a SEF or DCM; (2) those swaps 

referencing one of the contracts 

described in appendix B to part 43; and 

(3) any publicly reportable swap 

transaction that is economically related 

to one of the contracts described in 

appendix B to part 43. Pursuant to the 

Adopting Release, any swap that is in 

the other commodity asset class that 

does not fall under § 43.4(d)(4)(ii) would 

not be subject to reporting and public 

dissemination requirements upon the 

effective date of the Adopting Release. 

In this Further Proposal, the 

Commission is proposing a new 

provision (proposed § 43.4(d)(4)(iii)), 

which would develop a system for the 

public dissemination of exact 

underlying assets in the other 

commodity asset class with a ‘‘mask’’ 

based on geographic detail. The 

Commission is proposing a new 

appendix to part 43, which contains the 

geographical top-codes that SDRs would 

use in masking certain other commodity 

swaps in connection with such swaps 

public dissemination of swap 

transaction and pricing data under part 

43. The Commission anticipates that 

there will be approximately 50,000 

additional swaps reported to an SDR 

each year in the other commodity asset 

class, which the Commission estimates 

would be $117,395 in annualized hour 

burden costs.326

The Commission’s regulations 

currently provide a system establishing 

cap sizes. Section 43.4(h) of the 

Commission’s regulations provides that 

cap sizes for swaps in each asset class 

shall equal the appropriate minimum 

block size corresponding to such 

publicly reportable swap transaction. If 

no appropriate minimum block size 

exists, then § 43.4(h) sets out specific 

interim cap sizes for each asset class.327

This Further Proposal would amend 

§ 43.4(h) to establish new cap sizes in 

the post-initial period using a 75- 

percent notional amount calculation. 

Under this proposed amendment, the 

Commission would perform the 

calculation; however, SDRs would 

update their technology and other 

systems at a minimum of once per year 

to publicly disseminate swap 

transaction and pricing data with the 

cap sizes issued by the Commission. 

The Commission estimates that the 

incremental, start-up costs associated 

with proposed amendment to 

§§ 43.4(d)(4) and 43.4(h) for an SDR 

would include: (1) Reprograming its 

technology infrastructure to 

accommodate the proposed masking 

system and proposed post-initial cap 

sizes methodology; (2) updating its 

written policies and procedures to 

ensure compliance with proposed 

§ 43.4(d)(4)(iii) and the proposed 

amendment to § 43.4(h); and (3) training 

staff on the new policies and 

procedures.328 The Commission 

estimates that the total annual burden 

associated with proposed 

§ 43.4(d)(4)(iii) and the proposed 

amendments to 43.4(h) would be 1,000 

labor hours and approximately 

$75,900.329

C. Request for Comments on Collection 

The Commission requests comments 

on the accuracy of these estimates 

provided in these proposed 

amendments to existing collections of 

information. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicits 

comments in order to: (i) Evaluate 

whether the burden of the proposed 

amendments to the collections of 

information that are necessary for the 

proper performance of the functions of 

the Commission, including whether the 

information will have practical utility; 

(ii) evaluate the accuracy of the 

Commission’s estimate of the burden of 

the proposed amendments to the 

collections of information; (iii) 

determine whether there are ways to 

enhance the quality, utility and clarity 

of the information to be collected; and 

(iv) minimize the burden of the 

proposed amendments to the collections 

of information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs of OMB by fax at 

(202) 395–6566 or by email at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

the submitted comments so that all 

comments can be summarized and 

addressed in the final rule preamble. 

Refer to the ‘‘Addresses’’ section of this 

Further Proposal for comment 

submission instructions to the 

Commission. A copy of the supporting 

statements for the collection of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this release. 

Consequently, a comment to OMB is 

most assured of being fully effective if 

received by OMB and the Commission 

within 30 days after publication of this 

Further Proposal. Nothing in this 

Further Proposal affects the deadline 

enumerated above for public comment 

to the Commission. 

VI. Cost-Benefit Considerations 

A. Introduction 

Title VII of the Dodd-Frank Act added 

section 2(a)(13) to the CEA to direct the 

Commission to promulgate rules 

requiring the real-time public reporting 

of swap transaction and pricing data, 

while protecting market liquidity for 

block trades and large notional offfacility swaps. Transaction reporting is 

a fundamental component of the DoddFrank Act’s general objectives to reduce 

risk, increase transparency and promote 

market integrity within the financial 

system and the swaps market in 

particular. 

Four provisions in section 2(a)(13) are 

relevant to this Further Proposal. 

Section 2(a)(13)(E)(ii) requires the 

Commission to establish criteria for 

determining what constitutes a large 

notional off-facility swap or block trade 

for particular markets and contracts. 

Section 2(a)(13)(E)(iii) requires the 

Commission to specify the appropriate 

time delay for reporting large notional 

off-facility swaps and block trades. 

Finally, sections 2(a)(13)(E)(i) and 

2(a)(13)(C)(iii) collectively require the 

Commission to protect the identities of 

counterparties to swaps and to maintain 

the anonymity of business transactions 


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330See CEA section 2(a)(13)(E)(ii). 7 U.S.C. 

2(a)(13)(E)(ii). 

331For a discussion of the costs and benefits of 

the time delay and development of an infrastructure 

for block trades and large notional off-facility 

swaps, see the Adopting Release, 77 FR 1,232. 332 7 U.S.C. 19(a). 333See 77 FR 1,232. 

and market positions of those 

counterparties. 

The Commission has implemented 

three of the four provisions in section 

2(a)(13). The Adopting Release issued 

on January 9, 2012 sets forth, inter alia: 

(i) Definitions for the terms ‘‘large 

notional off-facility swap’’ and ‘‘block 

trade’’; (ii) the appropriate time delay 

for reporting these swaps and trades; 

and (iii) a system to protect the 

anonymity of parties to a swap, 

including the establishment of interim 

cap sizes and the creation of an 

exception from the real-time public 

reporting requirement for certain swaps 

in the other commodity asset class. 

While part 43 defines the terms large 

notional off-facility swap and block 

trade and sets forth time delays for 

reporting such swaps and trades, part 43 

as adopted does not ‘‘specify the criteria 

for determining what constitutes a large 

notional [off-facility] swap transaction 

[or block trade] for particular markets 

and contracts.’’ 330 Since the 

Commission has not yet specified 

criteria, by default, all publicly 

reportable swap transactions are now 

subject to a time delay. The provisions 

of this Further Proposal would, if 

adopted, become effective against this 

baseline—that is, at a point in time 

when all publicly reportable swap 

transactions are subject to a time delay 

and are not publicly reported in realtime (i.e., as soon as technologically 

practicable). 

This Further Proposal seeks to amend 

part 43 by establishing criteria to group 

swaps into categories and 

methodologies to determine appropriate 

minimum block sizes for each swap 

category. In addition, this Further 

Proposal seeks to establish additional 

measures to protect the identities of 

swap counterparties and their business 

transactions. This Further Proposal does 

not affect provisions relating to the 

appropriate time delay for block trades 

and large notional off-facility swaps. 

Similarly, this Further Proposal does 

not amend or further propose provisions 

that would require swap market 

participants to develop a completely 

new infrastructure or hire new 

personnel in order to comply with the 

existing provisions of part 43.331

In the sections that follow, the 

Commission identifies and considers 

certain costs and benefits associated 

with the Further Proposal to amend part 

43 as required by section 15(a) of the 

CEA. The Commission requests 

comment on all aspects of its proposed 

consideration of costs and benefits, 

including identification and assessment 

of any costs and benefits not discussed 

in this analysis. In addition, the 

Commission requests that commenters 

provide data and any other information 

or statistics that the commenters relied 

on to reach any conclusions on the 

Commission’s proposed consideration 

of costs and benefits. 

B. The Requirements of Section 15(a) 

Section 15(a) of the CEA 332 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA or issuing an order. Section 15(a) 

further specifies that the costs and 

benefits shall be evaluated in light of the 

following 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. To the 

extent that these new regulations reflect 

the statutory requirements of the DoddFrank Act, they will not create costs and 

benefits beyond those resulting from 

Congress’s statutory mandates in the 

Dodd-Frank Act. However, to the extent 

that the new regulations reflect the 

Commission’s own determinations 

regarding implementation of the DoddFrank Act’s provisions, such 

Commission determinations may result 

in other costs and benefits. It is these 

other costs and benefits resulting from 

the Commission’s own determinations 

pursuant to and in accordance with the 

Dodd-Frank Act that the Commission 

considers with respect to the section 

15(a) factors. 

C. Structure of the Commission’s 

Analysis; Cost Estimation Methodology 

Of the two parts to this Further 

Proposal, ‘‘Part One’’ establishes block 

trade rules, and ‘‘Part Two’’ addresses 

anonymity protections. Part One further 

proposes regulations specifying criteria 

for categorizing swaps and determining 

the appropriate minimum block size for 

each swap category. In particular, in 

Part One the Commission is proposing: 

(i) The criteria for determining swap 

categories and the methodologies that it 

would use to determine the initial and 

post-initial appropriate minimum block 

sizes for large notional off-facility swaps 

and block trades; and (ii) a method by 

which parties to a swap, SEFs, and 

DCMs would elect to treat the parties’ 

qualifying swap transactions as block 

trades or large notional off-facility 

swaps, as applicable. The Commission 

has considered the costs and benefits 

associated with Part One separately for 

each of the two above-specified groups 

of provisions since different parties 

would bear primary compliance 

obligations for each group. That is, the 

provisions establishing criteria for 

determining swap categories and 

appropriate minimum block size 

methodologies primarily impose 

obligations on the Commission, and the 

provisions establishing election 

methodology primarily impose 

obligations on parties to a swap and 

registered entities. 

Part Two provides: (i) A methodology 

for determining post-initial-period cap 

sizes; and (ii) a system for the public 

dissemination of swap transaction and 

pricing data for certain other commodity 

swaps with specific underlying assets 

and geographic detail in a manner that 

does not disclose the business 

transactions and market positions of 

swap market participants. Since Part 

Two’s provisions would impose the 

same or similar costs (e.g., technology 

re-programming costs) and confer the 

same or similar benefits on swap market 

participants (e.g., anonymity protections 

with respect to the identities of the 

parties to a swap and their market 

transactions), the Commission analyzed 

the costs and benefits of these 

provisions in one group section. 

Wherever reasonably feasible, the 

Commission has endeavored to quantify 

the costs and benefits of this Further 

Proposal. In a number of instances, 

however, the Commission lacks or is 

otherwise unaware of information 

needed as a basis for quantification. In 

these instances, the Commission has 

requested data from the public to aid the 

Commission in considering the 

quantitative effects of its rulemaking. 

Where it has not been feasible to 

quantify (e.g., because of the lack of 

accurate data), the Commission has 

considered the costs and benefits of this 

Further Proposal in qualitative terms. 

The conditions now existent under 

part 43—i.e., all publicly reportable 

swap transactions qualify for a timedelay—provide the baseline for the 

Commission’s consideration of 

incremental costs and benefits that 

would arise from this Further 

Proposal.333 These baseline costs and 

benefits are discussed in the Adopting 

Release. As a reference point for 

estimating the incremental costs and 

benefits against this baseline, the 

Commission has used a non-financial 


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334A non-financial end-user is a new market 

entrant with no prior swaps market participation or 

infrastructure. This reference point is different from 

the reference point(s) used in the PRA analysis in 

section V above for the following two reasons: (1) 

The burdens in the PRA are narrower than the costs 

discussed in this section (i.e., the PRA analysis 

solely discusses costs relating to collections of 

information, whereas this cost-benefit analysis 

considers all costs relating to the proposed rules); 

and (2) as discussed above, the cost-benefit analysis 

determines costs relative to one market participant 

that presumably would bear the highest burdens in 

implementing the proposed rules, whereas the PRA 

analysis seeks to estimate the costs of the proposed 

rules on all market participants. 

335See § 43.3(i) of the Commission’s regulations, 

which authorizes an SDR to charge fees to persons 

reporting swap transaction and pricing data for realtime public dissemination, so long as such fees are 

equitable and non-discriminatory. The Commission 

currently does not have sufficient data on which to 

estimate the fees that an SDR would charge to 

person reporting swap transaction and pricing data. 

77 FR 1,246. 

336See 77 FR 1,185. 

337See proposed § 43.6(b), which defines swap 

category by asset class. 

338See proposed § 43.6(e) and proposed appendix 

F to part 43. 

339See proposed §§ 43.6(c) and (f). 

340See proposed § 43.6(g). 

341See proposed amendments to § 43.4(d)(4). 

342See proposed §§ 43.4(h) and 43.6(c). 

343A discussion of the ODSG is set forth in 

section II.C.1 of this Further Proposal. 

end-user that already has developed the 

technical capability and infrastructure 

necessary to comply with the 

requirements set forth in part 43.334

Relative to this reference point, 

however, the Commission anticipates 

that in many cases the actual costs to 

established market participants 

(including swap counterparties, SDRs 

and other registered entities) would be 

lower—perhaps significantly so, 

depending on the type, flexibility, and 

scalability of systems already in place. 

Moreover, the Commission anticipates 

that with respect to SDRs specifically, 

they may recover their incremental costs 

by passing them on as fees assessed on 

reporting parties—SEFs and DCMs—for 

use of the SDRs’ public dissemination 

services.335 In addition, the Commission 

recognizes that its choice of an 

alternative method for determining 

appropriate minimum block sizes and 

cap sizes may alter the cost and benefit 

estimates described below. 

D. Background; Objectives of This 

Further Proposal 

In the Adopting Release, the 

Commission stated that it planned to 

‘‘issue a separate notice of proposed 

rulemaking that would specifically 

address the appropriate criteria for 

determining appropriate minimum 

block trade sizes in light of the data and 

comments received.’’ 336 Accordingly, in 

this Further Proposal, the Commission 

is specifically proposing to: (1) Establish 

criteria by creating the concept of a 

‘‘swap category’’ (i.e., groupings of 

swaps within the same asset class based 

on underlying characteristics) 337; (2) 

prescribe initial appropriate minimum 

block sizes based on the Commission’s 

review and analysis of swap market data 

across certain asset classes 338; (3) 

establish a methodology for calculating 

post-initial appropriate minimum block 

sizes 339; (4) establish an obligation for 

the Commission to calculate appropriate 

minimum block sizes; (5) provide the 

method through which parties to a swap 

may elect block trade or large notional 

off-facility swap treatment for their 

swap transaction 340; (6) establish a 

system to ensure the anonymity of 

certain swaps in the other commodity 

asset class 341; and (7) establish a 

methodology for the calculation of postinterim or post-initial cap sizes.342

Items (1) through (5) referenced above 

are addressed in Part One of this Further 

Proposal since they relate to the 

proposed criteria, methodology and 

election for block sizes and large 

notional off-facility swaps. Items (6) and 

(7) are discussed in Part Two since they 

relate to protecting the identity of 

parties to a swap in accordance with 

sections 2(a)(13)(E)(i) and 2(a)(13)(C)(iii) 

of the CEA. 

E. Costs and Benefits Relevant to the 

Block Trade Rules Section of the Further 

Proposal (§§ 43.6(a)–(f) and (h)) 

The Commission has organized its 

cost-benefit discussion of the provisions 

within Part One of this Further Proposal 

as follows: (1) The proposed criteria for 

establishing swap categories and a 

proposed methodology for determining 

appropriate minimum block sizes; and 

(2) the proposed method through which 

the parties to a swap may elect to treat 

their qualifying swap transaction as a 

block trade or large notional off-facility 

swap, as applicable. The Commission 

has performed a separate section 15(a) 

analysis with respect to each group of 

provisions. 

1. Costs and Benefits Relevant to the 

Proposed Criteria and Methodology 

In proposed §§ 43.6(a)–(f) and (h), the 

Commission specifies criteria for 

establishing swap categories and a 

proposed methodology that the 

Commission would use in determining 

appropriate minimum block sizes. In the 

subsections that follow, the Commission 

sets forth brief summaries of the 

relevant proposed provisions, followed 

by a discussion of associated costs and 

benefits. 

a. Proposed § 43.6(a) Commission 

Determination 

Pursuant to proposed § 43.6(a), the 

Commission would determine the 

appropriate minimum block size for any 

swap listed on a SEF or DCM, and for 

large notional off-facility swaps. 

Following an initial period (as described 

below), the Commission would 

calculate and publish all appropriate 

minimum block sizes across all asset 

classes no less than once each calendar 

year. 

b. Proposed § 43.6(b) Swap Category 

The Commission is proposing a 

tailored approach to group swaps within 

each asset class. Section 43.6(b) 

proposes unique swap categories based 

on the underlying asset class, relevant 

economic indicators and the 

Commission’s analysis of relevant swap 

market data. 

c. Proposed §§ 43.6(c)–(f) and (h) 

Methods for Determining Appropriate 

Minimum Block Sizes 

The Commission is proposing in 

§§ 43.6(c)–(f) and (h) a phased-in 

approach, with an initial period and a 

post-initial period, to determine 

appropriate minimum block sizes for 

each swap category. During the initial 

period, the Commission is proposing a 

schedule of initial appropriate 

minimum block sizes in appendix F to 

part 43. The Commission is proposing to 

determine the appropriate minimum 

block sizes for the interest rate and 

credit asset classes differently from the 

sizes for the equity, FX and other 

commodity asset classes. With respect 

to the interest rate and credit asset class, 

the Commission established the initial 

appropriate minimum block sizes based 

on data it had received from the Overthe-Counter Derivatives Supervisors 

Group.343 In calculating these sizes, the 

Commission has applied the 67-percent 

notional amount calculation, which is 

set forth in proposed § 43.6(c)(1). 

In proposed § 43.6(d), the 

Commission would disallow swaps in 

the equity asset class from being eligible 

for treatment as block trades or large 

notional off-facility swaps (i.e., equity 

swaps would not be subject to a time 

delay as provided in part 43). As noted 

above, the Commission is of the view 

that applying this treatment to the 

equity asset class is inappropriate given, 

inter alia, the depth of liquidity in the 

underlying equity cash market. 

With respect to the FX and other 

commodity asset classes, the 

appropriate minimum block sizes for 


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344As noted above, the Commission is of the view 

that the difference in methodology for determining 

initial appropriate minimum block sizes for swaps 

in the FX and other commodity asset classes is 

warranted because: (1) Swaps in these asset classes 

are closely linked to futures markets; (2) tying block 

sizes to their economically related futures contracts 

reduces opportunities for regulatory arbitrage; and 

(3) DCMs have experience in setting block sizes in 

such a way that maintains market liquidity. 

345 In the Adopting Release, the Commission 

noted that ‘‘the direct, quantifiable costs imposed 

on reporting parties, SEFs and DCMs will take the 

forms of (i) non-recurring expenditures in 

technology and personnel; and (ii) recurring 

expenses associated with systems maintenance, 

support, and compliance.’’ See 77 FR 1,231. 

346 In its report, ISDA states that end-users ‘‘will 

face significant technology and operational 

challenges as well as increased regulatory reporting 

requirements. Dealers will have to upgrade 

infrastructure to deal with automated trading and 

comply with increased regulatory reporting and 

recordkeeping.’’ See Costs and Benefits of 

Mandatory Electronic Execution Requirements for 

Interest Rate Products note 75 supra, at 24. 

347This estimate is calculated as follows: 

(Compliance Manager at 10 hours) + (Director of 

Compliance at 3 hours) + (Compliance Attorney at 

2 hours) = 15 hours per non-financial end-user who 

is a reporting party. A compliance manager’s 

adjusted hourly wage is $77.77. A director of 

compliance’s hourly wage is $158.21. A compliance 

attorney’s hourly wage is $89.43. See note 316 

supra. 

348The estimate is calculated as follows: (Senior 

Programmer at 20 hours) + (Systems Analyst at 20 

hours). A senior programmer’s adjusted hourly 

wage is $81.52. A systems analyst’s adjusted hourly 

wage is $54.89. See note 316 supra. 

swaps during the initial period would 

be divided primarily between swaps 

that are futures-related swaps and those 

that are not futures related.344 Proposed 

appendix F to part 43 lists the proposed 

initial appropriate minimum block sizes 

for swap categories in the FX and other 

commodity asset classes. For those 

swaps in the FX and other commodity 

asset classes that are not listed in 

proposed appendix F to part 43, the 

Commission generally provides in 

proposed § 43.6(e)(2) that these swaps 

would qualify as block trades or large 

notional off-facility swaps. 

After an SDR has collected reliable 

data for a particular asset class, 

proposed § 43.6(f)(1) provides that the 

Commission shall determine post-initial 

appropriate minimum block sizes for all 

swaps in the interest rate, credit, FX and 

other commodity asset classes based on 

the 67-percent notional amount 

calculation. The Commission is also 

proposing special rules for the 

determination of appropriate minimum 

block sizes that would apply to all asset 

classes. 

In the following paragraphs, the 

Commission estimates the costs of the 

proposed criteria and methodology and 

discusses their benefits, before 

considering these costs and benefits in 

light of the five public interest areas of 

section 15(a) of the CEA. 

d. Proposed §§ 43.6(a)–(f) and (h) Costs 

Relevant to the Proposed Criteria and 

Methodology 

The Adopting Release identifies the 

baseline of direct, quantifiable costs to 

reporting parties, SDRs, SEFs and DCMs 

from current part 43.345 The 

Commission foresees that proposed 

§§ 43.6(a)–(f) and (h) would impose 

incremental direct costs on swap market 

participants and registered entities (i.e., 

SEFs, DCMs, or SDRs) through the need 

to reprogram and update their 

technology to accommodate the 

Commission’s publication of post-initial 

appropriate minimum block sizes at 

least once each calendar year following 

the initial period. The Commission does 

not anticipate that proposed §§ 43.6(a)– 

(f) and (h) would impose any direct 

costs on the general public. As noted 

above, proposed § 43.6(a) provides that 

the Commission shall set appropriate 

minimum block sizes for block trades 

and large notional off-facility swaps 

following the procedures set forth in 

proposed §§ 43.6(b)–(f) and (h). The 

Commission would determine these 

sizes both in the initial and post-initial 

periods. The Commission anticipates 

that the requirements proposed in 

§ 43.6(a) likely would mitigate new 

costs since the proposed approach seeks 

to build on the existing connectivity, 

infrastructure and arrangements that 

market participants and registered 

entities have established in complying 

with the requirements in part 43 of the 

Commission’s regulations.346 The 

Commission anticipates that market 

participants and registered entities may 

have to reprogram or update their 

technology to accommodate the 

Commission’s publication of post-initial 

appropriate minimum block sizes at 

least once each calendar year following 

the initial period. The Commission 

anticipates that compliance would be 

slightly different for market participants 

and registered entities. 

Market participants, and specifically 

non-financial end users, likely would 

need to provide training to their existing 

personnel and update their written 

policies and procedures in order to 

comply with proposed § 43.6(a)–(f) and 

(h). The Commission estimates that 

providing training to existing personnel 

and updating written policies and 

procedures would impose an initial 

non-recurring burden of approximately 

15 personnel hours at an approximate 

cost of $1,431.26 for each non-financial 

end-user.347 This cost estimate includes 

the number of potential burden hours 

required to produce and design training 

materials, conduct training with existing 

personnel, and revise and circulate 

written policies and procedures in 

compliance with the proposed 

requirements. 

Registered entities would likely need 

to update their existing technology in 

order to comply with proposed 

§ 43.6(a)–(f) and (h). The Commission 

estimates that registered entities 

updating existing technology would 

impose an initial non-recurring burden 

of approximately 40 personnel hours at 

an approximate cost of $2,728 for each 

registered entity.348 This cost estimate 

includes the number of potential burden 

hours required to amend internal 

procedures, reprogram systems and 

implement processes to account for each 

swap category and to update 

appropriate minimum block sizes at 

least once each calendar year. 

The Commission anticipates that the 

publication of swap transaction and 

pricing data may enhance market 

liquidity. The Commission also 

anticipates, however, that the 

immediate reporting of block trades and 

large notional off-facility swaps may 

have the potential to increase the costs 

associated with the trading of those 

swaps. If these costs increase, then 

market liquidity may decrease. In these 

circumstances, swap market 

participants may experience difficulty 

managing the risks attendant to their 

trading activity. 

The Commission anticipates that 

some market participants may face 

increased, indirect costs if block trades 

and large notional off-facility swaps are 

reported without a time delay (i.e., as 

soon as technologically practicable). 

Some market makers could experience 

higher trading costs as a result of 

increased liquidity risks attendant to the 

need to offset large swap positions. 

Market makers ultimately would pass 

those costs onto their end-user clients. 

The Commission anticipates that the 

proposed criteria and methodology may 

mitigate the potential increase in costs 

by addressing both liquidity concerns 

and enhanced price discovery. The 

Commission also anticipates that its 

proposed approach of establishing 

specific criteria for grouping swaps into 

a finite set of defined swap categories 

might provide a clear organizational 

framework that avoids administrative 

burdens for market participants that 

otherwise could arise from more 

numerous and/or non-uniform swap 

categories. 

The Commission anticipates that the 

potential costs of disruptions to market 

liquidity and trading activity are 


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15506 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

349See 77 FR 1,240. 

350Proposed § 43.6(f)(2) permits the Commission 

to set appropriate minimum block sizes no less than 

once annually during the post-initial period. If 

swap market conditions were to change 

significantly after the implementation of the 

provisions of this Further Proposal, the Commission 

could react to further improve price transparency or 

to mitigate adverse effects on market liquidity. 

351There may be a de minimis cost in the form 

of increased offsetting costs, but the Commission 

foresees that its proposed criteria and methodology 

would likely mitigate that cost. A discussion of this 

de minimis cost is set forth above. 352The Commission is presently unable to 

identify any potential impact to the financial 

integrity of futures markets from the proposed 

criteria and methodology in its consideration of 

section 15(a)(2)(B) of the CEA. Although by its 

terms, section 15(a)(2)(B) applies to futures (not 

swaps), the Commission finds this factor useful in 

analyzing the costs and benefits of swaps 

regulation, as well. 

minimized through the proposed 

regime. That is, the Commission 

anticipates that the phase-in approach 

should provide swap market 

participants with an adequate amount of 

time to incrementally adjust their 

trading practices, technology 

infrastructure and business 

arrangements to comply with the new 

block trade regime. This approach also 

may ensure efficient compliance with 

the proposal while minimizing the 

impact of implementation costs to swap 

market participants, registered entities 

and the general public. 

The Commission anticipates that 

market participants, registered entities 

and the general public may bear some 

indirect costs due to the increased 

degree of transparency that would result 

from the criteria and methodology in 

proposed §§ 43.6(a)–(f) and (h). 

However, the Commission proposed 

that the appropriate minimum block 

trade sizes specified in this Further 

Proposal are sufficiently moderate to 

mitigate these indirect costs. The 

Commission also anticipates that the 

benefits of transparency would be 

significant relative to the costs 

occasioned by the tailored institution of 

appropriate minimum block size levels 

proposed in the initial period. 

e. Benefits Relevant to Proposed 

§§ 43.6(a)–(f) and (h) 

The Commission anticipates that 

proposed §§ 43.6(a)–(f) and (h) would 

generate several overarching, although 

presently unquantifiable, benefits to 

swap market participants, registered 

entities and the general public. Most 

notably, the Commission expects that 

the proposed criteria and methodologies 

for setting appropriate minimum block 

sizes would provide greater price 

transparency for a substantial portion of 

swap transactions in a manner 

modulated to mitigate any negative 

impact to swaps market liquidity. More 

specifically, the proposed regulations 

would provide price transparency by 

lifting the current part 43 real-time 

reporting time delay 349 for swap 

transactions with notional values under 

specified threshold levels. At the same 

time, the Commission’s proposed 

criteria and methodology—including 

carefully crafted block trades and largenotional off-facility swap categories— 

are designed to retain time-delay status 

for those high-notional-value 

transactions exceeding thresholds 

intended to avoid a negative market 

liquidity impact. The phased-in 

implementation proposed by the 

Commission is intended to introduce 

greater transparency in an incremental, 

measured and flexible manner so that 

appropriate minimum block sizes are 

responsive to changing markets.350 The 

Commission also intends the proposed 

approach to enhance price transparency 

in a manner that respects market 

participants’ and registered entities’ 

efficiency needs. Under proposed 

§ 43.6(a), the Commission would be 

required to set all appropriate minimum 

block sizes. The Commission anticipates 

that its proposed approach would 

impose significantly fewer direct 

burdens on market participants and 

registered entities than an alternative 

that would require them to engage in a 

more quantitative analysis to ascertain 

appropriate minimum block sizes for 

themselves. Such an alternative 

approach could lead to market 

fragmentation, adversely affect market 

liquidity, or reduce price transparency. 

f. Application of the Section 15(a) 

Factors to Proposed §§ 43.6(a)–(f) and 

(h) 

As noted above, section 15(a) directs 

the Commission to consider the 

following five areas in evaluating the 

costs and benefits of a particular 

Commission action. 

i. Protection of Market Participants and 

the Public 

The Commission anticipates that the 

criteria and methodology in proposed 

§§ 43.6(a)–(f) and (h) would protect 

swap market participants by extending 

the delay for reporting for publicly 

reportable swap transactions, as 

appropriate, while also accommodating 

the market participant and public 

interest with enhanced transparency. By 

setting appropriate minimum block 

sizes in a thoughtful and measured 

manner as contemplated in the Further 

Proposal, the Commission strives to 

attain at least a near-optimal balance 

between transparency and liquidity 

interests. As a result, swap market 

participants would retain a means to 

offset risk exposures related to their 

swap transactions (including outsize 

swap transactions) at competitive 

prices. While the Commission notes that 

all publicly reportable swap 

transactions would remain subject to a 

time delay, the Commission foresees a 

resulting swap-market transparency 

counterbalance that could benefit swap 

market participants by promoting 

greater competition for their businesses. 

Specifically, the Commission expects 

that the availability of real-time pricing 

information for carefully enumerated 

categories of swap transactions could 

draw increased swap market liquidity 

through the competitive appeal of 

improved pricing efficiency that greater 

transparency affords. More liquid, 

competitive swap markets, in turn, 

allow businesses to offset costs more 

efficiently than in completely opaque 

markets, thus serving well the interests 

of both market participants and the 

public who should benefit through 

lower costs of goods and services.351

ii. Efficiency, Competitiveness and 

Financial Integrity of Markets 352

The Commission anticipates that the 

proposed criteria and methodology 

would promote market efficiency, 

competitiveness and financial integrity 

of markets in a number of respects, 

including the following: 

• They impose minimal 

administrative burdens on swap market 

participants as a result of Commissionspecified swap categories and the 

Commission’s responsibility to 

determine of appropriate minimum 

block sizes (as opposed to requiring 

registered entities to establish such 

categories and determine such sizes). 

• With respect to futures-related 

swaps in the FX and other commodity 

asset classes, by synchronizing the 

appropriate minimum block sizes for 

swaps with DCM block trade sizes for 

futures during the initial period, they 

can be expected to reduce opportunities 

for regulatory arbitrage between the 

underlying cash or futures markets and 

the swap markets. 

• They retain needed flexibility in 

light of the changes that the 

Commission anticipates will occur in 

swap markets following the 

implementation of part 43 and other 

implementing regulations. More 

specifically, the proposed methodology 

in §§ 43.6(c)–(f) and (h) would 

recalibrate appropriate minimum block 

sizes regularly to ensure that those sizes 

remain appropriate for, and responsive 

to, these changing markets. 


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353As noted above, under part 43 of the 

Commission’s regulations (as now promulgated in 

the Adopting Release), all publicly reportable swap 

transactions are subject to a time delay pending 

further amending regulation to establish the criteria 

and methodology to distinguish block trades and 

large notional off-facility swaps from those swaps 

that do not meet those definitions. See 77 FR 1,217. 

As a result, SDRs as of now are not required to 

publicly disseminate publicly reportable swap 

transactions as soon as technologically practicable. 

354See Costs and Benefits of Mandatory 

Electronic Execution Requirements for Interest Rate 

Products note 75316 supra. 

355See Core Principles and Other Requirements 

for Swap Execution Facilities, 76 FR 1,214, Jan. 7, 

2011. 

• As discussed above with respect to 

the protection of market participants 

and the public, they would introduce 

increased market transparency for 

swaps in a careful, measured manner 

that seeks to optimize the balance 

between liquidity and transparency 

concerns.353 The Commission 

anticipates that this enhanced 

transparency would be introduced in a 

manner capable of fostering greater 

competition among swap market 

participants drawn to the improved 

pricing efficiency that transparency 

fosters. 

iii. Price Discovery 

The Commission anticipates that the 

proposed criteria and methodology will 

enhance swap market price discovery by 

eliminating, to the extent appropriate, 

the time delays for the real-time public 

reporting of those swaps as now 

provided in the Adopting Release. The 

proposed criteria and methodology of 

this Further Proposal would ensure that 

an SDR could be able to publicly 

disseminate data for certain swaps as 

soon as technologically practicable. As 

more trades are published in real-time, 

reported prices are likely to be better 

indicators of competitive pricing. 

iv. Sound Risk Management Practices 

As discussed above, the Commission 

anticipates that the proposed criteria 

and methodology, if adopted, would 

likely result in enhanced price 

discovery since SDRs would be able to 

publicly disseminate some swaps as 

soon as technologically practicable. 

With better and more accurate data, 

valuation, and risk assessment 

information, swap market participants 

would likely be better able to measure 

risk. An ability to better manage risk at 

an entity level is likely to translate to 

improved market participant risk 

management generally. Improved risk 

measurement and management 

potential, in turn, may reduce the risk 

of another financial crisis since, 

presumably, it should better equip 

market participants to value their swap 

contracts and other assets during times 

of market instability. In addition, the 

proposed criteria and methodology may 

avoid higher costs that could cause 

some market participants to abandon 

swaps transactions in favor of more 

imperfect financial risk management 

tools. 

The Commission also anticipates that 

as the market price reflects more 

accurate economic information, 

volatility is likely to be reduced, 

therefore smoothing market risk for 

participants. 

v. Other Public Interest Considerations 

The Commission does not anticipate 

that the proposed criteria and 

methodology discussed above would 

have a material effect on public interest 

considerations other than those 

identified above. 

g. Specific Questions Regarding the 

Proposed Criteria and Methodology 

The Commission requests comments 

on its cost and benefit considerations 

with respect to the proposed criteria and 

methodology. While comments are 

welcome on all aspects of the proposal, 

the Commission notes the following 

specifically: 

Q93. Please provide comments 

regarding views on the accuracy and/or 

inaccuracy of: (1) The facts cited in 

support of the Commission’s analysis of 

the identified considerations relating to 

the proposed criteria and methodology 

in proposed §§ 43.6(a)–(f) and (h); and 

(2) the Commission’s general analysis. 

Q93.a. Please provide estimates or 

data regarding the direct, quantifiable 

costs associated with the criteria and 

methodology in proposed §§ 43.6(a)–(f) 

and (h). 

Q93.b. Please provide estimates or 

data regarding the indirect, quantifiable 

costs associated with the criteria and 

methodology in proposed §§ 43.6(a)–(f) 

and (h). 

Q93.c. Please comment and provide 

data on whether the proposed criteria 

and methodology would decrease or 

increase liquidity in swaps markets. 

Q93.d. How can these costs be 

avoided by the use of alternative trading 

strategies (e.g., splitting larger trades 

into smaller trades)? What are the costs 

related to those alternative trading 

strategies? 

Q93.e. Please provide estimates of the 

fees that SDRs and other registered 

entities would charge reporting parties 

and other market participants in order 

to pass along the incremental costs 

associated with proposed §§ 43.6(a)–(f) 

and (h). 

Q93.f. Would market participants 

abandon swap transactions in favor of 

more imperfect financial risk 

management tools? 

Q93.g. Does the 67-percent notional 

amount calculation meet the 

optimization goal of balancing liquidity 

and transparency concerns? 

Q94. Other than those public interest 

considerations identified herein, are 

there any other public interest 

considerations that the Commission 

should examine in finalizing proposed 

§§ 43.6(a)–(f) and (h)? 

Q94.a. One of the Commission’s 

rationales for its proposed criteria and 

methodology is the objective of 

deterring regulatory arbitrage as 

between swaps and futures markets. 

Should the Commission also be 

concerned regarding the costs and 

benefits related to regulatory arbitrage as 

between swaps and forwards markets? 

Q95. In a discussion paper titled 

‘‘Costs and Benefits of Mandatory 

Electronic Execution Requirements for 

Interest Rate Products,’’ ISDA examined 

the likely costs and benefits of 

mandating the execution of interest rate 

swaps on DCMs and SEFs.354 ISDA’s 

paper provided an analysis of, inter alia, 

liquidity and transaction costs in the 

interest futures and options markets, in 

addition to a review of liquidity and 

transaction costs in the OTC derivatives 

market. ISDA surveyed financial and 

non-financial end users to estimate the 

incremental costs resulting from the 

introduction of the electronic execution 

requirement in the Commission’s 

proposal for SEFs.355 The paper 

identifies some potential costs that are 

relevant to this Further Proposal, such 

as technology costs and costs associated 

with development of algorithms for 

block trades. This paper also identifies 

potential costs that are either beyond 

the scope of this Further Proposal (e.g., 

costs necessary to establish a SEF) or are 

irrelevant to an analysis under section 

15(a) of the CEA (e.g., costs to 

regulators). The Commission requests 

comments on the analysis and 

conclusions reached in ISDA’s paper. 

Q96. Will end users that desire to 

transact large trades under the 

appropriate minimum block size find it 

necessary to develop some form of 

algorithmic trading procedure? If so, 

what are the direct and indirect costs 

and benefits related to the development? 

Q97. The Commission seeks comment 

with respect to whether there is a 

feasible alternative approach to the one 

now contemplated in proposed § 43.6(a) 

(i.e., the Commission would assume all 

responsibilities for determining and 

publishing appropriate minimum block 

sizes) that would impose less regulatory 


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356See 77 FR 1,237. As noted in the Adopting 

Release, non-financial end-users (that do not 

contract with a third party) will have initial costs 

consisting of: (i) Developing an internal order 

management system capable of capturing all 

relevant data ($26,689 per non-financial end-user) 

and a recurring annual burden of ($27,943 per nonfinancial end-user); (ii) establishing connectivity 

with an SDR that accepts data ($12,824 per nonfinancial end-user); (iii) developing written policies 

and procedures to ensure compliance with part 43 

($14,793 per non-financial end-user); and (iv) 

compliance with error correction procedures 

($2,063 per non-financial end-user). See id. With 

respect to recurring costs, a non-financial end-user 

will have: (i) Recurring costs for compliance, 

maintenance and operational support ($13,747 per 

non-financial end-user); (ii) recurring costs to 

maintain connectivity to an SDR ($100,000 per nonfinancial end-user); and (iii) recurring costs to 

maintain systems for purposes of reporting errors or 

omissions ($1,366 per non-financial end user). See 

id. 

SDRs (that do not enter into contracts with a third 

party) would have incremental costs related to 

compliance with part 43 beyond those costs 

identified in the release adopting part 49 of the 

Commission’s regulations. See Swap Data 

Repositories: Registration Standards, Duties and 

Core Principles, 76 FR 54,538 (Sept. 1, 2011). In the 

Adopting Release, the Commission stated that each 

SDR would have: (i) A recurring burden of 

approximately $856,666 and an annual burden of 

$666,666 for system maintenance per SDR; (ii) nonrecurring costs to publicly disseminate ($601,003 

per SDR); and (iii) recurring costs to publicly 

disseminate ($360,602 per SDR). See id. 

In the Adopting Release, the Commission 

assumed that SEFs and DCMs will experience the 

same or lower costs as a non-financial end-user. See 

id. 

357SDRs that do not enter into contracts with a 

third party would have incremental costs related to 

compliance with part 43 of the Commission’s 

regulations beyond those costs identified in the 

release adopting part 49 of the Commission’s 

regulations. See Swap Data Repositories: 

Registration Standards, Duties and Core Principles, 

76 FR 54,538, Sept. 1, 2011. In the Adopting 

Release, the Commission stated that each SDR 

would have: (1) A recurring burden of 

approximately $856,666 and an annual burden of 

$666,666 for system maintenance per SDR; (2) nonrecurring costs to publicly disseminate ($601,003 

per SDR); and (3) recurring costs to publicly 

disseminate ($360,602 per SDR). See id. 

358For the same reasons stated in the Adopting 

Release, the Commission assumes that SEFs and 

DCMs would experience the same or less costs as 

a non-financial end-user. See 77 FR 1,236. Under 

proposed § 43.6(g)(1), SEFs or DCMs would be 

required to transmit a block trade election to an 

SDR only when the SEF or DCM receives notice of 

a block trade election from a reporting party. 

359This estimate is calculated as follows: 

(Compliance Manager at 15 hours) + (Director of 

Compliance at 10 hours) + (Compliance Attorney at 

5 hours) + (Senior Systems Analyst at 30) + (Senior 

Programmer at 20) = 80 hours per non-financial 

burden on swap market participants and 

the general public. 

Q98. The Commission anticipates that 

increased bid/ask spreads could make it 

difficult for end users to obtain more 

competitive pricing for outsize swap 

transactions. Under this Further 

Proposal, would the price of executing 

outsize swap transactions be generally 

higher? Would bid/ask spreads widen in 

yield as a result of this Further 

Proposal? 

Q98.a. Whether, and to what extent, 

do market participants anticipate that 

their knowledge of bid/ask spreads or of 

liquidity in a swap market generally 

will improve as a result of this Further 

Proposal? 

Q98.b. Whether, and to what extent, 

do market participants anticipate that 

their knowledge of the competitive price 

for swaps will improve as a result of this 

Further Proposal? 

Q98.c. Would increased knowledge of 

the competitive price in a market 

encourage market participants that may 

not be current liquidity providers to 

provide liquidity to the market? 

Q99. On average, what are current 

transaction costs for standard size swaps 

in comparison to transaction costs in the 

futures markets? Would transaction 

costs for swap markets increase as a 

result of this Further Proposal? If so, by 

how much? Would the difference 

between swaps and futures transaction 

costs induce more market participants 

to trade futures instead of transacting 

swaps? 

Q100. What effects, if any, would this 

Further Proposal have on access to 

swaps markets? Would the Further 

Proposal positively or negatively impact 

access opportunities for small end 

users? 

2. Cost-Benefit Considerations Relevant 

to the Proposed Block Trade/Large 

Notional Off-Facility Swap Election 

Process (Proposed § 43.6(g)) 

Proposed § 43.6(g) contains the 

provisions regarding the election to 

have a swap transaction treated as a 

block trade or large notional off-facility 

swap, as applicable. Proposed 

§ 43.6(g)(1) establishes a two-step 

notification process relating to block 

trades. Proposed § 43.6(g)(2) establishes 

the notification process relating to large 

notional off-facility swaps. 

Proposed § 43.6(g)(1)(i) contains the 

first step in the two-step notification 

process relating to block trades. In 

particular, this section provides that the 

parties to a swap executed at or above 

the appropriate minimum block size for 

the applicable swap category are 

required to notify the SEF or DCM, as 

applicable, of their election to have their 

qualifying swap transaction treated as a 

block trade. The Commission 

anticipates that SEFs and DCMs will use 

automated, electronic—and in some 

cases voice—processes to execute swap 

transactions; and that the transmission 

of the notification of a block trade 

election also will be either automated, 

electronic or communicated through 

voice processes. A discussion of the 

costs and benefits relevant to proposed 

§ 43.6(g) is set forth in the subsections 

that follow. 

a. Costs Relevant to the Proposed 

Election Process (Proposed § 43.6(g)) 

Non-financial end-users who are 

reporting parties, as well as SEFs, 

DCMs, and SDRs would likely bear the 

costs of complying with the election 

process in proposed § 43.6(g). The 

Commission anticipates, however, that 

these entities already will have made 

non-recurring expenditures in 

technology and personnel in connection 

with the requirements set forth in part 

43. In addition, these entities already 

will be required to incur recurring 

expenses associated with systems 

maintenance, support and compliance 

as described in the cost-benefit 

discussion in the Adopting Release.356

As such, the Commission assumes that 

these non-financial end-users, SEFs, 

DCMs, and SDRs would likely be able 

to leverage their existing technology, 

systems and personnel in complying 

with the election process in proposed 

§ 43.6(g). Based on this assumption, the 

Commission anticipates that nonfinancial end-users, SEFs, DCMs and 

SDRs would likely have the following 

direct, quantifiable costs: (i) An 

incremental, non-recurring expenditure 

to update existing technology; (ii) an 

incremental non-recurring expenditure 

for training existing personnel and 

updating written policies and 

procedures for compliance with 

amendments to part 43; and (iii) 

incremental recurring expenses 

associated with compliance, 

maintenance and operational support in 

connection with the proposed election 

process. SDRs also would have 

incremental, non-recurring expenditures 

to update existing technology.357 In the 

paragraphs that follow, the Commission 

discusses each of these costs. 

i. Incremental, Non-Recurring 

Expenditure to a Non-Financial EndUser, SEF or DCM to Update Existing 

Technology358

To comply with the election process 

in proposed § 43.6(g), a non-financial 

end-user, SEF, or DCM likely would 

need to: (1) Update its OMS system to 

capture the election to treat a qualifying 

publicly reportable swap transaction as 

a block trade or large notional offfacility swap. The Commission 

estimates that updating an OMS system 

to permit notification to an SDR of a 

block trade or large notional off-facility 

swap election would impose an initial 

non-recurring burden of approximately 

80 personnel hours at an approximate 

cost of $6,761.20 for each non-financial 

end-user, SEF or DCM.359 This cost 


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end-user who is a reporting party. See note 316 

supra. 

360This estimate is calculated as follows: 

(Compliance Manager at 5 hours) + (Director of 

Compliance at 2 hours) + (Compliance Attorney at 

2 hours) + (Senior Systems Analyst at 10) + (Senior 

Programmer at 20) = 39 hours per non-financial 

end-user who is a reporting party. A compliance 

manager has adjusted hourly wages of $77.77. See 

note 316 supra. 

361This estimate is calculated as follows: 

(Director of Compliance at 1 hour) + (Compliance 

Clerk at 3 hours) + (Compliance Attorney at 1 hour) 

= 5 hours per year per non-financial end-user who 

is a reporting party. A director of compliance has 

adjusted hourly wages of $158.21. A compliance 

clerk (junior compliance advisor) has adjusted 

hourly wages of $31.22. A compliance attorney has 

adjusted hourly wages of 89.43. See note 316 supra. 

362This estimate is calculated as follows: (Sr. 

Programmer at 8 hours) + (Sr. Systems Analyst at 

3 hours) + (Compliance Manager at 2 hours) + 

(Director of Compliance at 2 hours) = 15 hours per 

SDR. A senior programmer has adjusted hourly 

wages of $81.52. A senior systems analyst has 

adjusted hourly wages of $64.50. A compliance 

manager has adjusted hourly wages of $77.77. A 

director of compliance has adjusted hourly wages 

of $158.21. See note 316 supra. 

363See the discussion of benefits in section 

VI.E.1.e above with respect to proposed §§ 43.6(a)– 

(f) and (h). 

364Although by its terms, section 15(a)(2)(B) of 

the CEA applies to futures and not swaps, the 

Commission finds this factor useful in analyzing the 

costs and benefits of regulating swaps, as well. See 

7 U.S.C. 19(a)(2)(B). 

estimate includes an estimate of the 

number of potential burden hours 

required to amend internal procedures, 

reprogram systems and implement 

processes to permit a non-financial enduser to elect to treat their qualifying 

swap transaction as a block trade or 

large notional off-facility swap in 

compliance with the requirements set 

forth in proposed § 43.6(g). 

ii. Incremental, Non-Recurring 

Expenditure to a Non-Financial EndUser, SEF or DCM To Provide Training 

to Existing Personnel and Update 

Written Policies and Procedures 

To comply with the election process 

in proposed § 43.6(g), a non-financial 

end-user likely would need to provide 

training to its existing personnel and 

update its written policies and 

procedures to account for this new 

process. The Commission estimates that 

providing training to existing personnel 

and updating written policies and 

procedures would impose an initial 

non-recurring burden of approximately 

39 personnel hours at an approximate 

cost of $3,195.00 for each non-financial 

end-user.360 This cost estimate includes 

the number of potential burden hours 

required to produce design training 

materials, conduct training with existing 

personnel, and revise and circulate 

written policies and procedures in 

compliance with the requirements set 

forth in proposed § 43.6(g). 

iii. Incremental, Recurring Expenses to 

a Non-Financial End-User, DCM or SEF 

Associated With Incremental 

Compliance, Maintenance and 

Operational Support in Connection 

With the Proposed Election Process 

A non-financial end-user, DCM or 

SEF likely would incur costs on an 

annual basis in order to comply with the 

election process in proposed § 43.6(g). 

The Commission estimates that annual 

compliance, maintenance and operation 

support would impose an incremental, 

recurring burden of approximately five 

personnel hours at an approximate cost 

of $341.60 for each non-financial enduser, DCM or SEF.361 This cost estimate 

includes the number of potential burden 

hours required to design training 

materials, conduct training with existing 

personnel, and revise and circulate 

written policies and procedures in 

compliance with the requirements set 

forth in proposed § 43.6(g). 

iv. Incremental, Non-Recurring 

Expenditure to an SDR To Update 

Existing Technology To Capture and 

Publicly Disseminate Swap Data for 

Block Trades and Large Notional OffFacility Swaps 

To comply with the election process 

in proposed § 43.6(g), an SDR likely 

would need to update its existing 

technology to capture elections and 

disseminate qualifying publicly 

reportable swap transactions as block 

trades or large notional off-facility 

swaps. The Commission estimates that 

updating existing technology to capture 

elections would impose an initial nonrecurring burden of approximately 15 

personnel hours at an approximate cost 

of $1,317.58 for each SDR.362 This cost 

estimate includes the number of 

potential burden hours required to 

amend internal procedures, reprogram 

systems, and implement processes to 

capture and publicly disseminate swap 

transaction and pricing data for block 

trades and large notional off-facility 

swaps in compliance with the 

requirements set forth in proposed 

§ 43.6(g). 

b. Benefits Relevant to the Proposed 

Election Process (Proposed § 43.6(g)) 

The Commission has identified two 

overarching, although presently 

unquantifiable, benefits that the 

proposed election process in § 43.6(g) 

would confer on swap market 

participants, registered entities and the 

general public. First, although proposed 

§ 43.6(g) sets out a purely administrative 

process with which market participants 

and registered entities must comply, the 

Commission submits that this proposed 

process is an integral component of the 

block trade framework in this Further 

Proposal and in part 43. Consequently, 

this proposed election process would 

benefit market participants, registered 

entities and the general public by 

providing greater price transparency in 

swaps markets than currently exists 

under part 43.363

Second, the Commission foresees that 

the election process would promote 

market efficiency by creating a 

standardized process in proposed 

§ 43.6(g) for market participants to 

delineate which publicly reportable 

swap transactions qualify for block trade 

or large notional off-facility swap 

treatment. In addition, this standardized 

process would further promote 

efficiency by allowing market 

participants and registered entities to 

leverage their existing technology 

infrastructure, connectivity, personnel 

and other resources required under 

parts 43 and 49 of the Commission’s 

regulations. The Commission has 

endeavored to craft the Further Proposal 

in such a manner that its elements work 

together and avoid duplicative or 

conflicting obligations on market 

participants and registered entities. 

c. Application of the Section 15(a) 

Factors to Proposed § 43.6(g) 

As noted above, section 15(a) directs 

the Commission to consider five 

particular factors in evaluating the costs 

and benefits of a particular Commission 

action. These factors are considered 

below with respect to proposed 

§ 43.6(g). 

i. Protection of Market Participants and 

the Public 

Although proposed § 43.6(g) sets out a 

purely administrative process with 

which market participants and 

registered entities must comply, the 

Commission foresees this proposed 

process as integral to the effective 

functioning of the block trade 

framework in this Further Proposal and 

in part 43. Consequently, this proposed 

election process contributes to 

providing greater swap market 

transparency than what currently exists 

under part 43 of the Commission’s 

regulations. Market participants, 

registered entities and the general 

public benefit from this enhanced swap 

market price transparency. 

ii. Efficiency, Competitiveness and 

Financial Integrity 364

As noted above, the proposed election 

process would promote efficiency by 

providing market participants and 


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15510 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 

365See note 259 supra, which lists the interim 

cap sizes set forth in §§ 43.4(h)(1)–(5). 

registered entities with a standardized 

process to delineate which publicly 

reportable swap transactions are block 

trades or large notional off-facility 

swaps. In addition, the proposed 

election process would promote 

efficiency by allowing non-financial 

end-users, SEFs, DCMs and SDRs to 

leverage their existing technology 

infrastructure, connectivity, personnel 

and other resources required under part 

43 and part 49 of the Commission’s 

regulations. The use of existing 

technologies, connectivity, personnel 

and other resources would create 

efficiencies for these entities and 

significantly minimize costs in 

connection with implementation of, and 

compliance with, proposed § 43.6(g). 

The Commission has identified no 

potential impact on competitiveness 

and financial integrity that would result 

from the implementation of the 

proposed election process. 

iii. Price Discovery 

The Commission has identified no 

potential material impact to price 

discovery that would result from the 

implementation of the proposed 

election process. 

iv. Sound Risk Management Practices 

The Commission has identified no 

potential impact on sound risk 

management practices that would result 

from the implementation of the 

proposed election process. 

v. Other Public Interest Considerations 

The Commission has identified no 

potential impact on other public interest 

considerations (other than those 

identified above) that would result from 

the implementation of the proposed 

election process. 

d. Specific Questions Regarding the 

Proposed Election Process 

The Commission requests comments 

on its cost and benefit consideration 

with respect to the proposed election 

process. While comments are welcome 

on all aspects of the proposal, the 

Commission is particularly interested in 

the following: 

Q101. Please provide comments 

regarding the Commission’s estimates of 

direct and indirect costs to nonfinancial end-users and SDRs. 

Q102. Please provide comments 

regarding views on the accuracy and/or 

inaccuracy of: (1) The facts cited in 

support of the Commission’s analysis of 

the identified considerations relating to 

the proposed election process; and (2) 

the Commission’s analysis. 

Q103. Are there any other public 

interest considerations that the 

Commission should examine in 

finalizing proposed § 43.6(g)? 

Q104. Are there other alternative 

processes that would further reduce 

burdens on market participants and 

registered entities? 

F. Costs and Benefits Relevant to 

Proposed Anonymity Protections 

(Amendments to §§ 43.4(d)(4) and (h)) 

The Commission has organized its 

cost-benefit discussion of the two 

proposed amendments to § 43.4 of the 

Commission’s regulations into one 

section. Section 43.4 as now 

promulgated prescribes the manner in 

which SDRs must publicly disseminate 

swap transaction and pricing data. One 

amendment proposes to add a system 

for masking the geographical data for 

certain other commodity swaps, which 

are not currently subject to public 

dissemination. The other amendment 

proposes to establish a methodology to 

establish cap sizes for large swap 

transactions that is different than the 

methodology for determining 

appropriate minimum block sizes. Both 

amendments seek to protect the 

anonymity of the parties to swaps while 

providing increased transparency in 

swaps markets. 

A discussion of each amendment is 

set out immediately below, followed by 

a discussion of the costs and benefits of 

the amendments, as well as an analysis 

of the costs and benefits in light of the 

five factors identified in section 15(a) of 

the CEA. 

1. Proposed Amendments to § 43.4(d)(4) 

The Commission addresses the public 

dissemination of certain swaps in the 

other commodity asset class in 

§ 43.4(d)(4). Section 43.4(d)(4)(ii) 

provides that for publicly reportable 

swaps in the other commodity asset 

class, information identifying the actual 

underlying assets must be publicly 

disseminated for: (a) Those swaps 

executed on or pursuant to the rules of 

a SEF or DCM; (b) those swaps 

referencing one of the contracts 

described in appendix B to part 43; and 

(c) any publicly reportable swap 

transaction that is economically related 

to one of the contracts described in 

appendix B to part 43. Pursuant to the 

Adopting Release, any swap that is in 

the other commodity asset class that 

falls under § 43.4(d)(4)(ii) would be 

subject to reporting and public 

dissemination requirements. 

In this Further Proposal, the 

Commission is proposing a new 

provision, § 43.4(d)(4)(iii), which would 

establish develop a system for the 

public dissemination of exact 

underlying assets in the other 

commodity asset class with a ‘‘mask’’ 

that is based on commodity detail and 

geographic detail. The Commission also 

is proposing a new appendix to part 43, 

which contains the geographical details 

that SDRs would use in masking certain 

other commodity swaps in connection 

with public dissemination of swap 

transaction and pricing data. 

2. Proposed Amendments to § 43.4(h) 

Section 43.4(h) of the Commission’s 

regulations establishes cap sizes for 

rounded notional or principal amounts 

that are publicly disseminated for 

publicly reportable swap transactions. 

The purpose of establishing cap sizes is 

to provide anonymity to large swap 

transactions that, if the notional or 

principal amounts were revealed, would 

likely identify the parties to the swap or 

their business transactions. The 

Commission notes that the objective of 

cap sizes differs from the primary 

objective underlying the establishment 

of appropriate minimum block sizes. 

With respect to the latter, the objective 

is tied to ensuring that a block trade or 

large notional off-facility swap can be 

sufficiently offset during a relative short 

reporting delay. 

Section 43.4(h) currently requires 

SDRs to publicly disseminate the 

notional or principal amounts of a 

publicly reportable swap transaction 

represented by a cap size (i.e., $XX+) 

that adjusts in accordance with their 

respective appropriate minimum block 

size for the relevant swap category. 

Section 43.4(h) further provides that if 

no appropriate minimum block size 

exists with respect to a swap category, 

then the cap size on the notional or 

principal amount will correspond with 

interim cap sizes that the Commission 

has established for the five asset 

classes.365

The proposed amendment to § 43.4(h) 

would continue to require SDRs to 

publicly disseminate cap sizes that 

correspond with their respective 

appropriate minimum block sizes 

during an initial period. However, upon 

publishing post-initial appropriate 

minimum block sizes in accordance 

with proposed § 43.6(f), the Commission 

also would publish post-initial cap sizes 

for each swap category by applying the 

75-percent notional amount calculation 

on data collected by SDRs. The 

Commission would apply the 75- 

percent notional amount calculation on 

a three-year rolling window (i.e., 

beginning with a minimum of one year 

and adding one year of data for each 

calculation until a total of three years of 


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366The Commission anticipates that reporting 

parties, SEFs and DCMs would not incur any new 

costs related to the proposed amendments to § 43.4 

because this section relates to the data that an SDR 

must publicly disseminate. Section 43.3 of the 

Commission’s regulations sets out the requirements 

for reporting parties, SEFs and DCMs in terms of 

what is transmitted to an SDR. 

367See 76 FR 54,572–75. As noted in SDR final 

rule, SDRs (that do not enter into contracts with a 

third party) would have incremental costs related 

to compliance with part 43 beyond those costs 

identified in the release adopting part 49 of the 

Commission’s regulations. See 76 FR 54,573. In the 

Adopting Release, the Commission stated that each 

SDR would have: (i) A recurring burden of 

approximately $856,666 and an annual burden of 

$666,666 for system maintenance per SDR; (ii) nonrecurring costs to publicly disseminate ($601,003 

per SDR); and (iii) recurring costs to publicly 

disseminate ($360,602 per SDR). See 77 FR 1,238. 

368This estimate is calculated as follows: (Sr. 

Programmer at 20 hours) + (Sr. Systems Analyst at 

10 hours) + (Compliance Manager at 2 hours) + 

(Director of Compliance at 2 hours) = 34 hours per 

SDR. A senior programmer has adjusted hourly 

wages of $81.52. A senior systems analyst has 

adjusted hourly wages of $64.50. A compliance 

manager has adjusted hourly wages of $77.77. A 

director of compliance has adjusted hourly wages 

of $158.21. See note 316 supra. 

369See proposed § 43.6(c)(1). 

370See proposed § 43.6(c)(2). 

371This benefit is consistent with one of the 

considerations for implementation identified by 

ISDA and SIFMA in their January 18, 2011 report. 

See Block trade reporting for over-the-counter 

derivatives markets, note 54 supra. 

data is accumulated) of such data 

corresponding to each relevant swap 

category for each calendar year. 

3. Costs Relevant to the Proposed 

Amendments to §§ 43.4(d)(4) and (h) 

SDRs potentially would bear the costs 

of complying with the proposed 

amendments to §§ 43.4(d)(4) and (h).366

The Commission anticipates that these 

entities already will have made nonrecurring expenditures in technology 

and personnel in connection with the 

requirements set forth in part 43 and 

part 49 (which contain rules regarding 

the registration and regulation of SDRs). 

As such, SDRs already will be required 

to pay recurring expenses associated 

with systems maintenance, support and 

compliance as described in the costbenefit discussion in the Adopting 

Release.367 Notwithstanding these 

recurring expenses, an SDR would have 

additional non-recurring expenditures 

associated with the amendments to 

§ 43.4. Specifically, the Commission 

estimates that updating existing 

technology to capture elections would 

impose an initial non-recurring burden 

of approximately 34 personnel hours at 

an approximate cost of $3,195.00 for 

each SDR.368 This cost estimate 

includes an estimate of the number of 

potential burden hours required to 

amend internal procedures, reprogram 

systems and implement processes to 

capture and publicly disseminate swap 

transaction and pricing data for block 

trades and large notional off-facility 

swaps in compliance with the 

requirements set forth in proposed 

§ 43.6(g). 

In the Commission’s view, these 

additional non-recurring and recurring 

costs are not likely to be significant to 

an SDR given the likelihood that it will 

leverage its existing technology, systems 

and personnel in complying with the 

proposed amendments to § 43.4. 

In addition, the Commission 

anticipates that proposed 

§ 43.4(d)(4)(iii) may result in some 

incremental, recurring costs for SDRs 

because they will be required to 

publicly disseminate other commodity 

swaps data that were not previously 

within the scope of the public 

dissemination requirement in § 43.4. At 

this time, however, the Commission 

does not have sufficient data to quantify 

these costs. 

The Commission also anticipates that 

proposed § 43.4(d)(4)(iii) may result in 

some indirect costs to the market 

through reduced information bearing on 

the contours of total trading in the 

market. The Commission currently lacks 

data to quantify the costs associated 

with the reduction of information. 

4. Benefits Relevant to the Proposed 

Amendments to § 43.4 

The Commission anticipates that the 

proposed anonymity provisions of 

§ 43.4 would generate several 

overarching, although presently 

unquantifiable, benefits to swap market 

participants, registered entities and the 

general public. In the first instance, the 

Commission anticipates that the 

proposed cap size amendments to 

§ 43.4(h) would benefit market 

participants, registered entities and the 

general public by providing greater 

price transparency with respect to 

swaps with notional amounts that fall 

between the post-initial appropriate 

minimum block size and post-initial cap 

size for a particular swap category. 

During the post-initial period, the 

Commission would set appropriate 

minimum block sizes based on the 67- 

percent notional amount calculation 369

and cap sizes based on the 75-percent 

notional amount calculation.370

Although swaps with notional amounts 

that fall between these two sizes would 

be subject to a time delay, the exact 

notional amounts of these swaps 

eventually would be publicly disclosed. 

The Commission is of the preliminary 

view that the delayed public disclosure 

of the notional amount of these swaps 

would provide market participants, 

registered entities and the general 

public with meaningful price 

transparency. 

The proposed masking provisions in 

the amendment to § 43.4(d)(4) and 

proposed appendix D to part 43 would 

further benefit market participants, 

registered entities and the general 

public by enhancing price discovery 

with respect to swaps that currently are 

not required to be publicly disclosed 

under part 43. Section 43.4(d)(4) 

currently requires SDRs to publicly 

disseminate swap transaction and 

pricing data for publicly reportable 

swap transactions that reference or are 

economically related to the 29 contracts 

identified in appendix B to part 43. The 

Commission is of the preliminary view 

that there are a significant number of 

swaps in the other commodity asset 

class that are not economically related 

to the 29 contracts identified in 

appendix to part 43. The proposed 

amendment creating new 

§ 43.4(d)(4)(iii) would require the public 

dissemination of data on these swaps. 

The Commission proposes that the realtime public reporting of these swaps 

would enhance price discovery in the 

other commodity asset class. 

Moreover, the Commission’s proposed 

amendments to the anonymity 

provisions are intended to reduce 

impacts on market liquidity. As noted 

above, CEA section 2(a)(13) requires the 

Commission to prescribe rules for the 

real-time public reporting of all swap 

transactions in order to enhance price 

transparency, while taking into account 

the effects of such transparency on 

market liquidity. The Commission’s 

proposed approach would introduce 

greater transparency in a flexible 

manner so that post-initial cap sizes are 

responsive to changing markets. 

Proposed § 43.4(h) would permit the 

Commission to set cap sizes no less than 

once annually during the post-initial 

period. If swap market conditions 

change significantly after the 

implementation of the provisions of this 

Further Proposal, then the Commission 

could react in a timely manner to 

further improve price transparency or to 

mitigate adverse effects on market 

liquidity.371

Finally, the proposed approach would 

promote market efficiency for market 

participants and registered entities. 

Under proposed § 43.4(h), Commission 

would be required to set all cap sizes. 

The Commission anticipates that its 

proposed approach would impose 

significantly fewer direct burdens on 

market participants and registered 

entities that they otherwise would have 


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372The Commission recognizes that adoption of 

rules that delineate cap sizes insufficient to provide 

anonymity could cause prospective counterparties 

to forego swap transactions, thus adversely 

impacting market liquidity. 

373Although by its terms, section 15(a)(2)(B) 

applies to futures and not swaps, the Commission 

finds this factor useful in analyzing the costs and 

benefits of swaps regulation, as well. 7 U.S.C. 

19(a)(2)(B). 

374See proposed § 43.6(c)(1). 

375See proposed § 43.6(c)(2). 

in the alternative (e.g., requiring market 

participants and/or registered entities to 

set cap sizes for the entire swaps 

market). An alternative approach could 

lead to market fragmentation, adverse 

effects on market liquidity, or reduced 

price transparency. 

5. Application of the Section 15(a) 

Factors to the Proposed Amendments to 

§ 43.4 

As noted above, section 15(a) directs 

the Commission to consider five 

particular areas in evaluating the costs 

and benefits of a particular Commission 

action. These five areas with respect to 

proposed amendments to § 43.4 are 

considered below. 

a. Protection of Market Participants and 

the Public 

The Commission anticipates that the 

proposed amendments to § 43.4 would 

ensure the protection of swap 

counterparty anonymity on an ongoing 

basis. While cap sizes for some 

transactions could exceed appropriate 

minimum block sizes in certain 

circumstances (resulting in the public 

dissemination of notional/principalamount information after a time delay), 

the Commission intends and expects 

that for the vast majority of (if not all) 

impacted swap transactions, the 

proposed cap-size process and 

methodology is sufficient to distinguish 

correctly between those for which 

masking of notional or principal amount 

is required to maintain anonymity and 

those for which it is not.372

b. Efficiency, Competitiveness and 

Financial Integrity 373

The Commission anticipates that 

proposed amendments to § 43.4(h) 

would promote market efficiencies and 

competitiveness since the proposed 

approach would provide market 

participants with the ability to continue 

transacting swaps with the protection of 

anonymity, while promoting greater 

price transparency. 

The Commission has identified no 

potential impact on financial integrity 

that would result from the 

implementation of the proposed 

election process. 

c. Price Discovery 

As noted above, the Commission 

anticipates that the proposed cap size 

amendments to § 43.4(h) would benefit 

market participants, registered entities 

and the general public by providing 

greater price transparency with respect 

to swaps with notional amounts that fall 

in between the post-initial appropriate 

minimum block size and post-initial cap 

size for a particular swap category. 

During the post-initial period, the 

Commission would set appropriate 

minimum block sizes based on the 67- 

percent notional amount calculation 374

and cap sizes based on the 75-percent 

notional amount calculation.375

Although swaps with notional amounts 

that fall in between these two sizes 

would be subject to a time delay, the 

exact notional amounts of these swaps 

eventually would be publicly disclosed. 

The proposed masking provisions in 

the amendment to § 43.4(d)(4) and 

proposed appendix D to part 43 could 

furt-er benefit market participants, 

registered entities and the general 

public by enhancing price discovery 

with respect to swaps that currently are 

not required to be publicly disclosed 

under part 43. The proposed 

amendment creating new 

§ 43.4(d)(4)(iii) would require the public 

dissemination of data on these swaps. 

The Commission anticipates that the 

real-time public reporting of these 

swaps would enhance price discovery 

in the other commodity asset class. 

d. Sound Risk Management Practices 

To the extent that the proposed 

amendments to § 43.4 mask the identity, 

business transactions and market 

positions of swap counterparties, the 

Commission anticipates that the 

proposed amendments to § 43.4 would 

preserve the viability of swaps as a risk 

management tool for those traders that 

otherwise might feel compelled to 

switch to a less well-suited risk 

management tool. 

e. Other Public Interest Considerations 

The Commission does not anticipate 

that the proposed amendment to 

§ 43.4(h) would have a material effect on 

public interest considerations other than 

those identified above. 

6. Specific Questions Regarding the 

Proposed Amendments to § 43.4 

The Commission requests comments 

on its cost and benefit considerations 

with respect to the proposed 

amendments to § 43.4. While 

commenters are welcome to comment 

on all aspects of this Further Proposal, 

the Commission is particularly 

interested in the following: 

Q105. Please provide comments 

regarding the Commission’s estimates of 

direct and indirect costs to SDRs of the 

proposed amendments to § 43.4. 

Q105a. Please provide comments 

regarding any potential direct or 

indirect costs to non-financial endusers. 

Q106. Please provide comments 

regarding views on the accuracy and/or 

inaccuracy of the facts cited in support 

of the Commission’s analysis of the 

identified considerations relating to the 

proposed anonymity protections. 

Q107. Are there any other public 

interest considerations not discussed 

above that the Commission should 

examine in finalizing the proposed 

amendments to § 43.4? 

Q108. Please provide comments 

regarding the sufficiency of the 

Commission’s proposed rules to protect 

market participant anonymity and 

whether the rules could be expected to 

cause certain swap counterparties to 

forego swap transactions and, if so, the 

magnitude of any likely liquidity 

impact. 

VII. Example of a Post-Initial 

Appropriate Minimum Block Size 

Determination Using the 67-Percent 

Notional Amount Calculation 

The example below describes the 

steps necessary for the Commission to 

determine the post-initial appropriate 

minimum block size based on 

§ 43.6(c)(1) for a sample set of data in 

‘‘Swap Category Z.’’ For the purposes of 

this example, Swap Category Z had 35 

transactions over the given observation 

period. The observations are described 

in table A below and are ordered by 

time of execution (i.e., Transaction #1 

was executed prior to Transaction #2). 


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Step 1: Remove the transactions that 

do not fall within the definition of 

‘‘publicly reportable swap transactions’’ 

as described in § 43.2. 

In this example, assume that five of 

the 35 transactions in Swap Category Z 

do not fall within the definition of 

‘‘publicly reportable swap transaction.’’ 

These five transactions, listed in table B 

below would be removed for the data set 

that will be used to determine the postinitial appropriate minimum block size. 

TABLE B—TRANSACTIONS THAT DO NOT FALL WITHIN THE DEFINITION OF ‘‘PUBLICLY REPORTABLE SWAP TRANSACTION’’ 

Transaction #4 Transaction #13 Transaction #16 Transaction #20 Transaction #21 

1.05 25,000,000 100,000,000 50,000,000 75,000,000 

Step 2A: Convert the publicly 

reportable swap transactions in the 

swap category to the same currency or 

units. 

In order to accurately compare the 

transactions in a swap category and 

apply the appropriate minimum block 

size calculation, the transactions must 

be converted to the same currency or 

unit. 

In this example, the publicly 

reportable swap transactions were all 

denominated in U.S. dollars, so no 

conversion was necessary. If the 

notional amounts of any of the publicly 

reportable swap transactions in Swap 

Category Z had been denominated in a 

currency other than U.S. dollars, then 

the notional amounts of such publicly 

reportable swap transactions would 

have been adjusted by the daily 

exchange rates for the period to arrive 

at the U.S. dollars equivalent notional 

amount. 

Step 2B: Examine the remaining data 

set for any outliers and remove any such 

outliers, resulting in a trimmed data set. 

The publicly reportable swap 

transactions are examined to identify 

any outliers. If an outlier is discovered, 

then it would be removed from the data 

set. To conduct this analysis, the 

notional amounts of all of the publicly 

reportable swap transactions remaining 

after step 1 and step 2A are transformed 

by Log10. The average and standard 

deviation (‘‘STDEV’’) of these 

transformed notional amounts would 

then be calculated. Any transformed 

notional amount of a publicly reportable 

swap transaction that is larger than the 

average of all transformed notional 

amounts plus four times the standard 

deviation would be omitted from the 

data set as an outlier. 

In the data set used in this example, 

none of the observations were large 

enough to qualify as an outlier, as 

shown in the calculations described in 

Table C. 

Step 3: Sum the notional amounts of 

the remaining publicly reportable swap 

transactions in the data set resulting 

after step 2B. Note: The notional 

amounts being summed in this step are 

the original amounts following step 2A 


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and not the Log10 transformed amounts 

used for the process in step 2B used to 

identify and omit any outliers. 

Using the equation described 

immediately below, the notional 

amounts are added to determine the 

sum total of all notional amounts 

remaining in the data set for a particular 

swap category. In this example, the 

notional amounts of the 30 remaining 

publicly reportable swap transactions in 

Swap Category Z are added together to 

come up with a net value of 

2,989,706,421. 

Step 4: Calculate the 67 Percent 

Notional Amount. 

Using the resulting amount from step 

2B, a 67-percent notional amount value 

would be calculated by using the 

equation: 

PRSTNV * 0.67 = G 

G = 67 percent of the sum total of the 

notional amounts of all remaining 

publicly reportable swap 

transactions in the set 

G = 2,003,103,302 

Step 5: Order and rank the 

observations based on notional amount 

of the publicly reportable swap 

transaction from least to greatest. 

The remaining publicly reportable 

swap transactions having previously 

been converted to U.S. dollar 

equivalents must be ranked, based on 

the notional sizes of such transactions, 

from least to greatest. The resulting 

ranking yields the PRSTt. Table D below 

reflects the ranking of the remaining 

publicly reportable swap transactions 

based on their notional amount sizes for 

this example. 

PRSTt = a publicly reportable swap 

transaction in the data set ranked from 

least to greatest based on the notional 

amounts of such transactions. 

Step 6A: Calculate the running sum of 

all PRSTt. 

A running sum would be calculated 

by adding together the ranked and 

ordered publicly reportable swap 

transactions from step 5 (PRSTt) in least 

to greatest order. The calculations of 

running sum values with respect to this 

example are reflected in Table D below. 


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Step 6B: Select first RS Value that is 

greater than or equal to G. 

In this example, G is equal to 

2,003,103,302, meaning that the RS 

Value that must be selected would have 

to be greater than that number. The first 

RS Value that is greater than or equal to 

G can be found in the observation that 

corresponds to Rank Order #28 (see 

Table D). The RS Value of the Rank 

Order #28 observation is 2,024,706,421. 

Step 7: Select the PRSTt that 

corresponds to the observation 

determined in step 6B. 

In this example, the PRSTt that 

corresponds to the RS Value determined 

in step 6B (Rank Order #28) is 

265,000,000. 

Step 8: Determine the rounded 

notional amount. 

Calculate the rounded notional 

amount under the process described in 

the proposed amendment to § 43.2. The 

265,000,000 amount would be rounded 

to the nearest 10 million for public 

dissemination, or 270,000,000. 

Step 9: Set the appropriate minimum 

block size at the amount calculated in 

step 8. 

In this example, the appropriate 

minimum block size for swap category 

Z would be 270,000,000 for the 

observation period. 

Post-Initial Appropriate Minimum 

Block Size = $270,000,000 

VIII. List of Commenters Who 

Responded to the Initial Proposal 

1. Markit. 

2. Asset Management Group of the 

Securities Industry and Financial 

Markets Association (‘‘SIFMA 

AMG’’). 

3. Managed Funds Association 

(‘‘MFA’’). 

4. Argus Media, Inc. (‘‘Argus’’). 

5. J.P. Morgan (‘‘JP Morgan’’). 

6. Gibson Dunn on behalf of the 

Coalition for Derivatives End-Users 

(‘‘Coalition for Derivatives EndUsers’’). 

7. Committee on Capital Markets 

Regulation (‘‘CCMR’’). 

8. Goldman Sachs & Co. (‘‘Goldman’’). 

9. Barclays Capital, Inc. (‘‘Barclays’’). 

10. Air Transport Association (‘‘ATA’’). 

11. Pacific Investment Management 

Company, LLC (‘‘PIMCO’’). 

12. Committee on the Investment of 

Employee Benefit Assets & 

American Benefits Council (‘‘ABC/ 

CIEBA’’). 

13. Better Markets, Inc. (‘‘Better 

Markets’’). 

14. Investment Company Institute 

(‘‘ICI’’). 

15. MarkitSERV. 

16. Coalition of Physical Energy 

Companies (‘‘COPE’’). 

17. International Options Markets 

Association/World Federation of 

Exchanges (‘‘World Federation of 

Exchanges’’). 

18. UBS Securities LLC (‘‘UBS’’). 

19. Global Foreign Exchange Division of 

Association for Financial Markets 

in Europe (‘‘AFME’’), the Securities 

Industry and Financial Markets 

Association (‘‘SIFMA’’) and the 

Asia Securities Industry and 

Financial Markets Association 

(‘‘ASIFMA’’) (collectively, ‘‘SIFMA/ 

AFME/ASIFMA’’). 

20. CME Group, Inc. (‘‘CME’’). 

21. Coalition of Energy End-Users. 

22. International Swaps and Derivatives 

Association & Securities Industry 

and Financial Markets Association 

(‘‘ISDA/SIFMA’’). 

23. Morgan Stanley. 

24. Hunton & Williams LLP on behalf of 

the Working Group of Commercial 

Energy Firms (‘‘Hunton & 

Williams’’). 

25. Freddie Mac. 

26. Vanguard. 

27. TriOptima. 

28. BlackRock, Inc. (‘‘BlackRock’’). 

29. Dominion Resources, Inc. 

(‘‘Dominion’’). 

30. Sadis & Goldberg LLP (‘‘Sadis & 

Goldberg’’). 

31. Metlife, Inc. (‘‘Metlife’’). 

32. Wholesale Markets Brokers’ 

Association, Americas 

(‘‘WMBAA’’). 


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33. Depository Trust & Clearing 

Corporation (‘‘DTCC’’). 

34. Cleary Gottlieb on behalf of Bank of 

America Merrill Lynch, BNP 

Paribas, Citi; Credit Agricole 

Corporate and Investment Bank; 

Credit Suisse Securities (USA), 

Deutsche Bank AG, Morgan Stanley, 

Nomura Securities International, 

In., PNC Bank, National 

Association, Socie ́te ́ Ge ́ne ́rale, UBS 

Securities LLC, Wells Fargo & 

Company (‘‘Cleary Gottlieb’’). 

35. Financial Industry Regulatory 

Authority (‘‘FINRA’’). 

36. International Swaps and Derivatives 

Association (‘‘ISDA’’). 

37. Association of Institutional Investors 

(‘‘AII’’). 

38. Swaps & Derivatives Market 

Association (‘‘SDMA’’). 

List of Subjects in 17 CFR Part 43 

Real-time public reporting; Block 

trades; Large notional off-facility swaps; 

Reporting and recordkeeping 

requirements. 

Accordingly, 17 CFR Part 43, as 

proposed to be added at 77 FR 1,243, 

January 9, 2012, is proposed to be 

further amended as follows. 

PART 43—REAL-TIME PUBLIC 

REPORTING 

1. The authority citation for part 43 

shall continue to read as follows: 

Authority: 7 U.S.C. 2(a), 12a(5) and 24a, 

amended by Pub. L. 111–203, 124 Stat. 1376 

(2010). 

2. Amend § 43.2 by adding the 

following definitions in alphabetical 

order to read as follows: 

§ 43.2 Definitions. 

* * * * * 

Cap size means, for each swap 

category, the maximum notional or 

principal amount of a publicly 

reportable swap transaction that is 

publicly disseminated. 

* * * * * 

Economically related means a direct 

or indirect reference to the same 

commodity at the same delivery 

location or locations, or with the same 

or a substantially similar cash market 

price series. 

* * * * * 

Futures-related swap means a swap 

(as defined in section 1a(47) of the Act 

and as further defined by the 

Commission in implementing 

regulations) that is economically related 

to a futures contract. 

Major currencies means the 

currencies, and the cross-rates between 

the currencies, of Australia, Canada, 

Denmark, New Zealand, Norway, South 

Africa, South Korea, Sweden, and 

Switzerland. 

Non-major currencies means all other 

currencies that are not super-major 

currencies or major currencies. 

* * * * * 

Physical commodity swap means a 

swap in the other commodity asset class 

that is based on a tangible commodity. 

* * * * * 

Reference price means a floating price 

series (including derivatives contract 

prices and cash market prices or price 

indices) used by the parties to a swap 

or swaption to determine payments 

made, exchanged or accrued under the 

terms of a swap contract. 

* * * * * 

Super-major currencies means the 

currencies of the European Monetary 

Union, Japan, United Kingdom, and 

United States. 

* * * * * 

Swaps with composite reference 

prices means swaps based on reference 

prices that are composed of more than 

one reference price from more than one 

swap category. 

Trimmed data set means a data set 

that has had extraordinarily large 

notional transactions removed by 

transforming the data into a logarithm 

with a base of 10, computing the mean, 

and excluding transactions that are 

beyond four standard deviations above 

the mean. 

* * * * * 

3. Revise section 43.4(h) to read as 

follows: 

§ 43.4 Swap transaction and pricing 

data to be publicly disseminated in realtime. 

* * * * * 

(h) Cap sizes. (1) Initial cap sizes. Prior to 

the effective date of a Commission 

determination to establish an applicable postinitial cap size for a swap category as 

determined pursuant to paragraph (h)(2), the 

initial cap sizes for each swap category shall 

be equal to the greater of the initial 

appropriate minimum block size for the 

respective swap category in appendix F to 

this part or the respective cap sizes in 

paragraphs (h)(1)(i) through (v) of this 

section. If appendix F to this part does not 

provide an initial appropriate minimum 

block size for a particular swap category, the 

initial cap size for such swap category shall 

be equal to the appropriate cap size as set 

forth in paragraphs (h)(1)(i) through (v) of 

this section. 

(i) For swaps in the interest rate asset 

class, the publicly disseminated 

notional or principal amount for an 

interest rate swap subject to the rules in 

this part 43 the cap size shall be: 

(A) USD 250 million swaps with a 

tenor greater than zero up to and 

including two years; 

(B) USD 100 million for swaps with 

a tenor greater than two years up to and 

including ten years; and 

(C) USD 75 million for swaps with a 

tenor greater than ten years; 

(ii) For swaps in the credit asset class, 

the publicly disseminated notional or 

principal amount for a credit swap 

subject to the rules in this part 43 shall 

be USD 100 million; 

(iii) For swaps in the equity asset 

class, the publicly disseminated 

notional or principal amount for an 

equity swap subject to the rules in this 

part 43 shall be USD 250 million; 

(iv) For swaps in the foreign exchange 

asset class, the publicly disseminated 

notional or principal amount for a 

foreign exchange swap subject to the 

rules in this part 43 shall be USD 250 

million; and 

(v) For swaps in the other commodity 

asset class, the publicly disseminated 

notional or principal amount for any 

other commodity swap subject to the 

rules in this part 43 shall be USD 25 

million. 

(2) Post-initial cap sizes. Pursuant to 

the process described in § 43.6(f)(1), the 

Commission shall establish post-initial 

cap sizes using reliable data collected by 

registered swap data repositories, as 

determined by the Commission, based 

on the following: 

(i) A three-year rolling window 

(beginning with a minimum of one year 

and adding one year of data for each 

calculation until a total of three years of 

data is accumulated) of swap 

transaction and pricing data 

corresponding to each relevant swap 

category recalculated no less than once 

each calendar year; and 

(ii) The 75-percent notional amount 

calculation described in paragraph (c)(2) 

of this section applied to the swap 

transaction and pricing data described 

in paragraph (h)(2)(i) of this section. 

(3) Commission publication of postinitial cap sizes. The Commission shall 

publish post-initial cap sizes on its Web 

site at http://www.cftc.gov. 

(4) Effective date of post-initial cap 

sizes. Unless otherwise indicated on the 

Commission’s Web site, the post-initial 

cap sizes shall be effective on the first 

day of the second month following the 

date of publication. * * * 

4. Amend § 43.4(d)(4)(i) by deleting 

‘‘§ 43.4(d)(4)(ii).’’ and replacing it with 

‘‘§§ 43.4(d)(4)(ii) and (iii).’’ 

5. Amend § 43.4(d)(4)(ii)(B) by 

deleting ‘‘; and’’ and replacing it with ‘‘; 

or’’; and 

6. Add § 43.4(d)(4)(iii) to read as 

follows: 


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(iii) The underlying assets of swaps in 

the other commodity asset class that are 

not described in 43.4(d)(4)(ii) shall be 

publicly disseminated by limiting the 

geographic detail of the underlying 

assets. The identification of any specific 

delivery point or pricing point 

associated with the underlying asset of 

such other commodity swap shall be 

publicly disseminated pursuant to 

appendix E to this part. 

7. Add section 43.6 to part 43 to read 

as follows: 

§ 43.6 Block trades and large notional offfacility swaps. 

(a) Commission determination. The 

Commission shall establish the 

appropriate minimum block size for 

publicly reportable swap transactions 

based on the swap categories set forth in 

§ 43.6(b) in accordance with the 

provisions set forth in §§ 43.6(c), (d), (e), 

(f) or (h), as applicable. 

(b) Swap categories. Swap categories 

shall be established for all swaps, by 

asset class, in the following manner: 

(1) Interest rates asset class. Interest 

rate asset class swap categories shall be 

based on unique combinations of the 

following: 

(i) Currency by: 

(A) Super-major currency; 

(B) Major currency; or 

(C) Non-major currency; and 

(ii) Tenor of swap as follows: 

(A) Zero to three months (0 to 107 

days); 

(B) Three months to six months (108 

to 198 days); 

(C) Greater than six months to one 

year (199 to 381 days); 

(D) Greater one to two years (382 to 

746 days); 

(E) Greater than two to five years (747 

to 1,842 days); 

(F) Greater than five to ten years 

(1,843 to 3,668 days); 

(G) Greater than ten to 30 years (3,669 

to 10,973 days); or 

(H) Greater than 30 years (10,974 days 

and above). 

(2) Credit asset class. Credit asset 

class swap categories shall be based on 

unique combinations of the following: 

(i) Traded Spread rounded to the 

nearest basis point (0.01) as follows: 

(A) 0 to 175 points; 

(B) 176 to 350 points; or 

(C) 351 points and above; and 

(ii) Tenor of swap as follows: 

(A) Zero to two years (0–746 days); 

(B) Greater than two to four years 

(747–1,476 days); 

(C) Greater than four to six years 

(1,477–2,207 days) 

(D) Greater than six to eight-and-a-half 

years (2,208–3,120 days); 

(E) Greater than eight-and-a-half to 

12.5 years (3,121–4,581 days); and 

(F) Greater than 12.5 years (4,581 days 

and above). 

(3) Equity asset class. There shall be 

one swap category consisting of all 

swaps in the equity asset class. 

(4) Foreign exchange asset class. 

Swap categories in the foreign exchange 

asset class shall be grouped as follows: 

(i) By the unique currency 

combinations of super-major currencies, 

major currencies and the currencies of 

Brazil, China, Czech Republic, Hungary, 

Israel, Mexico, Poland, Russia, and 

Turkey; or 

(ii) By unique currency combinations 

not included in subparagraph (i) of this 

section. 

(5) Other commodity asset class. 

Swap contracts in the other commodity 

asset class shall be grouped into swap 

categories as follows: 

(i) For swaps that are economically 

related to contracts in appendix B to 

this part, by the relevant contract as 

referenced in appendix B to this part; or 

(ii) For swaps that are not 

economically related to contracts in 

appendix B to this part, by the following 

futures-related swaps— 

(A) CME Cheese; 

(B) CBOT Distillers’ Dried Grain; 

(C) CBOT Dow Jones-UBS Commodity 

Index Excess Return; 

(D) CBOT Ethanol; 

(E) CME Frost Index; 

(F) CME Goldman Sachs Commodity 

Index (GSCI), (GSCI Excess Return 

Index); 

(G) NYMEX Gulf Coast Gasoline; 

(H) NYMEX Gulf Coast Sour Crude 

Oil; 

(I) NYMEX Gulf Coast Ultra Low 

Sulfur Diesel; 

(J) CME Hurricane Index; 

(K) CME International Skimmed Milk 

Powder; 

(L) NYMEX New York Harbor Ultra 

Low Sulfur Diesel; 

(M) CME Nonfarm Payroll; 

(N) CME Rainfall Index; 

(O) CME Snowfall Index; 

(P) CME Temperature Index; 

(Q) CME U.S. Dollar Cash Settled 

Crude Palm Oil; or 

(R) CME Wood Pulp; or 

(iii) For swaps that are not covered in 

subparagraphs (i) and (ii) of this section, 

the relevant product type as referenced 

in appendix D to this part. 

(c) Methodologies to determine 

appropriate minimum block sizes and 

cap sizes. In determining appropriate 

minimum block sizes and cap sizes for 

publicly reportable swap transactions, 

the Commission shall utilize the 

following statistical calculations— 

(1) 67-percent notional amount 

calculation. The Commission shall use 

the following procedure in determining 

the 67-percent notional amount 

calculation: (i) Select all of the publicly 

reportable swap transactions within a 

specific swap category using a rolling 

three-year window of data beginning 

with a minimum of one year’s worth of 

data and adding one year of data for 

each calculation until a total of three 

years of data is accumulated; (ii) convert 

to the same currency or units and use 

a trimmed data set; (iii) determine the 

sum of the notional amounts of swaps 

in the trimmed data set; (iv) multiply 

the sum of the notional amount by 67 

percent; (v) rank order the observations 

by notional amount from least to 

greatest; (vi) calculate the cumulative 

sum of the observations until the 

cumulative sum is equal to or greater 

than the 67-percent notional amount 

calculated in (iv); (vii) select the 

notional amount associated with that 

observation; (viii) round the notional 

amount of that observation to two 

significant digits, or if the notional 

amount associated with that observation 

is already significant to two digits, 

increase that notional amount to the 

next highest rounding point of two 

significant digits; and (ix) set the 

appropriate minimum block size at the 

amount calculated in (viii). 

(2) 75-percent notional amount 

calculation. The Commission shall use 

the following procedure in determining 

the 75-percent notional amount 

calculation: (i) Select all of the publicly 

reportable swap transactions within a 

specific swap category using a rolling 

three-year window of data beginning 

with a minimum of one year’s worth of 

data and adding one year of data for 

each calculation until a total of three 

years of data is accumulated; (ii) convert 

to the same currency or units and use 

a trimmed data set; (iii) determine the 

sum of the notional amounts of swaps 

in the trimmed data set; (iv) multiply 

the sum of the notional amount by 75 

percent; (v) rank order the observations 

by notional amount from least to 

greatest; (vi) calculate the cumulative 

sum of the observations until the 

cumulative sum is equal to or greater 

than the 75-percent notional amount 

calculated in (iv); (vii) select the 

notional amount associated with that 

observation; (viii) round the notional 

amount of that observation to two 

significant digits, or if the notional 

amount associated with that observation 

is already significant to two digits, 

increase that notional amount to the 

next highest rounding point of two 

significant digits; and (ix) set the 

appropriate minimum block size at the 

amount calculated in (viii). 

(d) No appropriate minimum block 

sizes for swaps in the equity asset class. 


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Publicly reportable swap transactions in 

the equity asset class shall not be treated 

as block trades or large notional offfacility swaps. 

(e) Initial appropriate minimum block 

sizes. Prior to the Commission making a 

determination as described in paragraph 

(f)(1) of this section, the following initial 

appropriate minimum block sizes shall 

apply: 

(1) Prescribed appropriate minimum 

block sizes. Except as otherwise 

provided in paragraph (e)(1) of this 

section, for any publicly reportable 

swap transaction that falls within the 

swap categories described in 

§§ 43.6(b)(1), (b)(2), (b)(4)(i), (b)(5)(i) and 

(b)(5)(ii), the initial appropriate 

minimum block size for such publicly 

reportable swap transaction shall be the 

appropriate minimum block size that is 

in appendix F to this part. 

(2) Certain swaps in the foreign 

exchange and other commodity asset 

classes. All swaps or instruments in the 

swap categories described in 

§§ 43.6(b)(4)(ii) and (b)(5)(iii) shall be 

eligible to be treated as a block trade or 

large notional off-facility swap, as 

applicable. 

(3) Exception. Publicly reportable 

swap transactions described in 

§ 43.6(b)(5)(i) that are economically 

related to a futures contract in appendix 

B to this part shall not qualify to be 

treated as block trades or large notional 

off-facility swaps (as applicable), if such 

futures contract is not subject to a 

designated contract market’s block 

trading rules. 

(f) Post-initial process to determine 

appropriate minimum block sizes. 

(1) Post-initial period. After a 

registered swap data repository has 

collected at least one year of reliable 

data for a particular asset class, as 

determined by Commission, the 

Commission shall establish by swap 

categories, the post-initial appropriate 

minimum block sizes as described in 

this subsection. No less than once each 

calendar year thereafter, the 

Commission shall update the postinitial appropriate minimum block 

sizes. 

(2) Post-initial appropriate minimum 

block sizes certain swaps. The 

Commission shall determine post-initial 

appropriate minimum block sizes for 

the swap categories described in 

§§ 43.6(b)(1), (b)(2), (b)(4) and (b)(5) by 

utilizing a three-year rolling window 

(beginning with a minimum of one year 

and adding one year of data for each 

calculation until a total of three years of 

data is accumulated) of swap 

transaction and pricing data 

corresponding to each relevant swap 

category reviewed no less than once 

each calendar year, and by applying the 

67-percent notional amount calculation 

to such data. 

(3) Commission publication of postinitial appropriate minimum block 

sizes. The Commission shall publish the 

appropriate minimum block sizes 

determined pursuant to § 43.6(f)(1) on 

its Web site at http://www.cftc.gov. 

(4) Effective date of post-initial 

appropriate minimum block sizes. 

Unless otherwise indicated on the 

Commission’s Web site, the post-initial 

appropriate minimum block sizes 

described in § 43.6(f)(1) shall be 

effective on the first day of the second 

month following the date of publication. 

(g) Required notification. 

(1) Block trade election. (i) The parties 

to a publicly reportable swap 

transaction that has a notional amount 

at or above the appropriate minimum 

block size shall notify the registered 

swap execution facility or designated 

contract market, as applicable, pursuant 

to the rules of such registered swap 

execution facility or designated contract 

market, of its election to have the 

publicly reportable swap transaction 

treated as a block trade. 

(ii) The registered swap execution 

facility or designated contract market, as 

applicable, pursuant to the rules of 

which a block trade is executed shall 

notify the registered swap data 

repository of such a block trade election 

when transmitting swap transaction and 

pricing data to such swap data 

repository in accordance with 

§ 43.3(b)(1). 

(2) Large notional off-facility swap 

election. A reporting party who executes 

an off-facility swap that has a notional 

amount at or above the appropriate 

minimum block size shall notify the 

applicable registered swap data 

repository that such swap transaction 

qualifies as a large notional off-facility 

swap concurrent with the transmission 

of swap transaction and pricing data in 

accordance with part 43. 

(h) Special provisions relating to 

appropriate minimum block sizes and 

cap sizes. The following special rules 

shall apply to the determination of 

appropriate minimum block sizes and 

cap sizes— 

(1) Swaps with optionality. The 

notional amount of swaps with 

optionality shall equal the notional 

amount of the component of the swap 

that does not include the option 

component. 

(2) Swaps with composite reference 

prices. The parties to a swap transaction 

with composite reference prices may 

elect to apply the lowest appropriate 

minimum block size or cap size 

applicable to one component swap 

category of such publicly reportable 

swap transaction. 

(3) Notional amounts for physical 

commodity swaps. Unless otherwise 

specified in this part, the notional 

amount for a physical commodity swap 

shall be based on the notional unit 

measure utilized in the related futures 

contract market or the predominant 

notional unit measure used to determine 

notional quantities in the cash market 

for the relevant, underlying physical 

commodity. 

(4) Currency conversion. Unless 

otherwise specified in this part 43, 

when the appropriate minimum block 

size or cap size for a publicly reportable 

swap transaction is denominated in a 

currency other than U.S. dollars, parties 

to a swap and registered entities may 

use a currency exchange rate that is 

widely published within the preceding 

two business days from the date of 

execution of the swap transaction in 

order to determine such qualification. 

(5) Successor currencies. For 

currencies that succeed a super-major 

currency, the appropriate currency 

classification for such currency shall be 

based on the corresponding nominal 

gross domestic product classification (in 

U.S. dollars) as determined in the most 

recent World Bank, World Development 

Indicator at the time of succession. If the 

gross domestic product of the country or 

nation utilizing the successor currency 

is: 

(i) Greater than $2 trillion, then the 

successor currency shall be included 

among the super-major currencies; 

(ii) Greater than $500 billion but less 

than $2 trillion, then the successor 

currency shall be included among the 

major currencies; or 

(iii) Less than $500 billion, then the 

successor currency shall be included 

among the non-major currencies. 

8. Add section 43.7 to part 43 to read 

as follows: 

§ 43.7 Delegation of authority. 

(a) Authority. The Commission hereby 

delegates, until it orders otherwise, to 

the Director of the Division of Market 

Oversight or such other employee or 

employees as the Director may designate 

from time to time, the authority: 

(1) To determine whether swaps fall 

within specific swap categories as 

described in § 43.6(b); 

(2) To determine post-initial, 

appropriate minimum block sizes as 

described in § 43.6(f); and 

(3) To determine post-initial cap sizes 

as described in § 43.4(h). 

(b) Submission for Commission 

consideration. The Director of the 

Division of Market Oversight may 

submit to the Commission for its 


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consideration any matter that has been 

delegated pursuant to this section. 

(c) Commission reserves authority. 

Nothing in this section prohibits the 

Commission, at its election, from 

exercising the authority delegated in 

this section. * * * 

9. Amend appendix B to part 43 to 

add the following after ‘‘Brent Crude Oil 

(ICE)’’: 

SP–15 Financial Day-Ahead LMP Peak 

Contract 

SP–15 Financial Day-Ahead LMP Off-Peak 

Contract 

PJM WH Real Time Peak Contract 

PJM WH Real Time Off-Peak Contract 

Mid-C Financial Peak Contract 

Mid-C Financial Off-Peak Contract 

ICE Chicago Financial Basis Contract 

HSC Financial Basis Contract 

Socal Border Financial Basis Contract 

Waha Financial Basis Contract 

AECO Financial Basis Contract 

NWP Rockies Financial Basis Contract 

PG&E Citygate Financial Basis Contract 

10. Add ‘‘Appendix D to Part 43— 

Other Commodity Swap Categories’’ 

after ‘‘Appendix C to Part 43—Time 

Delays for Public Dissemination’’ to 

read as follows: 

Appendix D—Other Commodity Swap 

Categories 

Other Commodity Group 

Individual Other Commodity 

GRAINS 

OATS 

WHEAT 

CORN 

RICE 

GRAINS—OTHER 

LIVESTOCK/MEAT PRODUCTS 

LIVE CATTLE 

PORK BELLIES 

FEEDER CATTLE 

LEAN HOGS 

LIVESTOCK/MEAT PRODUCTS–OTHER 

DAIRY PRODUCTS 

MILK 

BUTTER 

CHEESE 

DAIRY PRODUCTS—OTHER 

OILSEED AND PRODUCTS 

SOYBEAN OIL 

SOYBEAN MEAL 

SOYBEANS 

OILSEED AND PRODUCTS—OTHER 

FIBER 

COTTON 

FIBER—OTHER 

FOODSTUFFS/SOFTS 

COFFEE 

FROZEN CONCENTRATED ORANGE 

JUICE 

SUGAR 

COCOA 

FOODSTUFFS/SOFTS—OTHER 

PETROLEUM AND PRODUCTS 

JET FUEL 

ETHANOL 

BIODIESEL 

FUEL OIL 

HEATING OIL 

GASOLINE 

NAPHTHA 

CRUDE OIL 

DIESEL 

PETROLEUM AND PRODUCTS—OTHER 

NATURAL GAS AND RELATED PRODUCTS 

NATURAL GAS LIQUIDS 

NATURAL GAS 

NATURAL GAS AND RELATED 

PRODUCTS—OTHER 

ELECTRICITY AND SOURCES 

COAL 

ELECTRICITY 

URANIUM 

ELECTRICITY AND SOURCES—OTHER 

PRECIOUS METALS 

PALLADIUM 

PLATINUM 

SILVER 

GOLD 

PRECIOUS METALS—OTHER 

BASE METALS 

STEEL 

COPPER 

BASE METALS—OTHER 

WOOD PRODUCTS 

LUMBER 

PULP 

WOOD PRODUCTS—OTHER 

REAL ESTATE 

REAL ESTATE 

CHEMICALS 

CHEMICALS 

PLASTICS 

PLASTICS 

EMISSIONS 

EMISSIONS 

WEATHER 

WEATHER 

MULTIPLE COMMODITY INDEX 

MULTIPLE COMMODITY INDEX 

OTHER AGRICULTURAL 

OTHER AGRICULTURAL 

OTHER NON-AGRICULTURAL 

OTHER NON-AGRICULTURAL 

11. Add ‘‘Appendix E to Part 43— 

Other Commodity Geographic 

Identification for Public Dissemination 

Pursuant to § 43.4(d)(4)(iii)’’ after 

‘‘Appendix D to Part 43—Other 

Commodity Product Swap Categories’’ 

to read as follows: 

Appendix E—Other Commodity 

Geographic Identification for Public 

Dissemination Pursuant to 

§ 43.4(d)(4)(iii) 

Registered swap data repositories shall 

publicly disseminate any specific delivery 

point or pricing point associated with 

publicly reportable swap transactions in the 

‘‘other commodity’’ asset class (as described 

in § 43.4(d)(4)(iii)) pursuant to Tables E1 and 

E2. If the underlying asset of a publicly 

reportable swap transaction described in 

§ 43.4(d)(4)(iii) has a delivery or pricing point 

that is located in the United States, such 

information shall be publicly disseminated 

pursuant to the regions described in Table 

E1. If the underlying asset of a publicly 

reportable swap transaction described in 

§ 43.4(d)(4)(iii) has a delivery or pricing point 

that is not located in the United States, such 

information shall be publicly disseminated 

pursuant to the countries or sub-regions, or 

if no country or sub-region, by the other 

commodity region, described in Table E2. 

Table E1—U.S. Delivery or Pricing Points 

Other Commodity Group 

Region 

NATURAL GAS AND RELATED PRODUCTS 

MIDWEST 

NORTHEAST 

GULF 

SOUTHEAST 

WESTERN 

OTHER—U.S. 

PETROLEUM AND PRODUCTS 

NEW ENGLAND (PADD 1A) 

CENTRAL ATLANTIC (PADD 1B) 

LOWER ATLANTIC (PADD 1C) 

MIDWEST (PADD 2) 

GULF COAST (PADD 3) 

ROCKY MOUNTAINS (PADD 4) 

WEST COAST (PADD 5) 

OTHER—U.S. 

ELECTRICITY AND SOURCES 

CALIFORNIA (CAISO) 

MIDWEST (MISO) 

NEW ENGLAND (ISO–NE) 

NEW YORK (NYISO) 

NORTHWEST 

PJM 

SOUTHEAST 

SOUTHWEST 

SOUTHWEST POWER TOOL (SPP) 

TEXAS (ERCOT) 

OTHER—U.S. 

ALL REMAINING OTHER COMMODITIES 

(PUBLICLY DISSEMINATE THE 

REGION. IF PRICING OR DELIVERY 

POINT IS NOT REGION SPECIFIC, 

INDICATE ‘‘U.S.’’) 

REGION 1—(INCLUDES CONNECTICUT, 

MAINE, MASSACHUSETTS, NEW 

HAMPSHIRE, RHODE ISLAND, 

VERMONT) 

REGION 2—(INCLUDES NEW JERSEY, 

NEW YORK) 

REGION 3—(INCLUDES DELAWARE, 

DISTRICT OF COLUMBIA, MARYLAND, 

PENNSYLVANIA, VIRGINIA, WEST 

VIRGINIA) 

REGION 4—(INCLUDES ALABAMA, 

FLORIDA, GEORGIA, KENTUCKY, 

MISSISSIPPI, NORTH CAROLINA, 

SOUTH CAROLINA, TENNESSEE) 

REGION 5—(INCLUDES ILLINOIS, 

INDIANA, MICHIGAN, MINNESOTA, 

OHIO, WISCONSIN) 

REGION 6—(INCLUDES ARKANSAS, 

LOUISIANA, NEW MEXICO, 

OKLAHOMA, TEXAS) 

REGION 7—(INCLUDES IOWA, KANSAS, 

MISSOURI, NEBRASKA) 

REGION 8—(INCLUDES COLORADO, 

MONTANA, NORTH DAKOTA, SOUTH 

DAKOTA, UTAH, WYOMING) 

REGION 9—(INCLUDES ARIZONA, 

CALIFORNIA, HAWAII, NEVADA) 

REGION 10—(INCLUDES ALASKA, 

IDAHO, OREGON, WASHINGTON) 

Table E2—Non-U.S. Delivery or Pricing 

Points 

Other Commodity Regions With Countries or 

Sub-Regions 

NORTH AMERICA (OTHER THAN U.S.) 


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CANADA 

MEXICO 

CENTRAL AMERICA 

SOUTH AMERICA 

BRAZIL 

OTHER SOUTH AMERICA 

EUROPE 

WESTERN EUROPE 

NORTHERN EUROPE 

SOUTHERN EUROPE 

EASTERN EUROPE (EXCLUDING RUSSIA) 

RUSSIA 

AFRICA 

NORTHERN AFRICA 

WESTERN AFRICA 

EASTERN AFRICA 

CENTRAL AFRICA 

SOUTHERN AFRICA 

ASIA-PACIFIC 

NORTHERN ASIA (EXCLUDING RUSSIA) 

CENTRAL ASIA 

EASTERN ASIA 

WESTERN ASIA 

SOUTHEAST ASIA 

AUSTRALIA/NEW ZEALAND/PACIFIC 

ISLANDS 

12. Add ‘‘Appendix F to Part 43— 

Initial Appropriate Minimum Sizes for 

Block Trades and Large Notional Offfacility Swaps’’ after ‘‘Appendix E to 

Part 43—Other Commodity Geographic 

Identification for Public Dissemination 

Pursuant to § 43.4(d)(4)(iii)(B)’’ to read 

as follows: 

APPENDIX F—INITIAL APPROPRIATE MINIMUM BLOCK SIZES BY ASSET CLASS

Currency group Currencies 

Super-Major Currencies ...................................... United States dollar (USD), European Union Euro Area euro (EUR), United Kingdom pound 

sterling (GBP), and Japan yen (JPY). 

Major Currencies ................................................ Australia dollar (AUD), Switzerland franc (CHF), Canada dollar (CAD), Republic of South Africa rand (ZAR), Republic of Korea won (KRW), Kingdom of Sweden krona (SEK), New Zealand dollar (NZD), Kingdom of Norway krone (NOK), and Denmark krone ( DKK). 

Non-Major Currencies ......................................... All other currencies. 

INTEREST RATE SWAPS

Currency group Tenor greater than Tenor less than or equal to 67% Notional 

(in millions) 

Super-Major ............................................ ................................................................ Three months (107 days) ...................... 6,400 

Super-Major ............................................ Three months (107 days) ...................... Six months (198 days) ........................... 1,900 

Super-Major ............................................ Six months (198 days) ........................... One year (381 days) .............................. 1,600 

Super-Major ............................................ One year (381 days) .............................. Two years (746 days) ............................ 750 

Super-Major ............................................ Two years (746 days) ............................ Five years (1,842 days) ......................... 380 

Super-Major ............................................ Five years (1,842 days) ......................... Ten years (3,668 days) .......................... 290 

Super-Major ............................................ Ten years (3,668 days) .......................... 30 years (10,973 days) .......................... 210 

Super-Major ............................................ 30 years (10,973 days) .......................... ................................................................ 130 

Major ....................................................... ................................................................ Three months (107 days) ...................... 970 

Major ....................................................... Three months (107 days) ...................... Six months (198 days) ........................... 470 

Major ....................................................... Six months (198 days) ........................... One year (381 days) .............................. 320 

Major ....................................................... One year (381 days) .............................. Two years (746 days) ............................ 190 

Major ....................................................... Two years (746 days) ............................ Five years (1,842 days) ......................... 110 

Major ....................................................... Five years (1,842 days) ......................... Ten years (3,668 days) .......................... 73 

Major ....................................................... Ten years (3,668 days) .......................... 30 years (10,973 days) .......................... 50 

Major ....................................................... 30 years (10,973 days) .......................... ................................................................ 22 

Non-Major ............................................... ................................................................ Three months (107 days) ...................... 320 

Non-Major ............................................... Three months (107 days) ...................... Six months (198 days) ........................... 240 

Non-Major ............................................... Six months (198 days) ........................... One year (381 days) .............................. 160 

Non-Major ............................................... One year (381 days) .............................. Two years (746 days) ............................ 79 

Non-Major ............................................... Two years (746 days) ............................ Five years (1,842 days) ......................... 40 

Non-Major ............................................... Five years (1,842 days) ......................... Ten years (3,668 days) .......................... 22 

Non-Major ............................................... Ten years (3,668 days) .......................... 30 years (10,973 days) .......................... 24 

Non-Major ............................................... 30 years (10,973 days) .......................... ................................................................ 22 

CREDIT SWAPS

Spread group 

(basis points) Traded tenor greater than Traded tenor less than or equal to 67% Notional (in millions) 

Less than or equal to 175 ...................... ................................................................ Two years (746 days) ............................ 510 

Less than or equal to 175 ...................... Two years (746 days) ............................ Four years (1,477 days) ........................ 300 

Less than or equal to 175 ...................... Four years (1,477 days) ........................ Six years (2,207 days) ........................... 190 

Less than or equal to 175 ...................... Six years (2,207 days) ........................... Eight years and six months (3,120 

days).

250 

Less than or equal to 175 ...................... Eight years and six months (3,120 

days).

Twelve years and six months (4,581 

days).

130 

Less than or equal to 175 ...................... Twelve years and six months (4,581 

days).

................................................................ 110 

Greater than 175 and less than or equal 

to 350.

................................................................ Two years (746 days) ............................ 210 

Greater than 175 and less than or equal 

to 350.

Two years (746 days) ............................ Four years (1,477 days) ........................ 130 

Greater than 175 and less than or equal 

to 350.

Four years (1,477 days) ........................ Six years (2,207 days) ........................... 36 


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CREDIT SWAPS—Continued 

Spread group 

(basis points) Traded tenor greater than Traded tenor less than or equal to 67% Notional (in millions) 

Greater than 175 and less than or equal 

to 350.

Six years (2,207 days) ........................... Eight years and six months (3,120 

days).

26 

Greater than 175 and less than or equal 

to 350.

Eight years and six months (3,120 

days).

Twelve years and six months (4,581 

days).

64 

Greater than 175 and less than or equal 

to 350.

Twelve years and six months (4,581 

days).

................................................................ 120 

Greater than 350 .................................... ................................................................ Two years (746 days) ............................ 110 

Greater than 350 .................................... Two years (746 days) ............................ Four years (1,477 days) ........................ 73 

Greater than 350 .................................... Four years (1,477 days) ........................ Six years (2,207 days) ........................... 51 

Greater than 350 .................................... Six years (2,207 days) ........................... Eight years and six months (3,120 

days).

21 

Greater than 350 .................................... Eight years and six months (3,120 

days).

Twelve years and six months (4,581 

days).

21 

Greater than 350 .................................... Twelve years and six months (4,581 

days).

................................................................ 51 

BILLING CODE 6351–01–P 


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Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15525 


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15526 Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 


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Federal Register / Vol. 77, No. 51 / Thursday, March 15, 2012 / Proposed Rules 15527 

BILLING CODE 6351–01–C Issued in Washington, DC, on February 23, 

2012, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Procedures To Establish 

Appropriate Minimum Block Sizes for 

Large Notional Off-Facility Swaps and 

Block Trades—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 Chilton and Wetjen voted in 

the affirmative; Commissioners Sommers and 

O’Malia voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the block rule proposal, which 

promotes both pre-trade and post-trade 

transparency. The derivatives reforms in the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, including bringing 

transparency to the swaps market, will lead 

to significant benefits for the real economy— 

that which makes up over 94 percent of 

private sector jobs in America. Transparency 

also helps all Americans who depend on 

pension funds, mutual funds, community 

banks and insurance companies. 

[FR Doc. 2012–5950 Filed 3–14–12; 8:45 am] 

BILLING CODE 6351–01–P 


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