70152 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Proposed Rules 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866, 

(2) Is not a ‘‘significant rule’’ under the 

DOT Regulatory Policies and Procedures 

(44 FR 11034, February 26, 1979), 

(3) Will not affect intrastate aviation 

in Alaska, and 

(4) Will not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

The Proposed Amendment 

Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA proposes to amend 14 CFR part 

39 as follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive (AD): 

McDonnell Douglas Corporation: Docket No. 

FAA–2010–0228; Directorate Identifier 

2009–NM–252–AD. 

Comments Due Date 

(a) We must receive comments by 

December 13, 2010. 

Affected ADs 

(b) None. 

Applicability 

(c) This AD applies to McDonnell Douglas 

Corporation Model MD–11 and MD–11F 

airplanes, certificated in any category, as 

identified in Boeing Alert Service Bulletin 

MD11–28A124, Revision 1, dated August 24, 

2010. 

Subject 

(d) Joint Aircraft System Component 

(JASC)/Air Transport Association (ATA) of 

America Code 28: Fuel. 

Unsafe Condition 

(e) This AD was prompted by fuel system 

reviews conducted by the manufacturer. We 

are issuing this AD to detect and correct a 

potential of ignition sources inside fuel 

tanks, which, in combination with flammable 

vapors, could result in a fuel tank fire or 

explosion, and consequent loss of the 

airplane. 

Compliance 

(f) Comply with this AD within the 

compliance times specified, unless already 

done. 

Action 

(g) For airplanes in Group 1, Configuration 

1; and Group 2, Configuration 1: Within 60 

months after the effective date of this AD, 

perform a general visual inspection to detect 

damage of wire assemblies of the tail tank 

fuel system, in accordance with the 

Accomplishment Instructions of Boeing Alert 

Service Bulletin MD11–28A124, Revision 1, 

dated August 24, 2010. 

(1) For airplanes in Group 1, Configuration 

1: If no damage is found, before further flight, 

apply self-adhering high-temperature 

electrical insulation tape on the wire 

assemblies, install wire assembly support 

brackets, route wire assemblies, install 

extruded channel wire supports, and install 

a wire protection bracket, in accordance with 

the Accomplishment Instructions of Boeing 

Alert Service Bulletin MD11–28A124, 

Revision 1, dated August 24, 2010. 

(2) For airplanes in Group 1, Configuration 

1: If damage is found, before further flight, 

repair or replace the wire assemblies, apply 

self-adhering high-temperature electrical 

insulation tape on the wire assemblies, 

install wire assembly support brackets, route 

wire assemblies, install extruded channel 

wire supports, and install a wire protection 

bracket, in accordance with the 

Accomplishment Instructions of Boeing Alert 

Service Bulletin MD11–28A124, Revision 1, 

dated August 24, 2010. 

(3) For airplanes in Group 2, Configuration 

1: If no damage is found, before further flight, 

install wire assembly support brackets, route 

wire assemblies, install extruded channel 

wire supports, and install a wire protection 

bracket, in accordance with the 

Accomplishment Instructions of Boeing Alert 

Service Bulletin MD11–28A124, Revision 1, 

dated August 24, 2010. 

(4) For airplanes in Group 2, Configuration 

1: If damage is found, before further flight, 

repair or replace wire assembly, install wire 

assembly support brackets, route wire 

assemblies, install extruded channel wire 

supports, and install a wire protection 

bracket, in accordance with the 

Accomplishment Instructions of Boeing Alert 

Service Bulletin MD11–28A124, Revision 1, 

dated August 24, 2010. 

(h) For airplanes in Group 1, Configuration 

2: Within 60 months after the effective date 

of this AD, do a general visual inspection for 

correct installation of the self-adhering hightemperature electrical insulation tape, and 

change the wire supports, in accordance with 

the Accomplishment Instructions of Boeing 

Alert Service Bulletin MD11–28A124, 

Revision 1, dated August 24, 2010. If the selfadhering high-temperature electrical 

insulation tape is installed incorrectly, before 

further flight, adjust the tape installation to 

achieve the correct dimensions, in 

accordance with Figure 1 of Boeing Alert 

Service Bulletin MD11–28A124, Revision 1, 

dated August 24, 2010. 

(i) For airplanes in Group 2, Configuration 

2: Within 60 months after the effective date 

of this AD, change the wire supports, in 

accordance with Figure 2 of Boeing Alert 

Service Bulletin MD11–28A124, Revision 1, 

dated August 24, 2010. 

Alternative Methods of Compliance 

(AMOCs) 

(j)(1) The Manager, Los Angeles Aircraft 

Certification Office (ACO), FAA, has the 

authority to approve AMOCs for this AD, if 

requested using the procedures found in 14 

CFR 39.19. In accordance with 14 CFR 39.19, 

send your request to your principal inspector 

or local Flight Standards District Office, as 

appropriate. If sending information directly 

to the manager of the ACO, send it to the 

attention of the person identified in the 

Related Information section of this AD. 

(2) Before using any approved AMOC, 

notify your Principal Maintenance Inspector 

or Principal Avionics Inspector, as 

appropriate, or lacking a principal inspector, 

your local Flight Standards District Office. 

Related Information 

(k) For more information about this AD, 

contact Serj Harutunian, Aerospace Engineer, 

Propulsion Branch, ANM–140L, FAA, Los 

Angeles Aircraft Certification Office, 3960 

Paramount Boulevard, Lakewood, California 

90712–4137; telephone (562) 627–5254; fax 

(562) 627–5210; e-mail: 

Serj.Harutunian@faa.gov. 

(l) For service information identified in 

this AD, contact Boeing Commercial 

Airplanes, Attention: Data & Services 

Management, 3855 Lakewood Boulevard, MC 

D800–0019, Long Beach, California 90846– 

0001; telephone 206–544–5000, extension 2; 

fax 206–766–5683; e-mail 

dse.boecom@boeing.com; Internet https:// 

www.myboeingfleet.com. You may review 

copies of the referenced service information 

at the FAA, Transport Airplane Directorate, 

1601 Lind Avenue, SW., Renton, 

Washington. For information on the 

availability of this material at the FAA, call 

425–227–1221. 

Issued in Renton, Washington, on 

November 5, 2010. 

Jeffrey E. Duven, 

Acting Manager, Transport Airplane 

Directorate, Aircraft Certification Service. 

[FR Doc. 2010–28937 Filed 11–16–10; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038–AC96 

Implementation of Conflicts of Interest 

Policies and Procedures by Futures 

Commission Merchants and 

Introducing Brokers 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing rules to implement 

new statutory provisions enacted by 

Title VII of the Dodd-Frank Wall Street 


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Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Proposed Rules 70153 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov. 

2Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

3 7 U.S.C. 1 et seq. 

4Public Law 107–204, 116 Stat. 745 (2002) 

(codified at 15 U.S.C. 78o–6). 

Reform and Consumer Protection Act 

(Dodd-Frank Act). The proposed 

regulations establish conflicts of interest 

requirements for futures commission 

merchants (FCMs) and introducing 

brokers (IBs) for the purpose of ensuring 

that such persons implement adequate 

policies and procedures in compliance 

with the Commodity Exchange Act 

(CEA), as amended by the Dodd-Frank 

Act. 

DATES: Comments must be received on 

or before January 18, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AC96 

and FCM–IB Conflicts of Interest, by any 

of the following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow 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 http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that 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 CFTC 

Regulation 145.9, 17 CFR 145.9. 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Sarah E. Josephson, Associate Director, 

Division of Clearing and Intermediary 

Oversight, (202) 418–5684, 

sjosephson@cftc.gov, or Ward P. Griffin, 

Counsel, Office of General Counsel, 

(202) 418–5425, wgriffin@cftc.gov, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act.1 Title VII of 

the Dodd-Frank Act 2 amended the 

CEA 3 to establish a comprehensive 

regulatory framework to reduce risk, 

increase transparency, and promote 

market integrity within the financial 

system by, among other things: (1) 

Providing for the registration and 

comprehensive regulation of swap 

dealers and major swap participants; (2) 

imposing clearing and trade execution 

requirements on standardized derivative 

products; (3) creating rigorous 

recordkeeping and real-time reporting 

regimes; and (4) enhancing the 

rulemaking and enforcement authorities 

of the Commission with respect to all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

This proposed rulemaking relates to 

the conflicts of interest provisions set 

forth in section 732 of the Dodd-Frank 

Act. In relevant part, section 732 of the 

Dodd-Frank Act amends section 4d of 

the CEA to direct each FCM and IB to 

implement conflicts of interest systems 

and procedures that establish safeguards 

within the firm to ensure that any 

persons researching or analyzing the 

price or market for any commodity are 

separated by ‘‘appropriate informational 

partitions’’ within the firm from review, 

pressure, or oversight of persons whose 

involvement in trading or clearing 

activities might potentially bias the 

judgment or supervision of the persons. 

Section 732 also requires that such 

conflicts of interest systems and 

procedures ‘‘address such other issues as 

the Commission determines to be 

appropriate.’’ 

Section 754 of the Dodd-Frank Act 

establishes that ‘‘[u]nless otherwise 

provided in this title, the provisions of 

this subtitle shall take effect on the later 

of 360 days after the date of the 

enactment of this subtitle or, to the 

extent a provision of this subtitle 

requires a rulemaking, not less than 60 

days after publication of the final rule 

or regulation implementing such 

provision of this subtitle.’’ 

Consequently, the Commission will seek 

to promulgate rules—by July 15, 2011— 

implementing the conflicts of interest 

provisions of section 732 of the DoddFrank Act. 

Accordingly, pursuant to authority 

granted under sections 4d(c) and 8a(5) 

of the CEA, as amended by the DoddFrank Act, the Commission is proposing 

to adopt Regulation 1.71 to address 

potential conflicts of interest in the 

preparation and release of research 

reports by FCMs and IBs, and the 

establishment of ‘‘appropriate 

informational partitions’’ within such 

firms, as required by the Dodd-Frank 

Act. The proposed rule also will address 

other issues, such as enhanced 

disclosure requirements, in order to 

minimize the potential that conflicts of 

interest will arise within FCMs and IBs. 

The proposed rules reflect 

consultation with staff of the following 

agencies: (i) The Securities and 

Exchange Commission; (ii) the Board of 

Governors of the Federal Reserve 

System; (iii) the Office of the 

Comptroller of the Currency; and (iv) 

the Federal Deposit Insurance 

Corporation. Staff from each of these 

agencies has had the opportunity to 

provide oral and/or written comments 

to the proposal, and the proposed rules 

incorporate elements of the comments 

provided. 

The Commission requests comment 

on all aspects of the proposed rules, as 

well as comment on the specific 

provisions and issues highlighted in the 

discussion below. 

II. Proposed Regulations 

A. Conflicts of Interest in Research or 

Analysis 

Section 732 of the Dodd-Frank Act 

requires, in relevant part, that FCMs and 

IBs implement conflicts of interest 

systems and procedures that ‘‘establish 

structural and institutional safeguards to 

ensure that the activities of any person 

within the firm relating to research or 

analysis of the price or market for any 

commodity are separated by appropriate 

informational partitions within the firm 

from the review, pressure, or oversight 

of persons whose involvement in 

trading or clearing activities might 

potentially bias the judgment or 

supervision of the persons.’’ 

The language in section 732 of the 

Dodd-Frank Act is similar to certain 

language contained in section 501(a) of 

the Sarbanes-Oxley Act of 2002,4 which 


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5Use of the term ‘‘derivative’’ is based upon the 

products listed in the definitions of futures 

commission merchant and introducing broker in 

sections 1a(28) and 1a(29) of the CEA. 

amended the Securities Exchange Act of 

1934 by creating a new section 15D. In 

relevant part, section 15D(a) mandates 

that the Securities and Exchange 

Commission, or a registered securities 

association or national securities 

exchange, adopt ‘‘rules reasonably 

designed to address conflicts of interest 

that can arise when securities analysts 

recommend equity securities in research 

reports and public appearances, in order 

to improve the objectivity of research 

and provide investors with more useful 

and reliable information, including 

rules designed * * * to establish 

structural and institutional safeguards 

within registered brokers or dealers to 

assure that securities analysts are 

separated by appropriate informational 

partitions within the firm from the 

review, pressure, or oversight of those 

whose involvement in investment 

banking activities might potentially bias 

their judgment or supervision * * *.’’ 

Unlike section 15D of the Securities 

Exchange Act of 1934, section 732 of the 

Dodd-Frank Act does not expressly limit 

the requirement for informational 

partitions to only those persons who are 

responsible for the preparation of the 

substance of research reports; rather, 

section 732 could be read to require 

informational partitions between 

persons involved in trading or clearing 

activities and any person within a FCM 

or IB who engages in ‘‘research or 

analysis of the price or market for any 

commodity,’’ whether or not such 

research or analysis is to be made part 

of a research report that may be publicly 

disseminated. 

However, the Commission believes 

that an untenable outcome could result 

from implementing informational 

partitions between persons involved in 

trading or clearing activities and all 

persons who may be engaged in 

‘‘research or analysis of the price or 

market for any commodity,’’ given that 

persons involved in trading or clearing 

activities are routinely—or even 

primarily—engaged in ‘‘research or 

analysis of the price or market for’’ 

commodities. Sound trading and/or 

clearing activities necessarily require 

some form of pre-decisional research or 

analysis of the facts supporting such 

trading or clearing determinations. 

Therefore, given the untenable 

alternative, the proposed rules reflect 

the Commission’s belief that the 

Congressional intent underlying section 

732 with respect to ‘‘research and 

analysis of the price or market of any 

commodity’’ is primarily intended to 

prevent undue influence by persons 

involved in trading or clearing activities 

over the substance of research reports 

that may be publicly disseminated, and 

to prevent pre-public dissemination of 

any material information in the 

possession of a person engaged in 

research and analysis, or of the research 

reports, to traders. 

Many elements of the proposed rule, 

particularly those provisions relating to 

potential conflicts of interest 

surrounding research and analysis, have 

been adapted from National Association 

of Securities Dealers (NASD) Rule 2711. 

To construct the ‘‘structural and 

institutional safeguards’’ mandated by 

Congress under section 732 of the DoddFrank Act, the proposed rule establishes 

specific restrictions on the interaction 

and communications between persons 

within a FCM or IB involved in research 

or analysis of the price or market for any 

derivative 5 and persons involved in 

trading or clearing activities. The 

proposed rules also impose duties and 

constraints on persons involved in the 

research or analysis of the price or 

market for any derivative. For instance, 

such persons will be required to 

disclose conspicuously during public 

appearances any relevant personal 

financial interests relating to any 

derivative of a type that the person 

follows. FCMs and IBs similarly will be 

obligated to make certain disclosures 

clearly and prominently in research 

reports, including third-party research 

reports that are distributed or made 

available by the FCM or IB. Further, 

FCMs and IBs, as well as employees 

involved in trading or clearing 

activities, will be prohibited from 

retaliating against any person involved 

in the research or analysis of the price 

or market for any derivative who 

produces, in good faith, a research 

report that adversely impacts the 

current or prospective trading or 

clearing activities of the FCM or IB. 

Although section 732 of the DoddFrank Act requires that appropriate 

informational partitions be constructed 

within FCMs and IBs, the Commission 

recognizes that the appropriateness of 

such partitions may be affected by the 

size of the FCM or IB and the scope of 

its operations. The Commission invites 

comment on how these rules should 

apply to FCMs and IBs, considering the 

varying size and scope of the operations 

of such firms. For instance, NASD Rule 

2711(k) provides an exception from 

certain requirements for ‘‘small firms,’’ 

defined to include those firms that over 

the past three years have participated in 

ten or fewer ‘‘investment banking 

services transactions’’ and ‘‘generated $5 

million or less in gross investment 

banking services revenues from those 

transactions.’’ The Commission solicits 

comment on whether a similar approach 

should be adopted for small FCMs and 

IBs. Moreover, the exceptions to the 

definition of ‘‘research report’’ are 

designed to address issues typically 

found in smaller firms where 

individuals in the trading unit perform 

their own research to advise their 

clients or potential clients. These 

exceptions do not in any way impact or 

lessen the restrictions placed on firms 

that prepare research reports and release 

them for public consumption. Any 

attempt by such firms to move research 

personnel into a trading unit to attempt 

to avail themselves of the exception will 

result in insufficient ‘‘structural and 

institutional safeguards’’ and will be a 

violation of Section 732 of the DoddFrank Act and these Regulations. 

To address the possibility that the 

proposed rules could be evaded by 

employing research analysts in an 

affiliate of a FCM or IB, the proposed 

rules also will restrict communications 

with research analysts employed by an 

affiliate. An affiliate will be defined as 

an entity controlling, controlled by, or 

under common control with, a FCM or 

IB. 

B. Other Issues 

In addition to mandating the 

establishment of ‘‘appropriate 

informational partitions’’ within FCMs 

and IBs that focus on the activities of 

persons involved in the ‘‘research or 

analysis of the price or market for any 

commodity,’’ section 732 of the DoddFrank Act also requires FCMs and IBs to 

‘‘implement conflict-of-interest systems 

and procedures that * * * address such 

other issues as the Commission 

determines to be appropriate.’’ Having 

considered the potential conflicts of 

interest that may arise in a FCM or IB, 

the Commission is proposing rules that 

will address two general topics: (1) 

Clearing activities; and (2) the potential 

for undue influence on customers. The 

intended cumulative effect of the 

proposed rules is to fulfill Congress’s 

objective that FCMs and IBs construct 

‘‘structural and institutional safeguards’’ 

to minimize the potential conflicts of 

interest that could arise within such 

firms. 

With respect to the proposed language 

relating to clearing activities, although 

the Commission is exercising its 

statutory authority under section 

4d(c)(2) of the CEA, as amended by the 

Dodd-Frank Act, the impetus 

underlying the proposed language 

originates in the Dodd-Frank Act: 

Section 731. Section 731 creates a new 


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6See section 4d(f)(1) of the CEA, as amended by 

section 724(a) of the Dodd-Frank Act. 

7 5 U.S.C. 601 et seq. 

8 47 FR 18618, Apr. 30, 1982. 

9 Id. at 18619. 

10 48 FR 35248, 35276, Aug. 3, 1983. 

11 44 U.S.C. 3501 et seq. 

section 4s of the CEA, which provides 

for the registration and regulation of 

swap dealers (SDs) and major swap 

participants (MSPs). New section 4s 

contains a conflicts of interest provision 

that is similar—though not identical—to 

the conflicts of interest provision in 

section 732 of the Dodd-Frank Act. New 

section 4s(j)(5) requires the 

establishment of ‘‘structural and 

institutional safeguards’’ surrounding 

the activities of any person ‘‘providing 

clearing activities or making 

determinations as to accepting clearing 

customers’’—specifically that the 

activities of such persons be separated 

from the review, pressure, or oversight 

of persons involved in pricing, trading, 

or clearing. Although the quoted 

language is not contained in section 

4d(c) of the CEA, as amended by section 

732 of the Dodd-Frank Act, the 

Commission believes that to effectuate 

fully the intent of section 4s(j)(5) of the 

CEA, these issues should be addressed 

with regard to FCMs. 

The Dodd-Frank Act stipulates that 

only a person registered as a FCM may 

accept money, securities or property to 

clear a swap through a derivatives 

clearing organization on behalf of 

another person, though the restriction 

does not prohibit a SD or MSP from 

clearing its own swap transaction.6 New 

section 4s(j)(5) of the CEA requires that 

certain determinations be made relating 

to the provision of clearing activities or 

the acceptance of clearing customers, 

such as (1) whether to enter into a 

cleared or uncleared trade, (2) whether 

to refer a counterparty to a particular 

FCM for clearing, or (3) whether to send 

a cleared trade to a particular 

derivatives clearing organization. 

Although the ultimate determination as 

to whether to accept a customer for 

clearing would be made at a FCM, an 

affiliated SD or MSP could have 

incentives to try to influence that 

decision improperly. Such influence 

may be motivated by conflicts of interest 

that could have a direct impact on the 

clearing treatment of transactions. 

Moreover, in any situation where a 

person is dually registered as a FCM and 

as a SD or MSP, the restrictions on 

clearing activities set forth in the 

proposed regulations are intended to 

apply to the relationship between the 

clearing unit of the FCM and the 

business trading unit of the SD or MSP, 

even though the business trading unit 

and clearing unit reside within the same 

entity. The proposed rules, set forth at 

subsection (d), have been adapted from 

NASD Rule 2711(b). 

The Commission specifically requests 

comment regarding whether there are 

alternative approaches that could be 

taken to address the potential conflicts 

of interest that may arise between a 

FCM providing clearing services to 

customers and the business trading unit 

personnel of an affiliated swap dealer or 

major swap participant. For example, 

what approach would address an 

attempt by a swap dealer’s trading desk 

personnel to interfere with an affiliated 

FCM’s decision to offer clearing services 

to a particular customer because of a 

perceived competitive threat? 

As an additional safeguard, the 

Commission is proposing to require that 

each affected FCM and IB implement 

policies and procedures mandating the 

disclosure to its customers of any 

material conflicts of interest that relate 

to a customer’s decision on the 

execution or clearing of a transaction. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 7

requires that agencies, in proposing 

rules, consider whether the rules they 

propose will have a significant 

economic impact on a substantial 

number of small entities and, if so, 

provide a regulatory flexibility analysis 

addressing the impact. The proposed 

rules would impact FCMs and IBs, each 

of which is addressed separately in the 

following paragraphs. 

The Commission previously has 

established certain definitions of ‘‘small 

entities’’ to be used in evaluating the 

impact of the Commission’s rules on 

such small entities in accordance with 

the RFA. In the Commission’s ‘‘Policy 

Statement and Establishment of 

Definitions of ‘Small Entities’ for 

Purposes of the Regulatory Flexibility 

Act,’’ 8 the Commission concluded that 

registered FCMs should not be 

considered to be small entities for 

purposes of the RFA. The Commission’s 

determination in this regard was based, 

in part, upon the obligation of registered 

FCMs to meet the capital requirements 

established by the Commission. 

Likewise, the Commission determined 

‘‘that, for the basic purpose of protection 

of the financial integrity of futures 

trading, Commission regulations can 

make no size distinction among 

registered FCMs.’’ 9 Thus, with respect 

to registered FCMs, the Commission 

believes that the proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities. 

The Commission previously has 

determined that, for purposes of the 

RFA, the Commission should ‘‘evaluate 

within the context of a particular rule 

proposal whether all or some [IBs] 

should be considered to be small 

entities and, if so, to analyze the 

economic impact on [IBs] of any such 

rule at that time. Specifically, the 

Commission recognizes that the [IB] 

definition, even as narrowed to exclude 

certain persons, undoubtedly 

encompasses many business enterprises 

of variable size.’’ 10 At present, IBs are 

subject to various existing rules that 

govern and impose minimum 

requirements on their internal 

compliance operations, based on the 

nature of their business. The proposed 

amendments would merely augment the 

existing compliance requirements of 

such persons to address potential 

conflicts of interest within such firms. 

To the extent that certain IBs may be 

considered to be small entities, the 

Commission believes that the proposed 

regulations will not have a significant 

economic impact. 

Accordingly, pursuant to Section 

605(b) of the RFA, 5 U.S.C. 605(b), the 

Chairman, on behalf of the Commission, 

certifies that these proposed rule 

amendments will not have a significant 

economic impact on a substantial 

number of small entities. However, the 

Commission invites the public to 

comment on this finding. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA),11 imposes certain requirements 

on Federal agencies in connection with 

their conducting or sponsoring any 

collection of information as defined by 

the PRA. Certain provisions of this 

proposed rulemaking would result in 

new collection of information within 

the meaning of the PRA. The 

Commission therefore is submitting this 

proposal to the Office of Management 

and Budget (OMB) for review in 

accordance with 44 U.S.C. 3597(d) and 

5 CFR 1320.11. The title for this 

collection is ‘‘Conflicts of Interest 

Policies and Procedures by Futures 

Commission Merchants and Introducing 

Brokers.’’ An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number. OMB has not yet 

assigned a control number to the new 

collection. 


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12 5 U.S.C. 552a. 

13 44 U.S.C. 3502(2). 14http://www.bls.gov/oes/current/oes131041.htm. 15 7 U.S.C. 19(a). 

The collection of information under 

these proposed rules is necessary to 

implement certain provisions of the 

CEA, as amended by the Dodd-Frank 

Act. Specifically, it is essential to 

ensuring that FCMs and IBs develop and 

maintain the required conflicts of 

interest systems and procedures. The 

Commission’s staff would use the 

information collected when conducting 

examination and oversight to evaluate 

the completeness and effectiveness of 

the conflicts of interest procedures and 

disclosures of FCMs and IBs. 

If the proposed regulations are 

adopted, responses to this new 

collection of information would be 

mandatory. The Commission will 

protect proprietary information 

according to the Freedom of Information 

Act and 17 CFR part 145, ‘‘Commission 

Records and Information.’’ In addition, 

section 8(a)(1) of the CEA strictly 

prohibits the Commission, unless 

specifically authorized by the CEA, from 

making public ‘‘data and information 

that would separately disclose the 

business transactions or market 

positions of any person and trade 

secrets or names of customers.’’ The 

Commission also is required to protect 

certain information contained in a 

government system of records according 

to the Privacy Act of 1974.12

1. Information Provided by Reporting 

Entities/Persons 

The proposed rules will require FCMs 

and IBs to adopt conflicts of interest 

policies and procedures that may 

impose PRA burdens, particularly 

through the implementation of certain 

recordkeeping requirements. For 

purposes of the PRA, the term ‘‘burden’’ 

means the ‘‘time, effort, or financial 

resources expended by persons to 

generate, maintain, or provide 

information to or for a Federal 

agency.’’ 13 This burden will result from 

the recordkeeping obligations related to 

an FCM and IB’s obligations to adopt 

and implement written policies and 

procedures reasonably designed to 

ensure compliance with the proposed 

regulation, document certain 

communications between non-research 

personnel and research department 

personnel, and provide certain 

disclosures. The burden relates solely to 

recordkeeping requirements; the 

proposed regulation does not contain 

any reporting requirements. 

The burden for compliance per 

respondent is expected to be 44.5 hours, 

at a cost annually of $4,450 for each 

respondent. This estimate includes the 

time needed to review applicable laws 

and regulations; develop and update 

conflicts of interest policies and 

procedures and to maintain records of 

certain communications and disclosures 

periodically required by the proposed 

regulation. The Commission does not 

expect respondents to incur any start-up 

costs in connection with this proposed 

regulation as it anticipates that 

respondents already maintain personnel 

and systems for regulatory 

recordkeeping. 

There are currently 159 registered 

FCMs and 1,645 registered IBs that will 

be required to comply with the 

proposed conflicts of interest provisions 

(or a total of 1,804 registrants). It is 

expected that the compliance officers of 

those firms will be the employees 

charged with fulfilling the regulatory 

obligations imposed by the proposed 

regulations. According to recent Bureau 

of Labor Statistics, the mean hourly 

wage of an employee under occupation 

code 13–1041, ‘‘Compliance Officers, 

Except Agriculture, Construction, 

Health and Safety, and Transportation,’’ 

that is employed by the ‘‘Securities and 

Commodity Contracts Intermediation 

and Brokerage’’ industry is $38.77.14

Because FCMs and IBs include financial 

institutions whose compliance 

employees’ salaries may exceed the 

mean wage, the Commission has taken 

a conservative approach and estimated 

the cost burden of these proposed 

regulations based upon an average 

salary of $100 per hour. Accordingly, 

the estimated burden was calculated as 

follows: 

Recordkeeping Related to 

Maintenance of Conflicts of Interest 

Policies and Procedures 

Number of registrants: 1,804. 

Average number of annual responses 

by each registrant: 1. 

Estimated average hours per response: 

2. 

Frequency of collection: Annually. 

Aggregate annual burden: 1,804 

registrants × 1 response × 2 hours = 

3,608 burden hours. 

Recordkeeping Related to 

Communications Between Certain 

Personnel 

Number of registrants: 1,804. 

Average number of annual responses 

by each registrant: 20. 

Estimated average hours per response: 

0.5. 

Frequency of collection: As needed. 

Aggregate annual burden: 1,804 

registrants × 20 responses × 0.5 hours = 

18,040 burden hours. 

Recordkeeping Related to Disclosure 

Requirements 

Number of registrants: 1,804. 

Average number of annual responses 

by each registrant: 65. 

Estimated average hours per response: 

0.5. 

Frequency of collection: As needed. 

Aggregate annual burden: 1,804 

registrants × 65 responses × 0.5 hours = 

58,630 burden hours. 

Based upon the above, the aggregate 

cost for all registrants is 80,278 burden 

hours and $8,027,800 [80,278 burden 

hours × $100 per hour]. 

2. Information Collection Comments 

The Commission invites the public 

and other federal agencies to comment 

on any aspect of the recordkeeping 

burdens discussed above. Pursuant to 44 

U.S.C. 3506(c)(2)(B), the Commission 

solicits comments in order to: (i) 

Evaluate whether the proposed 

collection of information is 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 collection 

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 collection 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, by fax at (202) 395– 

6566 or by e-mail at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that they can be 

summarized and addressed in the final 

rule. Refer to the Addresses section of 

this notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting http:// 

www.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 notice of proposed 

rulemaking. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 15 requires 

the Commission to consider the costs 


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16 7 U.S.C. 6d. 

and benefits of its actions before issuing 

a rulemaking under the Act. By its 

terms, section 15(a) does not require the 

Commission to quantify the costs and 

benefits of the rule or to determine 

whether the benefits of the rulemaking 

outweigh its costs; rather, it requires 

that the Commission ‘‘consider’’ the 

costs and benefits of its actions. 

Section 15(a) further specifies that the 

costs and benefits of a proposed 

rulemaking shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may, in its discretion, give 

greater weight to any one of the five 

enumerated areas and could, in its 

discretion, determine that, 

notwithstanding its costs, a particular 

rule is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

Act. 

1. Summary of Proposed Requirements 

The proposed regulations would 

implement section 732 of the Act, 

which amends section 4d of the CEA 16

to direct each FCM and IB to implement 

conflicts of interest systems and 

procedures to ensure that any persons 

researching or analyzing the price or 

market for any commodity are separated 

by ‘‘appropriate informational 

partitions’’ within the firm from review, 

pressure, or oversight of persons whose 

involvement in trading or clearing 

activities might potentially bias the 

judgment or supervision of the persons. 

Such conflicts of interest systems and 

procedures also must address any other 

issues that the Commission determines 

to be appropriate. 

2. Costs 

With respect to costs, the Commission 

has determined that costs to FCMs and 

IBs would be minimal because the 

anticipated implementation of the 

proposed rules would require little 

additional resources beyond internal 

organizational changes to prevent 

compliance violations. 

3. Benefits 

With respect to benefits, the 

Commission has determined that formal 

conflicts of interest rules will enhance 

transparency, bolster confidence in 

markets, reduce risk and allow 

regulators to better monitor and manage 

risks to our financial system. 

4. Public Comment 

The Commission invites public 

comment on its cost-benefit 

considerations. Commenters also are 

invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the proposed regulations 

with their comment letters. 

List of Subjects in 17 CFR Part 1 

Brokers, Commodity futures, Conflicts 

of interest, Reporting and recordkeeping 

requirements. 

For the reasons stated in this release, 

the Commission proposes to amend 17 

CFR part 1 as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

1. The authority citation for part 1 is 

revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b–1, 

6c, 6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m, 6n, 

6o, 6p, 7, 7a, 7b, 8, 9, 9a, 12, 12a, 16, 18, 19, 

21, 23. 

2. Section 1.71 is added to read as 

follows: 

§ 1.71 Implementation of conflicts of 

interest policies and procedures by futures 

commission merchants and introducing 

brokers. 

(a) Definitions. For purposes of this 

section, the following terms shall be 

defined as provided. 

(1) Affiliate. This term means, with 

respect to any person, a person 

controlling, controlled by, or under 

common control with, such person. 

(2) Business trading unit. This term 

means any department, division, group, 

or personnel of a futures commission 

merchant or introducing broker or any 

of its affiliates, whether or not identified 

as such, that performs or is involved in 

any pricing, trading, sales, marketing, 

advertising, solicitation, structuring, or 

brokerage activities on behalf of a 

futures commission merchant or 

introducing broker. 

(3) Clearing unit. This term means any 

department, division, group, or 

personnel of a futures commission 

merchant or any of its affiliates, whether 

or not identified as such, that performs 

or is involved in any proprietary or 

customer clearing activities on behalf of 

a futures commission merchant. 

(4) Derivative. This term means (i) a 

contract for the purchase or sale of a 

commodity for future delivery; (ii) a 

security futures product; (iii) a swap; 

(iv) any agreement, contract, or 

transaction described in section 

2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the 

Act; (v) any commodity option 

authorized under section 4c of the Act; 

and (vi) any leverage transaction 

authorized under section 19 of the Act. 

(5) Non-research personnel. This term 

means any employee of the business 

trading unit or clearing unit, or any 

other employee of the futures 

commission merchant or introducing 

broker who is not directly responsible 

for, or otherwise involved with, research 

concerning a derivative, other than legal 

or compliance personnel. 

(6) Public appearance. This term 

means any participation in a conference 

call, seminar, forum (including an 

interactive electronic forum) or other 

public speaking activity before 15 or 

more persons, or interview or 

appearance before one or more 

representatives of the media, radio, 

television or print media, or the writing 

of a print media article, in which a 

research analyst makes a 

recommendation or offers an opinion 

concerning a derivatives transaction. 

This term does not include a passwordprotected Webcast, conference call or 

similar event with 15 or more existing 

customers, provided that all of the event 

participants previously received the 

most current research report or other 

documentation that contains the 

required applicable disclosures, and 

that the research analyst appearing at 

the event corrects and updates during 

the public appearance any disclosures 

in the research report that are 

inaccurate, misleading, or no longer 

applicable. 

(7) Research analyst. This term means 

the employee of a futures commission 

merchant or introducing broker who is 

primarily responsible for, and any 

employee who reports directly or 

indirectly to such research analyst in 

connection with, preparation of the 

substance of a research report relating to 

any derivative, whether or not any such 

person has the job title of ‘‘research 

analyst.’’ 

(8) Research department. This term 

means any department or division that 

is principally responsible for preparing 

the substance of a research report 

relating to any derivative on behalf of a 

futures commission merchant or 

introducing broker, including a 

department or division contained in an 

affiliate of a futures commission 

merchant or introducing broker. 

(9) Research report. This term means 

any written communication (including 

electronic) that includes an analysis of 

the price or market for any derivative, 

and that provides information 

reasonably sufficient upon which to 

base a decision to enter into a 


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70158 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Proposed Rules 

derivatives transaction. This term does 

not include: 

(i) Communications distributed to 

fewer than 15 persons; 

(ii) periodic reports or other 

communications prepared for 

investment company shareholders or 

commodity pool participants that 

discuss individual derivatives positions 

in the context of a fund’s past 

performance or the basis for previouslymade discretionary decisions; 

(iii) any communication generated by 

an employee of the business trading unit 

that is conveyed as a solicitation for 

entering into a derivatives transaction, 

and is conspicuously identified as such; 

and 

(iv) internal communications that are 

not given to current or prospective 

customers. 

(b) Policies and Procedures. Each 

futures commission merchant and 

introducing broker subject to this rule 

must adopt and implement written 

policies and procedures reasonably 

designed to ensure that the futures 

commission merchant or introducing 

broker and its employees comply with 

the provisions of this rule. 

(c) Research Analysts and Research 

Reports. 

(1) Restrictions on Relationship with 

Research Department. 

(i) Non-research personnel shall not 

influence the content of a research 

report of the futures commission 

merchant or the introducing broker. 

(ii) No research analyst may be subject 

to the supervision or control of any 

employee of the futures commission 

merchant’s or introducing broker’s 

business trading unit or clearing unit, 

and no personnel engaged in trading or 

clearing activities may have any 

influence or control over the evaluation 

or compensation of a research analyst. 

(iii) Except as provided in paragraph 

(c)(1)(iv) of this section, non-research 

personnel, other than the board of 

directors and any committee thereof, 

shall not review or approve a research 

report of the futures commission 

merchant or introducing broker before 

its publication. 

(iv) Non-research personnel may 

review a research report before its 

publication as necessary only to verify 

the factual accuracy of information in 

the research report, to provide for nonsubstantive editing, to format the layout 

or style of the research report, or to 

identify any potential conflicts of 

interest, provided that: 

(A) Any written communication 

between non-research personnel and 

research department personnel 

concerning the content of a research 

report must be made either through 

authorized legal or compliance 

personnel of the futures commission 

merchant or introducing broker or in a 

transmission copied to such personnel; 

and 

(B) Any oral communication between 

non-research personnel and research 

department personnel concerning the 

content of a research report must be 

documented and made either through 

authorized legal or compliance 

personnel acting as an intermediary or 

in a conversation conducted in the 

presence of such personnel. 

(2) Restrictions on Communications. 

Any written or oral communication by 

a research analyst to a current or 

prospective customer, or to any 

employee of the futures commission 

merchant or introducing broker, relating 

to any derivative must not omit any 

material fact or qualification that would 

cause the communication to be 

misleading to a reasonable person. 

(3) Restrictions on Research Analyst 

Compensation. A futures commission 

merchant or introducing broker may not 

consider as a factor in reviewing or 

approving a research analyst’s 

compensation his or her contributions 

to the futures commission merchant’s or 

introducing broker’s trading or clearing 

business. No employee of the business 

trading unit or clearing unit of the 

futures commission merchant or 

introducing broker may influence the 

review or approval of a research 

analyst’s compensation. 

(4) Prohibition of Promise of 

Favorable Research. No futures 

commission merchant or introducing 

broker may directly or indirectly offer 

favorable research, or threaten to change 

research, to an existing or prospective 

customer as consideration or 

inducement for the receipt of business 

or compensation. 

(5) Disclosure Requirements. 

(i) Ownership and Material Conflicts 

of Interest. A futures commission 

merchant or introducing broker must 

disclose in research reports and a 

research analyst must disclose in public 

appearances whether the research 

analyst maintains, from time to time, a 

financial interest in any derivative of a 

type that the research analyst follows, 

and the general nature of the financial 

interest. 

(ii) Prominence of Disclosure. 

Disclosures and references to 

disclosures must be clear, 

comprehensive, and prominent. With 

respect to public appearances by 

research analysts, the disclosures 

required by paragraph (c)(5) of this 

section must be conspicuous. 

(iii) Records of Public Appearances. 

Each futures commission merchant and 

introducing broker must maintain 

records of public appearances by 

research analysts sufficient to 

demonstrate compliance by those 

research analysts with the applicable 

disclosure requirements under 

paragraph (c)(5) of this section. 

(iv) Third-Party Research Reports. 

(A) For the purposes of paragraph 

(c)(5)(iv) of this section, ‘‘independent 

third-party research report’’ shall mean 

a research report, in respect of which 

the person or entity producing the 

report: 

(1) Has no affiliation or business or 

contractual relationship with the 

distributing futures commission 

merchant or introducing broker, or that 

futures commission merchant’s or 

introducing broker’s affiliates, that is 

reasonably likely to inform the content 

of its research reports; and 

(2) makes content determinations 

without any input from the distributing 

futures commission merchant or 

introducing broker or from the futures 

commission merchant’s or introducing 

broker’s affiliates. 

(B) Subject to paragraph (c)(5)(iv)(C) 

of this section, if a futures commission 

merchant or introducing broker 

distributes or makes available any 

independent third-party research report, 

the futures commission merchant or 

introducing broker must accompany the 

research report with, or provide a web 

address that directs the recipient to, the 

current applicable disclosures, as they 

pertain to the futures commission 

merchant or introducing broker, 

required by this section. Each futures 

commission merchant and introducing 

broker must establish written policies 

and procedures reasonably designed to 

ensure the completeness and accuracy 

of all applicable disclosures. 

(C) The requirements of paragraph 

(c)(5)(iv)(B) of this section shall not 

apply to independent third-party 

research reports made available by a 

futures commission merchant or 

introducing broker to its customers: 

(1) Upon request; or 

(2) through a website maintained by 

the futures commission merchant or 

introducing broker. 

(6) Prohibition of Retaliation Against 

Research Analysts. No futures 

commission merchant or introducing 

broker, and no employee of a futures 

commission merchant or introducing 

broker who is involved with the futures 

commission merchant’s or introducing 

broker’s trading or clearing activities, 

may, directly or indirectly, retaliate 

against or threaten to retaliate against 

any research analyst employed by the 

futures commission merchant or 

introducing broker or its affiliates as a 


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Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Proposed Rules 70159 

result of an adverse, negative, or 

otherwise unfavorable research report or 

public appearance written or made, in 

good faith, by the research analyst that 

may adversely affect the futures 

commission merchant’s or introducing 

broker’s present or prospective trading 

or clearing activities. 

(d) Clearing activities. 

(1) No futures commission merchant 

shall permit any affiliated swap dealer 

or major swap participant to directly or 

indirectly interfere with, or attempt to 

influence, the decision of the clearing 

unit personnel of the futures 

commission merchant with regard to the 

provision of clearing services and 

activities, including but not limited to: 

(i) Whether to offer clearing services 

and activities to customers; 

(ii) Whether to accept a particular 

customer for the purposes of clearing 

derivatives; 

(iii) Whether to submit a transaction 

to a particular derivatives clearing 

organization; 

(iv) Setting risk tolerance levels for 

particular customers; 

(v) Determining acceptable forms of 

collateral from particular customers; or 

(vi) Setting fees for clearing services. 

(2) Each futures commission merchant 

shall create and maintain an appropriate 

informational partition between 

business trading units of an affiliated 

swap dealer or major swap participant 

and clearing unit personnel of the 

futures commission merchant. At a 

minimum, such informational partitions 

shall require that: 

(i) No employee of a business trading 

unit of an affiliated swap dealer or 

major swap participant may review or 

approve the provision of clearing 

services and activities by clearing unit 

personnel of the futures commission 

merchant, make any determination 

regarding whether the futures 

commission merchant accepts clearing 

customers, or participate in any way 

with the provision of clearing services 

and activities by the futures commission 

merchant; 

(ii) No employee of a business trading 

unit of an affiliated swap dealer or 

major swap participant shall supervise, 

control, or influence any employee of a 

clearing unit of the futures commission 

merchant; and 

(iii) No employee of the business 

trading unit of an affiliated swap dealer 

or major swap participant shall 

influence or control compensation or 

evaluation of any employee of the 

clearing unit of the futures commission 

merchant. 

(e) Undue Influence on Customers. 

Each futures commission merchant and 

introducing broker must adopt and 

implement written policies and 

procedures that mandate the disclosure 

to its customers of any material 

incentives and any material conflicts of 

interest regarding the decision of a 

customer as to the trade execution and/ 

or clearing of the derivatives 

transaction. 

(f) All records that a futures 

commission merchant or introducing 

broker is required to maintain pursuant 

to this regulation shall be maintained in 

accordance with Commission 

Regulation § 1.31 and shall be made 

available promptly upon request to 

representatives of the Commission. 

Issued in Washington, DC, on November 

10, 2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Statement of Chairman Gary Gensler 

Implementation of Conflicts of Interest 

Policies and Procedures by Futures 

Commission Merchants and Introducing 

Brokers 

I support the proposed rulemakings 

that establish firewalls to ensure a 

separation between the research arm, 

the trading arm and the clearing 

activities of swap dealers, major swap 

participants, futures commission 

merchants and introducing brokers. 

This rule proposal relates to the 

conflicts-of-interest provisions of the 

Dodd-Frank Act that direct swap dealers 

and major swap participants to have 

appropriate informational partitions. 

The proposal builds upon similar 

protections in the securities markets as 

mandated in the Sarbanes-Oxley Act. 

The proposed rules will protect market 

participants and the public while also 

promoting the financial integrity of the 

marketplace. 

[FR Doc. 2010–29003 Filed 11–16–10; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 54 

[REG–118412–10] 

RIN 1545–BJ50 

Group Health Plans and Health 

Insurance Coverage Rules Relating to 

Status as a Grandfathered Health Plan 

Under the Patient Protection and 

Affordable Care Act 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

by cross-reference to temporary 

regulations. 

SUMMARY: In the Rules and Regulations 

section of this issue in the Federal 

Register, the IRS is issuing temporary 

regulations regarding status as a 

grandfathered health plan under the 

provisions of the Patient Protection and 

Affordable Care Act (the Affordable Care 

Act) in connection with changes in 

policies, certificates, or contracts of 

insurance. The temporary regulations 

provide guidance to employers, group 

health plans, and health insurance 

issuers providing group health 

insurance coverage. The IRS is issuing 

the temporary regulations at the same 

time that the Employee Benefits 

Security Administration of the U.S. 

Department of Labor and the Office of 

Consumer Information and Insurance 

Oversight of the U.S. Department of 

Health and Human Services are issuing 

substantially similar interim final 

regulations with respect to group health 

plans and health insurance coverage 

offered in connection with a group 

health plan under the Employee 

Retirement Income Security Act of 1974 

and the Public Health Service Act. The 

text of the temporary regulations being 

issued by the IRS serves as the text of 

these proposed regulations. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by December 17, 2010. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–118412–10), room 

5205, Internal Revenue Service, PO Box 

7604, Ben Franklin Station, Washington, 

DC 20044. Submissions may be handdelivered to: CC:PA:LPD:PR (REG– 

118412–10), Courier’s Desk, Internal 

Revenue Service, 1111 Constitution 

Avenue, NW., Washington, DC 20224. 

Alternatively, taxpayers may submit 

comments electronically via the Federal 

eRulemaking Portal at http:// 

www.regulations.gov (IRS REG–118412– 

10). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the regulations, Karen Levin 

at 202–622–6080; concerning 

submissions of comments or to request 

a hearing, Regina Johnson at 202–622– 

7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

The temporary regulations published 

elsewhere in this issue of the Federal 

Register amend § 54.9815–1251T of the 

Miscellaneous Excise Tax Regulations. 

The proposed and temporary 

regulations are being published as part 

of a joint rulemaking with the 


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