This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

14051 

Vol. 72, No. 57 

Monday, March 26, 2007 

1The acceptable practices for core principles 

reside in Appendix B to Part 38 of the 

Commission’s Regulations, 17 CFR Part 38, App. B. 

2The Act is codified at 7 U.S.C. 1 et seq. (2000). 

3Those Acceptable Practices were adopted by the 

Commission on January 31, 2007, 72 FR 6936 

(February 14, 2007), after having been originally 

proposed by the Commission on June 28, 2006, 71 

FR 38740 (July 7, 2006). 

4Core Principle 15 states: ‘‘CONFLICTS OF 

INTEREST—The board of trade shall establish and 

enforce rules to minimize conflicts of interest in the 

decisionmaking process of the contract market and 

establish a process for resolving such conflicts of 

interest.’’ CEA § 5(d)(15), 7 U.S.C. 7(d)(15). 

5Any board of trade that is registered with the 

Securities and Exchange Commission as a national 

securities exchange, is a national securities 

association registered pursuant to section 15(A)(a) 

of the Securities Exchange Act of 1934, or is an 

alternative trading system, and that operates as a 

DCM in security futures products under Section 5f 

of the Act and Commission Regulation 41.31, is 

exempt from the core principles enumerated in 

Section 5 of the Act and the acceptable practices 

thereunder. 

6The Acceptable Practices became effective on 

March 16, 2007. Existing DCMs were given two 

years, measured from the effective date, to achieve 

full compliance with Core Principle 15. 

7Other than Subsections (b)(2)(ii)(B) and 

(b)(2)(ii)(C), the Commission is not proposing 

changes to any other provision of the Acceptable 

Practices for Core Principle 15. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 38 

RIN 3038-AC28 

Conflicts of Interest in Self-Regulation 

and Self-Regulatory Organizations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Proposed rule. 

SUMMARY: The Commission hereby 

proposes amendments to the Acceptable 

Practices 1 for section 5(d)(15) (‘‘Core 

Principle 15’’) of the Commodity 

Exchange Act (‘‘CEA’’ or ‘‘Act’’).2 The 

amendments clarify the definition of 

‘‘public director’’ contained in the 

Acceptable Practices.3 The Commission 

believes that the proposed amendments 

will remove potential ambiguities and 

correct a technical drafting error. The 

amendments are consistent with the 

Acceptable Practices’ intent to ensure 

the inclusion of truly public directors 

on designated contract market (‘‘DCM’’) 

boards of directors and Regulatory 

Oversight Committees (‘‘ROCs’’), as well 

as truly public persons on their 

disciplinary panels. The Commission 

welcomes comment on the proposed 

amendments. 

DATES: Comments should be submitted 

on or before April 25, 2007. 

ADDRESSES: Comments should be sent to 

Eileen A. Donovan, Acting Secretary, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

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

20581. Comments may be submitted via 

e-mail at secretary@cftc.gov. 

‘‘Regulatory Governance’’ must be in the 

subject field of responses submitted via 

e-mail, and clearly indicated in written 

submissions. Comments may also be 

submitted at http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Rachel F. Berdansky, Acting Deputy 

Director for Market Compliance, (202) 

418–5429; or Sebastian Pujol Schott, 

Special Counsel, (202) 418–5641, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On February 14, 2007, the 

Commission published final Acceptable 

Practices for Core Principle 15 of the 

Act.4 The published Acceptable 

Practices are the first for Core Principle 

15 and are applicable to all DCMs.5

They pertain to minimizing conflicts of 

interest in decision making by DCMs, 

and offer all DCMs a ‘‘safe harbor’’ by 

which they may minimize such 

conflicts and thereby comply with Core 

Principle 15. To receive safe harbor 

treatment, DCMs must implement the 

Acceptable Practices’ various 

operational provisions in their entirety, 

including instituting boards of directors 

that are composed of at least 35% public 

directors and establishing oversight of 

all regulatory functions through ROCs 

consisting exclusively of public 

directors.6 In addition to these 

operational provisions, the Acceptable 

Practices also set forth a public director 

definition. The proposed amendments 

consist exclusively of revisions to that 

definition. 

II. Need for Clarifying Amendments 

The Commission proposes to amend 

two subsections of the Acceptable 

Practices, Subsections (b)(2)(ii)(B) and 

(b)(2)(ii)(C), which together with 

Subsections (b)(2)(i), (b)(2)(ii)(A) and 

(b)(2)(ii)(D), establish the definition of a 

DCM public director.7 In general, the 

amendments address ambiguities that 

may arise from those provisions’ 

different uses of the terms ‘‘affiliate’’ 

and ‘‘affiliated.’’ Such uses include 

references to corporate affiliation; 

personal affiliation; affiliation with a 

DCM member; and affiliation with a 

firm. The amendments also correct a 

technical drafting error and define 

‘‘payments.’’ The proposed amendments 

are consistent with the intent of both the 

proposed and final Acceptable 

Practices, and should not be interpreted 

as a diminution in the level of 

independence that those criteria are 

intended to ensure for public directors. 

In light of the nature of these 

amendments, the Commission does not 

anticipate that it will be necessary to 

extend the comment period. 

III. Description of Clarifying 

Amendments 

A. Subsection (b)(2)(ii)(B) 

Subsection (b)(2)(ii)(B) precludes 

DCM members, employees of members, 

and persons ‘‘affiliated’’ with members 

from service as public directors. As 

adopted, the Acceptable Practices define 

‘‘affiliated with a member’’ as being an 

officer or director of a member, or 

having ‘‘any other relationship with the 

member such that his or her impartiality 

could be called into question in matters 

concerning the member.’’ This 

impartiality provision reflects a 

qualitative test intended to capture 

specific disqualifying relationships 

between individuals and DCM 

members. 

The Commission proposes to amend 

the definition of ‘‘affiliated’’ in 

Subsection (b)(2)(ii)(B) by removing any 

reference to the qualitative 

‘‘impartiality’’ test outlined above. This 

eliminates the qualitative test and 

replaces it with an exact articulation of 

the relationships that are prohibited 

under Subsection (b)(2)(ii)(B). 


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14052 Federal Register / Vol. 72, No. 57 / Monday, March 26, 2007 / Proposed Rules 

8 Discussed in Section III(A) of this preamble. 

9 7 U.S.C. 19(a). 

10E.g, Fishermen’s Dock Co-op., Inc. v. Brown. 75 

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

Peck, 751 F.2d 1336 (D.C. Cir. 1985)(agency has 

discretion to weigh factors in undertaking costsbenefits analyses). 

11 72 FR 6936 (February 14, 2007). 

Specifically, the amendment states that 

a person is ‘‘affiliated’’ with a DCM 

member, and thus disqualified as a 

public director, if he or she is an 

‘‘officer, director, or partner of the 

member.’’

B. Subsection (b)(2)(ii)(C) 

Subsection (b)(2)(ii)(C) creates a 

bright-line, $100,000 combined annual 

payments test for potential public 

directors and the firms with which they 

are affiliated (‘‘payment recipients’’). A 

particular payment’s relevance to the 

$100,000 bright-line test depends upon 

the source (‘‘payment provider’’) and 

nature of the payment. The Commission 

proposes to amend this subsection to 

define ‘‘payment;’’ clarify the term 

‘‘affiliate,’’ as used in the subsection; 

remove the term ‘‘affiliated’’ in referring 

to certain relationships and replace it 

with the specific payment providers and 

recipients that the Commission intends 

to reach; and correct a technical drafting 

error. 

The first amendment defines the 

nature of ‘‘payment,’’ limiting it to 

compensation for professional services 

rendered. The amendment reflects the 

Commission’s intent to capture those 

persons and firms providing 

professional services to a DCM and/or 

its members, as well as the employees, 

officers, directors, and partners of such 

firms. 

The second amendment to Subsection 

(b)(2)(ii)(C) clarifies the clause ‘‘any 

affiliate of the contract market.’’

Clarification is provided via explicit 

cross-reference to Subsection 

(b)(2)(ii)(A), which defines the affiliates 

of a contract market to include the 

parents or subsidiaries of the contract 

market or entities that share a common 

parent with the contract market. This 

proposed amendment is consistent with 

the Commission’s original intent. 

Two other amendments to Subsection 

(b)(2)(ii)(C) address payment providers 

and recipients, resolving potential 

ambiguities arising from multiple uses 

of the term ‘‘affiliated.’’ In addition, one 

of the amendments corrects a drafting 

error in this subsection which resulted 

from the inadvertent inclusion of 

‘‘entity’’ in the clause ‘‘any person or 

entity affiliated with a member of the 

contract market’’ (‘‘member paymentproviders provision’’). The inclusion of 

‘‘entity’’ in the member paymentproviders provision resulted in a 

standard that encompassed a range of 

payment providers broader than the 

Commission intended. The Commission 

proposes to remedy its error by deleting 

‘‘entity.’’

With respect to ‘‘affiliated,’’ the 

Commission notes that the term is not 

defined in the member paymentproviders provision. Potential ambiguity 

could arise in importing and applying a 

definition from elsewhere in the 

Acceptable Practices. Accordingly, the 

Commission proposes to amend and 

clarify the member payment-providers 

provision by replacing the term 

‘‘affiliated’’ with a precise articulation 

of the member payment providers it 

intends to reach. Consistent with the 

proposed Acceptable Practices, the 

Commission proposes to amend the 

adopted member payment-providers 

provision so that it refers to payments 

‘‘from a member or an officer or director 

of a member* * *.’’

Similarly, the Commission has 

determined to specifically define the 

payment recipients that it intends to 

reach. In the adopted Acceptable 

Practices, the relevant recipients 

include ‘‘a firm with which the director 

is affiliated, as defined above,’’ implying 

a cross-reference to Subsection 

(b)(2)(ii)(B). Furthermore, through this 

cross-reference, the payment recipients 

provision incorporates the qualitative 

impartiality test embedded within the 

adopted Subsection (b)(2)(ii)(B).8

As previously noted, the Commission 

has determined that the qualitative 

impartiality test in Subsection 

(b)(2)(ii)(B) is best replaced with a 

specific articulation of the relevant 

relationships. Similarly, the 

Commission believes that a specific 

articulation is appropriate with respect 

to payment recipients in Subsection 

(b)(2)(ii)(C), both to remove any 

ambiguities which may exist and to 

eliminate the cross-reference upon 

which the payment recipients provision 

currently relies. Accordingly, the 

Commission proposes to amend 

Subsection (b)(2)(ii)(C) to reach 

payments made to the director and 

payments made to firms ‘‘of which the 

director is an employee, officer, 

director, or partner.’’

Finally, as adopted, the last sentence 

in Subsection (b)(2)(ii)(C) states, in part, 

that ‘‘compensation for services as a 

director does not count toward the 

$100,000 payment limit.’’ This 

provision was intended to avoid the 

dilemma of DCM public directors 

forfeiting their public director eligibility 

because of compensation received for 

serving in such capacity. The 

Commission notes, however, that 

proposed changes elsewhere in this 

Subsection contain new references to 

various types of directors and that those 

changes may create uncertainty as to the 

meaning of ‘‘director’’ in this context. 

Accordingly, the Commission proposes 

to insert ‘‘of the contract market’’ after 

‘‘director,’’ making clear that 

compensation for services as a director 

of the contract market does not count 

toward the $100,000 payment cap. 

IV. Related Matters 

A. Cost-Benefit Analysis 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its action before issuing a 

new regulation or order under the CEA.9

By its terms, Section 15(a) requires the 

Commission to ‘‘consider the costs and 

benefits’’ of a subject rule or order 

without requiring the Commission to 

quantify the costs and benefits of its 

action or to determine whether the 

benefits of the action outweigh its costs. 

Section 15(a) requires that the costs and 

benefits of proposed rules 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 of concern and may 

determine that notwithstanding its 

costs, a particular rule is necessary or 

appropriate to protect the public interest 

or to effectuate any of the provisions or 

to accomplish any of the purposes of the 

CEA.10

On February 14, 2007, the 

Commission published final Acceptable 

Practices for Core Principle 15 that 

included prophylactic measures 

designed to minimize conflicts of 

interest in a DCM’s decision making 

process.11 The final rulemaking 

thoroughly considered the costs and 

benefits of the Acceptable Practices and 

responded to comments relating to the 

costs of adhering to their requirements. 

The amendments herein to the 

adopted Acceptable Practices are 

proposed to enhance regulatory 

certainty by addressing potential 

definitional ambiguities and a drafting 

error. The removal of such ambiguities 

will facilitate the inclusion of public 

directors on DCM governing boards and 

committees and ensure that DCMs are 

able to comply with the requirements of 

the Acceptable Practices. In turn, 


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Federal Register / Vol. 72, No. 57 / Monday, March 26, 2007 / Proposed Rules 14053 

12See Policy Statement and Establishment of 

Definitions of ‘‘Small Entities’’ for Purposes of the 

Regulatory Flexibility Act, 47 FR 18618, 18619 

(Apr. 30, 1982). 

compliance with the Acceptable 

Practices will assure DCMs of their 

compliance with the requirements of 

Core Principle 15 as they pertain to 

conflicts of interest in self-regulation 

and self-regulatory organizations. The 

amendments should not impose 

additional costs, but in fact may reduce 

costs of compliance in light of the 

removal of ambiguities. They assure that 

what is intended to be a bright-line test 

operates as such. After considering the 

above mentioned factors and issues, the 

Commission has determined to propose 

these amendments to the Acceptable 

Practices of Core Principle 15. The 

Commission specifically invites public 

comment on its application of the 

criteria contained in Section 15(a) of the 

Act and furthermore invites interested 

parties to submit any quantifiable data 

that they may have concerning the costs 

and benefits of the proposed 

amendments to the Acceptable Practices 

of Core Principle 15. 

B. Paperwork Reduction Act of 1995 

These proposed amendments to the 

Acceptable Practices of Core Principle 

15 would not impose any new 

recordkeeping or information collection 

requirements, or other collections of 

information that require approval of the 

Office of Management and Budget under 

44 U.S.C. 3501, et seq. Accordingly, the 

Paperwork Reduction Act does not 

apply. We solicit comment on the 

accuracy of our estimate that no 

additional recordkeeping or information 

collection requirements or changes to 

existing collection requirements would 

result from the amendments proposed 

herein. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act, 5 

U.S.C. 601 et seq., requires federal 

agencies, in promulgating rules, to 

consider the impact of those rules on 

small entities. The proposed 

amendments to the Acceptable Practices 

for Core Principle 15 affect DCMs. The 

Commission has previously determined 

that DCMs are not small entities for 

purposes of the Regulatory Flexibility 

Act.12 Accordingly, the Chairman, on 

behalf of the Commission, hereby 

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

the proposed amendments to the 

Acceptable Practices will not have a 

significant economic impact on a 

substantial number of small entities. 

V. Text of Proposed Amendments to 

Acceptable Practices for Core Principle 

15 

List of Subjects in 17 CFR Part 38 

Commodity futures, Reporting and 

recordkeeping requirements. 

In light of the foregoing, and pursuant 

to the authority in the Act, and in 

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

of the Act, the Commission hereby 

proposes to amend Part 38 of Title 17 

of the Code of Federal Regulations as 

follows: 

PART 38—DESIGNATED CONTRACT 

MARKETS 

1. The authority citation for part 38 

continues to read as follows: 

Authority: 7 U.S.C. 2, 5, 6, 6c, 7, 7a–2, and 

12a, as amended by Appendix E of Pub. L. 

106–554, 114 Stat. 2763A–365. 

2. In Appendix B to Part 38 amend 

paragraphs (b)(2)(ii)(B) and (b)(2)(ii)(C) 

of the Acceptable Practices for Core 

Principle 15 to read as follows: 

Appendix B to Part 38—Guidance on, 

and Acceptable Practices in, 

Compliance with Core Principles 

* * * * * 

Core Principle 15 of section 5(d) of the Act: 

CONFLICTS OF INTEREST 

* * * * * 

(b) * * * 

(2) * * * 

(ii) * * * 

(B) The director is a member of the contract 

market, or a person employed by or affiliated 

with a member. ‘‘Member’’ is defined 

according to Section 1a(24) of the 

Commodity Exchange Act and Commission 

Regulation 1.3(q). In this context, a person is 

‘‘affiliated’’ with a member if he or she is an 

officer, director, or partner of the member; 

(C) The director, or a firm of which the 

director is an employee, officer, director or 

partner, receives more than $100,000 in 

combined annual payments from the contract 

market, any affiliate of the contract market, 

as defined in Subsection (2)(ii)(A), or from a 

member or an officer or director of a member 

of the contract market. As used in this 

Subsection (2)(ii)(C), ‘‘payments’’ means 

compensation for professional services. 

Compensation for services as a director of the 

contract market does not count toward the 

$100,000 payment limit, nor does deferred 

compensation for services prior to becoming 

a director, so long as such compensation is 

in no way contingent, conditioned, or 

revocable; 

* * * * * 

Issued in Washington, DC, on March 20, 

2007 by the Commission. 

Eileen A. Donovan, 

Acting Secretary of the Commission. 

[FR Doc. E7–5468 Filed 3–23–07; 8:45 am] 

BILLING CODE 6351–01–P 

SOCIAL SECURITY ADMINISTRATION 

20 CFR Part 416 

[Docket No. SSA–2006–0103] 

RIN 0960–AF99 

Technical Updates to Applicability of 

the Supplemental Security Income 

(SSI) Reduced Benefit Rate for 

Individuals Residing in Medical 

Treatment Facilities 

AGENCY: Social Security Administration 

(SSA). 

ACTION: Notice of proposed rulemaking. 

SUMMARY: We propose to revise our 

regulations to codify two provisions of 

the Balanced Budget Act of 1997 that 

affect the payment of benefits under title 

XVI of the Social Security Act (the Act). 

One of the provisions extended 

temporary institutionalization benefits 

to children receiving SSI benefits who 

enter private medical treatment facilities 

and who otherwise would be ineligible 

for temporary institutionalization 

benefits because of private insurance 

coverage. The other provision replaced 

obsolete terminology in the Act that 

referred to particular kinds of medical 

facilities and substituted a broader, 

more descriptive term. 

DATES: To be sure that we consider your 

comments, we must receive them by 

May 25, 2007. 

ADDRESSES: You may give us your 

comments: by Internet through the 

Federal eRulemaking Portal at http:// 

www.regulations.gov; by e-mail to 

regulations@ssa.gov; by telefax to (410) 

966–2830; or by letter to the 

Commissioner of Social Security, PO 

Box 17703, Baltimore, MD 21235–7703. 

You may also deliver them to the Office 

of Regulations, Social Security 

Administration, 107 Altmeyer Building, 

6401 Security Boulevard, Baltimore, MD 

21235–6401, between 8 a.m. and 4:30 

p.m. on regular business days. 

Comments are posted on our Internet 

site. You also may inspect the 

comments on regular business days by 

making arrangements with the contact 

person shown in the preamble. 

FOR FURTHER INFORMATION CONTACT: Curt 

Dobbs, Social Insurance Specialist, 

Office of Income Security Programs, 

Social Security Administration, 252 

Altmeyer Building, 6401 Security 

Boulevard, Baltimore, MD 21235–6401, 

(410) 965–7963 or TTY (410) 966–5609, 

for information about this notice. For 

information on eligibility or filing for 

benefits, call our national toll-free 

number, 1–800–772–1213 or TTY 1–

800–325–0778, or visit our Internet site, 


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