Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules 39033

b. The means by which any information

will be made available to members/

participants and/or the general public.

Core Principle 11—Recordkeeping.

Maintaining Complete Books and Records of

all Activities Related to Business as a

Recognized Clearing Organization in a Form

and Manner Acceptable to the Commission

for a Period of Five Years

In addressing core principle 11, applicants

should describe or otherwise document:

1. Maintaining records of all activities

related to the function of a clearing

organization:

a. The different activities related to the

function of the clearing organization for

which the organization intends to keep books

or records; and

b. Any activity related to the function of a

clearing organization for which the

organization does not intend to keep books

or records and why this is not viewed as

necessary.

2. Maintenance of full books and records

in a form and manner acceptable to the

Commission:

3. How the entity would satisfy the

requirements of Commission Regulation 1.31

including:

a. What ‘‘complete’’ would encompass

with respect to each type of book or record

that would be maintained;

b. How books or records would be

compiled and maintained with respect to

each type of activity for which such books or

records would be kept;

c. Confirmation that books and records

would be open to inspection by any

representative of the Commission or of the

U.S. Department of Justice;

d. How long books and records would be

readily available and how they would be

made readily available during the first two

years; and

e. How long books and records would

ultimately be maintained (and confirmation

that, in any event, they would be maintained

for at least five years).

Core Principle 12—Public Information.

Disclosure of Information Concerning the

Rules and Operating Procedures Governing

its Clearing and Settlement Systems,

Including Default Procedures

In addressing core principle 12, applicants

should describe or otherwise document:

1. Disclosure of information regarding rules

and operating procedures governing clearing

and settlement systems:

a. Which rules and operating procedures

governing clearing and settlement systems

should be disclosed to the public, to whom

they would be disclosed, and how they

would be disclosed;

b. What other information would be

available regarding the operation, purpose

and effect of rules;

c. How member/participants may become

familiar with such procedures before

participating in operations; and

d. How member/participants will be

informed of their specific rights and

obligations preceding a default and upon a

default, and of the specific rights, options

and obligations of the clearing organization

preceding and upon the participant’s default.

Core Principle 13—Information Sharing.

Entering Into and Abiding by the Terms of all

Appropriate and Applicable Domestic and

International Information-Sharing

Agreements and Using Relevant Information

Obtained from such Agreements in Carrying

out the Recognized Clearing Organization’s

Risk Management Program

In addressing core principle 13, applicants

should describe or otherwise document:

1. Becoming a party to applicable

appropriate domestic and international

information-sharing agreements and

arrangements:

a. The utility of entering into various types

of information-sharing arrangements;

b. The different types of domestic and

international information-sharing

arrangements, both formal and informal,

which the clearing organization views as

appropriate and applicable to its operations;

and

c. The specific information-sharing

agreements or other arrangements to which

the clearing organization would become a

party and how it would abide by the terms

of these agreements.

2. Using information obtained from

information-sharing arrangements in carrying

out risk management and surveillance

programs:

a. How information obtained from any

information-sharing arrangements would be

used to further the objectives of the clearing

organization’s risk management program and

any of its surveillance programs including

financial surveillance and continuing

eligibility of its members/participants;

b. How accurate information is expected to

be obtained and the mechanisms or

procedures which would make timely use

and application of all information; and

c. The types of information expected to be

shared and how that information would be

shared.

Core Principle 14—Competition. Endeavoring

to Avoid Unreasonable Restraints of Trade or

Imposing Any Burden on Competition not

Necessary or Appropriate in Furtherance of

the Objectives of the Act or the Regulations

Thereunder

In addressing core principle 14, applicants

should describe or otherwise document:

1. Avoiding unreasonable restraints of

trade:

a. Terms and conditions of access and

provision of services;

b. Any contracts or agreements to which

the organization is a party which contain any

noncompete clauses or limitations on future

activity which may compete with the

interests of either party to the contract.

2. Avoiding burdening competition:

a. Any practice of the clearing organization

that may appear to affect the competitiveness

of any other entity or the practice of any

entity that may appear to affect the

competitive ability of the clearing

organization; and

b. The extent to which the entity has

endeavored to adopt a rule or practice that

is the least anticompetitive means of

achieving the objective, purposes and

policies of the Act.

Issued in Washington, D.C. on June 8,

2000, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 00–14916 Filed 6–21–00; 8:45 am]

BILLING CODE 6351–01–U

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Part 35

RIN 3038–AB58

Exemption for Bilateral Transactions

AGENCY: Commodity Futures Trading

Commission.

ACTION: Proposed Rulemaking.

SUMMARY: The Commodity Futures

Trading Commission (Commission or

CFTC) is proposing to clarify the

operation of the current swaps

exemption, 17 CFR Part 35. In addition,

in a companion notice of proposed

rulemaking on clearing, the Commission

is proposing rules clarifying that

transactions under its Part 35 swaps

exemption can be cleared. The

Commission, in companion releases

published in this edition of the Federal

Register, also is proposing a new

regulatory framework to apply to

multilateral transaction execution

facilities, to market intermediaries and

to clearing organizations. This new

framework establishes a number of new

market categories, including a category

of exempt multilateral transaction

execution facility. Nothing in these

releases, however, would affect the

continued vitality of the Commission’s

exemption for swaps transactions under

Part 35 of its rules, or any of its other

existing exemptions, policy statements

or interpretations.

DATES: Comments must be received by

August 7, 2000.

ADDRESSES: Comments should be sent to

the Commodity Futures Trading

Commission, Three Lafayette Centre,

1125 21st Street, NW., Washington, DC

20581, attention: Office of the

Secretariat. Comments may be sent by

facsimile transmission to (202) 418–

5521 or, by e-mail to secretary@cftc.gov.

Reference should be made to

‘‘Exemption for Bilateral Transactions.’’

FOR FURTHER INFORMATION CONTACT: Paul

M. Architzel, Chief Counsel, Division of

Economic Analysis, Commodity Futures

Trading Commission, Three Lafayette

Centre, 1125 21st Street, NW,

Washington, DC 20581. Telephone:

(202) 418–5260. E-mail:

[PArchitzel@cftc.gov].

SUPPLEMENTARY INFORMATION:

39034 Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules

1Recognizing the importance of the OTC

derivatives markets, the Chairmen of the Senate and

House Agriculture Committees requested that the

President’s Working Group on Financial Markets

(PWG) conduct a study of OTC derivatives markets.

After studying the existing regulatory framework for

OTC derivatives, recent innovations, and the

potential for future developments, the PWG on

November 9, 1999, reported to Congress its

recommendations. See Over-the-Counter Derivative

Markets and the Commodity exchange Act, Report

of the President’s Working Group. The PWG report

focused on promoting innovation, competition,

efficiency, and transparency in OTC derivatives

markets and in reducing systemic risk.

Although specific recommendations about the

regulatory structure applicable to exchange-traded

futures were beyond the scope of its report, the

PWG suggested that the Commission review

existing regulatory structures (particularly those

applicable to markets for financial futures) to

determine whether they were appropriately tailored

to serve valid regulatory goals.

2The Swaps Policy Statement is found at 54 FR

30694 (July 21, 1989).

3H.R. Rep. No. 978, 102d Cong., 2d Sess. 82–83

(1992).

4See 7 U.S.C. 6(c).

I. Background

The Commission is proposing to

amend its Part 35 exemption to expand

and to clarify its operation, including

the availability of clearing for these

transactions. These proposed

amendments would provide greater

legal certainty to the OTC markets and

reduce systemic risk. The Commission

was encouraged in this undertaking by

the other Federal financial regulators

that comprise the President’s Working

Group on Financial Markets 1 and by the

chairmen of the Commission’s

Congressional oversight committees.

The proposed amendments to part 35

respond to changes that have occurred

in the over-the-counter (OTC) markets

since the Commission adopted its

Swaps Policy Statement in 1989, and its

subsequent part 35 swaps exemption in

1993. In the intervening years, the OTC

derivatives markets have experienced

dramatic and sustained growth. During

this period, OTC financial derivatives

have developed into global markets

having outstanding contracts with a

total notional value of over $80 trillion.

OTC derivatives have transformed

finance, increasing the range of financial

products available for managing risk.

II. Legal Certainty for Bilateral OTC

Transactions

The Commission is proposing to

amend its part 35 swaps exemption in

a number of ways. First, it is proposing

to delete specific reference to ‘‘swaps’’

within the exemption itself. Instead, the

rule would refer to a ‘‘contract,

agreement or transaction’’ that meets the

requisite exemptive conditions. This is

being proposed to clarify that an

instrument’s denomination as a ‘‘swap’’

was not, and is not, an independent

condition of the exemption. Moreover,

as suggested by the PWG Report, the

Commission has also proposed to delete

the requirement that exempt

transactions not be fungible or

standardized and has made clear that

insofar that such exempt transactions

may be cleared, creditworthiness of the

counterparty is not a condition of the

exemption. PWG Report at 17–18. In

addition, the Commission is proposing,

through an exemption from the private

right of action provision of section 22 of

the Act, that transactions entered into in

reliance on the part 35 swaps exemption

would not be subject to a claim for

rescission solely due to a violation of

the exemption’s requirements. See Id. at

18.

The Commission has proposed these

changes to its part 35 swaps exemption

in order to enhance the legal certainty

for such instruments. These changes

would in no way call into question any

transaction undertaken under the part

35 rules as currently drafted. Moreover,

in recognition of its continuing vitality

and to assist the public in locating it,

the Commission is proposing to

incorporate by reference its 1989 Swaps

Policy Statement as Appendix A to part

35.2 Moreover, the Commission is not

proposing any changes to its energy

interpretation (55 FR 39188) and energy

exemption (58 FR 21286) and affirms

their continued applicability.

A condition of the part 35 exemption

is that such transactions not be entered

into and traded on or through a

‘‘multilateral transaction execution

facility’’ (MTEF). The Commission is

proposing to define MTEF in

amendments to part 36 of its rules

included in a companion release

published in this edition of the Federal

Register. The Commission is proposing

to define MTEF as ‘‘an electronic or

non-electronic market or similar facility

through which persons, for their own

accounts or for the accounts of others,

enter into, agree to enter into or execute

binding transactions by accepting bids

or offers made by one person that are

open to multiple persons conducting

business through such market or similar

facility.’’ This definition highlights the

essential nature of an MTEF as a place

or facility through, or on, which traders

have the ability to execute agreements

or contracts. It does not, however,

require that every trader have access to

every transaction offered through the

facility. The definition as proposed does

not, and is not intended to, ‘‘preclude

participants from engaging in privately

negotiated bilateral transactions, even

where these participants use computer

or other electronic facilities, such as

‘broker screens,’ to communicate

simultaneously with other participants

so long as they do not use such systems

to enter orders to execute transactions.’’

See, 58 FR 5587, 5591 (Jan. 22, 1993).

Accordingly, the proposed definition

makes clear that it does not include

facilities merely used as a means of

communicating bids or offers nor does

it include markets in which a single

party offers to enter into bilateral

transactions with multiple

counterparties who may not transact

with each other.

As proposed, the Commission would

not make any determination that the

exempted transactions are or are not

subject to its jurisdiction. When it

adopted Section 4(c) in 1992, the

Conferees of the Congress stated:

The Conferees do not intend that the

exercise of exemptive authority by the

Commission (under section 4(c)) would

require any determination beforehand that

the agreement, instrument, or transaction for

which an exemption is sought is subject to

the Act. Rather, this provision provides

flexibility for the Commission to provide

legal certainty to novel instruments where

the determination as to jurisdiction is not

straightforward.3

III. Section 4(c) Findings

These proposed rule amendments are

being proposed under section 4(c) of the

Act, which grants the Commission

broad exemptive authority. Section 4(c)

of the Act provides that, in order to

promote responsible economic or

financial innovation and fair

competition, the Commission may by

rule, regulation or order exempt any

class of agreements, contracts or

transactions, either unconditionally or

on stated terms or conditions. To grant

such an exemption, the Commission

must find that the exemption would be

consistent with the public interest, that

the agreement, contract, or transaction

to be exempted would be entered into

solely between appropriate persons and

that the exemption would not have a

material adverse effect on the ability of

the Commission or any contract market

to discharge its regulatory or selfregulatory duties under the Act.4

As explained above, the proposed

exemption for bilateral transactions is

available only to appropriate persons.

Moreover, these amendments to part 35

will promote financial innovation and

reduce systemic risk. The Commission

further finds that these proposed

amendments would have no adverse

effect on any of the regulatory or selfregulatory responsibilities imposed by

the Act. The Commission specifically

Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules 39035

requests the public to comment on these

findings.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA),

5 U.S.C. 601 et seq., requires that

agencies, in promulgating rules,

consider the impact of these rules on

small entities. Information of the type

that would be required under the

proposed rule does not involve any

small organizations.

B. Paperwork Reduction Act

The Paperwork Reduction Act (PRA)

of 1995 (44 U.S.C. 3507(d)), which

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 does

not apply to this rule. The Commission

believes the proposed amendments to

this rule do not contain information

collection requirements which require

the approval of the Office of

Management and Budget. The purpose

of these proposed rule amendments is to

provide greater legal certainty for the

specified OTC transactions.

List of Subjects in 17 CFR Part 35

Commodity futures, Commodity

Futures Trading Commission.

In consideration of the foregoing, and

pursuant to the authority contained in

the Commodity Exchange Act and, in

particular, sections 2, 4, 4(c), and 8a

thereof, 7 U.S.C. 2, 6, 6c, and 12a, the

Commission hereby proposes to amend

Chapter I, Part 35 of Title 17 of the Code

of Federal Regulations as follows:

PART 35—EXEMPTION OF BILATERAL

AGREEMENTS

1. The authority citation for Part 35

continues to read as follows:

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

2. The heading of part 35 is proposed

to be revised as set forth above.

3. Section 35.1 is proposed to be

amended by revising paragraph (b) to

read as follows:

§ 35.1 Scope and definitions.

* * * * *

(b) Definition. As used in this part,

‘‘eligible participant’’ means, and shall

be limited to, the following persons or

classes of persons:

(1) A bank or trust company (acting

on its own behalf or on behalf of another

eligible participant);

(2) A savings association or credit

union;

(3) An insurance company;

(4) An investment company subject to

regulation under the Investment

Company Act of 1940 (15 U.S.C. 80a–1

et seq.) or a foreign person performing

a similar role or function subject as such

to foreign regulation, provided that such

investment company or foreign person

is not formed solely for the specific

purpose of constituting an eligible

participant;

(5) A commodity pool formed and

operated by a person subject to

regulation under the Act or a foreign

person performing a similar role or

function subject as such to foreign

regulation, provided that such

commodity pool or foreign person is not

formed solely for the specific purpose of

constituting an eligible participant and

has total assets exceeding $5,000,000;

(6) A corporation, partnership,

proprietorship, organization, trust, or

other entity not formed solely for the

specific purpose of constituting an

eligible participant:

(i) Which has total assets exceeding

$10,000,000, or

(ii) The obligations of which under

the agreement are guaranteed or

otherwise supported by a letter of credit

or keepwell, support, or other agreement

by any such entity referenced in this

paragraph (b)(6)(i) of this section or by

an entity referred to in paragraph (b)(1),

(2), (3), (4), (5), (6) or (8) of this section;

or

(iii) Which has a net worth of

$1,000,000 and enters into the

agreement in connection with the

conduct of its business; or which has a

net worth of $1,000,000 and enters into

the agreement to manage the risk of an

asset or liability owned or incurred in

the conduct of its business or reasonably

likely to be owned or incurred in the

conduct of its business;

(7) An employee benefit plan subject

to the Employee Retirement Income

Security Act of 1974 or a foreign person

performing a similar role or function

subject as such to foreign regulation

with total assets exceeding $5,000,000,

or whose investment decisions are made

by a bank, trust company, insurance

company, investment adviser subject to

regulation under the Investment

Advisers Act of 1940 (15 U.S.C. 80a–1

et seq.), or a commodity trading advisor

subject to regulation under the Act;

(8) Any governmental entity

(including the United States, any state,

or any foreign government) or political

subdivision thereof, or any

multinational or supranational entity or

any instrumentality, agency, or

department of any of the foregoing;

(9) A broker-dealer subject to

regulation under the Securities

Exchange Act of 1934 (15 U.S.C. 78a et

seq.) or a foreign person performing a

similar role or function subject as such

to foreign regulation, acting on its own

behalf or on behalf of another eligible

participant: Provided, however, that if

such broker-dealer is a natural person or

proprietorship, the broker-dealer must

also meet the requirements of either

paragraph (b)(6) or (11) of this section;

(10) A futures commission merchant,

floor broker, or floor trader subject to

regulation under the Act or a foreign

person performing a similar role or

function subject as such to foreign

regulation, acting on its own behalf or

on behalf of another eligible participant:

Provided, however, that if such futures

commission merchant, floor broker, or

floor trader is a natural person or

proprietorship, the futures commission

merchant, floor broker, or floor trader

must also meet the requirements of

paragraph (b)(6) or (b)(11) of this

section; or

(11) Any natural person with total

assets exceeding at least $10,000,000.

4. Section 35.2 is proposed to be

revised to read as follows:

§ 35.2 Exemption.

A contract, agreement or transaction

is exempt from all provisions of the Act

and any person or class of persons

offering, entering into, rendering advice,

or rendering other services with respect

to such agreement, is exempt for such

activity from all provisions of the Act

(except in each case the provisions

enumerated in § 35.3(a)) provided the

following terms and conditions are met:

(a) The contract, agreement or

transaction is entered into solely

between eligible participants;

(b) The contract, agreement or

transaction is not entered into and

traded on or through a multilateral

transaction execution facility as defined

in § 36.1 of this chapter; and

(c) Except for those contracts,

agreements or transactions submitted for

clearance or settlement to a

clearinghouse as provided under

paragraph (d)(3) of this section, the

creditworthiness of any party having an

actual or potential obligation under the

contract, agreement or transaction

would be a material consideration in

entering into or determining the terms

of the contract, agreement or

transaction, including pricing, cost, or

credit enhancement terms.

(d) The provisions of paragraphs (b)

and (c) of this section shall not be

deemed to preclude:

(1) Arrangements or facilities between

parties to such contracts, agreements or

transactions that provide for netting of

payment obligations resulting from such

contracts, agreements or transactions;

39036 Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules

1 7 U.S.C. 6(a), 6c(b), 6c(c). Section 4(a) of the

CEA provides, inter alia, that it is unlawful to enter

into a commodity futures contract that is not made

‘‘on or subject to the rules of a board of trade which

has been designated by the Commission as a

‘contract market’ for such commodity.’’ 7 U.S.C.

6(a). This prohibition does not apply to futures

contracts made on or subject to the rules of a foreign

board of trade, exchange or market. 7 U.S.C. 6(a).

The exchange trading requirement reflects

Congress’s view that such an environment would

control speculation and promote hedging. H.R. Rep.

No. 44, 67th Cong., 1st Sess. 2 (1921). See also 7

U.S.C. 5 (Congressional findings concerning

necessity for regulation of futures and commodity

option transactions). Pursuant to Sections 4c(b) and

4c(d), 7 U.S.C. 6c(b) and 6c(d), of the CEA, the

Commission has authority to permit transactions in

commodity options which do not take place on

contract markets. Currently, only two narrow

categories of such option transactions exist: trade

options (in which the offeree is a ‘‘commercial

user’’ of the underlying commodity) and dealer

options (in which the grantor fulfills the criteria of

Section 4c(d)(1) of the CEA). See also 54 FR 1128

(January 11, 1989) (Proposed Rules Concerning

Regulation of Hybrid Instruments); Final Rules

Concerning Regulation of Hybrid Instruments,

published elsewhere in this issue. 2 52 FR 47022 (December 11, 1987) (Advance

Notice of Proposed Rulemaking); 54 FR 1139

(January 11, 1989) (Statutory Interpretation

Concerning Certain Hybrid Instruments); 54 FR

1128 (January 11, 1989) (Proposed Rules

Concerning Regulation of Hybrid Instruments). See

also 50 FR 42963 (October 23, 1985) (Statutory

Interpretation and Request for Comments

Concerning Trading in Foreign Currencies for

Future Delivery). 3The Commission staff’s Task Force on OffExchange Instruments has addressed a number of

proposed offerings of hybrid instruments in a series

of published ‘‘no-action’’ letters. See, e.g., CFTC

Advisory No. 39–88, June 23, 1988 [Interpretative

Letter No. 88–10, June 20, 1988, 2 Comm. Fut. L.

Rep. (CCH) ¶ 24,262] (notes indexed to dollar/Yen

exchange rate); CFTC Advisory No. 45–88, July 19,

1988 [Interpretative Letter No. 88–11, July 13, 1988,

2 Comm. Fut. L. Rep. (CCH) ¶ 24,284] (notes

indexed to dollar/Yen exchange rate); CFTC

Advisory No. 48–88, July 26, 1988 [Interpretative

Letter No. 88–12, July 22, 1988, 2 Comm. Fut. L.

Rep. (CCH) ¶ 24,285] (notes indexed to dollar/

foreign currency exchange rate); CFTC Advisory No.

58–88, August 30, 1988 [Interpretative Letter No.

88–16, August 26, 1988, 2 Com. Fut. L. Rep. (CCH)

¶ 24,312] (federally-chartered corporation issuing

notes indexed to nationally disseminated measure

of inflation published by a U.S. government

agency); CFTC Advisory No. 63–88, September 21,

1988 [Interpretative Letter No. 88–17, September 6,

1988, 2 Comm. Fut. L. Rep. (CCH) ¶ 24,320] (fixedrate debentures with additional payments indexed

to the price of natural gas over an established base

price); CFTC Advisory No. 66–88, September 23,

1988, 2 Comm. Fut. L. Rep. (CCH) ¶ 24,321

(certificates of deposit with interest payable at

maturity indexed in part to the spot price of gold).

See also CFTC Advisory No. 18–19, March 17, 1989

(letter dated November 23, 1988, concerning

proposed sale of hay for delayed delivery).

(2) Arrangements or facilities among

parties to such contracts, agreements or

transactions, that provide for netting of

payments resulting from such contracts,

agreements or transactions;

(3) The submission of such contracts,

agreements or transactions for clearance

and/or settlement to a clearing

organization which is authorized under

§ 39.2 of this chapter; or

(4) The use of an electronic or nonelectronic market or similar facility used

solely as a means of communicating

bids or offers by market participants or

the use of such a market or facility by

a single counterparty to offer to enter

into or to enter into bilateral

transactions with multiple

counterparties.

(e) Any person may apply to the

Commission for exemption from any of

the provisions of the Act (except section

2(a)(1)(B)) for other arrangements or

facilities, on such terms and conditions

as the Commission deems appropriate,

including but not limited thereto, the

applicability of other regulatory

regimes.

5. Section 35.3 is proposed to be

added to read as follows:

§ 35.3 Enforceability.

(a) Notwithstanding the exemption in

§ 35.2, sections 2(a)(1)(B), 4b, and 4o of

the Act, § 32.9 of this chapter as adopted

under section 4c(b) of the Act, § 32.13

of this chapter, and sections 6(c) and

9(a)(2) of the Act to the extent that they

prohibit manipulation of the market

price of any commodity in interstate

commerce or for future delivery on or

subject to the rules of any contract

market, continue to apply to

transactions and persons otherwise

subject to those provisions.

(b) A party to a contract, agreement,

or transaction that is with an eligible

participant (or counterparty reasonably

believed by such party to be an eligible

counterparty) shall be exempt from any

claim, counterclaim or affirmative

defense by such counterparty under

section 22(a)(1) of the Act or any other

provision of the Act:

(1) That such contract, agreement, or

transaction is void, voidable or

unenforceable; or

(2) to rescind or recover any payment

made in respect of such contract,

agreement, or transaction, based solely

on the failure of such party or such

contract, agreement, or transaction to

comply with the terms or conditions of

the exemption under this part or from

the terms or conditions of the Statement

of Policy Concerning Swap Transactions

in appendix A to this part 35.

(c) A party to a contract, agreement or

transaction that qualifies under the

Statement of Policy Concerning Swap

Transactions in appendix A to this part

35 or the Statutory Interpretation

Concerning Hybrid Instruments, as the

same may be revised by the Commission

from time to time, shall be exempt from

any claim under Section 22(a)(1) of the

Act or any other provision of the Act:

(1) That such contract, agreement or

transaction is void, voidable, or

unenforceable; or

(2) to rescind or recover any payment

made in respect of such contract,

agreement or transaction, based solely

on the failure of such party, or such

contract, agreement or transaction, to

comply with any provision of the Act or

Commission rules, excluding, in the

case of this paragraph, any claim for

manipulation or fraud arising under a

provision of the Act or Commission

rules applicable by its terms to a

contract, agreement or transaction that

is not otherwise subject to regulation

under the Act.

6. Part 35 is proposed to be amended

by adding new Appendix A to read as

follows:

Appendix A to Part 35—Policy

Statement Concerning Swap

Transactions

(a) Background

(1) Section 2(a)(1)(A) of the Commodity

Exchange Act (CEA or Act) grants the

Commission exclusive jurisdiction over

‘‘accounts, agreements (including any

transaction which is of the character of * * *

an ‘option’ * * *), and transactions

involving contracts of sale of a commodity

for future delivery traded or executed on a

contract market * * * or any other board of

trade, exchange, or market. * * *’’ 7 U.S.C.

2. The CEA and Commission regulations

require that transactions in commodity

futures contracts and commodity option

contracts, with narrowly defined exceptions,

occur on or subject to the rules of contract

markets designated by the CFTC.1 In several

recent releases 2 and in response to requests

for case-by-case review of various proposed

offerings,3 the Commission has addressed the

applicability of the Act and Commission

regulations to various forms of commodityrelated instruments offered and sold other

than on designated contract markets. An

overview of off-exchange transactions and

issues was commenced by issuance in

December 1987 of an Advance Notice of

Proposed Rulemaking (Advance Notice). The

Advance Notice requested comment

concerning, among other things, a proposed

no-action position concerning certain

commercial transactions, which, as

described, would have extended to certain

categories of swap transactions.

(2) Based upon careful review of the

comments received in response to the

Advance Notice, indicating generally a need

for greater clarity in this area, representations

from market users, and consultations with

other federal regulators concerning the issues

raised by swap transactions, the Commission

is issuing this policy statement to clarify its

view of the regulatory status of certain swap

transactions. This statement reflects the

Commission’s view that at this time most

swap transactions, although possessing

elements of futures or options contracts, are

not appropriately regulated as such under the

Act and regulations. This policy statement is

intended to recognize a non-exclusive safe

harbor for transactions satisfying the

requirements set forth herein.

Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules 39037

4CFTC v. Co. Petro Marketing Group, Inc., 680

F.2d 573, 581 (9th Cir. 1982).

5CFTC v. Trinity Metals Exchange, No. 85–1482–

CV–W–3 (W.D. Mo. January 21, 1986] [citing CFTC

v. National Coal Exchange, Inc. [1980–1982

Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 21,424

at 26,046 (W.D. Tenn. 1982)].

6See generally, 52 FR 47022, 47023 (December

11, 1987) (citing In the Matter of First National

Monetary Corp., [1984–1986 Transfer Binder]

Comm. Fut. L. Rep. (CCH) ¶ 22,698 (CFTC 1985));

Letter to the Honorable Patrick Leahy and the

Honorable Richard Lugar, Committee on

Agriculture, Nutrition and Forestry, United States

Senate, from Wendy L. Gramm, Chairman,

Commodity Futures Trading Commission, dated

May 16, 1989 (Attachment at 7–8). The Commission

has explained that this does not mean that ‘‘all

commodity futures contracts must have all of these

elements * * *’’ In re Stovall, [1977–1980 Transfer

Binder] Comm. Fut. L. Rep. (CCH) ¶ 20,941 (CFTC

1979). To hold otherwise would permit ready

evasion of the CEA.

7E.g., Advance Notice, 52 FR at 47023; Letter to

the Honorable Patrick Leahy and the Honorable

Richard Lugar, Committee on Agriculture, Nutrition

and Forestry, United States Senate, from Wendy L.

Gramm, Chairman, Commodity Futures Trading

Commission, dated May 16, 1989 (Attachment at 8);

OGC Statutory and Regulatory Interpretation

(Regulation of Leverage Transactions and Other OffExchange Future Delivery-Type Instruments), 50 FR

11656, 11657, n.2 (March 25, 1985); CFTC v. Co

Petro Marketing Group, Inc., 680 F.2d 573 (9th Cir.

1982).

8 In addition, the Commission and the courts have

consistently recognized that ‘‘the requirement that

a futures contract be executed on a designated

contract market is what makes the contract legal,

not what makes it a futures contract.’’ In the Matter

of First National Monetary Corp., [1984–1986

Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 22,698

at 30,975 (CFTC 1985); In re Stovall, [1977–1980

Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 20,941

at 23,776 (CFTC 1979). See, also, Interpretative

Statement, ‘‘The Regulation of Leverage

Transactions and Other Off-Exchange Future

Delivery Type Investments-Statutory

Interpretation,’’ 50 FR 11656 (March 25, 1985).

9See generally, Bank for International

Settlements, Recent Innovations in International

Banking at 37–60 (April 1986); S. K. Henderson,

‘‘Swap Credit Risk: A Multi-Perspective Analysis,’’

44 Business Lawyer 365 (1989). Interest rate swaps

have been described as having three primary forms:

coupon swaps (fixed rate to floating rate swaps);

basis swaps (swap of one floating rate for another

floating rate); and cross-currency interest rate swaps

(swaps of fixed rate payments in one currency to

floating rate payments in another currency).

Currency swap transactions involve agreements

between two parties providing for exchanges of

amounts in different currencies which are

calculated on the basis of a pre-established interest

rate, a specified exchange rate, and a specified

notional amount. Commodity swaps generally

include swap transactions similar in structure to

interest rate swaps, except that payments are

calculated by reference to the price of a specified

commodity, such as oil.

10The average notional amount for swaps has

been estimated at $24 million. Letter from the New

York Clearing House to CFTC, dated April 6, 1989,

commenting on Proposed Rule and Statutory

Interpretation Concerning Certain Hybrid and

Related Instruments.

11E.g., Letter to CFTC from the International

Swap Dealers Association, Inc., dated April 8, 1988,

concerning Advance Notice; letter to CFTC from

Morgan Guaranty Trust Company of New York,

dated April 11, 1988, concerning Advance Notice.

12Section 2(a)(1)(A) of the CEA provides that the

term ‘‘future delivery’’ does not include sales of any

cash commodity for deferred shipment or delivery.

7 U.S.C. 2. Sales of cash commodities for deferred

delivery, or forward contracts, generally have been

recognized to be commercial, merchandising

transactions in physical commodities entered into

by commercial counterparties who have the

capacity to make or take delivery of the underlying

commodity but in which delivery ‘‘may be deferred

for purposes of convenience or necessity.’’ 52 FR

47027; In re Stovall, [1977–1980 Transfer Binder]

Comm. Fut. L. Rep. (CCH) ¶ 20,941 at 23,777–78

(CFTC 1979). The forward contract exclusion may

apply to certain types of swap transactions.

13The Treasury Amendment provides that

‘‘[n]othing in this Act shall be deemed to govern or

in any way be applicable to transactions in foreign

currency, security warrants, security rights, resales

of installment loan contracts, repurchase options,

government securities, or mortgages and mortgage

purchase commitments, unless such transactions

involve the sale thereof for future delivery

conducted on a board of trade.’’ 7 U.S.C. 2. See

generally, 50 FR 42963 (October 23, 1985) (CFTC

Statutory Interpretation). See also, Commodity

Futures Trading Commission v. American Board of

Trade, 473 F. Supp. 117 (S.D.N.Y. 1979), aff’d, 803

F.2d 1242 (2d Cir. 1986). The Treasury Amendment

may apply to some types of transactions also

characterized as swaps.

14The trade option exemption, which is set forth

in Rule 32.4(a), 17 CFR 32.4(a) (1988), authorizes

commodity option transactions, other than those on

commodities specified in rule 32.2(a), that are not

executed on a designated contract market and that

are:

Offered by a person which has a reasonable basis

to believe that the option is offered to a producer,

processor, or commercial user of, or a merchant

handling the commodity which is the subject of the

commodity option transaction, or the products or

byproducts thereof, and that such producer,

processor, commercial user or merchant is offered

or enters into the commodity option transaction

solely for purposes related to its business as such.

It should be noted that under Rule 32.4(a), only

the offeree of the trade option need qualify as a

‘‘commercial user’’ or ‘‘merchant.’’ Rule 32.4(a) is

silent concerning which party to a trade option may

be the option buyer of a put or call or ‘‘long,’’ and

which party may be the option seller of a put or

call or ‘‘short.’’ As a result, provided that the

qualifying commercial offeree is entering the trade

option transaction solely for non-speculative

purposes demonstrably related to its commercial

business in the commodity which is the subject of

the option transaction, the requirements of Rule

32.4(a) are met.

15The forward contract inclusion facilitates

commodity transactions within the commercial

Continued

(b) Safe Harbor Standards

(1) In determining whether a transaction

constitutes a futures contract, the

Commission and the courts have assessed the

transaction ‘‘as a whole with a critical eye

toward its underlying purpose.’’ 4 Such an

assessment entails a review of the ‘‘overall

effect’’ of the transaction as well as a

determination as to ‘‘what the parties

intended.’’ 5 Although there is no definitive

list of the elements of futures contracts, the

CFTC and the courts recognize certain

elements as common to such contracts.6

Futures contracts are contracts for the

purchase or sale of a commodity for delivery

in the future at a price that is established

when the contract is initiated, with both

parties to the transaction obligated to fulfill

the contract at the specified price. In

addition, futures contracts are undertaken

principally to assume or shift price risk

without transferring the underlying

commodity. As a result, futures contracts

providing for delivery may be satisfied either

by delivery or offset.

(2) In addition to these necessary elements,

the CFTC and the courts also recognize

certain additional elements common to

exchange-traded futures contracts, including

standardized commodity units, margin

requirements related to price movements,

clearing organizations which guarantee

counterparty performance, open and

competitive trading in centralized markets,

and public price dissemination.7 These

additional elements facilitate the trading of

futures contracts on exchanges and

historically have developed in conjunction

with the growth of organized contract

markets. The presence or absence of these

additional elements, however, is not

dispositive of whether a transaction is a

futures contract.8

(3) In general, a swap may be characterized

as an agreement between two parties to

exchange a series of cash flows measured by

different interest rates, exchange rates, or

prices with payments calculated by reference

to a principal base (notional amount).9

Commenters have described the swap market

as one in which the customary large

transaction size effectively limits the market

to institutional participants rather than the

retail public.10 Market participants also have

noted that swaps typically involve long-term

contracts, with maturities ranging up to

twelve years.11 In addition to these

characteristics, many comparisons between

swaps and futures contracts have stressed the

tailored, non-standardized nature of swap

terms; the necessity for particularized credit

determinations in connection with each swap

transaction (or series of transactions between

the same counterparties); the lack of public

participation in the swap markets; and the

predominantly institutional and commercial

nature of swap participants. Other

commenters have stressed that, despite these

distinctions in the manner of trading of

swaps and exchange products, the economic

reality of swaps nevertheless resembles that

of futures contracts.

(4) The Commission recognizes that swaps

generally have characteristics, such as

individually-tailored terms, predominantly

commercial and institutional participants,

and expectation of being held to maturity,

rather than offset during the term of the

agreement, that may warrant distinguishing

them from futures contracts. The criteria set

forth below identify certain swaps for which

regulation under the CEA and Commission

regulations is unnecessary. These safe harbor

standards are consistent with policies

reflected in the CEA’s jurisdictional

exclusion for forward contracts,12 the

Treasury Amendment,13 and the trade option

exemption,14 and are otherwise consistent

with Section 2(a)(1)(A) of the CEA. Although

these jurisdictional and exemptive or

exclusionary provisions are not sufficiently

broad to provide clear exemptive boundaries

for many swaps, they reflect policies relevant

to the safe harbor policy set forth herein and

may encompass certain swap transactions.15

39038 Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules

merchandising chain. The trade option exemption

similarly may be viewed as facilitating principal-toprincipal transactions in which the offeree is a

commercial party with respect to the underlying

commodity. The Treasury Amendment reflects

Congressional intent to avoid duplicative regulation

of foreign currency transactions and other

transactions in the interbank market supervised by

bank regulatory agencies.

16As noted previously, certain categories of swap

transactions may be subject to the forward contract

exclusion, the Treasury Amendment and the trade

option exemption. The safe harbor criteria set forth

herein apply equally to options on swaps.

17Formation of swaps pursuant to a master

agreement between two counterparties that

establishes some or all contract terms for one or

more individual swap transactions between those

counterparties is not precluded by this requirement,

provided that material terms of the master

agreement and transaction specifications are

individually tailored by the parties.

18 In the context of exchange-traded futures, offset

refers to the liquidation of a futures position

through the acquisition of an opposite position.

Availability of such offset, resulting in the

liquidation of the position, typically is established

by exchange rules governing exchange members’

relationships with the clearing house. See, e.g.,

Chicago Mercantile Exchange Rule 808 (‘‘a clearing

member long or short any commodity to the

Clearing House as a result of substitution may

liquidate the position by acquiring an opposite

position for its principal’’); Board of Trade Clearing

Corporation Regulation 705.00 (‘‘Where a member

buys and sells the same commodity for the same

delivery, and such contracts are cleared through the

Clearing House, the purchases and sales shall be

offset to the extent of their equality, and the

member shall be deemed a buyer from the Clearing

House to the extent that his purchases exceed his

sales, or a seller to the Clearing House to the extent

that his sales exceed his purchases’’); New York

Futures Exchange Rule 3–4 (‘‘As between the

Clearing Corporation and the original parties to

futures contracts and option contracts, such

contracts shall be binding upon the original parties

until liquidated by offset, delivery, exercise or

expiration, as the case may be’’). Of course, the

ability to offset in any given case depends upon the

availability of a counterparty to enter into an

offsetting transaction at an acceptable price.

19However, the ability to liquidate contractual

positions through offset is established by clearing

organization rules to which all clearing members

consent.

20Swap parties may agree in advance upon a

termination formula or price for the swap.

21Several commenters urged the Commission to

adopt a safe harbor for swaps that would be

conditioned upon, among other things, the absence

of a credit support mechanism. See Letter to CFTC

from Sullivan & Cromwell, dated April 8, 1988,

concerning Advance Notice, at 41–42; Letter to

CFTC from Manufacturers Hanover, dated April 11,

1988, concerning Advance Notice, at 4. The safe

harbor standard is based upon individualized credit

determinations at the outset and during the

pendency of the contract.

22Letter dated April 8, 1988, to CFTC from

International Swap Dealers Association, Inc.

Concerning Advance Notice.

23Swap transactions entered into with respect to

exchange rate, interest rate, or other price exposure

arising from a participant’s line of business or the

financing of its business would be consistent with

this standard.

(5) Consequently, the Commission has

determined that a greater degree of clarity

may be achieved through safe harbor

guidelines establishing specific criteria for

swap transactions to which the Commission’s

regulatory framework will not be applied.

Swaps satisfying the requirements set forth

below will not be subject to regulation as

futures or commodity option transactions

under the Act and regulations. This policy

statement addresses only swaps settled in

cash, with foreign currencies considered to

be cash.16

(i) Individually-Tailored Terms

(A) Individual tailoring of the terms of

swap agreements is frequently cited as

indispensable to the operation of the swap

market. Commenters have indicated that

swap agreements are based upon

individualized credit determinations and are

tailored to reflect the particular business

objectives of the counterparties. Tailoring

occurs through private negotiations between

the parties and may involve not only

financial terms but issues such as

representations, covenants, events of default,

term to maturity, and any requirement for the

posting of collateral or other credit

enhancement. Such tailoring and

counterparty credit assessment distinguish

swap transactions from exchange

transactions, where the contract terms are

standardized and the counterparty is

unknown. In addition, the tailoring of swap

terms means that, unlike exchange contracts,

which are fungible, swap agreements are not

fully standardized.

(B) To qualify for safe harbor treatment,

swaps must be negotiated by the parties as

to their material terms, based upon

individualized credit determinations, and

documented by the parties in an agreement

or series of agreements that is not fully

standardized.17 This requirement is intended

to exclude from safe harbor treatment

instruments which are fungible and therefore

may be readily transferred and traded.

(ii) Absence of Exchange-Style Offset

(A) Exchange-traded futures contracts

generally may be terminated by offset,18 that

is, liquidated through establishment of an

equal and opposite position. For exchangetraded futures contracts, the universal

counterparty to each cleared position is the

clearing organization. Prior consent of the

clearing organization, as counterparty, is

unnecessary to offset.19

(B) In contrast, swap transactions have

been described as transactions which create

performance obligations terminable only

with counterparty consent and which

generally are expected to be maintained to

maturity. A swap counterparty who seeks to

eliminate the economic effect of a swap

agreement may enter into a reverse swap

agreement, that is, a second swap with the

same maturity and payment requirements,

with the same or a new counterparty, but in

which the party seeking to eliminate its

economic exposure assumes the reverse

position (in this case the obligations of each

party to both transactions continue to

maturity). A swap counterparty who seeks to

terminate, absent default, its obligations

under a swap agreement may: (1) Undertake

a swap sale in which, based upon consent of

the counterparty, it assigns its rights and

obligations under the swap to a third party;

or (2) negotiate an early termination of the

transaction, or swap ‘‘closeout,’’ in which it

negotiates a lump-sum payment with its

counterparty to terminate the swap.20 In the

latter two cases, termination of the

obligations created by a swap is dependent

upon consent of the counterparty.

(C) To qualify for safe harbor treatment, the

swap must create obligations that are

terminable, absent default, only with the

consent of the counterparty. If consent to

termination is given at the outset of the

agreement and a termination formula or price

fixed, the consent provision must be

privately negotiated. This requirement is

intended to confine safe harbor treatment to

instruments that are not readily used as

trading vehicles, that are entered into with

the expectation of performance, and that are

terminated as well as entered into based

upon private negotiation.

(iii) Absence of Clearing Organization or

Margin System

(A) As noted above, the necessity for

individualized credit determinations has

been described as a hallmark of swap

transactions. A number of commenters have

stressed both the dependence of the current

swap market on such determinations and the

absence of a multilateral ‘‘credit support’’

mechanism, such as a clearing organization,

for swaps. In accordance with the concept of

swaps as dependent upon private negotiation

and individualized credit determinations as

to the capacity of certain parties to perform,

this safe harbor is applicable only to swap

transactions that are not supported by the

credit of a clearing organization and that are

not primarily or routinely supported by a

market-to-market margin and variation

settlement system designed to eliminate

individualized credit risk.21 The ability to

impose individualized credit enhancement

requirements to secure either changes in the

credit risk of a counterparty or increases in

the credit exposure between two

counterparties consistent with the above

criteria would not be affected.

(iv) The Transaction is Undertaken in

Conjunction With a Line of Business

(A) The absence of public participation in

the swaps market has frequently been cited

as a factor supporting different regulatory

treatment of swaps and futures contracts.

Swap market participants are predominantly

institutional and commercial entities such as

corporations, commercial and investment

banks, thrift institutions, insurance

companies, governments, and governmentsponsored or chartered entities.22

(B) The safe harbor set forth herein is

limited to swap transactions undertaken in

conjunction with the parties’ line of

business.23 This restriction is intended to

preclude public participation in qualifying

swap transactions and to limit qualifying

transactions to those based upon

individualized credit determinations. This

restriction does not preclude dealer

transactions in swaps undertaken in

conjunction with a line of business,

including financial intermediation services.

(v) Prohibition Against Marketing to the

Public

Swap transactions eligible for safe harbor

treatment may not be marketed to the public.

This restriction reflects the institutional and

commercial nature of the existing swap

market and the Commission’s intention to

Federal Register / Vol. 65, No. 121 / Thursday, June 22, 2000 / Proposed Rules 39039

restrict qualifying swap transactions to those

undertaken as an adjunct of the participant’s

line of business.

(c) Conclusion. This policy statement is

intended to clarify the regulatory treatment of

certain transactions in order to facilitate

legitimate market transactions in a field

distinguished by innovation and rapid

growth. Consequently, the Commission

proposes to continue to review on a case-bycase basis transactions that do not meet the

above criteria and that are not otherwise

excluded from Commission regulation.

Issued in Washington, D.C., this 8th day of

June, 2000, by the Commission.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 00–14917 Filed 6–21–00; 8:45 am]

BILLING CODE 6351–01–U

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Parts 1, 3, 4, 5, 15, 20, 36, 37,

38, 39, 100, 140, 155, 166, 170, and 180

A New Regulatory Framework for

Multilateral Transaction Execution

Facilities, Intermediaries and Clearing

Organizations

AGENCY: Commodity Futures Trading

Commission.

ACTION: Notice of public meetings.

SUMMARY: Notice is hereby given that

the Commodity Futures Trading

Commission (‘‘Commission’’) will

convene two public meetings at which

interested members of the public may

appear before it to give oral and written

statements relating to the Commission’s

consideration of a new regulatory

framework for multilateral transaction

execution facilities, intermediaries and

clearing organizations.

DATES: Tuesday, June 27, 2000, 10:00

a.m.–4:00 p.m. (multilateral transaction

execution facilities); Wednesday, June

28, 2000, 10:00 a.m.–4:00 p.m.

(intermediaries and clearing

organizations).

PLACE: 1155 21st St., N.W., Washington,

D.C. Lobby Level Hearing Room located

at Room 1000. Status: Open.

ADDRESSES: Requests to appear and

statements of interest should be mailed

to the Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington,

D.C. 20581, attention Office of the

Secretariat; transmitted by facsimile at

(202) 418–5521; or transmitted

electronically to [secretary@cftc.gov].

Reference should be made to

‘‘Regulatory Reinvention Meetings.’’

FOR FURTHER INFORMATION CONTACT: Paul

M. Architzel, Chief Counsel, or Nancy E.

Yanofsky, Assistant Chief Counsel,

Division of Economic Analysis,

Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington,

D.C. 20581, (202) 418–5260, or

electronically, [PArchitzel@cftc.gov] or

[NYanofsky@cftc.gov].

SUPPLEMENTARY INFORMATION: In

separate Federal Register releases

published today, the Commission has

proposed a new regulatory framework to

apply to multilateral transaction

execution facilities that trade

derivatives, market intermediaries and

clearing organizations. As explained in

those Federal Register releases, the

proposed framework contemplates far

reaching and fundamental changes to

modernize Federal regulation of the

commodity futures and options markets.

The Commission is of the view that,

in addition to the receipt of written

comments, an opportunity for interested

members of the public to appear before

it will assist it in its consideration of the

issues raised in the Federal Register

releases and is in the public interest.

Accordingly, the Commission will

convene two public meetings, one on

Tuesday, June 27, 2000 from 10:00 a.m.

to 4:00 p.m. relating to the proposed

framework as it applies to multilateral

transaction execution facilities and one

on Wednesday, June 28, 2000 from

10:00 a.m. to 4:00 p.m. relating to the

proposed framework as it applies to

market intermediaries and clearing

organizations.

All individuals or organizations

wishing to appear before the

Commission should submit to the

Commission at the above address, by

June 23, 2000, a request to appear at

either or both of the meetings, a concise

statement of interest and qualifications

as they relate to the particular

meeting(s) and a brief summary or

abstract of the content of his or her

statement(s). The Commission will

invite a representative number of

individuals or organizations to appear at

each meeting from those submitting

such statements. A transcription of the

meetings will be made and entered into

the Commission’s public comment files,

which will remain open for the receipt

of written comment until August 7,

2000.

Issued in Washington, D.C., this 8th day of

June 2000.

By the Commodity Futures Trading

Commission.

Jean A. Webb,

Secretary of the Commission.

Concurring Statement of Commissioner

Thomas J. Erickson

I concur with the Commission’s

publication of this Notice of Public Hearing

as well as with the simultaneous publication

of the related proposed rulemakings entitled

(1) Exemption for Bilateral Transactions; (2)

A New Regulatory Framework for

Multilateral Transaction Execution Facilities,

Intermediaries and Clearing Organizations;

(3) A New Regulatory Framework for

Clearing Organizations; and (4) Rules

Relating to Intermediaries of Commodity

Interest Transactions.

Global derivatives markets are changing at

a dramatic pace. Today’s Federal Register

releases represent an equally dramatic effort

by Commission staff to modernize our

regulatory scheme by accommodating new

technologies and providing exchanges with

some measure of regulatory relief.

Accordingly, I agree with the publication of

this and each related release and am hopeful

that they will stir considerable thought and

comment. With this concurrence—and in

addition to the specific requests for comment

in the proposed rules—I invite comment on

certain aspects of this plan about which I

have reservations. Specifically:

• Does the plan promote legal certainty for

transactions by providing a regime that is

based upon the voluntary submission of

certain derivatives markets to Commission

regulation?

• Are there enforceability and/or

compliance concerns associated with a

regulatory regime based on ‘‘broad

performance standards’’ incorporated as core

principles?

• Does the plan take adequate account of

the public’s interest in the Commission’s

ability to:

• Deter and detect fraud and

manipulation?

• Deter and detect abusive trading

practices?

• Ensure the financial integrity of industry

participants?

I look forward to receiving comment and

testimony that touch upon a full range of

issues in addition to those few I have

mentioned in this concurrence.

Dated: June 6, 2000.

Thomas J. Erickson,

Commissioner.

[FR Doc. 00–14918 Filed 6–21–00; 8:45 am]

BILLING CODE 6351–01–U