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[Federal Register: June 17, 2010 (Volume 75, Number 116)]
[Notices]               
[Page 34434-34438]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jn10-54]                         

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COMMODITY FUTURES TRADING COMMISSION

 
Request To Amend an Existing Order Under Section 4(c) of the 
Commodity Exchange Act Permitting Eligible Swap Participants To Submit 
for Clearing, and ICE Clear U.S., Inc. and Futures Commission Merchants 
To Clear, Certain-Over-The-Counter Agricultural Swaps

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Request for Comment on an Amendment to an Exemption 
Order.

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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or 
``Commission'') is requesting comment on whether to amend an existing 
order to extend the exemption granted to ICE Clear U.S., Inc. (``ICE 
Clear'') under Section 4(c) of the Commodity Exchange Act (``Act'') \1\ 
to certain over-the-counter (``OTC'') agricultural swaps for which 
there is no corresponding futures contract listed for trading on ICE

[[Page 34435]]

Futures U.S., Inc. (``ICE Futures'') at the time of acceptance for 
clearing. Authority for extending this relief is found in Section 4(c) 
of the Act.
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    \1\ 7 U.S.C. 6(c).

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DATES: Comments must be received on or before August 2, 2010.

ADDRESSES: Comments may be submitted by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov/http://frwebgate.access.gpo/cgi-bin/leaving. Follow the instructions 
for submitting comments.
     E-mail: iceclearotc4c@cftc.gov. Include ``ICE Clear 
Section 4(c) Amended Exemption Request'' in the subject line of the 
message.
     Fax: 202-418-5521.
     Mail: Send to David A. Stawick, Secretary, Commodity 
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, 
NW., Washington, DC 20581.
     Courier: Same as mail above.
    All comments received will be posted without change to http://www.CFTC.gov/.

FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate 
Director, 202-418-5092, rwasserman@cftc.gov, or Alicia L. Lewis, 
Attorney-Advisor, 202-418-5862, alewis@cftc.gov, Division of Clearing 
and Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Background

    In September 2007, ICE Clear, a registered derivatives clearing 
organization (``DCO'') and the clearing organization for ICE Futures, 
submitted applications to the Commission requesting an order (1) 
pursuant to Section 4(c) of the Act, (a) to permit the clearing of 
coffee, sugar, and cocoa OTC swap contracts and (b) to determine that 
certain ICE Futures floor brokers and traders are eligible swap 
participants (``ESPs'') for the purpose of trading these OTC swaps; and 
(2) pursuant to Section 4d of the Act, to permit certain customer 
positions in these cleared OTC swap contracts and the property 
collateralizing these positions to be commingled with property and 
positions otherwise required to be held in customer segregated 
accounts. Part 35 of the Commission's regulations \2\ allows the 
trading but not the clearing of such contracts.\3\ On December 12, 
2008, the Commission approved the applications and issued an order 
pursuant to Sections 4(c) and 4d of the Act (the ``Previous 
Order'').\4\ ICE Clear represents that it commenced clearing the 
permitted swaps on February 13, 2009.
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    \2\ 17 CFR Part 35.
    \3\ Part 35 of the Commission's regulations, 17 CFRPart 35, 
promulgated pursuant to the authority of Section 4(c) of the Act, 
exempts swap agreements and eligible persons entering into these 
agreements from most provisions of the Act. The term ``swap 
agreement'' is defined to include, among other types of agreements, 
``a * * * commodity swap,'' which latter term includes swaps on 
agricultural products. While the Commodity Futures Modernization Act 
of 2000 amends the Act to exempt the trading of many OTC 
transactions from many provisions of the Act, these exemptions 
explicitly do not apply to OTC transactions in agricultural 
commodities. Accordingly, swaps involving agricultural commodities 
continue to rely upon the exemptions of Part 35. Part 35 requires, 
among other things, that a swap agreement not be part of a fungible 
class of agreements that are standardized as to their material 
economic terms and that the creditworthiness of any party having an 
interest under the agreement be a material consideration in entering 
into or negotiating the terms of the agreement. Thus, absent an 
additional exemption pursuant to Section 4(c) of the Act, ICE Clear 
could not engage in the clearing of OTC swap contracts in cocoa, 
sugar and coffee, since such contracts would not fulfill all of the 
conditions for exemption in Part 35. For further discussion of the 
Part 35 analysis, see 72 FR 68862, 68863 (Dec. 6, 2007).
    As discussed further below, the Commission is requesting comment 
on the impact of pending financial services reform legislation on 
Part 35.
    \4\ 73 FR 77015 (Dec. 18, 2008).
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    The clearing process for these swaps involves the replacement of 
each OTC swap with a ``cleared-only'' contract, the essential terms of 
which match the terms, including the expiration date, of a 
corresponding underlying exchange-listed futures contract in coffee, 
sugar, or cocoa traded on ICE Futures. The clearinghouse is interposed 
as the central counterparty. The cleared-only contracts are financially 
settled while the underlying futures contracts are settled with 
physical delivery.
    In granting the relief requested, the Commission imposed certain 
terms and conditions in the Previous Order to address its regulatory 
concerns and mitigate the risks associated with the clearing of OTC 
agricultural swaps. With respect to Section 4d of the Act, the 
Commission evaluated whether ICE Clear's proposal would provide 
appropriate protection for customer funds since futures customers would 
be exposed to a different source of risk if funds supporting contracts 
executed in the OTC market were commingled with customer funds 
supporting futures transactions in customer segregated accounts. In 
analyzing this issue, the Commission considered (1) the ability of a 
futures commission merchant (``FCM'') or DCO to offset these contracts 
in the OTC markets in the event of a default on such contracts by a 
customer or an FCM, respectively, since a cleared-only contract could 
be offset only by another cleared-only contract and (2) the 
availability of the exchange-traded markets for coffee, sugar and cocoa 
for hedging purposes, as well as the correspondence between the terms 
of a cleared-only contract and a corresponding exchange-traded contract 
for these products. Based on ICE Clear's proposal, the Commission found 
that these cleared-only contracts correspond to transactions in a 
potentially liquid OTC market and, importantly, that they were 
economically equivalent to, and thus could be effectively hedged with 
an exchange-listed futures contract.\5\
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    \5\ See 73 FR at 77018.
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    Accordingly, in order to ensure an effective means of risk 
management for these cleared-only contracts, the Commission included 
Condition 3(B) in the Previous Order, which required that the cleared-
only contracts be closely related to underlying futures contracts 
traded on ICE Futures. Specifically, Condition 3(B) provides that:

    ``[t]he economic terms and the daily settlement prices of each 
contract, agreement or transaction subject to this order must be 
analogous to the economic terms, and equal to the daily settlement 
prices, respectively, of a corresponding futures contract listed for 
trading on ICE Futures.''

    The fulfillment of this condition would enable an FCM carrying the 
positions of a defaulting customer or ICE Clear carrying the positions 
of a defaulting member, to economically hedge those positions in the 
ICE Futures market by entering into an equal but opposite position in 
the corresponding listed futures contract. Thus, the Commission 
considered economic hedging in the exchange-listed market and actual 
offset based on the OTC market as feasible risk management measures for 
FCMs carrying cleared-only positions, as well as for ICE Clear itself.

II. The Current ICE Clear Petition

    ICE Clear seeks to modify Condition 3(B) of the Previous Order to 
allow it to clear OTC swaps in coffee, sugar and cocoa that have 
economic terms analogous to the terms of corresponding futures 
contracts listed for trading on ICE Futures with the exception of their 
expiration dates. Such expiration dates would be permitted to be beyond 
that of the corresponding futures contracts. These OTC swap contracts 
are referred to herein as ``Long-Dated Swaps''. The clearing of Long-
Dated Swaps will require ICE Clear to establish independent settlement 
prices for such swaps until there is a corresponding futures contract, 
with the same expiration date, listed for trading on ICE

[[Page 34436]]

Futures. In order to establish such prices, ICE Clear represents that 
it has developed specific pricing models for Long-Dated Swaps and will 
use those models along with the best available market data to determine 
settlement prices.\6\ In addition, ICE Clear represents that only ESPs 
would be permitted to trade these swaps.
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    \6\ ICE Clear proposes to use a process similar to the industry-
standard pricing procedures for options pricing models used to value 
longer dated options positions in less liquid contract months. 
Moreover, ICE Clear represents that the market data used will 
include: (i) Cleared-swaps data submitted to the clearinghouse; (ii) 
year-on-year spread values for the underlying traded futures 
contract for actively traded months; (iii) OTC transaction data 
solicited from third-party brokers such as the major inter-dealer 
brokers; (iv) indicative quotes provided by third-party brokers; and 
(v) historical data.
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    ICE Clear has not requested an order pursuant to Section 4d of the 
Act permitting customer positions in these Long-Dated Swap contracts 
and the property collateralizing those positions to be commingled with 
property and positions otherwise required to be held in customer 
segregated accounts. Accordingly, positions in such contracts, and 
property collateralizing such positions, would not be commingled with 
positions and related collateral segregated pursuant to Section 4d of 
the Act.\7\ Long-Dated Swaps, and property collateralizing such swaps, 
would be treated as other cleared-only contracts by ICE Clear and its 
clearing members that are registered as FCMs.
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    \7\ Pursuant to recent amendments to Part 190 of the 
Commission's Regulations, 17 CFR Part 190, positions in these 
contracts, and related collateral, could be included as Cleared OTC 
Derivatives, if ICE Clear's rules or bylaws were to require them to 
be segregated. The amendments were published at 75 FR 17297 (Apr. 6, 
2010).
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    Eventually, however, the expiration date of a Long-Dated Swap will, 
after the passage of time, correspond to that of a futures contract 
listed for trading by ICE Futures (at that point, the Long-Dated Swap 
would become an ``Aged Long-Dated Swap''). An Aged Long-Dated Swap 
would be economically equivalent to an OTC swap that was first accepted 
for clearing after the listing of a corresponding futures contract. As 
a result, an Aged Long-Dated Swap would also satisfy all the 
requirements specified in the Previous Order, and therefore, could be 
carried in the customer segregated account pursuant to the provisions 
of that order. ICE Clear would not establish an independent settlement 
price for an Aged Long-Dated Swap, but instead would use the settlement 
price of the corresponding listed futures contract.

III. Section 4(c) of the Commodity Exchange Act

    Section 4(c)(1) of the Act empowers the Commission to ``promote 
responsible economic or financial innovation and fair competition'' by 
exempting any transaction or class of transactions from any of the 
provisions of the Act (subject to exceptions not relevant here) where 
the Commission determines that the exemption would be consistent with 
the public interest.\8\ The Commission may grant such an exemption by 
rule, regulation, or order, after notice and opportunity for hearing, 
and may do so on application of any person or on its own initiative. In 
enacting Section 4(c) of the Act, Congress noted that the goal of the 
provision ``is to give the Commission a means of providing certainty 
and stability to existing and emerging markets so that financial 
innovation and market development can proceed in an effective and 
competitive manner.'' \9\ Permitting the inclusion of Long-Dated Swaps 
in the class of OTC agricultural swap transactions that can be cleared 
by ICE Clear may foster both financial innovation and competition. It 
may benefit the marketplace by providing ESPs with the ability to bring 
together flexible negotiation with central counterparty guarantees, as 
well as capital and operational efficiencies. ESPs also may precisely 
hedge their cash positions with offsetting swap positions that match 
closely in terms of expiration date. The Commission is requesting 
comment on whether it should extend the permission to clear granted 
previously to include those OTC swap contracts for which the expiration 
date is beyond that of any corresponding futures contract listed for 
trading on ICE Futures at the time of acceptance for clearing.
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    \8\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides in 
full that:
    In order to promote responsible economic or financial innovation 
and fair competition, the Commission by rule, regulation, or order, 
after notice and opportunity for hearing, may (on its own initiative 
or on application of any person, including any board of trade 
designated or registered as a contract market or derivatives 
transaction execution facility for transactions for future delivery 
in any commodity under section 7 of this title) exempt any 
agreement, contract, or transaction (or class thereof) that is 
otherwise subject to subsection (a) of this section (including any 
person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated terms 
or conditions or for stated periods and either retroactively or 
prospectively, or both, from any of the requirements of subsection 
(a) of this section, or from any other provision of this chapter 
(except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this 
title, except that the Commission and the Securities and Exchange 
Commission may by rule, regulation, or order jointly exclude any 
agreement, contract, or transaction from section 2(a)(1)(D) of this 
title), if the Commission determines that the exemption would be 
consistent with the public interest.
    \9\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 
3213.
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    Section 4(c)(2) provides that the Commission may grant exemptions 
only when it determines that the requirements for which an exemption is 
being provided should not be applied to the agreements, contracts, or 
transactions at issue, and the exemption is consistent with the public 
interest and the purposes of the Act; that the agreements, contracts or 
transactions will be entered into solely between appropriate persons; 
and that the exemption will not have a material adverse effect on the 
ability of the Commission or any contract market or derivatives 
transaction execution facility to discharge its regulatory or self-
regulatory duties under the Act.\10\ Section 4(c)(3) includes within 
the term ``appropriate persons'' a number of specified categories of 
persons deemed appropriate under the Act for entering into transactions 
exempt by the Commission under Section 4(c). This includes persons the 
Commission determines to be appropriate in light of their financial or 
other qualifications, or the applicability of appropriate regulatory 
protections. ESPs, as defined in Part 35 of the Commission's 
regulations,\11\ and ICE Futures floor members deemed ESPs by the 
Commission in the Order, will be eligible to submit Long-Dated Swap 
transactions to ICE Clear for clearing. The proposed Order requires ICE 
Clear, FCMs and ESPs acting pursuant to the Order to provide the market 
and large-trader information described in Parts 16, 17 and 18 of the 
Commission's regulations, in the manner described in

[[Page 34437]]

Parts 15, 16, 17 and 18 of the Commission's regulations, with respect 
to all Cleared-Only Contracts, including Long-Dated Swaps. In light of 
the above, the Commission is requesting comment as to whether the 
extension of this exemption will affect the ability of the Commission 
or any contract market or derivatives clearing organization to 
discharge its regulatory or self-regulatory duties under the Act.
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    \10\ Section 4(c)(2) of the Act, 7 U.S.C. Sec.  6(c)(2), 
provides in full that:
    The Commission shall not grant any exemption under paragraph (1) 
from any of the requirements of subsection (a) of this section 
unless the Commission determines that--
    (A) the requirement should not be applied to the agreement, 
contract, or transaction for which the exemption is sought and that 
the exemption would be consistent with the public interest and the 
purposes of this Act; and
    (B) the agreement, contract, or transaction--
    (i) will be entered into solely between appropriate persons; and
    (ii) will not have a material adverse effect on the ability of 
the Commission or any contract market or derivatives transaction 
execution facility to discharge its regulatory or self-regulatory 
duties under this Act.
    \11\ This definition includes many of the classes of persons 
explicitly referred to in Act Section 4(c)(3) (e.g., a bank or trust 
company) as well as some classes of persons who are included under 
the category of Section 4(c)(3)(K) (``[s]uch other persons that the 
Commission determines to be appropriate in light of their financial 
or other qualifications, or the applicability of appropriate 
regulatory protections'').
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    With respect to protecting the public interest, the Commission 
notes that Congress has begun to take steps to promote transparency in 
swap contracts. The financial services reform bills passed by the House 
of Representatives \12\ and Senate \13\ each requires swaps \14\ to be 
cleared, subject to certain exemptions, and further requires, with 
respect to swaps that are subject to the clearing requirement, that 
such swaps be executed on a board of trade designated as a contract 
market under Section 5 of the Act (``DCM'') or on a swap execution 
facility (``SEF'') registered or exempt under Section 5h of the Act 
(where such a trading environment is available).\15\ Although these 
bills have not completed the legislative process, the Commission 
recognizes that future legislative enactments may require the execution 
of cleared swaps on a DCM or SEF. Accordingly, the Commission seeks 
comment, both as to the current proposed exemption, as well as more 
generally with respect to Part 35 of the Commission's regulations, on 
the issues raised by the pending legislation regarding trading 
requirements for swap contracts, including agricultural swap contracts.
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    \12\ H.R. 4173, 111th Cong. (2009).
    \13\ H.R. 4173 EAS, 111th Cong. (2010).
    \14\ We note that both bills include agricultural swap contracts 
in their definition of swaps. See H.R. 4173 Sec.  3103(a) (at 575-
77); H.R. 4173 EAS Sec.  721(a) (at 535-38).
    \15\ H.R. 4173 EAS Sec.  723(a) (at 570); H.R. 4173 Sec.  
3103(a) (at 605). Each of the financial services reform bills also 
provides that agricultural swaps may not be traded except pursuant 
to CFTC enabling regulations. See H.R. 4173 Sec.  3103(a) (at 605) 
and Sec.  3109 (at 646); H.R. 4173 EAS Sec.  723(c)(3) (at 577-78).
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IV. Amended Order

    The Previous Order is proposed to be revised to read as follows:

ORDER

    (1) The Commission, pursuant to its authority under Section 4(c) of 
the Commodity Exchange Act (``Act'') and subject to the conditions 
below, hereby:

    (a) Permits eligible swap participants (``ESPs'') to submit for 
clearing, and futures commission merchants (``FCMs'') and ICE Clear 
to clear, OTC agricultural swap contracts in coffee, sugar, and 
cocoa (``Cleared-Only Contracts''); and
    (b) Permits all ICE Futures floor members that are registered 
with the Commission, when trading for their own accounts, to be 
deemed ESPs for the purpose of entering into bilateral swap 
transactions involving coffee, sugar, or cocoa to be cleared on ICE 
Clear.
    (2) The term ``Long-Dated Swap Contract'' shall be defined as a 
Cleared-Only Contract with terms analogous to those of a 
corresponding futures contract listed for trading on ICE Futures, 
except that the expiration date of the swap contract is later than 
that of any such futures contract. If the expiration date of a Long-
Dated Swap Contract, after the passage of time, is on or before that 
of a futures contract listed for trading by ICE Futures, such OTC 
swap contract will become an ``Aged Long-Dated Swap Contract''.
    (3) The Commission, pursuant to its authority under Section 4d 
of the Act and subject to the conditions below, hereby permits ICE 
Clear and its clearing members that are registered FCMs, acting 
pursuant to this order, to hold money, securities, and other 
property, used to margin, guarantee, or secure Cleared-Only 
Contracts (with the exception of Long-Dated Swap Contracts) and 
belonging to customers that are ESPs (including customers that are 
deemed ESPs in accordance with this order), with other customer 
funds used to margin, guarantee, or secure trades or positions in 
commodity futures or commodity option contracts executed on or 
subject to the rules of a contract market designated pursuant to 
Section 5 of the Act in a customer segregated account or accounts 
maintained in accordance with Section 4d of the Act (including any 
orders issued pursuant to Section 4d(a)(2) of the Act) and the 
Commission's regulations thereunder, and all such customer funds 
shall be accounted for and treated and dealt with as belonging to 
the customers of the ICE Clear clearing member, consistent with 
Section 4d of the Act and the regulations thereunder. This 
permission shall also apply to an Aged Long-Dated Swap Contract.
    (4) The Order is subject to the following conditions:
    (a) The contracts, agreements, or transactions subject to this 
order shall be executed pursuant to the requirements of Part 35 of 
the Commission's regulations, as modified herein, and shall be 
limited to Cleared-Only Contracts as defined herein.
    (b) The economic terms and the daily settlement prices of each 
contract, agreement, or transaction subject to this order, except 
for a Long-Dated Swap Contract, shall be analogous to the economic 
terms, and equal to the daily settlement prices, respectively, of a 
corresponding futures contract listed for trading on ICE Futures.
    (c) ICE Clear shall establish a settlement price for each Long-
Dated Swap Contract for each trading day until such time as the 
contract's expiration date corresponds to that of a futures contract 
listed for trading on ICE Futures. ICE Clear shall make records 
reflecting the basis for setting each such price and shall maintain 
such records pursuant to Core Principle K.
    (d) All contracts subject to this order shall be submitted for 
clearing by an ICE Futures clearing member to ICE Clear pursuant to 
ICE Clear rules.
    (e) Each ICE Futures floor member, acting as an ESP pursuant to 
this order, shall be the subject of a financial guarantee from a 
member of ICE Clear covering the trading of the OTC swap contracts 
subject to this order. The clearing member shall be registered with 
the Commission as an FCM and shall clear for the floor member the 
contracts, agreement, or transactions covered by the financial 
guarantee.
    (f) An ICE Futures floor member shall be prohibited from 
entering into a transaction in a Cleared-Only Contract with another 
ICE Futures floor member as the counterparty.
    (g) ICE Clear and its clearing members shall mark to market each 
Cleared-Only Contract on a daily basis in accordance with ICE Clear 
rules.
    (h) ICE Clear shall apply its margining system and calculate 
performance bond rates for each Cleared-Only Contract in accordance 
with its normal and customary practices.
    (i) ICE Futures shall maintain appropriate compliance systems to 
monitor the transactions of its floor members in the OTC swap 
transactions permitted pursuant to this order.
    (j) ICE Clear shall apply appropriate risk management procedures 
with respect to transactions and open interest in all Cleared-Only 
Contracts. ICE Clear shall conduct financial surveillance and 
oversight of its members clearing Cleared-Only Contracts, and shall 
conduct oversight sufficient to assure ICE Clear that each such 
member has the appropriate operational capabilities necessary to 
manage defaults in such contracts. ICE Clear and its clearing 
members, acting pursuant to this order, shall take all other steps 
necessary and appropriate to manage risk related to clearing 
Cleared-Only Contracts.
    (k) ICE Clear shall make available open interest and settlement 
price information for the Cleared-Only Contracts on a daily basis in 
the same manner as for futures contracts listed for trading on ICE 
Futures.
    (l) ICE Futures shall establish and maintain a coordinated 
market surveillance program that encompasses the Cleared-Only 
Contracts and the corresponding futures contracts listed by ICE 
Futures on its designated contract market. ICE Futures shall adopt 
position accountability levels for each cleared-only contract that 
are appropriate in light of the position accountability levels 
applicable to the corresponding futures contracts listed for trading 
on ICE Futures.
    (m) Cleared-only contracts shall not be treated as fungible with 
any contract listed for trading on ICE Futures.
    (n) Each FCM acting pursuant to this order shall keep the types 
of information and records that are described in Section 4g of the 
Act and Commission regulations thereunder, including but not limited 
to Commission Regulation 1.35, with respect to all Cleared-Only 
Contracts. Such information and records shall be produced for 
inspection in accordance with the requirements of Commission 
Regulation 1.31.
    (o) ICE Futures shall provide to the Commission the types of 
information

[[Page 34438]]

described in Part 16 of the Commission's regulations in the manner 
described in Parts 15 and 16 of the Commission's regulations with 
respect to all Cleared-Only Contracts.
    (p) ICE Clear shall apply large trader reporting requirements to 
all Cleared-Only Contracts in accordance with its rules, and each 
FCM and ESP acting pursuant to this order shall provide to the 
Commission the types of information described in Parts 17 and 18 of 
the Commission's regulations in the manner described in Parts 15, 
17, and 18 of the Commission's regulations with respect to all 
Cleared-Only Contracts in which it participates.
    (q) ICE Clear and ICE Futures shall at all times fulfill all 
representations made in their requests for Commission action under 
Sections 4(c) and 4d of the Act and all supporting materials 
thereto.

V. Request for Comment

    The Commission requests comment on all aspects of the issues 
presented by this amended exemption request.

VI. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \16\ 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. The amended exemption would not, if 
approved, require a new collection of information from any entities 
that would be subject to the exemption.
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    \16\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis

    Section 15(a) of the Act,\17\ requires the Commission to consider 
the costs and benefits of its action before issuing an order under the 
Act. By its terms, Section 15(a) does not require the Commission to 
quantify the costs and benefits of an order or to determine whether the 
benefits of the order outweigh its costs. Rather, Section 15(a) simply 
requires the Commission to ``consider the costs and benefits'' of its 
action.
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    \17\ 7 U.S.C. 19(a).
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    Section 15(a) of the Act further specifies that costs and benefits 
shall be evaluated in light of five broad areas of market and public 
concern: protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. Accordingly, the Commission could in its discretion 
give greater weight to any one of the five enumerated areas and could 
in its discretion determine that, notwithstanding its costs, a 
particular order was necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or to accomplish any of 
the purposes of the Act.
    The Commission is considering the costs and benefits of an amended 
exemption order in light of the specific provisions of Section 15(a) of 
the Act, as follows:
    1. Protection of market participants and the public. The contracts 
that are the subject of the amended exemption request will only be 
entered into by persons who are ``appropriate persons'' as set forth in 
Section 4(c) of the Act.
    2. Efficiency, competition, and financial integrity. Extending the 
exemption granted under Part 35 to allow the clearing of Long-Dated 
Swap Contracts may promote liquidity and transparency in the markets 
for OTC derivatives in coffee, sugar, and cocoa, as well as for futures 
on those commodities. Extending the exemption also may promote 
financial integrity by increasing the benefits of clearing in these OTC 
markets.
    3. Price discovery. Price discovery may be enhanced through market 
competition.
    4. Sound risk management practices. Clearing of Long-Dated Swap 
Contracts may foster risk management by the participant counterparties. 
ICE Clear's risk management practices in clearing these transactions 
would be subject to the Commission's supervision and oversight.
    5. Other public interest considerations. The requested amended 
exemption may encourage market competition in agricultural derivative 
products without unnecessary regulatory burden. As noted above, 
however, there are pending financial services reform bills that would 
affect the trading and clearing requirements for agricultural swap 
contracts.
    After considering these factors, the Commission has determined to 
seek comment on the request for an amended exemption order as discussed 
above. The Commission also invites public comment on its application of 
the cost-benefit provision.
* * * * *

    Issued in Washington, DC, on June 14, 2010 by the Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
[FR Doc. 2010-14682 Filed 6-16-10; 8:45 am]
BILLING CODE P
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