72660 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Rules and Regulations 

1 15 U.S.C. 77a et seq. 

2 15 U.S.C. 78a et seq. 

3 15 U.S.C. 77aaa et seq. 

4See generally Securities Exchange Act Release 

Nos. 60372 (Jul. 23, 2009), 74 FR 37748 (Jul. 29, 

2009) and 61973 (Apr. 23, 2010), 75 FR 22656 (Apr. 

29, 2010) (temporary exemptions in connection 

with CDS clearing by ICE Clear Europe Limited); 

Securities Exchange Act Release Nos. 60373 (Jul. 

23, 2009), 74 FR 37740 (Jul. 29, 2009) and 61975 

(Apr. 23, 2010), 75 FR 22641 (Apr. 29, 2010) 

(temporary exemptions in connection with CDS 

clearing by Eurex Clearing AG); Securities Exchange 

Act Release Nos. 59578 (Mar. 13, 2009), 74 FR 

11781 (Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR 

67258 (Dec. 18, 2009), and 61803 (Mar. 30, 2010), 

75 FR 17181 (Apr. 5, 2010) (temporary exemptions 

in connection with CDS clearing by Chicago 

Mercantile Exchange Inc.); Securities Exchange Act 

Release Nos. 59527 (Mar. 6, 2009), 74 FR 10791 

(Mar. 12, 2009), 61119 (Dec. 4, 2009), 74 FR 65554 

(Dec. 10, 2009), and 61662 (Mar. 5, 2010), 75 FR 

11589 (Mar. 11, 2010) (temporary exemptions in 

connection with CDS clearing by ICE Trust U.S. 

LLC); Securities Exchange Act Release No. 59164 

(Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary 

exemptions in connection with CDS clearing by 

LIFFE A&M and LCH.Clearnet Ltd.) and other 

Commission actions discussed in several of these 

orders. 

5 15 U.S.C. 78q–1. 

6See Exchange Act Release No. 59246 (Jan. 14, 

2009). 

7See 7 U.S.C. 1a(12). 

8See generally the actions noted in footnote 4, 

supra. 

9 15 U.S.C. 78e and 78f. 

10 ‘‘Novation’’ is a ‘‘process through which the 

original obligation between a buyer and seller is 

discharged through the substitution of the CCP as 

seller to buyer and buyer to seller, creating two new 

contracts.’’ Committee on Payment and Settlement 

Systems, Technical Committee of the International 

Organization of Securities Commissioners, 

Recommendations for Central Counterparties 

(November 2004) at 66. 

11 In addition to the potential systemic risks that 

CDS pose to financial stability, we were concerned 

about other potential risks in this market, including 

operational risks, risks relating to manipulation and 

fraud, and regulatory arbitrage risks. 

(1) Those contained in paragraph 

(a)(4) of this section only as it pertains 

to discharges of sewage incidental to 

vessel use and generated by a marine 

sanitation device approved in 

accordance with section 312 of the 

Federal Water Pollution Control Act 

(FWPCA), as amended, 33 U.S.C. 1322 

et seq.; and 

(2) Those contained in paragraph 

(a)(5) of this section. 

* * * * * 

[FR Doc. 2010–29416 Filed 11–24–10; 8:45 am] 

BILLING CODE 3510–NK–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR PARTS 230, 240 and 260 

[Release Nos. 33–9158; 34–63348; 39–2472; 

File No. S7–02–09] 

RIN 3235–AK26 

Extension of Temporary Exemptions 

for Eligible Credit Default Swaps To 

Facilitate Operation of Central 

Counterparties To Clear and Settle 

Credit Default Swaps 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final temporary rules; 

extension. 

SUMMARY: We are extending the 

expiration dates in our temporary rules 

that provide exemptions under the 

Securities Act of 1933, the Securities 

Exchange Act of 1934, and the Trust 

Indenture Act of 1939 for certain credit 

default swaps in order to continue 

facilitating the operation of one or more 

central counterparties for those credit 

default swaps until the implementation 

of the clearing provisions of the DoddFrank Wall Street Reform and Consumer 

Protection Act. Under the amendments, 

the expiration dates of the temporary 

rules are extended to July 16, 2011. 

DATES: Effective Date: This rule is 

effective November 26, 2010, and the 

expiration dates for the temporary rules 

and amendments published January 22, 

2009 (74 FR 3967) and extended in a 

release published on September 17, 

2009 (74 FR 47719) are extended from 

November 30, 2010 to July 16, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Amy M. Starr, Senior Special Counsel, 

or Michael J. Reedich, Special Counsel, 

Office of Chief Counsel, Division of 

Corporation Finance, at (202) 551–3500, 

U.S. Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: We are 

adopting amendments to the following 

rules: temporary Rule 239T and Rule 

146 under the Securities Act of 1933 

(‘‘Securities Act’’),1 temporary Rule 12a– 

10T and Rule 12h–1(h)T under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’),2 and temporary Rule 

4d-11T under the Trust Indenture Act of 

1939 (‘‘TIA’’).3

I. Background 

In January 2009, we adopted interim 

final temporary Rule 239T and a 

temporary amendment to Rule 146 

under the Securities Act, interim final 

temporary Rules 12a–10T and 12h– 

1(h)T under the Exchange Act, and 

interim final temporary Rule 4d–11T 

under the TIA (collectively, the 

‘‘Temporary Rules’’), and in September 

2009, we extended the expiration date 

of these rules from September 25, 2009 

to November 30, 2010. We adopted 

these rules in connection with 

temporary exemptive orders 4 we issued 

to clearing agencies acting as central 

counterparties (‘‘CCP’’), which exempted 

the CCPs from the requirement to 

register as clearing agencies under 

Section 17A of the Exchange Act 5 solely 

to perform the functions of a clearing 

agency for certain credit default swap 

(‘‘CDS’’) transactions.6 The exemptive 

orders also exempted certain eligible 

contract participants 7 and others from 

certain Exchange Act requirements with 

respect to certain CDS.8 Also at that 

time, we temporarily exempted any 

exchange that effects transactions in 

certain CDS from the requirements 

under Sections 5 and 6 of the Exchange 

Act 9 to register as a national securities 

exchange, and any broker or dealer that 

effects transactions on an exchange in 

certain CDS from the requirements of 

Section 5 of the Exchange Act. 

We adopted the Temporary Rules and 

the CCP exemptive orders because we 

believed and continue to believe that 

the existence of CCPs for CDS would be 

important in helping to reduce 

counterparty risks inherent in the CDS 

market. Today, CDS agreements 

generally are negotiated and entered 

into bilaterally, but eligible trades may 

be submitted to the CCP for novation, 

which results in the CCP becoming the 

buyer to the original seller and the seller 

to the original buyer.10 The operation of 

a well-regulated CCP can significantly 

reduce counterparty risks by preventing 

the failure of a single-market participant 

from having a disproportionate effect on 

the overall market, since bilateral 

counterparty risk is eliminated as the 

creditworthiness of the original 

counterparties is replaced by the 

creditworthiness of the CCP. 

At the time of the adoption of the 

Temporary Rules and the CCP 

exemptive orders, the OTC market for 

CDS was a source of concern to us and 

other financial regulators due to the 

systemic risk posed by CDS, the 

possible inability of parties to meet their 

obligations as counterparties under the 

CDS, and the potential resulting adverse 

effects on other markets and the 

financial system.11 In response, in 

January 2009, we took action to help 

foster the prompt development of CCPs 

for CDS, including granting conditional 

exemptions from certain provisions of 

the Federal securities laws. 

In September 2009, we extended the 

expiration date of the Temporary Rules 

to November 30, 2010 because, among 

other reasons, a number of legislative 

initiatives relating to the regulation of 

derivatives, including CDS, had been 

introduced by members of Congress and 

recommended by the United States 

Department of the Treasury 

(‘‘Treasury’’), and Congress had not yet 


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12See, e.g., Derivatives Trading Integrity Act of 

2009 (S. 272) (introduced by Senator Tom Harkin 

in January 2009); The Derivatives Markets 

Transparency and Accountability Act (H.R. 977) 

(introduced by Representative Collin Peterson in 

February 2009); Authorizing the Regulation of 

Swaps Act (S. 961) (introduced by Senator Carl 

Levin and Senator Susan Collins in May 2009); 

Treasury’s framework for regulatory reform 

(released in June 2009); Derivative Trading 

Accountability and Disclosure Act (H.R. 3300) 

(introduced by Representative Michael McMahon in 

July 2009); Description of Principles for OTC 

Derivatives Legislation (announced by 

Representative Barney Frank and Representative 

Collin Peterson in July 2009); Senator Charles 

Schumer’s announcement regarding a potential bill 

establishing central trade repositories for OTC 

derivatives markets (August 2009); and Over-theCounter Derivatives Markets Act of 2009 (prepared 

by Treasury and sent to Congress in August 2009). 

13The Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 (Pub. L. 111–203, 

H.R. 4173). 

14See e.g., S. Rep. No. 111–176 at 2 (2010). 

15Section 761(a)(6) of the Dodd-Frank Act defines 

a ‘‘security-based swap’’ as any agreement, contract, 

or transaction that is a swap based on a narrowbased security index, a single security or loan, 

including any interest therein or on the value 

thereof; or the occurrence, nonoccurrence, or extent 

of the occurrence of an event relating to a single 

issuer of a security or the issuers of securities in a 

narrow-based security index, provided that such 

event directly affects the financial statements, 

financial condition, or financial obligations of the 

issuer. 

16See Section 763(a) of the Dodd-Frank Act, 

added as Section 3C(a)(1) of the Exchange Act, 15 

U.S.C. 78a. 

17See Section 763(b) of the Dodd-Frank Act, 

added as Section 17A(l) of the Exchange Act, 15 

U.S.C. 78q–1. 

18Section 774 of the Dodd-Frank Act states, 

‘‘[u]nless otherwise provided, 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.’’ 

19Under the Dodd-Frank Act, we are responsible 

for proposing and adopting numerous rulemakings 

relating to Title VII and many other rules 

implementing other provisions of such Act. 

20The public comments we received are available 

for Web site viewing and printing at the 

Commission’s Public Reference Room at 100 F St., 

NE., Washington, DC 20549 in File No. S7–02–09. 

They are also available online at http:// 

www.sec.gov/comments/s7–02–09/s70209.shtml. 

21See letters from the Yale Law School Capital 

Markets and Financial Instruments Clinic (March 

23, 2009) and from IDX Capital (March 23, 2009). 

22See Section III, infra, for a discussion of why 

the extension of time is necessary. 

23See, e.g., Securities Act Section 3(a)(14) [15 

U.S.C. 77c(a)(14)], Securities Act Rule 238 [17 CFR 

230.238]; Exchange Act Section 12(a) [15 U.S.C. 

78l(a)], and Exchange Act Rule 12h–1(d) and (e) [17 

CFR 240.12h–1(d) and (e)] (providing similar 

exemptions from provisions of the Federal 

securities laws for standardized options and 

securities futures products). 

24For a fuller discussion of the exemptive rules, 

see Exchange Act Release 59246 (Jan. 14, 2009). 

taken definitive action with respect to 

any of the legislative initiatives or the 

Treasury proposals.12

On July 21, 2010, the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (the ‘‘Dodd-Frank Act’’) 

became law.13 The Dodd-Frank Act is 

intended to address regulatory gaps in 

the existing regulatory structure for the 

over-the-counter (‘‘OTC’’) derivatives 

markets by providing the Commission 

and the Commodity Futures Trading 

Commission (‘‘CFTC’’) the authority to 

regulate OTC derivatives. The primary 

goals of Title VII of the Dodd-Frank Act, 

among others, are to increase the 

transparency, efficiency and fairness of 

the OTC derivatives markets, improve 

investor protection and to reduce the 

potential for counterparty and systemic 

risk.14 To this end, Title VII of the 

Dodd-Frank Act imposes a 

comprehensive regime for the regulation 

of ‘‘swaps’’ and ‘‘security-based swaps’’ 

(as those terms are defined in the DoddFrank Act), including the clearing, 

exchange trading, and reporting of 

transactions in security-based swaps.15

Certain CDS are security-based swaps as 

defined under the Dodd-Frank Act. 

The Dodd-Frank Act amends the 

Exchange Act to require, among other 

things, that transactions in securitybased swaps be cleared through a 

clearing agency that is registered with 

the Commission or that is exempt from 

registration if the transactions are of a 

type that the Commission determines 

must be cleared, unless an exemption 

from mandatory clearing applies.16 Title 

VII of the Dodd-Frank Act also provides 

that a derivatives clearing organization 

that is registered with the CFTC and 

cleared swaps pursuant to an exemption 

from registration as a clearing agency 

prior the date of enactment of the DoddFrank Act, is deemed registered as a 

clearing agency for the purposes of 

clearing security-based swaps (‘‘Deemed 

Registered Provision’’).17 The Deemed 

Registered Provision, along with other 

general provisions under Title VII of the 

Dodd-Frank Act, become effective on 

July 16, 2011.18

The Dodd-Frank Act also directs us to 

adopt regulations regarding, among 

other things, clearing agencies for, and 

the clearing of, security-based swaps, 

which include CDS. Under the DoddFrank Act, all security-based swaps, 

including certain types of CDS, are 

defined as securities under the 

Securities Act and the Exchange Act. In 

separate rulemakings, we will be 

proposing rules to implement the 

clearing provisions of the Dodd-Frank 

Act, among others.19 As part of our 

review of the application of the 

Securities Act, the Exchange Act and 

the TIA to security-based swaps and the 

implications for the clearing and 

exchange trading provisions of the 

Dodd-Frank Act and our rules 

implementing them, we will be 

evaluating the necessity and 

appropriateness of exemptions from the 

registration requirements of the 

Securities Act and Exchange Act and 

the indenture qualification provisions of 

the TIA for security-based swaps that 

will be cleared by clearing agencies. 

Pending the effective date of the 

relevant provisions of the Dodd-Frank 

Act, however, the Temporary Rules are 

needed to enable the CCPs to continue 

to clear eligible CDS in accordance with 

the exemptive orders we have provided. 

The Temporary Rules are an interim 

measure that will be supplanted by the 

comprehensive regulatory regime 

required by the Dodd-Frank Act. 

At the time of adoption of the 

Temporary Rules in January 2009, we 

requested comment on various aspects 

of the Temporary Rules. We received a 

total of 15 letters, only two of which 

commented specifically on the 

Temporary Rules.20 Although those two 

letters generally supported allowing 

CCPs to clear and settle CDS 

transactions in accordance with the 

terms of the Temporary Rules, neither of 

the commenters specifically addressed 

the duration of the Temporary Rules 

and temporary amendments.21 The 

other commenters raised issues not 

directly related to this rulemaking. No 

comments have been submitted to us 

regarding the Temporary Rules since 

that time. 

The Temporary Rules expire on 

November 30, 2010. As we discuss 

above, until the effective date of the 

clearing provisions of Title VII of the 

Dodd-Frank Act and our rules 

implementing them, it is important that 

the CCPs continue to be able to clear 

eligible CDS without concern that the 

Temporary Rules are unavailable. As a 

result, we have determined that it is 

necessary and appropriate to extend the 

expiration date to July 16, 2011.22

We are only extending the expiration 

date of the Temporary Rules; we are not 

making any other changes to the 

Temporary Rules. The Temporary Rules 

were modeled on other exemptions we 

have provided in the past to facilitate 

trading in certain securities.23 They are 

limited in scope; in general, they 

facilitate the operation of the CCPs 

under the exemptive orders.24

II. Amendment of Expiration Date of 

the Temporary Rules 

In January 2009, we adopted the 

Temporary Rules on a temporary basis 

until September 25, 2009. We 

subsequently extended the expiration 


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25See Exchange Act Release Nos. 60373 (Jul. 23, 

2009), 74 FR 37740 (Jul. 29, 2009) and 61975 (Apr. 

23, 2010), 75 FR 22641 (Apr. 29, 2010) (temporary 

exemptions for Eurex Clearing AG); Exchange Act 

Release Nos. 59578 (Mar. 13, 2009), 74 FR 11781 

(Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR 67258 

(Dec. 18, 2009), and 61803 (Mar. 30, 2010), 75 FR 

17181 (Apr. 5, 2010) (temporary exemptions for 

Chicago Mercantile Exchange Inc.); and Exchange 

Act Release No. 59164 (Dec. 24, 2008) 74 FR 139 

(Jan. 2, 2009) (temporary exemption for LIFFE A&M 

and LCH.Clearnet Ltd.). LIFFE A&M and 

LCH.Clearnet Ltd, allowed their temporary 

exemption to expire. 

26See Public Comments on SEC Regulatory 

Initiatives Under the Dodd-Frank Act, located at 

http://www.sec.gov/spotlight/ 

regreformcomments.shtml. None of these comments 

addressed the Temporary Rules. 

27This finding also satisfies the requirements of 

5 U.S.C. 808(2), allowing the rule amendments to 

become effective notwithstanding the requirements 

of 5 U.S.C. 801 (if a Federal agency finds that notice 

and public comment are ‘‘impractical, unnecessary 

or contrary to the public interest,’’ a rule shall take 

effect at such time as the Federal agency 

promulgating the rule determines.’’). 

28 5 U.S.C. 553(d). 

29 5 U.S.C. 553(d)(3). 

30 44 U.S.C. 3501 et seq. 

31 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

date to November 30, 2010 to allow 

CCPs that were clearing and settling 

CDS transactions in the U.S. and in 

Europe to continue to clear and settle 

CDS transactions. The Temporary Rules 

also enable other CCPs that obtain 

exemptive orders to start clearing and 

settling CDS transactions in the manner 

contemplated by the exemptive orders. 

Since the adoption of the Temporary 

Rules and issuance of the exemptive 

orders, ICE Trust U.S. LLC (‘‘ICE Trust’’), 

and ICE Clear Europe, Ltd. (‘‘ICE Clear 

Europe’’) have been actively engaged as 

CCPs in clearing CDS transactions in 

reliance on our exemptions. As of 

October 25, 2010, ICE Trust has cleared 

157,691 CDS transactions with a 

notional value of $7.8 trillion. As of 

October 25, 2010, ICE Clear Europe has 

cleared 175,102 CDS transactions with a 

notional value of Ö3.8 trillion. We 

believe that the clearing of CDS 

transactions by ICE Trust and ICE Clear 

Europe has contributed and we 

anticipate will continue to contribute to 

increased transparency and the 

reduction of systemic risk in the CDS 

market. 

We also granted exemptive orders to 

three other CCPs to clear CDS that have 

functioned as CCPs in clearing CDS 

transactions in accordance with our 

exemptions.25 Two of these CCPs, The 

Chicago Mercantile Exchange and Eurex 

Clearing AG have advised our staff that 

they intend to continue to work with 

participants in the CDS market to 

promote their CCP services. 

The extension of the Temporary Rules 

and the exemptive orders will terminate 

at the time that the clearing provisions 

and rules implementing of Title VII of 

the Dodd-Frank Act become effective. 

The extension of such Temporary Rules 

is designed to the foster continued 

development and operation of CCPs for 

eligible CDS, which we believe is in the 

public interest. Once the Dodd-Frank 

Act provisions become effective, a new 

permanent and comprehensive 

regulatory regime for all security-based 

swaps will be implemented and the 

Temporary Rules affecting solely 

eligible CDS will no longer be necessary 

or appropriate. Therefore, due to the 

limited time the Temporary Rules will 

be needed, and our ongoing efforts to 

implement the provisions of the DoddFrank Act, we are extending the 

Temporary Rules until July 16, 2011. 

III. Certain Administrative Law Matters 

Section 553(b) of the Administrative 

Procedure Act (‘‘APA’’) generally 

requires an agency to publish notice of 

a proposed rule making in the Federal 

Register. This requirement does not 

apply, however, if the agency ‘‘for good 

cause finds (and incorporates the 

finding and a brief statement of reasons 

therefore in the rules issued) that notice 

and public procedure thereon are 

impracticable, unnecessary, or contrary 

to the public interest.’’ For the reasons 

we discuss throughout this release, we 

believe that there is good cause to 

extend these rules until July 16, 2011 

without further notice or opportunity 

for comment. 

We sought comment on the 

Temporary Rules and as noted above, 

we received little comment when they 

were originally promulgated. In 

addition to the specific comments that 

we sought and received in connection 

with the Temporary Rules in January 

2009, we have sought public input on 

implementing the provisions of the 

Dodd-Frank Act, which requires 

extensive public notice and comment 

rulemaking that will supplant and 

subsume the exemptive rules we have 

crafted as a temporary measure.26

Further, we will seek public comment 

in connection with the proposed 

rulemaking to implement the specific 

provisions of the Dodd-Frank Act 

relating to the treatment of securitybased swaps under the Securities Act 

and the Exchange Act. Commenters will 

have full opportunity to provide their 

views on this new comprehensive 

regulatory regime. 

Absent the extension of the 

Temporary Rules, such Temporary 

Rules would expire at the end of 

November 2010, prior to the effective 

date of the provisions of Title VII of the 

Dodd-Frank Act. The rules have been in 

place since January 2009, and CCPs 

have relied on them in clearing eligible 

CDS. Extending the expiration date of 

the Temporary Rules would not affect 

the substantive provisions of those 

rules. Without further extending the 

expiration date of the Temporary Rules 

to the time of effectiveness of the 

provisions of Title VII of the DoddFrank Act, CCPs would not be able to 

continue to clear eligible CDS in 

accordance with the exemptive orders 

they have received from us. Extending 

the expiration date of the Temporary 

Rules will allow exempt CCPs to 

continue to clear eligible CDS until the 

provisions of the Dodd-Frank Act, 

including the rules promulgated under 

such Act, become effective. This will 

occur by the July 2011 expiration of the 

Temporary Rules. Therefore, we believe 

there is good cause to extend the 

Temporary Rules until July 16, 2011 and 

find that notice and solicitation of 

comment on the extension to be 

impracticable, unnecessary, or contrary 

to the public interest.27

The APA also generally requires that 

an agency publish an adopted rule in 

the Federal Register 30 days before it 

becomes effective.28 However, this 

requirement does not apply if the 

agency finds good cause not to delay the 

effective date.29 For reasons similar to 

those explained above, the Commission 

finds good cause not to delay the 

effective date. 

IV. Paperwork Reduction Act 

The Temporary Rules do not impose 

any new ‘‘collections of information’’ 

within the meaning of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’),30 nor do 

they create any new filing, reporting, 

recordkeeping, or disclosure reporting 

requirements for a CCP that is or will be 

issuing or clearing eligible CDS. 

Accordingly, we did not submit the 

Temporary Rules to the Office of 

Management and Budget for review in 

accordance with the PRA when we 

adopted them in January 2009.31 We 

requested comment on whether our 

conclusion that there are no collections 

of information is correct, and we did not 

receive any comment. The extension of 

the expiration dates does not change our 

analysis. 

V. Cost-Benefit Analysis 

In January 2009, we adopted the 

Temporary Rules, which exempt eligible 

CDS that are or will be issued or cleared 

by a CCP and offered and sold only to 

eligible contract participants from all 

provisions of the Securities Act, other 

than the Section 17(a) anti-fraud 

provision, as well as from the 


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32See Karen Brettell, Banks to submit 95 pct of 

eligible CDS for clearing (Sep. 1, 2009), available at 

http://www.reuters.com/article/euRegulatoryNews/

idUSN0150814420090901?

pageNumber=1&virtualBrandChannel=10522. 

33See e.g., Exchange Act Release No. 59527, 

supra Note 10 (our exemptions require that the 

CCPs provide us with, among other things, access 

to conduct on-site inspections of facilities, records 

and personnel). 

34See Testimony of Mark Lenczowski, supra 

Note 12. 

35See e.g., Exchange Act Release No. 59527, 

supra Note 26. 

36See IntercontinentalExchange, supra Note 13. 

37 15 U.S.C. 78j(b). 

38 15 U.S.C. 77k and 77l. 

39See 15 U.S.C. 77q and 15 U.S.C. 78j(b). 

40 15 U.S.C. 78w(a)(2). 

41 15 U.S.C. 77b(b). 

42 15 U.S.C. 78c(f). 

registration requirements under Section 

12 of the Exchange Act and from the 

provisions of the TIA. In September 

2009, we adopted amendments to such 

rules to extend their expiration date to 

November 30, 2010. The Temporary 

Rules were intended to facilitate the 

operation of one or more CCPs to act as 

a clearing agency in the CDS market to 

reduce some of the risks in the CDS 

market. Today, we are adopting 

amendments to such rules to extend 

their expiration date to July 16, 2011. 

Since the adoption of the Temporary 

Rules and issuance of the exemptive 

orders, ICE Trust and ICE Clear Europe 

have been actively engaged as a CCP in 

clearing CDS transactions in accordance 

with our exemptions. 

On July 21, 2010, the Dodd-Frank Act 

was enacted. Among other things, the 

Dodd-Frank Act amends the Exchange 

Act to require that transactions in 

security-based swaps be cleared through 

a clearing agency that is either 

registered with the Commission or 

exempt from registration if the 

transactions are of a type that the 

Commission determines must be 

cleared, unless an exemption from 

mandatory clearing applies. As noted 

above, the Dodd-Frank Act directs us to 

regulate, among other things, clearing 

agencies for, and the clearing of, 

security-based swaps, which include 

certain CDS, and in separate 

rulemakings we will be proposing rules 

to implement the clearing provisions of 

the Dodd-Frank Act, among others. 

Extending the expiration dates of the 

Temporary Rules until July 16, 2011 

will allow us to propose those rules, 

which will be subject to notice and 

comment. Pending the effective date of 

the clearing provisions of the DoddFrank Act, however, the Temporary 

Rules are needed to enable the CCPs to 

continue to clear eligible CDS in 

accordance with the exemptive orders 

we have provided. 

A. Benefits 

The Temporary Rules and the CCP 

exemptive orders facilitate the operation 

of CCPs in the CDS market. We believe 

that extending the Temporary Rules and 

the CCP exemptive orders will continue 

to facilitate the operation of CCPs 32 and 

the use by eligible contract participants 

of CDS CCPs while enabling us to 

provide some oversight of the nonexcluded CDS market.33 We believe that 

the operation of two CCPs in accordance 

with our exemptions has increased 

transparency,34 increased available 

information about exposures to 

particular reference entities or reference 

securities,35 and reduced risks to 

participants in the market for CCPcleared CDS.36 Not extending the 

termination date could cause significant 

disruptions in this market. Therefore, 

we believe that extending the 

termination date of the Temporary Rules 

provides important benefits to CDS 

market participants. 

B. Costs 

Absent the exemptions provided by 

the Temporary Rules, a CCP may have 

to file a registration statement covering 

the offer and sale of the eligible CDS, 

may have to satisfy the applicable 

provisions of the TIA, and may have to 

register the class of eligible CDS that it 

has issued or cleared under the 

Exchange Act, which would provide 

investors with the disclosures and other 

protections of these requirements, 

including civil remedies in addition to 

antifraud remedies. 

We recognize that a consequence of 

extending the exemptions will be the 

unavailability of certain remedies under 

the Securities Act and the Exchange Act 

and certain protections under the TIA. 

While an investor would be able to 

pursue an antifraud action in 

connection with the purchase and sale 

of eligible CDS under Exchange Act 

Section 10(b),37 it would not be able to 

pursue civil remedies under Sections 11 

or 12 of the Securities Act.38 We could 

still pursue an antifraud action in the 

offer and sale of eligible CDS issued or 

cleared by a CCP.39 We believe that the 

incremental costs from the extension of 

the expiration date of the Temporary 

Rules will be minimal because the 

amendments are merely an extension of 

such Temporary Rules and such 

extension will not affect the information 

and remedies available to investors as a 

result of the Temporary Rules. 

VI. Consideration of Impact on the 

Economy, Burden on Competition and 

Promotion of Efficiency, Competition 

and Capital Formation 

Section 23(a)(2) of the Exchange 

Act 40 requires us, when adopting rules 

under the Exchange Act, to consider the 

impact that any new rule would have on 

competition. Section 23(a)(2) prohibits 

us from adopting any rule that would 

impose a burden on competition that is 

not necessary or appropriate in 

furtherance of the purposes of the 

Exchange Act. In addition, Section 

2(b) 41 of the Securities Act and Section 

3(f) 42 of the Exchange Act require us, 

when engaging in rulemaking where we 

are required to consider or determine 

whether an action is necessary or 

appropriate in the public interest, to 

also consider whether the action will 

promote efficiency, competition, and 

capital formation. 

The Temporary Rules we are 

extending today exempt eligible CDS 

issued or cleared by a CCP from all 

provisions of the Securities Act, other 

than the Section 17(a) antifraud 

provision, as well as from the 

registration requirements under Section 

12 of the Exchange Act and the 

provisions of the TIA. Because these 

exemptions are available to any CCP 

offering and selling eligible CDS, we do 

not believe that extending the 

exemptions imposes a burden on 

competition. We also anticipate that 

extending the ability to settle CDS 

through CCPs will continue to improve 

the transparency of the CDS market and 

provide greater assurance to participants 

as to the capacity of the eligible CDS 

counterparty to perform its obligations 

under the eligible CDS. ICE Trust, for 

example, makes available on its Web 

site information about open interests, or 

net exposure, volume and pricing of 

CDS transactions. We believe that 

increased transparency in the CDS 

market could help to decrease further 

market turmoil and thereby facilitate the 

capital formation process. 

VII. Regulatory Flexibility Act 

Certification 

The Commission hereby certifies 

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

extending Temporary Rules will not 

have a significant economic impact on 

a substantial number of small entities. 

The Temporary Rules exempt eligible 

CDS that are or will be issued or cleared 

by a CCP. None of the entities that are 

eligible to meet the requirements of the 


srobinson on DSKHWCL6B1PROD with RULES
72664 Federal Register / Vol. 75, No. 227 / Friday, November 26, 2010 / Rules and Regulations 

1 16 U.S.C. 824o. 

2 Mandatory Reliability Standards for the BulkPower System, Order No. 693, 72 FR 16416 (Apr. 

4, 2007), FERC Stats. & Regs. ¶ 31,242, order on 

reh’g, Order No. 693–A, 120 FERC ¶ 61,053 (2007). 

3Order No. 693, FERC Stats. & Regs. ¶ 31,242 at 

P 1330–1417. 

exemption from registration under 

Section 17A is a small entity. 

VIII. Statutory Authority and Text of 

the Rules and Amendments 

The amendments described in this 

release are being adopted under the 

authority set forth in Sections 18, 19 

and 28 of the Securities Act; Sections 

12(h), 23(a) and 36 of the Exchange Act; 

and Section 304(d) of the TIA. 

List of Subjects in 17 CFR Parts 230, 

240 and 260 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Rules and Amendments 

■ Accordingly, we are temporarily 

amending 17 CFR parts 230, 240, and 

260 as follows and the expiration date 

for the temporary rules published 

January 22, 2009 (74 FR 3967), and 

extended to November 30, 2010, is 

further extended from November 30, 

2010, to July 16, 2011. 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for Part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 

77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 

78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 

78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a– 

30, and 80a–37, unless otherwise noted. 

* * * * * 

§§ 230.146 and 230.239T [Amended] 

■ 2. In § 230.146(c)T, in the last 

sentence, remove the words ‘‘November 

30, 2010’’ and add, in their place, the 

words ‘‘July 16, 2011’’. 

■ 3. In § 230.239T(e), remove the words 

‘‘November 30, 2010’’ and add, in their 

place, the words ‘‘July 16, 2011’’. 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 4. The authority citation for Part 240 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78o– 

4, 78p, 78q, 78s, 78u–5, 78w, 78x, 78ll, 

78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b– 

3, 80b–4, 80b–11, and 7201 et seq.; and 18 

U.S.C. 1350; and 12 U.S.C. 5221(e)(3) unless 

otherwise noted. 

* * * * * 

§§ 240.12a–10T and 240.12h–1 [Amended] 

■ 5. In § 240.12a–10T(b), remove the 

words ‘‘November 30, 2010’’ and add, in 

their place, the words ‘‘July 16, 2011’’. 

■ 6. In § 240.12h–1(h)T, in the last 

sentence, remove the words ‘‘November 

30, 2010’’ and add, in their place, the 

words ‘‘July 16, 2011’’. 

PART 260—GENERAL RULES AND 

REGULATIONS, TRUST INDENTURE 

ACT OF 1939 

■ 7. The authority citation for Part 260 

continues to read as follows: 

Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 

77sss, 78ll(d), 80b–3, 80b–4, and 80b–11. 

§ 260.4d–11T [Amended] 

■ 8. In § 260.4d–11T, in the last 

sentence, remove the words ‘‘November 

30, 2010’’ and add, in their place, the 

words ‘‘July 16, 2011’’. 

Dated: November 19, 2010. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–29702 Filed 11–24–10; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 40 

[Docket No. RM09–25–000; Order No. 742] 

System Personnel Training Reliability 

Standards 

Issued November 18, 2010. 

AGENCY: Federal Energy Regulatory 

Commission, DOE. 

ACTION: Final rule. 

SUMMARY: Under section 215 of the 

Federal Power Act, the Commission 

approves two Personnel Performance, 

Training and Qualifications (PER) 

Reliability Standards, PER–004–2 

(Reliability Coordination—Staffing) and 

PER–005–1 (System Personnel 

Training), submitted to the Commission 

for approval by the North American 

Electric Reliability Corporation, the 

Electric Reliability Organization 

certified by the Commission. The 

approved Reliability Standards require 

reliability coordinators, balancing 

authorities, and transmission operators 

to establish a training program for their 

system operators, verify each of their 

system operators’ capability to perform 

tasks, and provide emergency 

operations training to every system 

operator. The Commission also 

approves NERC’s proposal to retire two 

existing PER Reliability Standards that 

are replaced by the standards approved 

in this Final Rule. 

DATES: Effective Date: This rule will 

become effective January 25, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Karin L. Larson (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 20426, 

(202) 502–8236. Kenneth U. Hubona 

(Technical Information), Office of 

Electric Reliability, Division of 

Reliability Standards, Federal Energy 

Regulatory Commission, 1800 Dual 

Highway, Suite 201, Hagerstown, MD 

21740, (301) 665–1608. 

SUPPLEMENTARY INFORMATION: Before 

Commissioners: Jon Wellinghoff, 

Chairman; Marc Spitzer, Philip D. 

Moeller, John R. Norris, and Cheryl A. 

LaFleur. 

1. Under section 215 of the Federal 

Power Act (FPA),1 the Commission 

approves two Personnel Performance, 

Training and Qualifications (PER) 

Reliability Standards, PER–004–2 

(Reliability Coordination—Staffing) and 

PER–005–1 (System Personnel 

Training), submitted to the Commission 

for approval by the North American 

Electric Reliability Corporation (NERC), 

the Electric Reliability Organization 

(ERO) certified by the Commission. The 

approved Reliability Standards require 

reliability coordinators, balancing 

authorities, and transmission operators 

to establish a training program for their 

system operators, verify each of their 

system operators’ capability to perform 

tasks, and provide emergency 

operations training to every system 

operator. The Commission also 

approves NERC’s proposal to retire two 

existing PER Reliability Standards that 

are replaced by the standards approved 

in this Final Rule. 

I. Background 

2. On March 16, 2007, the 

Commission issued Order No. 693, 

approving 83 of the 107 Reliability 

Standards filed by NERC,2 including the 

four PER Reliability Standards: PER– 

001–0, PER–002–0, PER–003–0, and 

PER–004–1.3 In addition, in Order No. 

693, under section 215(d)(5) of the FPA, 

the Commission directed NERC to 

develop modifications to the PER 

Reliability Standards to address certain 

issues identified by the Commission. At 

issue in the immediate proceeding are 

two new PER Reliability Standards that 

would replace the currently effective 


srobinson on DSKHWCL6B1PROD with RULES