Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 67277 

1Commission regulations referred to herein are 

found at 17 CFR Ch. 1. 

2See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov./

LawRegulation/OTCDERIVATIVES/index.htm. 

positions in all physical commodity 

futures traded on DCMs and uses it for 

market surveillance purposes, including 

position limit enforcement. With today’s 

proposed rule, we would have an 

analogous reporting system for swaps. 

The proposal would require position 

reports on economically equivalent 

swaps from clearing organizations, their 

members and swap dealers. This will 

enable the CFTC to receive such data 

until swap data repositories are in 

operation and capable of fulfilling the 

Commission’s need for this information. 

Concurring Statement of Commissioner 

Jill E. Sommers 

Relating to the Commission’s Proposal 

on Position Reports for Physical 

Commodity Swaps and Swaptions 

October 19, 2010 

I support this proposal to receive 

daily position reports for physical 

commodity swaps and swaptions 

because I believe it furthers our 

continued effort to expand transparency 

into swap markets and because I believe 

it is critical that the Commission receive 

this information as soon as possible. I 

recognize that this proposal is a 

precursor to the Commission moving 

forward with a proposal on the 

imposition of position limits. That said, 

my vote in support of this proposal 

today should not in any way be 

interpreted as expressing support for 

moving forward with the imposition of 

position limits by the deadlines set forth 

in Dodd-Frank. 

In July and August 2009, the 

Commission held three public hearings 

to discuss imposition of position limits 

in energy markets. Five months later, in 

January 2010, the Commission issued a 

proposed rule imposing position limits 

in four enumerated energy contracts. I 

had grave concerns about moving 

forward with position limits on those 

four contracts, and accordingly voted 

against the proposal. My grave concerns 

about moving forward with position 

limits have not been eased, and in fact, 

have only been heighted by certain 

provisions of Dodd-Frank. 

Section 737 of Dodd-Frank states that 

the Commission shall by rule, 

regulation, or order establish limits on 

the amount of positions, as appropriate, 

that may be held by any person. This 

section requires the limits to be 

aggregated across markets and related 

products and to be imposed within 180 

days for energy and metals contracts, 

and 270 days for agricultural contracts. 

In my view, no position limit is 

appropriate if it is imposed without the 

benefit of receiving and fully analyzing 

complete data concerning the open 

interest in each market. Only then is the 

Commission able to properly consider 

the size of each market and calibrate a 

limit that is appropriate for each market. 

Currently, the Commission does not 

have complete data and will not have 

complete data until swap data 

repositories are up and running and all 

swap market data is reported to swap 

data repositories or to the Commission. 

I believe that, optimistically, the earliest 

this reporting can happen will be by the 

end of 2011. Again that is an optimistic 

estimate. 

Because of the 180 and 270 day 

requirements in Dodd-Frank, as we sit 

here today, the Commission is 

tentatively planning a November 30 

public meeting to vote on proposed 

speculative position limits for exempt 

and agricultural commodities. Mind 

you, by November 30 the Commission 

will not have garnered any data from the 

proposed rule we are discussing today, 

because it, or some modified version of 

it, probably will not be effective in final 

form by November 30. In addition, by 

November 30, swap data repositories 

will still be at least one year away from 

operating. Even if the proposed rule we 

are discussing today were effective by 

November 30, it will not provide 

complete information sufficient to 

impose position limits. 

Under these circumstances, when 

considering the imposition of aggregate 

position limits on exempt and 

agricultural commodities, I believe the 

Commission should find that imposing 

such limits is not appropriate in the 

absence of full and complete data and 

analysis on the open interest in each 

market. I believe it is a mistake to 

interpret the arbitrary 180 day and 270 

day deadlines as somehow trumping the 

requirement that the Commission make 

an appropriateness determination before 

imposing any position limits. 

This is an issue that I will be 

following closely, and I look forward to 

hearing the views of the public and 

market participants on this issue. 

[FR Doc. 2010–27538 Filed 11–1–10; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 39 and 140 

RIN 3038–AD00 

Process for Review of Swaps for 

Mandatory Clearing 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing rules to implement 

new statutory provisions enacted by 

Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act. 

These proposed rules apply to the 

review of swaps by the Commission to 

determine whether the swaps are 

required to be cleared. 

DATES: Submit comments on or before 

January 3, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number, by any of the 

following methods: 

• Agency Web Site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http:// 

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 

under the Freedom of Information Act, 

a petition for confidential treatment of 

the exempt information may be 

submitted according to the established 

procedures in CFTC Regulation 145.9.1

FOR FURTHER INFORMATION CONTACT: 

Eileen A. Donovan, Special Counsel, 

202–418–5096, edonovan@cftc.gov, 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

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


jlentini on DSKJ8SOYB1PROD with PROPOSALS
67278 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 

3Pursuant to Section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

4 7 U.S.C. 1 et seq. 

5See Section 2(h) of the CEA, 7 U.S.C. 2(h). 

6See Section 5c(c)(5)(C)(iii) of the CEA, 7 U.S.C. 

7a–2(c)(5)(C)(iii). 

7See Section 5c(c)(5)(C)(iii)(II) of the CEA, 7 

U.S.C. 7a–2(c)(5)(C)(iii)(II). 

8See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C. 

2(h)(2)(B)(i). 

9See Section 2(h)(2)(D)(i) of the CEA, 7 U.S.C. 

2(h)(2)(D)(i). 

10See Section 2(h)(2)(D)(ii) of the CEA, 7 U.S.C. 

2(h)(2)(D)(ii). 

11This would include information about any 

price reference index used, such as the name of the 

index, the source that calculates it, the methodology 

used to calculate the price reference index and how 

often it is calculated, and when and where it is 

published publicly. For example, the BBA LIBOR 

3-Month USD interest rate published by the British 

Bankers Association is calculated daily by Thomson 

Reuters on behalf of BBA. The rate is published 

daily at 11 a.m. London Time via data vendors like 

Reuters and Bloomberg, and is calculated using a 

survey of 16 major banks. The bank quotes are then 

ranked in order, high four and bottom four 

removed, and the remaining eight quotes are 

averaged to determine the official 3-Month USD 

LIBOR fixing rate for that day. A DCO would be 

required to provide documentation of the index 

methodology and publication frequency or the 

relevant hyperlink if it is openly available on the 

Internet. 

Dodd-Frank Act 3 amended the 

Commodity Exchange Act (CEA) 4 to 

establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating rigorous recordkeeping and 

real-time reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to, among others, all 

registered entities and intermediaries 

subject to the Commission’s oversight. 

Section 723(a)(3) of the Dodd-Frank 

Act amends the CEA to provide that ‘‘it 

shall be unlawful for any person to 

engage in a swap unless that person 

submits such swap for clearing to a 

derivatives clearing organization 

[(DCO)] that is registered under [the 

CEA] or a [DCO] that is exempt from 

registration under [the CEA] if the swap 

is required to be cleared.’’ 5 Section 

723(a)(3) requires the Commission to 

adopt rules for the review of a swap, or 

group, category, type, or class of swaps 

(collectively, ‘‘swaps’’) to make a 

determination as to whether the swaps 

should be required to be cleared. 

In addition, Section 745(b) of the 

Dodd-Frank Act amends the CEA to 

direct the Commission to prescribe 

criteria, conditions, or rules under 

which the Commission will determine 

the initial eligibility or the continuing 

qualification of a DCO to clear swaps.6

Accordingly, the Commission is 

proposing to adopt Regulation 39.5 to 

implement procedures for determining 

the eligibility of a DCO to clear swaps 

that it plans to accept for clearing; for 

DCOs submitting swaps to the 

Commission for review; for 

Commission-initiated reviews of swaps; 

and for staying a clearing requirement 

while the clearing of a swap is 

reviewed. 

The Commission requests comment 

on all aspects of the proposed rules, as 

well as comment on the specific 

provisions and issues highlighted in the 

discussion below. 

II. Proposed Regulations 

A. Eligibility of a DCO To Clear Swaps 

The Dodd-Frank Act requires the 

Commission to determine, upon request 

or its own motion, the initial eligibility 

or continuing qualification of a DCO to 

clear a swap that it plans to accept for 

clearing, under criteria, conditions, or 

rules determined by the Commission. 

Such criteria, conditions, or rules must 

consider the financial integrity of the 

DCO and any other factors that the 

Commission determines to be 

appropriate.7

Under proposed Regulation 39.5(a), a 

DCO would be presumed eligible to 

accept for clearing any swap that is 

within a group, category, type, or class 

of swaps that the DCO already clears. 

However, such a presumption would be 

subject to Commission review, and if 

the Commission determines that the 

swap is not within a group, category, 

type, or class of swaps that the DCO 

already clears, the DCO would be 

required to request a determination by 

the Commission of its eligibility to clear 

the swap. A DCO that plans to accept for 

clearing any swap that is not within a 

group, category, type, or class of swaps 

that the DCO already clears also would 

be required to make such a request. 

To receive a determination of 

eligibility to clear a swap, a DCO would 

have to file a written request with the 

Commission that addresses its ability to 

maintain compliance with the core 

principles for DCOs set out in Section 

5b(c)(2) of the CEA if it accepts the swap 

for clearing, specifically: (1) The 

sufficiency of its financial resources; 

and (2) its ability to manage the risks 

associated with clearing the swap, 

especially if the Commission determines 

that the swap is required to be cleared. 

B. Submission of Swaps to the 

Commission for Review 

The Dodd-Frank Act requires a DCO 

that plans to accept a swap (or group, 

category, type, or class of swaps) for 

clearing to submit the swap to the 

Commission for review.8 Proposed 

Regulation 39.5(b) sets out the process 

for DCOs to follow, including what 

information a DCO must include in its 

submission to assist the Commission in 

its review. 

First, the submission would have to 

include a statement that the DCO is 

eligible to clear the swap and, if the 

Commission determines that the swap is 

required to be cleared, the DCO would 

be able to maintain compliance with 

Section 5b(c)(2) of the CEA. This 

provision is intended to satisfy the 

Dodd-Frank Act requirement that a 

swap submission be consistent with 

Section 5b(c)(2).9 Regulation 39.5(b)(1) 

would require a DCO submitting a swap 

to be eligible to clear the swap under 

Regulation 39.5(a) and, as noted above, 

a DCO that seeks to be considered 

eligible to clear a swap must 

demonstrate its ability to maintain 

compliance with the core principles in 

Section 5b(c)(2). Therefore, a DCO 

submitting a swap under Regulation 

39.5(b) would have already 

demonstrated pursuant to Regulation 

39.5(a) its ability to comply with 

Section 5b(c)(2). Accordingly, the 

Commission believes it is appropriate to 

require only a statement to that effect in 

the swap submission itself. 

A DCO would also have to provide a 

statement that includes, but is not 

limited to, information that would assist 

the Commission in the quantitative and 

qualitative assessment of five specific 

factors that the Dodd-Frank Act requires 

the Commission to take into account 

when reviewing a swap submission,10

and additional information that the 

Commission believes is needed for an 

effective review of the swap submission. 

The proposed regulation would require 

the DCO to provide specific information 

relating to product specifications; 

participant eligibility standards; pricing 

sources, models, and procedures; 11 risk 

management procedures; measures of 

market liquidity and trading activity; 

the effect of a clearing requirement on 

the market for the swap; applicable 

rules, manuals, policies, or procedures; 

and terms and trading conventions on 

which the swap is currently traded. 

Finally, the swap submission would 

have to include a description of the 

manner in which the DCO has provided 


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12See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C. 

2(h)(2)(B)(i). 

13See Section 2(h)(2)(A) of the CEA, 7 U.S.C. 

2(h)(2)(A). 

14The Commission intends to adopt such 

regulations before any Commission reviews would 

be initiated. 

15See Section 2(h)(4)(B) of the CEA, 7 U.S.C. 

2(h)(4)(B). 

16See Section 2(h)(3)(A) of the CEA, 7 U.S.C. 

2(h)(3)(A). 

17See 75 FR 55410 (Sep. 10, 2010). The 

Commission previously proposed to amend 

Regulation 140.94 in connection with the proposal 

of Regulation 39.11 (75 FR 63113 (Oct. 14, 2010)). 

The Commission intends to place all delegations to 

the Director of the Division of Clearing and 

Intermediary Oversight for Part 39 under this 

regulation. 

18 5 U.S.C. 601 et seq. 

19 47 FR 18618 (Apr. 30, 1982). 

20See 66 FR 45605, 45609 (August 29, 2001). 

notice of the submission to its members 

and a summary of any opposition to the 

submission expressed by members. The 

Dodd-Frank Act requires a DCO to 

provide notice of the submission to its 

members in a manner to be determined 

by the Commission.12 The Commission 

recognizes that a DCO typically has 

established procedures for providing 

notice to its members and believes it is 

appropriate to allow the DCO to provide 

notice of a swap submission in the same 

manner. The submission to the 

Commission also would have to include 

a summary of any opposition expressed 

by members, which means that a DCO 

would be expected to notify members 

before it makes its submission to the 

Commission. The Commission invites 

comment on whether the regulation 

should prescribe a specific manner in 

which a DCO must provide notice to its 

members, and whether the regulation 

should prescribe a specific period of 

time between the notice to members and 

the submission to the Commission to 

allow time for members to make their 

views on the submission known. 

Upon receiving a DCO’s submission, 

the Commission would begin its 90-day 

review by posting the submission on the 

Commission Web site for a 30-day 

public comment period, as required by 

the Dodd-Frank Act. The Commission 

invites comment regarding the 

appropriateness and sufficiency of 

providing notice of the submission on 

the Commission Web site as compared 

to publishing notice of the submission 

in the Federal Register. The review 

would not begin until the submission 

was complete, as determined solely in 

the discretion of the Commission. Due 

to the relatively brief 90-day review 

period prescribed by the Dodd-Frank 

Act, the Commission must be certain 

before it begins a review that it has the 

information it needs to reach an 

appropriate determination. 

The proposed regulation encourages a 

DCO to submit swaps to the 

Commission, to the extent reasonable 

and practicable to do so, by group, 

category, type, or class of swaps. The 

Commission believes this will make the 

review process more efficient. The 

Commission would be able to 

consolidate multiple submissions from 

one DCO or subdivide a DCO’s 

submission for review as appropriate. 

The Commission would review the 

submission and make a determination 

as to whether the swap will be required 

to be cleared not later than 90 days after 

receiving the submission, unless the 

submitting DCO agreed to an extension. 

In making a determination that the swap 

must be cleared, the Commission would 

impose terms and conditions on the 

requirement as appropriate. 

C. Commission-Initiated Reviews of 

Swaps 

The Dodd-Frank Act requires the 

Commission on an ongoing basis to 

review swaps that have not been 

accepted for clearing by a DCO to make 

a determination as to whether the swaps 

should be required to be cleared.13

Under proposed Regulation 39.5(c), the 

Commission would use information 

obtained pursuant to Commission 

regulations 14 from swap data 

repositories, swap dealers, and major 

swap participants, and any other 

available information, in undertaking 

such reviews. 

If no DCO has accepted for clearing a 

particular swap, group, category, type, 

or class of swaps that the Commission 

finds would otherwise be subject to a 

clearing requirement, the Commission 

would, as required by the Dodd-Frank 

Act,15 investigate the relevant facts and 

circumstances and, within 30 days of 

the completion of its investigation, issue 

a public report containing the results of 

the investigation. The Commission 

would take such actions as it determines 

to be necessary and in the public 

interest, which may include establishing 

margin or capital requirements for 

parties to the swap, group, category, 

type, or class of swaps. 

D. Stay of Clearing Requirement 

After making a determination that a 

swap (or group, category, type, or class 

of swaps) is required to be cleared, the 

Commission, on application of a 

counterparty to a swap or on its own 

initiative, may stay the clearing 

requirement until it completes a review 

of the terms of the swap and the clearing 

arrangement.16 Proposed Regulation 

39.5(d)(2) sets out the process for a 

counterparty to a swap to apply for a 

stay of the clearing requirement. 

A counterparty to a swap that wants 

to apply for a stay of the clearing 

requirement for that swap would be 

required to submit a written request to 

the Secretary of the Commission that 

includes information that would assist 

the Commission in its review, 

including: The identity and contact 

information of the counterparty to the 

swap; the terms of the swap subject to 

the clearing requirement; the name of 

the DCO that clears the swap; a 

description of the clearing arrangement; 

and a statement explaining why the 

swap should not be subject to a clearing 

requirement. 

The Commission also would be able 

to obtain additional information to 

assist it in its review from the DCO that 

clears the swap. The Commission would 

complete its review not later than 90 

days after issuance of the stay, unless 

the DCO that clears the swap agrees to 

an extension. 

Upon completion of its review, the 

Commission could determine, subject to 

any terms and conditions as the 

Commission determines to be 

appropriate, that the swap must be 

cleared, or that the clearing requirement 

will not apply but clearing may 

continue on a non-mandatory basis. 

III. Technical Amendments 

The Commission is proposing to 

amend Regulation 140.94 17 to delegate 

authority to the Director of the Division 

of Clearing and Intermediary Oversight 

to consolidate or subdivide swap 

submissions as appropriate for review 

under proposed Regulation 39.5(b)(2) 

and to request information from a 

derivatives clearing organization in 

connection with the stay of a clearing 

requirement under proposed Regulation 

39.5(d)(3). 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires that agencies consider whether 

the rules they propose will have a 

significant economic impact on a 

substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.18 The rules proposed by the 

Commission shall affect only DCOs. The 

Commission has previously established 

certain definitions of ‘‘small entities’’ to 

be used by the Commission in 

evaluating the impact of its regulations 

on small entities in accordance with the 

RFA.19 The Commission has previously 

determined that DCOs are not small 

entities for the purpose of the RFA.20


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67280 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 

21 44 U.S.C. 3501 et seq. 22 7 U.S.C. 19(a). 

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies 

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

proposed rules will not have a 

significant economic impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a currently valid 

control number. OMB has not yet 

assigned a control number to the new 

collection. The Paperwork Reduction 

Act of 1995 (PRA) 21 imposes certain 

requirements on Federal agencies 

(including the Commission) in 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. This 

proposed rulemaking would result in 

new collection of information 

requirements within the meaning of the 

PRA. The Commission therefore is 

submitting this proposal to the Office of 

Management and Budget (OMB) for 

review. If adopted, responses to this 

collection of information would be 

mandatory. The Commission will 

protect proprietary information 

according to the Freedom of Information 

Act and 17 CFR Part 145, ‘‘Commission 

Records and Information.’’ In addition, 

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

prohibits the Commission, unless 

specifically authorized by the CEA, from 

making public ‘‘data and information 

that would separately disclose the 

business transactions or market 

positions of any person and trade 

secrets or names of customers.’’ The 

Commission is also required to protect 

certain information contained in a 

government system of records according 

to the Privacy Act of 1974, 5 U.S.C. 

552a. 

1. Information Provided by Reporting 

Entities/Persons 

The proposed regulations require each 

respondent to file information with the 

Commission on an occasional basis, 

which would result in one annual 

response per respondent. Commission 

staff estimates that each respondent 

would expend 40 hours to prepare each 

filing required under the proposed 

regulations, which was estimated based 

on the Commission’s prior experience 

with DCOs and their preparation of 

filings for the Commission’s review. 

Commission staff estimates that it 

would receive filings from up to 12 

respondents annually, which assumes 

that each DCO would make an average 

of one filing per year. Accordingly the 

burden in terms of hours would in the 

aggregate be 40 hours annually per 

respondent and 480 hours annually for 

all respondents. 

Commission staff estimates that each 

respondent could expend up to $4000 

annually, based on an hourly wage rate 

of $100, to comply with the proposed 

regulations. This would result in an 

aggregated cost of $48,000 per annum 

(12 respondents x $4000). The 

Commission invites public comment on 

the accuracy of its estimate regarding 

the collection requirements that would 

result from the proposed regulations. 

2. Information Collection Comments 

The Commission invites the public 

and other federal agencies to comment 

on any aspect of the reporting and 

recordkeeping burdens discussed above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (i) Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (iii) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (iv) minimize the 

burden of the collection of information 

on those who are to respond, including 

through the use of automated collection 

techniques or other forms of information 

technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that all 

comments can be summarized and 

addressed in the final rule preamble. 

Refer to the Addresses section of this 

notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this document in the 

Federal Register. Therefore, a comment 

is best assured of having its full effect 

if OMB receives it within 30 days of 

publication. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 22 requires 

the Commission to consider the costs 

and benefits of its actions before issuing 

a rulemaking under the CEA. By its 

terms, Section 15(a) does not require the 

Commission to quantify the costs and 

benefits of a rule or to determine 

whether the benefits of the rulemaking 

outweigh its costs; rather, it requires 

that the Commission ‘‘consider’’ the 

costs and benefits of its actions. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

rule is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

CEA. 

Summary of proposed requirements. 

The proposed rule would implement 

processes for determining the eligibility 

of a DCO to clear swaps that it wishes 

to accept for clearing; for DCOs 

submitting swaps to the Commission for 

review; for Commission-initiated 

reviews of swaps; and for staying a 

clearing requirement while the clearing 

of a swap is reviewed. 

Costs. With respect to costs, the 

Commission has determined that the 

rule results in minimal costs. The rule 

only requires DCOs and swap 

counterparties to provide sufficient 

information for the Commission to carry 

out its responsibilities under the DoddFrank Act in an efficient manner. The 

rule itself does not require the clearing 

of any swap, so the Commission did not 

consider the potential costs of 

mandatory clearing in its analysis. 

Benefits. With respect to benefits, the 

Commission has determined that the 

rule will benefit the public by making 

information publicly available and by 

providing opportunity for comment. 

The rule also takes into account the risk 

management practices of a DCO in 

making a determination on the DCO’s 

eligibility to clear swaps. The rule itself 

does not require the clearing of any 

swap, so the Commission did not 


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consider the potential benefits of 

mandatory clearing in its analysis. 

Public Comment. The Commission 

invites public comment on its costbenefit considerations. Commenters are 

also invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the proposal with their 

comment letters. 

List of Subjects 

17 CFR Part 39 

Business and industry, Commodity 

futures, Reporting and recordkeeping 

requirements. 

17 CFR Part 140 

Authority delegations (Government 

agencies), Conflict of interests, 

Organization and functions 

(Government agencies). 

For the reasons stated in the 

preamble, the Commission proposes to 

amend 17 CFR parts 39 and 140 as 

follows: 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

1. The authority citation for part 39 is 

revised to read as follows: 

Authority: 7 U.S.C. 7a–1 as amended by 

Pub. L. 111–203, 124 Stat. 1376. 

2. Redesignate §§ 39.5 through 39.7 as 

§§ 39.6 through 39.8 and add new § 39.5 

to read as follows: 

§ 39.5 Review of swaps for Commission 

determination on clearing requirement. 

(a) Eligibility to clear swaps. (1) A 

derivatives clearing organization shall 

be presumed eligible to accept for 

clearing any swap that is within a 

group, category, type, or class of swaps 

that the derivatives clearing 

organization already clears. Such 

presumption of eligibility, however, is 

subject to review by the Commission. 

(2) A derivatives clearing organization 

that wishes to accept for clearing any 

swap that is not within a group, 

category, type, or class of swaps that the 

derivatives clearing organization already 

clears shall request a determination by 

the Commission of the derivatives 

clearing organization’s eligibility to 

clear such a swap before accepting the 

swap for clearing. The request, which 

shall be filed electronically with the 

Secretary of the Commission, shall 

address the derivatives clearing 

organization’s ability, if it accepts the 

swap for clearing, to maintain 

compliance with section 5b(c)(2) of the 

Act, specifically: 

(i) The sufficiency of the derivatives 

clearing organization’s financial 

resources; and 

(ii) The derivative clearing 

organization’s ability to manage the 

risks associated with clearing the swap, 

especially if the Commission determines 

that the swap is required to be cleared. 

(b) Swap submissions. (1) A 

derivatives clearing organization shall 

submit to the Commission each swap, or 

any group, category, type, or class of 

swaps that it plans to accept for 

clearing. The derivatives clearing 

organization making the submission 

must be eligible under paragraph (a) of 

this section to accept for clearing the 

submitted swap, or group, category, 

type, or class of swaps. 

(2) A derivatives clearing organization 

shall submit swaps to the Commission, 

to the extent reasonable and practicable 

to do so, by group, category, type, or 

class of swaps. The Commission may in 

its reasonable discretion consolidate 

multiple submissions from one 

derivatives clearing organization or 

subdivide a derivatives clearing 

organization’s submission as 

appropriate for review. 

(3) The submission shall be filed 

electronically with the Secretary of the 

Commission and shall include: 

(i) A statement that the derivatives 

clearing organization is eligible to 

accept the swap, or group, category, 

type, or class of swaps for clearing and, 

if the Commission determines that the 

swap, or group, category, type, or class 

of swaps is required to be cleared, the 

derivatives clearing organization will be 

able to maintain compliance with 

section 5b(c)(2) of the Act; 

(ii) A statement that includes, but is 

not limited to, information regarding the 

swap, or group, category, type, or class 

of swaps that is sufficient to provide the 

Commission a reasonable basis to make 

a quantitative and qualitative 

assessment of the following factors: 

(A) The existence of significant 

outstanding notional exposures, trading 

liquidity, and adequate pricing data; 

(B) The availability of rule framework, 

capacity, operational expertise and 

resources, and credit support 

infrastructure to clear the contract on 

terms that are consistent with the 

material terms and trading conventions 

on which the contract is then traded; 

(C) The effect on the mitigation of 

systemic risk, taking into account the 

size of the market for such contract and 

the resources of the DCO available to 

clear the contract; 

(D) The effect on competition, 

including appropriate fees and charges 

applied to clearing; and 

(E) The existence of reasonable legal 

certainty in the event of the insolvency 

of the relevant DCO or one or more of 

its clearing members with regard to the 

treatment of customer and swap 

counterparty positions, funds, and 

property; 

(iii) Product specifications, including 

copies of any standardized legal 

documentation, generally accepted 

contract terms, standard practices for 

managing any life cycle events 

associated with the swap, and the extent 

to which the swap is electronically 

confirmable; 

(iv) Participant eligibility standards, if 

different from the derivatives clearing 

organization’s general participant 

eligibility standards; 

(v) Pricing sources, models, and 

procedures, demonstrating an ability to 

obtain sufficient price data to measure 

credit exposures in a timely and 

accurate manner, including any 

agreements with clearing members to 

provide price data and copies of 

executed agreements with third-party 

price vendors, and information about 

any price reference index used, such as 

the name of the index, the source that 

calculates it, the methodology used to 

calculate the price reference index and 

how often it is calculated, and when 

and where it is published publicly; 

(vi) Risk management procedures, 

including measurement and monitoring 

of credit exposures, initial and variation 

margin methodology, methodologies for 

stress testing and back testing, 

settlement procedures, default 

management procedures, and an 

independent validation of the scalability 

of the derivatives clearing organization’s 

risk management policies, systems, and 

procedures, including the margin 

methodology, settlement procedures, 

and default management procedures; 

(vii) Measures of market liquidity and 

trading activity, including information 

on the sources of such measures; 

(viii) An analysis of the effect of a 

clearing requirement on the market for 

the group, category, type, or class of 

swaps, both domestically and globally, 

including the potential effect on market 

liquidity, trading activity, use of swaps 

by direct and indirect market 

participants, and any potential market 

disruption; 

(ix) Applicable rules, manuals, 

policies, or procedures; 

(x) Terms and trading conventions on 

which the swap is currently traded; 

(xi) A description of the manner in 

which the derivatives clearing 

organization has provided notice of the 

submission to its members and a 

summary of any opposition to the 

submission expressed by the members. 

A copy of the notice to members shall 

be included with the submission. 

(4) The submission will be made 

available to the public and posted on 


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67282 Federal Register / Vol. 75, No. 211 / Tuesday, November 2, 2010 / Proposed Rules 

the Commission Web site for a 30-day 

public comment period. A derivatives 

clearing organization that wishes to 

request confidential treatment for 

portions of its submission may do so in 

accordance with the procedures set out 

in § 145.9(d). 

(5) The Commission will review the 

submission and determine whether the 

swap, or group, category, type, or class 

of swaps described in the submission is 

required to be cleared. The Commission 

will make its determination not later 

than 90 days after a complete 

submission has been received, unless 

the submitting derivatives clearing 

organization agrees to an extension. The 

determination of when such submission 

is complete shall be at the sole 

discretion of the Commission. In making 

a determination that a clearing 

requirement shall apply, the 

Commission may require such terms 

and conditions to the requirement as the 

Commission determines to be 

appropriate. 

(c) Commission-initiated reviews. (1) 

The Commission on an ongoing basis 

will review swaps that have not been 

accepted for clearing by a derivatives 

clearing organization to make a 

determination as to whether the swaps 

should be required to be cleared. In 

undertaking such reviews, the 

Commission will use information 

obtained pursuant to Commission 

regulations from swap data repositories, 

swap dealers, and major swap 

participants, and any other available 

information. 

(2) Notice regarding any 

determination made under paragraph 

(c)(1) of this section will be posted on 

the Commission Web site for a 30-day 

public comment period. 

(3) If no derivatives clearing 

organization has accepted for clearing a 

particular swap, group, category, type, 

or class of swaps that the Commission 

finds would otherwise be subject to a 

clearing requirement, the Commission 

will: 

(i) Investigate the relevant facts and 

circumstances; 

(ii) Within 30 days of the completion 

of its investigation, issue a public report 

containing the results of the 

investigation; and 

(iii) Take such actions as the 

Commission determines to be necessary 

and in the public interest, which may 

include requiring the retaining of 

adequate margin or capital by parties to 

the swap, group, category, type, or class 

of swaps. 

(d) Stay of clearing requirement. (1) 

After making a determination that a 

swap, or group, category, type, or class 

of swaps is required to be cleared, the 

Commission, on application of a 

counterparty to a swap or on its own 

initiative, may stay the clearing 

requirement until the Commission 

completes a review of the terms of the 

swap, or group, category, type, or class 

of swaps and the clearing arrangement. 

(2) A counterparty to a swap that 

wishes to apply for a stay of the clearing 

requirement for that swap shall submit 

a written request to the Secretary of the 

Commission that includes: 

(i) The identity and contact 

information of the counterparty to the 

swap; 

(ii) The terms of the swap subject to 

the clearing requirement; 

(iii) The name of the derivatives 

clearing organization clearing the swap; 

(iv) A description of the clearing 

arrangement; and 

(v) A statement explaining why the 

swap should not be subject to a clearing 

requirement. 

(3) A derivatives clearing organization 

that has accepted for clearing a swap, or 

group, category, type, or class of swaps 

that is subject to a stay of the clearing 

requirement shall provide any 

information requested by the 

Commission in the course of its review. 

(4) The Commission will complete its 

review not later than 90 days after 

issuance of the stay, unless the 

derivatives clearing organization that 

clears the swap, or group, category, 

type, or class of swaps agrees to an 

extension. 

(5) Upon completion of its review, the 

Commission may: 

(i) Determine, subject to any terms 

and conditions as the Commission 

determines to be appropriate, that the 

swap, or group, category, type, or class 

of swaps must be cleared; or 

(ii) Determine that the clearing 

requirement will not apply to the swap, 

or group, category, type, or class of 

swaps, but clearing may continue on a 

non-mandatory basis. 

PART 140—ORGANIZATION, 

FUNCTIONS, AND PROCEDURES OF 

THE COMMISSION 

3. The authority citation for part 140 

continues to read as follows: 

Authority: 7 U.S.C. 2 and 12a. 

4. In § 140.94, revise paragraph (a)(5) 

and add new paragraphs (a)(6) and (a)(7) 

to read as follows: 

§ 140.94 Delegation of authority to the 

Director of the Division of Clearing and 

Intermediary Oversight. 

(a) * * * 

(5) All functions reserved to the 

Commission in § 5.14 of this chapter; 

(6) All functions reserved to the 

Commission in §§ 39.5(b)(2) and (d)(3) 

of this chapter; and 

(7) All functions reserved to the 

Commission in §§ 39.11 (b)(1)(vi), 

(b)(2)(ii), (c)(1), (c)(2), (f)(1), and (f)(4) of 

this chapter. 

* * * * * 

Issued in Washington, DC, on October 26, 

2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Note: The following attachment will not 

appear in the Code of Federal Regulations: 

Statement of Chairman Gary Gensler 

Process for Review of Swaps for 

Mandatory Clearing October 26, 2010 

I support the proposed rulemaking to 

establish a process for the review and 

designation of swaps for mandatory 

clearing. One of the primary goals of the 

Dodd-Frank Act was to lower risk by 

requiring standardized swaps to be 

centrally cleared. The process set out in 

the proposed rule is consistent with the 

Congressional requirement that 

derivatives clearing organizations 

(DCOs) be eligible to clear the swaps 

and that before a swap becomes subject 

to mandatory clearing the public get to 

provide input on the contract or class of 

contracts. Though we have until July to 

finalize this rulemaking, it is my hope 

that we can finish by April. This would 

allow us to begin reviewing the 

contracts that are already being cleared 

by DCOs and under Dodd-Frank have 

already been deemed submitted to the 

Commission for consideration. 

[FR Doc. 2010–27532 Filed 11–1–10; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 40 

RIN 3038–AD07 

Provisions Common to Registered 

Entities 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is proposing rules to 

implement new statutory provisions 

enacted under Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act (‘‘Dodd-Frank Act’’) and 

amend existing rules affected by the 

passage of the Dodd-Frank Act. These 

proposed rules apply to designated 

contract markets (‘‘DCMs’’), derivatives 


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