26200 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 

section, the meetings will be held at 

U.S. Department of Energy, Forrestal 

Building, 1000 Independence Avenue 

SW., Washington, DC 20585. 

Individuals will also have the 

opportunity to participate by webinar. 

To register for the webinar and receive 

call-in information, please register at 

http://www1.eere.energy.gov/buildings/

appliance_standards/

rulemaking.aspx?ruleid=59 . 

FOR FURTHER INFORMATION CONTACT: John 

Cymbalsky, ASRAC Designated Federal 

Officer, U.S. Department of Energy 

(DOE), Office of Energy Efficiency and 

Renewable Energy, 950 L’Enfant Plaza 

SW., Washington, DC, 20024. Email: 

asrac@ee.doe.gov. 

SUPPLEMENTARY INFORMATION: 

The meetings will be held: 

• May 11, 2015; 

• May 12, 2015 (Air-Conditioning, 

Heating, and Refrigeration Institute, 

2111 Wilson Blvd., Suite 500, 

Arlington, VA 22201); 

• May 20, 2015; 

• May 21, 2015 (950 L‘Enfant Plaza 

SW., Washington, DC, Room 7140); 

• June 1–2, 2015; 

• June 9–10, 2015; and 

• June 15, 2015 (Webinar only) 

Members of the public are welcome to 

observe the business of the meeting and, 

if time allows, may make oral 

statements during the specified period 

for public comment. To attend the 

meeting and/or to make oral statements 

regarding any of the items on the 

agenda, email asrac@ee.doe.gov. In the 

email, please indicate your name, 

organization (if appropriate), 

citizenship, and contact information. 

Please note that foreign nationals 

participating in the public meeting are 

subject to advance security screening 

procedures which require advance 

notice prior to attendance at the public 

meeting. If a foreign national wishes to 

participate in the public meeting, please 

inform DOE as soon as possible by 

contacting Ms. Regina Washington at 

(202) 586–1214 or by email: 

Regina.Washington@ee.doe.gov so that 

the necessary procedures can be 

completed. Anyone attending the 

meeting will be required to present a 

government photo identification, such 

as a passport, driver’s license, or 

government identification. Due to the 

required security screening upon entry, 

individuals attending should arrive 

early to allow for the extra time needed. 

Due to the REAL ID Act implemented 

by the Department of Homeland 

Security (DHS) recent changes regarding 

ID requirements for individuals wishing 

to enter Federal buildings from specific 

states and U.S. territories. Driver’s 

licenses from the following states or 

territory will not be accepted for 

building entry and one of the alternate 

forms of ID listed below will be 

required. 

DHS has determined that regular 

driver’s licenses (and ID cards) from the 

following jurisdictions are not 

acceptable for entry into DOE facilities: 

Alaska, Louisiana, New York, American 

Samoa, Maine, Oklahoma, Arizona, 

Massachusetts, Washington, and 

Minnesota. 

Acceptable alternate forms of PhotoID include: U.S. Passport or Passport 

Card; An Enhanced Driver’s License or 

Enhanced ID-Card issued by the states 

of Minnesota, New York or Washington 

(Enhanced licenses issued by these 

states are clearly marked Enhanced or 

Enhanced Driver’s License); A military 

ID or other Federal government issued 

Photo-ID card. 

Docket: The docket is available for 

review at www.regulations.gov, 

including Federal Register notices, 

public meeting attendee lists and 

transcripts, comments, and other 

supporting documents/materials. All 

documents in the docket are listed in 

the www.regulations.gov index. 

However, not all documents listed in 

the index may be publicly available, 

such as information that is exempt from 

public disclosure. 

Issued in Washington, DC, on May 1, 2015. 

Kathleen B. Hogan, 

Deputy Assistant Secretary for Energy 

Efficiency, Energy Efficiency and Renewable 

Energy. 

[FR Doc. 2015–11012 Filed 5–6–15; 8:45 am] 

BILLING CODE 6450–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 32 

RIN 3038–AE26 

Trade Options 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (the 

‘‘Commission’’ or the ‘‘CFTC’’) is 

proposing to amend the trade option 

exemption in its regulations, as 

described herein, in the following 

subject areas: Reporting requirements 

for trade option counterparties that are 

not swap dealers or major swap 

participants; recordkeeping 

requirements for trade option 

counterparties that are not swap dealers 

or major swap participants; and certain 

non-substantive amendments. 

DATES: Comments must be received on 

or before June 8, 2015. 

ADDRESSES: You may submit comments, 

identified by RIN 3038–AE26, by any 

one of the following methods: 

• CFTC Web site: http://

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Comments Online process 

on the Web site. 

• Mail: Send to Christopher 

Kirkpatrick, Secretary of the 

Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

Mail, above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one of these methods. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to www.cftc.gov. You 

should submit only information that 

you wish to make available publicly. If 

you wish the Commission to consider 

information that you believe is exempt 

from disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the CFTC’s regulations, 17 CFR 145.9. 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of a submission from 

www.cftc.gov that it may deem to be 

inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of the 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

David N. Pepper, Special Counsel, 

Division of Market Oversight, at (202) 

418–5565 or dpepper@cftc.gov; or Elise 

Pallais, Counsel, Office of the General 

Counsel, at (202) 418–5577 or epallais@

cftc.gov; Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

In April 2012, pursuant to section 

4c(b) of the Commodity Exchange Act 

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Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 26201 

1 7 U.S.C. 6c(b) (providing that ‘‘[n]o person shall 

offer to enter into, enter into or confirm the 

execution of, any transaction involving any 

commodity regulated under this chapter which is 

of the character of, or is commonly known to the 

trade as an ‘option’ . . . contrary to any rule, 

regulation, or order of the Commission prohibiting 

any such transaction or allowing any such 

transaction under such terms and conditions as the 

Commission shall prescribe’’). 

2See Commodity Options, 77 FR 25320 (Apr. 27, 

2012) (‘‘Commodity Options Release’’). The 

Commission also issued certain conforming 

amendments to parts 3 and 33 of its regulations. See 

id. The Commission’s regulations are set forth in 

Chapter I of Title 17 of the Code of Federal 

Regulations. 

3Public Law 111–203, 124 Stat. 1376 (2010). 

4See 7 U.S.C. 1a(47)(A)(i) (defining ‘‘swap’’ to 

include ‘‘[an] option of any kind that is for the 

purchase or sale, or based on the value, of 1 or more 

. . . commodities . . .’’); 7 U.S.C. 1a(47)(B)(i) 

(excluding options on futures from the definition of 

‘‘swap’’); 7 U.S.C. 1a(36) (defining an ‘‘option’’ as 

‘‘an agreement, contract, or transaction that is of the 

character of, or is commonly known to the trade as, 

an ‘option’ . . .’’). The Commission defines 

‘‘commodity option’’ or ‘‘commodity option 

transaction’’ as ‘‘any transaction or agreement in 

interstate commerce which is or is held out to be 

of the character of, or is commonly known to the 

trade as, an ‘option,’ ‘privilege,’ ‘indemnity,’ ‘bid,’ 

‘offer,’ ‘call,’ ‘put,’ ‘advance guaranty’ or ‘decline 

guaranty’ and which is subject to regulation under 

the Act and these regulations.’’ See 17 CFR 1.3(hh). 

5See 17 CFR 32.2. 

6See 77 FR at 25326–29. See also 17 CFR 32.2(b); 

32.3. The interim final rule continued the 

Commission’s long history of providing special 

treatment to ‘‘trade options’’ dating back to the 

Commission’s original trade option exemption in 

1976. See Regulation and Fraud in Connection with 

Commodity and Commodity Option Transactions, 

41 FR 5108 (Nov. 18, 1976). 

7See 7 U.S.C. 1a(18) (defining ‘‘eligible contract 

participant’’); 17 CFR 1.3(m) (further defining 

‘‘eligible contract participant’’). 

8See 7 U.S.C. 1a(20) (defining ‘‘exempt 

commodity’’ to mean a commodity that is not an 

agricultural commodity or an ‘‘excluded 

commodity,’’ as defined in 7 U.S.C. 1a(19)); 17 CFR 

1.3(zz)(defining ‘‘agricultural commodity’’). 

Examples of exempt commodities include energy 

commodities and metals. 

9See 17 CFR 32.3(a). 

10See 17 CFR 32.3(a), (b)–(d). 

11See 17 CFR 32.3(b). 

12See 17 CFR 32.3(c)(1). Applying § 32.3(c)(1), 

reporting entities as defined in part 20—swap 

dealers and clearing members—must consider their 

counterparty’s trade option positions just as they 

would consider any other swap position for the 

purpose of determining whether a particular 

counterparty has a consolidated account with a 

reportable position. See 17 CFR 20.1. A trade option 

counterparty would not be responsible for filing 

large trader reports unless it qualifies as a 

‘‘reporting entity,’’ as that term is defined in § 20.1. 

13See 17 CFR 32.3(c)(2). See also Int’l Swaps & 

Derivatives Ass’n v. U.S. Commodity Futures 

Trading Comm’n, 887 F. Supp. 2d 259, 270 (D.D.C. 

2012), vacating the part 151 rulemaking, Position 

Limits for Futures and Swaps, 76 FR 71626 (Nov. 

18, 2011). 

14See 17 CFR 32.3(c)(3)–(4). Note that § 32.3(c)(4) 

explicitly incorporates §§ 23.201 and 23.204, which 

require counterparties that are SD/MSPs to comply 

with part 45 recordkeeping and reporting 

requirements, respectively, in connection with all 

their swaps activities (including all their trade 

option activities). See 17 CFR 23.201(c), 23.204(a). 

15See 17 CFR 32.3(c)(5). 

16See 17 CFR 32.3(d). Note that § 32.2 also 

preserves the continued application of § 32.4, 

which specifically prohibits fraud in connection 

with commodity option transactions, to commodity 

options subject to the trade option exemption. See 

17 CFR 32.2, 32.4. 

17See 77 FR at 25326, n.39. For example, trade 

options do not factor into the determination of 

whether a market participant is an SD or MSP; trade 

options are exempt from the rules on mandatory 

clearing; and trade options are exempt from the 

rules related to real-time reporting of swaps 

transactions. The provisions identified in this list 

are not intended to constitute an exclusive or 

exhaustive list of the swaps requirements from 

which trade options are exempt. 

18See Regulation and Fraud in Connection with 

Commodity and Commodity Option Transactions, 

41 FR 51808 (Nov. 24, 1976) (adopting an 

exemption from the general requirement that 

commodity options be traded on-exchange for 

commodity option transaction for certain 

transactions involving commercial parties); 

Suspension of the Offer and Sale of Commodity 

Options, 43 FR 16153, 16155 (Apr. 17, 1978) 

(adopting a rule suspending all trading in 

commodity options other than such exempt trade 

options); Trade Options on the Enumerated 

Agricultural Commodities, 63 FR 18821 (Apr. 16, 

1998) (authorizing the off-exchange trading of trade 

options in agricultural commodities). 

19See 77 FR at 25326–27. 

20See 77 FR 25329–30. Comments were due on 

or before June 26, 2012. The comment file is 

available at http://comments.cftc.gov/

PublicComments/CommentList.aspx?id=1196. 

(the ‘‘CEA’’ or the ‘‘Act’’),1 the 

Commission issued a final rule to repeal 

and replace part 32 of its regulations 

concerning commodity options.2 The 

Commission undertook this effort to 

address section 721 of the Dodd-Frank 

Act Wall Street Reform and Consumer 

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

‘‘Dodd-Frank’’),3 which, among other 

things, amended the CEA to define the 

term ‘‘swap’’ to include commodity 

options.4 Notably, § 32.2(a) provides the 

general rule that commodity option 

transactions must be conducted in 

compliance with any Commission rule, 

regulation, or order otherwise 

applicable to any other swap.5

In response to requests from 

commenters, the Commission added a 

limited exception to this general rule for 

physically delivered commodity options 

purchased by commercial users of the 

commodities underlying the options 

(the ‘‘trade option exemption’’).6

Adopted as an interim final rule, § 32.3 

provides that qualifying commodity 

options are generally exempt from the 

swap requirements of the CEA and the 

Commission’s regulations, subject to 

certain specified conditions. To qualify 

for the trade option exemption, a 

commodity option transaction must 

meet the following requirements: (1) 

The offeror is either an eligible contract 

participant (‘‘ECP’’) 7 or a producer, 

processor, commercial user of, or 

merchant handling the commodity that 

is the subject of the commodity option 

transaction, or the products or 

byproducts thereof (a ‘‘commercial 

party’’) that offers or enters into the 

commodity option transaction solely for 

purposes related to its business as such; 

(2) the offeree is, and the offeror 

reasonably believes the offeree to be, a 

commercial party that is offered or 

enters into the transaction solely for 

purposes related to its business as such; 

and (3) the option is intended to be 

physically settled so that, if exercised, 

the option would result in the sale of an 

exempt or agricultural commodity 8 for 

immediate or deferred shipment or 

delivery.9

Commodity option transactions that 

meet these requirements are generally 

exempt from the provisions of the Act 

and any Commission rule, regulation, or 

order promulgated or issued thereunder, 

otherwise applicable to any other swap, 

subject to the conditions enumerated in 

§ 32.3(b)–(d).10 These conditions 

include: Recordkeeping and reporting 

requirements; 11 large trader reporting 

requirements in part 20; 12 position 

limits under part 151; 13 certain 

recordkeeping, reporting, and risk 

management duties applicable to swap 

dealers (‘‘SDs’’) and major swap 

participants (‘‘MSPs’’) in subparts F and 

J of part 23; 14 capital and margin 

requirements for SDs and MSPs under 

CEA section 4s(e); 15 and any applicable 

antifraud and anti-manipulation 

provisions.16

In adopting § 32.3, the Commission 

stated that the trade option exemption is 

generally intended to permit parties to 

hedge or otherwise enter into 

commodity option transactions for 

commercial purposes without being 

subject to the full Dodd-Frank swaps 

regime.17 This limited exemption 

continued the Commission’s 

longstanding practice of providing 

commercial participants in trade 

options with relief from certain 

requirements that would otherwise 

apply to commodity options.18

The Commission further explained 

that the applicable conditions in 

§ 32.3(b)–(d) were primarily intended to 

preserve a level of visibility into the 

market for trade options while still 

reducing the regulatory compliance 

burden for trade option participants.19

The Commission invited market 

participants to comment on the trade 

option exemption, and provided a list of 

specific questions for commenters’ 

consideration.20

In the year following the 

Commission’s adoption of the trade 

option exemption, the Commission’s 

Division of Market Oversight (‘‘DMO’’) 

issued a series of no-action letters 

granting relief from certain conditions 

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26202 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 

21See CFTC No-Action Letter No. 12–06 (Aug. 14, 

2012), available at http://www.cftc.gov/ucm/

groups/public/@lrlettergeneral/documents/letter/

12-06.pdf; CFTC No-Action Letter No. 12–41 (Dec. 

5, 2012), available at http://www.cftc.gov/ucm/

groups/public/@lrlettergeneral/documents/letter/

12-41.pdf; CFTC No-Action Letter No. 13–08 (Apr. 

5, 2013), available at http://www.cftc.gov/ucm/

groups/public/@lrlettergeneral/documents/letter/

13-08.pdf. 

22See notes 28–29 and accompanying text, infra. 

23No-Action Letter 13–08, at 3–4. No-Action 

Letter 13–08 also grants relief from certain swap 

recordkeeping requirements in part 45 for a NonSD/MSP that complies with the recordkeeping 

requirements set forth in § 45.2, provided that if the 

counterparty to the trade option at issue is an SD 

or an MSP, the Non-SD/MSP obtains a legal entity 

identifier (‘‘LEI’’) pursuant to § 45.6. Id. at 4–5. 

Should the Commission adopt this proposal 

without significant revision, the relief provided in 

No-Action Letter 13–08 would be terminated. 

24 In addition to seeking comment following 

adoption of the trade option exemption itself, see 

supra note 21, the Commission has sought comment 

relating to the trade option exemption in 

connection with other related Commission actions. 

See e.g., Further Definition of ‘‘Swap,’’ SecurityBased Swap,’’ and ‘‘Security-Based Swap 

Agreement’’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping, 77 FR 48207 (Aug. 13, 

2012); Agency Information Collection Activities: 

Proposed Collection, Comment Request: Form TO, 

Annual Notice Filing for Counterparties to 

Unreported Trade Options, 77 FR 74647 (Dec. 17, 

2012); Agency Information Collection Activities 

under OMB Review, 78 FR 11856 (Feb. 20, 2013); 

Forward Contracts With Embedded Volumetric 

Optionality, 79 FR 69073 (Nov. 20, 2014). CFTC 

staff also invited comment in connection with an 

April 2014 public roundtable regarding issues 

concerning end users and the Dodd-Frank Act. The 

Commission has reviewed these comment letters 

and taken into account any significant issues raised 

therein in issuing this proposal. The related 

comment files are available at http://

comments.cftc.gov/PublicComments/

ReleasesWithComments.aspx. 

25See 17 CFR 32.3(b)(1). 

26See 17 CFR 45.8. As discussed above, NoAction Letter 13–08 provides non-time-limited, 

conditional no-action relief for Non-SD/MSP 

counterparties to trade options from part 45 

reporting requirements. See supra note 22 and 

accompanying text. 

27Form TO is set out in appendix A to part 32 

of the Commission’s regulations. 

28 In 2014, approximately 330 Non-SD/MSPs 

submitted Form TO filings to the Commission, 

approximately 200 of which indicated delivering or 

receiving less than $10 million worth of physical 

commodities in connection with exercising 

unreported trade options in 2013. 

29See 77 FR at 25327–28. 

30See American Gas Association (‘‘AGA’’) (Dec. 

22, 2013) at 3, 16–17 (observing that ‘‘widespread 

concern’’ regarding the regulatory risk posed by 

Form TO has led some counterparties to avoid 

entering into trade options, leading to a rise in the 

cost of contracting); American Public Power 

Association, National Rural Electric Cooperative 

Association, Edison Electric Institute, Electric 

Power Supply Association (‘‘APPA/NRECA/EEI/

EPSA’’) (Feb. 15, 2013) at 7–8 (stating that 

in the trade option exemption.21 CFTC 

No-Action Letter No. 13–08 (‘‘No-Action 

Letter 13–08’’), which remains in effect, 

provides that DMO will not recommend 

that the Commission commence an 

enforcement action against a market 

participant that is not an SD or an MSP 

(a ‘‘Non-SD/MSP’’) for failing to comply 

with the part 45 reporting requirements, 

as required by § 32.3(b)(1), provided that 

such Non-SD/MSP meets certain 

conditions, including reporting such 

exempt commodity option transactions 

via Form TO 22 and notifying DMO no 

later than 30 days after entering into 

trade options having an aggregate 

notional value in excess of $1 billion 

during any calendar year (the ‘‘$1 

Billion Notice’’).23

Based on DMO’s experience with the 

trade option exemption following the 

issuance of No-Action Letter 13–08, and 

after a review of comments from market 

participants,24 the Commission is 

proposing several amendments to the 

trade option exemption in § 32.3. 

Generally, these proposed amendments 

are intended to facilitate use of trade 

options by commercial market 

participants to hedge against 

commercial and physical risks. 

The Commission is proposing 

modifications to the recordkeeping and 

reporting requirements in § 32.3(b) that 

are applicable to trade option 

counterparties that are Non-SD/MSPs, 

as well as a non-substantive amendment 

to § 32.3(c) to eliminate the reference to 

the now-vacated part 151 position limits 

requirements. These proposed 

amendments are generally intended to 

relax reporting and recordkeeping 

requirements where two commercial 

parties enter into trade options with 

each other in connection with their 

respective businesses while maintaining 

regulatory insight into the market for 

unreported trade options. The 

Commission requests comment on all 

aspects of its proposal. 

II. Explanation of the Proposed Rules 

A. Reporting Requirements for Non-SD/ 

MSPs 

Pursuant to § 32.3(b)(1), the 

determination as to whether a trade 

option must be reported pursuant to 

part 45 is based on the status of the 

parties to the trade option and whether 

or not they have previously reported 

swaps to an appropriate swap data 

repository (‘‘SDR’’) pursuant to part 

45.25 If a trade option involves at least 

one counterparty (whether as buyer or 

seller) that has (1) become obligated to 

comply with the reporting requirements 

of part 45, (2) as a reporting party, (3) 

during the twelve month period 

preceding the date on which the trade 

option is entered into, (4) in connection 

with any non-trade option swap trading 

activity, then such trade option must 

also be reported pursuant to the 

reporting requirements of part 45. If 

only one counterparty to a trade option 

has previously complied with the part 

45 reporting provisions, as described 

above, then that counterparty shall be 

the part 45 reporting counterparty for 

the trade option. If both counterparties 

have previously complied with the part 

45 reporting provisions, as described 

above, then the part 45 rules for 

determining the reporting counterparty 

will apply.26

To the extent that neither 

counterparty to a trade option has 

previously submitted reports to an SDR 

as a result of its swap trading activities 

as described above, then such trade 

option is not required to be reported 

pursuant to part 45. Instead, § 32.3(b)(2) 

requires that each counterparty to an 

otherwise unreported trade option (i.e., 

a trade option that is not required to be 

reported to an SDR by either 

counterparty pursuant to § 32.3(b)(1) 

and part 45) complete and submit to the 

Commission an annual Form TO filing 

providing notice that the counterparty 

has entered into one or more unreported 

trade options during the prior calendar 

year.27 Form TO requires an unreported 

trade option counterparty to: (1) Provide 

its name and contact information; (2) 

identify the categories of commodities 

(agricultural, metals, energy, or other) 

underlying one or more unreported 

trade options which it entered into 

during the prior calendar year; and (3) 

for each commodity category, identify 

the approximate aggregate value of the 

underlying physical commodities that it 

either delivered or received in 

connection with the exercise of 

unreported trade options during the 

prior calendar year. Counterparties to 

otherwise unreported trade options 

must submit a Form TO filing by March 

1 following the end of any calendar year 

during which they entered into one or 

more unreported trade options.28 In 

adopting § 32.3, the Commission stated 

that Form TO was intended to provide 

the Commission with a level of visibility 

into the market for unreported trade 

options that is ‘‘minimally intrusive,’’ 

thereby allowing it to identify market 

participants from whom it should 

collect additional information, or whom 

it should subject to additional reporting 

obligations in the future.29

Commenters have generally expressed 

the opinion that the reporting 

requirements in § 32.3(b) are overly 

burdensome for Non-SD/MSPs. 

Commenters have argued that these 

costs have discouraged commercial end 

users from entering into trade options to 

meet their commercial and risk 

management needs, thereby reducing 

liquidity and raising prices.30

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Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 26203 

§ 32.3(b)’s application of the part 45 reporting 

requirement ‘‘imposes a regulatory burden on the 

non-SD/MSP and may discourage parties from 

entering into any ‘‘swaps’’ for which it is a 

reporting party, and from entering into nonfinancial 

commodity option hedging transactions with 

parties that are not SD/MSPs.’’). 

31See International Energy Credit Association 

(‘‘IECA’’) (Feb. 15, 2013) at 3; AGA (June 26, 2012) 

at 8; APPA/NRECA/EEI/EPSA (June 26, 2012) at 7– 

8; Coalition of Physical Energy Companies 

(‘‘COPE’’) (June 25, 2012) at 9; Commercial Energy 

Working Group (‘‘CEWG’’) (Jun 26, 2012) at 4. 

32See, e.g., APPA/NRECA/EEI/EPSA (Feb. 15, 

2013) at 2 (stating that only SDs and MSPs should 

be required to report trade options under part 45 

out of concern that part 45 would impose an 

‘‘increased regulatory burden, particularly for small 

entities’’); IECA (Feb. 15, 2013) at 2–3 (stating that, 

for Non-SD/MSPs, the burden of reporting trade 

options under part 45 would be ‘‘extremely 

onerous, if not a practical impossibility’’); AGA 

(June 26, 2012) at 9 (recommending that the part 45 

reporting requirements not apply to Non-SD/MSPs 

with respect to their trade option transactions). 

33See, e.g., CEWG (Feb. 6, 2013) at 1 (‘‘Unlike 

systems designed to capture and report data for 

financial transactions, physical systems are 

primarily designed to manage logistics related to 

deliveries and inventory quantities at trade 

locations. Some physical systems of record do not 

contain market price information, execution 

venues, or other option characteristics, such as 

premiums and strike prices, which make reporting 

under Part 45 additionally challenging.’’). See also 

Coalition for Derivative End Users (‘‘Coalition’’) 

(Dec. 22, 2014) at 10; Commercial Energy Working 

Group and Commodity Markets Council (‘‘CEWG/ 

CMC’’) (Dec. 22, 2014) at 5; ICEA (Dec. 22, 2012) 

at 9; American Public Power Association, National 

Rural Electric Cooperative Association, Large Public 

Power Council (‘‘APPA/NRECA/LPPC’’) (Apr. 17, 

2014) at 4; AGA (June 26, 2012) at 7. 

34See American Public Power Association, 

National Rural Electric Cooperative Association, 

Edison Electric Institute, Electric Power Supply 

Association, Large Public Power Council (‘‘APPA/ 

NRECA/EEI/EPSA/LPPC’’) (Dec. 22, 2014) at 9 

(stating that one of its members spent more than 

$100,000 in information technology costs to 

implement a mechanism to track exercises of 

nonfinancial commodity options); IECA (Dec. 22, 

2014) at 8 (estimating, based on its survey of market 

participants, that completing Form TO and 

complying with No-Action Letter 13–08 requires 80 

minutes per contract); Southern Company Services, 

Inc., acting on behalf of and as agent for Alabama 

Power Company, Georgia Power Company, Gulf 

Power Company, Mississippi Power Company, and 

Southern Power Company (‘‘Southern’’) at 8–9 

(estimating that, for Southern, two full-time 

employees require 30 minutes to two hours per 

contract to complete Form TO, at an average cost 

of $200 per contract and a total annual cost of about 

$12,000); Transcript of Staff End-User Roundtable 

(James Allison, ConocoPhillips) at 161 (estimating 

the marginal cost of Form TO is ‘‘on the order of’’ 

one full-time employee and possibly higher for 

smaller entities with less in the way of compliance 

systems and procedures), transcript available at 

http://www.cftc.gov/ucm/groups/public/@

newsroom/documents/file/transcript040314.pdf. 

35Note that trade option counterparties that are 

SD/MSPs would continue to comply with the swap 

data reporting requirements of part 45, including 

where the counterparty is a Non-SD/MSP, as they 

would in connection with any other swap. See 17 

CFR 32.3(b)(4). 

36See 17 CFR 45.2(b), 45.2(h). As discussed infra 

at notes 53–55 and accompanying text, the 

Commission proposes to maintain recordkeeping 

requirements in § 32.3(b)–(c) for trade option 

participants, subject to certain clarifying 

amendments. 

37See 17 CFR 1.31(a)(2), 45.2(h). 

38As discussed above, the no-action relief 

provided by No-Action Letter 13–08 to Non-SD/

MSP trade option counterparties from part 45 

reporting requirements is also conditioned on the 

Non-SD/MSP providing DMO with a $1 Billion 

Notice. See supra note 24 and accompanying text. 

In 2013 and 2014, DMO received $1 Billion Notices 

from nine and sixteen Non-SD/MSPs, respectively. 

Most of these $1 Billion Notices were filed on 

behalf of large energy companies. 

39Non-SD/MSPs who provide the Alternative 

Notice would not be required to demonstrate that 

they actually entered into trade options with an 

aggregate notional value of $1 billion or more in the 

applicable calendar year. Collectively, the $1 

Billion Notice and the Alternative Notice are 

referred to as the ‘‘Notice Requirement.’’ 

With respect to the part 45 reporting 

requirements, commenters have noted 

that Non-SD/MSPs may be required to 

comply with part 45 solely on the basis 

of the ‘‘unusual circumstance’’ of having 

had to report a single historical or interaffiliate swap during the same twelvemonth period.31 Commenters have 

further noted that Non-SD/MSPs may 

not have the infrastructure in place to 

support part 45 reporting to an SDR and 

that instituting such infrastructure 

would impose a costly burden, 

particularly for small end users.32

With respect to Form TO reporting, 

commenters have argued that it is costly 

and burdensome for Non-SD/MSPs, 

particularly for small end users, to track, 

calculate and assemble the requisite 

data. Commenters have explained that 

the systems and processes used by many 

Non-SD/MSPs to create, store, and track 

their trade options are separate and 

distinct from their financial systems and 

are typically not designed to track the 

kind of information required by Form 

TO.33 Recent comments offer specific 

monetary estimates that suggest the 

costs involved with preparing the Form 

TO filing may be significant.34

1. Proposed Action: Eliminate Part 45 

Reporting for Non-SD/MSPs 

As discussed above, Commission 

regulation § 32.3(b)(1) requires that a 

Non-SD/MSP counterparty to a trade 

option that has become obligated to 

report a non-trade option swap within 

the past calendar year must comply 

with part 45 reporting requirements. 

The Commission proposes to amend 

§ 32.3(b) such that a Non-SD/MSP will 

under no circumstances be subject to 

part 45 reporting requirements with 

respect to its trade option activities.35

This amendment is intended to reduce 

burdens for Non-SD/MSP trade option 

counterparties, many of whom, as 

commenters explained, face technical 

and logistical impediments that prevent 

timely compliance with part 45 

reporting requirements. 

2. Proposed Action: Eliminate the Form 

TO Notice Filing Requirement 

The Commission proposes to amend 

Commission regulation § 32.3(b) such 

that a Non-SD/MSP would not be 

required to report otherwise unreported 

trade options on Form TO. The 

Commission further proposes to delete 

Form TO from appendix A to part 32. 

These amendments are intended to 

reduce reporting burdens for Non-SD/

MSP trade option counterparties, which, 

commenters have explained, may face 

significant costs in preparing Form TO. 

The Commission preliminarily 

believes that there are surveillance 

benefits from Form TO data but 

recognizes that completing Form TO 

imposes costs and burdens on Non-SD/ 

MSPs, especially small end users. 

Moreover, Non-SD/MSPs would, under 

the proposal, remain subject, via 

§ 32.3(b), to the recordkeeping 

requirements in § 45.2, which require 

market participants to maintain full and 

complete records and to open their 

records to inspection upon the 

Commission’s request.36 Consequently, 

the Commission would remain able to 

collect additional information 

concerning unreported trade options as 

necessary to fulfill its regulatory 

mission.37

3. Proposed Action: New $1 Billion 

Notice Provision for Non-SD/MSPs 

The Commission proposes to amend 

§ 32.3(b) by adding a requirement that 

Non-SD/MSP trade option 

counterparties must provide notice by 

email to DMO within 30 days after 

entering into trade options, whether 

reported or unreported, that have an 

aggregate notional value in excess of $1 

billion in any calendar year (the ‘‘1 

Billion Notice’’).38 In the alternative, a 

Non-SD/MSP may provide notice by 

email to DMO that it reasonably expects 

to enter into trade options, whether 

reported or unreported, having an 

aggregate notional value in excess of $1 

billion during any calendar year (the 

‘‘Alternative Notice’’).39

For purposes of the proposed Notice 

Requirement, the aggregate notional 

value of trade options entered into, or 

expected to be entered into, should be 

calculated by multiplying (1) the 

maximum volume of the commodities 

that could be bought or sold pursuant to 

the trade options entered into by (2) the 

strike or exercise price per unit of the 

commodity. If the strike or exercise 

price is not a fixed number in the trade 

option agreement and, instead, is to be 

determined pursuant to a reference 

price source that is not determinable at 

the time the trade option is entered into, 

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40The forgoing guidance with regard to how to 

calculate the notional value of trade options is 

similar to that provided in No-Action Letter 13–08 

but has been revised to clarify that the focus of the 

$1 Billion Notice is the value of the trade option 

at time of contract initiation, not at exercise. 

41See supra note 38 and accompanying text. 

42See 17 CFR 32.3(b). 

43See 77 FR at 25327. 

44 17 CFR 32.3(b); 45.2(h). 

45 In the case of Non-SD/MSPs, the primary 

recordkeeping requirements are set out in § 45.2(b), 

which essentially requires keeping basic business 

records—i.e., ‘‘full, complete and systematic 

records, together with all pertinent data and 

memoranda, with respect to each swap in which 

they are a counterparty.’’ Non-SD/MSPs are also 

subject to the other general recordkeeping 

requirements of § 45.2, such as the requirement that 

records must be maintained for 5 years and must 

be retrievable within 5 days. See 17 CFR 45.2(b). 

46See 77 FR at 25327. 

47As discussed above, No-Action Letter 13–08 

provides no-action relief from certain swap 

recordkeeping requirements in part 45 for a NonSD/MSP that complies with the recordkeeping 

requirements set forth in § 45.2, provided that if the 

counterparty to the trade option at issue is an SD 

or an MSP, the Non-SD/MSP obtains an LEI 

pursuant to § 45.6 and also provides DMO with a 

$1 Billion Notice. See supra note 24 and 

accompanying text. 

48 17 CFR 45.5. 

49Each counterparty to any swap subject to the 

Commission’s jurisdiction must be identified in all 

recordkeeping and all swap data reporting pursuant 

to part 45 by means of a single LEI as specified in 

§ 45.6. See 17 CFR 45.6. 

50 17 CFR 45.7. 

51See supra notes 49 and 49 and accompanying 

text. 

52Trade option counterparties that are SD/MSPs 

would continue to comply with the swap data 

recordkeeping requirements of part 45, as they 

would in connection with any other swap. See 17 

CFR 32.3(b)(4). 

53For the avoidance of doubt, Non-SD/MSPs 

would not otherwise be required to comply with 

§ 45.6. 

54An SD/MSP that otherwise would report the 

trade option at issue pursuant to § 32.3(b)(1) is 

required to identify its counterparty to the trade 

option by that counterparty’s LEI in all 

recordkeeping as well as all swap data reporting. 

See, e.g., 17 CFR 23.201, 23.204, and 45.6. See 

supra note 36 and 17 CFR 45.6. 

55See 17 CFR 32.3(c)(2). 

56See supra note 13 and accompanying text. 

57Under current § 150.2, position limits apply to 

agricultural futures in nine listed commodities and 

options on those futures. Since trade options are not 

options on futures, § 150.2 position limits do not 

currently apply to such transactions. See 17 CFR 

150.2. 

58See, e.g., Coalition (Dec. 22, 2014) at 11; AGA 

(Apr. 17, 2014) at 4; IECA (Apr. 17. 2014) at 28; 

Intercontinental Exchange, Inc. (April 17, 2014) at 

5; CEWG (Feb. 6, 2013) at 3; COPE (June 26, 2012) 

at 6. 

then the foregoing calculation should be 

based on a current market price of the 

reference commodity at the time the 

option is entered into. For example, if 

the trade option involves crude oil that 

is deliverable on, or similar to, crude oil 

that is deliverable on the New York 

Mercantile Exchange (‘‘NYMEX’’), then 

the price of the nearby NYMEX crude 

oil futures contract may be used as the 

market price of the commodity at the 

time the trade option is entered into.40

In light of the other proposed 

amendments that would generally 

remove reporting requirements for NonSD/MSP counterparties to trade options, 

the proposed Notice Requirement would 

provide the Commission insight into the 

size of the market for unreported trade 

options and the identities of the most 

significant market participants. 

Additionally, the proposed Notice 

Requirement would help guide the 

Commission’s efforts to collect 

additional information through its 

authority to obtain copies of books or 

records required to be kept pursuant to 

the CEA and the Commission’s 

regulations should market 

circumstances dictate.41

B. Recordkeeping requirements for NonSD/MSPs 

Commission regulation § 32.3(b) 

provides that in connection with any 

commodity option transaction that is 

eligible for the trade option exemption, 

every counterparty shall comply with 

the swap data recordkeeping 

requirements of part 45, as otherwise 

applicable to any swap transaction.42 In 

discussing the trade option exemption 

conditions, however, the Commission 

noted in the preamble to the Commodity 

Options Release that ‘‘[t]hese conditions 

include a recordkeeping requirement for 

any trade option activity, i.e., the 

recordkeeping requirements of 17 CFR 

45.2,’’ and did not reference or discuss 

any other provision of part 45 that 

contains recordkeeping requirements.43

Pursuant to Commission regulation 

§ 45.2, records must be maintained by 

all trade option participants and made 

available to the Commission as specified 

therein.44 However, § 45.2 applies 

different recordkeeping requirements, 

depending on the nature of the 

counterparty. For example, if a trade 

option counterparty is an SD/MSP, it 

would be subject to the recordkeeping 

provisions of § 45.2(a). If a counterparty 

is a Non-SD/MSP, it would be subject to 

the less stringent recordkeeping 

requirements of § 45.2(b).45 In adopting 

§ 32.3(b), the Commission stated that the 

recordkeeping condition was intended 

to ensure that trade option participants 

are able to provide pertinent 

information regarding their trade 

options activity to the Commission, if 

requested.46

Additional recordkeeping 

requirements in part 45, separate and 

apart from those specified in § 45.2 and 

which would apply to all trade option 

counterparties by operation of § 32.3(b) 

include: 47

• each swap must be identified in all 

recordkeeping by the use of a unique 

swap identifier (‘‘USI’’); 48

• each counterparty to any swap must 

be identified in all recordkeeping by 

means of a single LEI; 49 and 

• each swap must be identified in all 

recordkeeping by means of a unique 

product identifier (‘‘UPI’’) and product 

classification system.50

1. Proposed Action: Modify the 

Recordkeeping Requirements for NonSD/MSPs 

The Commission proposes to amend 

§ 32.3(b) to clarify that trade option 

counterparties that are Non-SD/MSPs 

need not identify their trade options in 

all recordkeeping by means of either a 

USI or UPI, as required by §§ 45.5 and 

45.7.51 Rather, with respect to part 45 

recordkeeping requirements, trade 

option counterparties that are Non-SD/ 

MSPs must only comply with the 

applicable recordkeeping provisions in 

§ 45.2,52 with the following 

qualification: The Non-SD/MSP trade 

option counterparty must obtain an LEI 

pursuant to § 45.6 and provide such LEI 

to its counterparty if that counterparty 

is an SD/MSP.53

These amendments are intended to 

reduce recordkeeping burdens for NonSD/MSP trade option counterparties, 

while allowing a trade option 

counterparty that is an SD/MSP to 

comply with applicable part 45 

reporting obligations by properly 

identifying its Non-SD/MSP trade 

option counterparty by that 

counterparty’s LEI in all recordkeeping 

as well as all swap data reporting, just 

as the SD/MSP would for any other 

swap.54

C. Non-substantive amendment to 

Commission regulation § 32.3(c) 

Commission regulation § 32.3(c)(2) 

subjects trade options to part 151 

position limits, to the same extent that 

part 151 would apply in connection 

with any other swap.55 However, as 

stated above, part 151 has been 

vacated.56 Furthermore, trade options 

are not subject to position limits under 

the Commission’s current part 150 

position limit regime.57

Therefore, since position limits do not 

currently apply to trade options, the 

Commission proposes to amend 

§ 32.3(c) by deleting § 32.3(c)(2), 

including the reference to vacated part 

151. This would not be a substantive 

change. Although commenters have 

requested assurance that position limits 

will not apply to trade options in the 

future,58 the Commission preliminarily 

believes that any future application of 

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59On December 12, 2013, the Commission 

published in the Federal Register a notice of 

proposed rulemaking to establish speculative 

position limits for 28 exempt and agricultural 

commodity futures and options contracts and the 

physical commodity swaps that are economically 

equivalent to such contracts, including trade 

options. See Position Limits for Derivatives, 

Proposed Rules, 78 FR 75680 (Dec. 12, 2013) 

(‘‘Position Limits Proposal’’). Therein, the 

Commission proposed replacing the cross-reference 

to vacated part 151 in § 32.3(c)(2) with a crossreference to amended part 150 position limits. See 

78 FR at 75711. As an alternative in the Position 

Limits Proposal, the Commission proposed to 

exclude trade options from speculative position 

limits and proposed an exemption for commodity 

derivative contracts that offset the risk of trade 

options. Also note that under the Position Limits 

Proposal, trade options based on commodities or 

delivery points other than those underlying the core 

referenced futures contracts specified in the 

Position Limits Proposal would not be subject to 

speculative position limits. The Commission 

recently extended the comment period for the 

Position Limits Proposal until March 28, 2015. See 

80 FR 10022 (Feb. 25, 2015). 

60As stated above, Non-SD/MSPs would not 

otherwise be required to comply with § 45.6. 

61See supra note 24. See also note 59 (stating that 

the Commission has determined to address the 

application of position limits to trade options in the 

pending position limits rulemaking). 

62See 17 CFR 140.99(a)(2). See also No-Action 

Letter 13–08 at 5. 

63See Coalition for Derivatives End-Users (Dec. 

22, 2014) at 10; American Public Power 

Association, Edison Electric Institute, Electric 

Power Supply Association, Large Public Power 

Council, National Rural Electric Cooperative 

Association (Dec. 22, 2014) at 9. 

64As stated in note 38, supra, of the 330 Non-SD/ 

MSPs who submitted Form TO filings in 2014, only 

sixteen also submitted a $1 Billion Notice to DMO. 

65See supra note 34 (citing recent comment 

letters offering costs estimates for compliance with 

the Form TO reporting requirement). 66 7 U.S.C. 19(a). 

position limits would be best addressed 

in the context of the pending position 

limits rulemaking, which remains in the 

proposed rulemaking stage.59

III. Related Matters 

A. Cost Benefit Analysis 

1. Background 

As discussed above, the Commission 

is proposing amendments to the trade 

option exemption in § 32.3 that would: 

(1) Eliminate the part 45 reporting 

requirement for Non-SD/MSPs; (2) 

eliminate the Form TO filing 

requirement; (3) require those Non-SD/ 

MSPs that have the most significant 

volume in trade options to provide 

DMO with either (i) the $1 Billion 

Notice or (ii) the Alternate Notice; and 

(4) clarify that Non-SD/MSPs are 

required to comply with the swap data 

recordkeeping requirements of § 45.2 

only, as opposed to all part 45 

recordkeeping requirements; (5) require 

Non-SD/MSPs that enter into exempt 

trade options with SD/MSPs to obtain 

an LEI pursuant to § 45.6 and provide it 

to their SD/MSP counterparties; (6) 

eliminate reference to the now-vacated 

part 151 position limits.60 In issuing this 

proposal, the Commission has reviewed 

all relevant comment letters and taken 

into account significant issues raised 

therein.61

The Commission believes that the 

baseline for this cost and benefit 

consideration is existing § 32.3. 

Although No-Action Letter 13–08, as 

discussed above, currently offers noaction relief that is substantially similar 

to the relief that the proposed 

amendments would grant certain market 

participants and end users, as a noaction letter, it only represents the 

position of the issuing Division or Office 

and cannot bind the Commission or 

other Commission staff.62 Consequently, 

the Commission believes that No-Action 

Letter 13–08 should not set or affect the 

baseline against which the Commission 

considers the costs and benefits of the 

proposal. 

2. Costs 

The Commission believes that the 

proposal would, overall, reduce the 

regulatory burdens and associated costs 

imposed by the conditions for relief in 

§ 32.3(b). Although the Commission 

understands that some Non-SD/MSPs 

may experience costs associated with 

tracking the aggregate notional value of 

their trade option transactions for 

purposes of the $1 Billion Notice,63

Non-SD/MSPs that reasonably expect to 

enter into trade options in excess of $1 

billion could opt to avoid those tracking 

costs by instead submitting the 

Alternative Notice. The Commission 

also believes that many Non-SD/MSPs 

may avoid any costs associated with the 

$1 Billion Notice because they would 

fall significantly below the $1 billion 

threshold and thus would not need to 

track and calculate their aggregate trade 

option activity.64 Furthermore, the 

Commission believes that the proposal 

would otherwise significantly reduce 

the regulatory burdens imposed by 

§ 32.3(b), particularly through the 

elimination of part 45 reporting 

requirements for trade option 

counterparties that are Non-SD/MSPs 

and the Form TO filing requirement, 

each of which commenters have 

described as burdensome.65 The 

Commission preliminarily believes that 

the proposal would not impose any 

additional costs on any other market 

participants, the markets themselves, or 

the general public. The Commission 

invites comment regarding the nature 

and extent of these and any other costs 

that could result from adoption of the 

proposal and, to the extent they can be 

quantified, monetary and other 

estimates thereof. 

3. Benefits 

The Commission believes that the 

proposal would provide relief for NonSD/MSPs entering into trade options by 

eliminating the part 45 and Form TO 

reporting obligations. The Commission 

believes that the proposed Notice 

Requirement would also support the 

regulatory goals of ensuring market 

integrity and protecting the public by 

allowing the Commission insight into 

the size of the market for unreported 

trade options and the ability to identify 

significant market participants, who the 

Commission may wish to contact if 

concerns about the market for trade 

options arise. The Commission invites 

comment regarding the nature and 

extent of these and any other benefits 

that could result from adoption of the 

proposal—including benefits to other 

market participants, the market itself or 

the general public—and, to the extent 

they can be quantified, monetary and 

other estimates thereof. 

4. Section 15(a) Factors 

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.66 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 considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

a. Protection of Market Participants and 

the Public 

The Commission recognizes that there 

may be trade-offs between reducing 

regulatory burdens and ensuring that 

the Commission has sufficient 

information to fulfill its regulatory 

mission. The proposed amendments to 

§ 32.3 are intended to reduce some of 

the regulatory burdens on end users 

while still maintaining insight into the 

market for trade options to protect the 

public. 

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67See, e.g., CEA section 3(b), 7 U.S.C. 5 (stating 

that it is a purpose of the CEA to deter disruptions 

to market integrity). 

68 5 U.S.C. 601 et seq. 

69See 5 U.S.C. 601(6) (defining ‘‘small entity’’ to 

include a ‘‘small business,’’ ‘‘small organization,’’ 

and ‘‘small governmental jurisdiction,’’ as those 

terms are defined in the RFA and by reference to 

the Small Business Act, 15 U.S.C. 632 et seq.). 

70 5 U.S.C. 553. The Administrative Procedure 

Act is found at 5 U.S.C. 551 et seq. 

71See 5 U.S.C. 601(2), 603–605. 

72See Opting Out of Segregation, 66 FR 20740, 

20743 (Apr. 25, 2001). 

73See id. See also 5 U.S.C. 601(3) (defining 

‘‘small business’’ to have the same meaning as the 

term ‘‘small business concern’’ in the Small 

Business Act); 15 U.S.C. 632(a)(1) (defining ‘‘small 

business concern’’ to include an agricultural 

enterprise with annual receipts not in excess of 

$750,000); 13 CFR 121.201 (establishing size 

standards for small business concerns). 

b. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

The Commission believes that the 

proposed amendments to § 32.3 could 

increase efficiency for participants in 

the market for trade options by reducing 

the reporting burdens on Non-SD/MSPs, 

allowing them to reallocate those 

resources to other more efficient 

purposes. The Commission also believes 

that the proposed Notice Requirement 

would promote market integrity by 

providing the Commission with 

information to use in its market 

oversight role, thereby fulfilling the 

purposes of the CEA.67 The Commission 

preliminarily believes that the proposed 

amendments to § 32.3 will not have any 

competitiveness impact. 

c. Price Discovery 

The Commission preliminarily 

believes that the proposed amendments 

to § 32.3 would likely not have a 

significant impact on price discovery. 

Given that trade options are not subject 

to the real-time reporting requirements 

applicable to other swaps, meaning that 

current prices of consummated trade 

options are likely not available to many 

market participants, the Commission 

preliminarily believes any effect on 

price discovery would be negligible. 

d. Sound Risk Management Practices 

The Commission preliminarily 

believes that the proposed amendments 

would not have a meaningful effect on 

the risk management practices of the 

affected market participants and end 

users. Although the proposal is 

intended, in part, to reduce some of the 

regulatory burdens on certain market 

participants and end users, affected 

Non-SD/MSPs would still be required to 

maintain complete and accurate records 

in a manner that is readily available for 

production to regulators. 

e. Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

for this rulemaking. 

5. Request for Comment 

The Commission invites comment on 

all aspects of its preliminary 

consideration of the costs and benefits 

associated with the proposal and the 

five factors the Commission is required 

to consider under CEA section 15(a). In 

addressing these areas and any other 

aspect of the Commissions preliminary 

cost-benefit considerations, the 

Commission encourages commenters to 

submit any data or other information 

they may have quantifying and/or 

qualifying the costs and benefits of the 

proposal. 

B. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (the 

‘‘RFA’’) 68 requires that Federal agencies 

consider whether the rules they propose 

will have a significant economic impact 

on a substantial number of ‘‘small 

entities’’ 69 and, if so, the agencies must 

provide a regulatory flexibility analysis 

reflecting the impact. Whenever an 

agency publishes a general notice of 

proposed rulemaking for any rule, 

pursuant to the notice-and-comment 

provisions of the Administrative 

Procedure Act,70 a regulatory flexibility 

analysis or certification typically is 

required.71

As discussed above, the proposed 

amendments would affect the 

recordkeeping and reporting 

requirements for Non-SD/MSP 

counterparties relying on the trade 

option exemption in § 32.3. Pursuant to 

the eligibility requirements in § 32.3(a), 

such a Non-SD/MSP may be an ECP 

and/or a commercial party (i.e., a 

producer, processor, or commercial user 

of, or a merchant handling the exempt 

or agricultural commodity that is the 

subject of the commodity option 

transaction, or the products or byproducts thereof) offering or entering 

into the trade option solely for purposes 

related to its business as such. Although 

the Commission has previously 

determined that ECPs are not small 

entities for RFA purposes,72 the 

Commission is not in a position to 

determine whether non-ECP commercial 

parties affected by the amendments 

would include a substantial number of 

small entities on which the rule would 

have a significant economic impact 

because § 32.3 does not subject such 

entities to a minimum net worth 

requirement, allowing commercial 

entities of any economic status to enter 

into exempt trade options. Therefore, 

pursuant to 5 U.S.C. 603, the 

Commission offers for public comment 

this initial regulatory flexibility analysis 

addressing the impact of the proposal 

on small entities: 

1. A description of the reasons why 

action by the agency is being 

considered. 

The Commission is proposing to 

modify the trade option exemption in 

§ 32.3 in response to comments from 

Non-SD/MSPs that the regulatory 

burdens currently imposed by § 32.3 are 

unnecessarily burdensome. 

2. A succinct statement of the 

objectives of, and legal basis for, the 

proposal. 

The objective of the proposal is to 

reduce the recordkeeping and reporting 

obligations for Non-SD/MSPs while still 

providing the Commission insight into 

the size of the market for unreported 

trade options and the identities of the 

most significant participants in the 

market. As stated above, the legal basis 

for the proposed rule is the 

Commission’s plenary options authority 

in CEA section 4c(b). 

3. A description of and, where 

feasible, an estimate of the number of 

small entities to which the proposed 

rule will apply. 

The small entities to which the 

proposed amendments may apply are 

those commercial parties that would not 

qualify as ECPs and/or that fall within 

the definition of a ‘‘small entity’’ under 

the RFA, including size standards 

established by the Small Business 

Administration.73 Although more than 

300 Non-SD/MSPs have reported their 

use of trade options to the Commission 

through Form TO, the limited 

information provided by Form TO is not 

sufficient for the Commission to 

determine whether and how many of 

those Non-SD/MSPs qualify as small 

entities under the RFA. 

4. 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. 

The proposed amendments would 

relieve Non-SD/MSPs, which may 

include small entities, from certain 

recordkeeping and reporting 

requirements that would otherwise 

apply to them. While the proposal 

would impose a new requirement on 

certain Non-SD/MSPs to provide DMO 

by email with either the $1 Billion 

Notice or the Alternative Notice 

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74See 15 U.S.C. 632(a) (defining a ‘‘small 

business concern’’ generally to include an 

enterprise that is ‘‘not dominant in its field of 

operation’’). 75See supra note 37 and accompanying text. 

76See 44 U.S.C. 3501. 

77See 44 U.S.C. 3502. 78See 5 CFR 1320.3(c)(1). 

annually, the Commission does not 

believe that this requirement would 

impact many small entities, if any at all. 

Given the significant volume of trade 

options required to trigger the proposed 

Notice Requirement, the Commission 

expects that it would apply to only a 

small number of entities and that such 

entities would likely not be small 

entities.74 The Commission’s view is 

supported by DMO’s experience with 

the $1 Billion Notice provision in NoAction Letter 13–08: As indicated 

above, DMO received a $1 Billion 

Notice from only sixteen of the more 

than 300 Non-SD/MSPs that filed a 

Form TO in 2014, and all such entities 

are generally well-known in their 

respective industries.75

Filing the $1 Billion Notice would 

require affected Non-SD/MSPs to track 

and aggregate the notional values of 

their trade options. The Commission 

expects that this general information 

should be readily compiled and 

aggregated using a spreadsheet or other 

existing software and would not require 

any professional skills beyond those 

typically held by any commercial party. 

Furthermore, Non-SD/MSPs that 

reasonably expect to enter into trade 

options with an aggregate notional value 

in excess of $1 billion during the 

calendar year may, in line with the 

Alternative Notice, simply send an 

email to DMO to that effect, thereby 

avoiding having to track the notional 

values of their trade options. 

5. An identification, to the extent 

practicable, of all relevant Federal rules 

which may duplicate, overlap or 

conflict with the rule. 

The Commission is unaware of any 

Federal rules that could duplicate, 

overlap, or conflict with the proposal. 

6. A description of any significant 

alternatives to the proposed rule which 

accomplish the stated objectives of 

applicable statutes and which minimize 

any significant economic impact of the 

proposed rule on small entities. These 

may include, for example, (1) the 

establishment of differing compliance or 

reporting requirements or timetables 

that take into account the resources 

available to small entities; (2) the 

clarification, consolidation, or 

simplification of compliance and 

reporting requirements under the rule 

for such small entities; (3) the use of 

performance rather than design 

standards; and (4) an exemption from 

coverage of the rule, or any part thereof, 

for such small entities. 

A potential alternative to relieving 

Non-SD/MSPs, which may include 

small entities, from certain 

recordkeeping and reporting 

requirements would be to either (1) not 

amend the current rule, which would 

maintain recordkeeping and reporting 

requirements that Non-SD/MSPs have 

represented are onerous, or (2) create a 

rule with more specific reporting 

parameters for specific entities. While 

the proposal would impose the new 

annual Notice Requirement on certain 

Non-SD/MSPs, overall, the Commission 

believes that the proposed amendments 

would have a positive economic impact 

on Non-SD/MSPs that are small entities 

because they would generally relax 

reporting requirements across all trade 

option counterparties that are Non-SD/ 

MSPs. Although the proposal could 

expressly limit application of the Notice 

Requirement to entities that do not meet 

the RFA definition of a small entity, the 

Commission does not believe that is 

necessary because, as stated above, the 

Commission does not expect many 

small entities to be affected by that 

requirement, if any at all. Furthermore, 

even if a small entity were to enter into 

trade options with an aggregate notional 

value in excess of $1 billion during a 

calendar year, the Commission believes 

that such information would 

nevertheless be important to the 

Commission’s insight into the market 

for otherwise unreported trade options 

and may cause the Commission to 

adjust the threshold for notice reporting 

above $1 billion. 

C. Paperwork Reduction Act 

The purposes of the Paperwork 

Reduction Act of 1995, 44 U.S.C. 3501 

et seq. (‘‘PRA’’) are, among other things, 

to minimize the paperwork burden to 

the private sector, ensure that any 

collection of information by a 

government agency is put to the greatest 

possible uses, and minimize duplicative 

information collections across the 

government.76 The PRA applies to all 

information, ‘‘regardless of form or 

format,’’ whenever the government is 

‘‘obtaining, causing to be obtained [or] 

soliciting’’ information, and includes 

required ‘‘disclosure to third parties or 

the public, of facts or opinions,’’ when 

the information collection calls for 

‘‘answers to identical questions posed 

to, or identical reporting or 

recordkeeping requirements imposed 

on, ten or more persons.’’ 77 The PRA 

requirements have been determined to 

include not only mandatory but also 

voluntary information collections, and 

include both written and oral 

communications.78 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 

displays a currently valid control 

number from the Office of Management 

and Budget (‘‘OMB’’). The Commission 

seeks to amend the OMB control 

number 3038–0106—Form TO, Annual 

Notice Filing for Counterparties to 

Unreported Trade Option. Therefore the 

Commission is submitting this proposal 

to OMB for review in accordance with 

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

With the exception of the proposed 

Notice Requirement, the Commission 

believes that these proposed rules will 

not impose any new information 

collection requirements that require 

approval of OMB under the PRA. As a 

general matter, the proposed rules 

would relax reporting and 

recordkeeping requirements for NonSD/MSPs entering into trade options 

with each other in connection with their 

respective businesses, including the 

withdrawal and removal of Form TO. As 

such, the proposed rules will not result 

in the creation of any new information 

collection subject to OMB review or 

approval under the PRA, except for the 

annual Notice Requirement. Therefore, 

these proposed rules do not, by 

themselves, impose any new 

information collection requirements 

other than those that already exist in 

connection with trade options pursuant 

to part 32 of the Commission’s 

regulations, except for the proposed 

Notice Requirement. 

As noted above, the Commission 

proposes to add the Notice Requirement 

for trade option counterparties that are 

Non-SD/MSPs, which requirement is 

considered to be a collection of 

information within the meaning of the 

PRA. Accordingly, the Commission is 

amending OMB control number 3038– 

0106 and submitting to OMB an 

information collection request for 

review and approval. If approved, this 

new collection of information will be 

mandatory. 

The Commission anticipates that 

affected Non-SD/MSPs may incur 

certain costs in complying with the 

proposed $1 Billion Notice, including 

those related to calculating the aggregate 

notional value of trade options entered 

into, and to drafting the notice email 

and submitting it to DMO. There are no 

additional capital costs associated with 

this collection because all respondents 

are already required to create and store 

detailed records of their trade option 

transactions pursuant to § 32.3(b). The 

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26208 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 

Commission estimates that twenty 

respondents will file a total of one 

response each annually, and the 

estimated average number of hours per 

response would be two. Therefore, the 

Commission estimates the total burden 

hours associated with OMB control 

number 3038–0106 to be 40 hours. 

The Commission notes that the 

proposed amendments would relieve 

trade option counterparties that are 

Non-SD/MSPs from certain 

recordkeeping and reporting 

requirements under part 45. The 

Commission believes that these 

proposed amendments would not cause 

a material net reduction in the current 

part 45 PRA burden estimates (OMB 

control number 3038–0096) to the 

extent that such reduced recordkeeping 

and reporting burdens for trade option 

counterparties that are Non-SD/MSPs 

would be insubstantial when compared 

to the overall part 45 PRA burden 

estimate as it relates to Non-SD/MSPs. 

The Commission specifically invites 

public comment on the accuracy of its 

estimate that no additional information 

collection requirements or changes to 

existing collection requirements, other 

than the proposed Notice Requirement, 

would result from the proposal. 

List of Subjects in 17 CFR Part 32 

Commodity futures, consumer 

protection, fraud, reporting and 

recordkeeping requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

17 CFR part 32 as set forth below: 

PART 32—REGULATION OF 

COMMODITY OPTION TRANSACTIONS 

■ 1. The authority citation for part 32 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6c, and 12a, 

unless otherwise noted. 

■ 2. Revise § 32.3 to read as follows: 

§ 32.3 Trade options. 

(a) Subject to paragraphs (b), (c), and 

(d) of this section, the provisions of the 

Act, including any Commission rule, 

regulation, or order thereunder, 

otherwise applicable to any other swap 

shall not apply to, and any person or 

group of persons may offer to enter into, 

enter into, confirm the execution of, 

maintain a position in, or otherwise 

conduct activity related to, any 

transaction in interstate commerce that 

is a commodity option transaction, 

provided that: 

(1) Such commodity option 

transaction must be offered by a person 

that has a reasonable basis to believe 

that the transaction is offered to an 

offeree as described in paragraph (a)(2) 

of this section. In addition, the offeror 

must be either: 

(i) An eligible contract participant, as 

defined in section 1a(18) of the Act, as 

further jointly defined or interpreted by 

the Commission and the Securities and 

Exchange Commission or expanded by 

the Commission pursuant to section 

1a(18)(C) of the Act; or 

(ii) A producer, processor, or 

commercial user of, or a merchant 

handling the commodity that is the 

subject of the commodity option 

transaction, or the products or byproducts thereof, and such offeror is 

offering or entering into the commodity 

option transaction solely for purposes 

related to its business as such; 

(2) The offeree must be a producer, 

processor, or commercial user of, or a 

merchant handling the commodity that 

is the subject of the commodity option 

transaction, or the products or byproducts thereof, and such offeree is 

offered or entering into the commodity 

option transaction solely for purposes 

related to its business as such; and 

(3) The commodity option must be 

intended to be physically settled, so 

that, if exercised, the option would 

result in the sale of an exempt or 

agricultural commodity for immediate 

or deferred shipment or delivery. 

(b) In connection with any commodity 

option transaction entered into pursuant 

to paragraph (a) of this section, every 

counterparty that is not a swap dealer or 

major swap participant shall: 

(1) Comply with the swap data 

recordkeeping requirements of § 45.2 of 

this chapter, as otherwise applicable to 

any swap transaction; 

(2) Obtain a legal entity identifier 

pursuant to § 45.6 of this chapter if the 

counterparty to the transaction involved 

is a swap dealer or major swap 

participant, and provide such legal 

entity identifier to the swap dealer or 

major swap participant counterparty; 

and 

(3) Notify the Division of Market 

Oversight through an email to 

TOreportingrelief@cftc.gov: 

(i) No later than 30 days after entering 

into trade options, whether reported or 

unreported, having an aggregate 

notional value in excess of $1 billion 

during any calendar year, or 

(ii) Provide notice that the Non-SD/

MSP reasonably expects to enter into 

trade options, whether reported or 

unreported, having an aggregate 

notional value in excess of $1 billion 

during any calendar year. 

(c) In connection with any commodity 

option transaction entered into pursuant 

to paragraph (a) of this section, the 

following provisions shall apply to 

every trade option counterparty to the 

same extent that such provisions would 

apply to such person in connection with 

any other swap: 

(1) Part 20 of this chapter (Swaps 

Large Trader Reporting); 

(2) Subpart J of part 23 of this chapter 

(Duties of Swap Dealers and Major 

Swap Participants); 

(3) Sections 23.200, 23.201, 23.203, 

and 23.204 of this chapter (Reporting 

and Recordkeeping Requirements for 

Swap Dealers and Major Swap 

Participants); and 

(4) Section 4s(e) of the Act (Capital 

and Margin Requirements for Swap 

Dealers and Major Swap Participants). 

(d) In addition, any person or group 

of persons offering to enter into, 

entering into, confirming the execution 

of, maintaining a position in, or 

otherwise conducting activity related to 

a commodity option transaction in 

interstate commerce pursuant to 

paragraph (a) of this section shall 

remain subject to part 180 of this 

chapter (Prohibition Against 

Manipulation) and § 23.410 of this 

chapter (Prohibition on Fraud, 

Manipulation, and other Abusive 

Practices) and the antifraud, antimanipulation, and enforcement 

provisions of sections 2, 4b, 4c, 4o, 

4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 

13 of the Act. 

(e) The Commission may, by order, 

upon written request or upon its own 

motion, exempt any person, either 

unconditionally or on a temporary or 

other conditional basis, from any 

provisions of this part, and the 

provisions of the Act, including any 

Commission rule, regulation, or order 

thereunder, otherwise applicable to any 

other swap, other than § 32.4 of this 

chapter, part 180 of this chapter 

(Prohibition Against Manipulation), and 

§ 23.410 of this chapter (Prohibition on 

Fraud, Manipulation, and other Abusive 

Practices), and the antifraud, antimanipulation, and enforcement 

provisions of sections 2, 4b, 4c, 4o, 

4s(h)(1)(A), 4s(h)(4)(A), 6, 6c, 6d, 9, and 

13 of the Act, if it finds, in its discretion, 

that it would not be contrary to the 

public interest to grant such exemption. 

Issued in Washington, DC, on May 4, 2015, 

by the Commission. 

Christopher J. Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

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Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 26209 

Appendices to Trade Options— 

Commission Voting Summary, 

Chairman’s Statement, and 

Commissioners’ Statements 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Massad and 

Commissioners Wetjen, Bowen, and 

Giancarlo voted in the affirmative. No 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Timothy G. Massad 

I am pleased to support the staff’s 

recommendation to issue a proposed 

rulemaking to revise the rules regarding trade 

options, which are a subset of commodity 

options. Specifically, the Commission is 

proposing to reduce reporting and 

recordkeeping requirements for end-users 

that transact in trade options in connection 

with their businesses, including by 

eliminating the requirement to file form TO. 

These products are commonly used by 

commercial participants, so this action 

should help those participants continue to do 

so cost-effectively. 

We will continue to look at ways that we 

can make sure commercial end-users can use 

these markets effectively and to make sure 

that the new regulatory framework for swaps 

does not impose unintended consequences or 

burdens for them. An important part of this 

effort has been, and shall continue to be, finetuning our rules so that commercial 

companies can continue to conduct their 

daily operations efficiently. 

This proposed rulemaking would relax 

reporting and recordkeeping requirements 

where two commercial parties enter into 

trade options with each other in connection 

with their respective businesses. These 

proposed amendments are generally intended 

to reduce burdens for end-users, many of 

whom, as commenters explained, face 

logistical impediments and significant costs 

in connection with reporting their trade 

options. 

This proposed rulemaking reduces and 

clarifies requirements for end-users that use 

trade options in connection with their 

businesses, and the proposed amendments 

would allow the Commission to maintain 

regulatory insight into the market for 

otherwise unreported trade options. Endusers would remain subject to the 

recordkeeping requirements in § 45.2, which 

require market participants to maintain full 

and complete records and to open their 

records to inspection upon the Commission’s 

request. Additionally, the proposed $1 

billion notice requirement would provide the 

Commission insight into the size of the 

market for unreported trade options and the 

identities of the most significant market 

participants. 

I look forward to receiving public comment 

on this proposed rulemaking. 

Appendix 3—Concurring Statement of 

Commissioner Sharon Y. Bowen 

Today, we are approving a proposed rule 

that would implement changes to the 

Commission’s Trade Option exemption to 

reduce the burden on commercial entities 

seeking to hedge risks associated with their 

physical businesses. I support these changes. 

However, based upon comments the 

Commission has received and meetings that 

I have had with members of the public, I 

believe the Commission should consider 

additional clarifications to better ensure legal 

certainty for the manufacturing, energy and 

agricultural industries’ ability to address 

their commercial risks. 

In the manufacturing, agriculture and 

energy sectors, a wide variety of physicallydelivered instruments are used to secure 

companies’ commercial needs for a physical 

commodity. These instruments, although 

they call for physical delivery, often contain 

some element of optionality that can lead to 

questions about their appropriate regulatory 

treatment. These contracts, particularly in the 

energy sector, are all commonly referred to as 

physical contracts, and they, according to 

what I have been told, often receive similar 

treatment from both a business operations 

and an accounting standpoint within the 

entities that use them. 

Further, these physical contracts are often 

handled and accounted for separately from 

other derivatives, such as futures contracts or 

cash-settled swaps, according to market 

participants. Treating some portion of these 

physical contracts as swaps simply because 

they may contain some characteristics of 

commodity options can lead to significant 

costs and difficulties. For instance, 

companies may have to reconfigure their 

business systems to parse transactions where 

there was, before Dodd Frank, no need to 

undertake such a reconfiguration. 

Many commenters and people I have met 

have expressed particular concerns regarding 

how instruments having elements of both 

forward contracts and some volumetric 

optionality should be regulated. In a separate 

release, the Commission plans to finalize 

guidance on how forward contracts with 

embedded volumetric optionality relate to 

the forward contract exclusion from the swap 

definition. While that release will help 

address the circumstances under which 

volumetric optionality embedded in a 

forward contract do not cause the forward 

contract to be a ‘‘swap’’, my understanding 

is that additional relief may still be helpful 

to commercial market participants seeking to 

hedge their physical needs with instruments 

that contain a forward contract with 

volumetric optionality. 

Market participants have also expressed 

concerns about the appropriate treatment of 

‘‘peaking supply contracts’’ which are often 

used by companies to manage the risks 

attendant to their need for physical 

commodities that may be used to generate 

electricity, run an operating plant, or 

manufacture or supply other goods and 

services. 

For both types of instruments, I think, the 

Commission could benefit from getting 

comments on potential avenues for 

addressing concerns that have been raised 

about their appropriate treatment. 

Instruments Containing a Forward Contract 

With Volumetric Variability 

As noted in the proposal, the trade option 

exemption is intended to permit parties to 

hedge or otherwise enter into commodity 

option transactions for commercial purposes 

without being subject to the general DoddFrank swaps regime. The exemption 

continues the long Commission policy of 

exempting them from requirements of the 

Commodity Exchange Act that would 

otherwise apply to commodity options. It 

provides an exemption for contracts meeting 

the requirements of the trade option 

exemption from regulation as swaps to the 

extent they would otherwise be subject to 

regulation by virtue of being a ‘‘commodity 

option’’. 

Both forward contracts and trade options 

play an important role in managing the 

physical commodity risks attendant to 

commercial operations. According to 

industry participants, there can be difficulty 

in separating out, for regulatory purposes, the 

‘‘option’’ component of an instrument 

containing both a forward contract and an 

element that might be considered a 

commodity option. My understanding is that 

these overall instruments are typically used 

to address a commercial entity’s physical 

requirements for a particular commodity as 

part of its ongoing commercial operation and 

that the commodity option component is 

often used to manage uncertainty in the 

commercial supply and demand factors that 

affect a commercial entities’ need for a 

particular physical commodity. Additionally, 

these instruments are often highly 

customized and the various components not 

always easy to separate and classify, 

according to industry participants. 

Given these concerns, I think it would be 

helpful to get comment upon whether the 

Commission should consider a new § 32.3(f) 

as part of the trade option exemption being 

proposed today. Such an exemption would 

exempt qualifying trade options from the 

swap reporting and recordkeeping 

requirements that would otherwise apply to 

them as trade options so long as they: (1) Are 

not severable nor separately marketable from 

the forward contract component of overall 

instrument, (2) are related to and entered into 

concurrently with the forward contract 

component of overall instrument, and (3) for 

which the physical commodity underlying 

the trade option component is the same as 

that underlying the forward contract 

component of the overall instrument. 

The text of such additional exemption 

would read as follows: 

‘‘§ 32.3(f) Instruments Containing a 

Forward Contract with Volumetric 

Variability. In the case of an instrument 

containing a forward contract with 

volumetric variability that meets the 

definition of a trade option (as defined by 

paragraph (a)), the component of such 

instrument that is a trade option shall be 

subject to only the requirements of paragraph 

(d) provided: 

(1) The volumetric variability is not 

severable nor separately marketable from the 

forward contract component, 

(2) the volumetric variability is related to 

and entered into concurrently with the 

forward contract component, and 

(3) the physical commodity underlying the 

volumetric variability is the same as that 

underlying the forward contract component.’’ 

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26210 Federal Register / Vol. 80, No. 88 / Thursday, May 7, 2015 / Proposed Rules 

Supply Contracts for a Specified Portion of 

an Entity’s Physical Need for a Commodity 

(e.g., peaking supply contracts) 

As noted above, concerns have also been 

raised about the appropriate treatment of 

peaking supply contracts which are often 

used by companies to manage the risks 

attendant to their need for physical 

commodities that may be used to generate 

electricity, run an operating plant, or 

manufacture or supply other goods and 

services. 

Market participants have raised concerns 

about whether or not these contracts could be 

considered commodity options. In instances 

where these contracts represent a reservation 

of a portion of supplier’s capacity to provide 

a particular commodity and not a transaction 

for the commodity itself, it seems possible 

these contracts may not be commodity 

options. One test that has been proposed to 

determine whether or not such contracts are 

commodity options is whether: 

1. The subject of the agreement, contract or 

transaction is a binding, sole-source, 

obligation of a supplier of a physical 

commodity to stand ready to meet a specified 

portion of a commercial consumer’s physical 

need for a commodity through providing for 

the physical delivery of that commodity to 

the specified commercial consumer or its 

designee in connection with the physical 

obligation, 

2. The payment provided by the 

commercial consumer to the commercial 

supplier for such agreement, contract or 

transaction is in the nature of a reservation 

charge to provide the service of standing 

ready to meet the physical needs of the 

commercial consumer, 

3. Payment for any commodity delivered 

under such agreement, contract or 

transaction is at the market price for that 

commodity at the time of delivery (i.e., the 

agreement, contract, or transaction is not 

used to hedge price risk), and 

4. The agreement, contract or transaction is 

necessary to meet the commercial consumer’s 

projected physical needs or is required by 

regulation. 

I think the Commission would benefit from 

receiving comments on this proposed test 

and peaking supply contracts more generally 

as it appears to be one of the significant 

outstanding issues regarding instruments that 

may or may not be trade options. 

Together, these two additional items may 

help address outstanding concerns that have 

been expressed by commercial market 

participants, and I think the Commission 

would benefit by getting comment upon 

them. 

Appendix 4—Statement of 

Commissioner J. Christopher Giancarlo 

I support the Commission’s proposed 

amendments to the interim final trade 

options rule. These are common sense 

reforms that will alleviate certain 

recordkeeping and reporting burdens that 

§ 32.3 currently imposes on end-users that 

use trade options to manage commercial risk. 

The deletion of the reference in § 32.3(c)(2) 

to part 151 position limits is also appropriate 

in light of the fact that part 151 was vacated 

by the court in Int’l Swaps & Derivatives 

Ass’n v. U.S. Commodity Futures Trading 

Comm’n, 887 F. Supp. 2d 259 (D.D.C. 2012). 

I strongly disagree, however, with the 

Commission’s statement that it preliminarily 

believes that any future application of 

position limits would be best addressed in 

the context of the pending position limits 

rulemaking. Simply put, position limits for 

trade options are not ‘‘necessary to diminish, 

eliminate, or prevent’’ excessive speculation. 

Section 4a(a)(1) of the Commodity Exchange 

Act (CEA). The final trade options rule 

should make clear that trade options are 

exempt from position limits. 

As the Commission recognized in 

promulgating the interim final rule 

establishing the trade options exemption, 

‘‘position limits apply only to speculative 

positions. . . . Trade options, which are 

commonly used as hedging instruments or in 

connection with some commercial function, 

would normally qualify as hedges, exempt 

from the speculative position limit rules.’’ 

Commodity Options, 77 FR 25320, 25328 

n.50 (Apr. 27, 2012). 

By definition, the offeree to a trade option 

‘‘must be a producer, commercial user of, or 

a merchant handling the commodity that is 

the subject of the commodity option 

transaction, or the products or by-products 

thereof,’’ and must restrict the use of trade 

options ‘‘solely for purposes related to its 

business as such.’’ § 32.3(a)(2). Moreover, the 

‘‘option must be intended to be physically 

settled, so that, if exercised, [it] would result 

in the sale of an exempt or agricultural 

commodity for immediate or deferred 

shipment or delivery.’’ § 32.3(a)(3). Given 

these parameters, the risk that trade options 

could be used to engage in speculation, much 

less excessive speculation, is so remote as to 

be virtually non-existent. 

Applying a position limits regime to trade 

options and requiring commercial end-users 

to seek bona fide hedge treatment for those 

transactions, which was floated as a 

possibility in the pending proposed position 

limits rule, would not be an acceptable 

outcome. See Position Limits for Derivatives, 

78 FR 75680, 75711 (Dec. 12, 2013). As 

commenters to the proposed position limits 

rule have pointed out, there is no regulatory 

benefit to imposing position limits on 

instruments that inherently are not 

speculative in nature, and doing so ‘‘will 

distort commodity markets and impede 

economically efficient behavior’’ by 

discouraging the use of trade options. Natural 

Gas Supply Association Comment Letter 

dated Aug. 4, 2014 at 13. A comment letter 

filed by the Edison Electric Institute and the 

Electric Power Supply Association (Joint 

Associations) cites persuasive examples of 

how application of the proposed position 

limits rule would eliminate the ability of 

market participants to enter into multi-month 

and multi-year trade options. See Joint 

Associations Comment Letter dated Feb. 7, 

2014 at 6–7; see also American Gas 

Association Comment Letter dated Feb. 10, 

2014 at 5 (the lack of a contractual upper 

limit in the way that natural gas options are 

structured make position limit reporting 

impossible). 

The Commission has the authority in 

section 4a(a)(7) of the CEA to exempt ‘‘any 

person or class of persons, any swap or class 

of swaps, any contract of sale of a commodity 

for future delivery or class of such contracts, 

any option or class of options, or any 

transaction or class of transactions from any 

requirement it may establish . . . with 

respect to position limits.’’ 

As long as the specter of position limits 

hangs over trade options, market participants 

that have used these instruments for decades 

as a cost effective means of ensuring a 

reliable supply of a physical commodity and 

to hedge commercial risk will be reluctant to 

use them. As I have said before, commercial 

end-users, including commercial end-users of 

everyday trade options, were not the cause of 

the financial crisis and the federal 

government should stop treating them like 

they were. 

I urge my fellow Commissioners to 

eliminate this regulatory uncertainty sooner, 

rather than later, by exercising our section 

4a(a)(7) authority in connection with this 

trade options rulemaking. I encourage further 

public comment on the issue. 

[FR Doc. 2015–11020 Filed 5–6–15; 8:45 am] 

BILLING CODE 6351–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–HQ–OAR–2015–0071; FRL–9926–97– 

OAR] 

RIN 2060–AS57 

Prevention of Significant Deterioration 

Permitting for Greenhouse Gases: 

Providing Option for Rescission of 

EPA-Issued Tailoring Rule Step 2 

Prevention of Significant Deterioration 

Permits 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing to amend the 

federal Prevention of Significant 

Deterioration (PSD) program regulations 

to allow for rescission of certain PSD 

permits issued by the EPA and 

delegated reviewing authorities under 

Step 2 of the Prevention of Significant 

Deterioration and Title V Greenhouse 

Gas (GHG) Tailoring Rule (Tailoring 

Rule). We are proposing to take this 

action in order to provide a mechanism 

for the EPA and delegated reviewing 

authorities to rescind PSD permits that 

are no longer required in light of the 

United States (U.S.) Supreme Court’s 

decision in Utility Air Regulatory Group 

(UARG) v. EPA and the amended 

appeals court judgment in Coalition for 

Responsible Regulation (Coalition) v. 

EPA, vacating that rule. These decisions 

determined that Step 2 of the Tailoring 

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