34434 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 

U.S. underlying narrow-based security indexes, 

paragraph (1)(a)(ii) of the SEC Order permits debt 

securities issued or guaranteed by a foreign 

government as defined in Rule 405 of the Securities 

Act, 17 CFR 230.405, that are eligible to be 

registered with the SEC under Schedule B of the 

Securities Act, 15 U.S.C. 77aa. Further, paragraph 

(1)(a)(ii) requires that at the time of the transaction, 

at least 90% of the index, both in terms of the 

number of underlying securities and their weight, 

must meet these eligibility requirements. No more 

than 10% of the securities in the index, both in 

terms of their number and their weight, at the time 

of the transaction, that do not meet the 

requirements, must be from issuers that are required 

to file reports with the SEC pursuant to Section 13 

or Section 15(d) of the Exchange Act, 15 U.S.C. 78m 

and 78o. 

31 7 U.S.C. 2(a)(1)(F)(ii). 

32H.R. Rep. No. 110–627 at 983 (2009) 

(Conference Report on the CFTC Reauthorization 

Act of 2008, Title XIII of the 2008 ‘‘Farm Bill,’’ 

Public Law No. 110–246, 122 Stat. 1651 (June 18, 

2008)). 

33See 7 U.S.C. 1a(25)(B)(iv) and 1a(25)(C); 15 

U.S.C. 3(a)(55)(C)(iv) and 3(a)(55)(D). 

34See Method for Determining Market 

Capitalization and Dollar Value of Average Daily 

Trading Volume; Application of the Definition of 

Narrow-Based Security Index, 66 FR 44490, 44501– 

44502 (August 23, 2001). 1 7 U.S.C. 6(c). 

(8) ECPs vs. QIBs: CEA Section 

2(a)(1)(F)(ii), cited in the preceding 

paragraph, provides in full as follows: 

Nothing in this Act is intended to prohibit 

any eligible contract participant located in 

the United States from purchasing or carrying 

securities futures products traded on or 

subject to the rules of a foreign board of 

trade, exchange, or market to the same extent 

such person may be authorized to purchase 

or carry other securities traded on a foreign 

board of trade, exchange, or market so long 

as any underlying security for such security 

futures products is traded principally on, by, 

or through any exchange or market located 

outside the United States.31

As discussed above, the SEC Order 

generally limits the category of U.S. 

persons that may trade foreign security 

futures to QIBs (who own and invest 

$100 million or more). This is a 

narrower class of investors than ECPs. 

The group of persons that satisfy the 

ECP definition but may not be QIBs 

includes registered investment 

companies, commodity pools, pension 

plans, corporations and high net worth 

individuals. These persons may have a 

real need for risk management based 

upon exposures in foreign financial 

markets or to economic conditions in 

other countries, or they may want to 

gain exposure to those markets as part 

of the asset allocation in their 

investment portfolio. 

If the relief requested in HEF’s 

Petition is granted, an ECP that is a QIB 

and trades a foreign futures contract on 

a foreign security index that moves from 

broad to narrow-based can continue to 

trade that contract as a foreign security 

future, provided the contract otherwise 

meets the requirements of the SEC 

Order. An ECP that is not a QIB, 

however, would have to exit its position 

in the foreign futures contract within 

the applicable grace period or be in 

violation of the Exchange Act. Given 

this difference in legal status, should an 

order issued by the Commission 

granting the relief requested in HEF’s 

Petition be limited to QIBs? 

With respect to access to foreign 

security futures by U.S. persons, are the 

conditions contained in the SEC Order 

consistent with Section 2(a)(1)(F)(ii) of 

the CEA? Should ECPs that are not QIBs 

be permitted to trade foreign security 

futures? What conditions, if any, should 

be imposed on such trading by ECPs 

that are QIBs, and ECPs that are not 

QIBs? How should an order permitting 

ECPs to trade foreign security futures 

take into account, as mandated by 

Section 2(a)(1)(E) of the CEA, ‘‘the 

nature and size of the markets that the 

securities underlying the security 

futures product reflects?’’ 

(9) Nature of Foreign Security 

Indexes: Lying at the core of the 

complex interplay between HEF’s 

Petition on the one hand, and the CEA 

and the federal securities laws on the 

other hand, is the application of the 

statutory definition of a ‘‘narrow-based 

security index’’ to foreign security 

indexes. To the extent that a foreign 

security index falls squarely on the 

broad-based side of the line, distinctions 

between ECPs that are QIBs and those 

that are not, and the prospect of an ECP 

that is relying on the relief requested by 

HEF violating the securities laws, may 

be of less concern. 

Congress has recognized that ‘‘[t]he 

detailed statutory test of a narrow-based 

security index was tailored to fit the 

U.S. equity markets, which are by far 

the largest, deepest and most liquid 

securities markets in the world.’’ 32 In 

the CFMA in 2000, Congress directed 

that the CFTC and the SEC, within one 

year, jointly adopt rules or regulations 

that set forth requirements for broadbased foreign security indexes traded on 

a foreign board of trade.33 And shortly 

thereafter, the CFTC and SEC promised 

to consider amending the rules 

regarding security index futures trading 

on or subject to the rules of a foreign 

board of trade.34

Should the CFTC and the SEC 

establish criteria to exclude appropriate 

foreign security indexes from the 

definition of a ‘‘narrow-based security 

index?’’ If so, on what basis? How 

should it be determined whether a 

foreign security index is appropriately 

treated as a broad-based security index 

so that foreign futures on such an index 

would trade subject to the exclusive 

jurisdiction of the CFTC, or as a narrowbased security index so that foreign 

futures on such an index would trade as 

foreign security futures? The 

Commission encourages commenters to 

submit any quantitative data and 

analysis to support any proposed 

distinctions between broad and narrowbased foreign security indexes. 

(10) CEA Section 4(c) Requirements: 

• Is the exemption requested in HEF’s 

Petition consistent with the 

requirements for relief set forth in 

Section 4(c) of the CEA? 

• Would granting the exemption 

requested in HEF’s Petition be 

consistent with the public interest and 

purposes of the CEA? 

• Would granting the relief requested 

in HEF’s Petition have any material 

adverse effects upon derivatives clearing 

organizations, exchanges, or other 

Commission registrants from a 

competitive or other perspective? 

(11) Other Issues: The Commission 

welcomes comment on any other issues 

relevant to HEF’s Petition for an 

exemption. 

* * * * * 

Issued in Washington, DC, on June 11, 

2010 by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

[FR Doc. 2010–14680 Filed 6–16–10; 8:45 am] 

BILLING CODE P 

COMMODITY FUTURES TRADING 

COMMISSION 

Request To Amend an Existing Order 

Under Section 4(c) of the Commodity 

Exchange Act Permitting Eligible Swap 

Participants To Submit for Clearing, 

and ICE Clear U.S., Inc. and Futures 

Commission Merchants To Clear, 

Certain-Over-The-Counter Agricultural 

Swaps 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of Request for Comment 

on an Amendment to an Exemption 

Order. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) is requesting comment 

on whether to amend an existing order 

to extend the exemption granted to ICE 

Clear U.S., Inc. (‘‘ICE Clear’’) under 

Section 4(c) of the Commodity Exchange 

Act (‘‘Act’’) 1 to certain over-the-counter 

(‘‘OTC’’) agricultural swaps for which 

there is no corresponding futures 

contract listed for trading on ICE 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 34435 

2 17 CFR Part 35. 

3Part 35 of the Commission’s regulations, 17 

CFRPart 35, promulgated pursuant to the authority 

of Section 4(c) of the Act, exempts swap agreements 

and eligible persons entering into these agreements 

from most provisions of the Act. The term ‘‘swap 

agreement’’ is defined to include, among other types 

of agreements, ‘‘a * * * commodity swap,’’ which 

latter term includes swaps on agricultural products. 

While the Commodity Futures Modernization Act 

of 2000 amends the Act to exempt the trading of 

many OTC transactions from many provisions of 

the Act, these exemptions explicitly do not apply 

to OTC transactions in agricultural commodities. 

Accordingly, swaps involving agricultural 

commodities continue to rely upon the exemptions 

of Part 35. Part 35 requires, among other things, that 

a swap agreement not be part of a fungible class of 

agreements that are standardized as to their material 

economic terms and that the creditworthiness of 

any party having an interest under the agreement 

be a material consideration in entering into or 

negotiating the terms of the agreement. Thus, absent 

an additional exemption pursuant to Section 4(c) of 

the Act, ICE Clear could not engage in the clearing 

of OTC swap contracts in cocoa, sugar and coffee, 

since such contracts would not fulfill all of the 

conditions for exemption in Part 35. For further 

discussion of the Part 35 analysis, see 72 FR 68862, 

68863 (Dec. 6, 2007). 

As discussed further below, the Commission is 

requesting comment on the impact of pending 

financial services reform legislation on Part 35. 

4 73 FR 77015 (Dec. 18, 2008). 5See 73 FR at 77018. 

Futures U.S., Inc. (‘‘ICE Futures’’) at the 

time of acceptance for clearing. 

Authority for extending this relief is 

found in Section 4(c) of the Act. 

DATES: Comments must be received on 

or before August 2, 2010. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov/http:// 

frwebgate.access.gpo/cgi-bin/leaving. 

Follow the instructions for submitting 

comments. 

• E-mail: iceclearotc4c@cftc.gov. 

Include ‘‘ICE Clear Section 4(c) 

Amended Exemption Request’’ in the 

subject line of the message. 

• Fax: 202–418–5521. 

• Mail: Send to David A. Stawick, 

Secretary, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

• Courier: Same as mail above. 

All comments received will be posted 

without change to http:// 

www.CFTC.gov/. 

FOR FURTHER INFORMATION CONTACT: 

Robert B. Wasserman, Associate 

Director, 202–418–5092, 

rwasserman@cftc.gov, or Alicia L. 

Lewis, Attorney-Advisor, 202–418– 

5862, alewis@cftc.gov, Division of 

Clearing and Intermediary Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1151 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In September 2007, ICE Clear, a 

registered derivatives clearing 

organization (‘‘DCO’’) and the clearing 

organization for ICE Futures, submitted 

applications to the Commission 

requesting an order (1) pursuant to 

Section 4(c) of the Act, (a) to permit the 

clearing of coffee, sugar, and cocoa OTC 

swap contracts and (b) to determine that 

certain ICE Futures floor brokers and 

traders are eligible swap participants 

(‘‘ESPs’’) for the purpose of trading these 

OTC swaps; and (2) pursuant to Section 

4d of the Act, to permit certain customer 

positions in these cleared OTC swap 

contracts and the property 

collateralizing these positions to be 

commingled with property and 

positions otherwise required to be held 

in customer segregated accounts. Part 35 

of the Commission’s regulations 2 allows 

the trading but not the clearing of such 

contracts.3 On December 12, 2008, the 

Commission approved the applications 

and issued an order pursuant to 

Sections 4(c) and 4d of the Act (the 

‘‘Previous Order’’).4 ICE Clear represents 

that it commenced clearing the 

permitted swaps on February 13, 2009. 

The clearing process for these swaps 

involves the replacement of each OTC 

swap with a ‘‘cleared-only’’ contract, the 

essential terms of which match the 

terms, including the expiration date, of 

a corresponding underlying exchangelisted futures contract in coffee, sugar, 

or cocoa traded on ICE Futures. The 

clearinghouse is interposed as the 

central counterparty. The cleared-only 

contracts are financially settled while 

the underlying futures contracts are 

settled with physical delivery. 

In granting the relief requested, the 

Commission imposed certain terms and 

conditions in the Previous Order to 

address its regulatory concerns and 

mitigate the risks associated with the 

clearing of OTC agricultural swaps. 

With respect to Section 4d of the Act, 

the Commission evaluated whether ICE 

Clear’s proposal would provide 

appropriate protection for customer 

funds since futures customers would be 

exposed to a different source of risk if 

funds supporting contracts executed in 

the OTC market were commingled with 

customer funds supporting futures 

transactions in customer segregated 

accounts. In analyzing this issue, the 

Commission considered (1) the ability of 

a futures commission merchant (‘‘FCM’’) 

or DCO to offset these contracts in the 

OTC markets in the event of a default 

on such contracts by a customer or an 

FCM, respectively, since a cleared-only 

contract could be offset only by another 

cleared-only contract and (2) the 

availability of the exchange-traded 

markets for coffee, sugar and cocoa for 

hedging purposes, as well as the 

correspondence between the terms of a 

cleared-only contract and a 

corresponding exchange-traded contract 

for these products. Based on ICE Clear’s 

proposal, the Commission found that 

these cleared-only contracts correspond 

to transactions in a potentially liquid 

OTC market and, importantly, that they 

were economically equivalent to, and 

thus could be effectively hedged with an 

exchange-listed futures contract.5

Accordingly, in order to ensure an 

effective means of risk management for 

these cleared-only contracts, the 

Commission included Condition 3(B) in 

the Previous Order, which required that 

the cleared-only contracts be closely 

related to underlying futures contracts 

traded on ICE Futures. Specifically, 

Condition 3(B) provides that: 

‘‘[t]he economic terms and the daily 

settlement prices of each contract, agreement 

or transaction subject to this order must be 

analogous to the economic terms, and equal 

to the daily settlement prices, respectively, of 

a corresponding futures contract listed for 

trading on ICE Futures.’’ 

The fulfillment of this condition 

would enable an FCM carrying the 

positions of a defaulting customer or 

ICE Clear carrying the positions of a 

defaulting member, to economically 

hedge those positions in the ICE Futures 

market by entering into an equal but 

opposite position in the corresponding 

listed futures contract. Thus, the 

Commission considered economic 

hedging in the exchange-listed market 

and actual offset based on the OTC 

market as feasible risk management 

measures for FCMs carrying clearedonly positions, as well as for ICE Clear 

itself. 

II. The Current ICE Clear Petition 

ICE Clear seeks to modify Condition 

3(B) of the Previous Order to allow it to 

clear OTC swaps in coffee, sugar and 

cocoa that have economic terms 

analogous to the terms of corresponding 

futures contracts listed for trading on 

ICE Futures with the exception of their 

expiration dates. Such expiration dates 

would be permitted to be beyond that of 

the corresponding futures contracts. 

These OTC swap contracts are referred 

to herein as ‘‘Long-Dated Swaps’’. The 

clearing of Long-Dated Swaps will 

require ICE Clear to establish 

independent settlement prices for such 

swaps until there is a corresponding 

futures contract, with the same 

expiration date, listed for trading on ICE 

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34436 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 

6 ICE Clear proposes to use a process similar to 

the industry-standard pricing procedures for 

options pricing models used to value longer dated 

options positions in less liquid contract months. 

Moreover, ICE Clear represents that the market data 

used will include: (i) Cleared-swaps data submitted 

to the clearinghouse; (ii) year-on-year spread values 

for the underlying traded futures contract for 

actively traded months; (iii) OTC transaction data 

solicited from third-party brokers such as the major 

inter-dealer brokers; (iv) indicative quotes provided 

by third-party brokers; and (v) historical data. 

7Pursuant to recent amendments to Part 190 of 

the Commission’s Regulations, 17 CFR Part 190, 

positions in these contracts, and related collateral, 

could be included as Cleared OTC Derivatives, if 

ICE Clear’s rules or bylaws were to require them to 

be segregated. The amendments were published at 

75 FR 17297 (Apr. 6, 2010). 

8Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), 

provides in full that: 

In order to promote responsible economic or 

financial innovation and fair competition, the 

Commission by rule, regulation, or order, after 

notice and opportunity for hearing, may (on its own 

initiative or on application of any person, including 

any board of trade designated or registered as a 

contract market or derivatives transaction execution 

facility for transactions for future delivery in any 

commodity under section 7 of this title) exempt any 

agreement, contract, or transaction (or class thereof) 

that is otherwise subject to subsection (a) of this 

section (including any person or class of persons 

offering, entering into, rendering advice or 

rendering other services with respect to, the 

agreement, contract, or transaction), either 

unconditionally or on stated terms or conditions or 

for stated periods and either retroactively or 

prospectively, or both, from any of the requirements 

of subsection (a) of this section, or from any other 

provision of this chapter (except subparagraphs 

(c)(ii) and (D) of section 2(a)(1) of this title, except 

that the Commission and the Securities and 

Exchange Commission may by rule, regulation, or 

order jointly exclude any agreement, contract, or 

transaction from section 2(a)(1)(D) of this title), if 

the Commission determines that the exemption 

would be consistent with the public interest. 

9House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213. 

10Section 4(c)(2) of the Act, 7 U.S.C. § 6(c)(2), 

provides in full that: 

The Commission shall not grant any exemption 

under paragraph (1) from any of the requirements 

of subsection (a) of this section unless the 

Commission determines that— 

(A) the requirement should not be applied to the 

agreement, contract, or transaction for which the 

exemption is sought and that the exemption would 

be consistent with the public interest and the 

purposes of this Act; and 

(B) the agreement, contract, or transaction— 

(i) will be entered into solely between appropriate 

persons; and 

(ii) will not have a material adverse effect on the 

ability of the Commission or any contract market or 

derivatives transaction execution facility to 

discharge its regulatory or self-regulatory duties 

under this Act. 

11This definition includes many of the classes of 

persons explicitly referred to in Act Section 4(c)(3) 

(e.g., a bank or trust company) as well as some 

classes of persons who are included under the 

category of Section 4(c)(3)(K) (‘‘[s]uch other persons 

that the Commission determines to be appropriate 

in light of their financial or other qualifications, or 

the applicability of appropriate regulatory 

protections’’). 

Futures. In order to establish such 

prices, ICE Clear represents that it has 

developed specific pricing models for 

Long-Dated Swaps and will use those 

models along with the best available 

market data to determine settlement 

prices.6 In addition, ICE Clear 

represents that only ESPs would be 

permitted to trade these swaps. 

ICE Clear has not requested an order 

pursuant to Section 4d of the Act 

permitting customer positions in these 

Long-Dated Swap contracts and the 

property collateralizing those positions 

to be commingled with property and 

positions otherwise required to be held 

in customer segregated accounts. 

Accordingly, positions in such 

contracts, and property collateralizing 

such positions, would not be 

commingled with positions and related 

collateral segregated pursuant to Section 

4d of the Act.7 Long-Dated Swaps, and 

property collateralizing such swaps, 

would be treated as other cleared-only 

contracts by ICE Clear and its clearing 

members that are registered as FCMs. 

Eventually, however, the expiration 

date of a Long-Dated Swap will, after 

the passage of time, correspond to that 

of a futures contract listed for trading by 

ICE Futures (at that point, the LongDated Swap would become an ‘‘Aged 

Long-Dated Swap’’). An Aged LongDated Swap would be economically 

equivalent to an OTC swap that was first 

accepted for clearing after the listing of 

a corresponding futures contract. As a 

result, an Aged Long-Dated Swap would 

also satisfy all the requirements 

specified in the Previous Order, and 

therefore, could be carried in the 

customer segregated account pursuant 

to the provisions of that order. ICE Clear 

would not establish an independent 

settlement price for an Aged Long-Dated 

Swap, but instead would use the 

settlement price of the corresponding 

listed futures contract. 

III. Section 4(c) of the Commodity 

Exchange Act 

Section 4(c)(1) of the Act empowers 

the Commission to ‘‘promote responsible 

economic or financial innovation and 

fair competition’’ by exempting any 

transaction or class of transactions from 

any of the provisions of the Act (subject 

to exceptions not relevant here) where 

the Commission determines that the 

exemption would be consistent with the 

public interest.8 The Commission may 

grant such an exemption by rule, 

regulation, or order, after notice and 

opportunity for hearing, and may do so 

on application of any person or on its 

own initiative. In enacting Section 4(c) 

of the Act, Congress noted that the goal 

of the provision ‘‘is to give the 

Commission a means of providing 

certainty and stability to existing and 

emerging markets so that financial 

innovation and market development can 

proceed in an effective and competitive 

manner.’’ 9 Permitting the inclusion of 

Long-Dated Swaps in the class of OTC 

agricultural swap transactions that can 

be cleared by ICE Clear may foster both 

financial innovation and competition. It 

may benefit the marketplace by 

providing ESPs with the ability to bring 

together flexible negotiation with 

central counterparty guarantees, as well 

as capital and operational efficiencies. 

ESPs also may precisely hedge their 

cash positions with offsetting swap 

positions that match closely in terms of 

expiration date. The Commission is 

requesting comment on whether it 

should extend the permission to clear 

granted previously to include those OTC 

swap contracts for which the expiration 

date is beyond that of any 

corresponding futures contract listed for 

trading on ICE Futures at the time of 

acceptance for clearing. 

Section 4(c)(2) provides that the 

Commission may grant exemptions only 

when it determines that the 

requirements for which an exemption is 

being provided should not be applied to 

the agreements, contracts, or 

transactions at issue, and the exemption 

is consistent with the public interest 

and the purposes of the Act; that the 

agreements, contracts or transactions 

will be entered into solely between 

appropriate persons; and that the 

exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market or 

derivatives transaction execution 

facility to discharge its regulatory or 

self-regulatory duties under the Act.10

Section 4(c)(3) includes within the term 

‘‘appropriate persons’’ a number of 

specified categories of persons deemed 

appropriate under the Act for entering 

into transactions exempt by the 

Commission under Section 4(c). This 

includes persons the Commission 

determines to be appropriate in light of 

their financial or other qualifications, or 

the applicability of appropriate 

regulatory protections. ESPs, as defined 

in Part 35 of the Commission’s 

regulations,11 and ICE Futures floor 

members deemed ESPs by the 

Commission in the Order, will be 

eligible to submit Long-Dated Swap 

transactions to ICE Clear for clearing. 

The proposed Order requires ICE Clear, 

FCMs and ESPs acting pursuant to the 

Order to provide the market and largetrader information described in Parts 16, 

17 and 18 of the Commission’s 

regulations, in the manner described in 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 34437 

12H.R. 4173, 111th Cong. (2009). 

13H.R. 4173 EAS, 111th Cong. (2010). 

14We note that both bills include agricultural 

swap contracts in their definition of swaps. See 

H.R. 4173 § 3103(a) (at 575–77); H.R. 4173 EAS 

§ 721(a) (at 535–38). 

15H.R. 4173 EAS § 723(a) (at 570); H.R. 4173 

§ 3103(a) (at 605). Each of the financial services 

reform bills also provides that agricultural swaps 

may not be traded except pursuant to CFTC 

enabling regulations. See H.R. 4173 § 3103(a) (at 

605) and § 3109 (at 646); H.R. 4173 EAS § 723(c)(3) 

(at 577–78). 

Parts 15, 16, 17 and 18 of the 

Commission’s regulations, with respect 

to all Cleared-Only Contracts, including 

Long-Dated Swaps. In light of the above, 

the Commission is requesting comment 

as to whether the extension of this 

exemption will affect the ability of the 

Commission or any contract market or 

derivatives clearing organization to 

discharge its regulatory or selfregulatory duties under the Act. 

With respect to protecting the public 

interest, the Commission notes that 

Congress has begun to take steps to 

promote transparency in swap contracts. 

The financial services reform bills 

passed by the House of 

Representatives 12 and Senate 13 each 

requires swaps 14 to be cleared, subject 

to certain exemptions, and further 

requires, with respect to swaps that are 

subject to the clearing requirement, that 

such swaps be executed on a board of 

trade designated as a contract market 

under Section 5 of the Act (‘‘DCM’’) or 

on a swap execution facility (‘‘SEF’’) 

registered or exempt under Section 5h 

of the Act (where such a trading 

environment is available).15 Although 

these bills have not completed the 

legislative process, the Commission 

recognizes that future legislative 

enactments may require the execution of 

cleared swaps on a DCM or SEF. 

Accordingly, the Commission seeks 

comment, both as to the current 

proposed exemption, as well as more 

generally with respect to Part 35 of the 

Commission’s regulations, on the issues 

raised by the pending legislation 

regarding trading requirements for swap 

contracts, including agricultural swap 

contracts. 

IV. Amended Order 

The Previous Order is proposed to be 

revised to read as follows: 

ORDER 

(1) The Commission, pursuant to its 

authority under Section 4(c) of the 

Commodity Exchange Act (‘‘Act’’) and 

subject to the conditions below, hereby: 

(a) Permits eligible swap participants 

(‘‘ESPs’’) to submit for clearing, and futures 

commission merchants (‘‘FCMs’’) and ICE 

Clear to clear, OTC agricultural swap 

contracts in coffee, sugar, and cocoa 

(‘‘Cleared-Only Contracts’’); and 

(b) Permits all ICE Futures floor members 

that are registered with the Commission, 

when trading for their own accounts, to be 

deemed ESPs for the purpose of entering into 

bilateral swap transactions involving coffee, 

sugar, or cocoa to be cleared on ICE Clear. 

(2) The term ‘‘Long-Dated Swap Contract’’ 

shall be defined as a Cleared-Only Contract 

with terms analogous to those of a 

corresponding futures contract listed for 

trading on ICE Futures, except that the 

expiration date of the swap contract is later 

than that of any such futures contract. If the 

expiration date of a Long-Dated Swap 

Contract, after the passage of time, is on or 

before that of a futures contract listed for 

trading by ICE Futures, such OTC swap 

contract will become an ‘‘Aged Long-Dated 

Swap Contract’’. 

(3) The Commission, pursuant to its 

authority under Section 4d of the Act and 

subject to the conditions below, hereby 

permits ICE Clear and its clearing members 

that are registered FCMs, acting pursuant to 

this order, to hold money, securities, and 

other property, used to margin, guarantee, or 

secure Cleared-Only Contracts (with the 

exception of Long-Dated Swap Contracts) and 

belonging to customers that are ESPs 

(including customers that are deemed ESPs 

in accordance with this order), with other 

customer funds used to margin, guarantee, or 

secure trades or positions in commodity 

futures or commodity option contracts 

executed on or subject to the rules of a 

contract market designated pursuant to 

Section 5 of the Act in a customer segregated 

account or accounts maintained in 

accordance with Section 4d of the Act 

(including any orders issued pursuant to 

Section 4d(a)(2) of the Act) and the 

Commission’s regulations thereunder, and all 

such customer funds shall be accounted for 

and treated and dealt with as belonging to the 

customers of the ICE Clear clearing member, 

consistent with Section 4d of the Act and the 

regulations thereunder. This permission shall 

also apply to an Aged Long-Dated Swap 

Contract. 

(4) The Order is subject to the following 

conditions: 

(a) The contracts, agreements, or 

transactions subject to this order shall be 

executed pursuant to the requirements of Part 

35 of the Commission’s regulations, as 

modified herein, and shall be limited to 

Cleared-Only Contracts as defined herein. 

(b) The economic terms and the daily 

settlement prices of each contract, agreement, 

or transaction subject to this order, except for 

a Long-Dated Swap Contract, shall be 

analogous to the economic terms, and equal 

to the daily settlement prices, respectively, of 

a corresponding futures contract listed for 

trading on ICE Futures. 

(c) ICE Clear shall establish a settlement 

price for each Long-Dated Swap Contract for 

each trading day until such time as the 

contract’s expiration date corresponds to that 

of a futures contract listed for trading on ICE 

Futures. ICE Clear shall make records 

reflecting the basis for setting each such price 

and shall maintain such records pursuant to 

Core Principle K. 

(d) All contracts subject to this order shall 

be submitted for clearing by an ICE Futures 

clearing member to ICE Clear pursuant to ICE 

Clear rules. 

(e) Each ICE Futures floor member, acting 

as an ESP pursuant to this order, shall be the 

subject of a financial guarantee from a 

member of ICE Clear covering the trading of 

the OTC swap contracts subject to this order. 

The clearing member shall be registered with 

the Commission as an FCM and shall clear 

for the floor member the contracts, 

agreement, or transactions covered by the 

financial guarantee. 

(f) An ICE Futures floor member shall be 

prohibited from entering into a transaction in 

a Cleared-Only Contract with another ICE 

Futures floor member as the counterparty. 

(g) ICE Clear and its clearing members shall 

mark to market each Cleared-Only Contract 

on a daily basis in accordance with ICE Clear 

rules. 

(h) ICE Clear shall apply its margining 

system and calculate performance bond rates 

for each Cleared-Only Contract in accordance 

with its normal and customary practices. 

(i) ICE Futures shall maintain appropriate 

compliance systems to monitor the 

transactions of its floor members in the OTC 

swap transactions permitted pursuant to this 

order. 

(j) ICE Clear shall apply appropriate risk 

management procedures with respect to 

transactions and open interest in all ClearedOnly Contracts. ICE Clear shall conduct 

financial surveillance and oversight of its 

members clearing Cleared-Only Contracts, 

and shall conduct oversight sufficient to 

assure ICE Clear that each such member has 

the appropriate operational capabilities 

necessary to manage defaults in such 

contracts. ICE Clear and its clearing 

members, acting pursuant to this order, shall 

take all other steps necessary and appropriate 

to manage risk related to clearing ClearedOnly Contracts. 

(k) ICE Clear shall make available open 

interest and settlement price information for 

the Cleared-Only Contracts on a daily basis 

in the same manner as for futures contracts 

listed for trading on ICE Futures. 

(l) ICE Futures shall establish and maintain 

a coordinated market surveillance program 

that encompasses the Cleared-Only Contracts 

and the corresponding futures contracts 

listed by ICE Futures on its designated 

contract market. ICE Futures shall adopt 

position accountability levels for each 

cleared-only contract that are appropriate in 

light of the position accountability levels 

applicable to the corresponding futures 

contracts listed for trading on ICE Futures. 

(m) Cleared-only contracts shall not be 

treated as fungible with any contract listed 

for trading on ICE Futures. 

(n) Each FCM acting pursuant to this order 

shall keep the types of information and 

records that are described in Section 4g of the 

Act and Commission regulations thereunder, 

including but not limited to Commission 

Regulation 1.35, with respect to all ClearedOnly Contracts. Such information and 

records shall be produced for inspection in 

accordance with the requirements of 

Commission Regulation 1.31. 

(o) ICE Futures shall provide to the 

Commission the types of information 

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34438 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 

16 44 U.S.C. 3507(d). 

17 7 U.S.C. 19(a). 

described in Part 16 of the Commission’s 

regulations in the manner described in Parts 

15 and 16 of the Commission’s regulations 

with respect to all Cleared-Only Contracts. 

(p) ICE Clear shall apply large trader 

reporting requirements to all Cleared-Only 

Contracts in accordance with its rules, and 

each FCM and ESP acting pursuant to this 

order shall provide to the Commission the 

types of information described in Parts 17 

and 18 of the Commission’s regulations in 

the manner described in Parts 15, 17, and 18 

of the Commission’s regulations with respect 

to all Cleared-Only Contracts in which it 

participates. 

(q) ICE Clear and ICE Futures shall at all 

times fulfill all representations made in their 

requests for Commission action under 

Sections 4(c) and 4d of the Act and all 

supporting materials thereto. 

V. Request for Comment 

The Commission requests comment 

on all aspects of the issues presented by 

this amended exemption request. 

VI. Related Matters 

A. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 16 imposes certain requirements 

on federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

The amended exemption would not, if 

approved, require a new collection of 

information from any entities that 

would be subject to the exemption. 

B. Cost-Benefit Analysis 

Section 15(a) of the Act,17 requires the 

Commission to consider the costs and 

benefits of its action before issuing an 

order under the Act. By its terms, 

Section 15(a) does not require the 

Commission to quantify the costs and 

benefits of an order or to determine 

whether the benefits of the order 

outweigh its costs. Rather, Section 15(a) 

simply requires the Commission to 

‘‘consider the costs and benefits’’ of its 

action. 

Section 15(a) of the Act further 

specifies that costs and benefits shall be 

evaluated in light of five broad areas of 

market and public concern: protection 

of market participants and the public; 

efficiency, competitiveness, and 

financial integrity of futures markets; 

price discovery; sound risk management 

practices; and other public interest 

considerations. Accordingly, the 

Commission could in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

order was necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

Act. 

The Commission is considering the 

costs and benefits of an amended 

exemption order in light of the specific 

provisions of Section 15(a) of the Act, as 

follows: 

1. Protection of market participants 

and the public. The contracts that are 

the subject of the amended exemption 

request will only be entered into by 

persons who are ‘‘appropriate persons’’ 

as set forth in Section 4(c) of the Act. 

2. Efficiency, competition, and 

financial integrity. Extending the 

exemption granted under Part 35 to 

allow the clearing of Long-Dated Swap 

Contracts may promote liquidity and 

transparency in the markets for OTC 

derivatives in coffee, sugar, and cocoa, 

as well as for futures on those 

commodities. Extending the exemption 

also may promote financial integrity by 

increasing the benefits of clearing in 

these OTC markets. 

3. Price discovery. Price discovery 

may be enhanced through market 

competition. 

4. Sound risk management practices. 

Clearing of Long-Dated Swap Contracts 

may foster risk management by the 

participant counterparties. ICE Clear’s 

risk management practices in clearing 

these transactions would be subject to 

the Commission’s supervision and 

oversight. 

5. Other public interest 

considerations. The requested amended 

exemption may encourage market 

competition in agricultural derivative 

products without unnecessary 

regulatory burden. As noted above, 

however, there are pending financial 

services reform bills that would affect 

the trading and clearing requirements 

for agricultural swap contracts. 

After considering these factors, the 

Commission has determined to seek 

comment on the request for an amended 

exemption order as discussed above. 

The Commission also invites public 

comment on its application of the costbenefit provision. 

* * * * * 

Issued in Washington, DC, on June 14, 

2010 by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

[FR Doc. 2010–14682 Filed 6–16–10; 8:45 am] 

BILLING CODE P 

CONSUMER PRODUCT SAFETY 

COMMISSION 

Sunshine Act Meetings 

TIME AND DATE: Wednesday, June 23, 

2010; 10 a.m.–12 Noon. 

PLACE: Hearing Room 420, Bethesda 

Towers, 4330 East West Highway, 

Bethesda, Maryland. 

STATUS: Closed to the Public. 

MATTERS TO BE CONSIDERED: 

Compliance Status Report 

The Commission staff will brief the 

Commission on the status of compliance 

matters. 

For a recorded message containing the 

latest agenda information, call (301) 

504–7948. 

CONTACT PERSON FOR MORE INFORMATION: 

Todd A. Stevenson, Office of the 

Secretary, U.S. Consumer Product 

Safety Commission, 4330 East West 

Highway, Bethesda, MD 20814, (301) 

504–7923. 

Dated: June 14, 2010. 

Todd A. Stevenson, 

Secretary. 

[FR Doc. 2010–14816 Filed 6–15–10; 4:15 pm] 

BILLING CODE 6355–01–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

Defense Science Board Task Force on 

Trends and Implications of Climate 

Change for National and International 

Security 

AGENCY: Department of Defense (DoD). 

ACTION: Notice of advisory committee 

meetings. 

SUMMARY: The Defense Science Board 

Task Force on Trends and Implications 

of Climate Change for National and 

International Security will meet in 

closed session on July 14–15 and on 

July 29–30, 2010, in Arlington, VA. 

DATES: The meetings will be held on 

July 14–15 and on July 29–30, 2010. 

ADDRESSES: Both meetings will be held 

at Strategic Analysis, Inc., 4075 Wilson 

Boulevard, Suite 350, Arlington, VA. 

FOR FURTHER INFORMATION CONTACT: Maj. 

Michael Warner, USAF Military 

Assistant, Defense Science Board, 3140 

Defense Pentagon, Room 3B888A, 

Washington, DC 20301–3140, via e-mail 

at michael.warner@osd.mil, or via 

phone at (703) 571–0081. 

SUPPLEMENTARY INFORMATION: The 

mission of the Defense Science Board is 

to advise the Secretary of Defense and 

mstockstill on DSKH9S0YB1PROD with NOTICES