Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75523 

1All Commission regulations are in Chapter I of 

Title 17 of the CFR. 

12 CFR Part 345 

Banks, banking, Community 

development, Credit, Investments, 

Reporting and recordkeeping 

requirements. 

Department of the Treasury 

Office of the Comptroller of the 

Currency 

12 CFR Chapter I 

For the reasons discussed in the 

preamble, 12 CFR parts 25 and 195 are 

amended as follows: 

PART 25—COMMUNITY 

REINVESTMENT ACT AND 

INTERSTATE DEPOSIT PRODUCTION 

REGULATIONS 

■ 1. The authority citation for part 25 

continues to read as follows: 

Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 

93a, 161, 215, 215a, 481, 1814, 1816, 1828(c), 

1835a, 2901 through 2908, and 3101 through 

3111. 

■ 2. Revise § 25.12(u)(1) to read as 

follows: 

§ 25.12 Definitions. 

* * * * * 

(u) Small bank—(1) Definition. Small 

bank means a bank that, as of December 

31 of either of the prior two calendar 

years, had assets of less than $1.186 

billion. Intermediate small bank means 

a small bank with assets of at least $296 

million as of December 31 of both of the 

prior two calendar years and less than 

$1.186 billion as of December 31 of 

either of the prior two calendar years. 

* * * * * 

PART 195—COMMUNITY 

REINVESTMENT 

■ 3. The authority citation for part 195 

continues to read as follows: 

Authority: 12 U.S.C. 1462a, 1463, 1464, 

1814, 1816, 1828(c), 2901 through 2908, and 

5412(b)(2)(B). 

■ 4. Revise § 195.12(u)(1) to read as 

follows: 

§ 195.12 Definitions. 

* * * * * 

(u) Small savings association—(1) 

Definition. Small savings association 

means a savings association that, as of 

December 31 of either of the prior two 

calendar years, had assets of less than 

$1.186 billion. Intermediate small 

savings association means a small 

savings association with assets of at 

least $296 million as of December 31 of 

both of the prior two calendar years and 

less than $1.186 billion as of December 

31 of either of the prior two calendar 

years. 

* * * * * 

Federal Reserve System 

12 CFR Chapter II 

For the reasons set forth in the 

preamble, the Board of Governors of the 

Federal Reserve System amends part 

228 of chapter II of title 12 of the Code 

of Federal Regulations as follows: 

PART 228—COMMUNITY 

REINVESTMENT (REGULATION BB) 

■ 5. The authority citation for part 228 

continues to read as follows: 

Authority: 12 U.S.C. 321, 325, 1828(c), 

1842, 1843, 1844, and 2901 et seq. 

■ 6. Revise § 228.12(u)(1) to read as 

follows: 

§ 228.12 Definitions. 

* * * * * 

(u) Small bank—(1) Definition. Small 

bank means a bank that, as of December 

31 of either of the prior two calendar 

years, had assets of less than $1.186 

billion. Intermediate small bank means 

a small bank with assets of at least $296 

million as of December 31 of both of the 

prior two calendar years and less than 

$1.186 billion as of December 31 of 

either of the prior two calendar years. 

* * * * * 

Federal Deposit Insurance Corporation 

12 CFR Chapter III 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board of Directors of the 

Federal Deposit Insurance Corporation 

amends part 345 of chapter III of title 12 

of the Code of Federal Regulations to 

read as follows: 

PART 345—COMMUNITY 

REINVESTMENT 

■ 7. The authority citation for part 345 

continues to read as follows: 

Authority: 12 U.S.C. 1814–1817, 1819– 

1820, 1828, 1831u and 2901–2907, 3103– 

3104, and 3108(a). 

■ 8. Revise § 345.12(u)(1) to read as 

follows: 

§ 345.12 Definitions. 

* * * * * 

(u) Small bank—(1) Definition. Small 

bank means a bank that, as of December 

31 of either of the prior two calendar 

years, had assets of less than $1.186 

billion. Intermediate small bank means 

a small bank with assets of at least $296 

million as of December 31 of both of the 

prior two calendar years and less than 

$1.186 billion as of December 31 of 

either of the prior two calendar years. 

* * * * * 

Dated: December 13, 2012. 

Daniel P. Stipano, 

Acting Chief Counsel. 

By order of the Board of Governors of the 

Federal Reserve System, acting through the 

Secretary of the Board under delegated 

authority, December 17, 2012. 

Robert deV. Frierson, 

Secretary of the Board. 

By order of the Board of Directors. 

Dated at Washington, DC, this 6th day of 

December, 2012. 

Federal Deposit Insurance Corporation. 

Valerie J. Best, 

Assistant Executive Secretary. 

[FR Doc. 2012–30775 Filed 12–20–12; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 1 

RIN 3038–AD53 

Adaptation of Regulations To 

Incorporate Swaps—Records of 

Transactions 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rules. 

SUMMARY: The Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’ or ‘‘DFA’’) 

established a comprehensive new 

statutory framework for swaps and 

security-based swaps. The Dodd-Frank 

Act repeals some sections of the 

Commodity Exchange Act (‘‘CEA’’ or 

‘‘Act’’), amends others, and adds a 

number of new provisions. The DFA 

also requires the Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) to promulgate a number 

of rules to implement the new 

framework. The Commission has 

proposed and finalized numerous rules 

to satisfy its obligations under the DFA. 

This final rulemaking makes certain 

conforming amendments to 

recordkeeping provisions of regulations 

1.31 and 1.35(a) to integrate these 

regulations more fully with the new 

framework created by the Dodd-Frank 

Act.1 This final rulemaking requires 

futures commission merchants 

(‘‘FCMs’’), certain introducing brokers 

(‘‘IBs’’), retail foreign exchange dealers 

(‘‘RFEDs’’) and certain other registrants 

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75524 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

2See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

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

is available at http://www.cftc.gov/LawRegulation/ 

OTCDERIVATIVES/index.htm. 

3Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

4 7 U.S.C. 1 et seq. (2006). 

5Adaptation of Regulations to Incorporate Swaps, 

76 FR 33066 (June 7, 2011) (‘‘the Proposal’’). 

6See the Proposal, 76 FR at 33067; Reporting, 

Recordkeeping, and Daily Trading Records 

Requirements for Swap Dealers and Major Swap 

Participants, 76 FR 76666, 76675 (Dec. 9, 2010) 

(Proposed regulation 23.202(a)(1) would have 

required ‘‘[e]ach swap dealer and major swap 

participant [to] make and keep pre-execution trade 

information, including, at a minimum, records of all 

oral and written communications provided or 

received concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, that lead to 

the execution of a swap, whether communicated by 

telephone, voicemail, facsimile, instant messaging, 

chat rooms, electronic mail, mobile device or other 

digital or electronic media’’). 

7The term ‘‘commodity interest’’ means: (1) any 

contract for the purchase or sale of a commodity for 

future delivery; (2) any contract, agreement or 

transaction subject to Commission regulation under 

section 4c or 19 of the Act; (3) any contract, 

agreement or transaction subject to Commission 

jurisdiction under section 2(c)(2) of the Act; and (4) 

any swap as defined in the Act, by the Commission, 

or jointly by the Commission and the Securities and 

Exchange Commission. See Adaptation of 

Regulations to Incorporate Swaps, 77 FR 66288, 

66319 (Nov. 2, 2012) (‘‘Final Adaptation Rule’’) (to 

be codified at 17 CFR 1.3(yy)). 

8Final Adaptation Rule, 77 FR 66288. 

9See id., 77 FR at 66288, 66296 n. 59, 66297 n. 

63, and 66299 n. 72. 

10Commenters included: Agribusiness Council of 

Indiana; American Cotton Shippers Association 

(‘‘ACSA’’); Amcot; American Feed Industry 

Association (‘‘AFIA’’); American Gas Association; 

American Petroleum Institute; Barclays Capital 

(‘‘Barclays’’); Mr. Chris Barnard; Commodity 

Markets Council (‘‘CMC’’); Compliant Phones 

(‘‘Compliant’’); Electric Power Supply Association 

(‘‘EPSA’’); Electric Utility Trade Associations 

(National Rural Electric Cooperative Association, 

American Public Power Association, Large Public 

Power Council, and Edison Electric Institute) 

(‘‘ETA’’); Encana; Falmouth Farm Supply; The 

Fertilizer Institute; Futures Industry 

Association(‘‘FIA’’); Grain and Feed Association of 

Illinois; Kansas City Board of Trade (‘‘KCBT’’); CME 

Group (‘‘CME’’); Henderson & Lyman; 

IntercontinentalExchange, Inc. (‘‘ICE’’); Land 

O’Lakes, Inc.; Minneapolis Grain Exchange 

(‘‘MGEX’’); Minnesota Grain and Feed Association; 

National Grain and Feed Association (‘‘NGFA’’); 

National Introducing Brokers Association (‘‘NIBA’’); 

National Council of Farmer Cooperatives (‘‘NCFC’’); 

National Futures Association (‘‘NFA’’); Natural Gas 

Supply Association; Ohio Agribusiness Association; 

Oklahoma Grain and Feed Association; Rocky 

Mountain Agribusiness Association (‘‘RMAA’’); 

South Dakota Grain & Feed Association; and 

Working Group of Commercial Energy Firms 

that are members of designated contract 

markets (‘‘DCMs’’) or swap execution 

facilities (‘‘SEFs’’) to record all oral 

communications provided or received 

concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, 

that lead to the execution of a 

transaction in a commodity interest, 

whether communicated by telephone, 

voicemail, mobile device, or other 

digital or electronic media, and to keep 

those records for one year. This final 

rule also requires FCMs, IBs, RFEDs, 

and all members of a DCM or SEF to 

record and keep all written 

communications provided or received 

concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, 

that lead to the execution of a 

transaction in a commodity interest or 

related cash or forward transactions, 

whether communicated by telephone, 

voicemail, facsimile, instant messaging, 

chat rooms, electronic mail, mobile 

device, or other digital or electronic 

media, and to keep those written 

records for five years. 

DATES: Effective date: This final rule 

will become effective on February 19, 

2013. Compliance date: Each affected 

entity must comply with the oral 

communications recordkeeping 

requirement in regulation 1.35(a)(1) (17 

CFR 1.35(a)(1)) no later than December 

21, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Katherine Driscoll, Associate Director, 

202–418–5544, kdriscoll@cftc.gov, 

Elizabeth Miller, Attorney-Advisor, 

202–418–5450, emiller@cftc.gov, 

Division of Swap Dealer and 

Intermediary Oversight; Peter A. Kals, 

Special Counsel, 202–418–5466, 

pkals@cftc.gov, Division of Clearing and 

Risk; David E. Aron, Counsel, 202–418– 

6621, daron@cftc.gov, Office of General 

Counsel; Alexis Hall-Bugg, AttorneyAdvisor, 202–418–6711, 

ahallbugg@cftc.gov, Division of Market 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1151 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

A. The Dodd-Frank Act 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act into law.2

Title VII of the Dodd-Frank Act 3 (‘‘Title 

VII’’) amended the CEA 4 to establish a 

comprehensive new regulatory 

framework for swaps and security-based 

swaps. The legislation was enacted, 

among other reasons, 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 (‘‘SDs’’), security-based swap 

dealers, major swap participants 

(‘‘MSPs’’), and major security-based 

swap participants; (2) imposing clearing 

and trade execution requirements on 

swaps and security-based swaps, subject 

to certain exceptions; (3) creating 

rigorous recordkeeping and real-time 

reporting regimes; and (4) enhancing the 

rulemaking and enforcement authorities 

of the Commission with respect to, 

among others, all registered entities and 

intermediaries subject to the 

Commission’s oversight. 

B. Proposed Changes to Regulation 

1.35(a)—Records of Transactions 

On June 7, 2011, the Commission 

published in the Federal Register a 

notice of proposed rulemaking (the 

‘‘Proposal’’) to apply its regulations, 

regarding the activities of intermediaries 

and other DCM members to the swaps 

activities of those persons, in 

conformance with the Dodd-Frank Act.5

The Proposal provided for a 60-day 

public comment period, which ended 

on August 8, 2011. The Proposal 

proposed to conform the existing 

recordkeeping requirements of 

regulation 1.35(a) to the recordkeeping 

requirements for SDs and MSPs, under 

what was then proposed regulation 

23.202(a)(1) and (b)(1),6 so that FCMs, 

IBs, RFEDs, and DCM and SEF members 

would be required to record all oral and 

written communications provided or 

received concerning quotes, 

solicitations, bids, offers, instructions, 

trading, and prices, that lead to the 

execution of transactions in a 

commodity interest 7 or cash 

commodity, whether communicated by 

telephone, voicemail, facsimile, instant 

messaging, chat rooms, electronic mail, 

mobile device, or other digital or 

electronic media. To be consistent with 

what was then proposed regulation 

23.202(a) and (b), the Proposal would 

have amended regulation 1.35(a) by 

requiring that each record be 

maintained in a separate electronic file 

identifiable by transaction and 

counterparty. On November 2, 2012, the 

Commission published in the Federal 

Register the Final Adaptation Rule.8

The Final Adaptation Rule promulgated 

the vast majority of the amendments 

that the Proposal had introduced. In the 

Final Adaptation Rule, the Commission 

stated that it would address in a 

separate release certain of the proposed 

changes to regulation 1.35 (i.e., those 

enumerated above) and related 

amendments to regulation 1.31.9

In response to the amendments to 

regulation 1.35(a) in the Proposal, the 

Commission received 35 comment 

letters from a variety of institutions, 

including DCMs, agricultural trade 

associations, and agricultural 

cooperatives.10 The Commission has 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75525 

(‘‘Commercial Energy Working Group’’). Comments 

are available in the comment file on www.cftc.gov. 

In the Final Adaptation Rule, the Commission 

addressed those comments unrelated to the 

proposed changes to regulation 1.35(a) concerning 

records of oral and written communications. See 

Final Adaptation Rule, 77 FR 66288. 

11 See Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants, 77 FR 20128 (Apr. 3, 2012) (‘‘SD and 

MSP Recordkeeping Final Rule’’) (adopting for SDs 

and MSPs reporting and recordkeeping standards 

now found in 17 CFR 23.201–23.203). 

12A ‘‘member’’ is an individual, association, 

partnership, corporation, or trust—(i) owning or 

holding membership in, or admitted to membership 

representation on, a registered entity; or (ii) having 

trading privileges on a registered entity. See Final 

Adaptation Rule, 77 FR at 66316 (to be codified at 

17 CFR 1.3(q)). 

13FIA made a similar argument regarding the 

application of the amendment to FCMs. 

determined to adopt the Proposal’s 

amendments to regulation 1.35(a), with 

certain modifications, discussed below, 

which address the comments the 

Commission received. In addition, as 

part of this final rulemaking, the 

Commission is making certain related 

modifications to the record retention 

periods set forth in regulation 1.31. 

Finally, the final amendments to 

regulations 1.31 and 1.35(a) are 

consistent with the Commission’s final 

rules concerning recordkeeping 

requirements for SDs and MSPs 

(regulations 23.202(a) and (b) and 

23.203(b)(2)).11

II. Oral Communications and Other 

Recordkeeping Changes in the 

Proposal; Comments Received 

Under the Proposal, FCMs, IBs, 

RFEDs, and DCM and SEF members 12

would be required to record all oral and 

written communications provided or 

received concerning quotes, 

solicitations, bids, offers, instructions, 

trading, and prices that lead to the 

execution of a transaction in a 

commodity interest or cash commodity, 

whether communicated by telephone, 

voicemail, facsimile, instant messaging, 

chat rooms, electronic mail, mobile 

device, or other digital or electronic 

media. Comments to these proposed 

amendments to regulation 1.35(a) 

primarily focused on: oral 

recordkeeping generally; the portion of 

the proposed provisions that would 

have required all DCM and SEF 

members, including commercial endusers and non-intermediaries, to keep 

records of their cash commodity 

transactions; and the proposed 

requirement that each record be 

maintained in a separately identifiable 

electronic file identifiable by transaction 

and counterparty (‘‘tagging’’). 

A. Proposed Requirements To Record 

Oral Communications and Keep Them 

in Separate Electronic Files Identifiable 

by Transaction and Counterparty 

1. Comments on Oral Recordkeeping 

Generally 

Commenters asserted that the 

proposed requirement for FCMs, IBs, 

RFEDs, and DCM and SEF members to 

record oral communications that lead to 

the execution of a commodity interest or 

cash commodity transaction was too 

costly, impossible to satisfy, overly 

broad, and/or unnecessary. ACSA, 

AFIA, Amcot, EPSA, ICE, and Land 

O’Lakes commented that these proposed 

amendments were broad and 

ambiguous.13 AFIA, CME, EPSA, 

MGEX, and the Commercial Energy 

Working Group argued that the phrases 

‘‘concerning quotes, solicitations, bids’’ 

and ‘‘lead to the execution of’’ were 

vague and could encompass a great 

number of communications. Amcot 

asserted that the overbreadth of the 

proposed amendment would be 

burdensome for agricultural DCM 

members given that there are a variety 

of settings, including grower meetings 

and on-site visits, where a DCM member 

could have a discussion with an 

agricultural producer that leads to a 

cash commodity or commodity interest 

transaction. Land O’Lakes was unsure 

whether face-to-face conversations 

would have to be recorded under the 

proposed requirement. ICE inquired as 

to whether a general conversation about 

markets would be subject to the 

proposed recording requirement if a 

transaction occurred later in the day. 

AFIA stated that the risk of an incorrect 

interpretation would fall on local grain 

producers. 

Regarding application of the proposed 

requirement to telephone conversations, 

Land O’Lakes and MGEX each argued 

that a DCM member might not know in 

advance of a telephone call whether that 

call would lead to a transaction. MGEX 

believed that this fact would require a 

DCM member to record all 

conversations, which they argued would 

be impossible. Land O’Lakes asserted 

that complying with the proposed 

requirement could involve massive 

amounts of recording, thereby deterring 

open communication between a DCM 

member and one of its agricultural 

producers. The Commercial Energy 

Working Group commented that 

proposed regulation 1.35(a) was too 

broad in that it could require DCM 

members to record communications of 

attorneys and other ‘‘middle office’’ 

personnel, and not just the 

communications of traders who are 

directly involved in executing a 

transaction. CMC argued that the 

Commission has substantially 

underestimated the considerable costs 

and limited benefits associated with the 

recordkeeping requirements for DCM 

and SEF members. CME does not 

believe firms can comply with the 

proposed oral recordkeeping 

requirements with respect to mobile 

telephones because, they stated, mobile 

telephone recording technology is not 

well developed in the United States. 

Regarding whether an oral 

communications recordkeeping 

requirement is necessary, NCFC stated 

that the proposed requirement to record 

oral communications is not necessary to 

achieve the Commission’s stated goal of 

protecting customers from abusive sales 

practices. CMC asserted that current 

regulation 1.35(a)’s requirement to 

maintain written records of commodity 

interest and cash commodity 

transactions suffices to prevent market 

abuses. Amcot stated that the 

Commission failed to demonstrate the 

inadequacy of its existing regulations. 

Henderson & Lyman, NFA, and NIBA 

stated that the oral recordkeeping 

requirement is unnecessary because 

NFA already requires certain FCMs and 

IBs with a history of sales practice 

abuses to record calls made by their 

associated persons. Henderson & Lyman 

stated that the NFA rule and NFA’s 

related guidance concerning 

communications are sufficient and costeffective. 

NIBA commented that all IBs, or at 

the very least small IBs, should be 

exempt from the proposed amendments 

to regulation 1.35(a) because the burden 

on such small entities would be too 

great. Henderson & Lyman similarly 

commented that the proposed regulation 

would favor large IBs over small IBs. 

Neither NIBA nor Henderson & Lyman, 

however, offered a definition of ‘‘small 

IB’’ or provided any quantitative or 

qualitative thresholds. Henderson & 

Lyman stated that it is unnecessary to 

have an oral recording requirement for 

IBs because most IBs solicit customers 

electronically rather than over the 

telephone. Henderson & Lyman also 

stated that the focus on IBs was 

misplaced since misleading 

communications come from marketing 

firms rather than from IBs. NIBA further 

stated that the proposed amendment 

would be ineffective in compelling IBs 

to record their calls since those who 

refuse to do so will find a way to 

circumvent the regulation. 

Falmouth Farm Supply had several 

concerns with the proposed 

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75526 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

14NGFA’s letter was supported by the other Grain 

and Feed Associations, the Agribusiness 

Associations, Land O’ Lakes, and NCFC. 

15ACSA generally supported FIA’s comment 

letter. 

16API generally supported the Commercial 

Energy Working Group’s comment letter. 

17 In November 2011, the FSA rule requiring 

taping of mobile telephones became effective. 

Under the rule, a firm is required, ‘‘to take 

reasonable steps to record relevant conversations, 

and keep a copy of relevant electronic 

communications, made with, sent from or received 

on equipment: (1) Provided by the firm to an 

employee or contractor; or (2) the use of which by 

an employee or contractor has been sanctioned or 

permitted by the firm.’’ See Financial Services 

Authority, Conduct of Business Sourcebook, 

Section 11.8 Recording telephone conversations 

and electronic communications (June 2012, Release 

126, 11.8.2). 

amendment, asserting that a grain 

business-DCM member recording its 

telephone conversations with a farmersupplier would amount to an invasion 

of privacy and that grain producers do 

not need the Commission’s protection. 

CMC and ICE stated that it would be 

redundant for a DCM or SEF member to 

comply with proposed regulation 

1.35(a) because the DCM or SEF member 

will have to engage an FCM clearing 

agent for each transaction, and the FCM 

would have to comply with the 

regulation. 

2. Comments on the Proposed 

‘‘Tagging’’ Requirement 

CME, Barclays, Henderson & Lyman, 

NGFA, and NIBA stated that it would be 

burdensome to comply with the 

proposed requirement to maintain 

records as separate electronic files 

identifiable by counterparty and 

transaction.14 FIA commented that the 

‘‘separate electronic file requirement’’ is 

open-ended and, on its face, impossible 

to achieve.15 CME stated that potentially 

relevant conversations could span 

several days and that it would be 

difficult to link conversations to 

transactions. Therefore, CME 

commented, FCMs and IBs should only 

be required to record and identify 

conversations immediately preceding an 

order. FIA stated that a customer may 

decide to enter an order with an FCM 

at any time, even if that was not the 

original purpose of the call. According 

to FIA, this aspect of the futures 

business means that an FCM would 

have to record all of its telephone calls 

to comply with proposed regulation 

1.35(a) and this would be difficult if not 

impossible. Moreover, FIA stated that 

compliance would be impossible 

because one could argue that any 

conversation pertains to a particular 

transaction. Like CME, Barclays stated 

that the tagging requirement is vague, 

potentially requiring an FCM to tag 

every communication that could ever 

lead to a transaction. Barclays stated 

that it would be particularly challenging 

to tag a telephone call when the firm is 

telephoned by a counterparty; when 

parties discuss a transaction that the 

firm did not originally anticipate; or 

when multiple transactions are 

discussed during a particular call. 

According to Barclays, there is no 

technology to automatically tag 

communications, so the firm would 

have to manually tag over 2.4 billion 

electronic communications it sends and 

receives every year. Barclays also stated 

that it is not aware of any commercially 

available technology that would allow 

entities to tag their telephone recordings 

by transactions and counterparty. Other 

commenters expressed similar concern 

regarding the reliability and availability 

of technological solutions for the 

proposed tagging requirement. The 

Commercial Energy Working Group 

stated that, in lieu of an accurate and 

commercially available software 

solution, manual identification and 

retrieval of oral records would require 

as many as three to five analysts and 

one to two additional technical support 

personnel to support transactions for a 

small or modest-sized end-user 

commodity business and that the total 

cost to a commodity business is likely 

to be in excess of $1 million annually. 

According to Barclays, an FCM 

should be permitted to maintain records 

in any manner so long as it is able to 

respond to Commission inquiries in a 

timely and comprehensive fashion. The 

Commercial Energy Working Group 

commented that a firm should only have 

to identify communications as 

pertaining to a particular transaction if 

the Commission requests that 

information. Moreover, the Commercial 

Energy Working Group stated that it is 

unlikely that the Commission will 

request such information, so DCM 

members should not have a general 

obligation to tag conversations.16 The 

Commercial Energy Working Group 

urged the Commission to allow market 

participants to make their records 

searchable by transaction at the time the 

Commission requests the records rather 

than require that all records be 

maintained on a transaction-bytransaction basis in real-time. 

MGEX sought clarification as to 

whether the requirement in proposed 

regulation 1.35(a) to maintain ‘‘each 

transaction record in a separate 

electronic file identifiable by transaction 

and counterparty’’ requires a file to be 

kept for each counterparty and for each 

transaction or whether it suffices to 

keep one transaction file that is indexed 

by counterparty and transaction. MGEX 

also stated that it would be duplicative 

for a firm to keep records of both written 

and oral communications if they 

contained substantially the same 

content. 

3. Commenters’ Suggested Revisions to 

the Oral Communications Requirement 

Commenters made suggestions about 

how the Commission should revise the 

Proposal to limit the burden. NGFA 

suggested that if the Commission adopts 

the proposed oral recordkeeping 

requirement, it should give FCMs and 

IBs a generous compliance timetable 

and flexible implementation options, 

particularly for smaller firms. CME, FIA, 

and MGEX asserted that firms should 

only be required ‘‘reasonably’’ to 

comply with oral recordkeeping 

requirements. MGEX suggested that a 

DCM member should only be required 

reasonably to link a conversation to an 

executed transaction. Barclays 

highlighted that the United Kingdom 

Financial Services Authority (‘‘FSA’’) 

adopted a reasonableness standard for 

compliance with its mobile telephone 

conversation recording requirement.17

CME stated that a reasonableness 

standard is necessary because of limited 

technology, particularly a lack of 

reliable search mechanisms. According 

to CME, one way a firm should be able 

to comply would be by having a policy 

prohibiting the use of mobile telephones 

to solicit or accept orders. CME 

commented that the Commission fails to 

provide evidence that the Proposal 

would be less effective with such a 

‘‘reasonableness’’ standard than without 

it. CME stated that only firm-provided 

landline and mobile telephones should 

be covered by the rule as that would 

make the proposal consistent with 

foreign regulatory regimes. ETA stated 

that the Commission fails to justify 

aligning its recordkeeping requirements 

with those of other countries. CMC 

commented that the Proposal’s reference 

to the fact that 80% of large U.K. 

financial services firms were already 

recording their traders’ telephone calls 

prior to the FSA’s enactment of its voice 

recordkeeping requirement is irrelevant 

to the burden that the Proposal would 

impose on agricultural enterprises who 

are DCM members trading for their own 

accounts and not on behalf of 

customers. FIA sought confirmation that 

an FCM, IB, or other DCM or SEF 

member can satisfy the recordkeeping 

requirements under regulation 1.35(a) 

by relying on record retention 

performed by a DCM or SEF. 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75527 

18Commenters included ACSA, the Agribusiness 

Associations, Amcot, CMC, Falmouth Farm Supply, 

the Grain and Feed Associations, Land O’Lakes, 

NCFC, AGA, API, EPSA, ETA, the Commercial 

Energy Working Group, ICE, KCBT, TFI, and MGEX. 

19 In related commentary, the Commercial Energy 

Working Group asked the Commission to clarify 

that the definition of ‘‘member’’ in the final rule 

covers only those people holding equity interests in 

a DCM that permit such holder to submit orders 

directly on the DCM’s floor (or an electronic 

equivalent). 

20Commenters included Agribusiness Council of 

Indiana; Agribusiness Association of Ohio; EPSA; 

Grain and Feed Association of Illinois; KCBT; Land 

‘O Lakes; Minnesota Grain and Feed Association; 

NCFC; NGFA; Oklahoma Grain and Feed 

Association; RMAA; and the Commercial Energy 

Working Group. 

21Commenters included Amcot; CME; EPSA; 

FIA; and NCFC. 

NFA recognized that audio recordings 

have been very useful to the 

Commission in enforcement 

proceedings and stated that only those 

firms that choose to record calls should 

have to maintain their recordings. 

Acknowledging that some FCMs 

currently record their telephone calls, 

FIA commented that, to the extent they 

do, recording is limited to dedicated 

order desks and only required to be 

stored for no more than a few days or 

weeks. FIA and MGEX asserted that the 

technology available to comply with the 

Proposal was ‘‘uncertain at best’’ and, 

therefore, the Proposal should be 

considered further in the context of 

available technology and then reproposed in a separate release. 

EPSA suggested that a separate 

rulemaking should be published to 

address changes to regulation 1.35(a) to 

give affected parties reasonable notice. 

Amcot, Henderson & Lyman, and ICE 

asserted that the Commission has not 

considered existing state and federal 

wiretapping law and privacy laws in 

proposing these new requirements. 

B. Proposed Requirement for All 

Members of a DCM or SEF To Record 

Oral and Written Communications 

Leading to the Execution of Cash 

Commodity Transactions 

Three DCMs joined various 

agricultural and energy sector trade 

organizations in opposing the 

Commission’s proposed requirement to 

keep oral communications, and existing 

requirement to keep written 

communications, regarding cash market 

transactions on members of a DCM or 

SEF who are non-financial entities and 

commercial end-users, and who do not 

have customers.18 These commenters 

pointed out that including a DCM 

member’s cash transactions would 

require compliance by hundreds, if not 

thousands, of agricultural and energy 

firms, including many who do not have 

customers and do not themselves enter 

into futures or swaps.19 EPSA and the 

Commercial Energy Working Group 

stated that many of the affected entities 

in the energy sector would be small 

entities that likely are unaware of the 

Proposal. Commenters asserted that the 

requirement amounted to unauthorized 

regulation of the cash market, which 

they asserted has always been carved 

out of the Commission’s jurisdiction.20

Commenters also stated that the DoddFrank Act did not intend for the 

Commission to subject cash commodity 

transactions to new recordkeeping 

requirements.21

The Grain and Feed Association of 

Illinois, the Oklahoma Grain and Feed 

Association, NCFC, and NGFA opposed 

the proposed revisions on the grounds 

that the employees of a grain elevator 

that is a DCM member would have to 

record calls and preserve emails with 

farmer producers from whom they buy 

grain for cash and, thus, hundreds of 

employees of grain storage and 

processing facilities would be 

significantly burdened. As a result, 

these commenters stated, a grain 

elevator that is a DCM member would 

be disadvantaged as compared to a grain 

elevator that is not a DCM member as 

the non-member would not be burdened 

by the compliance costs associated with 

proposed regulation 1.35(a). KCBT 

asserted that this creates a 

discriminatory regulatory structure. 

According to ICE, this outcome would 

deter firms from hedging commercial 

risk on a DCM or SEF, thereby defeating 

the Dodd-Frank Act’s transparency 

objectives. NGFA and its affiliates 

argued that burdening facilities owned 

by companies that are DCM members 

with the new rules would create a 

bifurcation of the cash grain 

marketplace into facilities required to 

comply with new recordkeeping 

requirements and facilities owned and 

operated by companies who are not 

DCM members and, therefore, not 

required to comply. KCBT stated that 

their rules (and the rules of other DCMs) 

require that operators of registered 

delivery warehouses be members, 

further stating that the regulatory 

disincentives created by the application 

of proposed regulation 1.35(a) to all 

DCM member cash transactions could 

affect not only DCM expertise, but 

deliverable supplies and convergence. 

According to KCBT, should DCM 

commercial members operating delivery 

warehouses decide to withdraw from 

membership because of proposed 

regulation 1.35(a), deliverable supplies 

would be negatively impacted and there 

would be fewer deliverable supplies to 

foster convergence at delivery. 

Amcot stated that neither it nor its 

members should be subject to the 

proposed amendments because they do 

not transact with the public. Similarly, 

the Commercial Energy Working Group 

commented that end-users (i.e., DCM or 

SEF members trading for themselves) 

should not have to comply with 

proposed regulation 1.35(a) because 

they do not trade for customers and, 

therefore, pose minimal systemic risk. 

EPSA stated that regulation 1.35(a) was 

never intended to burden end-users. 

Several commenters objected to the 

Commission’s regulation of records of 

cash commodity transactions. KCBT 

stated that it did not believe the 

Commission ever intended for 

regulation 1.35(a) to apply to cash and 

cash forward transactions outside of 

those directly relating to a regulated 

futures or swaps transaction. KCBT 

further stated that it has always 

interpreted regulation 1.35(a) to cover 

only those transactions for which a 

DCM member is acting as an agent for 

a customer. Thus, according to KCBT, 

the only DCM members (who were not 

otherwise FCMs or IBs) who would be 

required to comply would be floor 

brokers (‘‘FBs’’); DCM members who 

trade for themselves would not be 

covered. KCBT stated that it has also 

understood the ‘‘related cash 

transactions’’ referenced by regulation 

1.35(a) to refer only to those 

transactions involving an exchange of a 

futures transaction for a physical 

commodity. 

The Commercial Energy Working 

Group asserted that, under the proposed 

amendments to regulation 1.35(a), many 

of the entities that transact on ICE, for 

example, would now be required to 

maintain records pursuant to 

Commission rules without 

consideration of whether the market 

users handle customer orders, which 

would be a departure from the past for 

members of contract markets that are 

not FCMs, IBs, or present on a trading 

floor. As a general matter, FIA argued 

that these proposed amendments to 

regulation 1.35(a) are not necessary to 

implement the Dodd-Frank Act and, 

therefore, they run counter to the 

guiding principles set out in President 

Obama’s January 2011 Executive Order 

13563, Improving Rulemaking and 

Regulatory Review. 

ACSA, CMC, FIA, Henderson & 

Lyman, ICE, NFA, and NIBA stated that 

the proposed amendments were 

inconsistent with the Commission’s 

proposed recordkeeping requirements 

for SDs and MSPs because they would 

require FCMs, RFEDs, IBs, and members 

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75528 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

22http://www.iosco.org/news/pdf/ 

IOSCONEWS137.pdf. 

23Final regulation 1.35(a) excludes from the oral 

communications recordkeeping requirement any IB 

that has generated, over the preceding three years, 

$5 million or less in aggregate gross revenues from 

its activities as an IB (‘‘Small IB’’). All other IBs 

with aggregate gross revenue exceeding $5 million 

will be referred to as ‘‘non-Small IBs.’’ The 

Commission has previously determined this to be 

an appropriate definition of a small IB. In 

connection with regulation 1.71 (Conflicts of 

Interest Policies and Procedures by Futures 

Commission Merchants and Introducing Brokers), 

the Commission provided a separate regulatory 

standard for small IBs, based on this definition, to 

lessen the compliance burden imposed by the 

conflicts of interest requirements on such firms. See 

SD and MSP Recordkeeping Final Rule, 77 FR at 

20148. In that rule, the Commission found that 

‘‘Section 4d(c) of the Act mandates the 

establishment of ‘appropriate informational 

partitions’ within FCMs and IBs, and all such firms 

are bound by that statutory requirement,’’ and. It 

concluded that ‘‘the size of an IB plays a significant 

role in determining the appropriateness of such 

partitions.’’ Id. at 70149. Applying this new 

standard for IBs to the instant final rulemaking, the 

Commission estimates that with respect to IBs, 

limiting the scope of final regulation 1.35(a) to IBs 

that are not small excludes more than 95% of IBs 

from the regulation 1.35 oral communications 

recordkeeping requirement adopted in this release. 

Thus, at present, the Commission expects that no 

more than approximately 75 IBs will be subject to 

the final oral recordkeeping requirements of 

regulation 1.35. 24The Commission notes that certain FTs, 

although excluded from the oral communications 

requirement in regulation 1.35(a), will be required 

to record their oral communications concerning 

swap transactions and their related cash and 

forward transactions, pursuant to regulation 

23.202(a)(1) and (b)(1). Pursuant to regulation 

23.200(i), a related cash or forward transaction 

means a purchase or sale for immediate or deferred 

physical shipment or delivery of an asset related to 

a swap where the swap and the related cash or 

forward transaction are used to hedge, mitigate the 

risk of, or offset one another. See SD and MSP 

Recordkeeping Final Rule, 77 FR at 20202. The 

recently finalized definition of SD (regulation 

1.3(ggg)(iv)(H)) requires certain FTs who deal in 

swaps to comply with regulation 23.202, as well as 

of a DCM or SEF to record voice 

communications regardless of any other 

recordkeeping requirement that captures 

the same information. 

C. Relationship Between Regulations 

1.31 and 1.35(a) 

Amcot stated that it would be 

burdensome for its farmer-owned cotton 

marketing cooperative members to 

retain recordings of telephone calls for 

five years as the Commission proposed. 

CME commented that conversations 

should only be retained for six months 

after the execution of a transaction. FIA 

commented that the Commission failed 

to provide a justification for requiring 

that a swap record be maintained for the 

life of the swap plus five years. In 

contrast to other commenters, Mr. Chris 

Barnard asserted that all records should 

be kept indefinitely and scanned after 

two years, arguing that there is no 

technological or practical reason to limit 

the record retention period. Mr. Barnard 

specifically commented that records of 

voice communications also should be 

kept indefinitely. To support the 

asserted usefulness of such records, Mr. 

Barnard cited a 2009 IOSCO report 

stating that telephone records could 

benefit enforcement investigations.22

III. Final Rules 

The markets subject to the jurisdiction 

of the Commission have undergone a 

significant transformation over the last 

few decades, and particularly in the last 

few years. Technological advances have 

contributed to a tremendous growth in 

trading volume as well as the number 

and type of market participants, 

including significant numbers of retail 

customers that invest in the commodity 

markets through a variety of means. 

Markets are also more interconnected 

than ever before, with order flow 

distributed across multiple trading 

centers. These changes require the 

Commission to adapt, and these final 

rules are part of that adaptation. 

The overarching purpose of the 

Commission’s final rules is to promote 

market integrity and protect customers. 

Requiring the recording and retention of 

oral communications will serve as a 

disincentive for covered entities to make 

fraudulent or misleading 

communications to their customers over 

the telephone and could serve as a 

meaningful deterrent against violations 

such as trading ahead of customer 

orders by providing a record of the time 

that a customer’s telephone order is 

received. When the perspectives of the 

commenters are combined with the 

Commission’s own experiences 

regulating the markets subject to its 

jurisdiction, a common theme emerges: 

The collection of and access to 

searchable records, both oral and 

written, are indispensable tools the 

Commission needs to ensure market 

integrity and protect customers. 

Currently, many of the market 

participants that will be subject to the 

final rules have such records by way of 

their business needs or other regulatory 

requirements. Some commenters have 

urged the Commission to rely on 

currently available information and not 

require more. While existing 

information aids the Commission in 

discharging its regulatory responsibility, 

the Commission believes current 

recordkeeping, particularly in the area 

of oral recordkeeping, is limited, to 

varying degrees, in availability, scope 

and effectiveness. 

The final rules will significantly 

advance the Commission’s efforts to 

detect and deter abusive, disruptive, 

fraudulent and manipulative acts and 

practices that seriously harm market 

integrity and customers. In addition, the 

information that will be required as a 

result of this rulemaking will benefit the 

Commission in its market analysis 

efforts, such as investigating and 

preparing market reconstructions and 

understanding causes of unusual market 

activity. Further, the requirement that 

records be kept current and readily 

available facilitates the timely pursuit of 

potential violations, which can be 

important in seeking to freeze and 

recover any profits received from illegal 

activity. 

Notwithstanding the important policy 

and practical reasons for the final rules, 

the Commission shares many of the 

commenters’ concerns regarding costs 

and the availability of relevant 

technology. Therefore, as discussed 

below, the Commission is adopting 

alternatives to the Proposal where doing 

so would achieve the Commission’s 

objectives and the benefits of promoting 

market integrity and protecting 

customers albeit at lower cost. The 

Commission is also significantly 

extending the amount of time entities 

have to come into compliance with the 

final rule requiring the recording of oral 

communications. In so doing, the 

entities subject to this rulemaking are 

afforded the same amount of time as 

SDs and MSPs to come into compliance 

with analogous requirements in 

regulations 23.202(a)(1) and (b)(1). 

Regarding oral communications, in 

response to commenters’ concerns that 

the scope of the new requirement was 

too broad, the new requirement to 

record oral communications will be 

limited to those oral communications 

that lead to a transaction in a 

commodity interest. As proposed, the 

oral communications recordkeeping 

requirement would have applied to 

commodity interest and cash 

commodity transactions. In response to 

comments asserting that the cost of 

implementing and maintaining an oral 

communication recording system would 

be overly burdensome for small entities 

and the commercial end-user, nonintermediary members of a DCM or SEF, 

the Commission has determined to 

exclude from the new requirement to 

record oral communications: Small 

IBs23; the oral communications of an FB 

who is a member of a DCM or SEF that 

do not lead to the purchase or sale for 

any person other than the FB of any 

commodity for future delivery, security 

futures product, swap, or commodity 

option authorized under section 4c of 

the Act; and certain members of a DCM 

or SEF, including floor traders 

(‘‘FTs’’),24 commodity pool operators 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75529 

certain other regulations in part 23, 

notwithstanding the fact that such FTs are not 

required to register as SDs. See 17 CFR 

1.3(ggg)(iv)(H), as finalized by the Commission in 

Further Definition of ‘‘Swap Dealer,’’ ‘‘SecurityBased Swap Dealer,’’ ‘‘Major Swap Participant,’’ 

‘‘Major Security-Based Swap Participant’’ and 

‘‘Eligible Contract Participant,’’ 77 FR 30596 (May 

23, 2012). 

25As noted above, SDs and MSPs are subject to 

the oral communications recording requirement in 

Part 23. See SD and MSP Recordkeeping Final Rule, 

77 FR at 20148 (to be codified at 17 CFR 

23.202(a)(1) and (b)(1)). SDs and MSPs that are also 

registered in a capacity covered by the oral 

communications recording requirement in 

regulation 1.35(a) would be subject to the recording 

requirements in both rules. 

26Regarding FBs, KCBT stated that, ‘‘it has always 

understood 1.35(a) to apply to members of DCMs 

* * * in order to capture and monitor the activities 

of DCM members * * * dealing with customers as 

agent for such transactions, namely registered FBs.’’ 

27An FB generally is defined in section 1a(22)(A) 

of the CEA, 7 U.S.C. 1a(22)(A), as: Any person—(— 

(i) who, in or surrounding any pit, ring, post, or 

other place provided by a contract market for the 

meeting of persons similarly engaged, shall 

purchase or sell for any other person—(I) any 

commodity for future delivery, security futures 

product, or swap; or (II) any commodity option 

authorized under section 4c of the CEA; or (ii) who 

is registered with the Commission as an FB. 

28An IB generally is defined in section 1a(31)(A) 

of the CEA, 7 U.S.C. 1a(31)(A), as: Any person 

(except an individual who elects to be and is 

registered as an associated person of a futures 

commission merchant) (i) who—(I) is engaged in 

soliciting or in accepting orders for—(aa) the 

purchase or sale of any commodity for future 

delivery, security futures product, or swap; (bb) any 

agreement, contract, or transaction described in 

section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (cc) any 

commodity option authorized under section 4c; or 

(dd) any leverage transaction authorized under 

section 19; and (II) does not accept any money, 

securities, or property (or extend credit in lieu 

thereof) to margin, guarantee, or secure any trades 

or contracts that result or may result therefrom; or 

(ii) who is registered with the Commission as an IB. 

See 7 U.S.C. 1a(31)(B). 

29See, e.g., In re DiPlacido, [2007–2009 Transfer 

Binder] Comm. Fut. L. Rep. (CCH) ¶ 30,970 at 

62,484 (CFTC Nov. 5, 2008), summary affirmance, 

364 Fed. Appx. 657 (2d Cir. 2009), cert. denied, 130 

S.Ct. 1883 (2010) (records of FB’s oral 

communications with customer admitted as 

evidence in case concerning manipulation of price 

of NYMEX electricity futures contracts). 

30For instance, CME Rule 536.G, Telephone 

Recordings, states: 

Unless specifically exempted by the Market 

Regulation Department or designated Exchange 

staff, all headset communications must be voice 

recorded by the member or member firm authorized 

to use the headset and all such recordings must be 

maintained for a minimum of 10 business days 

following the day on which the recording is made. 

Members and member firms are permitted to utilize 

their own recording devices, provided that the 

devices meet reasonable standards with respect to 

quality and reliability. Alternatively, members and 

member firms may utilize an Exchange 

administered voice recording system for a fee. 

CME Rulebook, Chapter 5 Trading Qualifications 

and Practices, Rule 536 Recordkeeping 

Requirements for Pit, Globex, and Negotiated 

Trades. 

31An FT generally is defined in section 1a(23)(A) 

of the CEA, 7 U.S.C. 1a(23)(A), as: Any person—(i) 

who, in or surrounding any pit, ring, post, or other 

place provided by a contract market for the meeting 

of persons similarly engaged, purchases or sells 

solely for such person’s own account—(I) any 

commodity for future delivery, security futures 

product, or swap; or (II) any commodity option 

authorized under section 4c of the CEA; or (ii) who 

is registered with the Commission as an FT. 

32See 17 CFR 3.4(a). 

(‘‘CPOs’’), SDs, MSPs,25 and members 

that are not registered or required to be 

registered with the Commission in any 

capacity. As proposed, the oral 

communications recording requirement 

would have applied to FCMs, RFEDs, all 

IBs and all members of a DCM or SEF. 

These exclusions are based on the 

Commission’s experience that such 

entities are either unlikely to or 

prohibited from having a customer 

interface or an effect on market 

integrity. For example, while a Small IB 

takes customer orders, they generally do 

not execute those orders, meaning that 

they lack a direct market interface that 

could affect market integrity. Further, as 

defined herein, a Small IB is unlikely to 

generate the volume of market activity 

that the Commission would expect 

could affect the integrity of the markets. 

Conversely, where an FT could affect 

market integrity, they are prohibited 

from accepting customer funds and are 

therefore excluded by the limiting 

principle of customer protection. 

While seeking to mitigate the costs of 

compliance for smaller entities without 

compromising the Commission’s 

objectives, the Commission is not 

exempting Small IBs and other excluded 

participants from the requirement to 

keep written records of covered 

information, for example, given or 

received by telephone. For example, if 

a Small IB receives a customer’s order 

over the telephone, then the Small IB 

would not be required to record the 

telephone call under the new provision 

in regulation 1.35(a), but the Small IB 

would be required to keep a written 

record of the order under both the 

existing requirement in regulation 

1.35(a) to keep and maintain records of 

‘‘all orders (filled, unfilled, or 

cancelled)’’ and the new requirement in 

regulation 1.35(a) to keep records of 

‘‘instructions’’ to place orders. 

Therefore, although this rulemaking’s 

definition of Small IB will exclude most 

IBs from the requirement to record oral 

communications, the Commission 

believes it can continue to promote 

market integrity and protect customers 

because the same IBs will continue to be 

required to keep written records under 

regulation 1.35(a). In addition, because 

many of an IB’s oral communications 

leading to a commodity interest 

transaction are conducted with FCMs, 

those oral communications would be 

recorded by the FCM. 

The Commission has also considered 

whether FBs should be treated similarly 

to IBs in drawing a distinction between 

large and small entities.26 The 

Commission does not believe any 

similar distinction is warranted. As 

Congress recognized by creating 

separate categories of registrants, FBs 

and IBs perform different functions. 

While both receive orders, an FB 

executes orders,27 and an IB transmits 

orders for execution.28 Because FBs 

execute orders and can direct the 

manner of the same without an 

intermediary, they can have a 

significant impact on the integrity of the 

market.29 When an IB solicits or 

receives order information from a 

customer through an oral 

communication, it then will often 

communicate that information either to 

an FCM or FB. Under the regulation as 

adopted, the FCM or FB would have to 

record the oral communication with the 

IB. By contrast, an FB may have covered 

communications with a customer who is 

not itself subject to a recording 

requirement. The need for recording 

oral communications with FBs has been 

independently recognized by several 

DCMs.30 DCM rules requiring FBs to 

record oral communications do not 

make distinctions based on an FB’s size. 

To address commenter concerns that 

the proposed rule would capture the 

oral communications of certain 

members of DCMs who currently are 

registered as FBs, but are solely trading 

for their own accounts, i.e., acting as 

FTs.,31 the Commission has determined 

to limit an FB’s obligation to record its 

oral communications under regulation 

1.35(a) to those oral communications 

that lead to the purchase or sale for any 

person other than the FB of any 

commodity for future delivery, security 

futures product, swap, or commodity 

option authorized under section 4c of 

the CEA. In this way, a registered FB 

operating as an FT (i.e., not handling 

customer orders) will be treated the 

same as an FT under the final rules.32

In determining the applicability of the 

final rules to another group of market 

participants that are DCM members, 

commodity trading advisors (‘‘CTAs’’), 

the Commission has considered 

measures to again tailor the oral 

communications recordkeeping 

requirements for CTAs to mitigate the 

costs of compliance while achieving the 

twin objectives of promoting market 

integrity and protecting customers. The 

Commission has reduced the impact on 

CTAs by: Limiting the oral 

communications recordkeeping 

requirement to commodity interest 

transactions (i.e., not adopting the 

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75530 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

33The Commission considered drawing a 

revenues-based threshold for CTAs. However, given 

that CTAs do not have a capital requirement it is 

not possible for the Commission to readily 

determine the sizes of all registered CTAs and, 

therefore, the Commission would not be able 

measure the impact that such a threshold would 

have on CTAs. The Commission also considered, as 

an alternative, limiting the types of oral 

communications that a CTA must record in a 

similar manner to the way in which it has limited 

the types of oral communications that an FB must 

record to brokering communications. However, the 

Commission has determined that such a limitation 

is a not a reasonable alternative to having all CTAs 

who are members of a DCM or SEF record all oral 

communications that lead to the execution of a 

commodity interest transaction. Indeed, the 

limitation for FBs is appropriate for FBs, and not 

for other registration categories, given the current 

regulatory regime for FBs and FTs discussed above. 

34See 17 CFR 23.206, as adopted by the 

Commission in SD and MSP Recordkeeping Final 

Rule. 

35See SD and MSP Recordkeeping Final Rule, 77 

FR at 20130. 

36See U.S. Commodity Futures Trading 

Commission, Division of Market Oversight, 

Advisory for Futures Commission Merchants, 

Introducing Brokers, and Members of a Contract 

Market over Compliance with Recordkeeping 

Requirements, Feb. 5, 2009, (http://www.cftc.gov/ 

ucm/groups/public/@industryoversight/documents/

file/recordkeepingdmoadvisory0209.pdf) (footnotes 

omitted): 

The Division of Market Oversight (‘‘Division’’) 

has become aware that there is an industry 

misunderstanding of the record retention 

requirements of Regulations 1.35 and 1.31 as it 

relates to electronically conveyed records. The 

Division is issuing this Advisory to address any 

industry misunderstanding of the Commission’s 

recordkeeping requirements applicable to futures 

commission merchants (‘‘FCMs’’), introducing 

brokers (‘‘IBs’’), and members of a designated 

contract market (‘‘members’’). With the increased 

reliance in the futures industry on electronic media 

and the use of personal electronic devices and 

communications technology to facilitate the 

execution of transactions for both open outcry and 

electronic trading, the Division is issuing this 

Advisory to correct any misunderstandings and to 

make certain that the individuals and entities 

subject to the Commission’s recordkeeping 

requirements maintain all electronic forms of 

communications, including email, instant messages, 

and any other form of communication created or 

transmitted electronically for all trading. 

proposal to include cash commodity 

transactions); reducing the record 

retention period for all records of oral 

communications from 5 years to 1 year; 

permitting covered persons to contract 

with other Commission registrants to 

retain the required records (provided 

that the records retained by the 

contractor registrant are the same 

records, thus allowing covered persons 

to avoid retaining the same records as 

other Commission registrants); and 

removing the tagging requirement.33

The Commission understands that 

currently available technology for 

recording oral communications may not 

be immediately accessible or may 

involve a material cost outlay for an 

affected entity. However, the 

Commission also anticipates that as the 

availability of this technology increases 

over time, the costs to use such 

technology will decline accordingly. 

Accordingly, to further conform 

regulation 1.35(a) with the final 

recordkeeping rule for SDs and MSPs,34

and in response to commenter request 

for a flexible compliance timetable, the 

Commission is adopting a [November 

28, 2013] compliance date and 

regulation 1.35(a)(4)(i) pursuant to 

which the Commission may, in its 

discretion, establish an alternative 

compliance schedule for the 

requirement to record oral 

communications under regulation 

1.35(a)(1). Under new regulation 

1.35(a)(4)(i), compliance with the 

requirement to record oral 

communications must be found to be 

technologically or economically 

impracticable for an affected entity that 

seeks, in good faith, to comply with the 

requirement. Pursuant to new regulation 

1.35(a)(4)(iii), the Commission delegates 

to the Director of the Division of Swap 

Dealer and Intermediary Oversight the 

authority to exercise the Commission’s 

discretion under regulation 1.35(a)(4)(i). 

The purpose of new regulation 

1.35(a)(4) is to facilitate the ability of the 

Commission to provide a 

technologically practicable compliance 

schedule for an affected entity that seeks 

to comply in good faith with the oral 

communications recordkeeping 

requirements of regulation 1.35(a)(1). In 

order to obtain relief under new 

regulation 1.35(a)(4), an affected entity 

must submit a request to the 

Commission. An affected entity 

submitting a request for relief must 

specify the basis in fact supporting its 

claim that compliance with the oral 

communications recordkeeping 

requirement under regulation 1.35(a)(1) 

would be technologically or 

economically impracticable. Such a 

request may include a recitation of the 

specific costs and technical obstacles 

particular to the entity seeking relief 

and the efforts the entity intends to 

make in order to ensure compliance 

according to an alternative compliance 

schedule. Relief granted under 

regulation 1.35(a)(4) shall not cause an 

affected entity to be out of compliance 

or deemed in violation of any 

recordkeeping requirements. Such 

requests for an alternative compliance 

schedule shall be acted upon within 30 

days from the time such a request is 

received. If not acted upon within the 

30-day period, such request will be 

deemed approved. 

Regarding comments that the 

proposed amendments to regulation 

1.35(a) were inconsistent with the 

Commission’s proposed recordkeeping 

requirements for SDs and MSPs because 

they would require FCMs, RFEDs, IBs, 

and members of a DCM or SEF to record 

voice communications regardless of any 

other recordkeeping requirement that 

captures the same information, the 

Commission addressed these comments 

in the final recordkeeping rules for SDs 

and MSPs, clarifying that, to the extent 

pre-execution trade information does 

not include information communicated 

by telephone, an SD or MSP is under no 

obligation to create recordings of its 

telephone conversations. If, however, 

any of this pre-execution trade 

information is communicated by 

telephone, the SD or MSP must record 

such communications.35 This 

clarification is consistent with the 

requirements under the revision to 

regulation 1.35 requiring that all oral 

communications be recorded regardless 

of whether an audit trail can be 

established with other types of records. 

In response to commenter inquiry about 

whether face-to-face communications 

would have to be recorded under the 

final rule, the Commission does not 

intend for the final rule to require the 

recording of face-to-face conversations 

that do not occur over electronic, digital 

or other media. 

2. Written Communications 

Regarding written communications, 

the Commission has decided to adopt 

the proposed amendment to regulation 

1.35(a) to clarify that the existing 

requirement to keep written records 

applies to electronic written 

communications such as emails and 

instant messages, as proposed. The 

Commission considered comments 

asserting that: The requirement to keep 

‘‘electronic communications’’ should 

not extend to members of a DCM or SEF 

that do not handle customer orders; 

regulation 1.35(a) has never required 

DCM members to keep records of their 

electronic communications relating to 

their cash commodity transactions; and 

storing records of electronic 

communications would be overly 

burdensome for these members. In 

response, the Commission notes that the 

record retention requirements of 

existing regulation 1.35, as confirmed by 

the Commission’s Division of Market 

Oversight in 2009, include all electronic 

forms of communication (emails, instant 

messages, and any other form of 

communication created or transmitted 

electronically).36 Thus, contrary to 

commenter assertions, the 

recordkeeping obligations of regulation 

1.35 currently require that all DCM 

members keep electronic 

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37See SD and MSP Recordkeeping Final Rule, 77 

FR at 20202–03 (17 CFR 23.202(a)(1) and (b)(1)). 

38 ‘‘Commodity interest’’ includes commodity 

futures, retail forex, commodity options, and swaps. 

See Final Adaptation Rule, 77 FR at 66319 (to be 

codified at 17 CFR 1.3(yy)). 

39 17 CFR 1.35(a). Regulation 1.35(a) has included 

transactions in ‘‘cash commodities’’ since as early 

as 1964: 

Each futures commission merchant and each 

member of a contract market shall keep full, 

complete, and systematic records, together with all 

pertinent data and memoranda, of all transactions 

relating to his business of dealing in commodity 

futures and cash commodities * * * 

17 CFR 1.35(a) (1964). 

40This definition of ‘‘related cash or forward 

transaction’’ mirrors the definition of the same term 

as it applies to swap transactions for purposes of 

certain of an SD’s or MSP’s recordkeeping 

obligations under Part 23 of the Commission’s 

regulations. See SD and MSP Recordkeeping Final 

Rule, 77 FR at 20202. 

41The Commission’s glossary includes this 

definition of ‘‘forward contract’’: 

A cash transaction common in many industries, 

including commodity merchandising, in which a 

commercial buyer and seller agree upon delivery of 

a specified quality and quantity of goods at a 

specified future date. Terms may be more 

‘‘personalized’’ than is the case with standardized 

futures contracts (i.e., delivery time and amount are 

as determined between seller and buyer). A price 

may be agreed upon in advance, or there may be 

agreement that the price will be determined at the 

time of delivery. 

See CFTC Glossary, A Guide to the Language of 

the Futures Industry, at http://www.cftc.gov/ 

ConsumerProtection/EducationCenter/ 

CFTCGlossary/glossary_f.html. 

42See SD and MSP Recordkeeping Final Rule, 77 

FR at 20130. 

43 Id. 

44FIA stated: 

We interpret the Commission’s statement to mean 

that, to the extent a DCM or SEF records the 

relevant conversations of orders transmitted for 

execution by telephone, a Commission registrant 

that transmits such orders may rely on the DCM or 

SEF and is not required to record such 

conversations and maintain such records 

separately. 

communications. Therefore, the relevant 

portion of the proposed new language 

(now being adopted by the Commission) 

‘‘all * * * written communications 

* * * whether communicated by * * * 

instant messaging, chat rooms, 

electronic email, mobile device, or other 

digital or electronic media’’ does not 

impose any new requirements on DCM 

members. Instead, the new language 

clarifies the existing requirement for 

DCM members to maintain electronic 

communications by enumerating the 

forms of communications that the 

Commission intends to be covered by 

the rule. In addition, as explained 

above, the final language relating to 

written communications is consistent 

with the final recordkeeping rule for 

SDs and MSPs.37

The Commission also has decided to 

change the proposed language in 

regulation 1.35(a) which would have 

required an entity to keep records of ‘‘all 

transactions related to its business of 

dealing in commodity interests and cash 

commodities’’ to ‘‘all transactions 

related to its business of dealing in 

commodity interests 38 and related cash 

and forward transactions.’’ This is 

different than existing regulation 1.35, 

which states ‘‘commodity futures, retail 

forex transactions, commodity options 

and cash commodities (including 

currencies).’’ 39 The final rule defines 

‘‘related cash or forward transaction’’ as 

a purchase or sale for immediate or 

deferred physical shipment or delivery 

of an asset related to a commodity 

interest where the commodity interest 

transaction and the related cash or 

forward transaction are used to hedge, 

mitigate the risk of, or offset one 

another.40 Because a forward is a type 

of cash transaction already covered by 

existing regulation 1.35, amending 

regulation 1.35 to apply to related 

forward transactions does not constitute 

an expansion of the scope of existing 

regulation 1.35.41

To reflect these changes, the 

Commission also is changing the 

proposed revision to the title of 

regulation 1.35 from ‘‘Records of 

Commodity Interest and Cash 

Commodity Transactions’’ to ‘‘Records 

of Commodity Interest and Related Cash 

or Forward Transactions.’’ 

In response to comments that the 

requirement to keep transaction records 

in separate files identifiable by 

transaction and counterparty is 

overbroad, overly burdensome, costly, 

and/or impossible to achieve, the 

Commission is modifying the Proposal 

to remove the requirement that each 

transaction be maintained as a separate 

electronic file. Instead, the final rule 

will require that such records be kept in 

a form and manner identifiable and 

searchable by transaction. This should 

be less burdensome than the Proposal 

because it will allow those required to 

comply to maintain searchable 

databases of the required records 

without the added cost and time needed 

to compile the required records into 

individual electronic files. It also is 

consistent with the final recordkeeping 

rule for SDs and MSPs under regulation 

23.202.42 As the Commission noted in 

the final release for that rulemaking, 

regulation 23.202 does not require the 

raw data to be tagged with transaction 

and counterparty identifiers so long as 

the recordkeeper can readily access and 

identify records pertaining to a 

transaction or counterparty by running 

a search of the raw data.43 Covered 

entities will be able to comply with this 

obligation by using any of a number of 

different solutions available, including 

commercially available products 

capable of conducting speech analytics 

on recordings from both landlines and 

mobile calls. 

FIA requested guidance on whether 

an FCM, IB, or other DCM or SEF 

member can satisfy the recordkeeping 

requirements under regulation 1.35(a) 

by relying on record retention 

performed by a DCM or SEF,44 and other 

commenters similarly requested 

guidance on whether a covered 

participant can rely on another 

Commission registrant’s records to 

satisfy its recordkeeping obligations. 

While complying with the final rule is 

the responsibility of the covered 

participant and the covered participant 

will be liable for failure to comply, 

depending on the type of record and 

arrangements made for access, covered 

persons may reasonably rely on a DCM, 

SEF or other Commission registrant to 

maintain certain records on their behalf. 

For example, a member of a DCM or SEF 

can rely on electronic order routing or 

order execution systems of FCMs, 

DCMs, or SEFs to record the audit trail 

information it enters into the system in 

accordance with Commission 

requirements, if the covered person 

arranges to get access to such records in 

order to satisfy requirements under the 

regulation. Reliance on another person, 

however, will not relieve a covered 

person of responsibility for compliance 

with the regulation. Reliance on a third 

party is only appropriate where the 

records maintained by the third party 

duplicate the information required to be 

kept by the regulation. For example, if 

an FCM records its telephone calls with 

a covered IB, the IB need not separately 

record the same calls if the IB and FCM 

agree that the FCM will maintain the 

record and provide access to the IB. By 

contrast, if a covered IB receives a 

customer order by telephone and then 

calls it into the FCM, the covered IB 

must record its telephone call with the 

customer, while the FCM records the 

call between the IB and FCM. For other 

types of records, like instant messages 

and emails, it is unlikely that covered 

persons will be able to rely on 

recordkeeping by a third party because 

the third party recipient will not have 

a complete record of the distribution of 

the message by the sender. 

The Commission has considered 

commenter requests to adopt best efforts 

approach to compliance, and require 

only the recording of conversations on 

firm-provided mobile telephones, not 

personal devices. The Commission 

declines these requests and reiterates 

that any conversation the content of 

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45Significant technological advancements in 

recent years, particularly with respect to the cost of 

capturing and retaining copies of electronic 

material, including telephone communications, 

have made the prospect of establishing 

recordkeeping requirements for digital and 

electronic communications more economically 

feasible and systemically prudent. Evidence of 

these trends was examined in March 2008 by the 

FSA, which studied the issue of mandating the 

recording and retention of voice conversations and 

electronic communications. The FSA issued a 

Policy Statement detailing its findings and 

ultimately implemented rules relating to the 

recording and retention of such communications, 

including a recent determination that all financial 

service firms will be required to record any relevant 

communication by employees on their work cell 

phones. Similar rules that mandate recording of 

certain voice and/or telephone conversations have 

been promulgated by the Hong Kong Securities and 

Futures Commission and by the Autorite ́ des 

Marche ́s Financiers in France and have been 

recommended by the International Organization of 

Securities Commissions (IOSCO). FSA, ‘‘Policy 

Statement: Telephone Recording: recording of voice 

conversations and electronic communications’’ 

(March 2008). 

46Recorded telephone conversations have been 

used in a number of the Commission’s enforcement 

cases as evidence of market abuse. See, e.g., 

DiPlacido v. CFTC, 364 Fed.Appx. 657 (2d Cir. 

2009); In re Barclays PLC, CFTC Docket No. 12–25 

(June 27, 2012); CFTC v. Optiver US LLC, 2012 WL 

1632613 (S.D.N.Y. Apr. 19, 2012). 47Commenters included Henderson & Lyman; 

Amcot; and ICE. 48See 18 U.S.C. 2511(2)(d) (Interception and 

disclosure of wire, oral, or electronic 

communications prohibited) (‘‘It shall not be 

unlawful under this chapter for a person not acting 

under color of law to intercept a wire, oral, or 

electronic communication where such person is a 

party to the communication or where one of the 

parties to the communication has given prior 

consent to such interception unless such 

communication is intercepted for the purpose of 

committing any criminal or tortious act in violation 

of the Constitution or laws of the United States or 

of any State.’’) 

49For example, under New York state law, only 

one of the parties to the conversation must consent. 

See NY CLS Penal § 250.00. Under California and 

Illinois state laws, all parties to the conversation 

must consent to the recording. See Cal. Pen. Code 

§ 632; 720 ILCS 5/14–1. 

50See, e.g., Griggs-Ryan v. Smith, 904 F.2d 

112,118 (1st Cir. 1990) (call recipient, previously 

warned that all incoming calls were being recorded, 

impliedly consented to interception); Kearney v. 

Salomon Smith Barney, Inc., 45 Cal.Rptr.3d 730, 

749 (Cal. 2006) (business that adequately advises all 

parties to a telephone call, at the outset of the 

conversation, of its intent to record the call would 

not violate the statute prohibiting the recording of 

telephone conversations without the consent of all 

parties). 

51Moreover, if a state law were to conflict with 

the recording requirement in regulation 1.35(a), 

such a law would be preempted by regulation 

1.35(a). 

52See 17 CFR 1.31 

53See SD and MSP Recordkeeping Final Rule, 77 

FR at 20204 (Apr. 3, 2012) (‘‘Provided, however, 

that records of oral communications communicated 

by telephone, voicemail, mobile device, or other 

digital or electronic media pursuant to 

§ 23.202(a)(1) and (b)(1) shall be kept for a period 

of one year.’’). 

54The obligation to record oral communications 

under final regulation 1.35(a)(1) will not apply to 

(i) oral communications that lead solely to the 

execution of a related cash or forward transaction; 

(ii) oral communications by an FB that do not lead 

to the purchase or sale for any other person of any 

commodity for future delivery, security futures 

product, swap, or commodity option authorized 

under section 4c of the Commodity Exchange Act; 

(iii) an IB that has generated over the preceding 

three years $5 million or less in aggregate gross 

revenues from its activities as an IB; (iv) an FT; (v) 

a CPO; (vi) an SD; (vii) an MSP; or (viii) a DCM or 

SEF member that is not registered or required to be 

registered with the Commission in any capacity. 

which is described under the regulation 

must be recorded, regardless of whether 

it occurs on a firm-provided or personal 

phone.45 It would be contrary to the 

objectives of ensuring market integrity 

and customer protection to allow 

circumvention of the rule simply by 

communicating on a personal device 

lacking recording capability. To be 

clear, covered persons must ensure that 

covered communications do not occur 

on personal phones that lack recording 

capability. And while the Commission 

is not adopting any explicit safe harbors, 

as a matter of course, the Commission 

considers good faith compliance with 

policies and procedures reasonably 

designed to comply with the oral 

communications recording rule as a 

mitigating factor when exercising its 

discretion in enforcement actions for 

violation of the rule. 

Regarding comments about the 

existing NFA requirement that NFA 

member firms with more than a certain 

percentage of disciplined associated 

persons must record all conversations 

that they have with existing and 

potential customers for two years, the 

Commission believes that the NFA rule 

has been effective at protecting the 

markets and the public. However, as 

discussed throughout, the Commission 

does not view its final recording 

requirement solely as a customer 

protection rule. The amendments 

adopted by this release are also a means 

to protect the integrity of the markets by 

aiding the Commission in detecting and 

deterring market abuse, including 

manipulation and false reporting.46

The Commission disagrees with 

commenters who stated that compliance 

with the new recording requirement 

would be illegal in certain 

jurisdictions.47 Federal law does not 

prohibit a person from recording a 

telephone call where the person 

recording the call is a party to the call 

or one of the parties to the call has given 

prior consent to being recorded.48 While 

state laws differ regarding the ability to 

record customer telephone 

conversations, the difference exists in 

the type of consent required to be given 

before recording can occur. For 

example, some states require the 

consent of one party to the call and 

others require the consent of all parties 

to the call.49 Consent can be explicit or 

implied. A customer will have provided 

consent if, after being notified that the 

call is being recorded, he or she 

continues with the call.50 Therefore, a 

covered participant will in all 

circumstances be able to comply with 

this final recording rule without 

violating any other state or federal laws 

by informing the other parties to the call 

that the call is being recorded.51

Commenters also focused on the 

relationship between the proposed 

changes to regulation 1.35(a) and the 

existing record retention obligations of 

regulation 1.31 (Books and records; 

keeping and inspection). Under 

regulation 1.31, all books and records 

required to be kept under the Act or by 

the Commission’s regulations must be 

kept for five years from the date thereof 

and be readily accessible during the first 

two years of the five-year period. Given 

the proposed amendment to regulation 

1.35(a) to include a requirement to 

record all oral communications leading 

to the execution of a commodity interest 

or cash commodity transaction and that 

all such recordings be retained pursuant 

to regulation 1.31, records of oral 

communications kept pursuant to 

proposed regulation 1.35(a) would have 

had to be kept for five years.52

Concerning the relationship between 

regulations 1.31 and 1.35(a), the 

Commission has determined to adopt a 

retention period of one year for all 

records of oral communications that 

lead to the execution of a transaction in 

a commodity interest. This modification 

responds to comments stating that the 

proposed retention period of five years 

for records of oral communications was 

too long. This also is consistent with the 

final provision for SD and MSP oral 

communications under new regulation 

23.203(b)(2).53 In addition, the 

Commission believes that the one-year 

retention period for records of oral 

communications will enable it to 

adequately execute its enforcement 

responsibilities under the Act and these 

regulations, while minimizing the 

storage costs imposed on affected 

entities. 

In specific response to Amcot’s 

concern that the five-year retention 

period for oral communications would 

have been too burdensome to its farming 

cooperative members, the Commission 

notes that, due to the adopted revisions 

to regulation 1.35(a), discussed above, 

the requirement to record oral 

communications likely will not apply to 

a significant portion, if any, of Amcot’s 

members.54 With respect to Encana’s 

request for clarification concerning the 

applicability of regulation 1.31 to 

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55 44 U.S.C. 3501 et seq. 

56 Id. 

57On November 2, 2012, the Commission 

published in the Federal Register the Final 

Adaptation Rule. The Final Adaptation Rule 

promulgated the vast majority of the amendments 

that the Proposal had introduced. However, in the 

Final Adaptation Rule, the Commission stated that 

it would address in a separate release certain of the 

proposed changes to regulation 1.35 (i.e., the oral 

communication recordkeeping requirements). 

58See 76 FR 33066, June 7, 2011. 

commercial end-users, regulation 1.31 

applies to all records required to be kept 

by the Act or the Commission’s 

regulations, such as records required to 

be kept under regulations 1.35, 18.05 

and 23.202. Therefore, Encana’s request 

is better addressed in particular 

response to those other recordkeeping 

requirements than in a discussion of 

how those records should be kept. In 

response to CME’s comment that 

although the Commission suggests that 

the retention period for swaps applies 

only to SDs and MSPs, as addressed in 

proposed regulation 23.203(b), the 

proposed amendment to regulation 1.31 

is ambiguous in that it could be read to 

apply to all entities, the Commission 

clarifies that the final provision in 

regulation 1.31 regarding the retention 

period for records of swap transactions 

is triggered by the type of record and not 

the entity that is required to keep the 

record. Therefore, although regulation 

23.203(b) only applies to SDs and MSPs 

with regard to their swap transactions, 

the final corresponding provision in 

regulation 1.31 applies to anyone who is 

required by the Act or by Commission 

regulations to keep records of swap or 

related cash or forward transactions. 

IV. Administrative Compliance 

A. Paperwork Reduction Act 

Regulation 1.35(a) is being amended 

to provide that certain Commission 

registrants be required to record and 

keep records of their oral 

communications that lead to the 

execution of a commodity interest 

transaction and their written 

communications that lead to the 

execution of a commodity interest or 

related cash or forward transaction, 

similar to the requirement that SDs and 

MSPs keep records of their oral and 

written communications that lead to the 

execution of swaps and related cash or 

forward transactions. Only the oral 

communications recordkeeping 

amendments impose new information 

recordkeeping requirements. These new 

requirements constitute a collection of 

information within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).55 Under the PRA, an agency 

may not conduct or sponsor, and a 

person is not required to respond to, a 

collection of information unless it has 

been approved by the Office of 

Management and Budget (‘‘OMB’’) and 

displays a currently valid control 

number.56 This rulemaking contains 

new collections of information, which 

amend the existing collection of 

information set forth in the ‘‘Adaptation 

of Regulations to Incorporate Swaps’’ 

final rule,57 OMB Control Number 

3038–0090, to add a new oral 

communication recordkeeping 

requirement that was not made part of 

the earlier Final Adaptation Rule. The 

Commission has submitted the Proposal 

containing the oral communication 

recordkeeping requirements that have 

been separately addressed in this 

release,58 this final rule release, and 

supporting documentation to OMB for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. Responses 

to these information collections will be 

mandatory. 

With respect to all of the 

Commission’s collections, 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 Act strictly prohibits the 

Commission, unless specifically 

authorized by the Act, 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, 5 U.S.C. 552a. 

1. Information To Be Provided by 

Reporting Entities/Persons 

a. Amendments to Regulation 1.35 

(Records of Commodity Interest and 

Related Cash or Forward Transactions) 

i. Obligation To Develop and Maintain 

Recordkeeping Policies and Controls 

The final amendments to regulation 

1.35(a) that require recordkeeping 

related to oral communications will 

require that each FCM, non-Small IB, 

RFED, and DCM or SEF member that is 

registered or required to be registered 

with the Commission in any capacity, 

except if registered as an FT, CPO, SD, 

or MSP, retain all oral communications 

provided or received concerning quotes, 

solicitations, bids, offers, instructions, 

trading, and prices, that lead to the 

execution of a commodity interest 

transaction, whether communicated by 

telephone, voicemail, facsimile, instant 

messaging, chat rooms, electronic mail, 

mobile device or other digital or 

electronic media. The final amendments 

to regulation 1.35(a) will also apply to 

FBs who are members of a DCM or SEF. 

However, FBs will only be required to 

record oral communications that lead to 

the purchase or sale for any person 

other than the FB of any commodity for 

future delivery, security futures 

product, swap, or commodity option 

authorized under section 4c of the Act. 

In the Proposal, the Commission 

anticipated that the aforementioned 

registrants may incur certain one-time 

start-up costs in connection with 

establishing a system to record oral 

communications. The Commission 

estimated that the cost of procuring 

systems to record these oral 

communications would be $55,000 for 

an average large entity that does not 

already have such systems in place, and 

estimated procurement costs of $10,000 

for each small firm that does not already 

have such systems in place. Following 

publication of the Proposal, the 

Commission researched these costs 

further. As discussed below in the CostBenefit Considerations, the Commission 

now estimates that the cost for 

establishing a system to record oral 

communications on mobile phones 

using a cloud-based solution would be 

$90 per phone line and that the cost for 

establishing a system to record oral 

communications on a landline using a 

cloud-based solution would be $50 per 

phone line. The Commission estimates 

further that a small entity required to 

comply will have 10 phone lines and 

that a large entity required to comply 

will have 1,000 phone lines. Thus, to 

figure out the initial cost of establishing 

a system for recording oral 

communications, an entity will have to 

multiply the number of phone lines by 

the cost per line ($50 per landline and 

$90 per mobile phone). The 

Commission estimates each entity to 

have 50% landlines and 50% mobile 

phone lines. Therefore, the initial cost 

for a small firm (10 phone lines) to 

establish a system for recording oral 

communications would be (5 × $50) + (5 

× $90) or $700, and the initial cost for 

a large firm (1,000 phone lines) would 

be (500 × $50) + (500 × $90) or $70,000. 

For purposes of the PRA, the 

Commission has chosen to use an 

average initial cost of $35,000. 

Also in the Proposal, the Commission 

estimated the burden hours associated 

with these start-up costs to be 135 hours 

for any entity that does not already have 

a system in place. According to research 

referenced in the previous paragraph, 

the Commission now estimates that an 

entity will not have to spend any time 

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59See supra section I.B. 

60Comments are available in the comment file on 

www.cftc.gov. 

61See SD and MSP Recordkeeping Final Rule, 77 

FR at 20204 (‘‘Provided, however, that records of 

oral communications communicated by telephone, 

voicemail, mobile device, or other digital or 

electronic media pursuant to § 23.202(a)(1) and 

(b)(1) shall be kept for a period of one year.’’). 

62The Small Business Administration (SBA) 

identifies (by North American Industry 

Classification System codes) a small business size 

standard of $7 million or less in annual receipts for 

Subsector 523—Securities, Commodity Contracts, 

and Other Financial Investments and Related 

Activities. 13 CFR Ch. 1, § 121.201. 

63 5 U.S.C. 601 et seq. 

64See note 2323, supra, for discussion of 

definition of Small IB. 

65See Policy Statement and Establishment of 

Definitions of ‘‘Small Entities’’ for Purposes of the 

Regulatory Flexibility Act, 47 FR 18618, 18619 

(Apr. 30, 1982) (DCMs, FCMs, and large traders) 

(‘‘RFA Small Entities Definitions’’); Opting Out of 

Segregation, 66 FR 20740, 20743 (Apr. 25, 2001) 

(ECPs); Regulation of Off-Exchange Retail Foreign 

Exchange Transactions and Intermediaries, 75 FR 

55410, 55416 (Sept. 19, 2010) (RFEDs) (‘‘Retail 

Forex Final Rules’’); and Position Limits for Futures 

and Swaps; Final Rule and Interim Final Rule, 76 

FR 71626, 71680 (Nov. 18, 2011) (SEFs). 

66See the Proposal, 76 FR at 33079. To the extent 

that small IBs were affected by the proposed rules, 

the Commission conducted an initial regulatory 

flexibility analysis. These final rules exclude Small 

IBs, as defined above. The final rules have therefore 

significantly reduced the number of IBs affected by 

regulation 1.35(a). However, to the extent that 

certain small IBs, for purposes of RFA, may be 

affected by these rules, the Commission is 

conducting a final regulatory flexibility analysis. 

67See the Proposal, 76 FR at 33079–80. 

setting up a cloud-based solution for 

recording oral communications on a 

mobile phone or landline because the 

entity will merely have to contract for 

services from an outside vendor. 

However, an entity will spend an 

estimated range of 1 to 10 hours 

arranging the services of an outside 

vendor. If the entity chooses to negotiate 

the vendor’s contract, the burden hours 

will be towards the higher end of the 

range. 

The Commission also estimated in the 

Proposal that one employee from each 

affected entity would have to devote one 

hour per trading day to ensure the 

operation of the system to record oral 

communications. Pursuant to the 

research referred to above, the 

Commission estimates that employees of 

those entities who will be required to 

record oral communications will not 

have to spend any time each day to 

ensure the operation of the system 

because the Commission expects that 

outside vendors would maintain the 

system. 

ii. Comments Received 

As indicated earlier in this rule, in the 

Final Adaptation Rule, the Commission 

stated that it would address in a 

separate release certain of the proposed 

changes to regulation 1.35 and related 

amendments to regulation 1.31.59 In 

response to the amendments to 

regulation 1.35(a) in the Proposal, the 

Commission received 35 comment 

letters from a variety of institutions, 

including DCMs, agricultural trade 

associations, and agricultural 

cooperatives.60 The Commission has 

determined to adopt the Proposal’s 

amendments to regulation 1.35(a), with 

certain modifications, discussed above, 

in order to address the comments the 

Commission received. In addition, as 

part of this final rulemaking, the 

Commission is making certain related 

modifications to the record retention 

periods set forth in regulation 1.31. The 

final rules provide for a retention period 

of one year for all records of oral 

communications that lead to the 

execution of a transaction in a 

commodity interest. This modification 

responds to comments stating that the 

proposed retention period of five years 

for records of oral communications was 

too long. This also is consistent with the 

final provision for SD and MSP oral 

communications under new regulation 

23.203(b)(2).61 Moreover, in light of 

comments stating, among other things, 

that it would be overly burdensome for 

Small IBs and DCM members that do 

not have customers to comply with the 

oral communications recordkeeping 

requirement, the Commission decided 

to exclude these market participants 

from the oral recordkeeping 

amendments to regulation 1.35(a). 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

whether the rules they propose will 

have a significant economic impact on 

a substantial number of small entities 62

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.63 The Commission is adopting a 

substantive rule change to regulation 

1.35(a). This substantive change would 

affect FCMs, certain IBs,64 RFEDs, and 

any member of a DCM or SEF who is 

registered or required to be registered 

with the Commission in any capacity 

other than as an FT, CPO, SD, or MSP 

by requiring them to keep records of all 

oral communications leading to the 

execution of a commodity interest 

transaction. 

1. FCMs and RFEDs 

The Commission has previously 

determined that registered FCMs and 

RFEDs are not small entities for 

purposes of the RFA.65 Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that the final rules will not have 

a significant economic impact on a 

substantial number of small entities 

with respect to these entities. 

2. IBs 

Regulation 1.35(a) may have a 

significant economic impact on IBs with 

annual receipts between $5 million and 

$7 million. The Commission provided 

an initial regulatory flexibility analysis 

in its proposed rulemaking for all IBs, 

regardless of their size, as the proposed 

rulemaking did not exclude any IBs 

from the application of the requirement 

to keep records of all oral 

communications.66

As discussed above, this final rule 

will involve substantive changes to 

regulation 1.35(a), by requiring, among 

others, non-Small IBs to record all oral 

communications that lead to the 

execution of a commodity interest 

transaction. As indicated above, the 

Commission provided an initial 

regulatory flexibility analysis for IBs in 

the Proposal, as required by 5 U.S.C. 

603, because the oral recordkeeping 

requirement under regulation 1.35(a), as 

proposed, may have had a significant 

economic impact on a significant 

number of small IBs.67

The Commission has never previously 

determined that IBs, as a registrant 

category, are not ‘‘small entities’’ for the 

purposes of the RFA. Instead, 

historically, the Commission has 

evaluated within the context of a 

particular regulatory proposal whether 

all or some affected IBs would be 

considered to be small entities and, if 

they are considered small entities, the 

economic impact on them of the 

particular regulation. Accordingly, the 

Commission offers, pursuant to 5 U.S.C. 

604, the following final regulatory 

flexibility analysis. 

a. A Statement of the Need for, and 

Objectives of, the Rule 

The primary objective of final 

regulation 1.35(a) is to increase market 

integrity by requiring IBs with greater 

than $5 million in total aggregate gross 

revenues over the preceding three years 

to keep records of all oral 

communications leading to the 

execution of a commodity interest 

transaction. This rule is necessary for 

several reasons. First, it will protect the 

integrity of the market as a whole by 

aiding the Commission in detecting and 

deterring market abuse, including 

manipulation and false reporting. 

Additionally, it will make enforcement 

investigations more efficient by 

preserving critical evidence that 

otherwise may be lost to memory lapses 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75535 

68 In promulgating its own telephone recording 

rule, the Financial Services Authority issued 

guidance stating the following benefits: ‘‘(i) 

Recorded communication may increase the 

probability of successful enforcement; (ii) this 

reduces the expected value to be gained from 

committing market abuse; and (iii) this, in 

principle, leads to increased market confidence and 

greater price efficiency.’’ See Financial Services 

Authority, ‘‘Policy Statement: Telephone 

Recording: Recording of voice conversations and 

electronic communications’’ (Mar. 2008). 

69See SD and MSP Recordkeeping Final Rule, 77 

FR at 20203–04 (to be codified at 17 CFR 

23.202(a)(1) and (b)(1)). 

70See, e.g., comments from Amcot 

(overbreadthover breadth would be burdensome for 

agricultural DCM members) and NIBA (at the very 

least, small IBs should be exempt from the 

proposed amendments to 1.35(a) because the 

burden on such small entities would be too great). 

71See comment from FIA. 

72See comment from CME. 

73See id. 

74As discussed in more detail above, significant 

technological advancements in recent years, 

particularly with respect to the cost of capturing 

and retaining copies of electronic material, 

including telephone communications, have made 

the prospect of establishing recordkeeping 

requirements for digital and electronic 

communications more economically feasible and 

systemically prudent. 

75See 18 U.S.C. 2511(2)(d). 

and inconsistent recollections. This, in 

turn, is expected to increase the success 

of enforcement actions, which will 

benefit customers, regulated entities, 

and the markets as a whole.68 Moreover, 

it also will protect customers from 

abusive sales practices, protect 

registrants from the risks associated 

with transactional disputes, and allow 

registrants to follow-up more effectively 

on customer complaints of abuses by 

their associated persons. Finally, final 

regulation 1.35(a) provides regulatory 

parity of futures and swaps markets 

because the requirements of final 

regulation 1.35(a) are consistent with 

recently finalized regulations requiring 

SDs and MSPs to keep records of all oral 

communications leading to the 

execution of a swap transaction or a 

related cash or forward transaction.69

b. A Statement of the Significant Issues 

Raised by the Public Comments in 

Response to the Initial Regulatory 

Flexibility Analysis, a Statement of the 

Assessment of the Agency of Such 

Issues, and a Statement of Any Changes 

Made in the Proposed Rule as a Result 

of Such Comments 

i. Significant Issues Raised by the Public 

Comments in Response to the Initial 

Regulatory Flexibility Analysis 

Comments on the proposed 

amendments to regulation 1.35(a) 

primarily focused on the implications of 

the proposed oral recordkeeping and 

tagging requirements and, in particular, 

on the portion of the Proposal requiring 

all DCM and SEF members, including 

commercial end-users and nonintermediaries, to keep records of their 

cash commodity transactions. One 

theme of the comments was that the 

proposed oral communications 

recordkeeping and tagging requirements 

were overly burdensome.70 Commenters 

were also concerned that the proposed 

separate electronic file requirement was 

open-ended, seemingly impossible to 

achieve,71 and overly burdensome. 

Commenters also explained that it could 

be difficult to link conversations 

occurring over several days,72 and could 

require the recording of all 

conversations 73 because a call might 

begin unrelated to a covered transaction 

but eventually lead to a covered 

transaction. Commenters sought a 

reasonableness standard regarding oral 

recordkeeping and a limitation to 

exclude oral communications on mobile 

telephones and argued that the new oral 

communications recordkeeping 

requirement would be illegal in certain 

jurisdictions. Commenters also 

requested that the proposal to record 

and store oral communications should 

be reviewed in the context of available 

technology. 

ii. Agency Assessment of Significant 

Issues Raised by the Public Comments 

in Response to the Initial Regulatory 

Flexibility Analysis 

The Commission carefully considered 

the comments, determined that a 

number of concerns and requested 

alternatives had merit and, as a result, 

made a number of adjustments in 

response. In response to commenters’ 

concerns that the proposed amendments 

were overly burdensome to nonintermediaries’ cash agricultural and 

energy transactions, the Commission 

has limited not only the oral 

recordkeeping requirements of 

regulation 1.35(a) to commodity interest 

transactions, but also the existing 

written recordkeeping requirements 

therein to commodity interest and 

related cash and forward transactions. 

Some commenters expressed concerns 

that the proposed revisions to regulation 

1.35(a) would be unduly burdensome 

for small entities and DCM and SEF 

members who are commercial end-users 

and non-intermediaries. In response, the 

Commission has excluded Small IBs 

(those IBs with less than $5 million in 

total aggregate gross revenues over the 

preceding three years) from the 

application of the rules and certain 

DCM and SEF members from the scope 

of the new requirement to record oral 

communications, namely FTs, CPOs, 

SDs, and MSPs that would have been 

obligated to comply by virtue of their 

status as a DCM or SEF member. 

Commenters also expressed the view 

that the requirement to keep transaction 

records in separate files identifiable by 

transaction and counterparty is 

overbroad, overly burdensome, costly, 

and/or impossible to achieve. In 

response, the Commission has removed 

the requirement that each transaction be 

maintained as a separate electronic file. 

In response to a request that covered 

persons be able to rely on another 

Commission registrant’s records to 

satisfy their recordkeeping obligations, 

the Commission provided for such 

reliance in the final rules, to be 

applicable only when the records being 

kept are identical. 

The Commission declined to amend 

the Proposal in response to certain 

comments. Although commenters 

sought a reasonableness standard 

regarding oral recordkeeping and a 

limitation to exclude oral 

communications on mobile telephones, 

the Commission determined to retain 

the provisions of the Proposal that any 

covered communication must be 

recorded, whether it occurs on a firmprovided or personal device.74

The Commission also has determined 

not to amend the Proposal in response 

to commenters stating that compliance 

with the new oral communications 

recordkeeping requirement would be 

illegal in certain jurisdictions. It is not 

a violation of federal law to record a 

telephone call where the person 

recording the call is a party to the call 

or one of the parties to the call has given 

prior consent to being recorded.75 While 

state laws differ regarding the ability to 

record customer telephone 

conversations, the difference is in the 

type of consent to recording required. 

Therefore, the most a covered 

participant will have to do to comply 

with the final oral communications 

recording rule without violating any 

other state or federal laws is to obtain 

the prior consent of the other parties to 

the call to record the conversation. The 

Commission also notes that DCM rules 

currently require all floor personnel 

who wear headsets to record their 

conversations, so there is only an 

incremental burden to the entities 

already subject to those rules, such as 

FBs. 

iii. Changes Made in the Proposed Rule 

as a Result of Such Comments 

• In response to comments, the 

Commission incorporated the following 

modifications to the Proposal into final 

regulation 1.35(a): Reduced the scope of 

the obligation to record oral 

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75536 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

76CEA section 1a(31)(B), 7 U.S.C. 1a(31)(B), 

grants the Commission the authority to further 

define the term IB. 

77 7 U.S.C. 1a(31)(A). 

78Source: NFA. 

79A guaranteed IB (‘‘GIB’’) is an IB that ‘‘does not 

have to maintain a partic[ul]ar level of net capital 

but, instead, is guaranteed by a particular FCM/ 

RFED and is generally required to introduce all its 

business to that FCM/RFED.’’ Independent IBs 

‘‘must maintain adjusted net capital of at least 

$45,000 but may introduce business to any 

registered FCM/RFED.’’ NFA, What is the difference 

between an independent IB and a guaranteed IB?, 

available at http://www.nfa.futures.org/nfa-faqs/

registration_faqs/requirements-for-FCM-IBapplicants/what-is-difference-between-IIB-andGIB.html last visited Sept. 28, 2012. 

80According to the NFA, as of June 30, 2012, 

there were 832 registered GIBs. 

81The Proposal had required recording of oral 

communications that lead to the execution of a 

commodity interest and cash commodity 

transaction. See the Proposal, 77 FR at 33091. 

82Covered market participants will be allowed to 

arrange with third parties, including DCMs, SEFs, 

and FCMs, to have access to the DCMs’, SEFs’, or 

other Commission registrants’ records and, to the 

extent the records are duplicative of what would be 

required ofby the covered entity under the rule, 

may rely on such records to satisfy their own 

recordkeeping obligations. The Commission 

notesNote, however, that this does not relieve the 

covered participant from liability for compliance 

failures. 

communications as proposed by 

limiting it to commodity interest 

transactions; reduced the retention 

period for records of oral 

communications leading to a 

commodity interest transaction from 

five years to one; reduced the scope of 

persons required to record oral 

communications from FCMs, RFEDs, IBs 

and all members of a DCM or SEF to 

FCMs, RFEDs, IBs with total aggregate 

gross revenues of at least $5 million 

over the preceding three years, and any 

member of a DCM or SEF registered or 

required to be registered with the 

Commission in any capacity, other than 

FTs, CPOs, SDs, and MSPs (although 

SDs and MSPs are required to comply 

with regulations 23.202(a)(1) and (b)(1) 

which require recordkeeping of certain 

oral communications, among other 

requirements); eliminated the tagging 

requirement; and allowed for covered 

persons to rely on the records of another 

Commission registrant, where 

appropriate (since reliance will not be 

appropriate in all circumstances as 

discussed in section III above) in 

complying with their recording 

obligations, while confirming that the 

covered person will be liable for any 

violation of the regulation. 

iv. Response to ETA Comment Letter 

Among other things, the Proposal 

stated that, except for the proposed 

revision to regulation 1.35(a) requiring 

IBs to maintain records of voice 

communications, the Proposal would 

not have a significant economic effect 

on a substantial number of small 

entities. The Proposal included a 

Regulatory Flexibility Analysis with 

respect to the proposed requirement that 

IBs maintain such records. That analysis 

concluded with the determination to 

treat equally all Commission registrants 

transacting on behalf of customers with 

respect to keeping records of oral 

communications. 

The ETA commented that the 

Proposal failed to reflect that the vast 

majority of the ETA’s constituents, 

electrical utilities that the ETA believes 

would be affected by the Proposal, are 

‘‘small entities’’ and, therefore, that an 

analysis under the RFA was required. 

The ETA’s comment letter did not 

specify which proposed provisions in 

the instant rulemaking would affect its 

members or into which affected entity 

category or categories its members could 

fall. Notably, the RFA does not obligate 

the Commission to analyze the indirect 

effects on persons not subject to the rule 

itself. As the Commission understands, 

those electrical utilities that may be 

small entities will not be FCMs, RFEDs, 

IBs with annual receipts of over $5 

million, or members of a DCM or SEF 

transacting business with customers. 

Rather, they most likely will be endusers of the transactions conducted, the 

recorded rather than the recorders. As 

such, there will be no direct, significant 

economic impact on these electric 

utilities. Rather, the impact will be 

imposed on the entities through which 

they may effect transactions. 

c. A Description of and an Estimate of 

the Number of Small Entities to Which 

the Rule Will Apply or an Explanation 

of Why No Such Estimate Is Available 

An IB generally 76 is defined in CEA 

section 1a(31)(A) as follows: 

Any person (except an individual who 

elects to be and is registered as an associated 

person of a futures commission merchant)— 

(i) Who— 

(I) Is engaged in soliciting or in accepting 

orders for— 

(aa) The purchase or sale of any 

commodity for future delivery, security 

futures product, or swap; 

(bb) Any agreement, contract, or 

transaction described in section 2(c)(2)(C)(i) 

or section 2(c)(2)(D)(i); 

(cc) Any commodity option authorized 

under section 4c; or 

(dd) Any leverage transaction authorized 

under section 19; and 

(II) Does not accept any money, securities, 

or property (or extend credit in lieu thereof) 

to margin, guarantee, or secure any trades or 

contracts that result or may result therefrom; 

or 

(ii) Who is registered with the Commission 

as an introducing broker.77

As the Commission stated in the 

initial Regulatory Flexibility Analysis, 

there are an estimated 1,500 IBs 

registered with the Commission at any 

given time. As of June 30, 2012, there 

were 1,431 registered IBs.78 The 

Commission stated in the Proposal’s 

Regulatory Flexibility Analysis that a 

large percentage of registered IBs are 

‘‘guaranteed’’ IBs,79 many of which may 

be small entities.80 However, the 

Commission estimates that limiting, 

with respect to IBs, the scope of final 

regulation 1.35(a) to non-Small IBs 

excludes more than 95% of registered 

IBs from regulation 1.35’s oral 

communications recordkeeping 

requirement. Thus, the Commission 

expects that no more than 

approximately 75 registered IBs will be 

subject to the final oral recordkeeping 

requirements of regulation 1.35(a) at any 

one time. 

d. A Description of the Projected 

Reporting, Recordkeeping, and Other 

Compliance Requirements of the Rule, 

Including an Estimate of the Classes of 

Small Entities Which Will Be Subject to 

the Requirement and the Type of 

Professional Skills Necessary for 

Preparation of the Report or Record 

Regulation 1.35(a), as amended, will 

require, among others, non-Small IBs to 

record all oral communications that lead 

to the execution of a commodity interest 

transaction.81 The regulation is 

primarily a recordkeeping requirement, 

which will obligate covered IBs that do 

not already do so to record their oral 

communications 82 or the oral 

communications of their traders and 

sales forces. The final rules provide for 

a retention period of one year for all 

records of oral communications that 

lead to the execution of a transaction in 

a commodity interest. This modification 

responds to comments stating that the 

proposed retention period of five years 

for records of oral communications was 

too long. This also is consistent with the 

final provision for SD and MSP oral 

communications under new regulation 

23.203(b)(2). 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75537 

83As discussed in more detail above, significant 

technological advancements in recent years, 

particularly with respect to the cost of capturing 

and retaining copies of electronic material, 

including telephone communications, have made 

the prospect of establishing recordkeeping 

requirements for digital and electronic 

communications more economically feasible and 

systemically prudent. 

84 76 FR 33066. 85See 7 U.S.C. 6s(g)(1). 86See SD and MSP Recordkeeping Final Rule, 77 

FR at 20203–04 (Regulation 23.202(a)(1) and (b)(1)). 87See note 2323, supra, for discussion of 

definition of Small IB. 

e. A Description of the Steps the Agency 

Has Taken To Minimize the Significant 

Economic Impact on Small Entities 

Consistent With the Stated Objectives of 

Applicable Statutes, Including a 

Statement of the Factual, Policy, and 

Legal Reasons for Selecting the 

Alternative Adopted in the Final Rule 

and Why Each One of the Other 

Significant Alternatives to the Rule 

Considered by the Agency Which Affect 

the Impact on Small Entities Was 

Rejected 

In connection with adopting the final 

rules, the Commission considered, as 

alternatives, establishing different 

compliance or reporting requirements 

that take into account the resources 

available to smaller entities, exempting 

smaller entities from coverage of the 

disclosure requirements, and clarifying, 

consolidating, or simplifying disclosure 

for small entities. In response to 

comments that the proposed oral 

communications recordkeeping 

requirement would be overly 

burdensome for small IBs, the 

Commission dramatically scaled back 

the scope of regulation 1.35(a) as it 

applies to oral recordkeeping by IBs, 

reducing by well more than half the 

number of IBs expected to be subject to 

the requirement. The Commission 

further reduced the impact on IBs by 

limiting the oral communications 

recordkeeping requirement to 

commodity interest transactions from 

the proposed commodity interest and 

cash commodity transactions. 

Although commenters sought a 

reasonableness standard regarding oral 

recordkeeping and a limitation to 

exclude oral communications on mobile 

telephones, the Commission has 

retained the provisions of the Proposal 

that any covered communication must 

be recorded, whether it occurs on a 

firm-provided or personal device.83 The 

Commission is, however, ameliorating 

the impact thereof by stating that it will 

consider good faith compliance with 

policies and procedures reasonably 

designed to comply with the oral 

communications recording requirement 

as a mitigating factor when exercising 

its discretion for violations of the 

requirement. 

C. Consideration of Costs and Benefits 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of the 

following five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

1. Background 

The markets subject to the jurisdiction 

of the Commission have undergone a 

significant transformation over the last 

few decades, and particularly in the last 

few years. Technological advances have 

contributed to a tremendous growth in 

trading volume in swaps as well as 

other derivatives, including futures, as 

well as the number and type of market 

participants. Among other notable 

changes, today’s derivative markets 

include significant numbers of retail 

customers that invest in the commodity 

markets through a variety of means. 

Markets are also more interconnected 

than ever before, with order flow 

distributed across multiple trading 

centers. With this interconnectivity 

comes not only positive efficiencies, but 

also the potential for cross-market 

manipulation that can be difficult to 

detect and prove without ready access 

to information evincing the intent of 

those engaged in market activity. In 

addition, the Commission notes that 

requiring the recording and retention of 

oral communications will serve as a 

disincentive for covered entities to make 

fraudulent or misleading 

communications to their customers over 

the telephone and could serve as a 

meaningful deterrent against violations 

such as trading ahead of customer 

orders by providing a record of the time 

that a customer’s telephone order is 

received. 

In July 2010, Congress passed the 

Dodd-Frank Act which, among other 

things, establishes a comprehensive 

regime for the regulation of swaps. The 

Dodd-Frank Act brings swaps under the 

Commission’s jurisdiction and obligates 

the Commission to adopt new 

regulations related to registration and 

regulation of SDs and MSPs, trade 

execution and clearing requirements, 

and swap data recordkeeping and real 

time reporting. In section 731 of the 

Dodd-Frank Act, Congress added CEA 

section 4s to require the registration and 

regulation of SDs and MSPs by the 

Commission, including the 

establishment of requirements for SDs 

and MSPs to keep records of swap 

transactions.84

In response to Congress’ act of 

requiring that SDs and MSPs keep daily 

trading records of their swaps, including 

records of communications made by 

telephone,85 and to be consistent with 

the oral communications recordkeeping 

requirement for SDs and MSPs in 

connection with their swap and related 

cash and forward transactions,86 the 

Commission is exercising its discretion 

to amend its regulations to require 

FCMs, RFEDs, non-Small IBs (i.e., IBs 

that have generated more than $5 

million in aggregate gross revenues over 

the preceding three years) 87 and 

members of a DCM or SEF who are 

registered or required to register with 

the Commission in any capacity other 

than FTs, CPOs, SDs, and MSPs to 

record all oral communications that lead 

to the execution of a transaction in a 

commodity interest. FBs that are 

members of a DCM or SEF are required 

to record all oral communications that 

lead to the purchase or sale for any 

person other than the FB of any 

commodity for future delivery, security 

futures product, swap, or commodity 

option authorized under section 4c of 

the Act. In this way, the Commission is 

affording the other markets subject to its 

jurisdiction the same market integrity 

and customer protections that Congress 

afforded the swaps markets in the DoddFrank Act. The Commission recognizes 

that these benefits are not without cost, 

and has carefully considered both 

benefits and costs in light of the 

considerations provided in CEA section 

15(a) and, where appropriate, adopted 

alternatives to the Proposal that would 

achieve similar benefits as proposed, 

but at a lower cost. 

2. Summary of the Final Rule 

Prior to this amendment, regulation 

1.35(a) specified which parties are 

required to keep written records related 

to commodity futures, commodity 

options, and cash commodities, and 

what information they are required to 

record. The requirements of regulation 

1.35(a) applied to FCMs, RFEDs, IBs, 

and DCM members. 

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75538 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

88See letter from SIFMA dated August 10, 2012, 

Re: Request for No-Action Relief: Recordkeeping 

Requirements under the Internal Business Conduct 

Rules. Available at: [XXXX]. 

89See Letter from the Division of Swap Dealer 

and Intermediary Oversight of the CFTC to SIFMA, 

dated Oct. 29, 2012, CFTC Letter No. 12–29. 

Available at: http://www.cftc.gov/ucm/groups/ 

public/@lrlettergeneral/documents/letter/12–29.pdf. 90See note 4646, supra. 

91See, e.g., FIA; NFA; ICE, Inc.; Hunton and 

Williams, LLP; National Grain and Feed 

Association, Land O’ Lakes; Minneapolis Grain 

Exchange, Inc.; CME Group; Commodity Markets 

Council; Barclay’s Capital; Amcot; Grain and Feed 

Association of Illinois; Agribusiness Council of 

Indiana; Minnesota Grain and Feed Association; 

Agribusiness Association of Iowa; American 

Petroleum Institute; Ohio AgriBusiness Association; 

American Feed Industry Association; South Dakota 

Grain and Feed Association; Natural Gas Supply 

Association; Commodity Markets Council; Natural 

Gas Supply Association; the Fertilizer Institute; 

Kansas City Board of Trade; Oklahoma Grain and 

Feed Association; Electric Power Supply 

Association; Henderson & Lyman; Rocky Mountain 

Agribusiness Association; American Cotton 

Shippers Association. 

92See, e.g., Land O’Lakes; Minneapolis Grain 

Exchange, Inc.; CME Group; Commodity Markets 

Council. 

93See, e.g., National Grain and Feed Association; 

Grain and Feed Association of Illinois; Agribusiness 

Council of Indiana; Minnesota Grain and Feed 

Association; Agribusiness Association of Iowa; 

Ohio AgriBusiness Association; American Feed 

Industry Association; Kansas City Board of Trade. 

94See, e.g., Virginia Nobbe; American Feed 

Industry Association; Henderson and Lyman. 

As discussed above, the Commission 

is adopting a provision requiring certain 

entities to record all oral 

communications leading to the 

execution of a transaction in a 

commodity interest. Unlike existing 

regulation 1.35(a), this new provision 

will apply to FCMs, RFEDs, non-Small 

IBs, and DCM and SEF members that are 

registered or required to be registered 

with the Commission in any capacity 

other than as an FT, CPO, SD or MSP. 

As described above, the Commission 

considered adopting an exclusion for 

certain FBs similar to the exclusion for 

Small IBs, but determined to not adopt 

such an exclusion, in part, because FBs 

are parties to oral communications 

relating to the means or methods by 

which a trade will be executed. 

However, the Commission did 

determine to limit the application of the 

rule to FBs so that an FB will only be 

required to record their oral 

communications that lead to the 

purchase or sale for any person other 

than the FB of any commodity for future 

delivery, security futures product, swap, 

or commodity option authorized under 

section 4c of the CEA. This provision of 

the final rule addressed commenter 

concerns that the Proposal 

inappropriately captured the oral 

communications of certain members of 

DCMs who currently are registered as 

FBs, but are solely trading for their own 

accounts, i.e., acting as FTs. In addition, 

in response to comments regarding 

implementation challenges associated 

with oral recordkeeping requirements 

for SDs and MSPs, the Commission is 

extending the implementation deadline 

to provide these entities with 

approximately one year to comply 

following the publication of the final 

rule.88 This change provides entities 

subject to regulation 1.35(a) with the 

same amount of implementation time as 

was made available to SDs and MSPs.89

The Commission believes that an 

extended period for implementation is 

warranted in order to ensure that 

entities subject to this rule have 

adequate time to address the 

implementation challenges noted by 

SIFMA, as discussed below. 

3. Benefits 

By this action, the Commission 

improves its ability to ensure the 

integrity of all the markets subject to its 

jurisdiction and that customers are 

similarly protected, whether they be 

engaged in a swap with an SD, or a 

futures transaction with an FCM. 

As stated above, the markets subject 

to the jurisdiction of the Commission 

have undergone a significant 

transformation over the last few 

decades, and particularly in the last few 

years. Technological advances have 

contributed to a tremendous growth in 

trading volume as well as the number 

and type of market participants, 

including significant numbers of retail 

customers that invest in the commodity 

markets through a variety of means. 

Markets are also more interconnected 

than ever before, with order flow 

distributed across multiple trading 

centers. This interconnectivity yields 

important benefits but also presents 

increased risk, including the potential 

for cross-market manipulation where an 

action in one market is purposefully 

orchestrated to yield a desired outcome 

in another market. Therefore, to ensure 

that the integrity of the markets and 

customers are similarly protected across 

all markets subject to the Commission’s 

jurisdiction, the Commission must have 

similar access to information regardless 

of whether the market participant is 

registered, for example, as an SD or an 

FCM. 

• As the Commission explained when 

adopting similar transactional level 

recordkeeping requirements for SDs and 

MSPs, the Commission believes these 

recordkeeping requirements will protect 

market participants and promote the 

integrity of the markets by ensuring the 

existence of an audit trail that includes 

relevant oral communications. A strong 

audit trail, among other things: Provides 

a basis for efficiently resolving 

transactional disputes; acts as a 

disincentive to engage in unduly risky, 

injurious, or illegal conduct in that the 

conduct will be traceable; and in the 

event such conduct does occur, 

provides a mechanism for policing such 

conduct, both internally as part of a 

firm’s compliance efforts and externally 

by regulators enforcing applicable laws 

and regulations. 

With respect to the latter-noted 

benefit—enforcing applicable laws and 

regulations—oral records have proven to 

be no less, and in some cases perhaps 

more, valuable than written records 

alone.90

By requiring records of all 

communications leading to a transaction 

in a commodity interest, the public 

benefits and the financial integrity of 

the markets is protected because 

additional documentation enhances the 

Commission’s ability to detect and 

enforce rule violations, including 

manipulation and fraud. In particular, 

records of oral communications related 

to such transactions provide a record of 

the facts and circumstances that give 

rise to a violation that can be used in 

enforcement proceedings to redress the 

same. Effective enforcement of the 

Commission’s regulations, particularly 

those prohibiting fraud and 

manipulation, protects market 

participants and the public and 

promotes the integrity of the markets 

subject to the Commission’s 

jurisdiction. 

Notwithstanding the important, 

practical benefits of the final rules, the 

Commission has considered 

commenters’ concerns regarding costs 

and product availability. 

4. Costs 

The public comments related to 

changes to regulation 1.35(a) can be 

broken down into roughly four general 

categories: Concerns about the costs of 

compliance to firms,91 concerns about 

the feasibility of complying with the 

requirements of the regulation,92

concerns about market participants 

choosing to exit the market or of a 

market bifurcation,93 and privacy 

concerns.94

Commenters cited a broad range of 

compliance costs associated with setting 

up and maintaining systems to record 

and tag oral communications. One 

commenter that is a recording 

technology provider stated that it would 

cost in the range of $50/month to record 

a landline phone or $90/month to 

record a mobile phone with minimal 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75539 

95For example, FIA cited expenditures on the 

part of several of its members of between $300,000– 

$600,000 to upgrade and maintain their landline 

phones in order to record conversations and 

estimated expenditures of anywhere from $160,000 

to $2.5 million to record conversations on mobile 

phones depending on firm size. Further, FIA cited 

a fee of $500,000 to purchase licenses for ‘‘word 

spotting’’ software to search and retrieve these oral 

records. The Commercial Energy Working Group 

stated that this compliance with the amended 

regulation 1.35 could cause costs to firms to 

‘‘increase exponentially’’ (they cited an 

‘‘unidentified investment bank’’ in the UK that 

spent $4.2 million each year to monitor its 

Blackberry phones in response to a similar 

Financial Services Authority mandate). 

96Compliant Phones. 

97 Id. 

98See SD and MSP Recordkeeping Final Rule, 77 

FR 20128. Based on SIFMA’s representations, the 

Commission determined that relief from certain oral 

recordkeeping requirements for SDs and MSPs is 

warranted to address the issues presented, and 

granted no-action relief to SDs and MSPs until 

March 31, 2013. 

Among other things, SIFMA stated that 

implementing systems to record landline 

conversations will require upgrades to data 

retention infrastructure, testing that must occur on 

nights and weekends, and overcoming difficulties 

obtaining products and services. Further, they 

stated that mobile phone recording technology has 

‘‘not achieved the levels of stability, performance 

and scalability that would be considered for 

commercial grade products.’’ They stated that 

shipping delays, testing and troubleshooting 

challenges due to different time zones, legal 

requirements, and ‘‘an apparent lack of recording 

capabilities’’ in certain countries and uncertainty 

about what transactions may be subject to the 

requirements would delay efforts to implement 

solutions in foreign offices. And last, they asserted 

that limitations related to caller identification 

technology and associated metadata would prevent 

SDs and MSPs from rapidly implementing solutions 

that would enable them to search and retrieve calls 

related to specific counterparties or transactions. 

99With respect to the proposed requirement that 

entities proactively identify which communications 

relate to specific traders, trades, and counterparties 

and then ‘‘tag’’ them as such, comments expressed 

concerns regarding the reliability of technological 

solutions. For instance, the FIA writes, ‘‘We 

understand that two software providers, NICE 

Actimize and Nexidia, offer so-called ‘word 

spotting’ programs’’ but that they believe that these 

programs ‘‘are not foolproof and may identify less 

than 50 percent of potentially relevant 

conversations.’’ The Commercial Energy Working 

Group stated that in lieu of an accurate software 

solution, manual identification and retrieval of oral 

records would require ‘‘as many as 3–5 analysts and 

1–2 additional technical support personnel to 

support transactions’’ for ‘‘a small or modest-sized 

end-user commodity business’’ and that ‘‘the total 

cost to a commodity business is likely to be in 

excess of $1 million annually.’’ 

fixed setup costs. They also stated that 

market participants may be able to 

negotiate more favorable rates if they are 

able to sign longer contracts, or if they 

have a large number of phones and/or 

landlines that need to be recorded. 

While other commenters did not 

provide per line estimates, they did 

provide aggregate cost estimates that are 

significantly higher than those cited 

above.95

The Commission has considered that 

the requirement to record and maintain 

records of oral communications that 

lead to the execution of commodity 

interest transactions will create 

additional costs for market participants 

subject to the requirements. Those costs 

include set-up costs to implement voice 

recording technology on both landlines 

and mobile phones, recurring costs 

(such as a monthly fee per user or per 

phone line to record), and the costs 

incurred by data storage. Commenters 

estimate that for participants using a socalled ‘‘cloud-based solution,’’ the 

monthly fees would be approximately 

$90/month/phone for mobile phones, 

and approximately $50/month/line for 

landlines. The setup costs, in each case, 

are estimated to be roughly one month’s 

subscription fees or less.96 Commenters 

estimate that data storage costs are 

likely to be approximately $13/month/ 

line.97

According to commenters, internal 

recording solutions (i.e., ‘‘non-cloudbased solutions’’) typically entail more 

significant implementation costs, 

though those costs are likely to vary 

widely based on existing technology, 

and particularly on any existing 

recording capabilities, that an entity 

already has. The Commission does not 

have adequate data to estimate the 

number of entities that already have 

recording capabilities, or the extent to 

which such capabilities are deployed in 

parts of the organization that would be 

impacted by the oral recordkeeping 

requirements in regulation 1.35. 

SIFMA, in response to the final oral 

recordkeeping requirements for SDs and 

MSPs, noted implementation challenges 

related to recording calls made on both 

landlines and cell phones, recording 

calls outside the U.S., and the ability to 

search and retrieve records of calls, and 

requested additional time to address 

those challenges.98

The Commission, mindful of the fact 

that the entities subject to this rule will 

likely face some of the same 

implementation challenges, is providing 

the same amount of time for entities 

subject to regulation 1.35(a) to comply 

as was afforded to SDs and MSPs to 

comply with regulations 23.202(a)(1) 

and (b)(1). In addition, 1.35(a)(4)(i) 

permits entities seeking to comply in 

good faith with the oral 

communications recordkeeping 

requirements of regulation 1.35(a)(1) to 

submit a request for relief if compliance 

is technologically or economically 

impracticable for an affected entity prior 

to the compliance deadline. The 

Commission anticipates that the 

additional time for implementation will 

benefit entities subject to this rule by 

providing more time to address the 

challenges noted by SIFMA. Moreover, 

it will create opportunities for entities 

that are subject to this rule to benefit 

from solutions developed by vendors 

serving SDs and MSPs. 

The Proposal included an additional 

requirement that transaction records be 

kept in separate electronic files 

identifiable by transaction and 

counterparty.99 In response to 

comments, the Commission is not 

adopting that requirement, such that 

firms are not required to keep records in 

separate electronic files. Instead, firms 

are only required to identify and 

retrieve relevant records upon 

Commission request. Therefore, the cost 

associated with ‘‘tagging’’ of oral 

communication records has been 

eliminated. Relevant entities, however, 

will need to be able to search and select 

records related to a particular 

transaction or counterparty when the 

Commission requests them. The 

Commission expects that this may be 

done in one of two ways. Market 

participants may use an electronic 

means of scanning records by key word 

or they may identify key words and 

concepts in records manually by 

listening to the recordings. In either 

case, participants must be able to 

identify and retrieve records if they are 

required to do so by the Commission. 

If, when recordings are requested by 

the Commission, an entity chooses to 

assign or hire personnel to listen to 

recordings and identify those being 

requested, the costs will vary 

significantly depending on the number 

and length of oral communications that 

must be reviewed. These variables will, 

in turn, be influenced by a host of other 

factors, including: the number of 

transactions or counterparties for which 

relevant recordings must be identified; 

the length of time across which 

specified traders were active or 

specified trades were likely discussed, 

or the specified counterparties were in 

contact with the entity from whom the 

recordings are requested; the number of 

oral communications that specified 

traders or counterparties made during 

the period that may be in question; and 

the average length of each call. The 

Commission estimates that in such 

cases, an entity might dedicate 

personnel to spend as little as 50 hours 

reviewing recordings, or as much as 

5,000 hours reviewing recordings. The 

average wage for a compliance specialist 

is $155.96 per hour and therefore the 

cost for manual review, if an entity 

chooses that option when the 

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75540 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

100The average wage for a compliance specialist 

is $155.96 [($58,303 per year)/(2,000 hours per year) 

* 5.35 = $155.96]. For the purposes of the Cost 

Benefit Considerations section, the Commission has 

used wage estimates that are taken from the SIFMA 

‘‘Report on Management and Professional Earnings 

in the Securities Industry 2011’’ because industry 

participants are likely to be more familiar with 

them. Hourly costs are calculated assuming 2,000 

hours per year and a multiplier of 5.35 to account 

for overhead and bonuses. All totals calculated on 

the basis of cost estimates are rounded to two 

significant digits. 

101See Compliant Phones communication. 

102See Nexidia communication. 

103See NICE communication. 

104Several commenters submitted a form letter 

addressing this point. Entities submitting this letter, 

with minor modifications in some cases, include: 

National Grain and Feed Association, Grain and 

Feed Association of Illinois, Agribusiness Council 

of Indiana, Minnesota Grain and Feed Association, 

Agribusiness Association of Iowa, Ohio 

AgriBusiness Association, South Dakota Grain and 

Feed Association, Kansas City Board of Trade, and 

Oklahoma Grain and Feed Association. 

105For instance, the Kansas City Board of Trade 

writes that the operators of delivery warehouses are 

often required to be DCM members and that the 

added expense of compliance with regulation 1.35 

could cause firms to withdraw from the business of 

providing warehousing services, thereby decreasing 

market competitiveness. 

106See Compliant Phones communication. 

107This is estimated to take 6–10 hours per day 

(assuming 252 days per year) of the time of an office 

services supervisor. The average wage for an office 

services supervisor is $155.96 [($58,303 per year)/ 

(2,000 hours per year) * 5.35 = $155.96]. 

$155.95*6*252 = 235,812.31. $155.95*10*252 = 

393,020.52. 

108This estimates 0.5 hours of time from an office 

services supervisor. The average salary for an office 

services supervisor is $165.25/hour [($61,776 per 

year)/(2,000 hours per year) * 5.35 = $165.25 per 

hour]. $165.25*0.5 = $82.63. 

Commission requests records, could 

range from $7,800 to $780,000.100

Alternatively, the Commission is 

aware that vendors that provide 

recording services are also capable of 

providing speech analytic search 

capabilities for a set fee. For example, 

one vendor estimated this cost at $40 to 

$80 per user per month.101 According to 

commenters, other entities may choose 

to acquire speech analytics services that 

can be housed internally rather than on 

the vendor’s servers. Another vendor 

stated that the costs would depend on 

the number of hours sent through the 

speech analytics device and that initial 

deployment costs would likely range 

from $160,000 to $1,500,000 for the 

largest organizations with ongoing 

annual fees that are approximately 18% 

of the initial cost ($29,000—$270,000 

per year). Alternatively, small entities 

can implement a desktop solution with 

the same analytics capabilities. The 

initial license costs approximately 

$25,000 per user and 18% ongoing 

maintenance fees ($4,500 per year per 

user).102 Another vendor estimated that 

setup costs, including relevant licenses, 

would range from $450,000 for a small 

entity to $4,000,000 for a large entity, 

and that annual maintenance costs 

would range from $80,000 to 

$800,000.103 These numbers assume 

that entities do not yet have speech 

analytics services being used in other 

parts of the company’s operations that 

could be expanded to include the oral 

records required under this rule. 

However, the Commission understands 

that some of the largest financial entities 

may already be customers of companies 

that provide speech analytics services. 

As a consequence, the costs for those 

entities may be less than if they were 

implementing speech analytics services 

de novo. 

In response to the Proposal, some 

commenters expressed concern that the 

imposition of more stringent 

recordkeeping requirements on DCM 

members could prompt a bifurcation in 

the markets for certain services because 

of the compliance cost advantage that 

market participants who are not DCM 

members enjoy.104 They suggested that 

entities that are DCM members might 

stop offering services that make them 

subject to the regulation 1.35 

requirements.105

In the Proposal, the Commission 

proposed to include FCMs, RFEDs, IBs, 

and all DCM and SEF members under 

the oral recordkeeping requirement and 

also proposed that such recordkeeping 

requirements would apply to all 

transactions in commodity interests and 

cash commodities. However, in the final 

rule, the Commission amended 

regulation 1.35(a) such that Small IBs 

and members of DCMs and SEFs who 

are not otherwise registered or required 

to be registered with the Commission in 

any capacity, as well as those members 

registered as FTs, CPOs, SDs, and MSPs, 

are not subject to the oral 

communication recordkeeping 

requirements under regulation 1.35(a). 

The limiting principle for the 

determination of which classes of 

registrants must comply with the final 

rule are, as discussed further above, 

transactions by entities that could affect 

both market integrity and customer 

protection. 

Finally, some commenters expressed 

concern that if employees of a regulated 

entity use personal phones (either 

landline or mobile) for business 

purposes, calls on those lines must be 

recorded. Commenters stated privacy 

concerns with the same. However, 

simple solutions to protect employee 

privacy do exist. For example, 

depending on the policies of the firm, it 

is possible for certain phone numbers to 

be excluded from recording.106

Alternatively, the company could 

institute a policy that employees are not 

to conduct personal business on 

recorded lines. 

In addition, amendments in this final 

rule will require SEF members to 

comply with regulation 1.35, and it is 

likely that some of those members will 

not have been subject to regulation 

1.35(a) previously. In addition to the 

costs related to oral communications 

recordkeeping, mentioned above, the 

Commission estimates that SEF 

members that are newly subject to 

regulation 1.35(a) will spend additional 

time each day compiling and 

maintaining transaction records. The 

Commission estimates that the cost of 

that additional time is $236,000 to 

$393,000 per entity per year.107

Also, the amendments in this final 

rule will require FCMs, RFEDs, IBs, and 

members of DCMs to comply with the 

regulation 1.35(a) recordkeeping 

requirements for any swap transactions 

into which they enter. The Commission 

estimates that such entities will spend 

an additional 0.5 hours per swap 

capturing and maintaining the records 

required under regulation 1.35(a), and 

therefore estimates that the per-swap 

cost will be $83.00.108

4. Consideration of Alternatives 

As compared to the Proposal, the 

Commission has limited the range of 

entities that are subject to the oral 

recordkeeping requirement, narrowing it 

to entities that could affect market 

integrity and customer protection by 

way of their function as intermediaries 

for other parties. The Commission also 

has limited the range of transactions 

that are subject to the requirement from 

commodity interest and cash 

commodity transactions to commodity 

interest transactions. Limiting the range 

of entities that must record and keep 

oral communications reduces the 

number of entities that must bear the 

costs of creating and maintaining 

records required by regulation 1.35(a). 

In particular, by excluding from the new 

regulation 1.35(a) oral communications 

recordkeeping provisions Small IBs and 

DCM or SEF members that are registered 

as FTs or CPOs, or SDs or MSPs (as SDs 

and MSPs are covered by regulations 

23.202(a)(1) and (b)(1)), or neither 

registered nor required to be registered 

with the Commission in any capacity, 

certain entities such as agricultural 

cooperatives, energy end-users and 

other smaller entities that may transact 

on DCMs and SEFs on their own behalf, 

but not on behalf of customers, avoid 

mandatory recordkeeping costs. 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75541 

As noted above, new regulation 1.35 

will not require entities to keep records 

in separate electronic files. Instead, the 

amendments as adopted require only 

that subject entities be able to identify 

which records relate to specific parties 

or transactions when requested to do so 

by the Commission. Such requests are 

infrequent for any one market 

participant, and therefore the costs of 

complying with them will be far less 

than what would have been the case 

under the proposed rule. 

As described above, the Commission 

considered alternatives to compliance, 

including various safe harbors, but 

determined not to adopt them. For 

example, the Commission has 

considered, but declines to adopt, 

recommendations that it include a 

‘‘reasonableness’’ standard because such 

a standard could result in market 

participants documenting policies and 

procedures but failing to vigorously 

monitor for compliance with the same. 

The Commission also declines to adopt 

this recommendation as inconsistent 

with the requirements applicable to SDs 

and MSPs under Part 23 of the 

Commission’s regulations. Rather, the 

Commission determines that it would be 

more appropriate to consider good faith 

compliance with policies and 

procedures reasonably designed to 

comply with the oral communications 

recording rule as a mitigating factor 

when exercising its enforcement 

discretion with respect to violations of 

the rule. 

5. Consideration of Section 15(a) Factors 

(1) a. Protection of Market Participants 

and the Public 

The oral recordkeeping requirement 

in regulation 1.35(a) will protect market 

participants and the public by ensuring 

the existence of an audit trail that 

includes relevant oral communications. 

A strong audit trail, among other things, 

provides a basis for resolving 

transactional disputes; acts as a 

disincentive to engage in unduly risky, 

injurious or illegal conduct in that the 

conduct will be traceable; and in the 

event such conduct does occur, 

provides a mechanism for policing such 

conduct, both internally as part of a 

firm’s compliance efforts and externally 

by regulators enforcing applicable laws 

and regulations. 

(2) b. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

Requiring records of all oral 

communications leading to a transaction 

in a commodity interest promotes the 

efficiency, competitiveness and 

financial integrity of the markets by 

increasing the Commission’s ability to 

detect and prosecute violations of the 

Act and the Commission’s rules related 

to fraud, manipulation and other 

disruptive trade practices. 

(3) c. Price Discovery 

Neither the Commission nor 

commenters have identified 

consequences for price discovery that 

are expected to result from this rule. 

(4) d. Sound Risk Management Practices 

The Commission believes that proper 

recordkeeping—though likely to require 

initial investment in recordkeeping and 

other back office systems—is essential 

to risk management because it facilitates 

an entity’s awareness of its transactions, 

positions, trading activity, internal 

operations, and any complaints made 

against it, among other things. Such 

awareness supports sound internal risk 

management policies and procedures 

ensuring that decision-makers within 

affected entities are fully informed 

about the entity’s activities and can take 

steps to mitigate and address significant 

risks faced by the firm. When individual 

market participants engage in sound risk 

management practices the entire market 

benefits. Accordingly, the Commission 

believes that this final rule, 

notwithstanding the potential costs 

identified above, will promote the 

public interest in sound risk 

management. 

(5) e. Other Public Interest 

Considerations 

The Commission has not identified 

any other public interest considerations 

that could be impacted by the oral 

communications recordkeeping rule 

under regulation 1.35(a). 

List of Subjects in 17 CFR Part 1 

Agricultural commodity, Agriculture, 

Brokers, Committees, Commodity 

futures, Conflicts of interest, Consumer 

protection, Definitions, Designated 

contract markets, Directors, Major swap 

participants, Minimum financial 

requirements for intermediaries, 

Reporting and recordkeeping 

requirements, Swap dealers, Swaps. 

For the reasons stated in the 

preamble, under the authority of 7 

U.S.C. 1 et seq., the Commodity Futures 

Trading Commission hereby amends 

Chapter I of Title 17 of the Code of 

Federal Regulations as set forth below: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

■ 1. The authority citation for part 1 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 2a, 5, 6, 6a, 6b, 

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

6p, 6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 

12, 12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, 

and 24, as amended by Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111–203, 124 Stat. 

1376 (2010). 

■ 2. Amend § 1.31 by revising paragraph 

(a)(1) to read as follows: 

§ 1.31 Books and records; keeping and 

inspection. 

(a)(1) All books and records required 

to be kept by the Act or by these 

regulations shall be kept in their 

original form (for paper records) or 

native file format (for electronic records) 

for a period of five years from the date 

thereof and shall be readily accessible 

during the first 2 years of the 5-year 

period; Provided, however, That records 

of any swap or related cash or forward 

transaction shall be kept until the 

termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction and for a period of five 

years after such date. Records of oral 

communications kept pursuant to 

§§ 1.35(a) and 23.202(a)(1) and (b)(1) of 

this chapter shall be kept for a period 

of one year. All such books and records 

shall be open to inspection by any 

representative of the Commission, or the 

United States Department of Justice. For 

purposes of this section, native file 

format means an electronic file that 

exists in the format in which it was 

originally created. 

* * * * * 

■ 3. Amend § 1.35 by revising the 

section heading and paragraph (a) to 

read as follows: 

§ 1.35 Records of commodity interest and 

related cash or forward transactions. 

(a) Futures commission merchants, 

retail foreign exchange dealers, 

introducing brokers, and members of 

designated contract markets or swap 

execution facilities. (1) Each futures 

commission merchant, retail foreign 

exchange dealer, introducing broker, 

and member of a designated contract 

market or swap execution facility shall 

keep full, complete, and systematic 

records, which include all pertinent 

data and memoranda, of all transactions 

relating to its business of dealing in 

commodity interests and related cash or 

forward transactions. Included among 

such records shall be all orders (filled, 

unfilled, or canceled), trading cards, 

signature cards, street books, journals, 

ledgers, canceled checks, copies of 

confirmations, copies of statements of 

purchase and sale, and all other records, 

which have been prepared in the course 

of its business of dealing in commodity 

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75542 Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 

interests and related cash or forward 

transactions. Among such records each 

member of a designated contract market 

or swap execution facility must retain 

and produce for inspection are all 

documents on which trade information 

is originally recorded, whether or not 

such documents must be prepared 

pursuant to the rules or regulations of 

either the Commission, the designated 

contract market or the swap execution 

facility. For purposes of this section, 

such documents are referred to as 

‘‘original source documents.’’ Such 

records shall be kept in a form and 

manner identifiable and searchable by 

transaction. Also included among the 

records required to be kept by this 

paragraph are all oral and written 

communications provided or received 

concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices 

that lead to the execution of a 

transaction in a commodity interest and 

related cash or forward transactions, 

whether communicated by telephone, 

voicemail, facsimile, instant messaging, 

chat rooms, electronic mail, mobile 

device, or other digital or electronic 

media; provided, however, the 

requirement in this paragraph (a)(1) to 

record oral communications shall not 

apply to: 

(i) Oral communications that lead 

solely to the execution of a related cash 

or forward transaction; 

(ii) Oral communications provided or 

received by a floor broker that do not 

lead to the purchase or sale for any 

person other than the floor broker of any 

commodity for future delivery, security 

futures product, swap, or commodity 

option authorized under section 4c of 

the Commodity Exchange Act; 

(iii) An introducing broker that has 

generated over the preceding three years 

$5 million or less in aggregate gross 

revenues from its activities as an 

introducing broker; 

(iv) A floor trader; 

(v) A commodity pool operator; 

(vi) A swap dealer; 

(vii) A major swap participant; or 

(viii) A member of a designated 

contract market or swap execution 

facility that is not registered or required 

to be registered with the Commission in 

any capacity. 

(2) For purposes of paragraph (a)(1) of 

this section, ‘‘related cash or forward 

transaction’’ means a purchase or sale 

for immediate or deferred physical 

shipment or delivery of an asset related 

to a commodity interest transaction 

where the commodity interest 

transaction and the related cash or 

forward transaction are used to hedge, 

mitigate the risk of, or offset one 

another. 

(3) Each futures commission 

merchant, retail foreign exchange 

dealer, introducing broker, and member 

of a designated contract market or swap 

execution facility shall retain the 

records required to be kept by this 

section in accordance with the 

requirements of § 1.31, and produce 

them for inspection and furnish true 

and correct information and reports as 

to the contents or the meaning thereof, 

when and as requested by an authorized 

representative of the Commission or the 

United States Department of Justice. 

(4)(i) The Commission may in its 

discretion establish an alternative 

compliance schedule for the 

requirement to record oral 

communications under paragraph (a)(1) 

of this section that is found to be 

technologically or economically 

impracticable for an affected entity that 

seeks, in good faith, to comply with the 

requirement to record oral 

communications under paragraph (a)(1) 

of this section within a reasonable time 

period beyond the date on which 

compliance by such affected entity is 

otherwise required. 

(ii) A request for an alternative 

compliance schedule under paragraph 

(a)(4)(i) of this section shall be acted 

upon within 30 days from the time such 

a request is received, or it shall be 

deemed approved. 

(iii) The Commission hereby delegates 

to the Director of the Division of Swap 

Dealer and Intermediary Oversight or 

such other employee or employees as 

the Director may designate from time to 

time, the authority to exercise the 

discretion. Notwithstanding such 

delegation, in any case in which a 

Commission employee delegated 

authority under this paragraph believes 

it appropriate, he or she may submit to 

the Commission for its consideration the 

question of whether an alternative 

compliance schedule should be 

established. The delegation of authority 

in this paragraph shall not prohibit the 

Commission, at its election, from 

exercising the authority set forth in 

paragraph (a)(4)(i) of this section. 

(iv) Relief granted under paragraph 

(a)(4)(i) of this section shall not cause an 

affected entity to be out of compliance 

or deemed in violation of any 

recordkeeping requirements. 

* * * * * 

Issued in Washington, DC, on December 

17, 2012, by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Adaptation of 

Regulations To Incorporate Swaps— 

Commission Voting Summary and 

Statements of Commissioners 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Sommers, Chilton, O’Malia 

and Wetjen voted in the affirmative; no 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the final rule to amend 1.31 and 

1.35(a) of the Commodity Futures Trading 

Commission’s (CFTC) regulations to conform 

them to recordkeeping requirements for swap 

dealers and major swap participants. The 

rule enhances the Commission’s enforcement 

program for the futures market to promote 

market integrity and protect customers. 

These conforming amendments integrate 

the CFTC’s regulations with the Dodd-Frank 

Wall Street Reform and Consumer Protection 

Act (Dodd-Frank Act), which expanded the 

scope of the Commodity Exchange Act to 

include swaps. 

As proposed, the rule would have required 

members of a designated contract market 

(DCM) or swap execution facility (SEF) to 

record all oral communications that lead to 

the execution of a transaction in a cash 

commodity. The Commission received 

numerous comments about the effect of such 

a requirement on members of the agricultural 

community that trade in cash commodities 

and are not required to be registered with the 

Commission other than, in some cases, as 

floor traders. 

In consideration of comments, the 

Commission adopted modifications that 

preserve the rule’s purpose without adversely 

affecting the agricultural community. Only 

those oral communications that lead to a 

transaction in a commodity interest (i.e. a 

commodity futures contract, commodity 

option contract, foreign exchange contract, or 

swap) will have to be recorded. Furthermore, 

only FCMs, certain introducing brokers (IBs), 

retail foreign exchange dealers (RFEDs), and 

those members of a DCM or SEF who are 

registered or required to be registered with 

the Commission (except for floor traders, 

commodity pool operators, swap dealers, 

major swap participants, and floor brokers 

who trade for themselves) will have to record 

oral communications. 

Market participants that must comply will 

be required to record communications 

relating to: Quotes, solicitations, bids, offers, 

instructions, trading, and prices that lead to 

the execution of a transaction in a 

commodity interest. Methods of 

communication that fall under the rule 

include telephone, voicemail, facsimile, 

instant messaging, electronic mail, mobile 

device, or other digital or electronic media. 

Thus, the rulemaking also clarifies that the 

existing requirement under regulation 1.35(a) 

to keep written records applies to electronic 

written communications, such as emails and 

instant messages. Records of oral 

communications must be kept for one year. 

The rule will make enforcement 

investigations more efficient by preserving 

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Federal Register / Vol. 77, No. 246 / Friday, December 21, 2012 / Rules and Regulations 75543 

1There were no comments related to the 

proposed rules amending the Board’s rulemaking 

procedures. In addition, there was only one 

comment related to the run-off election procedures 

under Proposed Rule 1206.1. Right to Work objects 

to Rule 1206.1(c), arguing that new hires should be 

permitted to vote in run-off elections. The language 

of 1206.1(c) remains unchanged from the current 

rule. The Board has a long-standing policy of only 

including employees who were eligible in the 

initial election in the run-off election and will not 

change that in this Final Rule. 

2The Manual is an internal statement of agency 

policy and not a compilation of regularly 

promulgated regulations having the force and effect 

of law. Hawaiian Airlines v. NMB, 107 L.R.R.M. 

3322 (D. Haw. 1979), aff’d without op. 659 F.2d 

1088 (9th Cir. 1981). 

critical evidence that otherwise may be lost 

to memory lapses and inconsistent 

recollections. The Commission will have 

access to evidence of fraud and market 

manipulation, which is expected to increase 

the success of enforcement actions for the 

benefit customers, market participants and 

the markets. Moreover, it also will protect 

customers from abusive sales practices, lower 

the risk of transactional disputes and allow 

registrants to follow-up more effectively on 

customer complaints. 

[FR Doc. 2012–30691 Filed 12–20–12; 8:45 am] 

BILLING CODE 6351–01–P 

NATIONAL MEDIATION BOARD 

29 CFR Part 1206 

[Docket No. C–7034] 

RIN 3140–ZA01 

Representation Procedures and 

Rulemaking Authority 

AGENCY: National Mediation Board. 

ACTION: Final rule. 

SUMMARY: In response to amendments to 

the Railway Labor Act in the Federal 

Aviation Administration Modernization 

Reform Act of 2012, the National 

Mediation Board amends its existing 

regulations pertaining to representation 

elections, run-off elections, and 

rulemaking to reflect changes in 

statutory language. 

DATES: The final rule is effective 

December 21, 2012. 

FOR FURTHER INFORMATION CONTACT: 

Mary Johnson, General Counsel, 

National Mediation Board, 202–692– 

5050, infoline@nmb.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On February 14, 2012, the Federal 

Aviation Administration and 

Modernization and Reform Act of 2012, 

Public Law 112–0095 (FAA 

Reauthorization) was signed into law. 

The FAA Reauthorization contained, 

inter alia, several amendments to the 

Railway Labor Act (RLA or Act). The 

changes contained in these amendments 

require changes to the National 

Mediation Board’s (NMB or Board) 

existing Rules relating to run-off 

elections, showing of interest 

requirements, and rulemaking. On May 

15, 2012, the NMB published a Notice 

of Proposed Rulemaking (NPRM) in the 

Federal Register inviting public 

comments for 60 days on a proposal to 

revise those rules to comply with the 

statutory language. The Board invited 

commenters to address the specific 

amendments along with any other 

matters they consider relevant to the 

changes wrought by the amended 

statutory language. In the NPRM, the 

Board also indicated its particular 

interest in receiving comments 

regarding the effect of the amendments 

on the Board’s policies and practices 

with respect to representation disputes 

in mergers. The NPRM also stated that 

the NMB may incorporate any 

comments in a Final Rule in this 

proceeding. On June 7, 2012, the Board 

issued a correction to the text of the 

proposed rules. On June 19, 2012, the 

Board held an open public hearing to 

solicit the views of interested parties on 

the NPRM. 

II. Notice and Comment Period 

In response to the NPRM, the NMB 

received ten submissions during the 

official comment period from trade and 

professional associations, labor unions, 

and members of Congress. Additionally, 

the NMB received written and oral 

comments from seven labor 

organizations that participated in the 

June 19, 2012 open public hearing. The 

NMB has carefully considered all of the 

comments and analyses of the proposed 

changes and the impact of the amended 

statutory language on its merger 

procedures set forth in the Board’s 

Representation Manual (Manual). 

The overwhelming majority of the 

substantive comments addressed the 

applicability of the amended statutory 

language providing that a showing of 

interest of not less than 50 percent is 

required to support an ‘‘application 

requesting that an organization or 

individual be certified as the 

representative of any craft or class of 

employees,’’ to representation disputes 

in mergers. The preamble will focus on 

the Board’s response to the arguments 

raised in these comments. 

III. Summary of Comments 

The major comments received and the 

Board’s responses to those comments 

are as follows. The Board notes that it 

is required to respond to significant 

comments and, therefore, has not 

addressed every issue raised in the 

comments. See, e.g., Portland Cement 

Ass’n v. Ruckelshaus, 486 F.2d 375, 394 

(D.C. Cir. 1973) (‘‘[C]omments must be 

significant enough to step over a 

threshold requirement of materiality 

before any lack of agency response or 

consideration becomes of concern.’’).1

A. Showing of Interest 

The showing of interest requirements 

applicable in mergers are set forth in the 

Board’s Manual.2 Manual Section 19.1 

defines a merger as ‘‘a consolidation, 

merger, purchase, lease, operating 

contract, acquisition of control, or 

similar transaction of two or more 

business entity.’’ The courts have long 

recognized that the NMB, under Section 

2, Ninth, has the authority to resolve 

representation disputes arising from a 

merger involving a carrier or carriers 

covered by the RLA. Air Line Employees 

Ass’n, Int’l v. Republic Airlines, Inc., 

798 F.2d 967 (7th Cir. 1986). An 

organization or individual initiates this 

process by filing an application 

supported by evidence of representation 

or a showing of interest. If, after an 

investigation, the NMB determines that 

a single transportation system exists, the 

Board will proceed to resolve the 

representation of the craft or class on 

the merged carrier. The Board’s current 

policy in mergers requires that 

‘‘[i]ncumbent organizations or 

individuals on the affected carrier(s) 

must submit evidence of representation 

or a showing of interest from at least 

thirty-five (35) percent of the employees 

in the craft or class.’’ Manual Section 

19.601. The Manual further states that 

the ‘‘rules regarding percentage of valid 

authorizations in NMB Rule 1206.2 (29 

CFR 1206.2) and bar rules in NMB Rule 

1206.4 (29 CFR 1206.4) do not apply to 

applications’’ in merger situations. 

Manual Section 19.6. 

In the oral and written statements 

received at the June 19, 2012 public 

meeting and in written comments 

submitted pursuant to the NPRM, 

commenters including the 

Transportation Trades Department, 

AFL–CIO (TTD), Brotherhood of 

Locomotive Engineers and Trainmen 

(BLET), International Association of 

Machinists and Aerospace Workers 

(IAM), Association of Flight 

Attendants—CWA (AFA), 

Transportation Workers Union of 

America (TWU), and the International 

Brotherhood of Teamsters (IBT) state 

that neither the plain language of 

Section 2, Twelfth nor the legislative 

history indicate that Congress intended 

the 50 percent showing of interest 

requirement should apply to mergers. 

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