67254 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 

would cost about $66,000 per 15th stage 

HPC disk. Based on these figures, we 

estimate the total cost of the proposed 

AD to U.S. operators to be $2,904,000. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. Subtitle VII, 

Aviation Programs, describes in more 

detail the scope of the Agency’s 

authority. 

We are issuing this rulemaking under 

the authority described in subtitle VII, 

part A, subpart III, section 44701, 

‘‘General requirements.’’ Under that 

section, Congress charges the FAA with 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce. This regulation 

is within the scope of that authority 

because it addresses an unsafe condition 

that is likely to exist or develop on 

products identified in this rulemaking 

action. 

Regulatory Findings 

We have determined that this 

proposed AD would not have federalism 

implications under Executive Order 

13132. This proposed AD would not 

have a substantial direct effect on the 

States, on the relationship between the 

national Government and the States, or 

on the distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify that the proposed AD: 

1. Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866; 

2. Is not a ‘‘significant rule’’ under the 

DOT Regulatory Policies and Procedures 

(44 FR 11034, February 26, 1979); and 

3. Would not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

We prepared a regulatory evaluation 

of the estimated costs to comply with 

this proposed AD. You may get a copy 

of this summary at the address listed 

under ADDRESSES. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

The Proposed Amendment 

Under the authority delegated to me 

by the Administrator, the Federal 

Aviation Administration proposes to 

amend 14 CFR part 39 as follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

1. The authority citation for part 39 

continues to read as follows: 

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

§ 39.13 [Amended] 

2. The FAA amends § 39.13 by adding 

the following new airworthiness 

directive: 

Pratt & Whitney: Docket No. FAA–2010– 

1095; Directorate Identifier 2009–NE– 

40–AD. 

Comments Due Date 

(a) The Federal Aviation Administration 

(FAA) must receive comments on this 

airworthiness directive (AD) action by 

January 3, 2011. 

Affected ADs 

(b) None. 

Applicability 

(c) This AD applies to Pratt & Whitney 

(PW) PW4074 and PW4077 turbofan engines 

with 15th stage high-pressure compressor 

(HPC) disks, part number (P/N) 55H615, 

installed. These engines are installed on, but 

not limited to, Boeing 777–200 series and 

777–300 series airplanes. 

Unsafe Condition 

(d) This AD results from multiple shop 

findings of cracked 15th stage HPC disks. We 

are issuing this AD to prevent cracks from 

propagating into the bolt holes of the 15th 

stage HPC disk, which could result in a 

failure of the 15th stage HPC disk, 

uncontained engine failure, and damage to 

the airplane. 

Compliance 

(e) You are responsible for having the 

actions required by this AD performed within 

the compliance times specified unless the 

actions have already been done. 

(f) For 15th stage HPC disks that have 9,865 

or fewer cycles since new (CSN) on the 

effective date of this AD, remove the disk 

from service before accumulating 12,000 

CSN. 

(g) For 15th stage HPC disks that have 

accumulated more than 9,865 CSN on the 

effective date of this AD, do the following: 

(1) Remove the disk from service at the 

next piece-part exposure above 12,000 CSN, 

not to exceed 2,135 cycles-in-service (CIS) 

after the effective date of this AD. 

(2) For 15th stage HPC disks that are 

installed in the engine and exceed 12,000 

CSN, perform a borescope inspection (BSI) or 

eddy current inspection (ECI): 

(i) Within 2,400 cycles-since-last 

fluorescent penetrant inspection or ECI, or 

(ii) Within 1,200 cycles-since-last BSI, or 

(iii) Within 55 cycles-in-service (CIS) after 

the effective date of this AD, whichever is 

latest. 

(3) If you see a suspected crack using a BSI 

from paragraph (g)(2) of this AD, but can’t 

visually confirm a crack, perform an ECI 

within 5 CIS after the BSI. 

(4) If you find a crack using any inspection, 

remove the disk from service before further 

flight. 

(h) Use paragraph 1.A. or 1.B. of the 

Accomplishment Instructions ‘‘For Engines 

Installed on the Aircraft’’ or 1.A. or 1.B. of the 

Accomplishment Instructions ‘‘For Engines 

Removed from the Aircraft,’’ of PW Service 

Bulletin PW4G–112–72–309, Revision 1, 

dated July 1, 2010 to perform the inspections. 

Alternative Methods of Compliance 

(i) The Manager, Engine Certification 

Office, has the authority to approve 

alternative methods of compliance for this 

AD if requested using the procedures found 

in 14 CFR 39.19. 

Related Information 

(j) Contact James Gray, Aerospace 

Engineer, Engine Certification Office, FAA, 

Engine & Propeller Directorate, 12 New 

England Executive Park, Burlington, MA 

01803; e-mail: james.e.gray@faa.gov; 

telephone (781) 238–7742; fax (781) 238– 

7199, for more information about this AD. 

(k) Pratt & Whitney Service Bulletin 

PW4G–112–72–309 Revision 1, dated July 1, 

2010, pertains to the subject of this AD. 

Contact Pratt & Whitney, 400 Main St., East 

Hartford, CT 06108; telephone (860) 565– 

7700; fax (860) 565–1605, for a copy of this 

service information. 

Issued in Burlington, Massachusetts, on 

October 26, 2010. 

Karen M. Grant, 

Acting Assistant Manager, Engine and 

Propeller Directorate, Aircraft Certification 

Service. 

[FR Doc. 2010–27607 Filed 11–1–10; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1 and 4 

RIN 3038–AD11 

Removing Any Reference to or 

Reliance on Credit Ratings in 

Commission Regulations; Proposing 

Alternatives to the Use of Credit 

Ratings 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing rules to 

implement new statutory provisions 

enacted by Title IX of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act. These proposed rules 

apply to futures commission merchants, 

designated clearing organizations and 

commodity pool operators. The 

proposed rules implement the new 

statutory framework that requires 

agencies to replace any reference to or 


jlentini on DSKJ8SOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67255 

1 17 CFR 145.9. 

2See Dodd-Frank Wall Street Reform and 

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

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

may be accessed 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. 

5 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, Public Law 111–203, § 939A (2010). 

6 Id. 

7 Id. at § 939A(a). 

8Supra note 4. 

9 17 CFR 1.49 (2009). 

10 17 CFR 4.24(h)(1)(i) (2009). 

11 17 CFR app. pt. 40 guideline no. 1 (2009). 

12See 68 FR 5549 (Feb. 4, 2003). 

reliance on credit ratings in their 

regulations with an appropriate 

alternative standard. 

DATES: Submit comments on or before 

December 2, 2010. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD11 

by any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the established in CFTC Regulation 

145.9.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

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

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Adrianne Joves, Counsel, Office of 

General Counsel, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. Telephone: 

(202) 418–5420. E-mail: ajoves@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

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

Dodd-Frank Act 3 amended the 

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

establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating robust recordkeeping and realtime reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to, among others, all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

In addition, Title IX of the DoddFrank Act addresses credit ratings 

agencies. In pertinent part, Title IX 

requires Federal agencies to review, 

modify and report on their regulations 

that require the use of an assessment of 

the creditworthiness of a security or 

money market instrument and that rely 

on or reference credit ratings.5 Section 

939A of the Dodd-Frank Act directs that 

the Commission: 

(1) Review Commission regulations 

that require the use of an assessment of 

the credit-worthiness of a security or 

money market instrument; 

(2) Remove any reference to or 

reliance on credit ratings in such 

regulations and substitute an 

appropriate standard of creditworthiness; 

(3) Seek to establish, to the extent 

possible, uniform standards of creditworthiness; and 

(4) Report to Congress after the 

completion of the rulemaking process.6

The Dodd-Frank Act contains a 

statutory deadline of July 21, 2011, for 

completing the required review of 

Commission regulations for any such 

reference to or reliance on credit 

ratings.7

The Commission has completed the 

required review of its regulations 8 and 

has identified two categories of 

regulations that contain any reliance on 

credit ratings: (1) Those that rely on 

ratings to limit how Commission 

registrants might invest or deposit 

customer funds; and (2) those that 

require disclosing a credit rating to 

describe an investment’s characteristics. 

However, not every instance identified 

by this review specifically references or 

relies on credit ratings to assess the 

credit-worthiness of a security or a 

money market instrument. Nonetheless, 

in keeping with its efforts to fully 

comply with both the spirit and letter of 

the Dodd-Frank Act, the Commission is 

proposing to amend all of its identified 

regulations that rely on credit ratings 

regarding financial instruments. 

Accordingly, the Commission proposes 

amending Rules 1.49 9 and 4.24 10 to 

remove any references or reliance on 

credit ratings and replace them with 

alternative standards. Elsewhere in 

today’s Federal Register, the 

Commission is also publishing notice of 

its proposal to amend Commission 

regulations 1.25 and 30.7, which in part 

proposes removing all references to or 

reliance on credit ratings in those 

regulations. Finally, the Commission is 

also publishing in today’s Federal 

Register notice of its proposal to amend 

Part 40 of its regulations. This proposal 

includes removing Appendix A to Part 

40,11 which contained one reference to 

credit ratings. 

The Commission requests comment 

on all aspects of the proposed rules, as 

well as comment on the specific 

provisions and issues highlighted in the 

discussion below. 

II. Discussion 

A. Removing Reliance on or Reference 

to Credit Ratings To Limit How 

Registrants Might Deposit Customer 

Funds 

As noted above, after completing the 

required review of Commission 

regulations for references to or reliance 

on credit ratings, two instances were 

identified where credit ratings were 

used to help limit how registrants might 

handle customer funds. Commission 

regulations 1.49 and 30.7, which were 

written to mirror one another,12 both 

include a reference to credit ratings. The 

Commission is proposing to remove 

those references to credit ratings from 

both 30.7 and 1.49. The Commission’s 

proposal to remove the reference to 

credit ratings from regulation 30.7 is 


jlentini on DSKJ8SOYB1PROD with PROPOSALS
67256 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 

13 17 CFR 1.49(d)(3)(i)(B) (2009). 

14See 74 FR 63832 (Dec. 4, 2009) (discussing the 

efforts of the Securities Exchange Commission). See 

also 75 FR 52283 (Aug. 25, 2010) (discussing the 

efforts of the Federal banking agencies.) 

15See supra note 11. 

16See Press Release, Basel Committee on Banking 

Supervision, Group of Governors and Heads of 

Supervision Announces Higher Global Minimum 

Capital Standards (Sept. 12, 2010) (http://bis.org/

press/p100912.pdf). 

17 17 CFR 4.24(h)(1)(i) (2009). 

18 17 CFR app. pt. 40 guideline no. 1 (2009). 

19 5 U.S.C. 601 et seq. 

20 47 FR 18618 (Apr. 30, 1982). 

21 Id. at 18619. 

22 66 FR 45604, 45609 (Aug. 29, 2001). 

23 47 FR 18618–21 (Apr. 30, 1982). 

24 44 U.S.C. 3501 et seq. 

being published elsewhere in today’s 

Federal Register. 

1. Commission Regulation 1.49 

Commission Regulation 1.49 13 places 

qualifications on the types of 

depositories where futures commission 

merchants (FCMs) and designated 

clearing organizations (DCOs) might 

place customer funds. Similar to 30.7, 

1.49 currently requires that an 

acceptable foreign depository must 

either: (1) Have in excess of $1 billion 

of regulatory capital; or (2) issue 

commercial paper or a long-term debt 

instrument that is rated in one of the 

two highest rating categories by at least 

one nationally recognized statistical 

rating organization (NRSRO). 

In keeping with the Dodd-Frank Act, 

the Commission proposes to remove all 

ratings requirements from Regulation 

1.49. This proposal is based on the 

Commission’s views regarding the 

uncertain reliability of ratings as 

currently administered. Recent events in 

the financial markets have revealed 

significant weaknesses in the ratings 

industry and its ability to reliably gauge 

the safety of debt instruments. Further, 

Congress and other Federal financial 

regulators have considered eliminating 

or restricting rating requirements with 

some frequency during the past two 

years.14

Finally, noting that the requirements 

regarding the placement of customer 

funds in foreign depositories in the two 

regulations were originally written to 

mirror one another,15 this proposal to 

remove the reference to credit ratings in 

Commission regulation 1.49 is done in 

concert with proposals found elsewhere 

in today’s Federal Register regarding 

Commission regulation 30.7. That 

proposal considers the reference to 

credit ratings in Commission regulation 

30.7 to be no more useful or necessary 

to gauge the safety of a depository 

institution than similar references found 

in Commission regulation 1.25. To 

explain its proposal to remove 

references to credit ratings in 

Commission regulation 1.25, the 

Commission notes the poor past 

performance of credit ratings in gauging 

the safety of certain types of 

investments, and its view that credit 

ratings are not necessary to gauge the 

future ability of certain types of 

investments to preserve customer funds. 

As a result, this proposal serves to align 

Commission regulation 1.49 with 

proposed Commission regulations 1.25 

and 30.7, and to greater simplify the 

regulatory treatment of investment of 

customer funds. 

Request for Comment 

The Commission requests comment 

on whether relying on a minimum 

capital requirement of $1 billion dollars 

in regulatory capital is an adequate 

alternative standard to current 

Commission regulation 1.49. The 

Commission also requests comment on 

whether there is another standard or 

measure of solvency and creditworthiness that might be used as an 

appropriate, additional test of a bank’s 

safety. Specifically, the Commission 

seeks comment on whether a leverage 

ratio or a capital adequacy ratio 

requirement consistent with or similar 

to those in the Basel III accords16 would 

be an appropriate additional safeguard 

for a bank or trust company located 

outside the United States. 

The Commission welcomes any other 

comments on this proposal. 

B. Removing Reliance on Credit Ratings 

To Help Disclose the Characteristics of 

an Investment 

After completing the required review 

of Commission regulations for 

references to or reliance on credit 

ratings, two instances were identified 

where credit ratings were used to help 

disclose the characteristics of an 

investment. Commission regulation 

4.24 17 and Appendix A to Part 40 18

both include a reference to credit 

ratings. As a result, while the references 

to credit ratings are not specifically 

related to the credit-worthiness of 

securities or money market instruments, 

in keeping with the spirit of the DoddFrank Act the Commission is proposing 

to remove the references to credit 

ratings from 4.24. Elsewhere in today’s 

Federal Register the Commission is 

proposing amendments to Part 40 of the 

Commission’s regulations, including the 

removal of Appendix A to Part 40. 

1. Commission Regulation 4.24 

Commission Regulation 4.24 requires 

commodity pool operators (CPOs) to 

disclose the characteristics of the 

commodity and other interests that the 

pool will trade including, if applicable, 

their investment rating. In keeping with 

its stated goal of complying fully with 

the spirit and letter of the Dodd-Frank 

Act, the Commission proposes removing 

the references to ratings Commission 

regulation 4.24 and replacing that 

reference with the phrase ‘‘creditworthiness.’’ While CPOs may still 

choose to reference an investment rating 

to describe the credit-worthiness of an 

investment in its disclosures, the 

Commission notes that the CPO as 

appropriate should make an 

independent assessment of the creditworthiness of those investments. 

Request for Comment 

The Commission requests comment 

on what effect removing credit ratings as 

one characteristic included in 

Commission regulation 4.24 might have 

on the ability of investors and others to 

understand the disclosures of 

commodity pool operators (CPOs) 

regarding the characteristics of a 

commodity pool. The Commission also 

requests comment on the ability of CPOs 

to make independent assessments of the 

credit-worthiness of their pool’s 

investments. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 19 requires Federal agencies, in 

promulgating rules, to consider the 

impact of those rules on small 

businesses. The rule amendments 

proposed herein will affect FCMs, DCOs 

and CPOs. The Commission has 

previously established certain 

definitions of ‘‘small entities’’ to be used 

by the Commission in evaluating the 

impact of its rules on small entities in 

accordance with the RFA.20 The 

Commission has previously determined 

that registered FCMs,21 DCOs 22 and 

CPOs 23 are not small entities for the 

purpose of the RFA. Accordingly, 

pursuant to 5 U.S.C. 605(b), the 

Chairman, on behalf of the Commission, 

certifies that the proposed rules will not 

have a significant economic impact on 

a substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 24 imposes certain requirements 

on Federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

The proposed rule amendments do not 

require a new collection of information 

on the part of any entities subject to the 


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Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67257 

25 7 U.S.C. 19(a). 

proposed rule amendments. 

Accordingly, for purposes of the PRA, 

the Commission certifies that these 

proposed rule amendments, if 

promulgated in final form, would not 

impose any new reporting or 

recordkeeping requirements. 

C. Costs and Benefits of the Proposed 

Rules 

Section 15(a) of the CEA 25 requires 

the Commission to consider the costs 

and benefits of its actions before issuing 

a rulemaking under the Act. By its 

terms, section 15(a) does not require the 

Commission to quantify the costs and 

benefits of rule or to determine whether 

the benefits of the rulemaking outweigh 

its costs; rather, it requires that the 

Commission ‘‘consider’’ the costs and 

benefits of its actions. Section 15(a) 

further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

rule is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

Act. 

Summary of proposed requirements. 

Proposed rule 1.49 would facilitate 

greater protection of customer funds. 

The proposed amendments align 

proposed regulation 1.49 with proposals 

made elsewhere in today’s Federal 

Register regarding Commission 

regulations 1.25 and 30.7. Like those 

proposals, the proposed amendments to 

Commission regulation 1.49 are made 

with the primary purpose of 

safeguarding the funds of customers. 

Proposed amendments to Commission 

regulation 4.24 would lessen reliance on 

credit ratings and will reduce risk in the 

financial system by placing more 

responsibility on CPOs to fully 

understand the credit-worthiness of 

their investments . 

Costs. With respect to costs, the 

Commission has determined that its 

proposals present minimal costs while 

providing the great benefits of 

safeguarding customer funds and 

decreasing the risks associated with 

CPOs not evaluating the creditworthiness of their investments. There 

may be some minimal costs associated 

with transferring customer funds, if 

necessary, to more sound foreign 

depository institutions and with CPOs 

improving their ability to make 

independent assessments regarding the 

credit-worthiness of their investments. 

Benefits. With respect to benefits, the 

Commission has determined that the 

proposed rules will help safeguard 

customer funds and will result in CPOs 

improving their understanding of the 

credit-worthiness of their investments. 

The proposed rules help protect market 

participants and the public by 

safeguarding customer funds and 

highlighting the accountability CPOs 

have for understanding the creditworthiness of their investments. The 

proposed rules will not hinder the 

efficiency or competitiveness of futures 

markets, and may improve the financial 

integrity of the markets by helping to 

safeguard customer funds and 

encourage CPOs to better understand 

the credit-worthiness of their 

investments. The proposed rules will 

not have any effect on price discovery, 

and may help improve sound risk 

management practices. 

Public Comment. The Commission 

invites public comment on its costbenefit considerations. Commenters are 

also invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the Proposal with their 

comment letters. 

List of Subjects 

17 CFR Part 1 

Brokers, Commodity futures, 

Consumer protection. 

17 CFR Part 4 

Advertising, Commodity futures, 

Commodity pool operators, Commodity 

trading advisors, Consumer protection, 

Disclosure, Principals, Reporting and 

recordkeeping requirements. 

For the reasons discussed in the 

preamble, the Commodity Futures 

Trading Commission proposed to 

amend 17 CFR parts 1 and 4 as follows: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

1. The authority citation for part 1 is 

revised to read as follows: 

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

6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 7, 

7a, 7b, 8, 9, 12, 12a, 12c, 13a, 13a–1, 16, 16a, 

19, 21, 23, and 24, as amended by the DoddFrank Wall Street Reform and Consumer 

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

1376 (2010) and the Commodity Futures 

Modernization Act of 2000, Appendix E of 

Pub. L. 106–554, 114 Stat. 2763 (2000). 

2. Section 1.49 is amended by revising 

paragraph (d)(3) to read as follows: 

§ 1.49 Denomination of customer funds 

and location of depositories. 

* * * * * 

(d) * * * 

(3) A depository, if located outside the 

United States, must be: 

(i) A bank or trust company that has 

in excess of $1 billion of regulatory 

capital; or 

(ii) A futures commission merchant 

that is registered as such with the 

Commission; or 

(iii) A derivatives clearing 

organization. 

* * * * * 

PART 4—COMMODITY POOL 

OPERATORS AND COMMODITY 

TRADING ADVISORS 

1. The authority citation for part 4 is 

revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 

6m, 6n, 6o, 12a and 23 as amended by the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111–203, 

124 Stat. 1376 (2010). 

2. Section 4.24 is amended by revising 

paragraph (h)(1)(i) to read as follows: 

§ 4.24 General disclosures required. 

* * * * * 

(h) * * * 

(1) * * * 

(i) The approximate percentage of the 

pool’s assets that will be used to trade 

commodity interests, securities and 

other types of interests, categorized by 

type of commodity or market sector, 

type of security (debt, equity, preferred 

equity), whether traded or listed on a 

regulated exchange market, maturity 

ranges and by credit worthiness, as 

applicable; 

* * * * * 

By the Commodity Futures Trading 

Commission. 

Dated: October 27, 2010. 

David A. Stawick, 

Secretary. 

Statement of Chairman Gary Gensler 

Removing Any Reference to or Reliance 

on Credit Ratings in Commission 

Regulations; Proposing Alternatives to 

the Use of Credit Ratings 

October 26, 2010 

I support the proposal to remove any 

reliance on credit ratings within the 

Commission’s regulations. Under Title 

IX of the Dodd-Frank Act, Congress 

required that the Commission review 

references to credit ratings in our 


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67258 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 

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

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 

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

LawRegulation/OTCDERIVATIVES/index.htm. 

3Section 1a(20) of the Act defines the term 

‘‘exempt commodity’’ to mean a commodity that is 

not an excluded commodity or an agricultural 

commodity. Section 1a(19) defines the term 

‘‘excluded commodity’’ to mean, among other 

things, an interest rate, exchange rate, currency, 

credit risk or measure, debt or equity instrument, 

measure of inflation, or other macroeconomic index 

or measure. Although the term ‘‘agricultural 

commodity’’ is not defined in the Act, CEA section 

1a(9) enumerates a non-exclusive list of several 

agricultural-based commodities. The Commission 

will consider the issuance of a notice of rulemaking 

proposing a definition for the term ‘‘agricultural 

commodity’’ in October of 2010. Although broadly 

defined, exempt commodity futures contracts are 

often viewed as energy and metals products. 

existing regulations and to specifically 

remove them if they were regarding 

certain financial instruments. The 

Commission has completed the required 

review of its regulations and has 

identified seven instances of references 

to credit ratings, five of which were 

regarding those financial instruments. 

Today, we are proposing removing these 

five references and reliance to credit 

ratings. This rule addresses two of those 

references in Regulation 1.49, which 

limits the types of banks in which 

futures commission merchants and 

derivatives clearing organizations may 

place customer funds, and 4.24, which 

requires commodity pool operators to 

disclose to their customers where they 

are putting customer money. The other 

actions we are taking today regarding 

rule certifications in Part 40 and 

investment of customer funds in 

Regulation 1.25 and 30.7 will address 

the remaining instances of credit 

ratings. 

[FR Doc. 2010–27555 Filed 11–1–10; 8:45 am] 

BILLING CODE P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 15 and 20 

RIN 3038–AD17 

Position Reports for Physical 

Commodity Swaps 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing reporting 

regulations that are reasonably 

necessary for implementing and 

enforcing aggregate position limits for 

certain physical commodity derivatives. 

As a result of recent legislative reforms, 

the Commission may adopt regulations 

establishing aggregate position limits for 

designated contract market (‘‘DCM’’) 

physical commodity futures contracts 

and swaps that are economically 

equivalent to such contracts. The 

Commission currently receives, and 

uses for market surveillance purposes, 

including position limit enforcement, 

data on large positions in all physical 

commodity futures and option contracts 

traded on DCMs. However, there is no 

analogous reporting structure in place 

for economically equivalent swaps, 

which until recently were largely 

unregulated financial contracts. The 

Commission’s proposal would require 

position reports on economically 

equivalent swaps from clearing 

organizations, their members and swap 

dealers. Notably, the proposed 

regulations also include a sunset 

provision. The sunset provision would 

render the regulations ineffective upon 

the Commission’s issuance of an order 

finding that operating swap data 

repositories (‘‘SDRs’’) are capable of 

processing positional data in a manner 

that would enable the Commission to 

set and enforce aggregate position 

limits. 

DATES: Comments must be received on 

or before December 2, 2010. 

ADDRESSES: You may submit comments, 

identified by RIN number, by any of the 

following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow 

instructions for submitting comments. 

• Agency Web Site: http:// 

www.cftc.gov. 

• E-mail: Swaps.Reporting@cftc.gov. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that is exempt from disclosure under the 

Freedom of Information Act, a petition 

for confidential treatment of the exempt 

information may be submitted according 

to the procedure established in CFTC 

regulation 145.9 (17 CFR 145.9). The 

Commission reserves the right, but shall 

have no obligation, to review, prescreen, filter, redact, refuse or remove 

any or all of your submission from 

http://www.cftc.gov that it may deem to 

be inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of the 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Stephen Sherrod, Acting Deputy 

Director, Market Surveillance, (202) 

418–5452, ssherrod@cftc.gov, or Bruce 

Fekrat, Senior Special Counsel, Office of 

the Director, (202) 418–5578, 

bfekrat@cftc.gov, Division of Market 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Economically Equivalent Swaps 

A. Background 

The Commodity Exchange Act (‘‘CEA 

or Act’’) of 1936,1 as amended by Title 

VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 

2010 (‘‘Dodd-Frank Act’’),2 includes 

provisions imposing clearing and trade 

execution requirements on standardized 

derivatives as well as comprehensive 

recordkeeping and reporting 

requirements that extend to all swaps, a 

defined term in CEA section 1a(47). 

New section 4a(a)(2) of the CEA, as 

introduced by section 737 of the DoddFrank Act, charges the Commission with 

promulgating regulations, as 

appropriate, to limit the amount of 

positions, other than bona fide hedge 

positions, that may be held by any 

person with respect to commodity 

futures and option contracts in exempt 

and agricultural commodities 3 traded 

on or subject to the rules of a DCM 

within 180 and 270 days, respectively, 

of the legislation’s enactment on July 21, 

2010. New section 4a(a)(6)(A) of the Act 

requires Commission-set position limits 

to apply aggregately across DCMs to 

contracts that are based on the same 

commodity. The exempt and 

agricultural commodity futures and 

option contracts for which the 

Commission may consider position 

limits are listed in proposed regulation 

20.2 (‘‘20.2 listed futures contracts’’ or 

‘‘20.2 contracts’’). The list in proposed 

regulation 20.2, however, is nonexclusive and preliminary. Should the 

Commission propose regulations to 

establish position limits, it may decide 

not to propose position limits for all of 

the 20.2 listed futures contracts or, 

alternatively, may decide to propose 


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