45730 Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / Proposed Rules 

1 17 CFR 145.9. 

2See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). 

3 7 U.S.C. 1 et seq. 

§ 23.609 Clearing member risk 

management. 

(a) With respect to clearing activities 

in futures, security futures products, 

swaps, agreements, contracts, or 

transactions described in section 

2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the 

Act, commodity options authorized 

under section 4c of the Act, or leveraged 

transactions authorized under section 

19 of the Act, each swap dealer or major 

swap participant that is a clearing 

member of a derivatives clearing 

organization shall: 

(1) Establish risk-based limits based 

on position size, order size, margin 

requirements, or similar factors; 

(2) Use automated means to screen 

orders for compliance with the riskbased limits; 

(3) Monitor for adherence to the riskbased limits intra-day and overnight; 

(4) Conduct stress tests of all positions 

at least once per week; 

(5) Evaluate its ability to meet initial 

margin requirements at least once per 

week; 

(6) Evaluate its ability to meet 

variation margin requirements in cash at 

least once per week; 

(7) Test all lines of credit at least once 

per quarter; and 

(8) Evaluate its ability to liquidate the 

positions it clears in an orderly manner, 

and estimate the cost of the liquidation. 

(b) Each swap dealer or major swap 

participant that is a clearing member of 

a derivatives clearing organization shall: 

(1) Establish written procedures to 

comply with this regulation; and 

(2) Keep full, complete, and 

systematic records documenting its 

compliance with this regulation. 

Issued in Washington, DC, on July 19, 

2011, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Clearing Member Risk 

Management—Commission Voting 

Summary and Statements of 

Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn and Chilton voted in 

the affirmative; Commissioners O’Malia and 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rulemaking for 

enhanced risk management for clearing 

members. One of the primary goals of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act was to reduce the 

risk that swaps pose to the economy. The 

proposed rule would require clearing 

members, including swap dealers, major 

swap participants and futures commission 

merchants to establish risk-based limits on 

their house and customer accounts. The 

proposed rule also would require clearing 

members to establish procedures to, amongst 

other provisions, evaluate their ability to 

meet margin requirements, as well as 

liquidate positions as needed. These risk 

filters and procedures would help secure the 

financial integrity of the markets and the 

clearing system and protect customer funds. 

[FR Doc. 2011–19362 Filed 7–29–11; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 23, and 39 

RIN 3038–AD51 

Customer Clearing Documentation and 

Timing of Acceptance for Clearing 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing rules to implement 

new statutory provisions enacted by 

Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act. 

These proposed rules address: The 

documentation between a customer and 

a futures commission merchant that 

clears on behalf of the customer, and the 

timing of acceptance or rejection of 

trades for clearing by derivatives 

clearing organizations and clearing 

members. 

DATES: Submit comments on or before 

September 30, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD51, 

by any of the following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Courier: Same as mail above. 

Please submit your comments using 

only one method. RIN number, 3038– 

AD51, must be in the subject field of 

responses submitted via e-mail, and 

clearly indicated on written 

submissions. All comments must be 

submitted in English, or if not, 

accompanied by an English translation. 

Comments will be posted as received to 

http://www.cftc.gov. You should submit 

only information that you wish to make 

available publicly. If you wish the CFTC 

to consider information that you believe 

is exempt from disclosure under the 

Freedom of Information Act, a petition 

for confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the CFTC’s regulations.1

The CFTC reserves the right, but shall 

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

any or all of your submission from 

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

be inappropriate for publication, such as 

obscene language. All submissions that 

have been redacted or removed that 

contain comments on the merits of this 

action will be retained in the public 

comment file and will be considered as 

required under the Administrative 

Procedure Act and other applicable 

laws, and may be accessible under the 

Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: John 

C. Lawton, Deputy Director and Chief 

Counsel, 202–418–5480, 

jlawton@cftc.gov, or Christopher A. 

Hower, Attorney-Advisor, 202–418– 

6703, chower@cftc.gov, Division of 

Clearing and Intermediary Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

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

Dodd-Frank Act amended the 

Commodity Exchange Act (CEA or Act) 3

to establish a comprehensive new 

regulatory framework for swaps. The 

legislation was enacted to reduce risk, 

increase transparency, and promote 

market integrity within the financial 

system by, among other things: (1) 

Providing for the registration and 

comprehensive regulation of swap 

dealers and major swap participants; (2) 

imposing clearing and trade execution 

requirements on standardized derivative 

products; (3) creating rigorous 

recordkeeping and real-time reporting 


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Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / Proposed Rules 45731 

4See, e.g., 76 FR 3698 (Jan. 20, 2011) (Risk 

Management Requirements for Derivatives Clearing 

Organizations). 

5 75 FR 70152 (Nov. 17, 2010) (Implementation of 

Conflicts of Interest Policies and Procedures by 

Futures Commission Merchants and Introducing 

Brokers); 75 FR 71391 (Nov. 23, 2010) 

(Implementation of Conflicts of Interest Policies and 

Procedures by Swap Dealers and Major Swap 

Participants). 

6 75 FR 91397 (Nov. 23, 2010) (Regulations 

Establishing Duties of Swap Dealers and Major 

Swap Participants). 

7 76 FR 3698 (Jan. 20, 2011) (Risk Management 

Requirements for Derivatives Clearing 

Organizations); 76 FR 13101 (March 10, 2011) 

(Requirements for Processing, Clearing, and 

Transfer of Customer Positions). 

8See press release, ‘‘FIA and ISDA Publish 

Documentation for Cleared Swaps’’ (June 16, 2011) 

at http://www.futuresindustry.org. 

9 Id. 

10 Id. 

11 Id. 

12See, e.g., letter dated April 11, 2011 from Stuart 

J. Kaswell, Executive Vice President, Managing 

Director, and General Counsel, Managed Funds 

Association; letter dated April 19, 2011 from James 

Cawley, Swaps & Derivatives Market Association. 

These letters can be found in the Commission’s 

comment file for 76 FR 13101. 

13See Kaswell letter at 9. 

14 Id. at 10. 

regimes; and (4) enhancing the 

Commission’s rulemaking and 

enforcement authorities with respect to, 

among others, all registered entities and 

intermediaries subject to the 

Commission’s oversight. Title VII also 

includes amendments to the federal 

securities laws to establish a similar 

regulatory framework for security-based 

swaps under the authority of the 

Securities and Exchange Commission 

(SEC). 

II. Proposed Regulations 

A. Introduction 

A fundamental premise of the DoddFrank Act is that the use of properly 

regulated central clearing can reduce 

systemic risk. Another tenet of the 

Dodd-Frank Act is that open access to 

clearing by market participants will 

increase market transparency and 

promote market efficiency by enabling 

market participants to reduce 

counterparty risk and by facilitating 

offset of open positions. The 

Commission has proposed extensive 

regulations addressing open access at 

the derivatives clearing organization 

(DCO) level.4

Clearing members provide the portals 

through which market participants gain 

access to DCOs as well as the first line 

of risk management. Accordingly, the 

Commission is proposing regulations to 

facilitate customer access to clearing 

and to bolster risk management through 

timely processing. The proposals 

address: (i) The documentation between 

a customer and a futures commission 

merchant (FCM) that clears on behalf of 

the customer; and (ii) the timing of 

acceptance or rejection of trades for 

clearing by DCOs and clearing members. 

B. Customer Clearing Documentation 

Section 4d(c) of the CEA, as amended 

by the Dodd-Frank Act, directs the 

Commission to require FCMs to 

implement conflict of interest 

procedures that address such issues the 

Commission determines to be 

appropriate. Similarly, section 4s(j)(5), 

as added by the Dodd-Frank Act, 

requires SDs and MSPs to implement 

conflict of interest procedures that 

address such issues the Commission 

determines to be appropriate. Section 

4s(j)(5) also requires SDs and MSPs to 

ensure that any persons providing 

clearing activities or making 

determinations as to accepting clearing 

customers are separated by appropriate 

informational partitions from persons 

whose involvement in pricing, trading, 

or clearing activities might bias their 

judgment or contravene the core 

principle of open access. 

Pursuant to these provisions, the 

Commission has proposed § 1.71(d)(1) 

relating to FCMs and § 23.605(d)(1) 

relating to SDs and MSPs.5 These 

regulations would prohibit SDs and 

MSPs from interfering or attempting to 

influence the decisions of affiliated 

FCMs with regard to the provision of 

clearing services and activities and 

would prohibit FCMs from permitting 

them to do so. 

Section 4s(j)(6) of the CEA prohibits 

an SD or MSP from adopting any 

process or taking any action that results 

in any unreasonable restraint on trade or 

imposes any material anticompetitive 

burden on trading or clearing, unless 

necessary or appropriate to achieve the 

purposes of the Act. The Commission 

has proposed § 23.607 to implement this 

provision.6

Section 2(h)(1)(B)(ii) of the CEA 

requires that DCO rules provide for the 

non-discriminatory clearing of swaps 

executed bilaterally or through an 

unaffiliated designated contract market 

(DCM) or swap execution facility (SEF). 

The Commission has proposed 

§ 39.12(b)(2) to implement this 

provision.7

On June 16, 2011, the Futures 

Industry Association (FIA) and the 

International Swap and Derivatives 

Association (ISDA), published an FIA– 

ISDA Cleared Derivatives Execution 

Agreement (Agreement) as a template 

for use by swap market participants in 

negotiating execution-related 

agreements with counterparties to 

swaps that are intended to be cleared.8

The Agreement was developed with the 

assistance of a committee comprised of 

representatives of certain FIA and ISDA 

member firms which included both 

swap dealers and buy-side firms. More 

than 60 organizations provided input 

during the development of the 

document.9

FIA and ISDA emphasized that the 

use of the agreement is voluntary and 

may not be necessary and appropriate 

under all circumstances.10 FIA and 

ISDA recognized that many of the 

provisions in the Agreement will be 

superseded by new regulatory 

requirements and the rules of swap 

execution venues and clearing 

organizations.11

The Agreement includes optional 

annexes that make the clearing member 

to one or both of the executing parties 

a party to the Agreement (the Tri-party 

annexes). Some of the participants in 

the process, as well as some market 

participants that were not included, 

have expressed concern to the 

Commission that aspects of the Tri-party 

annexes may be inconsistent with 

certain principles of the Dodd-Frank 

Act.12

Specifically, concerns arise in 

connection with certain provisions that 

would permit a customer’s FCM, in 

consultation with the SD, to establish 

specific credit limits for the customer’s 

swap transactions with the SD, and to 

declare that with regard to trades with 

that SD, the FCM will only accept for 

clearing those transactions that fall 

within these specific limits.13 The limits 

set for trades with the SD might be less 

than the overall limits set for the 

customer for all trades cleared through 

the FCM. The result would be to create 

a ‘‘sublimit’’ for the customer for trades 

with that SD. Some market participants 

have stated that the setting of such 

‘‘sublimits’’ would result in restrictions 

of customer counterparties because, 

without such ‘‘sublimits,’’ the customer 

may enter into transactions with 

whomever it chooses, up to its overall 

limit with the FCM.14

Generally, in cleared markets, an FCM 

does not know the identity of its 

customer’s executing counterparty. 

Another effect of such sublimits would 

be to disclose the identity of the 

customer’s counterparty to the FCM. In 

many instances, the FCM and the 

customer’s counterparty—the SD— 

might be affiliated entities. Some market 

participants have stated that such 

disclosure may lead to ‘‘greater 

information exchange’’ between the 

FCM and the affiliated SD, which would 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
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15 Id. 

16The Commission previously proposed § 155.7, 

an execution standard that would apply to swaps 

available for trading on a DCM or SEF to ensure fair 

dealing and protect against fraud and other abusive 

practices. 75 FR 80638, 80648 (Dec. 22, 2010). The 

proposed rule would require Commission 

registrants to execute swaps available for trading on 

a DCM or SEF on terms that have a reasonable 

relationship to the best terms available. 

17 76 FR 13101 (March 10, 2011) (Requirements 

for Processing, Clearing, and Transfer of Customer 

Positions). 

18The Commission continues to review 

comments on other aspects of the March 10 

proposal and they will be addressed separately. 

19See letter from Robert Pickel, Executive Vice 

Chairman, International Swaps and Derivatives 

Association, dated April 8, 2011. 

20See letter from Craig S. Donohue, Chief 

Executive Officer, CME Group, dated April 11, 

2011; letter from R. Trabue Bland, Vice President 

and Assistant General Counsel, ICE, dated April 11, 

2011; letter from Iona J. Levine, Group General 

Counsel and Managing Director, LCH.Clearnet, 

dated April 11, 2011; letter from William H. Navin, 

Executive Vice President and General Counsel, 

Options Clearing Corporation, dated April 11, 2011; 

letter from John M. Damgard, President, Futures 

Industry Association, dated April 14, 2011. 

‘‘force the customer to execute with the 

clearing member’s trading desk 

affiliate.’’ 15 A third effect of such 

sublimits could be to delay acceptance 

of the trades into clearing while the 

FCM verifies compliance with the 

sublimits. 

Arrangements with these effects 

potentially conflict with the concepts of 

open access to clearing and execution of 

customer transactions on a DCM or SEF 

on terms that have a reasonable 

relationship to the best terms available. 

More specifically, they potentially 

conflict with proposed §§ 1.71(d)(1), 

23.605(d)(1), 23.608, and 39.12. As 

certain market participants have stated, 

tri-party agreements of the type 

described above could lead to undue 

influence by FCMs on a customer’s 

choice of counterparties (or, conversely, 

undue influence by SDs on a customer’s 

choice of clearing member). Therefore, 

they could constrain a customer’s 

opportunity to obtain execution of the 

trade on the terms that have a 

reasonable relationship to the best terms 

available by limiting the number of 

potential counterparties.16

To address these concerns and to 

provide further clarity in this area, the 

Commission is now proposing § 1.72 

relating to FCMs, § 23.608 relating to 

SDs and MSPs, and § 39.12(a)(1)(vi) 

relating to DCOs. These new regulations 

would prohibit arrangements involving 

FCMs, SDs, MSPs, or DCOs that would 

(a) disclose to an FCM, SD, or MSP the 

identity of a customer’s original 

executing counterparty; (b) limit the 

number of counterparties with whom a 

customer may enter into a trade; (c) 

restrict the size of the position a 

customer may take with any individual 

counterparty, apart from an overall 

credit limit for all positions held by the 

customer at the FCM; (d) impair a 

customer’s access to execution of a trade 

on terms that have a reasonable 

relationship to the best terms available; 

or (e) prevent compliance with specified 

time frames for acceptance of trades into 

clearing. 

The Commission believes that 

implementation of the proposal would 

reduce risk and foster open access to 

clearing, as well as execution of 

customer trades on terms that have a 

reasonable relationship to the best terms 

available. Restrictions of the sort 

prohibited by the proposed rules could 

increase risk by delaying or blocking 

access to clearing. They could increase 

costs and reduce market efficiency by 

limiting the number of counterparties 

available for trading. They could restrict 

access to clearing by limiting the 

potential clearing members with which 

a customer could deal. 

The Commission is not proposing to 

dictate here what happens to a trade 

that is rejected for clearing by an FCM 

or a DCO. Three outcomes are possible: 

(i) The parties could try to clear the 

trade through another DCO or FCM; (ii) 

the trade could revert to a bilateral 

transaction; or (iii) the parties could 

break the trade. The parties should agree 

in advance, subject to applicable law, 

which alternative will apply and how to 

measure and apportion any resulting 

losses. The Commission believes that 

the proposals herein will decrease the 

likelihood that trades will be rejected 

and diminish the potential for loss in 

cases where rejection does occur. 

The Commission requests comment 

on whether the proposals will achieve 

the intended goals and on the costs and 

benefits of the proposed means of 

achieving those goals. In particular, the 

Commission requests comment on: 

• Whether the proposal would 

increase open access to clearing and 

execution of customer transactions on a 

DCM or SEF on terms that have a 

reasonable relationship to the best terms 

available; 

• Whether the proposal could 

decrease open access to clearing in any 

way; and 

• Whether the proposals would 

increase risk to DCOs, FCMs, SDs, or 

MSPs in any way. 

C. Time Frames for Acceptance Into 

Clearing 

As noted above, a goal of the DoddFrank Act is to reduce risk by increasing 

the use of central clearing. Minimizing 

the time between trade execution and 

acceptance into clearing is an important 

risk mitigant. The Commission recently 

proposed § 39.12(b)(7) regarding time 

frames for clearing.17 Upon review of 

the comments received, the Commission 

is now proposing a revised version of 

that provision.18

As previously proposed, 

§ 39.12(b)(7)(i) required DCOs to 

coordinate with designated contract 

markets (DCMs) and swap execution 

facilities (SEFs) to facilitate prompt and 

efficient processing of trades. In 

response to a comment, the Commission 

now proposes to require prompt, 

efficient, and accurate processing of 

trades.19

Recognizing the key role clearing 

members play in trade processing and 

submission of trades to central clearing, 

the Commission is also now proposing 

parallel provisions for coordination 

among DCOs and clearing members. 

Proposed § 39.12(b)(7)(i)(B) would 

require DCOs to coordinate with 

clearing members to establish systems 

for prompt processing of trades. 

Proposed §§ 1.74(a) and 23.610(a) would 

require reciprocal coordination with 

DCOs by FCMs, SDs, and MSPs that are 

clearing members. 

As previously proposed, 

§ 39.12(b)(7)(ii) required DCOs to accept 

immediately upon execution all 

transactions executed on a DCM or SEF. 

A number of DCOs and other 

commenters expressed concern that this 

requirement could expose DCOs to 

unwarranted risk because DCOs need to 

be able to screen trades for compliance 

with applicable clearinghouse rules 

related to product and credit filters.20

The Commission recognizes that while 

immediate acceptance for clearing upon 

execution currently occurs in some 

futures markets, it might not be feasible 

for all cleared markets at this time. For 

example, where the same cleared 

product is traded on multiple execution 

venues, a DCO needs to be able to 

aggregate the risk of trades coming in to 

ensure that a clearing member or 

customer has not exceeded its credit 

limits. Accordingly, the Commission is 

proposing to modify § 39.12(b)(7)(ii) to 

permit DCOs to screen trades against 

applicable product and credit criteria 

before accepting or rejecting them. 

Consistent with principles of open 

access, the proposal would require that 

such criteria be non-discriminatory with 

respect to trading venues and clearing 

participants. 

The Commission continues to believe 

that acceptance or rejection for clearing 

in close to real time is crucial both for 

effective risk management and for the 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / Proposed Rules 45733 

21See letter from James Cawley, Swaps and 

Derivatives Market Association, dated April 19, 

2011. 

22The Commission notes that processing times 

may vary by market or product. 

23 5 U.S.C. 601 et seq. 

24 47 FR 18618, Apr. 30, 1982. 

25 Id. at 18619. 

26 Id. 

27See 66 FR 45605, 45609, Aug. 29, 2001. 

28 Id. at 18620. 

29 44 U.S.C. 3501 et seq. 

efficient operation of trading venues.21

Rather than prescribe a specific length 

of time, the Commission is proposing as 

a standard that action be taken ‘‘as 

quickly as would be technologically 

practicable if fully automated systems 

were used.’’ The Commission 

anticipates that this standard would 

require action in a matter of 

milliseconds or seconds or, at most, a 

few minutes, not hours or days.22

This is intended to be a performance 

standard, not the prescription of a 

particular method of trade processing. 

The Commission expects that fully 

automated systems will be in place at 

some DCOs, FCMs, SDs, and MSPs. 

Others might have systems with some 

manual steps. This would be permitted 

so long as the process could operate 

within the same time frame as the 

automated systems. 

The Commission recognizes that some 

trades on a DCM or SEF are executed 

non-competitively. Examples include 

block trades and exchanges of futures 

for physicals (EFPs). A DCO may not be 

notified immediately upon execution of 

these trades. Accordingly, as discussed 

below, they will be treated in the same 

manner as trades that are not executed 

on a DCM or SEF. 

As previously proposed, 

§§ 39.12(b)(7)(iii) and 39.12(b)(7)(iv) 

distinguished between swaps subject to 

mandatory clearing and swaps not 

subject to mandatory clearing. Upon 

review of the comments, the 

Commission believes that this 

distinction is unnecessary with regard 

to processing time frames. If a DCO lists 

a product for clearing, it should be able 

to process it regardless of whether 

clearing is mandatory or voluntary. 

Therefore, newly proposed 

§ 39.12(b)(7)(iii) would cover all trades 

not executed on a DCM or SEF. It would 

require acceptance or rejection by the 

DCO as quickly after submission as 

would be technologically practicable if 

fully automated systems were used. 

Proposed § 1.74(b) would set up a 

parallel requirement for clearing FCMs; 

proposed § 23.610(b) would set up a 

parallel requirement for SDs and MSPs 

that are clearing members. These rules, 

again, would apply a performance 

standard, not a prescribed method for 

achieving it. 

The Commission notes that from both 

a timing perspective and a risk 

perspective, the most efficient method 

would be to screen all orders using 

predetermined criteria established by 

the rules of the DCO and the provisions 

of the clearing documentation between 

the customer and its clearing member. 

In such a case all trades would be 

accepted for clearing upon execution 

because the clearing member and DCO 

would have already applied their credit 

and product filters. 

A less efficient means would be for 

the clearing member to authorize the 

DCO to screen trades on its behalf and 

to accept or reject according to criteria 

set by the clearing member. The least 

efficient would be for the DCO to send 

a message to the clearing member for 

each trade requesting acceptance or 

rejection. 

The Commission requests comment 

on the costs and benefits of the 

proposal. In particular, the Commission 

requests comment on whether the 

performance standard is appropriate 

and workable. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires that agencies consider whether 

the regulations they propose will have 

a significant economic impact on a 

substantial number of small entities.23

The Commission previously has 

established certain definitions of ‘‘small 

entities’’ to be used in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA.24

The proposed regulations would affect 

FCMs, DCOs, SDs, and MSPs. 

The Commission previously has 

determined, however, that FCMs should 

not be considered to be small entities for 

purposes of the RFA.25 The 

Commission’s determination was based, 

in part, upon the obligation of FCMs to 

meet the minimum financial 

requirements established by the 

Commission to enhance the protection 

of customers’ segregated funds and 

protect the financial condition of FCMs 

generally.26 The Commission also has 

previously determined that DCOs are 

not small entities for the purpose of the 

RFA.27

SDs and MSPs are new categories of 

registrants. Accordingly, the 

Commission has not previously 

addressed the question of whether such 

persons are, in fact, small entities for 

purposes of the RFA. Like FCMs, SDs 

will be subject to minimum capital and 

margin requirements and are expected 

to comprise the largest global financial 

firms. The Commission is required to 

exempt from SD registration any entities 

that engage in a de minimis level of 

swap dealing in connection with 

transactions with or on behalf of 

customers. The Commission anticipates 

that this exemption would tend to 

exclude small entities from registration. 

Accordingly, for purposes of the RFA 

for this rulemaking, the Commission is 

hereby proposing that SDs not be 

considered ‘‘small entities’’ for 

essentially the same reasons that FCMs 

have previously been determined not to 

be small entities and in light of the 

exemption from the definition of SD for 

those engaging in a de minimis level of 

swap dealing. 

The Commission also has previously 

determined that large traders are not 

‘‘small entities’’ for RFA purposes.28 In 

that determination, the Commission 

considered that a large trading position 

was indicative of the size of the 

business. MSPs, by statutory definition, 

maintain substantial positions in swaps 

or maintain outstanding swap positions 

that create substantial counterparty 

exposure that could have serious 

adverse effects on the financial stability 

of the United States banking system or 

financial markets. Accordingly, for 

purposes of the RFA for this 

rulemaking, the Commission is hereby 

proposing that MSPs not be considered 

‘‘small entities’’ for essentially the same 

reasons that large traders have 

previously been determined not to be 

small entities. 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies 

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

proposed regulations will not have a 

significant economic impact on a 

substantial number of small entities. 

The Commission invites the public to 

comment on whether SDs and MSPs 

should be considered small entities for 

purposes of the RFA. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(PRA) 29 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. 

This proposed rulemaking would result 

in new collection of information 

requirements within the meaning of the 

PRA. The Commission therefore is 

submitting this proposal to the Office of 

Management and Budget (OMB) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. The title for 

this collection of information is 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
45734 Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / Proposed Rules 

30http://www.bls.gov/oes/current/oes113031.htm. 

‘‘Customer Clearing Documentation and 

Timing of Acceptance for Clearing.’’ An 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number. The OMB has not yet assigned 

this collection a control number. 

The collection of information under 

these proposed regulations is necessary 

to implement certain provisions of the 

CEA, as amended by the Dodd-Frank 

Act. Specifically, it is essential to 

reducing risk and fostering open access 

to clearing and execution of customer 

transactions on a DCM or SEF on terms 

that have a reasonable relationship to 

the best terms available by prohibiting 

restrictions in customer clearing 

documentation of SDs, MSPs, FCMs, or 

DCOs that could delay or block access 

to clearing, increase costs, and reduce 

market efficiency by limiting the 

number of counterparties available for 

trading. The proposed regulations are 

also crucial both for effective risk 

management and for the efficient 

operation of trading venues among SDs, 

MSPs, FCMs, and DCOs. 

If the proposed regulations are 

adopted, responses to this collection of 

information would be mandatory. The 

Commission will protect proprietary 

information according to the Freedom of 

Information Act and 17 CFR part 145, 

‘‘Commission Records and 

Information.’’ In addition, section 

8(a)(1) of the CEA strictly prohibits the 

Commission, unless specifically 

authorized by the CEA, from making 

public ‘‘data and information that 

would separately disclose the business 

transactions or market positions of any 

person and trade secrets or names of 

customers.’’ The Commission is also 

required to protect certain information 

contained in a government system of 

records according to the Privacy Act of 

1974, 5 U.S.C. 552a. 

1. Information Provided by Reporting 

Entities/Persons 

SDs, MSPs, FCMs, and DCOs would 

be required to develop and maintain 

written customer clearing 

documentation in compliance with 

proposed regulations 1.72, 23.608, and 

39.12. Proposed regulation 

39.12(b)(7)(i)(B) would require DCOs to 

coordinate with clearing members to 

establish systems for prompt processing 

of trades. Proposed regulations 1.74(a) 

and 23.610(a) require reciprocal 

coordination with DCOs by FCMs, SDs, 

and MSPs that are clearing members. 

The annual burden associated with 

these proposed regulations is estimated 

to be 16 hours, at an annual cost of 

$1,600 for each FCM, SD, and MSP. 

Burden means the total time, effort, or 

financial resources expended by persons 

to generate, maintain, retain, disclose, or 

provide information to or for a federal 

agency. The Commission has 

characterized the annual costs as initial 

costs because the Commission 

anticipates that the cost burdens will be 

reduced dramatically over time as the 

documentation and procedures required 

by the proposed regulations become 

increasingly standardized within the 

industry. 

Proposed §§ 1.72 and 23.608 would 

require each FCM, SD, and MSP to 

ensure compliance with the proposed 

regulations. Maintenance of contracts is 

prudent business practice and the 

Commission anticipates that SDs and 

MSPs already maintain some form of 

this documentation. Additionally, the 

Commission believes that much of the 

existing customer clearing 

documentation already complies with 

the proposed rules, and therefore that 

compliance will require a minimal 

burden. 

In addition to the above, the 

Commission anticipates that FCMs, SDs, 

and MSPs will spend an average of 16 

hours per year drafting and, as needed, 

updating customer clearing 

documentation to ensure compliance 

required by proposed §§ 1.72 and 

23.608. 

For each DCO, the annual burden 

associated with these proposed 

regulations is estimated to be 40 hours, 

at an annual cost of $4,000. Burden 

means the total time, effort, or financial 

resources expended by persons to 

generate, maintain, retain, disclose, or 

provide information to or for a federal 

agency. The Commission has 

characterized the annual costs as initial 

costs as the Commission anticipates that 

the cost burdens will be reduced 

dramatically over time as once the 

documentation and procedures required 

by the proposed regulations are 

implemented, any additional 

expenditure related to § 39.12 likely 

would be limited to the time required to 

review and, as needed, amend, existing 

documentation and procedures. 

Proposed 39.12(b)(7) would require 

each DCO to coordinate with clearing 

members to establish systems for 

prompt processing of trades. The 

Commission believes that this is 

currently a practice of DCOs. 

Accordingly, any additional 

expenditure related to § 39.12(b)(7) 

likely would be limited to the time 

initially required to review and, as 

needed, amend, existing trade 

processing procedures to ensure that 

they conform to all of the required 

elements and to coordinate with FCMs, 

SDs, and MSPs to establish reciprocal 

procedures. 

The Commission anticipates that 

DCOs will spend an average of 20 hours 

per year drafting and, as needed, 

updating the written policies and 

procedures to ensure compliance 

required by proposed § 39.12, and 20 

hours per year coordinating with FCMs, 

SDs, and MSPs on reciprocal 

procedures. 

The hour burden calculations below 

are based upon a number of variables 

such as the number of FCMs, SDs, 

MSPs, and DCOs in the marketplace and 

the average hourly wage of the 

employees of these registrants that 

would be responsible for satisfying the 

obligations established by the proposed 

regulation. 

There are currently 134 FCMs and 14 

DCOs based on industry data. SDs and 

MSPs are new categories of registrants. 

Accordingly, it is not currently known 

how many SD and MSPs will become 

subject to these rules, and this will not 

be known to the Commission until the 

registration requirements for these 

entities become effective after July 16, 

2011, the date on which the Dodd-Frank 

Act becomes effective. While the 

Commission believes there will be 

approximately 200 SD and 50 MSPs, it 

has taken a conservative approach, for 

PRA purposes, in estimating that there 

will be a combined number of 300 SDs 

and MSPs who will be required to 

comply with the recordkeeping 

requirements of the proposed rules. The 

Commission estimated the number of 

affected entities based on industry data. 

According to recent Bureau of Labor 

Statistics, the mean hourly wage of an 

employee under occupation code 11– 

3031, ‘‘Financial Managers,’’ (which 

includes operations managers) that is 

employed by the ‘‘Securities and 

Commodity Contracts Intermediation 

and Brokerage’’ industry is $74.41.30

Because SDs, MSPs, FCMs, and DCOs 

include large financial institutions 

whose operations management 

employees’ salaries may exceed the 

mean wage, the Commission has 

estimated the cost burden of these 

proposed regulations based upon an 

average salary of $100 per hour. 

Accordingly, the estimated hour 

burden was calculated as follows: 

Developing Written Procedures for 

Compliance, and Maintaining Records 

Documenting Compliance for SDs and 

MSPs. This hourly burden arises from 

the proposed requirement that SDs and 

MSPs make and maintain records 

documenting compliance related to 

client clearing documentation. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
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Number of registrants: 300. 

Frequency of collection: as needed. 

Estimated number of annual 

responses per registrant: 1. 

Estimated aggregate number of 

annual responses: 300. 

Estimated annual hour burden per 

registrant: 16 hours. 

Estimated aggregate annual hour 

burden: 4,800 burden hours [300 

registrants × 16 hours per registrant]. 

Developing Written Procedures for 

Compliance, and Maintaining Records 

Documenting Compliance for FCMs. 

This hourly burden arises from the 

proposed requirement that FCMs make 

and maintain records documenting 

compliance related to client clearing 

documentation. 

Number of registrants: 134. 

Frequency of collection: as needed. 

Estimated number of annual 

responses per registrant: 1. 

Estimated aggregate number of 

annual responses: 134. 

Estimated annual hour burden per 

registrant: 16 hours. 

Estimated aggregate annual hour 

burden: 2,144 burden hours [134 

registrants × 16 hours per registrant]. 

Drafting and Updating Trade 

Processing Procedures for DCOs. This 

hour burden arises from the time 

necessary to develop and periodically 

update the trade processing procedures 

required by the proposed regulations. 

Number of registrants: 14. 

Frequency of collection: Initial 

drafting, updating as needed. 

Estimated number of annual 

responses per registrant: 1. 

Estimated aggregate number of 

annual responses: 14. 

Estimated annual hour burden per 

registrant: 40 hours. 

Estimated aggregate annual hour 

burden: 560 burden hours [14 

registrants × 40 hours per registrant]. 

Based upon the above, the aggregate 

hour burden cost for all registrants is 

7,504 burden hours and $750,400 [7,504 

× $100 per hour]. 

2. Information Collection Comments 

The Commission invites the public 

and other federal agencies to comment 

on any aspect of the recordkeeping 

burdens discussed above. Pursuant to 44 

U.S.C. 3506(c)(2)(B), the Commission 

solicits comments in order to: (i) 

Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (iii) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (iv) minimize the 

burden of the collection of information 

on those who are to respond, including 

through the use of automated collection 

techniques or other forms of information 

technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that all 

comments can be summarized and 

addressed in the final rule preamble. 

Refer to the Addresses section of this 

notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this document in the 

Federal Register. Therefore, a comment 

is best assured of having its full effect 

if OMB receives it within 30 days of 

publication. 

C. Consideration of Costs and Benefits 

Under Section 15(a) of the CEA 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its action before 

promulgating a regulation under the 

CEA. Section 15(a) of the CEA specifies 

that costs and benefits shall be 

evaluated in light of five broad areas of 

market and public concern: (1) 

Protection of market participants and 

the public; (2) efficiency, 

competitiveness, and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Commission may in 

its discretion give greater weight to any 

one of the five enumerated areas and 

could in its discretion determine that, 

notwithstanding its costs, a particular 

order is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

CEA. 

The proposed rules have two major 

components: (i) The documentation 

between a customer and a futures 

commission merchant that clears on 

behalf of the customer; and (ii) the 

timing of acceptance or rejection of 

trades for clearing by derivatives 

clearing organizations and clearing 

members. The discussion below will 

consider each component in light of the 

section 15(a) concerns. 

A. Documentation Between a Customer 

and Futures Commission Merchant That 

Clears on Behalf of the Customer 

The Commission is proposing 

regulations that would prohibit 

arrangements involving FCMs, SDs, 

MSPs, or DCOs that would (a) disclose 

to an FCM, SD, or MSP the identity of 

a customer’s counterparty; (b) limit the 

number of counterparties with whom a 

customer may enter into swaps; (c) 

restrict the size of the position a 

customer may take with any individual 

counterparty, apart from an overall limit 

for all positions held by the customer at 

the FCM; (d) impair a customer’s access 

to execution of trades on a DCM or SEF 

on terms that have a reasonable 

relationship to the best terms available; 

or (e) prevent compliance with specified 

time frames for acceptance of trades into 

clearing. 

1. Protection of Market Participants and 

the Public 

This measure protects the customer 

from any discriminatory behavior by 

potential clearing members or 

counterparties and helps ensure that 

customers have open access to the 

markets and an opportunity to obtain 

execution on competitive terms. The 

proposal would also promote financial 

integrity by removing potential 

obstacles such as more documentation 

requirements imposed by dealers or 

unnecessary restrictions on trading by a 

third-party, and by accelerating the 

timeframe for acceptance or rejection of 

a trade for clearing thereby reducing risk 

of delay or uncertainty as to whether a 

swap will be accepted or rejected for 

clearing. For example, by contrast, 

under a tri-party agreement, an FCM 

might have to evaluate each customer 

transaction not only against the 

customer’s overall credit limit but also 

against a sub-limit for each counterparty 

which can delay acceptance. 

As far as costs are concerned, the 

possibility of ‘‘breakage’’ remains for 

SDs and other counterparties. However, 

this concern is mitigated by the 

timelines required in the second section 

of this rule, which reduce the likelihood 

that a SD would have time to enter into 

other transactions before the one in 

view is accepted or rejected for clearing. 

Similarly, if a SD has to enter into a 

replacement trade, the costs will be 

mitigated by the tight timeline, because 

the SD would know quickly whether the 

trade was accepted or rejected for 

clearing. As noted above, the process of 

evaluating individual transactions 

against counterparty sub-limits could 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
45736 Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / Proposed Rules 

delay notification of acceptance or 

rejection for clearing. In the absence of 

this rule, the cost to trade will have to 

account for these factors and additional 

market risk during that time. 

2. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

This rule helps prevent the 

disclosure, to the FCM, of the identity 

of the counterparty of its customer. 

Such lack of disclosure promotes 

integrity in the market by ensuring that 

all participants who meet certain 

qualifying criteria for trading have open 

access to all available counterparties 

because intermediaries will be unable to 

set sub-limits by counterparty. 

Moreover, in the absence of this rule, 

tri-party agreements or other similar 

arrangements among FCMs, SDs or 

MSPs and customers could result in 

matching processes that have the 

potential to be time intensive. 

Preventing these agreements will 

promote faster matching which may 

increase liquidity through lower 

transaction costs. 

This rule also prevents customers 

from being penalized (or having 

distorted commercial incentives) in 

their choice of FCM due to previous 

transactions with a given FCM or SD. As 

a consequence, this rule also has the 

potential to promote competition among 

FCMs to deliver services efficiently. 

Lastly, this rule would reduce 

duplicative risk management because 

DCOs and their members already have 

access to information necessary to 

perform credit analysis on individual 

customers and counterparties. SDs 

would be unnecessarily duplicating 

work that has already been done. 

3. Price Discovery 

By not forcing a customer to transact 

with counterparties who may be offering 

less attractive terms, this rule may 

improve pricing. In addition, adhering 

to time frames specified for acceptance 

of trades into clearing helps to prevent 

stale prices. 

4. Sound Risk Management Practices 

The rule does not affect the risk 

management structure of FCMs. 

Moreover, by preventing customers from 

learning their counterparty’s identity, 

the responsibility for risk management 

remains clear. The FCM must be 

responsible for evaluating each 

customer’s credit risk. It cannot rely on 

a counterparty to conduct due diligence. 

Moreover, preserving anonymity in the 

market increases the number of 

available counterparties, which leads to 

a more liquid market, thereby reducing 

risk. 

As mentioned before, to the extent 

that the SD experiences ‘‘breakage,’’ it 

exposes a SD to counterparty risk which 

is a potential cost. However, by 

facilitating quicker acceptance or 

rejection into clearing, the proposal 

would mitigate such costs by 

compressing the time within which the 

counterparty exposure would exist. 

B. Timing of Acceptance or Rejection of 

Trades for Clearing by Derivatives 

Clearing Organizations and Clearing 

Members 

The Commission is proposing 

regulations that would require prompt, 

efficient, and accurate processing of 

trades, and require DCOs to coordinate 

with clearing members to establish 

systems for prompt processing of trades. 

1. Protection of Market Participants 

Rapid processing protects market 

participants from acting on bad 

information by making additional trades 

under the presumption that an initial 

trade has gone through if that trade may, 

in fact, not clear. As mentioned, 

compressing the time for acceptance or 

rejection for clearing also reduces the 

time within exposures can accumulate if 

a trade is rejected. 

As far as costs are concerned, 

coordination among the DCOs, FCMs, 

SDs and MSPs in order to design and 

implement a system to clear 

transactions ‘‘as quickly as would be 

technologically practicable if fully 

automated systems were used’’ will 

likely require capital investment and 

personnel hours in some instances. The 

Commission believes, however, that 

DCOs and clearing members may 

already be using procedures that comply 

with the standard. To the extent that 

participants do not currently have 

automated systems, they made need to 

install or upgrade existing systems to 

comply. 

2. Efficiency, Competitiveness, and 

Financial Integrity of Futures Markets 

Rapid clearing helps ensure that 

eligible counterparties will not be tied 

up in transactions that do not clear. 

They will be available to other eligible 

customers. This increases both 

competitiveness and efficiency of the 

market. In addition, extensive 

coordination among the DCOs, FCMs, 

SDs, and MSPs has the potential to 

standardize processes and technologies 

to support this rule. That reduces 

switching costs for customers and 

increases competitiveness. 

Costs will be incurred in developing 

systems and procedures for those 

products and participants where the 

proposed standards are not currently 

being met. The Commission anticipates, 

however, that eventually such costs 

would be compensated for by increased 

efficiency and market integrity. The 

Commission does not know at this time, 

and requests comment on, how many 

parties will need to upgrade their 

systems, if any. Additionally, the 

Commission requests comment from the 

public as to what the costs might be to 

upgrade existing systems or install new 

systems to comply with the proposed 

regulation. 

3. Price Discovery 

Requiring rapid clearing encourages 

screening for credit worthiness of 

customers. That helps ensure that only 

bids and offers of qualified parties are 

contained in the limit order book which 

helps protect its informational value. 

Moreover, pricing feedback from cleared 

transactions will reach the market more 

quickly. 

4. Sound Risk Management Practices 

Timely clearing allows each party to 

the transaction to act more quickly if 

they need to implement a hedge or other 

transactions related to the swap. This 

reduces the risk associated with 

potential adverse movements of the 

market while waiting for clearing to 

occur. However, if some of the processes 

are manual, the mandate for greater 

speed increases the possibility of errors. 

5. Other Public Interest Considerations 

Rapid clearing makes U.S. based 

DCOs, FCMs, SDs, and MSPs more 

attractive as service providers for global 

swap business. Furthermore, the 

proposal would facilitate achievement 

of the overarching Dodd-Frank Act 

mandate to promote clearing. 

List of Subjects 

17 CFR Part 1 

Conflicts of interest, Futures 

commission merchants, Major swap 

participants, Swap dealers. 

17 CFR Part 23 

Conflicts of interests, Futures 

commission merchants, Major swap 

participants, Swap dealers. 

17 CFR Part 39 

Derivatives clearing organizations, 

Risk management, Swaps. 

In light of the foregoing, the 

Commission hereby proposes to amend 

part 1; part 23, as proposed to be added 

at 75 FR 71390, November 23, 2010, and 

further amended at 75 FR 81530, 

December 28, 2010; and part 39, as 

proposed to be amended at 76 FR 13101, 

March 10, 2011, of Title 17 of the Code 

of Federal Regulations as follows: 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 147 / Monday, August 1, 2011 / Proposed Rules 45737 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

1. The authority citation for part 1 is 

revised to read as follows: 

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

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

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

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

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

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

1376 (2010). 

2. Add § 1.72 to part 1 to read as 

follows: 

§ 1.72 Restrictions on customer clearing 

arrangements. 

No futures commission merchant 

providing clearing services to customers 

shall enter into an arrangement that: 

(a) Discloses to the futures 

commission merchant or any swap 

dealer or major swap participant the 

identity of a customer’s original 

executing counterparty; 

(b) Limits the number of 

counterparties with whom a customer 

may enter into a trade; 

(c) Restricts the size of the position a 

customer may take with any individual 

counterparty, apart from an overall limit 

for all positions held by the customer at 

the futures commission merchant; 

(d) Impairs a customer’s access to 

execution of a trade on terms that have 

a reasonable relationship to the best 

terms available; or 

(e) Prevents compliance with the time 

frames set forth in § 1.73(a)(9)(ii), 

§ 23.609(a)(9)(ii), or § 39.12(b)(7) of this 

chapter. 

3. Add § 1.74 to part 1 to read as 

follows: 

§ 1.74 Futures commission merchant 

acceptance for clearing. 

(a) Each futures commission merchant 

that is a clearing member of a 

derivatives clearing organization shall 

coordinate with each derivatives 

clearing organization on which it clears 

to establish systems that enable the 

futures commission merchant, or the 

derivatives clearing organization acting 

on its behalf, to accept or reject each 

trade submitted to the derivatives 

clearing organization for clearing by or 

for the futures commission merchant or 

a customer of the futures commission 

merchant as quickly as would be 

technologically practicable if fully 

automated systems were used; and 

(b) Each futures commission merchant 

that is a clearing member of a 

derivatives clearing organization shall 

accept or reject each trade submitted by 

or for it or its customers as quickly as 

would be technologically practicable if 

fully automated systems were used; a 

clearing futures commission merchant 

may meet this requirement by: 

(1) Establishing systems to pre-screen 

orders for compliance with criteria 

specified by the clearing futures 

commission merchant; 

(2) Establishing systems that authorize 

a derivatives clearing organization to 

accept or reject on its behalf trades that 

meet, or fail to meet, criteria specified 

by the clearing futures commission 

merchant; or 

(3) Establishing systems that enable 

the clearing futures commission 

merchant to communicate to the 

derivatives clearing organization 

acceptance or rejection of each trade as 

quickly as would be technologically 

practicable if fully automated systems 

were used. 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

4. The authority citation for part 23 is 

revised to read as follows: 

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

1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 

16a, 18, 19, 21. 

5. Add § 23.608 to part 23, subpart J, 

to read as follows: 

§ 23.608 Restrictions on counterparty 

clearing relationships. 

No swap dealer or major swap 

participant entering into a cleared swap 

with a counterparty that is a customer 

of a futures commission merchant shall 

enter into an arrangement that: 

(a) Discloses to the futures 

commission merchant or any swap 

dealer or major swap participant the 

identity of a customer’s original 

executing counterparty; 

(b) Limits the number of 

counterparties with whom a customer 

may enter into a trade; 

(c) Restricts the size of the position a 

customer may take with any individual 

counterparty, apart from an overall limit 

for all positions held by the customer at 

the futures commission merchant; 

(d) Impairs a customer’s access to 

execution of a trade on terms that have 

a reasonable relationship to the best 

terms available; or 

(e) Prevents compliance with the time 

frames set forth in § 1.73(a)(9)(ii), 

§ 23.609(a)(9)(ii), or § 39.12(b)(7) of this 

chapter. 

6. Add § 23.610 to part 23, subpart J, 

to read as follows: 

§ 23.610 Clearing member acceptance for 

clearing. 

(a) Each swap dealer or major swap 

participant that is a clearing member of 

a derivatives clearing organization shall 

coordinate with each derivatives 

clearing organization on which it clears 

to establish systems that enable the 

clearing member, or the derivatives 

clearing organization acting on its 

behalf, to accept or reject each trade 

submitted to the derivatives clearing 

organization for clearing by or for the 

clearing member as quickly as would be 

technologically practicable if fully 

automated systems were used; and 

(b) Each swap dealer or major swap 

participant that is a clearing member of 

a derivatives clearing organization shall 

accept or reject each trade submitted by 

or for it as quickly as would be 

technologically practicable if fully 

automated systems were used; a clearing 

member may meet this requirement by: 

(1) Establishing systems to pre-screen 

orders for compliance with criteria 

specified by the clearing member; 

(2) Establishing systems that authorize 

a derivatives clearing organization to 

accept or reject on its behalf trades that 

meet, or fail to meet, criteria specified 

by the clearing member; or 

(3) Establishing systems that enable 

the clearing member to communicate to 

the derivatives clearing organization 

acceptance or rejection of each trade as 

quickly as would be technologically 

practicable if fully automated systems 

were used. 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

7. Revise the authority citation for 

part 39 to read as follows: 

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

7a–2, and 7b as amended by the Dodd-Frank 

Wall Street Reform and Consumer Protection 

Act, Pub. L. 111–203, 124 Stat. 1376. 

Subpart B—Compliance With Core 

Principles 

8. In § 39.12, add paragraph (a)(1)(vi) 

to read as follows: 

(a) * * * 

(1) * * * 

(vi) No derivatives clearing 

organization shall require as a condition 

of accepting a swap for clearing that a 

futures commission merchant enter into 

an arrangement with a customer that: 

(A) Discloses to the futures 

commission merchant or any swap 

dealer or major swap participant the 

identity of a customer’s original 

executing counterparty; 

(B) Limits the number of 

counterparties with whom a customer 

may enter into trades; 

(C) Restricts the size of the position a 

customer may take with any individual 

counterparty, apart from an overall limit 

for all positions held by the customer at 

the futures commission merchant; 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
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(D) Impairs a customer’s access to 

execution of a trade on terms that have 

a reasonable relationship to the best 

terms available; or 

(E) Prevents compliance with the time 

frames set forth in § 1.73(a)(9)(ii), 

§ 23.609(a)(9)(ii), or § 39.12(b)(7) of this 

chapter. 

9. Amend § 39.12 by: 

a. Redesignating paragraph (b)(7)(v) as 

paragraph (b)(8); and 

b. Revising § 39.12(b)(7) to read as 

follows: 

(i) Coordination with markets and 

clearing members 

(A) Each derivatives clearing 

organization shall coordinate with each 

designated contract market and swap 

execution facility that lists for trading a 

product that is cleared by the 

derivatives clearing organization in 

developing rules and procedures to 

facilitate prompt, efficient, and accurate 

processing of all transactions submitted 

to the derivatives clearing organization 

for clearing. 

(B) Each derivatives clearing 

organization shall coordinate with each 

clearing member that is a futures 

commission merchant, swap dealer, or 

major swap participant to establish 

systems that enable the clearing 

member, or the derivatives clearing 

organization acting on its behalf, to 

accept or reject each trade submitted to 

the derivatives clearing organization for 

clearing by or for the clearing member 

or a customer of the clearing member as 

quickly as would be technologically 

practicable if fully automated systems 

were used. 

(ii) Transactions executed 

competitively on or subject to the rules 

of a designated contract market or swap 

execution facility. A derivatives clearing 

organization shall have rules that 

provide that the derivatives clearing 

organization will accept or reject for 

clearing as quickly after execution as 

would be technologically practicable if 

fully automated systems were used, all 

contracts that are listed for clearing by 

the derivatives clearing organization 

and are executed competitively on a 

designated contract market or a swap 

execution facility. The derivatives 

clearing organization shall accept all 

trades: 

(A) For which the executing parties 

have clearing arrangements in place 

with clearing members of the 

derivatives clearing organization; 

(B) For which the executing parties 

identify the derivatives clearing 

organization as the intended 

clearinghouse; and 

(C) That satisfy the criteria of the 

derivatives clearing organization, 

including but not limited to applicable 

risk filters; provided that such criteria 

are non-discriminatory across trading 

venues and are applied as quickly as 

would be technologically practicable if 

fully automated systems were used. 

(iii) Swaps not executed on or subject 

to the rules of a designated contract 

market or a swap execution facility or 

executed non-competitively on or 

subject to the rules of a designated 

contract market or a swap execution 

facility. A derivatives clearing 

organization shall have rules that 

provide that the derivatives clearing 

organization will accept or reject for 

clearing as quickly after submission to 

the derivatives clearing organization as 

would be technologically practicable if 

fully automated systems were used, all 

swaps that are listed for clearing by the 

derivatives clearing organization and are 

not executed on a designated contract 

market or a swap execution facility. The 

derivatives clearing organization shall 

accept all trades: 

(A) That are submitted by the parties 

to the derivatives clearing organization, 

in accordance with § 23.506 of this 

chapter; 

(B) For which the executing parties 

have clearing arrangements in place 

with clearing members of the 

derivatives clearing organization; 

(C) For which the executing parties 

identify the derivatives clearing 

organization as the intended 

clearinghouse; and 

(D) That satisfy the criteria of the 

derivatives clearing organization, 

including but not limited to applicable 

risk filters; provided that such criteria 

are non-discriminatory across trading 

venues and are applied as quickly as 

would be technologically practicable if 

fully automated systems were used. 

Issued in Washington, DC, on July 19, 

2011, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Customer Clearing 

Documentation and Timing of 

Acceptance for Clearing—Commission 

Voting Summary and Statements of 

Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn and Chilton voted in 

the affirmative; Commissioners O’Malia and 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rulemaking for 

customer clearing documentation and timing 

of acceptance for clearing. The proposed rule 

promotes market participants’ access to 

central clearing, increases market 

transparency and supports market efficiency. 

This proposal will foster bilateral clearing 

arrangements between customers and their 

futures commission merchants. This proposal 

also re-proposes certain time-frame 

provisions of the Commission’s proposed 

rule in February related to straight-through 

processing. 

[FR Doc. 2011–19365 Filed 7–29–11; 8:45 am] 

BILLING CODE P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket No. USCG–2010–1145] 

RIN 1625–AA11 

Regulated Navigation Area; Pacific 

Sound Resources and Lockheed 

Shipyard EPA Superfund Cleanup 

Sites, Elliott Bay, Seattle, WA 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard proposes to 

establish a permanent regulated 

navigation area (RNA) on a portion of 

Elliott Bay in Seattle, Washington. The 

RNA would protect the seabed in 

portions of the bay that are subject to 

the U.S. Environmental Protection 

Agency (EPA)’s Pacific Sound Resources 

(PSR) and Lockheed Shipyard 

superfund cleanup remediation efforts. 

This RNA would prohibit activities that 

would disturb the seabed, such as 

anchoring, dragging, trawling, spudding 

or other activities that involve 

disrupting the integrity of the sediment 

caps that cover the superfund sites. It 

will not affect transit or navigation of 

the area. 

DATES: Comments and related material 

must be received by the Coast Guard on 

or before October 31, 2011. Requests for 

public meetings must be received by the 

Coast Guard on or before September 15, 

2011. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2010–1145 using any one of the 

following methods: 

(1) Federal eRulemaking Portal: 

http://www.regulations.gov. 

(2) Fax: 202–493–2251. 

(3) Mail: Docket Management Facility 

(M–30), U.S. Department of 


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