44776 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

1 17 CFR part 40 Provisions Common to 

Registered Entities, 75 FR 67282 (Nov. 2, 2010). 

2Sections 728 and 733 of the Dodd-Frank Act 

created two new categories of registered entities, 

SEFs and SDRs. Provisions related to the regulation 

of these entities will be promulgated in other 

Commission rulemakings. 

submit such information to the Council 

as the Council may require for the sole 

purpose of assessing whether the 

financial market utility is systemically 

important. 

(b) Prerequisites to information 

collection. Before requiring any 

financial market utility to submit 

information to the Council under 

paragraph (a) of this section, the Council 

shall— 

(1) Determine that it has reasonable 

cause to believe that the financial 

market utility is, or is likely to become, 

systemically important, considering the 

standards set out in § 1320.10; or 

(2) Determine that it has reasonable 

cause to believe that the designated 

financial market utility is no longer, or 

is no longer likely to become, 

systemically important, considering the 

standards set out in § 1320.10; and 

(3) Coordinate with the Supervisory 

Agency for the financial market utility 

to determine if the information is 

available from, or may be obtained by, 

the Supervisory Agency in the form, 

format, or detail required by the 

Council. 

(c) Timing of response from the 

appropriate Supervisory Agency. If the 

information, reports, records, or data 

requested by the Council under 

paragraph (b)(3) of this section are not 

provided in full by the Supervisory 

Agency in less than 15 calendar days 

after the date on which the material is 

requested, the Council may request the 

information directly from the financial 

market utility with notice to the 

Supervisory Agency. 

(d) Notice to financial market utility 

of information collection requirement. 

In requiring a financial market utility to 

submit information to the Council, the 

Council shall provide to the financial 

market utility the following— 

(1) Written notice that the Council is 

considering whether to make a proposed 

determination under § 1320.12; and 

(2) A description of the basis for the 

Council’s belief under paragraphs (b)(1) 

or (b)(2) of this section. 

Dated: July 20, 2011. 

Alastair Fitzpayne, 

Deputy Chief of Staff and Executive Secretary, 

Department of the Treasury. 

[FR Doc. 2011–18948 Filed 7–26–11; 8:45 am] 

BILLING CODE 4810–25–P–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 40 

RIN 3038–AD07 

Provisions Common to Registered 

Entities 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final Rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’) is 

adopting regulations to implement 

certain statutory provisions of the DoddFrank Wall Street Reform and Consumer 

Protection Act (‘‘Dodd-Frank Act’’). The 

Commission also is amending its 

existing regulations governing the 

submission of new products, rules, and 

rule amendments. The final regulations 

establish the Commission’s procedural 

framework for the submission of new 

products, rules, and rule amendments 

by designated contract markets 

(‘‘DCMs’’), derivatives clearing 

organizations (‘‘DCOs’’), swap execution 

facilities (‘‘SEFs’’), and swap data 

repositories (‘‘SDRs’’). In addition, the 

final regulations prohibit event 

contracts involving certain excluded 

commodities, establish special 

submission procedures for certain rules 

proposed by systemically important 

derivatives clearing organizations 

(‘‘SIDCOs’’), and stay the certifications 

and the approval review periods of 

novel derivative products pending 

jurisdictional determinations. 

DATES: Effective date: September 26, 

2011. 

FOR FURTHER INFORMATION CONTACT: 

Bella Rozenberg, Assistant Deputy 

Director, Division of Market Oversight 

(‘‘DMO’’), at 202–418–5119 or 

brozenberg@cftc.gov, Riva Spear 

Adriance, Associate Director, DMO at 

202–418–5494 or radriance@cftc.gov, 

Phyllis Dietz, Associate Director, 

Division of Clearing and Intermediary 

Oversight at 202–418–5449 or 

pdietz@cftc.gov, and Joseph R. Cisewski, 

Attorney Advisor, DMO at 202–418– 

5718 or jcisewski@cftc.gov, in each case, 

at the Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

II. Amendments to Part 40 of the 

Commission’s Regulations 

a. Definitions (§ 40.1) 

b. Listing Products for Trading by 

Certification (§ 40.2) 

c. Voluntary Submission of New Products 

for Commission Review and Approval 

(§ 40.3) 

d. Amendments to Terms or Conditions of 

Enumerated Agricultural Contracts 

(§ 40.4) 

e. Voluntary Submission of Rules for 

Commission Review and Approval 

(§ 40.5) 

f. Self-Certification of Rules (§ 40.6) 

g. Delegations (§ 40.7) 

h. Availability of Public Information 

(§ 40.8) 

i. Special Certification Procedures for 

Submission of Rules by Systemically 

Important Derivatives Clearing 

Organizations (§ 40.10) 

j. Review of Event Contracts Based Upon 

Certain Excluded Commodities (§ 40.11) 

k. Staying of Certification and Tolling of 

Review Period Pending Jurisdictional 

Determination (§ 40.12) 

III. Cost Benefit Considerations 

IV. Related Matters 

a. Regulatory Flexibility Act 

b. Paperwork Reduction Act 

I. Background 

On November 2, 2010, the 

Commission published proposed 

regulations to implement certain 

statutory provisions of the Dodd-Frank 

Act and to amend existing regulations 

governing the submission of new 

products, rules, and rule amendments.1

The Commission is hereby adopting 

final regulations 40.1 through 40.8, as 

amended below, and new regulations 

40.10 through 40.12 to implement 

certain provisions of the Dodd-Frank 

Act, to clarify submission-related 

regulatory obligations of registered 

entities, and to enhance the 

Commission’s administration of the 

Commodity Exchange Act (‘‘Act’’). 

The Commission’s final regulations 

implement, among other provisions, 

Section 745 of the Dodd-Frank Act, 

which, effective July 16, 2011, amended 

Section 5c of the Act to provide new 

procedures for the submission of rules 

and rule amendments by DCMs, SEFs, 

DCOs, and SDRs.2 The final regulations 

also amend existing requirements for 

the submission of new products and 

prohibit the listing and clearing of 

products based upon certain excluded 

commodities, if such products involve 

statutorily-specified activities or similar 

activities determined, by rule or 

regulation, to be contrary to the public 

interest. In addition, the Commission is 

adopting special submission procedures 

for certain risk-related rules proposed 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44777 

3A SIDCO is a DCO that has been designated as 

a systematically important financial market utility 

by the Financial Stability Oversight Council 

pursuant to Section 804 of the Dodd-Frank Act and 

for which the Commission is the Supervisory 

Agency. See below section II.i. (discussing § 40.10). 

4CME also submitted a comment on the 

Commission’s cost-benefit analysis subsequent to 

the close of the public comment public for the 

proposed rulemaking. The Commission has 

addressed CME’s comments in its cost-benefit 

analysis, below. CME, KCBOT, and MGEX are also 

registered DCOs and they commented on clearingrelated issues. 

5Pursuant to § 145.9 of the Commission’s 

regulation, registered entities requesting 

confidential treatment for program terms and 

conditions must, among other things, file a written 

justification for the confidential treatment request. 

by SIDCOs.3 The SIDCO regulations 

implement Section 806(e)(1) of the 

Dodd-Frank Act by requiring, among 

other things, 60-days advance notice of 

proposed rules that may materially 

affect the nature or level of risk 

presented by the SIDCO. Finally, the 

Commission is adopting previously 

proposed regulations to stay 

certifications and toll approval review 

periods for novel derivative products 

subject to jurisdictional determinations 

by the Commission or the Securities and 

Exchange Commission (‘‘SEC’’). 

Part 40 of the Commission’s 

regulations, as amended herein, will 

become effective sixty days after 

publication in the Federal Register. 

II. Amendments to Part 40 of the 

Commission’s Regulations 

The Commission received nine 

comment letters during the 60-day 

public comment period following the 

publication of its notice of proposed 

rulemaking. Seven of these comment 

letters were submitted by registered 

entities subject to the proposed 

regulations. Five comments were 

submitted on behalf of DCMs—the CME 

Group, Inc. (‘‘CME’’), ICE Futures U.S., 

Inc. (‘‘ICE’’), the Kansas City Board of 

Trade (‘‘KCBOT’’), the Minneapolis 

Grain Exchange, Inc. (‘‘MGEX’’), and 

OneChicago LLC Futures Exchange 

(‘‘OCX’’)—and two comments were 

submitted on behalf of registered 

DCOs—the Options Clearing 

Corporation (‘‘OCC’’) and LCH.Clearnet 

Ltd (‘‘LCH’’).4 The Commission also 

received comments from the Futures 

Industry Association (‘‘FIA’’), an 

organization representing futures 

commission merchants, and the 

American Benefits Council (‘‘ABC’’), an 

organization representing pension funds 

and other buy-side swaps users. 

Many of the comments received by 

the Commission offered specific 

recommendations for clarification or 

modification of proposed regulations; 

other comments generally objected to 

certain aspects of the proposal. The 

Commission, in consideration of these 

comments and as detailed below, is 

modifying its proposed rules to clarify 

regulatory obligations under certain 

provisions of part 40. The Commission 

has otherwise determined to implement 

its regulations as originally published 

on November 2, 2010. 

a. Definitions (§ 40.1) 

Three registered entities submitted 

comments concerning the proposed 

definitions of ‘‘rule’’ and ‘‘terms and 

conditions’’ in § 40.1 of the 

Commission’s regulations. The 

Commission has determined to revise 

both definitions to address these 

comments. In addition, the Commission 

is adopting revised language in the 

definition of ‘‘terms and conditions’’ to 

provide specific examples of terms and 

conditions frequently included in 

swaps. 

The FIA asked the Commission to 

consider whether an amendment to the 

§ 40.1 definition of ‘‘rule’’ might be 

appropriate to ensure that the 

Commission’s regulations captured 

advisories, interpretations, and less 

formal means of communicating 

policies to market participants. The FIA 

noted that registered entities, including 

DCMs, may be able to circumvent 

regulatory obligations by issuing 

communications under a category not 

enumerated in the proposed definition 

of ‘‘rule.’’ The Commission notes that 

‘‘interpretations’’ and ‘‘stated policies’’ 

are explicitly included in the present 

definition of ‘‘rule’’ and that the nonexclusive categories enumerated in that 

definition are merely examples of the 

types of actions that are subject to 

Commission review. The Commission’s 

position has always been that the 

definition of ‘‘rule’’ turns more on 

substance than form; that is, a registered 

entity cannot avoid regulatory 

obligations by adopting what is in 

substance a policy or interpretation by 

formally issuing the communication 

under a category that is not enumerated 

in the definition of ‘‘rule.’’ 

The Commission nevertheless has 

determined to add the term ‘‘advisory’’ 

to the list of categories constituting 

‘‘rules’’ under § 40.1, which should 

ensure that registered entities issue 

advisories in compliance with all 

regulations applicable to ‘‘rules.’’ In 

consideration of the FIA’s comments, 

the Commission also has determined to 

move the phrase ‘‘in whatever form 

adopted’’ to ensure that an addition or 

deletion to a communication constitutes 

a ‘‘rule’’ under § 40.1, without regard to 

the particular form in which a registered 

entity adopts such an amendment. In 

this regard, the Commission is clarifying 

that the language ‘‘in whatever form 

adopted’’ applies to all non-exclusive 

categories of ‘‘rules’’ enumerated in 

§ 40.1 and that the enumeration of 

particular examples of ‘‘rules’’ does not 

imply the exclusion of others. 

MGEX commented on the proposed 

definition of ‘‘rule’’ as well. In its 

comments, MGEX suggested that the 

Commission may be exceeding its 

authority by requiring DCMs to submit 

market maker and trading incentive 

programs as ‘‘rules’’ subject to the 

provisions of part 40. MGEX also 

commented that the terms and 

conditions of such programs should not 

be submitted to the Commission for 

approval, because, as a policy matter, 

the Commission should not substitute 

its judgment for ‘‘the business judgment 

of the registered entities.’’ Moreover, in 

MGEX’s view, the publication of 

program terms and conditions could 

inhibit negotiations with market 

participants. The Commission disagrees 

with MGEX and, for the reasons 

discussed below, has determined to 

continue requiring registered entities to 

submit the complete terms and 

conditions of market maker and trading 

incentive programs to the Commission, 

with an appropriate request for 

confidential treatment.5

A DCM’s rules implementing market 

maker and trading incentive programs 

fall within the Commission’s oversight 

authority. Indeed, a number of core 

principles touch upon trading issues 

that may be implicated by the design of 

such programs. Core Principle 9, for 

example, establishes the Commission’s 

framework for regulating the execution 

of transactions, requiring DCMs, like 

MGEX, to provide a competitive, open, 

and efficient market and mechanism for 

execution. The newly-amended Core 

Principle 12 also requires DCMs to 

establish and enforce rules to protect 

markets and market participants from 

abusive practices and to promote fair 

and equitable trading on designated 

contract markets. In addition, market 

maker and trading incentive programs 

frequently touch upon Core Principle 

19, which requires that DCMs avoid 

adopting any rules or taking any actions 

that result in unreasonable restraints of 

trade. 

It is not always clear in the first 

instance whether the rules 

implementing market maker and trading 

incentive programs have implications 

for a DCM’s compliance with these core 

principles. Consequently, for many 

years, the Commission has required 

registered entities to submit the terms 

and conditions of all market maker and 

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44778 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

6The examples of terms and conditions proposed 

as paragraphs (j)(1)–(14) are being renumbered as 

paragraphs (j)(1)(i) through (xiv) to reflect the 

inclusion of paragraph (j)(2) for swaps. 

7The Commission notes that the definition of 

‘‘swap’’ in Section 1a(47)(A)(i) of the Act includes 

an option (‘‘any agreement, contract or transaction 

(i) that is a put, call, cap, floor, collar, or similar 

option of any kind that is for the purchase or sale, 

or based on the value of 1, or more interest or other 

rates, currencies. * * *’’ 

8The terminolory used in this provision, i.e., 

‘‘group, category, type, or class,’’ is used to describe 

swaps in section 723 of the Dodd-Frank Act, 

codified in section 2(h)(2) of the Act, regarding the 

review of swaps for a mandatory clearing 

determination. See also proposed § 39.5 (process for 

review of swaps for mandatory clearing; 75 FR 

67277 (Nov. 2, 2010)). 

trading incentive programs to ensure 

that, among other things, they do not 

incentivize manipulative activities, 

unreasonably restrain competition on or 

between exchanges, or otherwise 

interfere with the fair and efficient 

functioning of the marketplace. 

Reviewing program rules for compliance 

with applicable law is not tantamount to 

substituting the Commission’s judgment 

for the business judgment of the 

registered entity. 

The Commission continues to view 

such programs as ‘‘agreements * * * 

corresponding’’ to a ‘‘trading protocol’’ 

within the § 40.1 definition of ‘‘rule’’ 

and, as such, all market maker and 

trading incentive programs must be 

submitted to the Commission in 

accordance with procedures established 

in part 40. In addition, to further clarify 

submission obligations, the Commission 

intends to continue reminding each 

newly-designated contract market, in its 

designation letter, that such programs 

are considered ‘‘rules’’ under § 40.1. The 

Commission would like to emphasize, 

however, that such programs need not 

be submitted to the Commission for 

approval, as suggested in MGEX’s 

comment. Market maker and trading 

incentive programs may be submitted 

for approval under § 40.5, but they also 

may be certified and submitted in 

accordance with the provisions of 

§ 40.6, which has been the favored 

process for submission of market maker 

and trading incentive programs to date. 

In a similar comment concerning the 

Commission’s authority to amend rules 

relating to margin, MGEX stated that 

‘‘DCMs and DCOs are best qualified to 

set margins’’ in light of their ‘‘extensive 

historical record for doing this well.’’ 

MGEX recommended that the 

Commission provide DCOs ‘‘the 

broadest latitude possible’’ to establish 

appropriate margin rules. The 

Commission believes that the final 

definition of ‘‘rule,’’ as adopted herein— 

and which does not restrict the 

Commission’s review of rules relating to 

margin levels—is not inconsistent with 

the comment submitted by MGEX. As 

discussed in the proposed rulemaking, 

Section 736 of the Dodd-Frank Act 

amends Section 8a(7) of the Act to 

permit the Commission to alter or 

supplement the rules of a registered 

DCO by issuing rules, regulations or 

orders regarding margin requirements. 

To ascertain whether or not and under 

what conditions to issue such rules, 

regulations, or orders, the Commission 

must be able to review rules ‘‘relating to 

the setting of levels of margin’’ in the 

first instance, although the Commission 

is not authorized to ‘‘set specific margin 

amounts’’ under Section 8a(7)(D)(iii) of 

the Act. The Commission’s review of 

such rules is an appropriate exercise of 

its DCO oversight responsibilities and 

may not result in the Commission taking 

action under Section 8(a)(7). 

Finally, OCC recommended that the 

Commission reconsider certain language 

within the proposed definition of 

‘‘terms and conditions’’ in § 40.1(j). 

Specifically, OCC suggested that the 

Commission delete language that would 

have required ‘‘proposed swap or 

contract terms and conditions * * * [to] 

conform to industry standards or those 

terms and conditions adopted by 

comparable contracts.’’ In OCC’s view, 

novel products, by their nature, contain 

provisions that deviate somewhat from 

those in comparable contracts. The 

Commission, as suggested by OCC, 

intended to prevent registered entities 

from designing products that are 

economically identical to existing 

products but that have ‘‘one or more 

unique features that serve no apparent 

purpose but to prevent fungibility.’’ 

Given the potential adverse effect on 

innovation and other proposed 

regulatory provisions, the Commission 

has determined to revise the definition 

of ‘‘terms and conditions’’ to delete the 

above-cited language. 

To further clarify the definition of 

‘‘terms and conditions,’’ the 

Commission is revising § 40.1(j) to 

differentiate between the ‘‘terms and 

conditions’’ generally applicable to a 

contract for the purchase or sale of a 

commodity for future delivery, or an 

option on such a contract or an option 

on a commodity—not including an 

option on a commodity that falls within 

the definition of a swap—(‘‘commodity 

futures and options contracts’’) in 

paragraph (j)(1) and the ‘‘terms and 

conditions’’ generally applicable to a 

swap in paragraph (j)(2). Some of the 

‘‘terms and conditions’’ associated with 

commodity futures and options 

contracts are different from those 

associated with swaps and, accordingly, 

the revised format for identifying 

particular examples of ‘‘terms and 

conditions’’ applicable to each product 

type may clarify certain submission 

requirements that are dependent on this 

definition. For example, the 

Commission has determined to revise 

the introductory paragraph to the 

definition of ‘‘terms and conditions’’ to 

include language that describes a swap’s 

underlying ‘‘trading unit’’ or 

‘‘commodity’’ as a ‘‘description of the 

payments to be exchanged under a 

swap.’’ 

The examples of ‘‘terms and 

conditions’’ generally applicable to 

commodity futures and options 

contracts and contained in paragraph 

(j)(1) are being adopted as proposed, 

except that the Commission has 

determined to amend the definition to 

include ‘‘no cancellation ranges’’ within 

subparagraph (vi). However, as 

discussed above, the Commission also 

has determined to amend and clarify the 

definition of ‘‘terms and conditions’’ by 

separating those terms and conditions 

generally applicable to commodity 

futures and options contracts from those 

generally applicable to swaps.6

Accordingly, the new and final 

§ 40.1(j)(2) provides examples of ‘‘terms 

and conditions’’ frequently associated 

with swaps,7 which the Commission has 

determined to clarify and/or renumber 

as follows: 

• Paragraph (j)(2)(i) defines as a 

‘‘term’’ or ‘‘condition’’ the 

‘‘identification of the major group, 

category, type or class in which the 

swap falls’’ and ‘‘any further sub-group, 

category, type or class that further 

describes the swap.’’ 8 To clarify the 

meaning of this phrase, a parenthetical 

lists ‘‘interest rate, commodity, credit, or 

equity’’ swaps as non-exclusive 

examples of major swap groups. This is 

equivalent to a description of the 

‘‘quality and other standards that define 

the commodity or instrument 

underlying the contract’’ applied to 

commodity futures and options 

contracts in § 40.1(j)(1)(i); 

• Paragraph (j)(2)(ii) refers to 

‘‘[n]otional amounts, quantity standards, 

or other unit size characteristics.’’ This 

provision, as proposed in paragraph 

(j)(15)(i), previously referred only to 

‘‘notional values.’’ The revision clarifies 

that there may be more than one way to 

state the size of a swap; 

• Paragraphs (j)(2)(iii) (any applicable 

premiums or discounts for delivery of 

nonpar products) and (iv) (trading hours 

and the listing of swaps) are parallel to 

paragraphs (j)(1)(iii) and (iv), which are 

applicable to commodity futures and 

options contracts; 

• Paragraph (j)(2)(v) for swaps, like 

paragraph (j)(1)(v) for commodity 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44779 

9See proposed §§ 40.3, 40.5, 40.6, and 40.10, 17 

CFR part 40 Provisions Common to Registered 

Entities, 75 FR 57282 (Nov. 2, 2010). 

10See Technical Clarifying Amendmens to Rules 

for Exempt Markets, Derivatives Transaction 

Executiion Facilities and Designated Contract 

Markets, and Procedural Changes for Derivatives 

Clearing Organization Registration Applications, 71 

FR 1953, 1956 (Jan. 12, 2006). 

futures and options contracts, addresses 

the pricing basis of the instrument. It 

refers to ‘‘pricing basis for establishing 

the payment obligations under, and 

mark-to-market value of, the swap 

including, as applicable, the accrual 

start dates, termination or maturity 

dates, and, for each leg of the swap, the 

initial cash flow components, spreads, 

and points, and the relevant indexes, 

prices, rates, coupons, or other price 

reference measures.’’ This incorporates 

the provisions of proposed paragraphs 

(j)(15)(iii) (indexes), (iv) (relevant prices, 

rates or coupons), (vi) (initial cash flow 

components), and (x) (spreads and 

points). The Commission notes that 

other ‘‘price reference measures’’ could 

include any factor that might have a 

bearing on the price of a swap, 

including pricing curves, reference 

prices, reference entities or obligations, 

reference currencies, disruption 

fallbacks, or, given the variety of 

existing and potential swap products, 

any other term or condition that affects 

the pricing basis of the swap; 

• Paragraphs (j)(2)(vi) (any price 

limits, trading halts, or circuit breaker 

provisions, and procedures for the 

establishment of daily settlement prices) 

and (vii) (position limits, position 

accountability standards, and position 

reporting requirements) for swaps are 

the same as paragraphs (j)(1)(vi) and 

(vii), respectively, as applied to 

commodity futures and options 

contracts; 

• Paragraph (j)(2)(viii) refers to 

‘‘payment and reset frequency, day 

count conventions, business calendars, 

and accrual features.’’ It incorporates 

proposed paragraphs (j)(15)(ii) (relevant 

dates, tenor and day count conventions), 

(vii) (payment and reset frequency), 

(viii) (business calendars), and (ix) 

(accrual type). Included within this 

category are such specifications as 

payment, delivery, pricing and reset 

dates, day count fractions, holiday 

calendars, and accrual features such as 

compounding; 

• Paragraph (j)(2)(ix) addresses 

specifications related to physical 

delivery, if physical delivery applies. 

The enumerated features are the same as 

those listed for commodity futures and 

options contracts in paragraph (j)(1)(ix); 

• Paragraph (j)(2)(x) relates to cash 

settlement and provides ‘‘[i]f cash 

settled, the definition, composition, 

calculation and revision of the cash 

settlement price, and the settlement 

currency.’’ This is the same as 

paragraph (j)(1)(x) for commodity 

futures and options contracts, except 

that the new paragraph contains an 

additional reference to settlement 

currency that incorporates proposed 

paragraph (j)(15)(v) (currency); 

• Paragraphs (j)(2)(xi), (xii), (xiii) and 

(xiv), relating to swaps that are options, 

parallel paragraphs (j)(1)(xi), (xii), (xiii) 

and (xiv) relating to commodity options 

contracts; 

• Paragraph (j)(2)(xv) lists ‘‘[l]ife cycle 

events’’ as a term or condition. 

Originally included in proposed 

paragraph (j)(15)(vi), this encompasses 

provisions relating to such attributes as 

special assignment, novation, exchange 

or other transfer rights or limitations, 

special termination events, amendment 

provisions, rights to extinguish 

obligations under the swap, and special 

notice requirements. 

The Commission would like to clarify 

that these ‘‘terms and conditions’’ apply 

to the submission of products for listing 

or trading by DCMs and SEFs. The 

Commission’s proposed swap-related 

examples referenced ‘‘swaps cleared by 

a derivatives clearing organization,’’ 

which may have suggested that the 

examples were relevant only in 

connection with rules submitted by 

DCOs. The ‘‘terms and conditions’’ of a 

swap are relevant to rules that may be 

submitted by DCMs and SEFs, as well 

as DCOs, and the reference to swaps 

cleared by DCOs therefore has been 

removed. 

b. Listing Products for Trading by 

Certification (§ 40.2) 

The Commission previously proposed 

to amend § 40.2(a) to require registered 

entities to accompany their submissions 

with the documentation relied upon to 

establish the basis for compliance with 

the Act and the Commission’s 

regulations. The Commission received a 

number of comments regarding the 

proposed documentation requirement in 

§ 40.2(a)(3)(v). Two registered entities, 

ICE Futures and CME, commented that 

the Commission may not have the 

authority to require the submission of 

documentation with newly-certified 

products. A number of registered 

entities also found the proposed 

provision unclear or overly prescriptive. 

The Commission, in consideration of 

these comments, has determined to 

amend its regulations to clarify the 

filing obligations of registered entities 

and to ameliorate the perceived burdens 

associated with the proposal. 

ICE Futures and CME suggested that 

the Commission may not have the 

authority to amend the product 

submission requirements, because the 

Dodd-Frank Act, while substantially 

amending statutory provisions relevant 

to the submission of rules and rule 

amendments, did not amend the Act’s 

provisions governing the certification 

and approval of products. The 

Commission would like to clarify that 

its proposed rulemaking concerned not 

only Dodd-Frank related amendments 

but also certain amendments that 

facilitate the Commission’s 

administration of the Act. Thus, 

although the Dodd-Frank Act did not 

substantively change the product 

certification provisions in Section 5c(c) 

of the Act, the Commission proposed 

the documentation requirement in 

§ 40.2, as well as other provisions,9 to 

expedite the submission review process 

and to ensure adequate consideration is 

given to legal and financial issues 

arising from new product and rule 

submissions. 

In this regard, the Commission 

continues to view its product 

submission requirements as a logical 

adjunct to the certification provisions of 

Section 5c(c)(1) of the Act. To argue that 

the Commission’s proposal exceeds 

statutory authority, the product 

submission provisions of the Act would 

need to be read strictly to require that 

registered entities merely make—and 

not support—certifications of 

compliance with the Act and 

regulations thereunder. This 

interpretation ignores the Commission’s 

product oversight function and its duty 

to examine support for certifications of 

compliance with core principles, 

including certifications that new 

products are not susceptible to 

manipulation. The Commission has long 

recognized ‘‘the need to balance the 

flexibility’’ that the Act, as amended by 

the Commodity Futures Modernization 

Act (‘‘CFMA’’), gives ‘‘a DCM in being 

able to [quickly] self-certify new 

products * * * against the obligations 

of both the DCM and the Commission to 

assure themselves that the certification 

is accurate—i.e., that the product or rule 

does indeed comply with applicable 

* * * core principles.’’ 10

The Commission nevertheless agrees 

with ICE Futures that it might be ‘‘more 

useful’’ for staff to have ‘‘a written 

explanation’’ of the newly-certified 

product than to receive ‘‘pages of 

reports, data and other records.’’ The 

Commission therefore has determined to 

substantially revise § 40.2(a)(3)(v) to 

require product certifications be 

supported by a ‘‘concise explanation 

and analysis’’ of the certified product 

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44780 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

11For example, registered entities could 

incorporate a summarized record in the product 

explanation and analysis with reference to a Web 

site link containing the information relied upon to 

establish compliance with applicable law. 

12Staff recently received a number of selfcertified submissions containing insufficient 

information for several products, implicating a 

number of core principles. Each submission’s 

deficiencies were corrected only after numerous 

discussions with the Commission’s staff, a process 

that exhausted significant resources and time. 

13Moreover, the Dodd-Frank Act’s elimination of 

certain exemptions and exclusions relied upon by 

currently operating exempt entities may encourage 

these entities to register with the Commission, 

thereby increasing the number of product 

certifications subject to staff review. 

14According to a recently published report by the 

International Organization of Securities 

Commissions (‘‘IOSCO’’), interest rate swaps 

comprised approximately 77.5% of the total 

outstanding notional value of over-the-counter 

swaps. Foreign exchange swaps accounted for 

another 9.1%. See Technical Committee of IOSCO, 

Report on Trading of OTC Derivatives, 1, 6 (Feb. 3, 

2011). 

15Based upon its experience with § 40.2(d), the 

Commission may consider expanding the classes of 

commodities eligible for class certification in a 

future rulemaking. 

and its compliance with applicable law. 

This ‘‘explanation and analysis’’ must 

either (1) be accompanied by supporting 

documentation, or (2) incorporate the 

information contained in such 

documentation, with appropriate 

citations to data sources.11 Thus, under 

final § 40.2(a)(3)(v), registered entities 

certifying new products with an 

appropriately detailed and cited 

‘‘explanation and analysis’’ do not have 

to submit supporting documentation. 

The submission of an explanation and 

analysis is necessary for the 

Commission’s review of a new product 

certification. The Commission has 

encountered numerous instances in 

which registered entities provided only 

cursory supporting analyses for their 

product submissions or, in certain cases, 

failed to document the evidentiary basis 

for their certifications altogether. The 

Commission also has experienced 

undue delays in receiving certain 

requested information, suggesting that 

supporting analyses had not been 

prepared by the registered entities as of 

the time of request.12 Without prompt 

receipt of supporting information, the 

staff must expend significant resources 

and time to replicate existing analyses 

or to otherwise independently establish 

a product’s compliance with applicable 

law. In addition, the staff frequently has 

found it necessary to contact registered 

entities for additional guidance on 

product submissions. To address these 

problems, final § 40.2(a)(3)(v) facilitates 

the staff’s review of new products 

subsequent to certification while 

discouraging unsupported certification 

of products in the first instance.13 The 

more flexible and substantially revised 

provision permits registered entities to 

support product certifications in a 

manner that may be most effective and 

least costly under the circumstances. 

The Commission notes that the 

explanation and analysis supporting a 

product certification requires the 

incorporation of information that, in 

many cases, is already collected or 

reviewed by registered entities. For 

example, registered entities complying 

with the guidance and acceptable 

practices in the Guideline No. 1 

Appendix to part 40 presently must 

review and, if necessary, develop the 

evidentiary basis for certain 

certifications prior to submitting new 

products for Commission review. 

Moreover, under existing § 40.2(b), 

registered entities must, upon receipt of 

a staff request, submit this or other 

supporting information to substantiate 

product submissions. The routine 

provision of a concise explanation and 

analysis should be no more burdensome 

than compliance with existing 

regulations requiring registered entities 

to collect supporting information and to 

further explain and submit such 

information upon request. 

To further address comments 

concerning the perceived burdens of the 

product submission requirements, the 

Commission also has determined to 

streamline the product certification 

process for a significant percentage of 

swap contracts 14 by permitting DCMs 

and SEFs to certify, within a single 

submission, one or more swaps without 

submitting each swap and its supporting 

information to the Commission. To list 

a particular swap or a particular number 

of swaps through the class certification 

provisions of new § 40.2(d), the DCM or 

SEF must certify that each of the 

individual contracts within the certified 

class complies with certain conditions. 

A DCM or SEF may submit a class 

certification only if each swap within 

the certified class of swaps complies 

with the conditions specified in 

§ 40.2(d)(1)(i)–(iv). First, each swap 

within the certified class of swaps must 

be based upon an ‘‘excluded 

commodity,’’ as defined in § 40.2(d)(1); 

these swaps include, for example, 

interest rate swaps, swaps on widelyheld and liquid currencies, and swaps 

based upon the occurrence or nonoccurrence of certain events or 

contingencies. Second, if more than one 

swap is included in a single filing under 

§ 40.2(d), each particular swap within 

the certified class of swaps must be 

based upon an excluded commodity 

with an identical pricing source and 

methodology for calculating reference 

prices and payment obligations. This 

ensures that DCMs and SEFs 

simultaneously certify, for example, 

only those interest rate swaps with a 

common pricing source—such as 

Thomson Reuters on behalf of the 

British Bankers’ Association (‘‘BBA’’)— 

and a common methodology for 

calculating the reference rates for swaps 

with varying maturities—such as the 

contributor averaging methodology used 

to calculate each of the BBA’s fifteen 

London Interbank Offer Rates (‘‘LIBOR’’) 

for a particular currency. Thus, a DCM 

or SEF may class certify (i.e., include in 

a single submission under § 40.2) a 

number of LIBOR-based interest rate 

swaps for a particular currency 

notwithstanding the varying underlying 

maturities or varying tenors of swaps 

within the certified class. 

Third, the regulation limits class 

certifications to swaps based upon 

sources and methodologies that the 

Commission previously reviewed in 

connection with a certified or approved 

futures or swap contract. This ensures 

that the Commission had an opportunity 

to review the particular pricing source 

and methodology used in each of the 

swaps within the certified class of 

swaps.15 Fourth and finally, each 

particular swap within the certified 

class of swaps must be based upon an 

excluded commodity involving an 

identical currency or identical 

currencies. For example, a swap based 

upon 3-month LIBOR for U.S. Dollars 

may not be submitted in the same 

submission as a swap based upon the 

3-month LIBOR rate for any of the other 

9 currencies presently included in the 

BBA survey. 

To further streamline the new product 

submission process, the Commission 

also has determined to permit DCOs to 

submit products accepted for clearing 

under the forthcoming provisions of 

§ 39.5. As proposed, the second 

provision of § 40.2(a) would have 

retained the existing requirement that, 

prior to accepting any over-the-counter 

product for clearing, a DCO must submit 

the new product pursuant to the 

provisions of part 40. Comments 

submitted in connection with the 

proposed process for review of swaps 

for mandatory clearing indicated some 

confusion about the interplay between 

the § 40.2 product submission process 

and the § 39.5 submission process for a 

mandatory clearing determination. In 

light of the introduction of procedures 

for a DCO to submit swap products for 

a mandatory clearing determination 

under § 39.5 and the potential for 

confusion as to the interaction between 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44781 

16 DCOs voluntarily seeking prior approval to 

clear a new product under § 40.3 may still submit 

two filings—one under § 40.3 and one under § 39.5. 

17Accordingly, implicit in any certification that 

a product complies with the Act and the 

Commission’s regulations is an assertion that the 

submitting entity has the rights to use or reference 

a particular price. Filing a false certification could 

result in a Commission action under § 40.2(c). 

the two regulatory provisions, the 

Commission has reconsidered what 

would have been a dual submission 

requirement. The Commission therefore 

is deleting from § 40.2 the provision 

requiring submission of new products 

by a DCO.16 A DCO may submit a single 

filing in accordance with § 39.5 instead 

of submitting two filings—one under 

§ 40.2 and one under § 39.5—and the 

information required for the § 39.5 

submission encompasses the 

information that would otherwise be 

required under § 40.2. The Commission 

believes that this revision will facilitate 

the product submission process without 

adversely affecting the supervisory 

purpose of regulations requiring the 

submission of products for Commission 

review. 

In other comments related to product 

certification requirements, registered 

entities stated that the price certification 

provision in proposed § 40.2(a)(3)(vi) 

required unclear or vague certifications 

concerning matters unrelated to the 

Commission’s core regulatory functions. 

CME commented that registered entities 

already have sufficient incentives—for 

example, avoiding possible litigation— 

to ensure that products meet applicable 

legal standards. In addition, ICE Futures 

commented that the Commission’s 

proposal ‘‘exceed[ed] the requirements 

contained in [the] Dodd-Frank [Act]’’ 

and ‘‘inappropriately inject[ed] the 

Commission into the commercial and 

business practices of registered 

entities.’’ In its view, the Commission 

should not be the ‘‘business and legal 

sounding board for each registered 

entity in the area of intellectual property 

and other legal conditions.’’ Moreover, 

ICE Futures questioned ‘‘whether the 

Commission would be properly 

positioned to make * * * complex 

[intellectual property] determinations’’ 

as part of the product review process. 

The OCC did not object to the price 

certification requirement but questioned 

whether it served a ‘‘useful purpose.’’ 

The OCC correctly stated that registered 

entities are required to abide by the Act 

and the Commission’s regulations, 

which contemplate appropriate due 

diligence concerning intellectual 

property and pricing issues, ‘‘whether or 

not [they] give[] * * * a [special] 

certification’’ to that effect. 

The Commission, in consideration of 

these comments, has determined not to 

adopt proposed § 40.2(a)(3)(vi). The 

Commission recognizes that registered 

entities should, and generally are, 

sensitive to intellectual property issues 

that might arise in the course of 

developing a new product and that the 

general certification provision in 

§ 40.2(a)(3)(iv) captures the more 

specific settlement price certification 

proposed in § 40.2(a)(3)(vi).17 However, 

in light of recent experience, the 

Commission disagrees with the 

assertion that registered entities, 

without exception, sufficiently account 

for intellectual property issues when 

listing new products for trading. In fact, 

a DCM was recently involved in a legal 

dispute concerning the use of certain 

published third-party prices. Although 

the DCM had been facilitating trading in 

contracts referencing these prices, 

another entity obtained an exclusive 

license to use the third party’s prices 

and, accordingly, threatened to seek 

legal action to enjoin the DCM from 

further referencing those prices to cash 

settle its products. The DCM ultimately 

found an alternative means for 

settlement of its existing contracts but 

not without some disruption to the 

market. The episode highlights the 

relevance and necessity of appropriate 

due diligence in referencing third-party 

prices for purposes of cash settlement. 

Market participants should be able to 

enter into positions in a newly-certified 

contract without concerns that the 

registered entity’s use of a particular 

price may be subject to legal challenge. 

Legal challenges or disputes can be not 

only disruptive to the marketplace but 

also may undermine confidence in the 

futures and derivatives markets. 

Moreover, such challenges or disputes 

can affect the value of positions taken in 

contracts subject to the controversy. 

Thus, although the Commission has 

determined not to adopt the proposed 

pricing certification provisions, it notes 

that the staff, in its discretion and as 

part of its due diligence reviews of new 

product submissions, may request 

information under § 40.2(b) concerning 

whether a registered entity has obtained 

the legal rights to use or reference 

proprietary prices, including third-party 

index prices, in connection with the 

listing or trading of a product. 

Registered entities submitting a product 

that uses prices published by another 

market or that references third-party 

prices should include all information 

relevant to the cash settlement of the 

product with its accompanying 

explanation and analysis. In this regard, 

a simple statement that the registered 

entity has the legal rights to use or 

reference a particular price could 

expedite Commission staff review 

without imposing a material burden on 

either the Commission or registered 

entities. 

Finally, the Commission notes that 

registered entities frequently submit 

product ‘‘terms and conditions’’ with 

accompanying rules—for example, rules 

establishing block trade thresholds— 

that, upon the effective date of these 

regulations, will be subject to a new rule 

certification review process. Such 

‘‘rules’’ or ‘‘rule amendments’’ 

submitted in connection with the listing 

or trading of a product, if not included 

in the definition of ‘‘terms and 

conditions,’’ will not be effective and 

cannot be implemented until properly 

submitted for Commission review under 

§§ 40.5 or 40.6. The Commission also 

notes that the ‘‘terms and conditions’’ of 

a product, as defined in § 40.1(j), must 

be submitted in connection with the 

listing or trading of a product and 

therefore would become effective one 

full business day after the business day 

of submission. However, if ‘‘terms and 

conditions’’ submitted in connection 

with the listing or trading of a particular 

contract would amend the existing 

terms or conditions of a previously 

certified or approved product, such 

‘‘terms and conditions’’ must be 

certified under § 40.6 or submitted for 

approval under § 40.5 as well. 

c. Voluntary Submission of New 

Products for Commission Review and 

Approval (§ 40.3) 

For the reasons noted in its 

explanation of amendments to § 40.2, 

the Commission has determined to 

revise its documentation provisions in 

proposed § 40.3(a)(4) and to eliminate 

the price certification provisions in 

proposed § 40.3(a)(9). The amendments 

parallel those adopted with respect to 

product certifications under § 40.2. 

Final § 40.3(a)(4) requires that products 

submitted for Commission approval be 

accompanied by an explanation and 

analysis of the product and its 

compliance with applicable law and 

either (1) the documentation relied 

upon to establish the basis for 

compliance with applicable law, or (2) 

the information contained within such 

documentation, with appropriate 

citations to data sources. 

The Commission received a comment 

concerning its existing regulation 

governing staff requests for additional 

information under final § 40.3(a)(10). 

The OCC commented that the two-day 

deadline for responses to requests for 

additional information may be 

insufficient and impractical in certain 

circumstances. It reasoned that 

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44782 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

18Pursuant to Section 745 of the Dodd-Frank Act, 

the Commission has ten-business days to review 

rule certifications and to determine whether to stay 

certain submissions—including those submitted 

with inadequate information—for as many as 90 

additional days. Moreover, the Commission’s staff 

may request additional information at any time 

during the applicable rule review period pursuant 

to existing § 40.6(a)(8). 

19CME commented that the extended review 

period should not be ‘‘mandatorily invoked in the 

event a rule submission [is] stayed due to the 

provision of inadequate information.’’ In its view, 

the public comment period associated with stayed 

rules is designed to solicit external perspectives 

regarding only ‘‘controversial’’ submissions. The 

Commission does not, however, have the authority 

to prevent a stayed submission from being subject 

to the extended review and public comment 

requirements. Section 745 of the Dodd-Frank Act 

provides that the Commission’s issuance of a 

notification ‘‘shall stay the certification of the new 

rule or rule amendment’’ and that ‘‘[t]he 

Commission shall provide a not less than 30-day 

public comment period.’’ However, the Commission 

acknowledges that its authority to issue a 

notification of stay in the first instance is 

discretionary rather than mandatory. Under 

§ 40.6(c), the Commission ‘‘may stay the 

certification of a new rule or rule amendment’’ for 

the enumerated reasons, but it may also request a 

revised submission that would render a notice of 

stay unnecessary. Accordingly, the Commission’s 

regulations permit—but do not require—a stay of 

any submission that omits information that could 

‘‘reasonably be deemed important by the 

Commission,’’ as noted by FIA. 

20The Commission believes that its final 

regulations will conserve both Commission and 

registered entity resources. Subsequent to the 

effective date of the Dodd-Frank, the Commission 

anticipates an increase in the number of new and 

amendatory rule submissions implementing the 

Dodd-Frank Act and forthcoming regulations, as 

well as an increase in the number of registered 

entities submitting such rules. Concise explanations 

and analyses will assist the Commission’s staff in 

conducting its due diligence within the initial 10- 

business-day review period, thereby minimizing 

potential delays for registered entities. Moreover, 

registered entities presently submit a large number 

of rules and rule amendments throughout the year; 

CME, for example, noted that it submitted more 

than 342 rules in the last calendar year alone. 

registered entities generally seek to 

provide ‘‘additional materials as soon as 

possible in order to expedite the staff’s 

review of the new product’’ and that the 

regulation’s inflexible deadline 

therefore was unnecessary. The OCC 

also suggested that the Commission 

adopt alternative language to permit 

registered entities to ‘‘notify the 

Commission’’ that additional time is 

‘‘reasonably required to provide the 

requested evidence’’ and, in such cases, 

to require the submission of this 

information no later than ten business 

days subsequent to the request, or at the 

completion of a longer period specified 

by staff. 

The Commission has determined that 

a longer response period is not 

appropriate for the submission of 

additional information. The 

Commission has a limited timeframe for 

making final determinations under the 

product approval provisions of § 40.3 

and the prompt receipt of requested 

information frequently is requisite to its 

determination regarding the submission. 

In light of the OCC’s comment, however, 

the Commission has determined to 

amend the final § 40.3(a)(10) to permit, 

at the discretion of its staff and upon 

receipt of a written request from the 

registered entity, an extension of time 

for the submission of additional 

information. 

d. Amendments to Terms or Conditions 

of Enumerated Agricultural Contracts 

(§ 40.4) 

The Commission has determined to 

adopt technical amendments to 

§ 40.4(b)(3) to permit registered entities 

to implement ‘‘[c]hanges in no 

cancellation ranges’’ for enumerated 

agricultural contracts without prior 

approval, provided these rules are 

properly submitted to the Commission 

pursuant to § 40.6. Newly-certified 

products frequently include terms and 

conditions related to ‘‘no cancellation 

ranges’’ and the Commission does not 

believe it appropriate to delay 

implementation of a no cancellation 

range for products involving 

enumerated agricultural commodities, 

especially when those products may be 

actively trading through a registered 

entity. 

e. Voluntary Submission of Rules for 

Commission Review and Approval 

(§ 40.5) 

For the reasons noted below, the 

Commission has determined to 

eliminate the documentation provision 

previously proposed in § 40.5(a)(7), to 

revise existing § 40.5(a)(5) to be similar 

to final § 40.6(a)(7)(v), and to eliminate 

proposed § 40.5(a)(10). The Commission 

notes that the ‘‘explanation and 

analysis’’ requirement in final 

§ 40.5(a)(5) does not include the 

qualifier that the submission be 

‘‘concise.’’ The Commission requires 

registered entities to provide a more 

detailed explanation and analysis of 

rules voluntarily submitted for 

Commission approval under the 

provisions of § 40.5. 

f. Self-Certification of Rules (§ 40.6) 

The Commission received a number 

of comments concerning the proposed 

documentation requirement in 

§ 40.6(a)(7)(v) and its application to 

routine rules and rule amendments. The 

OCC, for example, commented that it is 

frequently ‘‘obvious’’ that a routine rule 

submission complies with applicable 

statutory and regulatory provisions and 

that the documentation requirement 

failed to account for the fact that many 

rules warrant the submission of 

minimal, if any, supporting 

documentation. Similarly, KCBOT 

commented that many rule submissions 

need be supported only by a ‘‘cursory 

review of the rule or rule change in 

relation to Commission regulations,’’ 

with little or no ‘‘significant benefit’’ to 

be gained from the collection or 

provision of supporting documentation. 

Like comments concerning the 

submission of documentation in §§ 40.2 

and 40.3, a number of comments also 

stated that the submission of 

documentation in connection with all 

new rules and rule amendments would 

be burdensome and unlikely to yield 

benefits that outweighed costs. 

The Commission has determined, in 

consideration of these comments, to 

eliminate its proposed documentation 

requirement in § 40.6(a)(7)(v) and to 

insert in its place a requirement that 

registered entities provide a ‘‘concise 

explanation and analysis’’ of the 

‘‘operation, purpose, and effect’’ of 

certified rules, consistent with the 

existing requirement in § 40.5(a)(5). 

Unlike the certification provisions 

applicable to new products, the rule 

certification provisions of the Act 

provide the staff ten-business days to 

review new rules and rule amendments 

and, if necessary, to prevent them from 

becoming effective until staff receives 

adequate information from the 

submitting entity.18 Registered entities 

therefore should have sufficient 

incentives to provide adequate 

explanations of new submissions under 

§ 40.6 without the provision of actual 

documentation.19

The ‘‘concise explanation and 

analysis’’ will facilitate the 

Commission’s review of newly-certified 

rules and rule amendments. Registered 

entities recently have submitted rule 

submissions with only a cursory 

explanation of the rule change and a 

conclusory statement concerning the 

submission’s compliance with core 

principles. As a consequence, the staff 

frequently has found it necessary to 

contact registered entities for additional 

guidance on submissions and the 

potential implications for compliance 

with core principles. The Commission’s 

review of the explanation and analysis 

will be less burdensome—both for the 

Commission and registered entities— 

than the current practice of contacting 

registered entities to request 

explanations and analyses subsequent to 

each rule submission.20 Like the 

explanation and analysis required for 

new product submissions, the 

explanation and analysis of certified 

rules or rule amendments should be a 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44783 

21 Given the short time period for the 

Commission’s review, the Commission agrees with 

FIA that immediate Web site notice is ‘‘a far 

superior alternative to waiting several days for 

Federal Register publication of the rule or product 

filing.’’ 

22The Commission’s staff may stay a rule or rule 

amendment implemented in response to an 

emergency for the same reasons that it may stay 

other rules or rule amendments submitted pursuant 

to the procedures in part 40. Specifically, the staff 

may stay the rule for an extended review if the 

submission insufficiently explains the emergency or 

the registered entity’s response, presents novel or 

complex issues warranting further consideration, or 

is potentially inconsistent with the Act or 

regulations thereunder. 

23The Commission has the discretion to permit 

certain rules to become effective prior to the 

expiration of the 10-business-day rule review 

period, provided it establishes the effective date of 

such rules by rule or regulation. See Section 5c(c)(2) 

of the Act, as amended by Section 745(b) of the 

Dodd-Frank Act. 

24 See, e.g., 76 FR 3698 (Jan. 20, 2011) (proposing 

revisions to DCO application procedures). 

25See id. at 3718 (proposing a parallel public 

information provision in § 39.3(a)(5)). 

clear and informative—but not 

necessarily lengthy—discussion of the 

submission, the factors leading to the 

adoption of the rule or rule amendment, 

and the expected impact of the rule or 

rule amendment on the public and 

market participants. 

In another comment concerning 

proposed § 40.6, the FIA encouraged the 

Commission to adopt regulations that 

would maximize the transparency of the 

rule submission process, as well as 

account for the expertise of market 

participants. The Commission, in 

consideration of the FIA’s comment, 

intends to continue its practice of 

publishing all incoming submissions on 

its Web site and will continue 

developing a Web portal at cftc.gov that, 

once completed, should expedite both 

Commission and public review of 

submissions.21 The Commission also 

intends to facilitate public comment by 

enabling interested parties to submit 

comments directly from the submissions 

page on the Commission’s Web site. As 

noted in the notice of proposed 

rulemaking, the Commission presently 

is working on enhancements to its Web 

site and information technology systems 

that will, among other things, enable the 

Commission to promptly inform the 

public of rule submissions and stays of 

rule submissions. The Commission also 

intends to continue using its current 

ability to provide notice through e-mail 

notifications and RSS feeds to those 

who choose to sign-up for them. 

The Commission would like to note 

that the ‘‘industry filings’’ tab on the 

Commission’s Web site currently 

consolidates all filings onto a single 

Web page and posts them for public 

review with a brief explanation of the 

rule or rule amendment. Market 

participants and the public can click on 

a link within this Web page and access 

all rule filings by registered entities. 

Thus, although the Commission does 

not intend to publish a ‘‘daily rule 

digest,’’ as suggested by the FIA, all 

market participants currently have and 

will continue to have access to 

submissions in an organized format, 

which will be complemented by the 

‘‘concise explanation and analysis’’ 

accompanying each submission. 

The FIA also commented that, with 

respect to rules submitted in response to 

an emergency pursuant to § 40.6(a)(6), 

the Commission should not limit the 

ability of registered entities ‘‘to respond 

as may be necessary to the unforeseen 

circumstances of an emergency 

situation.’’ The FIA expressed concerns, 

however, that a registered entity could 

potentially ‘‘cite an emergency event as 

the grounds for a fundamental 

recasting’’ of regulatory responsibilities. 

The Commission agrees that registered 

entities must be able to respond flexibly 

and decisively to emergencies. In 

addition, the Commission acknowledges 

the possibility that a registered entity 

could attempt to immediately 

implement a rule and bypass the rule 

certification process by asserting that 

the rule is in response to an emergency. 

The final regulations accordingly clarify 

that registered entities are required to 

certify any rule implemented in 

response to an emergency under the 

procedures set forth in § 40.6. The staff 

will review such certifications for 

compliance with applicable law in 

situations where the rule, by necessity, 

has been implemented and in situations 

where the rule is intended for 

implementation prior to the completion 

of the 10-business-day review period. In 

either situation, the staff may permit the 

registered entity’s rule to remain 

effective or it may determine that the 

implemented rule should be stayed for 

an extended review.22

The Commission is adopting three 

revisions to its proposed regulations in 

§ 40.6. First, the price certification in 

proposed § 40.6(a)(7)(viii) has been 

eliminated for the reasons discussed in 

connection with revisions to proposed 

§§ 40.2(a)(3)(vi), 40.3(a)(9), and 

40.5(a)(10). Second, the Commission, in 

consideration of comments from both 

CME and OCX, has determined to 

amend § 40.6(a) to make rules delisting 

or withdrawing the certification of 

products effective upon submission to 

the Commission. The Commission 

agrees that such submissions should be 

exempt from the 10-business-day review 

period in order to avoid complicating 

the delisting of the product by providing 

market participants an opportunity to 

enter into contracts between the time 

period of submission and the effective 

date of the rule.23 Finally, the 

Commission, in response to a comment 

from the OCC, is retaining the existing 

language in § 40.6(d) that permits 

certain non-substantive rules to take 

effect without certification to the 

Commission. 

g. Delegations (§ 40.7) 

The Commission is correcting a 

typographical error that appeared in 

proposed § 40.7(a)(1) by replacing the 

reference to ‘‘§ 40.5(c)(1)(B)’’ with a 

reference to ‘‘§ 40.5(c)(1)(ii).’’ 

h. Availability of Public Information 

(§ 40.8) 

The Commission has determined to 

adopt technical amendments to § 40.8 to 

reflect possible changes in the 

designation or registration application 

procedures for DCMs, SEFs, DCOs and 

SDRs.24 Specifically, § 40.8(a) will make 

public the following: (1) The transmittal 

letter and first page of the ‘‘cover sheet’’ 

of applications; (2) the applicant’s 

regulatory ‘‘compliance chart;’’ and (3) 

the ‘‘narrative summary’’ of the 

applicant’s proposed activities.’’ 25

i. Special Certification Procedures for 

Submission of Rules by Systemically 

Important Derivatives Clearing 

Organizations (§ 40.10) 

CME, FIA, LCH, and OCC submitted 

comments regarding the Commission’s 

proposed regulations to implement 

Section 806 of the Dodd-Frank Act. 

Section 806 requires a financial market 

utility that has been designated by the 

Financial Stability Oversight Council 

(‘‘FSOC’’) to be systemically important 

to provide its Supervisory Agency with 

60 days advance notice of any proposed 

changes to rules, procedures, or 

operations that could materially affect 

the nature or level of risks presented by 

the financial market utility. Section 

40.10 sets forth implementing 

requirements for SIDCOs. 

Proposed § 40.10(a) required that all 

SIDCOs provide 60 days advance notice 

to the Commission in accordance with 

Section 806 of the Dodd-Frank Act. In 

a separate proposed rulemaking, the 

Commission proposed to define a 

‘‘systemically important derivatives 

clearing organization’’ to mean a 

‘‘financial market utility that is a 

derivatives clearing organization 

registered under section 5b of the Act (7 

U.S.C. 7a–1), which has been designated 

by the FSOC to be systemically 

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44784 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

26See 75 FR 77576, 77586 (Dec. 13, 2010). 

27Section 803(8)(B) provides as follows: 

‘‘Multiple Agency Jurisdiction: If a designated 

financial market is subject to the jurisdictional 

supervision of more than 1 agency listed in 

subparagraph (A), then such agencies should agree 

on 1 agency to act as the Supervisory Agency, and 

if such agencies cannot agree on which agency has 

primary jurisdiction, the Council shall decide 

which agency is the Supervisory Agency for 

purposes of this title.’’ 

28OCC suggested revising § 40.10(a) to read, in 

relevant part: ‘‘A registered derivatives clearing 

organization that has been designated by the 

Financial Stability Oversight Council as a 

systemically important derivatives clearing 

organization and for which the Commission acts as 

the Supervisory Agency pursuant to Section 803(8) 

of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act shall provide notice to the 

Commission * * *’’ See OCC letter at 7. 

29This standard is consistent with the 24-hour 

requirement for emergency rule certifications under 

§ 40.6(a)(6). 

important.’’ 26 Under this definition, a 

DCO could be a SIDCO even if the 

Commission was not its Supervisory 

Agency and, as an unintended result, 

proposed § 40.10 would require such a 

DCO to provide advance notice to the 

Commission. 

OCC pointed out this issue, noting 

that the authority for § 40.10(a) is 

Section 806(e)(1)(A) of the Dodd-Frank 

Act, which requires a systemically 

important financial market utility to 

provide 60 days advance notice to ‘‘its 

Supervisory Agency.’’ Under Section 

803(8)(B) of the Dodd-Frank Act, there 

can be only one Supervisory Agency for 

a financial market utility designated as 

systemically important.27

The Commission recognizes that some 

DCOs, like OCC, may be regulated by 

more than one Federal agency. In the 

case of OCC, if it were designated as a 

systemically important financial market 

utility, it is possible that it would be so 

designated because of its activities as a 

securities clearing agency, not because 

of its activities as a DCO. Accordingly, 

the SEC, not the Commission, would 

likely be its Supervisory Agency. 

OCC recommended revising the 

language in § 40.10(a) to clarify that 

advance notice to the Commission 

would be required only for DCOs for 

which the Commission is the 

Supervisory Agency.28 Although the 

Commission is adopting § 40.10(a) as 

proposed, it intends to act on OCC’s 

suggestion by revising the definition of 

‘‘systemically important derivatives 

clearing organization’’ in a future final 

rulemaking to clarify that a SIDCO is a 

financial market utility that has been 

designated by the FSOC to be 

systemically important and for which 

the Commission acts as its Supervisory 

Agency pursuant to section 803(8) of the 

Dodd-Frank Act. This clarification will 

address the issue raised by OCC in 

connection with § 40.10 and will serve 

to clarify the scope of any other 

regulations relating to SIDCOs. 

Proposed § 40.10(a) required a SIDCO 

to notify the Commission of a change in 

rules, procedures, or operations that 

could materially affect the nature or 

level of risks presented by the SIDCO. 

OCC and CME commented that a SIDCO 

would be required to notify the 

Commission of proposed changes that 

could decrease the nature or level of 

risk in addition to changes that could 

increase the nature or level of risk. OCC 

does not believe that a SIDCO should be 

required to report a change that could 

materially reduce risk under § 40.10 

because the proposed change would be 

subject to a 60-day ‘‘waiting period,’’ 

and the goal of reducing risk is not 

served by requiring that such a change 

be subject to delay. 

Similarly, CME expressed the view 

that the Dodd-Frank Act does not 

provide the Commission with authority 

to impose a 60-day advance notice 

requirement for changes in rules, 

procedures, or operations that could 

improve the operations of a SIDCO, and 

it believes the Commission should 

exercise its authority over risk-reducing 

changes under the certification 

procedures of § 40.6. 

OCC and CME proposed that the 

Commission change § 40.10(a) to cover 

only a proposed change in rules, 

procedures, or operations that could 

have a materially adverse impact on 

risk. The Commission has determined 

not to adopt this suggested revision for 

the reasons discussed below. 

As a preliminary matter, the DoddFrank Act does not distinguish between 

a change that could materially increase 

or decrease the nature or level of risks 

presented by a SIDCO. Although 

Congress could reasonably have 

expected that risk-related changes are 

almost always intended to reduce risk, 

it required advance notice of ‘‘any’’ 

change that could ‘‘affect’’ risk and did 

not limit Section 806 to only those 

instances where a change could increase 

risk. Moreover, the purpose of advance 

notice is to assist the Commission in 

monitoring systemic risk and in seeing 

that SIDCOs effectively manage risk in 

furtherance of compliance with the core 

principles. The Commission 

acknowledges that requiring a SIDCO to 

notify the Commission under § 40.10 of 

a change that could materially reduce 

risk could delay the time when that 

change becomes effective. However, a 

proposed change that could materially 

reduce risk in certain respects also 

could materially increase risk in other 

respects, and a SIDCO and the 

Commission might come to different 

conclusions when evaluating whether a 

particular change could increase or 

decrease risk, overall. For example, a 

SIDCO could reduce risk by requiring 

heightened membership requirements, 

but this might also reduce the number 

of clearing members and therefore 

increase concentration of risk. As a 

practical matter, even for ostensibly 

risk-reducing changes, there may be 

adverse consequences that the 

Commission should have the 

opportunity to consider in the time 

frame set forth in Section 806 of the 

Dodd-Frank Act. 

The Commission notes that, as 

proposed, § 40.10(g) provides that a 

SIDCO may implement a change in less 

than 60 days from the date the 

Commission receives the notice of 

proposed change or the date the 

Commission receives any further 

information it has requested, if the 

Commission notifies the SIDCO in 

writing that it does not object to the 

proposed change and authorizes 

implementation of the change on an 

earlier date, subject to any conditions 

imposed by the Commission. To further 

address the concerns expressed by the 

commenters, the Commission is adding 

a new paragraph (a)(3) that provides that 

a SIDCO may request that the 

Commission expedite the review on the 

grounds that the change would 

materially decrease risk. The 

Commission, in its discretion, may 

expedite the review and, pursuant to 

paragraph (g) of this section, notify the 

SIDCO in less than 60 days. 

The concern that § 40.10 prevents a 

SIDCO from instituting a risk-reducing 

change in less than 60 days may be 

overstated. Section 40.10(g) allows a 

SIDCO to implement a change in less 

than 60 days if the Commission notifies 

the SIDCO in writing that it does not 

object to the change. Moreover, unless 

an emergency exists, it is unlikely the 

market would be significantly harmed if 

implementation of the change were 

delayed for more than 10 days, which is 

the basic time period for the 

Commission’s review of certified rules 

under § 40.6. 

Proposed § 40.10(h) required a SIDCO 

to provide notice to the Commission of 

an emergency change no later than 24 

hours after implementation of the 

change.29 Among other things, the 

proposed rule required the notification 

to include the information set forth in 

proposed § 40.10(a). OCC commented 

that it is not practical to require a 

SIDCO’s emergency filing to conform to 

the requirements of § 40.10(a) within 24 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44785 

30LCH proposed that the Commission add the 

following language adapted from Section 739 of the 

Dodd-Frank Act (regarding swaps): ‘‘* * * 

However, no modification or rescission shall 

retroactively affect the enforceability of any power 

exercised by the SIDCO, nor shall any agreement, 

contract or transaction entered into by the SIDCO 

or its counterparty pursuant to the exercise by such 

SIDCO of any emergency change, be void, voidable, 

or unenforceable, and no party to such agreement, 

contract, or transaction shall be entitled to rescind, 

or recover, any payment made with respect to, the 

agreement, contract, or transaction under this 

section or any other provision of Federal or State 

law.’’ 

31Section 39.6 provides as follows: 

An agreement, contract or transaction submitted 

to a derivatives clearing organization for clearance 

shall not be void, voidable, subject to rescission, or 

otherwise invalidated or rendered unenforceable as 

a result of: 

(a) A violation by the derivatives clearing 

organization of the provisions of the Act or of 

Commission regulations; or 

(b) Any Commission proceeding to alter or 

supplement a rule under section 8a(7) of the Act, 

to declare an emergency under section 8a(9) of the 

Act, or any other proceeding the effect of which is 

to alter, supplement, or require a derivatives 

clearing organization to adopt a specific rule or 

procedure, or to take or refrain from taking a 

specific action. See also § 38.6 (comparable 

enforceability provisions for DCMs); and proposed 

§ 37.6, 76 FR 1214, 1240 (Jan. 7, 2011) (comparable 

enforceability provisions for SEFs). 

32Under proposed § 40.6(a)(6), new rules or rule 

amendments that establish standards for responding 

to an emergency must be submitted pursuant to 

§ 40.6. 

33Concept Release on the Appropriate Regulatory 

Treatment of Event Contracts, 73 FR 25669, 25670 

(May 7, 2008). 

hours of implementing the change. OCC 

proposed a two-stage approach whereby 

the SIDCO would file an initial notice 

within 24 hours of the change and 

would submit a more extensive filing 

conforming to § 40.10(a) as soon as 

reasonably practicable thereafter, but in 

any event not more than 30 days after 

implementation of the change. 

The Commission notes that 

§ 40.10(h)(1) codifies Section 

806(e)(2)(B) of the Dodd-Frank Act, 

which requires that the emergency 

notice be provided as soon as 

practicable and no later than 24 hours 

after implementation of the change. 

Section 40.10(h)(2) codifies Section 

806(e)(2)(C), which requires that the 

notice contain the information that must 

be submitted for changes subject to 

advance notice, plus a description of the 

nature of the emergency and the reason 

the change was necessary for the SIDCO 

to continue to provide its services in a 

safe and sound manner. These 

provisions do not provide for partial or 

late submissions, as suggested by OCC. 

However, the Commission believes that 

it can adequately address the concern 

expressed by OCC. 

As proposed, § 40.10(a) required a 

SIDCO to provide the information 

required by proposed § 40.6(a)(7) within 

24 hours. OCC singled out the 

documentation requirement in proposed 

§ 40.6(a)(7)(v) as one that would be 

difficult to satisfy within 24 hours. As 

discussed above, that provision, as 

adopted herein, has been revised to 

significantly reduce the perceived 

burden of the proposed rule, and the 

Commission believes that a SIDCO 

should be able to provide the required 

‘‘concise explanation and analysis,’’ as 

well as other required information 

within 24 hours. 

LCH observed that the Commission 

may require modification or rescission 

of an emergency change if it finds that 

the change is not consistent with the 

Act or the Commission’s regulations. 

According to LCH, this could lead to 

legal uncertainty regarding activities 

undertaken while the emergency change 

is in effect. As a result, LCH proposed 

that the Commission revise § 40.10(h)(3) 

by adding a provision to immunize from 

legal challenge any action taken by a 

SIDCO pursuant to an emergency 

change that is later modified or 

rescinded by the Commission.30 The 

Commission is not taking further action 

on LCH’s suggestion because it believes 

that the existing enforceability 

provisions in § 39.6 of the Commission’s 

regulations adequately address the 

concern expressed by LCH.31

In the notice of proposed rulemaking, 

the Commission solicited comment as to 

whether there are any changes a SIDCO 

should be prohibited from adopting on 

an emergency basis. FIA and CME did 

not favor imposing any restrictions on a 

SIDCO’s response to an emergency. 

CME also noted that a DCO does not 

have unfettered discretion to act in an 

emergency situation. Rather, a DCO’s 

ability to act is limited by the 

emergency rules and procedures that 

have been vetted previously by the 

Commission.32 The Commission agrees 

that there should not be any express 

limitation on the type of actions that a 

SIDCO can take in responding to an 

emergency, primarily because it is 

difficult to pre-judge the permissibility 

of an emergency action taken in the 

context of particular circumstances. 

Finally, the Commission is making a 

technical revision to the proposed 

§ 40.10(a)(2) requirement that 

concurrent with providing the 

Commission with the advance notice or 

any request or other information related 

to the advance notice, the SIDCO 

provide the Board of Governors of the 

Federal Reserve System (‘‘Board’’) with 

a copy of the submission. The 

Commission is adding the instruction 

that such notice, request or other 

information must be filed in the same 

format and manner as the Board 

requires for those designated financial 

market utilities for which it is the 

Supervisory Agency pursuant to section 

803(8) of the Dodd-Frank Act. 

j. Review of Event Contracts Based Upon 

Certain Excluded Commodities (§ 40.11) 

Pursuant to Section 745(b) of the 

Dodd-Frank Act, the Commission 

proposed § 40.11(a)(1) to prohibit the 

listing of certain contracts involving 

terrorism, assassination, war, gaming, or 

activities that are unlawful under any 

State or Federal law. The CME 

commented that the term ‘‘gaming’’ 

should be further defined to ensure that 

registered entities do not confront 

difficult legal questions with respect to 

the applicability of the ‘‘gaming’’ 

prohibition in § 40.11(a)(1). In this 

regard, the CME noted that the courts 

have struggled to arrive at an 

appropriate legal definition for 

‘‘gaming’’ for many years and that the 

Commission’s prohibition on contracts 

involving ‘‘gaming’’ could introduce 

uncertainty into the markets. 

The Commission agrees that the term 

‘‘gaming’’ requires further clarification 

and that the term is not susceptible to 

easy definition. Indeed, in its ‘‘Concept 

Release on the Appropriate Regulatory 

Treatment of Event Contracts,’’ the 

Commission solicited public comments 

on the best approach for addressing the 

‘‘the potential gaming aspects of some 

event contracts and the potential preemption of state laws.’’ 33 The 

Commission received a number of 

responses to its concept release, 

including several comments articulating 

bases for distinguishing trading in 

contracts linked to the occurrence (or 

non-occurrence) of events and 

participation in traditional ‘‘gaming’’ 

activities. The Commission continues to 

consider these comments and may issue 

a future rulemaking concerning the 

appropriate regulatory treatment of 

‘‘event contracts,’’ including those 

involving ‘‘gaming.’’ In the meantime, 

the Commission has determined to 

prohibit contracts based upon the 

activities enumerated in Section 745 of 

the Dodd-Frank Act and to consider 

individual product submissions on a 

case-by-case basis under § 40.2 or § 40.3. 

The Commission would like to note 

that registered entities may receive a 

definitive resolution of any questions 

concerning the applicability of 

§ 40.11(a)(1) by submitting a particular 

product for Commission approval under 

to § 40.3. If the submitted product is 

approved, the registered entity may list 

it for trading or clearing with an 

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44786 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

34Congressional Record—Senate, S5906 (July 15, 

2010). 

35 Id. Senator Lincoln, in a colloquy with Senator 

Feinstein, emphasized that the Commission ‘‘needs 

the power to, and should, prevent derivatives 

contracts that are contrary to the public interest 

because they exist predominantly to enable 

gambling through supposed event contracts.’’ 

36See Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based Swap 

Agreement;’’ Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping, 76 FR 29818 (May 23, 

2011). 

37Section 717(d) of the Dodd-Frank Act amended 

Section 5c(c)(1) of the Act to ‘‘stay the certification 

of a product pending a determination by the 

Commission upon a request of the Securities and 

Exchange Commission * * * that the Commission 

issue a determination as to whether’’ a novel 

derivative product is within the jurisdiction of the 

Commission. However, Section 745 of the DoddFrank Act amended the Act by striking Section 5c 

in its entirety and inserting language that did not 

include the stay provision in Section 717(d) of the 

Dodd-Frank Act. The Commission would like to 

clarify that the stay provisions adopted in final 

§ 40.12 of its regulations do not give effect to the 

stay provisions in Section 717(d) of the Dodd-Frank 

Act, given inconsistent amendments to Section 

5c(c). The Commission is adopting its stay 

provisions pursuant to its Section 8a(5) authority to 

‘‘make and promulgate such rules and regulations 

as, in the judgment of the Commission, are 

reasonably necessary to effectuate any of the 

provisions or to accomplish any purposes of the 

Act.’’ 

38A final determination, for purposes of 

§ 40.12(b) of this part, shall be a determination 

order issued pursuant to Section 718(a)(3) of the 

Dodd-Frank Act. 

39 7 U.S.C. 19(a). 

40See, e.g., Fisherman’s Doc Co-op., Inc v. Brown, 

75 F.3d 164 (4th Cir. 1996); Center for Auto Safety 

v. Peck, 751 F.2d 1336 (DC Cir. 1985) (noting that 

an agency has discretion to weigh factors in 

undertaking cost-benefit analysis). 

assurance that the Commission 

reviewed and did not object to the 

submission based on the prohibitions in 

§ 40.11(a). In addition, registered 

entities may always certify products 

pursuant to the procedures in § 40.2. If 

the Commission determines during its 

review of a product that the submission 

may violate the prohibitions in 

§ 40.11(a)(1)–(2), the Commission may 

request that the registered entity 

suspend the trading or clearing of the 

contract pending the completion of a 90- 

day extended review. Upon the 

completion of that review, the 

Commission must issue an order, 

pursuant to Section 745(b) of the DoddFrank Act, finding either that the 

product violates or does not violate the 

prohibitions in § 40.11(a)(1)–(2). 

The Commission’s staff also may, at 

its discretion and upon a request from 

a registered entity, review a draft 

product submission or proposal and 

provide guidance concerning the 

product’s compliance with core 

principles and § 40.11(a). The 

Commission would like to note, 

however, that the staff’s guidance 

concerning drafts and proposals is 

preliminary and non-binding. The staff 

formally reviews products only at such 

time as a compliant submission is 

provided to the Commission pursuant to 

§ 40.2 or § 40.3. 

Finally, the Commission would like to 

note that its prohibition of certain 

‘‘gaming’’ contracts is consistent with 

Congress’s intent to ‘‘prevent gambling 

through the futures markets’’ 34 and to 

‘‘protect the public interest from gaming 

and other events contracts.’’ 35 The 

Commission may, at some future time, 

adopt regulations that prohibit products 

that are based upon activities ‘‘similar 

to’’ those enumerated in Section 745 of 

the Dodd-Frank Act. It has determined 

not to propose such regulations at this 

time. 

k. Staying of Certification and Tolling of 

Review Period Pending Jurisdictional 

Determination (§ 40.12) 

The OCC objected to the 

Commission’s use of the term 

‘‘derivative’’ in proposed § 40.12(a)(1), 

which, the Commission agrees, is an 

undefined term encompassing products 

within the jurisdiction of both the SEC 

and the Commission. The Commission 

therefore has determined to delete the 

word ‘‘a derivative’’ from § 40.12(a)(1) 

and to insert in its place ‘‘a contract for 

the sale of a commodity for future 

delivery (or an option on such contract 

or an option on a commodity).’’ The 

final regulation thereby codifies the 

Dodd-Frank Act’s provisions concerning 

‘‘novel derivative products having 

elements of both securities and 

contracts for the sale of a commodity for 

future delivery (or options on such 

contracts or options on commodities).’’ 

In addition, the Commission has 

determined to limit the application of 

§ 40.12 to only those novel agreements, 

transactions, or contracts that are not 

subject to a separate process for 

requesting interpretations of the 

characterization of swaps, securitybased swaps, and mixed swaps pursuant 

to § 1.8 of this chapter.36

The Commission also is amending 

proposed § 40.12(b) to clarify that the 

receipt of a request for a jurisdictional 

determination ‘‘tolls’’ both the 

applicable product certification and the 

applicable approval review period until 

the issuance of a final determination. In 

this regard, the Commission has 

determined to insert ‘‘shall be stayed’’ 

after ‘‘the product certification,’’ which 

more appropriately characterizes the 

Commission’s action with respect to 

certified products and distinguishes that 

action from the suspension of the 

approval review period under § 40.3.37

Similarly, in § 40.12(b)(2), the 

Commission has determined to clarify 

that the stay shall be withdrawn and 

that the submission review period shall 

resume upon the issuance of a final 

determination order finding that the 

Commission has jurisdiction over the 

submission. 

The Commission would like to note 

that the suspension of a product’s 

certification would permit continued 

trading for liquidation purposes. That is, 

the stay of certification under § 40.12 

would not prevent market participants 

from entering into positions that offset 

others taken while the product 

certification remained in effect. The 

Commission will provide to the 

registered entity a written notice of stay 

pending issuance of a final 

determination order by the 

Commission.38

Finally, the Commission notes that 

Section 718(a)(2) of the Dodd-Frank Act 

provides the Commission explicit 

authority to request a jurisdictional 

determination concerning a novel 

derivative product having elements of 

both a security and a contract for the 

sale of a commodity for future delivery 

(or an option on such contract or an 

option on a commodity) at any time 

subsequent to the effective date of a 

product containing such elements, 

provided no notice of a novel derivative 

product filing has been received from 

the SEC pursuant to Section 718(a)(1) of 

the Dodd-Frank Act. 

III. Cost-Benefit Considerations 

Section 15(a) of the Act requires the 

Commission to ‘‘consider the costs and 

benefits’’ of its actions before 

promulgating a regulation.39 In 

particular, these costs and benefits must 

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. In conducting its 

analysis, the Commission may, in its 

discretion, give greater weight to any 

one of the five enumerated areas and it 

may determine that, notwithstanding 

costs, a particular rule is necessary to 

protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

Act.40

Certain of the regulations 

promulgated in this final rule are 

mandated by the Act, as amended by the 

Dodd-Frank Act, and, for those 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44787 

provisions, the Commission does not 

have the authority to consider 

alternatives to the statute’s prescribed 

procedures. For example, the final 

regulations implement, among other 

provisions, Section 745 of the DoddFrank Act, which specifies new 

procedures for the submission of certain 

rules and rule amendments and new 

default timelines for the Commission’s 

review of rule submissions. Many of 

these new procedures—for example, the 

30-day public comment period 

following the stay of a submitted rule— 

are statutorily mandated and the 

Commission’s final regulations have 

been drafted to remain within the 

confines of the enabling language. 

Similarly, the Commission’s SIDCO 

provisions, in large part, codify the 

procedures established by Section 806 

of the Dodd-Frank Act. For those final 

regulations not mandated by the DoddFrank Act, the Commission has adopted 

the least-cost alternative consistent with 

achieving the purposes of the Act. 

The Commission invited but did not 

receive public comments specific to its 

cost-benefit discussion within the initial 

comment period following the 

Commission’s proposal. The 

Commission also invited the public ‘‘to 

submit any data or other information 

that [it] may have quantifying or 

qualifying the costs and benefits of the 

proposal with their comment letters.’’ 

The Commission received no such data 

or other information. The Commission 

did, however, receive general comments 

on the ‘‘burden’’ associated with the 

documentation and pricing source 

certification requirements proposed in 

§§ 40.2, 40.3, 40.5, and 40.6. Those 

comments suggested that the new 

provisions could substantially increase 

the time and resources required to 

prepare submissions and could 

potentially delay the introduction of 

new products and implementation of 

rules. However, none of these comments 

suggested feasible alternatives to the 

statutory mandate. Nor did such 

comments show how and to what extent 

those burdens would be increased by 

the implementing proposal. 

In a comment concerning the 

Commission’s cost-benefit analysis, the 

CME stated that the CFMA streamlined 

the product and rule submission process 

to eliminate the ‘‘substantial 

unnecessary paperwork’’ previously 

required to be submitted to the 

Commission. In the CME’s view, the 

documentation and pricing source 

certification requirements effectively 

reinstated the pre-CFMA submission 

process by mandating that registered 

entities submit ‘‘massive amounts of 

documentation’’ for Commission 

review. In addition, CME stated that the 

part 40 proposal’s cost-benefit 

discussion did not ‘‘acknowledge that a 

fully-functional and less costly system 

of self-certification is already in place’’ 

and that the Commission failed to 

justify what CME characterized as 

‘‘onerous requirements’’ with few public 

benefits. CME also stated that the 

Commission’s proposal did not ‘‘address 

any actual costs’’ to industry, including 

‘‘the cost of compiling all 

documentation relied upon to determine 

whether a new product, new rule or rule 

amendment complies with the Core 

Principles’’ and the costs of ‘‘enabl[ing] 

foreign competitors’’ to introduce 

products that compete with domestic 

DCM product innovations. 

The Commission, after consideration 

of the public interest factors specified in 

section 15(a) of the Act, has determined, 

as set forth below, that the costs 

associated with its final regulations will 

not have a material effect on the 

efficiency, competitiveness, and 

financial integrity of the futures and 

swaps markets and should substantially 

benefit registered entities by facilitating 

and expediting the Commission’s 

review of product and rule submissions. 

The Commission has considered the 

costs and benefits of its regulations 

throughout the preamble and generally 

views the related matters section of this 

final rulemaking to be an extension of 

that discussion. Estimates pursuant to 

the Paperwork Reduction Act are a 

subset of and incorporated into the 

overall compliance costs associated 

with final part 40. 

The Commission’s final regulations 

address the relevant areas of market and 

public concern specified in section 15(a) 

of the Act. Specifically, the 

Commission’s certification and approval 

procedures ensure that registered 

entities do not enact rules that, among 

other things, harm market participants 

or the public, result in unreasonable 

restraints of trade or material 

anticompetitive burdens on trading, or 

have other effects that are detrimental to 

the public interest. In addition, the 

special certification procedures for 

SIDCOs and certain event contracts 

implement Sections 806 and 745 of the 

Dodd-Frank Act, respectively, and 

ensure that the Commission has 

adequate time and information to 

analyze certain risk-related rules and 

novel products based upon certain 

excluded commodities. The SIDCO 

notice requirement is important to the 

Commission’s oversight of sound risk 

management practices and to its efforts 

to monitor and mitigate systemic risks. 

The proposed event contract provisions, 

consistent with the intent of Congress, 

prevent individuals from speculating on 

activities that are potentially harmful to 

national security or detrimental to the 

stability of the futures markets. Finally, 

the ‘‘concise explanation and analysis’’ 

required for the submission of new 

products is a less-costly alternative to 

the Commission’s proposed 

documentation requirement and will 

assist the Commission in protecting the 

price discovery function of the markets. 

The final certification and approval 

procedures are necessary to fulfill the 

requirements of the Dodd-Frank Act, to 

protect market participants, to enhance 

the Commission’s administration of the 

Act, and to ensure the continued 

competitiveness and financial integrity 

of the futures and swaps markets. 

Moreover, in response to public 

comments and after consultations with 

market participants and prudential 

regulators, the proposed rules have been 

amended to implement, where possible, 

a less costly alternative that achieves the 

statutory objectives of the Act, as 

amended by the Dodd-Frank Act. 

With respect to costs, the Commission 

recognizes that its final regulations may 

increase compliance costs by requiring 

the submission of a ‘‘concise 

explanation and analysis’’ and by 

requiring registered entities to certify 

that they posted the complete 

submission on the registered entity’s 

Web site at the time of filing. The 

Commission believes that these costs 

will be de minimis. A ‘‘concise 

explanation and analysis’’ should be a 

clear and informative—but not 

necessarily lengthy—description of the 

product or rule and its implications for 

compliance with applicable law. 

Moreover, the explanation and analysis 

incorporates information that is, in 

many cases, already required to be 

reviewed or collected by registered 

entities. A concise description and 

examination of the submission should 

impose minimal costs on registered 

entities, because it requires the 

registered entity merely to memorialize 

its due diligence in certifying 

compliance with applicable law. Posting 

this information on the registered 

entity’s Web site should be as simple as 

providing an electronic copy of the 

submission to appropriate personnel. 

All current registered entities maintain 

a Web site and therefore this new 

requirement may increase the overall 

cost, if at all, by only a negligible 

margin. 

In addition, the proposed price 

certification provisions are not being 

adopted and the proposed 

documentation provisions have been 

revised—and, in some cases, removed 

from the final regulations—to permit 

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44788 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

41 5 U.S.C. 601 et seq. 

registered entities more flexibility in 

complying with the Act and 

Commission’s regulations, to reduce 

potential administrative and compliance 

costs, and to adopt, where possible, less 

burdensome alternatives to the 

Commission’s proposal. For example, 

under the Commission’s final product 

submission regulations, registered 

entities, including CME, are not 

required to submit ‘‘massive amounts of 

documentation’’ with their new product 

submissions. Instead, as suggested by 

ICE Futures, the Commission will allow 

registered entities to submit an 

explanation and analysis of the product 

with the information contained in such 

documentation and citations to relevant 

data sources. Moreover, the Commission 

finds that the submission of an 

explanation and analysis is necessary 

for its review of product and rule 

certifications. Although CME correctly 

notes that self-certification regime has 

been retained under the Act, as 

amended by the Dodd-Frank Act, the 

Commission has encountered numerous 

instances in which registered entities 

provided only cursory supporting 

analyses for their product submissions 

or, in certain cases, failed to document 

the evidentiary basis for their 

certifications altogether. As discussed in 

the preamble, the staff must expend 

significant resources and time to 

replicate existing analyses or to 

otherwise independently establish a 

product’s compliance with applicable 

law when submissions are not 

adequately explained or supported by 

registered entities. 

With respect to the new SIDCO 

provisions in § 40.10, the cost of 

creating the advance notice will not be 

substantial. A SIDCO should have this 

information prior to determining 

whether to implement a change and, 

consequently, the marginal cost of 

drafting and submitting the notice will 

be small. On the other hand, the 

Commission believes that the benefit of 

this information is significant because it 

is necessary to assess the effect that the 

proposed change would have on the 

nature or level of risks. The final 

provisions of § 40.10 parallel the 

requirements of the Dodd-Frank Act. 

The Commission’s proposal effectively 

mirrors the enabling provisions of the 

statute and, accordingly, the 

Commission’s ability to revise the 

proposed requirements is limited. 

As discussed above, advance notice of 

all changes that materially impact risk— 

increasing or decreasing risk—is 

necessary for the Commission to 

monitor systemic risk and to see that 

SIDCOs effectively manage risk in 

furtherance of compliance with the core 

principles. The Commission 

acknowledges that requiring a SIDCO to 

notify the Commission under § 40.10 of 

a change that could materially reduce 

risk could delay the time when that 

change becomes effective. However, 

even for ostensibly risk-reducing 

changes, there may be adverse 

consequences that the Commission 

should have the opportunity to consider 

in the time frame set forth in Section 

806 of the Dodd-Frank Act. 

Moreover, the Commission and the 

Board have statutory obligations to 

review proposed changes to SIDCO 

rules, procedures and operations that 

materially impact risks and Section 806 

of the Dodd-Frank Act mandates the 

time period for review. The Commission 

also notes that, in appropriate cases, the 

staff may permit a risk-related rule to 

become effective prior to the expiration 

of the 60-day notice period. 

The costs associated with the 

emergency notice required in § 40.10(h) 

are similarly minimal and include the 

cost of drafting and submitting the 

notice and any cost associated with the 

possibility that the Commission could 

rescind or modify the emergency 

change. There also may be a cost of 

requiring notice within 24 hours; 

however, section 806(e)(2)(B) of the 

Dodd-Frank Act mandates notices be 

provided within this timeframe. The 

substantive requirements of the notice 

provisions also are outlined by section 

806(e)(2)(C) of the Dodd-Frank Act and, 

as explained above, the Commission 

believes that the cost of providing the 

information required for an advance 

notice will be small. The marginal cost 

of providing additional information 

concerning an emergency notice should 

be similarly small because a SIDCO will 

already know the nature of the 

emergency and will have determined 

that the change was necessary for the 

SIDCO to continue to provide its 

services in a safe and sound manner 

prior to implementing the emergency 

change. The Commission believes that 

the information is necessary for it to 

review an emergency change. 

Having considered the costs of its 

proposal, the Commission is adopting 

these final regulations, including 

changes to the proposed regulations as 

summarized below, to further reduce 

the information collection burdens on 

and associated costs for registered 

entities as follows: 

• The Commission is revising the 

proposed documentation requirements 

in § 40.2 and § 40.3 to permit the 

submission of an appropriately detailed 

and cited explanation and analysis in 

lieu of documentation; 

• The Commission is amending § 40.2 

to apply only to DCMs and SEFs and 

intends to implement new product 

clearing submission requirements in a 

new § 39.5 (in a separate rulemaking); 

• The Commission is eliminating the 

documentation requirements in § 40.5 

and § 40.6; 

• The Commission is providing new 

provisions for class certifications of 

certain swaps; 

• The Commission is amending 

§ 40.6(a) to make effective upon 

submission rules delisting or 

withdrawing the certification of 

products; 

• The Commission is eliminating the 

proposed certification requirement 

concerning the use of third-party prices; 

• The Commission is eliminating a 

previously proposed provision requiring 

‘‘[w]henever possible, all proposed 

swap or contract terms and conditions 

[to] conform to industry standards or 

those terms and conditions adopted by 

comparable contracts;’’ 

• The Commission is limiting the 

application of § 40.12 to novel 

derivative products that are not subject 

to the forthcoming provisions of § 1.8. 

The resulting final rules should 

impose significantly lower costs on 

registered entities than the proposed 

rules. The average annual burden for the 

70 anticipated registered entities may be 

reduced by more than one-third in 

comparison to the initial proposed 

requirements—from an estimated 324 

hours per year per registered entity to 

approximately 202 hours per year per 

registered entity. To the extent that the 

Commission’s final regulations impose 

any additional costs or burdens on 

registered entities, these costs or 

burdens would require a single parttime staff person to handle new 

requirements related to product and rule 

submissions to the Commission; the 

total time cost may be as little as four 

hours per week per registered entity. 

Thus, the Commission has determined 

that these final regulations are necessary 

to enable the Commission to perform its 

oversight functions and to carry out its 

statutory responsibilities under the Act. 

IV. Related Matters 

a. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 41 requires agencies to consider 

whether final regulations have a 

significant economic impact on a 

substantial number of small entities 

and, where the regulations do so, to 

provide a regulatory flexibility analysis 

concerning the impact of such 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44789 

42 5 U.S.C. 601 et seq. 

43See 17 CFR part 40 Provisions Common to 

Registered Entities, 75 FR 67282 (November 2, 

2010); see also 47 FR 18618, 18619 (April 30, 1982) 

and 66 FR 45604, 45609 (August 29, 2001). 

44See, e.g., Core Principle 2 applicable to SEFs 

under Section 733 of the Dodd-Frank Act and Core 

Principles 1–3 applicable to SDRs under Section 

728 of the Dodd-Frank Act. 45 44 U.S.C. 3501 et seq. 

regulations.42 The final rules require 

DCOs, DCMs, SEFs, and SDRs to submit 

to the Commission new products, rules, 

and rule amendments, before they 

become effective, with either a request 

for Commission approval or a 

certification that the products or rules 

comply with the Act and Commission 

regulations. In addition, the 

Commission’s new regulations require 

product submissions be accompanied by 

a concise explanation and analysis that 

incorporates information contained in 

supporting documents, whereas the new 

requirements for rule certifications 

simply require the submission of a 

concise explanation and analysis of the 

purpose, operation, and effect of the 

filing. Accordingly, these product and 

rule approval and self-certification 

regulations are not complex and do not 

impose a significant economic impact 

on any registered entity. 

Moreover, the Commission previously 

determined that DCMs, DCOs, SEFs, and 

SDRs are not ‘‘small entities’’ for 

purposes of the RFA.43 In determining 

that these registered entities are not 

‘‘small entities,’’ the Commission 

reasoned that it designates a contract 

market or registers a DCO, SEF, or SDR 

only if the entity meets a number of 

specific criteria, including the 

expenditure of sufficient resources to 

establish and maintain an adequate selfregulatory program.44 Because DCMs, 

DCOs, SEFs and SDRs are required to 

demonstrate compliance with Core 

Principles, including principles 

concerning the maintenance or 

expenditure of financial resources, the 

Commission previously determined that 

SEFs and SDRs, like DCMs and DCOs, 

are not ‘‘small entities’’ for the purposes 

of the RFA. 

The Chairman, on behalf of the 

Commission, hereby certifies pursuant 

to 5 U.S.C. 605(b) that these regulations 

do not have a significant impact on a 

substantial number of small entities. 

b. Paperwork Reduction Act 

The Commission may not conduct or 

sponsor, and a registered entity is not 

required to respond to, a collection of 

information unless it displays a 

currently valid Office of Management 

and Budget (‘‘OMB’’) control number. 

Amendments to §§ 40.2, 40.3, 40.5, 40.6, 

and 40.10 impose new information 

collection requirements on registered 

entities within the meaning of the 

Paperwork Reduction Act.45

Accordingly, the Commission requested 

and OMB assigned a control number for 

the required collections of information. 

The Commission has submitted this 

notice of final rulemaking along with 

supporting documentation for OMB’s 

review in accordance with 44 U.S.C. 

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

this collection of information is ‘‘Part 

40, Provisions Common to Registered 

Entities, OMB control number 3038– 

D07.’’ Many of the responses to this new 

collection of information are mandatory. 

The Commission protects 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 Act strictly prohibits the 

Commission, unless specifically 

authorized by the Act, 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 also is 

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 

These rules require DCMs, DCOs, and 

new registered entities, SEFs and SDRs, 

to collect and submit to the Commission 

information concerning new products, 

rules, and rule amendments pursuant to 

the procedures outlined in §§ 40.2, 40.3, 

40.5, 40.6, and 40.10. The Commission 

is adopting these information collection 

requirements in order to give effect to 

various notice, rule certification, and 

rule approval provisions of the DoddFrank Act, to expedite the staff’s review 

of newly-certified and submitted 

products, and to improve the 

Commission’s administration of the Act. 

The Commission estimated the final 

information collection burdens on 

registered entities below. These 

estimates account for the following: (1) 

The number of respondents; (2) the 

number of responses required of each 

respondent; (3) the average hours 

required to produce each response; and 

(4) the aggregate annual reporting 

burden. The Commission estimates that 

the effect of final §§ 40.2, 40.3, 40.5, 

40.6, 40.10, and 40.12 will be to 

increase the information collection 

burden by approximately 202 hours per 

year per registered entity, resulting 

mostly from the preparation of the 

concise explanation and analysis to be 

filed with the Commission in 

connection with the listing of products 

or the certification or approval of rules. 

The Commission estimates that 70 

registered entities will be required to 

file their new product and rule 

submissions. 

The Commission previously estimated 

the aggregate number of hours that it 

expected registered entities to spend 

complying with part 40. Upon further 

consideration, the Commission has 

determined to revise the hours 

attributable to the new provisions of 

part 40. The newly-revised and final 

regulations require each registered 

entity to spend an estimated and 

additional 202 hours per year 

complying with part 40. Due to a 

calculation error in the proposed 

rulemaking, the estimated information 

collection burden in the proposed part 

40 rulemaking was quoted as 8,300 

hours; the estimated information 

collection burden should have been 

22,664. Based on the 22,664 estimate, 

the estimated average hours per 

registered entity would have been 

323.771 hours. Thus, under the 

Commission’s current analysis and in 

light of the regulatory changes below, 

each registered entity may expect to 

spend approximately 121 fewer hours 

per year complying with part 40 than 

would have been required under the 

Commission’s proposal. The substantial 

reduction in the estimated annual time 

that each registered entity may spend 

complying with part 40 results from 

revisions to the documentation 

requirements in §§ 40.2 and 40.3, the 

elimination of the documentation 

requirements in §§ 40.5 and 40.6, the 

elimination of the price certification 

requirements in §§ 40.2, 40.3, 40.5, and 

40.6, and the addition of the class 

certification provisions for certain 

swaps in § 40.2(d). 

Final §§ 40.2, 40.3, 40.5 and 40.6 

require each registered entity to comply 

with new certification and approval 

requirements when seeking to 

implement new products, rules, and 

rule amendments, including changes to 

product terms or conditions. However, 

in consideration of comments 

concerning proposed §§ 40.2, 40.3, 40.5 

and 40.6, the Commission has 

determined to amend its proposal to 

reduce the information collection 

burden on the registered entities. 

Specifically, the Commission’s final 

§ 40.2(d) streamlines the product 

certification process for a significant 

percentage of swap contracts by 

permitting a DCM or SEF to class 

certify, within a single submission, one 

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44790 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

or more swaps with similar, specified 

characteristics. 

In addition, the Commission has 

determined to amend its proposal to do 

the following: (1) Substantially revise 

§ 40.2 and § 40.3 to reduce the 

document collection burden for newlysubmitted products, and (2) eliminate 

the previously proposed documentation 

provisions in § 40.5 and § 40.6. The 

Commission has determined to maintain 

§§ 40.2(a)(3)(vii), 40.3(a)(10), 40.5(a)(6), 

and 40.6(a)(2) requiring registered 

entities to state that they posted a copy 

of the certification or request for 

approval on the registered entity’s Web 

site at the time of the filing with the 

Commission. 

In light of the amendments to the 

Commission’s final regulations, noted 

above, the Commission revises its 

previous estimates as follows: 

Estimated number of respondents: 70. 

Annual responses by each 

respondent: 100. 

Estimated average hours per response: 

2.00. 

Aggregate annual reporting burden 

hours (for all respondents): 14,000. 

The Commission originally estimated 

that 45 registered entities would be 

subject to the information collection 

requirements in §§ 40.2, 40.3, 40.5 and 

40.6. The Commission based this 

estimate upon the number of registered 

and exempt entities at the time of 

proposal. The Commission has 

determined to increase its previous 

estimate to account for an increased 

number of anticipated registered 

entities, a few of which do not currently 

operate a registered or exempt entity. 

The 70 registered entity figure, above, 

only minimally alters the per registered 

entity estimate of time that will be 

required to comply with part 40. 

In addition, the Commission initially 

estimated 120 responses per year from 

registered entities. In light of the 

revisions to the documentation 

requirements and the ability of 

registered entities to certify certain swap 

contracts as a class under § 40.2(d), the 

number of estimated submissions has 

been reduced. The Commission also 

reduced the estimated hourly burden in 

light of revisions to the documentation 

requirements in §§ 40.2 and 40.3 and 

the elimination of the documentation 

requirements in §§ 40.5 and 40.6. 

§ 40.10 requires SIDCOs to provide to 

the Commission 60 days advance notice 

of proposed changes to rules, 

procedures or operations that could 

materially affect the nature or level of 

risks presented by the SIDCO. 

Estimated number of respondents: 4. 

Annual responses by each 

respondent: 2. 

Estimated average hours per response: 

5. 

Aggregate annual reporting burden 

hours (for all respondents): 40. 

Finally, § 40.12 permits registered 

entities to provide notice to the 

Commission and the Securities and 

Exchange Commission when certifying, 

submitting for approval, or otherwise 

filing a proposal to list a product (other 

than a product subject to the 

forthcoming provisions of § 1.8 of this 

chapter) having elements of both a 

security and a contract for the sale of a 

commodity for future delivery (or an 

option on such contract or an option on 

a commodity). The Commission has 

determined to promulgate rules 

governing jurisdictional disputes over 

novel swap products in a separate and 

forthcoming rulemaking. Accordingly, it 

is adjusting its estimates to reflect that 

fact that jurisdictional determinations 

concerning certain novel product 

submissions will not be subject to the 

provisions of § 40.12. 

Estimated number of respondents: 8. 

Annual responses by each 

respondent: 4. 

Estimated average hours per response: 

2.52. 

Aggregate annual reporting burden 

hours (for all respondents): 80.64. 

List of Subjects in 17 CFR Part 40 

Commodity futures, Contract markets, 

Designation application, Reporting and 

recordkeeping requirements, Swap 

execution facility, Swap data repository, 

Systemically important derivatives 

clearing organization, Rule approval, 

Rule certification, Review of certain 

event contracts. 

In light of the foregoing, and pursuant 

to authority in the Act, and, in 

particular, Sections 3, 5, 5c(c) and 8a(5) 

of the Act, the Commission hereby 

revises part 40 of Title 17 of the Code 

of Federal Regulations to read as 

follows: 

PART 40—PROVISIONS COMMON TO 

REGISTERED ENTITIES 

Sec. 

40.1 Definitions. 

40.2 Listing products for trading by 

certification. 

40.3 Voluntary submission of new products 

for Commission review and approval. 

40.4 Amendments to terms or conditions of 

enumerated agricultural products. 

40.5 Voluntary submission of rules for 

Commission review and approval. 

40.6 Self-certification of rules. 

40.7 Delegations. 

40.8 Availability of public information. 

40.9 [Reserved] 

40.10 Special certification procedures for 

submission of rules by systemically 

important derivatives clearing 

organizations. 

40.11 Review of event contracts based upon 

certain excluded commodities. 

40.12 Staying of certification and tolling of 

review period pending jurisdictional 

determination. 

Appendix A to Part 40—Schedule of 

Fees 

Appendix B to Part 40—[Reserved] 

Appendix C to Part 40—[Reserved] 

Appendix D to Part 40—Submission 

Cover Sheet and Instructions 

Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 

12, as amended by Titles VII and VIII of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Pub. L. 

111–203, 124 Stat. 1376 (2010). 

§ 40.1 Definitions. 

As used in this part: 

(a) Business day means the intraday 

period of time starting at the business 

hour of 8:15 a.m. and ending at the 

business hour of 4:45 p.m.; business 

hour means any hour between 8:15 a.m. 

and 4:45 p.m. Business day and 

business hour are Eastern Standard 

Time or Eastern Daylight Savings Time, 

whichever is currently in effect in 

Washington, DC, on all days except 

Saturdays, Sundays, and Federal 

holidays in Washington, DC. 

(b) Dormant contract or dormant 

product means: 

(1) Any agreement, contract, 

transaction, instrument, swap or any 

such commodity futures or option 

contract with respect to all future or 

option expiries, listed on a designated 

contract market, a swap execution 

facility or cleared by a registered 

derivatives clearing organization, that 

has no open interest and in which no 

trading has occurred for a period of 

twelve complete calendar months 

following a certification to, or approval 

by, the Commission; provided, however, 

that no contract or instrument under 

this paragraph (b)(1) initially and 

originally certified to, or approved by, 

the Commission within the preceding 

36 complete calendar months shall be 

considered to be dormant; or 

(2) Any commodity futures or option 

contract, swap or other agreement, 

contract, transaction or instrument of a 

dormant designated contract market, 

dormant swap execution facility or a 

dormant derivatives clearing 

organization; or 

(3) Any commodity futures or option 

contract or other agreement, contract, 

swap, transaction or instrument not 

otherwise dormant that a designated 

contract market, a swap execution 

facility or a derivatives clearing 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44791 

organization self-declares through 

certification to be dormant. 

(c) Dormant designated contract 

market means any designated contract 

market on which no trading has 

occurred during the period of twelve 

consecutive calendar months, preceding 

the first day of the most recent calendar 

month; provided, however, no 

designated contract market shall be 

considered to be dormant if its initial 

and original Commission order of 

designation was issued within the 

preceding 36 consecutive calendar 

months. 

(d) Dormant derivatives clearing 

organization means any derivatives 

clearing organization registered 

pursuant to Section 5b of the Act that 

has not accepted for clearing any 

agreement, contract or transaction that 

is required or permitted to be cleared by 

a derivatives clearing organization 

under Sections 5b(a) and 5b(b) of the 

Act, respectively, for a period of twelve 

complete calendar months; provided, 

however, no derivatives clearing 

organization shall be considered to be 

dormant if its initial and original 

Commission order of registration was 

issued within the preceding 36 

complete calendar months. 

(e) Dormant swap data repository 

means any registered swap data 

repository on which no data has resided 

for a period of twelve consecutive 

calendar months, preceding the most 

recent calendar month. 

(f) Dormant swap execution facility 

means any swap execution facility on 

which no trading has occurred for a 

period of twelve consecutive calendar 

months, preceding the first day of the 

most recent calendar month; provided, 

however, no swap execution facility 

shall be considered to be dormant if its 

initial and original Commission order of 

registration was issued within the 

preceding 36 consecutive calendar 

months. 

(g) Dormant rule means: 

(1) Any registered entity rule which 

remains unimplemented for twelve 

consecutive calendar months following 

a certification with, or an approval by, 

the Commission; or 

(2) Any rule or rule amendment of a 

dormant designated contract market, 

dormant swap execution facility, 

dormant swap data repository or 

dormant derivatives clearing 

organization. 

(h) Emergency means any occurrence 

or circumstance that, in the opinion of 

the governing board of a registered 

entity, or a person or persons duly 

authorized to issue such an opinion on 

behalf of the governing board of a 

registered entity under circumstances 

and pursuant to procedures that are 

specified by rule, requires immediate 

action and threatens or may threaten 

such things as the fair and orderly 

trading in, or the liquidation of or 

delivery pursuant to, any agreements, 

contracts, swaps or transactions or the 

timely collection and payment of funds 

in connection with clearing and 

settlement by a derivatives clearing 

organization, including: 

(1) Any manipulative or attempted 

manipulative activity; 

(2) Any actual, attempted, or 

threatened corner, squeeze, congestion, 

or undue concentration of positions; 

(3) Any circumstances which may 

materially affect the performance of 

agreements, contracts, swaps or 

transactions, including failure of the 

payment system or the bankruptcy or 

insolvency of any participant; 

(4) Any action taken by any 

governmental body, or any other 

registered entity, board of trade, market 

or facility which may have a direct 

impact on trading or clearing and 

settlement; and 

(5) Any other circumstance which 

may have a severe, adverse effect upon 

the functioning of a registered entity. 

(i) Rule means any constitutional 

provision, article of incorporation, 

bylaw, rule, regulation, resolution, 

interpretation, stated policy, advisory, 

terms and conditions, trading protocol, 

agreement or instrument corresponding 

thereto, including those that authorize a 

response or establish standards for 

responding to a specific emergency, and 

any amendment or addition thereto or 

repeal thereof, made or issued by a 

registered entity or by the governing 

board thereof or any committee thereof, 

in whatever form adopted. 

(j) Terms and conditions means any 

definition of the trading unit or the 

specific commodity underlying a 

contract for the future delivery of a 

commodity or commodity option 

contract, description of the payments to 

be exchanged under a swap, 

specification of cash settlement or 

delivery standards and procedures, and 

establishment of buyers’ and sellers’ 

rights and obligations under the swap or 

contract. Terms and conditions include 

provisions relating to the following: 

(1) For a contract for the purchase or 

sale of a commodity for future delivery 

or an option on such a contract or an 

option on a commodity (other than a 

swap): 

(i) Quality and other standards that 

define the commodity or instrument 

underlying the contract; 

(ii) Quantity standards or other 

provisions related to contract size; 

(iii) Any applicable premiums or 

discounts for delivery of nonpar 

products; 

(iv) Trading hours, trading months 

and the listing of contracts; 

(v) The pricing basis, minimum price 

fluctuations, and maximum price 

fluctuations; 

(vi) Any price limits, no cancellation 

ranges, trading halts, or circuit breaker 

provisions, and procedures for the 

establishment of daily settlement prices; 

(vii) Position limits, position 

accountability standards, and position 

reporting requirements; 

(viii) Delivery points and locational 

price differentials; 

(ix) Delivery standards and 

procedures, including fees related to 

delivery or the delivery process; 

alternatives to delivery and applicable 

penalties or sanctions for failure to 

perform; 

(x) If cash settled; the definition, 

composition, calculation and revision of 

the cash settlement price or index; 

(xi) Payment or collection of 

commodity option premiums or 

margins; 

(xii) Option exercise price, if it is 

constant, and method for calculating the 

exercise price, if it is variable; 

(xiii) Threshold prices for an option 

contract, the existence of which is 

contingent upon those prices; and 

(xiv) Any restrictions or requirements 

for exercising an option; and 

(2) For a swap: 

(i) Identification of the major group, 

category, type or class in which the 

swap falls (such as an interest rate, 

commodity, credit or equity swap) and 

of any further sub-group, category, type 

or class that further describes the swap; 

(ii) Notional amounts, quantity 

standards, or other unit size 

characteristics; 

(iii) Any applicable premiums or 

discounts for delivery of nonpar 

products; 

(iv) Trading hours and the listing of 

swaps; 

(v) Pricing basis for establishing the 

payment obligations under, and markto-market value of, the swap including, 

as applicable, the accrual start dates, 

termination or maturity dates, and, for 

each leg of the swap, the initial cash 

flow components, spreads, and points, 

and the relevant indexes, prices, rates, 

coupons, or other price reference 

measures; 

(vi) Any price limits, trading halts, or 

circuit breaker provisions, and 

procedures for the establishment of 

daily settlement prices; 

(vii) Position limits, position 

accountability standards, and position 

reporting requirements; 

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44792 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

(viii) Payment and reset frequency, 

day count conventions, business 

calendars, and accrual features; 

(ix) If physical delivery applies, 

delivery standards and procedures, 

including fees related to delivery or the 

delivery process, alternatives to delivery 

and applicable penalties or sanctions for 

failure to perform; 

(x) If cash settled, the definition, 

composition, calculation and revision of 

the cash settlement price, and the 

settlement currency; 

(xi) Payment or collection of option 

premiums or margins; 

(xii) Option exercise price, if it is 

constant, and method for calculating the 

exercise price, if it is variable; 

(xiii) Threshold prices for an option, 

the existence of which is contingent 

upon those prices; 

(xiv) Any restrictions or requirements 

for exercising an option; and 

(xv) Life cycle events. 

§ 40.2 Listing products for trading by 

certification. 

(a) A designated contract market or a 

swap execution facility must comply 

with the submission requirements of 

this section prior to listing a product for 

trading that has not been approved 

under § 40.3 of this part or that remains 

dormant subsequent to being submitted 

under this section or approved under 

§ 40.3 of this part. A submission shall 

comply with the following conditions: 

(1) The designated contract market or 

the swap execution facility has filed its 

submission electronically in a format 

and manner specified by the Secretary 

of the Commission with the Secretary of 

the Commission; 

(2) The Commission has received the 

submission by the open of business on 

the business day preceding the 

product’s listing; and 

(3) The submission includes: 

(i) A copy of the submission cover 

sheet in accordance with the 

instructions in Appendix D to this part; 

(ii) A copy of the product’s rules, 

including all rules related to its terms 

and conditions; 

(iii) The intended listing date; 

(iv) A certification by the designated 

contract market or the swap execution 

facility that the product to be listed 

complies with the Act and Commission 

regulations thereunder; 

(v) A concise explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the Act, including core principles, 

and the Commission’s regulations 

thereunder. This explanation and 

analysis shall either be accompanied by 

the documentation relied upon to 

establish the basis for compliance with 

applicable law, or incorporate 

information contained in such 

documentation, with appropriate 

citations to data sources; 

(vi) A certification that the registered 

entity posted a notice of pending 

product certification with the 

Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the registered entity’s Web site. 

Information that the registered entity 

seeks to keep confidential may be 

redacted from the documents published 

on the registered entity’s Web site but 

must be republished consistent with any 

determination made pursuant to 

§ 40.8(c)(4); 

(vii) A request for confidential 

treatment, if appropriate, as permitted 

under § 40.8. 

(b) Additional information. If 

requested by Commission staff, a 

registered entity shall provide any 

additional evidence, information or data 

that demonstrates that the contract 

meets, initially or on a continuing basis, 

the requirements of the Act or the 

Commission’s regulations or policies 

thereunder. 

(c) Stay. The Commission may stay 

the listing of a contract pursuant to 

paragraph (a) of this section during the 

pendency of Commission proceedings 

for filing a false certification or during 

the pendency of a petition to alter or 

amend the contract terms and 

conditions pursuant to Section 8a(7) of 

the Act. The decision to stay the listing 

of a contract in such circumstances shall 

not be delegable to any employee of the 

Commission. 

(d) Class certification of swaps. (1) A 

designated contract market or swap 

execution facility may list or facilitate 

trading in any swap or number of swaps 

based upon an ‘‘excluded commodity,’’ 

as defined in Section 1a(19)(i) of the 

Act, not including any security, security 

index, and currency other than the 

United States Dollar and a ‘‘major 

foreign currency,’’ as defined in 

§ 15.03(a), or an ‘‘excluded commodity,’’ 

as defined in Section 1a(19)(ii)–(iv) of 

the Act, provided the designated 

contract market or swap execution 

facility certifies, under § 40.2(a)(1)–(2), 

§ 40.2(a)(3)(i), § 40.2(a)(3)(iv), and 

§ 40.2(a)(3)(vi), each of the following: 

(i) That each particular swap within 

the certified class of swaps is based 

upon an excluded commodity specified 

in § 40.2(d)(1); and 

(ii) That each particular swap within 

the certified class of swaps is based 

upon an excluded commodity with an 

identical pricing source, formula, 

procedure, and methodology for 

calculating reference prices and 

payment obligations; and 

(iii) That the pricing source, formula, 

procedure, and methodology for 

calculating reference prices and 

payment obligations in each particular 

swap within the certified class of swaps 

is identical to a pricing source, formula, 

procedure, and methodology for 

calculating reference prices and 

payment obligations in a product 

previously submitted to the Commission 

and certified or approved pursuant to 

§ 40.2 or § 40.3; 

(iv) That each particular swap within 

the certified class of swaps is based 

upon an excluded commodity involving 

an identical currency or identical 

currencies. 

(2) The Commission may in its 

discretion require a registered entity to 

withdraw its certification under 

§ 40.2(d)(1) and to submit each 

individual swap or certain individual 

swaps within the submission for 

Commission review pursuant to § 40.2 

or § 40.3 

§ 40.3 Voluntary submission of new 

products for Commission review and 

approval. 

(a) Request for approval. Pursuant to 

Section 5c(c) of the Act, a designated 

contract market, a swap execution 

facility, or a derivatives clearing 

organization may request that the 

Commission approve a new or dormant 

product prior to listing the product for 

trading or accepting the product for 

clearing, or if a product was initially 

submitted under § 40.2 of this part or 

§ 39.5 of this chapter, subsequent to 

listing the product for trading or 

accepting the product for clearing. A 

submission requesting approval shall: 

(1) Be filed electronically in a format 

and manner specified by the Secretary 

of the Commission with the Secretary of 

the Commission; 

(2) Include a copy of the submission 

cover sheet in accordance with the 

instructions in Appendix D to this part; 

(3) Include a copy of the rules that set 

forth the contract’s terms and 

conditions; 

(4) Include an explanation and 

analysis of the product and its 

compliance with applicable provisions 

of the Act, including core principles, 

and the Commission’s regulations 

thereunder. This explanation and 

analysis shall either be accompanied by 

the documentation relied upon to 

establish the basis for compliance with 

the applicable law, or incorporate 

information contained in such 

documentation, with appropriate 

citations to data sources; 

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(5) Describe any agreements or 

contracts entered into with other parties 

that enable the registered entity to carry 

out its responsibilities; 

(6) Include the certifications required 

in § 41.22 for product approval of a 

commodity that is a security future or a 

security futures product as defined in 

Sections 1a(44) or 1a(45) of the Act, 

respectively; 

(7) Include, if appropriate, a request 

for confidential treatment as permitted 

under § 40.8; 

(8) Include the filing fee required 

under Appendix A to this part; 

(9) Certify that the registered entity 

posted a notice of its request for 

Commission approval of the new 

product and a copy of the submission, 

concurrent with the filing of a 

submission with the Commission, on 

the registered entity’s Web site. 

Information that the registered entity 

seeks to keep confidential may be 

redacted from the documents published 

on the registered entity’s Web site but 

must be republished consistent with any 

determination made pursuant to 

§ 40.8(c)(4); 

(10) Include, if requested by 

Commission staff, additional evidence, 

information or data demonstrating that 

the contract meets, initially or on a 

continuing basis, the requirements of 

the Act, or other requirement for 

designation or registration under the 

Act, or the Commission’s regulations or 

policies thereunder. The registered 

entity shall submit the requested 

information by the open of business on 

the date that is two business days from 

the date of request by Commission staff, 

or at the conclusion of such extended 

period agreed to by Commission staff 

after timely receipt of a written request 

from the registered entity. 

(b) Standard for review and approval. 

The Commission shall approve a new 

product unless the terms and conditions 

of the product violate the Act or the 

Commission’s regulations. 

(c) Forty-five day review. All products 

submitted for Commission approval 

under this paragraph shall be deemed 

approved by the Commission 45 days 

after receipt by the Commission, or at 

the conclusion of an extended period as 

provided under paragraph (d) of this 

section, unless notified otherwise 

within the applicable period, if: 

(1) The submission complies with the 

requirements of paragraph (a) of this 

section; and 

(2) The submitting entity does not 

amend the terms or conditions of the 

product or supplement the request for 

approval, except as requested by the 

Commission or for correction of 

typographical errors, renumbering or 

other non-substantive revisions, during 

that period. Any voluntary, substantive 

amendment by the submitting entity 

will be treated as a new submission 

under this section. 

(d) Extension of time. The 

Commission may extend the 45 day 

review period in paragraph (c) of this 

section for: 

(1) An additional 45 days, if the 

product raises novel or complex issues 

that require additional time to analyze, 

in which case the Commission shall 

notify the registered entity within the 

initial 45 day review period and shall 

briefly describe the nature of the 

specific issues for which additional time 

for review is required; or 

(2) Any extended review period to 

which the registered entity agrees in 

writing. 

(e) Notice of non-approval. The 

Commission at any time during its 

review under this section may notify the 

registered entity that it will not, or is 

unable to, approve the product. This 

notification will briefly specify the 

nature of the issues raised and the 

specific provision of the Act or the 

Commission’s regulations, including the 

form or content requirements of 

paragraph (a) of this section, that the 

product violates, appears to violate or 

potentially violates but which cannot be 

ascertained from the submission. 

(f) Effect of non-approval. (1) 

Notification to a registered entity under 

paragraph (e) of this section of the 

Commission’s determination not to 

approve a product does not prejudice 

the entity from subsequently submitting 

a revised version of the product for 

Commission approval or from 

submitting the product as initially 

proposed pursuant to a supplemented 

submission. 

(2) Notification to a registered entity 

under paragraph (e) of this section of the 

Commission’s refusal to approve a 

product shall be presumptive evidence 

that the entity may not truthfully certify 

under § 40.2 that the same, or 

substantially the same, product does not 

violate the Act or the Commission’s 

regulations thereunder. 

§ 40.4 Amendments to terms or conditions 

of enumerated agricultural products. 

(a) Notwithstanding the provisions of 

this part, a designated contract market 

must submit for Commission approval 

under the procedures of § 40.5, prior to 

its implementation, any rule or dormant 

rule that, for a delivery month having 

open interest, would materially change 

a term or condition, as defined in 

§ 40.1(j), of a contract for future delivery 

in an agricultural commodity 

enumerated in Section 1a(9) of the Act, 

or of an option on such a contract or 

commodity. 

(b) The following rules or rule 

amendments are not material and 

should not be submitted under this 

section: 

(1) Changes that are enumerated in 

§ 40.6(d)(2) may be implemented 

without prior approval or certification if 

implemented pursuant to the 

notification procedures of § 40.6(d); 

(2) Changes that are enumerated in 

§ 40.6(d)(3)(ii) may be implemented 

without prior approval or certification 

or notification as permitted pursuant to 

§ 40.6(d)(3); 

(3) Changes in no cancellation ranges 

and trading hours may be implemented 

without prior approval if implemented 

pursuant to the procedures of § 40.6(a); 

(4) Changes required to comply with 

a binding order of a court of competent 

jurisdiction, or a rule, regulation or 

order of the Commission or of another 

Federal regulatory authority, may be 

implemented without prior approval if 

implemented pursuant to the 

procedures of § 40.6(a);or 

(5) Any other rule: 

(i) The text of which has been 

submitted for review at least ten 

business days prior to its 

implementation and that has been 

labeled ‘‘Non-Material Agricultural Rule 

Change;’’ 

(ii) For which the designated contract 

market has provided an explanation as 

to why it considers the rule ‘‘nonmaterial,’’ and any other information 

that may be beneficial to the 

Commission in analyzing the merits of 

the entity’s claim of non-materiality; 

and 

(iii) With respect to which the 

Commission has not notified the 

contract market during the review 

period that the rule appears to require 

or does require prior approval under 

this section, may be implemented 

without prior approval if implemented 

under the procedures of § 40.6(a). 

§ 40.5 Voluntary submission of rules for 

Commission review and approval. 

(a) Request for approval of rules. 

Pursuant to Section 5c(c) of the Act, a 

registered entity may request that the 

Commission approve a new rule, rule 

amendment or dormant rule prior to 

implementation of the rule, or if the 

request was initially submitted under 

§§ 40.2 or 40.6 of this part, subsequent 

to implementation of the rule. A request 

for approval shall: 

(1) Be filed electronically in a format 

and manner specified by the Secretary 

of the Commission with the Secretary of 

the Commission; 

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(2) Include a copy of the submission 

cover sheet in accordance with the 

instructions in Appendix D to this part; 

(3) Set forth the text of the rule or rule 

amendment (in the case of a rule 

amendment, deletions and additions 

must be indicated); 

(4) Describe the proposed effective 

date of the rule or rule amendment and 

any action taken or anticipated to be 

taken to adopt the proposed rule by the 

registered entity or by its governing 

board or by any committee thereof, and 

cite the rules of the entity that authorize 

the adoption of the proposed rule; 

(5) Provide an explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the Act, 

including core principles, and the 

Commission’s regulations thereunder, 

including, as applicable, a description 

of the anticipated benefits to market 

participants or others, any potential 

anticompetitive effects on market 

participants or others, and how the rule 

fits into the registered entity’s 

framework of self-regulation; 

(6) Certify that the registered entity 

posted a notice of pending rule with the 

Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the registered entity’s Web site. 

Information which the registered entity 

seeks to keep confidential may be 

redacted from the documents published 

on the registered entity’s Web site but 

must be republished consistent with any 

determination made pursuant to 

§ 40.8(c)(4); 

(7) Provide additional information 

which may be beneficial to the 

Commission in analyzing the new rule 

or rule amendment. If a proposed rule 

affects, directly or indirectly, the 

application of any other rule of the 

registered entity, the pertinent text of 

any such rule must be set forth and the 

anticipated effect described; 

(8) Provide a brief explanation of any 

substantive opposing views expressed to 

the registered entity by governing board 

or committee members, members of the 

entity or market participants that were 

not incorporated into the rule, or a 

statement that no such opposing views 

were expressed; 

(9) Identify any Commission 

regulation that the Commission may 

need to amend, or sections of the Act or 

the Commission’s regulations that the 

Commission may need to interpret, in 

order to approve the new rule or rule 

amendment. To the extent that such an 

amendment or interpretation is 

necessary to accommodate a new rule or 

rule amendment, the submission should 

include a reasoned analysis supporting 

the amendment to the Commission’s 

regulation or the interpretation; 

(10) As appropriate, include a request 

for confidential treatment as permitted 

under the procedures of § 40.8. 

(b) Standard for review and approval. 

The Commission shall approve a new 

rule or rule amendment unless the rule 

or rule amendment is inconsistent with 

the Act or the Commission’s regulations. 

(c) Forty-five day review. (1) All rules 

submitted for Commission approval 

under paragraph (a) of this section shall 

be deemed approved by the Commission 

under section 5c(c) of the Act 45 days 

after receipt by the Commission, or at 

the conclusion of such extended period 

as provided under paragraph (d) of this 

section, unless the registered entity is 

notified otherwise within the applicable 

period, if: 

(i) The submission complies with the 

requirements of paragraph (a) of this 

section; 

(ii) The registered entity does not 

amend the proposed rule or supplement 

the submission, except as requested by 

the Commission, during the pendency 

of the review period other than for 

correction of typographical errors, 

renumbering or other non-substantive 

revisions. Any amendment or 

supplementation not requested by the 

Commission will be treated as the 

submission of a new filing under this 

section. 

(2) The Commission shall commence 

the review period in paragraph (c) of 

this section for a compliant submission 

under § 40.4(b)(5) ten business days 

after its receipt. 

(d) Commencement and extension of 

time for review. The Commission may 

further extend the review period in 

paragraph (c) of this section for any 

approval request for: 

(1) An additional 45 days, if the 

proposed rule raises novel or complex 

issues that require additional time for 

review or is of major economic 

significance, the submission is 

incomplete or the requestor does not 

respond completely to Commission 

questions in a timely manner, in which 

case the Commission shall notify the 

submitting registered entity within the 

initial forty-five day review period and 

shall briefly describe the nature of the 

specific issues for which additional time 

for review shall be required; or 

(2) Any period, beyond the additional 

45 days provided in § 40.5(d)(1), to 

which the registered entity agrees in 

writing. 

(e) Notice of non-approval. Any time 

during its review under this section, the 

Commission may notify the registered 

entity that it will not, or is unable to, 

approve the new rule or rule 

amendment. This notification will 

briefly specify the nature of the issues 

raised and the specific provision of the 

Act or the Commission’s regulations, 

including the form or content 

requirements of this section, with which 

the new rule or rule amendment is 

inconsistent or appears to be 

inconsistent with the Act or the 

Commission’s regulations. 

(f) Effect of non-approval. (1) 

Notification to a registered entity under 

paragraph (e) of this section does not 

prevent the registered entity from 

subsequently submitting a revised 

version of the proposed rule or rule 

amendment for Commission review and 

approval or from submitting the new 

rule or rule amendment as initially 

proposed in a supplemented 

submission; the revised submission will 

be reviewed without prejudice. 

(2) Notification to a registered entity 

under paragraph (e) of this section of the 

Commission’s determination not to 

approve a proposed rule or rule 

amendment of a registered entity shall 

be presumptive evidence that the entity 

may not truthfully certify that the same, 

or substantially the same, proposed rule 

or rule amendment under § 40.6(a) of 

this section. 

(g) Expedited approval. 

Notwithstanding the provisions of 

paragraph (c) of this section, changes to 

a proposed rule or a rule amendment, 

including changes to terms and 

conditions of a product that are 

consistent with the Act and Commission 

regulations and with standards 

approved or established by the 

Commission may be approved by the 

Commission at such time and under 

such conditions as the Commission 

shall specify in the written notification, 

provided, however, that the 

Commission may, at any time, alter or 

revoke the applicability of such a notice 

to any particular product or rule 

amendment. 

§ 40.6 Self-certification of rules. 

(a) Required certification. A registered 

entity shall comply with the following 

conditions prior to implementing any 

rule, other than a rule delisting or 

withdrawing the certification of a 

product, that has not obtained 

Commission approval under § 40.5 of 

this part, that remains dormant 

subsequent to being submitted under 

this section or approved under § 40.5 of 

this part, or that is submitted under 

§ 40.10 of this part, except as otherwise 

provided by § 40.10(a): 

(1) The registered entity has filed its 

submission electronically in a format 

and manner specified by the Secretary 

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of the Commission with the Secretary of 

the Commission. 

(2) The registered entity has provided 

a certification that the registered entity 

posted a notice of pending certification 

with the Commission and a copy of the 

submission, concurrent with the filing 

of a submission with the Commission, 

on the registered entity’s Web site. 

Information that the registered entity 

seeks to keep confidential may be 

redacted from the documents published 

on the registered entity’s Web site but it 

must be republished consistent with any 

determination made pursuant to 

§ 40.8(c)(4). 

(3) The Commission has received the 

submission not later than the open of 

business on the business day that is 10 

business days prior to the registered 

entity’s implementation of the rule or 

rule amendment. 

(4) The Commission has not stayed 

the submission pursuant to § 40.6(c). 

(5) The rule or rule amendment is not 

a rule or rule amendment of a 

designated contract market that 

materially changes a term or condition 

of a contract for future delivery of an 

agricultural commodity enumerated in 

section 1a(4) of the Act or an option on 

such a contract or commodity in a 

delivery month having open interest. 

(6) Emergency rule certifications. (i) 

New rules or rule amendments that 

establish standards for responding to an 

emergency must be submitted pursuant 

to § 40.6(a); 

(ii) Rules or rule amendments 

implemented under procedures of the 

governing board to respond to an 

emergency as defined in § 40.1, shall, if 

practicable, be filed with the 

Commission prior to the 

implementation or, if not practicable, be 

filed with the Commission at the earliest 

possible time after implementation, but 

in no event more than twenty-four hours 

after implementation. Such rules shall 

be subject to the certification and stay 

provisions of paragraphs (b) and (c) of 

this section. 

(7). The rule submission shall 

include: 

(i) A copy of the submission cover 

sheet in accordance with the 

instructions in Appendix D to this part 

(in the case of a rule or rule amendment 

that responds to an emergency, 

‘‘Emergency Rule Certification’’ should 

be noted in the Description section of 

the submission coversheet); 

(ii) The text of the rule (in the case of 

a rule amendment, deletions and 

additions must be indicated); 

(iii) The date of intended 

implementation; 

(iv) A certification by the registered 

entity that the rule complies with the 

Act and the Commission’s regulations 

thereunder; 

(v) A concise explanation and 

analysis of the operation, purpose, and 

effect of the proposed rule or rule 

amendment and its compliance with 

applicable provisions of the Act, 

including core principles, and the 

Commission’s regulations thereunder; 

(vi) A brief explanation of any 

substantive opposing views expressed to 

the registered entity by governing board 

or committee members, members of the 

entity or market participants, that were 

not incorporated into the rule, or a 

statement that no such opposing views 

were expressed; 

(vii) As appropriate, a request for 

confidential treatment pursuant to the 

procedures provided in § 40.8; and 

(8) The registered entity shall provide, 

if requested by Commission staff, 

additional evidence, information or data 

that may be beneficial to the 

Commission in conducting a due 

diligence assessment of the filing and 

the registered entity’s compliance with 

any of the requirements of the Act or the 

Commission’s regulations or policies 

thereunder. 

(b) Review by the Commission. The 

Commission shall have 10 business days 

to review the new rule or rule 

amendment before the new rule or rule 

amendment is deemed certified and can 

be made effective, unless the 

Commission notifies the registered 

entity during the 10-business day 

review period that it intends to issue a 

stay of the certification under paragraph 

(c) of this section. 

(c) Stay (1) Stay of certification of new 

rule or rule amendment. The 

Commission may stay the certification 

of a new rule or rule amendment 

submitted pursuant to paragraph (a) of 

this section by issuing a notification 

informing the registered entity that the 

Commission is staying the certification 

of the rule or rule amendment on the 

grounds that the rule or rule amendment 

presents novel or complex issues that 

require additional time to analyze, the 

rule or rule amendment is accompanied 

by an inadequate explanation or the rule 

or rule amendment is potentially 

inconsistent with the Act or the 

Commission’s regulations thereunder. 

The Commission will have an 

additional 90 days from the date of the 

notification to conduct the review. The 

decision to stay the certification of a 

rule in such circumstances shall be 

delegable pursuant to § 40.7 of this part. 

(2) Public comment. The Commission 

shall provide a 30-day comment period 

within the 90-day period in which the 

stay is in effect as described in 

paragraph (c)(1) of this section. The 

Commission shall publish a notice of 

the 30-day comment period on the 

Commission Web site. Comments from 

the public shall be submitted as 

specified in that notice. 

(3) Expiration of a stay of certification 

of new rule or rule amendment. A new 

rule or rule amendment subject to a stay 

pursuant to this paragraph shall become 

effective, pursuant to the certification, at 

the expiration of the 90-day review 

period described in paragraph (c)(1) of 

this section unless the Commission 

withdraws the stay prior to that time, or 

the Commission notifies the registered 

entity during the 90-day time period 

that it objects to the proposed 

certification on the grounds that the 

proposed rule or rule amendment is 

inconsistent with the Act or the 

Commission’s regulations. 

(4) Stay of effectiveness of rules or 

rule amendments already implemented. 

The Commission may stay the 

effectiveness of an implemented rule 

during the pendency of Commission 

proceedings for filing a false 

certification or during the pendency of 

a petition to alter or amend the rule 

pursuant to section 8a(7) of the Act. The 

decision to stay the effectiveness of a 

rule in such circumstances shall not be 

delegable to any employee of the 

Commission. 

(d) Notification of rule amendments. 

Notwithstanding the rule certification 

requirement of Section 5c(c)(1) of the 

Act and paragraph (a) of this section, a 

registered entity may place the 

following rules or rule amendments into 

effect without certification to the 

Commission if the following conditions 

are met: 

(1) The registered entity provides to 

the Commission at least weekly a 

summary notice of all rule amendments 

made effective pursuant to this 

paragraph during the preceding week. 

Such notice must be labeled ‘‘Weekly 

Notification of Rule Amendments’’ and 

need not be filed for weeks during 

which no such actions have been taken. 

One copy of each such submission shall 

be furnished electronically in a format 

and manner specified by the Secretary 

of the Commission; and 

(2) The rule governs: 

(i) Non-substantive revisions. 

Corrections of typographical errors, 

renumbering, periodic routine updates 

to identifying information about 

registered entities and other such nonsubstantive revisions of a product’s 

terms and conditions that have no effect 

on the economic characteristics of the 

product; 

(ii) Delivery standards set by third 

parties. Changes to grades or standards 

of commodities deliverable on a product 

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that are established by an independent 

third party and that are incorporated by 

reference as product terms, provided 

that the grade or standard is not 

established, selected or calculated solely 

for use in connection with futures or 

option trading and such changes do not 

affect deliverable supplies or the pricing 

basis for the product; 

(iii) Index products. Routine changes 

in the composition, computation, or 

method of selection of component 

entities of an index (other than routine 

changes to securities indexes to the 

extent that such changes are not 

described in paragraph (d)(3)(ii)(F) of 

this section) referenced and defined in 

the product’s terms, that do not affect 

the pricing basis of the index, which are 

made by an independent third party 

whose business relates to the collection 

or dissemination of price information 

and which was not formed solely for the 

purpose of compiling an index for use 

in connection with a futures or option 

product; 

(iv) Option contract terms. Changes to 

option contract rules, which may 

qualify for implementation without 

notice pursuant to paragraph 

(d)(3)(ii)(G) of this section, relating to 

the strike price listing procedures, strike 

price intervals, and the listing of strike 

prices on a discretionary basis; 

(v) Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that: 

(A) Total $1.00 or more per contract, 

and 

(B) Are established by an independent 

third party or are unrelated to delivery, 

trading, clearing or dispute resolution. 

(vi) Survey lists. Changes to lists of 

banks, brokers, dealers, or other entities 

that provide price or cash market 

information to an independent third 

party and that are incorporated by 

reference as product terms; 

(vii) Approved brands. Changes in 

lists of approved brands or markings 

pursuant to previously certified or 

Commission approved standards or 

criteria; 

(viii) Delivery facilities and delivery 

service providers. Changes in lists of 

approved delivery facilities and delivery 

service providers (including weigh 

masters, assayers, and inspectors) at a 

delivery location, pursuant to 

previously certified or Commission 

approved standards or criteria; 

(ix) Trading months. The initial 

listing of trading months, which may 

qualify for implementation without 

notice pursuant to (d)(3)(ii)(H) of this 

section, within the currently established 

cycle of trading months; or 

(x) Minimum tick. Reductions in the 

minimum price fluctuation (or ‘‘tick’’). 

(3) Notification of rule amendments 

not required. Notwithstanding the rule 

certification requirements of section 

5c(c)(1) of the Act and paragraph (a) of 

this section, a registered entity may 

place the following rules or rule 

amendments into effect without 

certification or notice to the 

Commission if the following conditions 

are met: 

(i) The registered entity maintains 

documentation regarding all changes to 

rules; and 

(ii) The rule governs: 

(A) Transfer of membership or 

ownership. Procedures and forms for the 

purchase, sale or transfer of membership 

or ownership, but not including 

qualifications for membership or 

ownership, any right or obligation of 

membership or ownership or dues or 

assessments; 

(B) Administrative procedures. The 

organization and administrative 

procedures of a registered entity 

governing bodies such as a Board of 

Directors, Officers and Committees, but 

not voting requirements, Board of 

Directors or Committee composition 

requirements or procedures, decision 

making procedures, use or disclosure of 

material non-public information gained 

through the performance of official 

duties, or requirements relating to 

conflicts of interest; 

(C) Administration. The routine, daily 

administration, direction and control of 

employees, requirements relating to 

gratuity and similar funds, but not 

guaranty, reserves, or similar funds; 

declaration of holidays, and changes to 

facilities housing the market, trading 

floor or trading area; 

(D) Standards of decorum. Standards 

of decorum or attire or similar 

provisions relating to admission to the 

floor, badges, or visitors, but not the 

establishment of penalties for violations 

of such rules; and 

(E) Fees. Fees or fee changes, other 

than fees or fee changes associated with 

market making or trading incentive 

programs, that: 

(1) Are less than $1.00; or 

(2) Relate to matters such as dues, 

badges, telecommunication services, 

booth space, real time quotations, 

historical information, publications, 

software licenses or other matters that 

are administrative in nature. 

(F) Securities indexes. Routine 

changes to the composition, 

computation or method of security 

selection of an index that is referenced 

and defined in the product’s rules, and 

which is made by an independent third 

party. 

(G) Option contract terms. For 

registered entities that are in 

compliance with the daily reporting 

requirements of § 16.01 of this chapter, 

changes to option contract rules relating 

to the strike price listing procedures, 

strike price intervals, and the listing of 

strike prices on a discretionary basis. 

(H) Trading months. For registered 

entities that are in compliance with the 

daily reporting requirements of § 16.01 

of this chapter, the initial listing of 

trading months which are within the 

currently established cycle of trading 

months. 

§ 40.7 Delegations. 

(a) Procedural matters. (1) The 

Commission hereby delegates, until it 

orders otherwise, to the Director of the 

Division of Clearing and Intermediary 

Oversight and, separately, to the 

Director of the Division of Market 

Oversight, to be exercised by either 

Director, as appropriate, or by such 

employees of the Commission that 

either Director may designate from time 

to time, the following authorities, with 

the concurrence of the General Counsel 

or the General Counsel’s delegate: 

(i) To request, pursuant to § 40.3(c)(2) 

or § 40.5(c)(1)(ii) of this part, that the 

registered entity requesting approval 

amend the proposed product, rule or 

rule amendment, or supplement the 

submission to the Commission; 

(ii) To notify the registered entity, 

pursuant to § 40.3(e) or § 40.5(e) of this 

part, that the Commission is not 

approving, or is unable to approve, the 

proposed product, rule or rule 

amendment; 

(iii) To make all determinations 

reserved to the Commission in § 40.10. 

(2) The Commission hereby delegates, 

until it orders otherwise, to the Director 

of the Division of Clearing and 

Intermediary Oversight and, separately, 

to the Director of the Division of Market 

Oversight, to be exercised by either 

Director, as appropriate, or by such 

employees of the Commission that 

either Director may designate from time 

to time, the following authorities, after 

consultation with the Office of General 

Counsel or the General Counsel’s 

delegate to notify a registered entity: 

(i) Pursuant to § 40.3(d) of this part, 

that the time for review of the 

submission has been extended because 

the product raises novel or complex 

issues that require additional time for 

review; 

(ii) Pursuant to § 40.5(d) of this part, 

that the time for review of the 

submission has been extended because 

the proposed rule or rule amendment 

raises novel or complex issues that 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44797 

require additional time for review or is 

of major economic significance; 

(iii) Pursuant to § 40.6(c) of this part, 

that the proposed rule or rule 

amendment has been stayed because 

there exist novel or complex issues that 

require additional time to analyze, or 

there is potential inconsistency with the 

Act or the Commission’s regulations. 

(3) The Commission hereby delegates, 

until it orders otherwise, to the Director 

of the Division of Clearing and 

Intermediary Oversight and, separately, 

to the Director of the Division of Market 

Oversight, to be exercised by either 

Director, as appropriate, or by such 

employees of the Commission that 

either Director may designate from time 

to time, the authority to notify a 

registered entity, pursuant to § 40.3(d) 

or § 40.5(d) of this part, that the time for 

review of the submission has been 

extended, or that a rule certified 

pursuant to § 40.6(c) has been stayed, 

because the submission is incomplete or 

provides an inadequate explanation. 

(4) Emergency rules. The Commission 

hereby delegates to the Director of the 

Division of Market Oversight and, 

separately, to the Director of the 

Division of Clearing and Intermediary 

Oversight, to be exercised by either 

Director, as appropriate, or by such 

other employee or employees of the 

Commission that either Director may 

designate from time to time, authority to 

receive notification of emergency rules 

under § 40.6(a)(6)(ii) of this part. 

(5) The Commission hereby delegates 

to the Director of the Division of Market 

Oversight, to be exercised by the 

Director or by such employees of the 

Commission that the Director may 

designate from time to time, with the 

concurrence of the General Counsel or 

the General Counsel’s delegate, the 

authority to determine whether a rule 

change submitted by a designated 

contract market for a materiality 

determination under § 40.4(b)(5) of this 

part is not material (in which case it 

may be reported pursuant to the 

provisions of § 40.6(d) of this part), or is 

material, in which case he or she shall 

notify the registered entity that the rule 

change must be submitted for the 

Commission’s prior approval. 

(b) Approval authority. The 

Commission hereby delegates, until it 

orders otherwise, to the Director of the 

Division of Clearing and Intermediary 

Oversight and, separately, to the 

Director of the Division of Market 

Oversight, to be exercised by either 

Director, as appropriate, or by such 

employees of the Commission that 

either Director may designate from time 

to time, with the concurrence of the 

General Counsel or the General 

Counsel’s delegate, the authority to 

approve, pursuant to section 5c(c)(3) of 

the Act and § 40.5 of this part, rules or 

rule amendments of a registered entity 

that: 

(1) Relate to, but do not substantially 

change, the quantity, quality, or other 

delivery specifications, procedures, or 

obligations for delivery, cash settlement, 

or exercise under an agreement, contract 

or transaction approved for trading by 

the Commission; daily settlement 

prices; clearing position limits; 

requirements or procedures for 

governance of a registered entity; 

procedures for transfer trades; trading 

hours; minimum price fluctuations; and 

maximum price limit and trading 

suspension provisions; 

(2) Reflect routine modifications that 

are required or anticipated by the terms 

of the rule of a registered entity; 

(3) Establish or amend speculative 

limits or position accountability 

provisions that are in compliance with 

the requirements of the Act and the 

Commission’s regulations; 

(4) Are in substance the same as a rule 

of the same or another registered entity 

which has been approved previously by 

the Commission pursuant to section 

5c(c)(3) of the Act; 

(5) Are consistent with a specific, 

stated policy or interpretation of the 

Commission; or 

(6) Relate to the listing of additional 

trading months of approved contracts. 

(c) Notwithstanding the provisions of 

this section, the Director of the Division 

of Clearing and Intermediary Oversight 

and, separately, the Director of the 

Division of Market Oversight may 

submit to the Commission for its 

consideration any matter that has been 

delegated pursuant to this section. 

(d) Nothing in this section shall be 

deemed to prohibit the Commission, at 

its election, from exercising any of the 

authority delegated pursuant to this 

section. 

§ 40.8 Availability of public information. 

(a) The following sections of all 

applications to become a designated 

contract market, swap execution facility, 

derivatives clearing organization, or 

swap data repository shall be made 

publicly available: Transmittal letter 

and first page of the application cover 

sheet, proposed rules, narrative 

summary of the applicant’s proposed 

activities and regulatory compliance 

chart, documents establishing the 

applicant’s legal status, documents 

setting forth the applicant’s corporate 

and governance structure and any other 

part of the application not covered by a 

request for confidential treatment. 

(b) The following submissions 

provided by an electronic trading 

facility on which significant price 

discovery contracts are traded or 

executed will be public: rulebook, the 

facility’s regulatory compliance chart, 

documents establishing the facility’s 

legal status, documents setting forth the 

facility’s governance structure, and any 

other parts of the submissions not 

covered by a request for confidential 

treatment (§ 40.8(b) will be removed on 

July 20, 2012). 

(c) A registered entity’s filing of new 

products pursuant to the selfcertification procedures of § 40.2 of this 

part, new products for Commission 

review and approval pursuant to § 40.3 

of this part, new rules and rule 

amendments for Commission review 

and approval pursuant to § 40.4 or 

§ 40.5 of this part, and new rules and 

rule amendments pursuant to the selfcertification procedures of § 40.6 and 

§ 40.10 of this part shall be treated as 

public information unless accompanied 

by a request for confidential treatment. 

If a registered entity files a request for 

confidential treatment, the following 

procedures shall apply: 

(1) A detailed written justification of 

the confidential treatment request must 

be filed simultaneously with the request 

for confidential treatment. The form and 

content of the detailed written 

justification shall be governed by 

§ 145.9 of this chapter; 

(2) All material for which confidential 

treatment is requested must be 

segregated in an Appendix to the 

submission; 

(3) The submission itself must 

indicate that material has been 

segregated and, as appropriate, an 

additional redacted version provided; 

(4) Commission staff may make an 

initial determination with respect to the 

request for confidential treatment 

without regard to whether a request for 

the information has been sought under 

the Freedom of Information Act; 

(5) All requests for confidential 

treatment shall be subject to the process 

provided by § 145.9 of this chapter. 

(6) A submitter of information under 

this part may appeal an adverse 

decision by staff to the Commission’s 

Office of General Counsel. The form and 

content of such appeal shall be 

governed by § 145.9(g) of this chapter. 

(7) The grant of any part of a request 

for confidential treatment under this 

section may be reconsidered if a 

subsequent request under the Freedom 

of Information Act is made for the 

information. 

(d) Commission staff will not consider 

confidential treatment requests for 

information that is required to be made 

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44798 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

public under the Act. The terms and 

conditions of a product submitted to the 

Commission pursuant to § 40.2, § 40.3, 

§ 40.5 and § 40.6 of this part shall be 

made publicly available at the time of 

submission. 

§ 40.9 [Reserved] 

§ 40.10 Special certification procedures for 

submission of rules by systemically 

important derivatives clearing 

organizations. 

(a) Advance notice. A registered 

derivatives clearing organization that 

has been designated by the Financial 

Stability Oversight Council as a 

systemically important derivatives 

clearing organization shall provide 

notice to the Commission not less than 

60 days in advance of any proposed 

change to its rules, procedures, or 

operations that could materially affect 

the nature or level of risks presented by 

the systemically important derivatives 

clearing organization. A notice 

submitted under this section shall be 

subject to the filing requirements of 

§ 40.6(a)(1) and the Web site publication 

requirements of § 40.6(a)(2). 

(1) The notice of a proposed change 

shall provide the information required 

to be submitted under § 40.6(a)(7) and 

shall specifically describe: 

(i) The nature of the change and 

expected effects on risks to the 

systemically important derivatives 

clearing organization, its clearing 

members, or the market; and 

(ii) How the systemically important 

derivatives clearing organization plans 

to manage any identified risks. 

(2) Concurrent with providing the 

Commission with the advance notice or 

any request or other information related 

to the advance notice, the systemically 

important derivatives clearing 

organization shall provide the Board of 

Governors of the Federal Reserve 

System with a copy of such notice, 

request or other information in the same 

format and manner as required by the 

Board of Governors for those designated 

financial market utilities for which it is 

the Supervisory Agency pursuant to 

section 803(8) of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act. 

(3) The systemically important 

derivatives clearing organization may 

request that the Commission expedite 

the review on the grounds that the 

change would materially decrease risk. 

The Commission, in its discretion, may 

expedite the review and, pursuant to 

paragraph (g) of this section, notify the 

systemically important derivatives 

clearing organization in less than 60 

days from the date the Commission 

receives the notice of proposed change 

in writing that it does not object to the 

proposed change and authorizes 

implementation of the change on an 

earlier date. 

(b) Materiality. The term ‘‘materially 

affect the nature or level of risks 

presented,’’ when used to qualify 

determinations on a change to rules, 

procedures, or operations of a 

systemically important derivatives 

clearing organization, means matters as 

to which there is a reasonable 

possibility that the change could affect 

the performance of essential clearing 

and settlement functions or the overall 

nature or level of risk presented by the 

systemically important derivatives 

clearing organization. Such changes 

may include, but are not limited to, 

changes that materially affect financial 

resources, participant and product 

eligibility, risk management (including 

matters relating to margin and stress 

testing), daily or intraday settlement 

procedures, default procedures, system 

safeguards (business continuity and 

disaster recovery), and governance. If a 

systemically important derivatives 

clearing organization determines that a 

proposed change is not material and 

therefore does not file an advance notice 

under this § 40.10, but the Commission 

determines that the change is material, 

the Commission may require the 

systemically important derivatives 

clearing organization to withdraw the 

proposed change and provide notice 

pursuant to this section. 

(c) Further information. The 

Commission may require the 

systemically important derivatives 

clearing organization to provide any 

further information necessary to assess 

the effect the proposed change would 

have on the nature or level of risks 

associated with the systemically 

important derivatives clearing 

organization’s payment, clearing, or 

settlement activities and the sufficiency 

of any proposed risk management 

techniques. 

(d) Notice of objection. A systemically 

important derivatives clearing 

organization shall not implement a 

change to which the Commission has an 

objection on the grounds that the 

proposed change is not consistent with 

the Act or the Commission’s regulations, 

or the purposes of the Dodd-Frank Act 

or any applicable rules, orders, or 

standards prescribed under Section 

805(a) of the Dodd-Frank Act. The 

Commission will notify the systemically 

important derivatives clearing 

organization in writing of any objection 

regarding the proposed change within 

60 days from the later of: 

(1) The date that the notice of the 

proposed change was received; or 

(2) The date the Commission received 

any further information it had requested 

for consideration of the notice. 

(e) Implementation of change absent 

Commission objection. A systemically 

important derivatives clearing 

organization may implement a change if 

it has not received an objection to the 

proposed change within 60 days from 

the later of: 

(1) The date that the Commission 

received the notice of proposed change; 

or 

(2) The date the Commission received 

any further information it had requested 

for consideration of the notice. 

(f) Extended review. The Commission 

may, during the 60-day review period, 

extend the review period if the 

proposed change raises novel or 

complex issues. A notification by the 

Commission pursuant to this paragraph 

will extend the review for an additional 

60 days. Any extension under this 

paragraph will extend the time periods 

under paragraphs (d) and (e) of this 

section for an additional 60 days. 

(g) Change allowed earlier if notified 

of no objection. A systemically 

important derivatives clearing 

organization may implement a change 

in less than 60 days from the date the 

Commission receives the notice of 

proposed change or the date the 

Commission receives any further 

information it has requested, if the 

Commission notifies the systemically 

important derivatives clearing 

organization in writing that it does not 

object to the proposed change and 

authorizes implementation of the 

change on an earlier date, subject to any 

conditions imposed by the Commission. 

(h) Emergency changes. A 

systemically important derivatives 

clearing organization may implement a 

change that would otherwise require 

advance notice under this section if it 

determines that an emergency exists and 

immediate implementation of the 

change is necessary for the systemically 

important derivatives clearing 

organization to continue to provide its 

services in a safe and sound manner. 

(1) The systemically important 

derivatives clearing organization shall 

provide notice of any such emergency 

change to the Commission as soon as 

practicable, which shall be no later than 

24 hours after implementation of the 

change. 

(2) The notice of an emergency change 

shall: 

(i) Provide the information required 

for advance notice as set forth in 

paragraph (a) of this section; 

(ii) Describe the nature of the 

emergency; and 

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Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 44799 

(iii) Describe the reason the change 

was necessary for the systemically 

important derivatives clearing 

organization to continue to provide its 

services in a safe and sound manner. 

(3) The Commission may require 

modification or rescission of the 

emergency change if it finds that the 

change is not consistent with the Act or 

the Commission’s regulations, or the 

purposes of the Dodd-Frank Act or any 

applicable rules, orders, or standards 

prescribed under Section 805(a) of the 

Dodd-Frank Act. 

§ 40.11 Review of event contracts based 

upon certain excluded commodities. 

(a) Prohibition. A registered entity 

shall not list for trading or accept for 

clearing on or through the registered 

entity any of the following: 

(1) An agreement, contract, 

transaction, or swap based upon an 

excluded commodity, as defined in 

Section 1a(19)(iv) of the Act, that 

involves, relates to, or references 

terrorism, assassination, war, gaming, or 

an activity that is unlawful under any 

State or Federal law; or 

(2) An agreement, contract, 

transaction, or swap based upon an 

excluded commodity, as defined in 

Section 1a(19)(iv) of the Act, which 

involves, relates to, or references an 

activity that is similar to an activity 

enumerated in § 40.11(a)(1) of this part, 

and that the Commission determines, by 

rule or regulation, to be contrary to the 

public interest. 

(b) [Reserved.] 

(c) 90-day review and approval of 

certain event contracts. The 

Commission may determine, based 

upon a review of the terms or conditions 

of a submission under § 40.2 or § 40.3, 

that an agreement, contract, transaction, 

or swap based on an excluded 

commodity, as defined in Section 

1a(19)(iv) of the Act, which may 

involve, relate to, or reference an 

activity enumerated in § 40.11(a)(1) or 

§ 40.11(a)(2), be subject to a 90-day 

review. The 90-day review shall 

commence from the date the 

Commission notifies the registered 

entity of a potential violation of 

§ 40.11(a). 

(1) The Commission shall request that 

a registered entity suspend the listing or 

trading of any agreement, contract, 

transaction, or swap based on an 

excluded commodity, as defined in 

Section 1a(19)(iv) of the Act, which may 

involve, relate to, or reference an 

activity enumerated in § 40.11(a)(1) or 

§ 40.11(a)(2), during the Commission’s 

90-day review period. The Commission 

shall post on the Web site a notification 

of the intent to carry out a 90-day 

review. 

(2) Final determination. The 

Commission shall issue an order 

approving or disapproving an 

agreement, contract, transaction, or 

swap that is subject to a 90-day review 

under § 40.11(c) not later than 90 days 

subsequent to the date that the 

Commission commences review, or if 

applicable, at the conclusion of such 

extended period agreed to or requested 

by the registered entity. 

§ 40.12 Staying of certification and tolling 

of review period pending jurisdictional 

determination. 

(a) Notice of novel derivative 

products. (1) A registered entity 

certifying, submitting for approval, or 

otherwise filing a proposal to list, trade, 

or clear a novel derivative product 

(other than a product subject to the 

provisions of § 1.8 of this chapter) 

having elements of both a security and 

a contract for the sale of a commodity 

for future delivery (or an option on such 

contract or an option on a commodity) 

may provide notice of its proposal to the 

Commission and the Securities and 

Exchange Commission with a statement 

that written notice has been provided to 

both agencies through an appropriate 

means provided in each Commission’s 

regulations. 

(2) If concurrent notice is not 

provided pursuant to § 40.12(a)(1), the 

Commission shall notify the Securities 

and Exchange Commission of the 

registered entity’s submission of a novel 

derivative product described in 

§ 40.12(a)(1) and accompany such notice 

with a copy of the submission. The 

Commission shall determine whether a 

particular submission is a novel 

derivative product requiring notice to 

the Securities and Exchange 

Commission not later than five business 

days subsequent to the date that the 

registered entity submits the product for 

Commission review. 

(b) Tolling of review period. Upon 

receipt of a request for a jurisdictional 

determination, pursuant to Section 

718(a)(2) of the Dodd-Frank Act, by the 

Commission or the Securities and 

Exchange Commission, the product 

certification shall be stayed or the 

approval review period shall be tolled 

until a final determination order is 

issued. 

(1) The Commission will provide the 

registered entity with a written notice of 

stay pending issuance of a final 

determination order by the Commission 

or the Securities and Exchange 

Commission. 

(2) The stay shall be withdrawn or the 

approval review period shall resume 

upon the Commission’s or the Securities 

and Exchange Commission’s issuance of 

a final determination order finding that 

the Commission has jurisdiction over 

the submission. 

(3) Determination order. A final 

determination, for purposes of § 40.12(b) 

of this part, shall be a determination 

order issued by the Commission or the 

Securities and Exchange Commission 

pursuant to Section 718(a)(3) of the 

Dodd-Frank Act. 

(c) Judicial review of determination 

order. The filing of a petition by a 

complaining Commission, pursuant to 

Section 718(b) of the Dodd-Frank Act, 

shall operate as a stay of the agency 

order. 

(1) The stay shall remain in effect 

until the date on which the United 

States Court of Appeals for the District 

of Columbia Circuit issues a final 

determination pursuant to Section 

718(b)(4) of the Dodd-Frank Act, or until 

such date that there is a final 

disposition of an appeal of that 

determination. 

(2) The submission review period 

shall resume upon issuance of a final 

determination, as described in 

§ 40.12(c)(1), that the Commission has 

jurisdiction over the submission. 

Appendix A to Part 40—Schedule of 

Fees 

(a) Applications for product approval. Each 

application for product approval under § 40.3 

must be accompanied by a check or money 

order made payable to the Commodity 

Futures Trading Commission in an amount to 

be determined annually by the Commission 

and published in the Federal Register. 

(b) Checks and applications should be sent 

to the attention of the Office of the 

Secretariat, Commodity Futures Trading 

Commission, Three Lafayette Centre, 1155 

21st Street, N.W., Washington, DC 20581. No 

checks or money orders may be accepted by 

personnel other than those in the Office of 

the Secretariat. 

(c) Failure to submit the fee with an 

application for product approval will result 

in return of the application. Fees will not be 

returned after receipt. 

Appendix B to Part 40—[Reserved] 

Appendix C to Part 40—[Reserved] 

Appendix D to Part 40—Submission 

Cover Sheet and Instructions 

(a) A properly completed submission cover 

sheet shall accompany all rule and product 

submissions submitted electronically by a 

registered entity in a format and manner 

specified by the Secretary of the Commission 

to the Secretary of the Commission. A 

properly completed submission cover sheet 

shall include all of the following: 

1. Identifier Code (optional)—A registered 

entity Identifier Code at the top of the cover 

sheet, if applicable. Such codes are 

commonly generated by registered entities to 

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44800 Federal Register / Vol. 76, No. 144 / Wednesday, July 27, 2011 / Rules and Regulations 

1Even though ECM–SPDC was eliminated by the 

Dodd-Frank Act, the Commission will retain 

references to this entity in the cover sheet since 

ECMs may be allowed to operate until July 20, 

2012, pursuant to grandfather relief issued by the 

Commission. See 75 FR 56513 (Sept. 16, 2010). 

provide an identifier that is unique to each 

filing (e.g., NYMEX Submission 03–116). 

2. Date—The date of the filing. 

3. Organization—The name of the 

organization filing the submission (e.g., 

CBOT). 

4. Filing as a—Check in the appropriate 

box indicating that the rule or product is 

being submitted by a designated contract 

market (DCM), derivatives clearing 

organization (DCO), swap execution facility 

(SEF), or swap data repository (SDR), 

electronic trading facility with a significant 

price discovery contract (the term will be 

removed on July 20, 2012).1

5. Type of Filing—An indication as to 

whether the filing is a new rule, rule 

amendment or new product. The registered 

entity should check the appropriate box to 

indicate the applicable category under that 

heading. 

6. Rule Numbers—For rule filings, the rule 

number(s) being adopted or modified in the 

case of rule amendment filings. 

7. Description—For rule or rule 

amendment filings, a description of the new 

rule or rule amendment, including a 

discussion of its expected impact on the 

registered entity, market participants, and the 

overall market. The narrative should describe 

the substance of the submission with enough 

specificity to characterize all material aspects 

of the filing. 

(b) Other Requirements—A submission 

shall comply with all applicable filing 

requirements for proposed rules, rule 

amendments, or products. The filing of the 

submission cover sheet does not obviate the 

registered entity’s responsibility to comply 

with applicable filing requirements (e.g., 

rules submitted for Commission approval 

under § 40.5 must be accompanied by an 

explanation of the purpose and effect of the 

proposed rule along with a description of any 

substantive opposing views). 

(c) Checking the box marked ‘‘confidential 

treatment requested’’ on the Submission 

Cover Sheet does not obviate the submitter’s 

responsibility to comply with all applicable 

requirements for requesting confidential 

treatment in § 40.8 and, where appropriate, 

§ 145.9 of this chapter, and will not 

substitute for notice or full compliance with 

such requirements. 

Issued in Washington, DC, on July 19, 

2011, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Provisions Common to 

Registered Entities—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, Sommers, Chilton and 

O’Malia voted in the affirmative; no 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the final rulemaking to establish 

a process for the certification and approval of 

new rules and rule amendments for 

designated contract markets, derivatives 

clearing organizations, as well as new 

registrants, swap execution facilities and 

swap data repositories. The Dodd-Frank Wall 

Street Reform and Consumer Protection Act 

establishes enhanced CFTC review and 

certification of new rules and amendments. 

Today’s final regulations provide important 

procedural guidance to registered entities on 

how to comply with Congress’s mandate for 

the Commission’s review of new rules and 

rule amendments. 

[FR Doc. 2011–18661 Filed 7–26–11; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9539] 

RIN 1545–BI09 

Election of Reduced Research Credit 

Under Section 280C(c)(3) 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations that amend the regulations 

concerning the election to claim the 

reduced research credit. The final 

regulations simplify how taxpayers 

make the election and affect taxpayers 

that claim the reduced research credit. 

DATES: Effective Date: These regulations 

are effective on July 27, 2011. 

Applicability Date: For dates of 

applicability, see § 1.280C–4(c). 

FOR FURTHER INFORMATION CONTACT: 

David Selig, (202) 622–3040 (not a tollfree number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains amendments 

to the Income Tax Regulations (26 CFR 

Part 1) relating to the election for 

claiming the reduced research credit 

under section 280C(c)(3). On July 16, 

2009, a notice of proposed rulemaking 

(REG–130200–08) was published in the 

Federal Register (74 FR 34523). No 

public hearing was requested or held. 

Written and electronic comments 

responding to the notice of proposed 

rulemaking were received. After 

considering the comments received the 

proposed regulations are adopted as 

revised by this Treasury decision. 

Section 280C(c)(1) provides that no 

deduction shall be allowed for that 

portion of the qualified research 

expenses (as defined in section 41(b)) or 

basic research expenses (as defined in 

section 41(e)(2)) otherwise allowable as 

a deduction for the taxable year which 

is equal to the amount of the credit 

determined for such taxable year under 

section 41(a). 

Similarly, section 280C(c)(2) provides 

that if the amount of the credit 

determined for the taxable year under 

section 41(a)(1) exceeds the amount 

allowable as a deduction for such 

taxable year for qualified research 

expenses or basic research expenses 

(determined without regard to section 

280C(c)(1)), the amount chargeable to 

capital account for the taxable year for 

such expenses shall be reduced by the 

amount of such excess. 

Section 280C(c)(3)(A) provides, in 

general, that in the case of any taxable 

year for which an election is made 

under section 280C(c)(3), sections 

280C(c)(1) and (c)(2) shall not apply, 

and the amount of the credit under 

section 41(a) shall be the amount 

determined under section 280C(c)(3)(B). 

Under section 280C(c)(3)(B), the amount 

of credit for any taxable year shall be the 

amount equal to the excess of the 

amount of credit determined under 

section 41(a) without regard to section 

280C(c)(3), over the product of the 

amount of credit determined under 

section 280C(c)(3)(B)(i), and the 

maximum rate of tax under section 

11(b)(1). 

Section 280C(c)(3)(C) provides that an 

election under section 280C(c)(3) for 

any taxable year shall be made not later 

than the time for filing the return of tax 

for such year (including extensions), 

shall be made on such return, and shall 

be made in such manner as the 

Secretary may prescribe. Section 

1.280C–4(a) provides that the section 

280C(c)(3) election to have the 

provisions of section 280C(c)(1) and 

(c)(2) not apply shall be made by 

claiming the reduced credit under 

section 41(a) determined by the method 

provided in section 280C(c)(3)(B) on an 

original return for the taxable year, filed 

at any time on or before the due date 

(including extensions) for filing the 

income tax return for such year. Such an 

election, once made, shall be irrevocable 

for that taxable year. 

Section 280C(c)(4) provides that 

section 280C(b)(3) shall apply for 

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