33066 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

1 17 CFR 145.9. Commission regulations referred 

to herein are found on the Commission’s website. 

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 

is available at http://www.cftc.gov/LawRegulation/ 

OTCDERIVATIVES/index.htm. 

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. (2006). 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 5, 7, 8, 15, 18, 21, 36, 

41, 140, 145, 155, and 166 

RIN Number 3038–AD53 

Adaptation of Regulations to 

Incorporate Swaps 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’ or ‘‘DFA’’) 

established a comprehensive new 

statutory framework for swaps and 

security-based swaps. The Dodd-Frank 

Act repeals some sections of the 

Commodity Exchange Act (‘‘CEA’’ or 

‘‘Act’’), amends others, and adds a 

number of new provisions. The DFA 

also requires the Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) to promulgate a number 

of rules to implement the new 

framework. The Commission has 

proposed numerous rules to satisfy its 

obligations under the DFA. Because the 

Dodd-Frank Act makes so many changes 

to the existing statutory and regulatory 

frameworks, the proposed rules would 

make a number of conforming changes 

to the CFTC’s regulations to integrate 

them more fully with the new statutory 

and regulatory framework (‘‘Proposal’’). 

DATES: Comments must be received on 

or before August 8, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD53, 

by any of the following methods: 

• The agency’s Web site, at: 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. 

Please submit your comments using 

only one method. 

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 you believe is exempt from 

disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 145.9 

of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Peter A. Kals, Attorney-Advisor, 202– 

418–5466, pkals@cftc.gov, or Elizabeth 

Miller, Attorney-Advisor, 202–418– 

5450, emiller@cftc.gov, Division of 

Clearing and Intermediary Oversight; 

David E. Aron, Counsel, at 202–418– 

6621, daron@cftc.gov, Office of General 

Counsel; Nadia Zakir, Attorney-Advisor, 

202–418–5720, nzakir@cftc.gov, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1151 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

II. Proposed Regulations 

A. Part 1 

1. Regulation 1.3: Definitions 

a. General Changes 

b. Amended and New Definitions 

c. Regulation 1.3(ll): Physical 

d. Regulation 1.3(yy): Commodity Interest 

2. Regulation 1.4: Use of Electronic 

Signatures 

3. Regulation 1.31: Books and Records; 

Keeping and Inspection 

4. Regulation 1.33: Monthly and 

Confirmation Statements 

5. Regulation 1.35: Records of Cash 

Commodity, Futures and Option 

Transactions 

6. Regulation 1.37: Customer’s or Option 

Customer’s Name, Address, and 

Occupation Recorded; Record of 

Guarantor or Controller of Account 

7. Regulation 1.39: Simultaneous Buying 

and Selling Orders of Different 

Principals; Execution of, for and 

Between Principals 

8. Regulation 1.40: Crop, Market 

Information Letters, Reports; Copies 

Required 

9. Regulation 1.59: Activities of SelfRegulatory Employees, Governing Board 

Members, Committee Members and 

Consultants 

10. Regulation 1.63: Service on SelfRegulatory Organization Governing 

Boards or Committees by Persons With 

Disciplinary Histories 

11. Regulation 1.67: Notification of Final 

Disciplinary Action Involving Financial 

Harm to a Customer 

12. Regulation 1.68: Customer Election Not 

To Have Funds, Carried by a Futures 

Commission Merchant for Trading on a 

Registered Derivatives Trading Execution 

Facility, Separately Accounted for and 

Segregated 

13. Regulations 1.44, 1.53, and 1.62— 

Deletion of Regulations Inapplicable to 

Designated Contract Markets 

14. Appendix C to Part 1: Bunched Orders 

and Account Identification 

B. Part 7 

C. Part 8 

D. Parts 15, 18, 21, and 36 

E. Parts 41, 140 and 145 

F. Part 155 

G. Other General Changes to CFTC 

Regulations 

1. Removal of References to DTEFs 

2. Other Conforming Changes 

III. Request for Comment 

IV. Administrative Compliance 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Cost-Benefit Analysis 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act into law.2

Title VII of the Dodd-Frank Act 3 (‘‘Title 

VII’’) amended the CEA 4 to establish a 

comprehensive new regulatory 

framework for swaps and security-based 

swaps. The legislation was enacted, 

among other reasons, to reduce risk, 

increase transparency, and promote 

market integrity within the financial 

system, including by: (1) Providing for 

the registration and comprehensive 

regulation of swap dealers (‘‘SDs’’), 

security-based swap dealers, major swap 

participants (‘‘MSPs’’), and major 

security-based swap participants; (2) 

imposing clearing and trade execution 

requirements on swaps and securitybased swaps, subject to certain 

exceptions; (3) creating rigorous 

recordkeeping and real-time reporting 

regimes; and (4) enhancing the 

rulemaking and enforcement authorities 

of the Commissions with respect to, 

among others, all registered entities and 

intermediaries subject to the 

Commission’s oversight. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33067 

5 DFA section 721(a)(21), adding CEA section 

1a(49), codified at 7 U.S.C. 1a(49). 

6 DFA section 721(a)(16), adding CEA section 

1a(33), codified at 7 U.S.C. 1a(33). 

7 DFA section 721(a)(15), adding CEA section 

1a(4), codified at 7 U.S.C. 1a(4). 

8Existing intermediary registrant categories 

include futures commission merchants (‘‘FCMs’’), 

commodity pool operators (‘‘CPOs’’), commodity 

trading advisors (‘‘CTAs’’), introducing brokers 

(‘‘IBs’’), floor brokers (‘‘FBs’’) and floor traders 

(‘‘FTs’’). 

9Furthermore, while there are many outstanding 

Notices of Proposed Rulemaking (‘‘NPRMs’’) 

published by the CFTC, today’s Proposal does not 

reflect those separately proposed amendments, 

most of which are not yet final. For example, the 

Proposal amends regulation 1.3(z) (definition of 

‘‘bona fide hedging transactions and positions’’) to 

remove certain cross-references, but the Proposal 

does not also show other amendments to that 

definition proposed earlier this year in a separate 

release. See Position Limits for Derivatives, 76 FR 

4752, Jan. 26, 2011. All NPRMs are available on the 

Commission’s Web site for the public to review and 

provide comment. For a list of all rulemaking 

proposals related to the Dodd-Frank Act, please 

visit http://www.cftc.gov/LawRegulation/ 

DoddFrankAct/Dodd-FrankProposedRules/ 

index.htm. 

10CEA section 1a, 7 U.S.C. 1a. 

11The DFA amended the definition of 

‘‘commodity pool operator’’ in CEA section 1a to 

add swaps to those contracts for which a CPO 

solicits investment. DFA section 721(a)(5). In 

addition to amending the definition of ‘‘commodity 

pool operator’’ in proposed regulation 1.3 to 

accommodate that revision, the Commission 

proposes to add equivalent language to the 

definition of ‘‘commodity trading advisor’’ in 

regulation 1.3. 

12Currently, some individual rules specifically 

include DCO in the definition of SRO, but they are 

not included in the general definition of SRO in 

regulation 1.3. 

13The Commission realizes that several earlier 

published releases have also proposed to add 

definitions to regulation 1.3, and that these 

amendments may overlap, e.g., more than one 

definition was proposed for regulation 1.3(zz). See 

Agricultural Commodity Definition, 75 FR 65586, 

Oct. 26, 2010; Requirements for Derivatives 

Clearing Organizations, Designated Contract 

Markets, and Swap Execution Facilities Regarding 

the Mitigation of Conflicts of Interest, 75 FR 63732, 

Oct. 18, 2010. However, as each rule proposal is 

published as a final rulemaking, the Commission 

will ensure that the lettering of paragraphs within 

regulation 1.3 for newly added definitions is 

correct. Therefore, the Commission requests that the 

public review the new definitions proposed today 

for their content only and ignore any 

inconsistencies in lettering between the Proposal 

and prior NPRMs. 

Title VII added to the CEA two new 

categories of Commission registrant (i.e., 

SDs 5 and MSPs 6) and provided a 

definition for associated persons of the 

foregoing.7 Title VII also added to the 

CEA compliance obligations for SDs and 

MSPs and revised the definitional scope 

of each existing intermediary registrant 

category,8 with the exception of retail 

foreign exchange dealers (‘‘RFEDs’’), to 

include intermediation activity 

involving swaps. 

To apply its regulatory regime to the 

swap activity of intermediaries, the 

Commission must make a number of 

changes to its regulations to conform 

them to the Dodd-Frank Act. These 

changes primarily affect part 1 of the 

Commission’s rules, but also affect parts 

5, 7, 8, 15, 18, 21, 36, 41, 140, 145, 155, 

and 166. To the extent the DFA required 

the Commission to promulgate rules to 

address certain specific DFA sections, 

the Commission has proposed or is in 

the process of proposing such rules 

separately. 

Today’s Proposal contains 

amendments of three different types: 

ministerial, accommodating, and 

substantive. Many of the proposed 

amendments are purely ministerial—for 

instance, several proposed changes 

would update definitions to conform 

them to the CEA as amended by the 

Dodd-Frank Act; add to the 

Commission’s regulations new terms 

created by the Dodd-Frank Act; remove 

all regulations and references pertaining 

to derivatives transaction execution 

facilities (‘‘DTEFs’’), a category of 

exchange which was eliminated by the 

DFA; correct various statutory crossreferences to the CEA in the regulations; 

and remove regulations in whole or in 

part that were rendered moot by the 

Commodity Futures Modernization Act 

of 2000 (‘‘CFMA’’). 

The proposed accommodating 

amendments are essential to the 

implementation of the DFA in that they 

propose to add swaps, swap markets, 

and swap entities to numerous 

definitions and regulations, but are 

more than ministerial because they 

require some judgment in drafting. 

Accommodating amendments would 

include, among other things, amending 

numerous definitions in regulation 1.3 

to reference or include swaps; creating 

new definitions as necessary in 

regulation 1.3; amending recordkeeping 

requirements to include information on 

swap transactions; adding references to 

swaps, swap execution facilities 

(‘‘SEFs’’) and derivatives clearing 

organizations (‘‘DCOs’’) to various part 1 

regulations; and amending parts 15, 18, 

21, and 36 to implement the DFA’s 

grandfathering and phase-out of exempt 

boards of trade and exempt commercial 

markets. 

The remaining proposed substantive 

amendments are changes that would 

align requirements or procedures across 

futures and swap markets. They consist 

of proposed amendments to regulations 

1.31 and 1.35 that would harmonize 

current part 1 recordkeeping 

requirements with those applicable to 

SDs and MSPs under proposed part 23 

regulations and harmonize certain 

procedures applicable to swaps with 

those applicable to futures. 

To aid the public in understanding 

the numerous changes to different parts 

of the CFTC’s regulations explained in 

the Proposal, the Commission will also 

publish on its Web site a ‘‘redline’’ of the 

affected regulations which will clearly 

reflect the proposed amendments and 

deletions.9

II. Proposed Regulations 

A. Part 1 

1. Regulation 1.3: Definitions 

a. General Changes 

The Commission proposes to revise 

regulation 1.3 so that its definitions, 

which are used throughout the 

regulations, incorporate relevant 

provisions of the DFA. For instance, 

proposed regulation 1.3 updates current 

definitions to conform them to the 

Dodd-Frank Act’s amendments of the 

same terms in the CEA’s definitions 

section,10 and also includes definitions 

specifically added by the Dodd-Frank 

Act to the CEA. This is the case for 

many of the definitions in proposed 

regulation 1.3, including ‘‘associated 

person of a swap dealer or major swap 

participant,’’ ‘‘commodity pool 

operator,’’ ‘‘commodity trading advisor,’’ 

‘‘futures commission merchant,’’ ‘‘floor 

broker,’’ ‘‘floor trader,’’ ‘‘swap data 

repository,’’ and ‘‘swap execution 

facility.’’ 11 Additionally, the 

Commission is proposing to revise the 

definition of ‘‘self-regulatory 

organization’’ (‘‘SRO’’) to include SEFs, a 

new category of regulated markets under 

the DFA, and to make clear that DCOs 

are SROs.12

b. Amended and New Definitions 

The Commission also proposes (1) to 

simplify or clarify certain existing 

regulation 1.3 definitions, and (2) to add 

several new definitions to regulation 

1.3, pursuant to amendments to the CEA 

by the Dodd-Frank Act, existing 

regulations, and other amendments in 

the Proposal.13

The term ‘‘contract market,’’ for 

instance, is not defined under the CEA, 

and is currently defined under 

regulation 1.3(h) as ‘‘a board of trade 

designated by the Commission as a 

contract market under the Commodity 

Exchange Act or in accordance with the 

provisions of part 33 of this chapter.’’ In 

certain provisions throughout the 

Commission’s regulations, contract 

markets are also referred to as 

‘‘designated contract markets.’’ Because 

both terms are used interchangeably 

within the regulations, the Commission 

is proposing to revise the definition to 

mean contract market and designated 

contract market (‘‘DCM’’). Proposed 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
33068 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

14The ‘‘General Regulations and Derivatives 

Clearing Organizations’’ Federal Register release 

proposed to amend regulation 1.3(k) by adding 

‘‘swap customer,’’ but there is nothing unique about 

that term requiring it to be separately defined. 

General Regulations and Derivatives Clearing 

Organizations, 75 FR 77576, Dec. 13, 2010. 

15The Commission proposes to remove references 

to commodity customers and option customers, 

replacing them with references to simply 

‘‘customer,’’ in the following regulations: 17 CFR 

1.3, 1.20–1.24, 1.26, 1.27, 1.30, 1.32–1.34, 1.35– 

1.37, 1.46, 1.57, 1.59, 155.3, 155.4, and 166.5. 

16For example, proposed regulation 1.33 

(Monthly and confirmation statements) requires an 

FCM to document a customer’s positions in futures 

contracts differently from its option or swap 

positions. Proposed regulation 1.33 preserves these 

distinctions, even though it refers only to 

‘‘customers’’ as opposed to ‘‘commodity customers,’’ 

‘‘option customers,’’ and ‘‘swap customers.’’ 

17A single entity could be registered in more than 

one capacity, for example, as both a SD and a CTA. 

Which rules were applicable would depend on the 

capacity in which it was performing a particular 

function. 

18 In accordance with the removal of DTEF 

references from many other Commission 

regulations, the proposed ‘‘Member’’ definition 

would not include DTEF references currently in the 

definition of ‘‘Member of a registered entity’’ found 

in CEA section 1a(34). See 7 U.S.C. 1a(34). 

19See infra Part II.A.3. 

20 7 U.S.C. 1a(39), as amended by DFA section 

721(a)(17). 

21 17 CFR 5.1(k) currently defines ‘‘retail forex 

customer’’ as ‘‘a person, other than an eligible 

contract participant as defined in section 1a(12) of 

the Act, acting on its own behalf and trading in any 

account, agreement, contract or transaction 

described in section 2(c)(2)(B) or 2(c)(2)(C) of the 

Act.’’ The Proposal would amend this definition in 

part 5 only to reflect the renumbering of section 1a 

of the Act by the DFA, and add an identically 

amended definition to regulation 1.3. See infra Part 

II.G.2. 

22 17 CFR 1.3(ll). 

23 17 CFR 1.3(e). 

regulation 1.3(h) will contain one 

definition identified by the title 

‘‘Contract market; designated contract 

market.’’ The current definition also 

erroneously cross-references part 33 as 

the DCM provisions of the 

Commission’s regulations. The 

proposed definition would change that 

cross-reference to part 38 of the 

Commission’s regulations. 

The Commission proposes a similar 

clarification regarding the definition of 

‘‘customer.’’ The Proposal simplifies the 

definition of ‘‘customer’’ by combining 

two existing definitions, ‘‘Customer; 

commodity customer’’ in regulation 

1.3(k) and ‘‘Option customer’’ in 

regulation 1.3(jj), and adding swaps.14

Therefore, the ‘‘customer’’ definition 

proposed herein would include swap 

customers, commodity customers, and 

option customers, and refer to them all 

with the single term, ‘‘customer.’’ 

Furthermore, the Commission proposes 

to revise all references to ‘‘commodity 

customer’’ and ‘‘option customer’’ 

throughout the Commission’s 

regulations, but particularly in part 1, to 

simply refer to ‘‘customer.’’ 15 These 

revisions have retained references to 

requirements specific to certain 

contracts.16

The Commission proposes to define 

the term ‘‘confirmation’’ to reflect its 

differing use in various regulations 

depending on whether a transaction is 

executed by an FCM, IB or CTA on the 

one hand, or by a SD or MSP on the 

other hand. In the first case, the 

registrant is acting as an agent. In the 

second it is acting as a principal.17

The Commission also proposes to 

revise the ‘‘Member of a contract 

market’’ definition currently found at 

regulation 1.3(q) and to add to 

regulation 1.3 a definition of the term 

‘‘Registered entity,’’ currently provided 

in CEA section 1a(40), as revised by the 

Dodd-Frank Act. The definition of 

‘‘registered entity’’ proposed in 

regulation 1.3 is identical to its CEA 

counterpart and would include DCOs, 

DCMs, SEFs, swap data repositories 

(‘‘SDRs’’) and certain electronic trading 

facilities. To correspond with this new 

definition, the Commission also 

proposes to replace the current ‘‘Member 

of a contract market’’ definition with a 

new definition of ‘‘Member,’’ which 

would be nearly identical to the 

‘‘Member of a registered entity’’ 

definition provided in CEA section 

1a(34), also as revised by the DoddFrank Act.18 Therefore, the proposed 

‘‘Member’’ definition would be 

broadened to accommodate newly 

established SEFs, and it would include 

those ‘‘owning or holding membership 

in, or admitted to membership 

representation on, the registered entity; 

or having trading privileges on the 

registered entity.’’ 

The Commission proposes to add a 

definition of the term ‘‘order.’’ This term 

has not previously been defined, 

although it is used in several of the 

regulations, e.g., 1.35, 155.3, and 155.4. 

In light of this and with the addition of 

new categories of registrants (SDs and 

MSPs) who act as principals rather than 

agents, clarification of this term is 

appropriate. The definition would 

provide that an order is ‘‘an instruction 

or authorization provided by a customer 

to a futures commission merchant, 

introducing broker, or commodity 

trading advisor regarding trading in a 

commodity interest on behalf of the 

customer.’’ 

Because amendments to regulation 

1.31 also proposed herein incorporate 

the term ‘‘prudential regulator,’’ as 

added to the CEA by the Dodd-Frank 

Act, the Commission proposes to add it 

to regulation 1.3.19 Pursuant to 

proposed regulation 1.31, records of 

swap transactions must be presented, 

upon request, to ‘‘any applicable 

prudential regulator as that term is 

defined in section 1a(39) of the Act.’’ 

The proposed definition of ‘‘prudential 

regulator’’ in regulation 1.3 is 

coextensive with the definition in 

section 1a(39) of the Act and lists the 

various prudential regulators. Pursuant 

to the definition in section 1a(39) of the 

Act, determining the ‘‘applicable’’ 

prudential regulator depends upon what 

type of entity the SD or MSP is and 

which regulator oversees that SD or 

MSP.20 For example, if a SD is a 

national bank, it is overseen by the 

Office of the Comptroller of the 

Currency, and that agency would be the 

‘‘applicable prudential regulator’’ for the 

purposes of proposed regulation 1.31. 

The Commission proposes to add the 

term ‘‘registrant’’ to regulation 1.3 so that 

certain regulations in part 1 can refer to 

various intermediaries (e.g., FCMs, IBs, 

CPOs), their employees (associated 

persons), and other registrants (MSPs). 

As discussed above, the Commission 

also has proposed to add the definition 

of ‘‘registered entity’’ from CEA section 

1a, which refers to DCOs, DCMs, SEFs, 

SDRs, and other entities, to regulation 

1.3. Because the DFA created a 

definition of and several proposed part 

1 regulations refer to ‘‘associated 

persons of swap dealers or major swap 

participants,’’ the Commission proposes 

to add that term to regulation 1.3 as 

well. 

The Commission also proposes 

adding the term ‘‘retail forex customer’’ 

to regulation 1.3 because it appears in 

several regulations in part 1 and 

currently is only defined in part 5. The 

proposed definition is identical in all 

material respects to the definition of this 

term as it currently appears in 

regulation 5.1(k).21

Proposed regulation 1.3 also changes 

certain definitions so that the 

Commission’s regulations properly refer 

to both futures and swaps. Additionally, 

for ease of reference, proposed 

regulation 1.3 would simply adopt 

several terms defined under the CEA, 

including ‘‘electronic trading facility,’’ 

‘‘organized exchange,’’ and ‘‘trading 

facility.’’ 

c. Regulation 1.3(ll): Physical 

Regulation 1.3(ll) defines the term 

‘‘physical’’ as ‘‘any good, article, service, 

right or interest upon which a 

commodity option may be traded in 

accordance with the Act and these 

regulations,’’ 22 which is similar to the 

‘‘commodity’’ definition in regulation 

1.3(e).23 Regulation 1.3(e) defines the 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33069 

24Regulation 1.3(e) tracks 7 U.S.C. 1a(9), as 

renumbered and amended by Dodd-Frank Sections 

721(a)(1) and (4), respectively. 

25See 17 CFR 1.3(z)(1), 1.3(kk), 1.17(c)(iii), 

1.17(c)(5)(ii)(A), 1.17(c)(5)(xi), 1.17(j)(1), 

1.31(b)(3)(iii)(B), 1.33(a)(2)(i), 1.33(a)(2)(ii), 

1.33(b)(2)(iv), 1.33(b)(3), 1.34(b), 1.35(b)(2)(iii), 

1.35(b)(3)(iii), 1.35(d)(1), 1.35(e), 1.39(a), 1.39(a)(3), 

1.44, 1.44(b), 1.46(a)(iii), 1.46(a)(iv), 4.23(a)(1), 

4.23(b)(1), 4.33(b)(1), 5.13(b)(3), 10.68(b)(1)(i), 

15.00(p)(1)(ii), 16.00(a), 16.01(a), 16.01(b), 

18.04(b)(3), 18.04(b)(3)(ii), 18.04(b)(6), 

18.04(b)(6)(ii), 31.8(a)(1), 31.8(a)(2)(iii), 

31.8(a)(2)(iv), 31.9(a), 31.9(a)(1), 32.12(a), 32.13(a), 

32.13(e)(2), 33.4, 33.4(a)(4), 33.4(a)(5)(iv), 

33.4(a)(5)(iv)(A), 33.4(a)(5)(iv)(B), 33.4(a)(5)(iv)(C), 

33.4(a)(5)(iv), 33.4(b)(1)(iii), 33.4(d)(3), 33.7(b), 

33.7(b)(1), 33.7(b)(2)(i), 33.7(b)(5), 33.7(b)(6), 

33.7(b)(7)(ii), 33.7(b)(7)(iii), 33.7(b)(7)(iv), 

33.7(b)(7)(v), and 33.7(b)(7)(x); 17 CFR pt. 36 app. 

A (paragraph 3 under PRICE LINKAGE, (c)(3)(ii) 

under CORE PRINCIPLE IV OF SECTION 

2(h)(7)(C)—POSITION LIMITATIONS OR 

ACCOUNTABILITY, (c) under TRADING 

PROCEDURES, (c) under FAIR AND EQUITABLE 

TRADING, (b)(4) under POSITION LIMITATIONS 

OR ACCOUNTABILITY); 17 CFR 40.3(a)(4)(ii); 17 

CFR pt. 40 app. A Guideline No. 1(a),(c)(2)(ii), and 

(c)(2)(ii)(B); 17 CFR 41.25(c), 41.25(g)(6), 145.7(j), 

147.3(b)(7)(vi), 149.103, 149.150(b)(2), 

149.150(d)(1), 150.3(a)(4)(i)(A), 150.5(b)(1), 

150.5(c)(1), and 160.30; 17 CFR pt. 160 app. B 

Sample Clause A–7; 17 CFR 190.01(x)(1), 

190.01(x)(2), 190.01(kk)(3), 190.01(kk)(4), 

190.01(kk)(5), 190.01(ll), 190.02(f)(1), 190.05(a)(1), 

190.05(b)(1), 190.05(b)(1)(iii), 190.05(c)(3), 

190.07(e)(2)(i), 190.07(e)(2)(ii), 190.07(e)(2)(ii)(A), 

and 190.07(e)(2)(ii)(B); 17 CFR pt. 190 app. A, Form 

1, paragraph 4 and Form 4 (Proof of Claim), 

paragraphs (c), (d) and (e). 26 17 CFR 1.3 (emphasis added). 

27See Domestic Exchange-Traded Commodity 

Options; Expansion of Pilot Program To Include 

Options on Physicals, 47 FR 56996, Dec. 22, 1982 

and 48 FR 12519, Mar. 25, 1983. 

28 Domestic Exchange-Traded Commodity 

Options; Expansion of Pilot Program Provisions, 47 

FR 28401, June 30, 1982. 

29Moreover, the Commission has recently 

proposed a rewrite of its options regulations in 

parts 32 and 33. References to options on a physical 

would be removed from part 33, which will apply 

only to DCM-traded options on futures. Options on 

physicals would be permitted to transact under 

revised part 32, which permits all options that are 

swaps under the Dodd-Frank swap definition to 

transact subject to the same rules applicable to any 

other swap. See Commodity Options and 

Agricultural Swaps, 76 FR 6095, Feb. 3, 2011. 

30The Commission received several comment 

letters regarding environmental commodity issues 

in response to the advance notice of proposed 

rulemaking regarding Definitions Contained in Title 

VII of Dodd-Frank Wall Street Reform and 

Consumer Protection Act, 75 FR 51429, Aug. 20, 

2010. See Letter from Kyle Danish, Van Ness 

Feldman, P.C., Counsel to the Coalition for 

Emission Reduction Projects (available at http://

comments.cftc.gov/PublicComments/

ViewComment.aspx?id=26164& 

SearchText=emission%20reduction); Letter from 

Thomas Huetteman, Chairman, Jeffery C. Fort, 

Chair, Market Oversight Committee, and Jeremy D. 

Weinstein, Member, Environmental Markets 

Association (available at http://comments.cftc.gov/ 

PublicComments/ViewComment.aspx?id=26166&

SearchText=ema); Letter from R. Michael Sweeney, 

Jr., Mark W. Menezes, and David T. McIndoe, 

Hunton & Williams, LLP, on behalf of the Working 

Group of Commercial Energy Firms (available at 

http://comments.cftc.gov/PublicComments/

ViewComment.aspx?id=26219&SearchText=

working%20group). 

31 In a number of cases (e.g., the reference to 

‘‘physical safeguards’’ in Regulation 160.30 

(Procedures to safeguard customer records and 

information); and the reference to ‘‘provide physical 

access to handicapped persons’’ in Regulation 

149.150 (Program accessibility: Existing facilities)), 

the context will make it obvious that the term 

‘‘physical’’ is meant to have its plain meaning. 

32 17 CFR 1.3(yy). 

33See 17 CFR 1.12, 1.56, 1.59, 3.10, 3.12, 3.21, 

4.6, 4.7, 4.10, 4.12– 4.14, 4.22–4.25, 4.30–4.34, 4.36, 

4.41, 30.3, 160.3–160.5, and 166.1–166.3; 17 CFR 

pt. 3 app. B, 17 CFR pt. 4 app. A, and 17 CFR pt. 

190 app. B. 

34For example, the term ‘‘contract for the 

purchase or sale of a commodity for future delivery’’ 

in current regulation 1.3(yy)(1) encompasses 

options on futures and security futures products. 

Similarly, the term ‘‘swaps’’ if added to proposed 

regulation 1.3(yy) would include mixed swaps. Of 

course, the impact of the scope of proposed 

regulation 1.3(yy) is only as extensive as the other 

regulations referencing it. 

term ‘‘commodity,’’ in relevant part, as 

‘‘all * * * goods and articles * * * and 

all services, rights and interests in 

which contracts for future delivery are 

presently or in the future dealt in.’’ 24

The word ‘‘physical’’ is used in 45 

Commission regulations other than 

regulation 1.3(ll).25 The introductory 

text of regulation 1.3 states that ‘‘[t]he 

following terms, as used in the 

Commodity Exchange Act, or in the 

rules and regulations in this chapter, 

shall have the meanings hereby assigned 

to them, unless the context otherwise 

requires.’’ 26

The ‘‘physical’’ definition was first 

added to regulation 1.3 in 1983 to 

enable trading, on DCMs, in options to 

buy or sell an underlying commodity 

and has not been substantively 

amended.27 In the Federal Register 

release proposing the addition of 

regulation 1.3(ll), the Commission stated 

that ‘‘[t]he proposed definition is 

intended to be coextensive with the 

Commission’s jurisdiction with respect 

to commodity options.’’ 28 At the time of 

that proposal in 1982, cash-settled 

futures on non-physical commodities 

had just been introduced in the form of 

the Chicago Mercantile Exchange’s 

Eurodollar futures. In that context, in 

proposing rules to permit exchangetraded options on underlying 

commodities, it made sense to name 

such options based on physical 

commodities, which constituted the vast 

majority of commodities covered by 

then-existing futures contracts. 

At present, however, options may be 

traded on both physically deliverable 

and non-physically deliverable 

commodities, such as interest rates and 

temperatures. Using the term ‘‘physical’’ 

to refer to an option on both physically 

deliverable commodities and nonphysically deliverable commodities may 

be confusing on its face.29 Also, the 

requirement in the forward exclusion 

from the ‘‘swap’’ definition contained in 

CEA section 1a(47)(B)(ii), as amended 

by Dodd-Frank section 721(a)(21), that a 

sale of a non-financial commodity or 

security for deferred shipment or 

delivery ‘‘is intended to be physically 

settled’’ would be meaningless if 

‘‘physical’’ included non-physical. As 

noted above, the introductory text of 

regulation 1.3 states that its defined 

terms have the meanings assigned to 

them in regulation 1.3, unless the 

context otherwise requires. 

The Commission requests comment 

on whether any changes to the 

‘‘physical’’ definition are necessary or 

warranted. Should the Commission 

revise the definition of ‘‘physical’’ to 

limit it to its common sense meaning? 

Should the Commission remove it on 

the theory that the meaning of 

‘‘physical’’ is self-evident? Should the 

Commission address such issues, if at 

all, in other rulemakings where they 

arise more directly, such as with respect 

to emission-related commodities as they 

relate to the forward exclusion from the 

swap definition? 30 If so, should the 

Commission replace the term ‘‘physical’’ 

with some other more suitable term in 

the relevant regulations referencing 

current regulation 1.3(ll)? If so, what 

should the new term be? Should the 

Commission take no action, in reliance 

on the ability of interested parties to 

interpret the ‘‘unless the context 

otherwise requires’’ language of 

regulation 1.3, or on some other basis? 31

d. Regulation 1.3(yy): Commodity 

Interest 

The Commission proposes to add 

swaps on all commodities within the 

CFTC’s jurisdiction to the definition of 

‘‘commodity interest’’ in regulation 

1.3(yy).32 Commodity interest currently 

is defined as: ‘‘(1) Any contract for the 

purchase or sale of a commodity for 

future delivery; (2) Any contract, 

agreement or transaction subject to 

Commission regulation under section 4c 

or 19 of the Act; and (3) Any contract, 

agreement or transaction subject to 

Commission jurisdiction under section 

2(c)(2) of the Act.’’ The term 

‘‘commodity interest’’ is cross-referenced 

by 33 other Commission regulations and 

appendices to parts of Commission 

regulations.33 Generally, the term is 

meant to encompass all agreements, 

contracts and transactions within the 

Commission’s jurisdiction, though not 

all such agreements, contracts and 

transactions are expressly set forth 

therein.34


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35 DFA section 721(a)(47); codified at 7 U.S.C. 

1a(47). 36The Commissions have not yet proposed a 

further definition of the term ‘‘swap.’’ 37 17 CFR 1.4. 38 7 U.S.C. 6s(i)(1). 39 7 U.S.C. 6s(i)(2). 40Confirmation, Portfolio Reconciliation, and 

Portfolio Compression Requirements for Swap 

Dealers and Major Swap Participants, 75 FR 81519, 

Dec. 28, 2010. 41 Id. 42 Id. 

43 75 FR at 81522. 

44 17 CFR 1.4. The regulation also requires that 

the signatures in question comply with applicable 

Federal laws and Commission regulations, and 

requires the relevant entity to employ reasonable 

safeguards regarding the use of electronic 

signatures, including safeguards against alteration 

of the record of the electronic signature. Id. 

45Use of Electronic Signatures by Customers, 

Participants and Clients of Registrants, 64 FR 

47151, Aug. 30, 1999. 

46This includes proposing a change to the title of 

regulation 1.4 to reflect these changes. Proposed 

regulation 1.4 is entitled ‘‘Use of electronic 

signatures, acknowledgments and verifications.’’ 

47U.S. Commodity Futures Trading Commission, 

Division of Market Oversight, Advisory for Futures 

Commission Merchants, Introducing Brokers, and 

Members of a Contract Market over Compliance 

with Recordkeeping Requirements, Feb. 5, 2009 

(http://www.cftc.gov/ucm/groups/public/ 

@industryoversight/documents/file/ 

recordkeepingdmoadvisory0209.pdf) [hereinafter 

Recordkeeping Advisory]. 

48Fed. R. Civ. P. 34(b)(2)(E); Fed. R. Civ. P. 34, 

advisory committee note, 2006 amendment (‘‘Rule 

34(b) provides that a party must produce 

documents as they are kept in the usual course of 

business or must organize and label them to 

correspond with the categories in the discovery 

request. The production of electronically stored 

information should be subject to comparable 

requirements to protect against deliberate or 

inadvertent production in ways that raise 

unnecessary obstacles for the requesting party’’). 

49Fed. R. Civ. P. 34, advisory committee note, 

2006 amendment. 

The Dodd-Frank Act adds a definition 

of ‘‘swap’’ to the CEA.35 DFA section 

712(d) requires the Commission to 

further define the term ‘‘swap’’ jointly 

with the Securities and Exchange 

Commission.36 The Commission is 

proposing to add ‘‘swap’’ to the 

‘‘commodity interest’’ definition so that 

the regulations cross-referencing it will 

apply to swaps. 

2. Regulation 1.4: Use of Electronic 

Signatures 

The Commission proposes to revise 

regulation 1.4 37 to extend the benefit of 

electronic signatures and other 

electronic actions to SDs and MSPs. 

Section 731 of the Dodd-Frank Act 

amends the CEA by adding new sections 

4s(i)(1), requiring SDs and MSPs to 

‘‘conform with such standards as may be 

prescribed by the Commission by rule or 

regulation that relate to timely and 

accurate confirmation, processing, 

netting, documentation, and valuation 

of all swaps,’’ 38 and 4s(i)(2), requiring 

the Commission to adopt rules 

‘‘governing documentation standards for 

swap dealers and major swap 

participants.’’ 39

Pursuant to the foregoing authority, 

the Commission previously proposed 

new regulation 23.501(a)(1), which 

would require ‘‘[e]ach swap dealer and 

major swap participant entering into a 

swap transaction with a counterparty 

that is a swap dealer or major swap 

participant [to] execute a confirmation 

for the swap transaction,’’ according to 

a specified schedule.40 Also pursuant to 

the foregoing authority, the Commission 

has proposed new regulation 

23.501(a)(2), which would require 

‘‘[e]ach swap dealer and major swap 

participant entering into a swap 

transaction with a counterparty that is 

not a swap dealer or a major swap 

participant [to] send an 

acknowledgment of such swap 

transaction,’’ according to a specified 

schedule.41 Proposed regulation 

23.500(a) would define such an 

‘‘acknowledgment’’ as ‘‘a written or 

electronic record of all of the terms of 

a swap signed and sent by one 

counterparty to the other.’’ 42 In issuing 

the proposed confirmation and 

acknowledgment rules cited above, the 

Commission explained that ‘‘[w]hen one 

party acknowledges the terms of a swap 

and its counterparty verifies it, the 

result is the issuance of a 

confirmation.’’ 43

Regulation 1.4 currently provides that 

an FCM, IB, CPO and CTA receiving an 

electronically signed document is in 

compliance with Commission 

regulations requiring signed documents, 

provided that such entity generally 

accepts electronic signatures.44 The 

rationale for allowing the existing 

entities listed in regulation 1.4 to use 

electronic signatures (i.e., ‘‘[a]s part of 

[the Commission’s] ongoing efforts to 

facilitate the use of electronic 

technology and media’’) 45 applies 

equally to SDs and MSPs. Therefore, the 

Commission proposes to add SDs and 

MSPs to the list of entities covered by 

regulation 1.4 and to amend its structure 

to account for the provisions of the 

Commission’s proposed confirmation 

and acknowledgement obligations 

discussed above.46

3. Regulation 1.31: Books and Records; 

Keeping and Inspection 

In recent years, the phrase ‘‘books and 

records’’ has evolved with respect to the 

varying formats used to communicate 

and store information.47 The Federal 

Rules of Civil Procedure have been 

revised to reflect this evolution by 

requiring producing parties to produce 

electronically stored information as 

specified in the request, but if not so 

specified, then as they are kept in the 

normal course of business or in a 

reasonably usable form.48 Similarly, the 

Commission’s own data delivery 

standards, which accompany the 

Commission’s requests for production, 

indicate a preference for requested 

electronic information to be produced in 

native file format. The Commission’s 

delivery standards provide technical 

instructions to producers designed to 

enable the Commission to receive such 

information in a machine-readable 

format that is compatible with the 

technology used by the Commission. 

Recognizing that storage formats vary 

across different types of electronically 

stored information and to be consistent 

with current Commission practice and 

the Federal Rules of Civil Procedure, the 

proposed changes to regulations 

1.31(a)(1), (a)(2), and (b) would require 

that: (1) All books and records required 

to be kept by the Act or by the 

Commission’s regulations be kept in 

their original (for paper records) or 

native file format (for electronic 

records); and (2) production of such 

records be made in a form specified by 

the Commission. In addition, as 

provided in the existing regulation, 

books and records may continue to be 

stored on electronic storage media, 

provided, however, that for electronic 

records, the storage media must 

preserve the native file format of the 

electronic records. 

Keeping electronic records in their 

native file format and producing them 

in a format designated by the 

Commission should not create any 

unreasonable burdens on persons 

required to maintain records under the 

Act and Commission regulations in light 

of Federal Rule of Civil Procedure 34(b), 

which would apply to such persons— 

and all other persons in possession of 

investigatory information—upon the 

filing of an enforcement action in 

Federal district court. Rule 34(b) 

permits the requesting party to 

designate the form or forms in which it 

wants electronically stored information 

produced in order to facilitate its 

usability. This is recognition that ‘‘the 

form of production is more important to 

the exchange of electronically stored 

information than of hard-copy 

materials.’’49

The Commission also proposes 

amendments to regulation 1.31 to 

incorporate two books and records 

obligations that proposed regulation 

23.203(b) applies to SDs and MSPs. 

Proposed regulation 23.203(b) would 

require SDs and MSPs to (1) keep 


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Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33071 

50 17 CFR 1.31(a) (emphasis added). 

51 DFA section 721(a)(13). 

52Accordingly, the Commission also proposes to 

amend the title of regulation 1.35 to reflect such a 

change. Therefore, proposed regulation 1.35 is 

entitled ‘‘Records of commodity interest and cash 

commodity transactions.’’ 

53See 7 U.S.C. 1a(28) and 1a(31), as amended by 

DFA sections 721(a)(13) and (a)(15), respectively. 

54See Recordkeeping Advisory, supra note 47, at 

3. 55 Id. at 4. 56 [1994–1996 Transfer Binder] Comm. Fut. L. 

Rep. (CCH) ¶ 26,720 at 43,992 n.23 (CFTC June 17, 

1996). 

records of swap or related cash or 

forward transactions until the 

termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction and for a period of five 

years after such date; and (2) make such 

records available for inspection not only 

by the Commission and the United 

States Department of Justice, but also to 

any applicable prudential regulator, as 

that term is defined in section 1a(39) of 

the Act, or, in connection with securitybased swap agreements described in 

section 1a(47)(A)(v) of the Act, the 

United States Securities and Exchange 

Commission. By contrast, existing 

regulation 1.31, which pertains to ‘‘all 

books and records required to be kept by 

the Act,’’ requires that records be kept 

for five years and that they be made 

available only to the Commission and 

the Department of Justice.50 The 

Proposal would add to regulation 1.31 

the special requirements for swaps and 

cash related transactions in proposed 

regulation 23.203(b). 

The Commission solicits comments 

on the potential costs and effects of the 

proposed new requirement that all 

books and records be maintained in 

their original form (for paper) and their 

native file format (for electronic records) 

as provided in the proposed rule. 

Comment also is requested regarding 

whether the retention period for any 

communication medium (e.g., oral 

communications) should be shorter than 

the retention period applicable to other 

required records. In this regard, the 

Commission requests that commenters 

specify what the proposed retention 

period should be and why. 

4. Regulation 1.33: Monthly and 

Confirmation Statements 

Regulation 1.33 requires FCMs to 

maintain certain records and to 

regularly furnish monthly and 

confirmation statements to customers 

regarding commodity futures and option 

transactions they have entered into on 

behalf of customers. The DFA amended 

the definition of FCM in section 1a of 

the CEA to authorize an FCM to solicit 

or accept orders for swaps in addition 

to commodity futures and option 

transactions.51 Therefore, the 

Commission proposes adding 

requirements for monthly and 

confirmation statements applicable to 

swaps. 

Proposed regulation 1.33(a)(3) 

describes what information on swap 

positions an FCM must provide in 

monthly statements to its customers. 

Proposed regulation 1.33(b)(2) would 

extend the requirement that an FCM 

furnish confirmation statements to 

customers to swaps executed on a 

customer’s behalf and describes what 

information such a confirmation 

statement must contain. In addition, the 

Commission proposes to amend 

regulation 1.33 to reflect proposed 

changes to the definitions of the terms 

‘‘commodity interest,’’ ‘‘customer,’’ and 

‘‘open contract’’ in regulation 1.3. 

5. Regulation 1.35: Records of Cash 

Commodity, Futures and Option 

Transactions 

The Commission proposes to amend 

regulation 1.35 in several respects. First, 

the Commission proposes to revise 

paragraph (a) such that this regulation’s 

recordkeeping obligations would extend 

to trades executed by FCMs and IBs on 

SEFs. Those obligations currently apply 

only to trades executed on DCMs. 

Similarly, the proposed amendments 

would extend all of the regulation 1.35 

recordkeeping obligations currently 

applicable to members of DCMs to 

include ‘‘members,’’ as that term is 

proposed to be defined in proposed 

regulation 1.3, of SEFs. 

Second, the proposed revisions 

replace the terms ‘‘commodity futures 

transactions,’’ ‘‘retail forex exchange 

transactions,’’ and ‘‘commodity option 

transactions’’ with the term ‘‘commodity 

interests.’’ According to the 

Commission’s proposed definition of 

‘‘commodity interest’’ in regulation 1.3, 

‘‘commodity interest’’ includes all of the 

aforementioned transactions as well as 

swaps. Thus, the Commission proposes 

that regulation 1.35’s recordkeeping 

obligations for transactions in futures, 

commodity options, and retail forex 

exchange transactions also apply to 

swaps.52 Pursuant to the Dodd-Frank 

Act, DCMs are permitted to list swaps, 

and FCMs and IBs are permitted to 

execute swaps on behalf of customers.53

In relevant part, existing regulation 

1.35 requires FCMs, IBs, and DCM 

members to ‘‘keep full, complete, and 

systematic records, together with all 

pertinent data and memoranda, of all 

transactions relating to [their] business 

of dealing in commodity futures, 

commodity options and cash 

commodities,’’ subject to the 

requirements of regulation 1.31. 

Specifically included among the records 

to be retained under regulation 1.35 are 

‘‘all orders (filled, unfilled, or canceled), 

trading cards, signature cards, street 

books, journals, ledgers, canceled 

checks, copies of confirmations, copies 

of statements of purchase and sale, and 

all other records, data and memoranda’’ 

that have been prepared in the course of 

an FCM’s, an IB’s, or a DCM member’s 

business of dealing in commodity 

futures, commodity options, and cash 

commodities. 

On February 5, 2009, the 

Commission’s Division of Market 

Oversight (‘‘DMO’’) issued an advisory 

stating that ‘‘[t]he Commission’s 

recordkeeping regulations, by their 

terms, do not distinguish between 

whatever medium is used to record the 

information covered by the regulations, 

including emails, instant messages, and 

any other form of communication 

created or transmitted electronically.’’ 54

Thus, the advisory made clear that the 

existing language of regulation 1.35 

‘‘appl[ies] to records that are created or 

retained in an electronic format, 

including email, instant messages, and 

other forms of communication created 

or transmitted electronically for all 

trading.’’ 55 Accordingly, under the 

Commission’s existing regulations, 

FCMs, IBs, and DCM members are 

required to retain and produce for 

inspection any such electronic records, 

subject to the retention and accessibility 

requirements set forth in regulation 

1.31. 

Notwithstanding the DMO advisory 

relating to certain electronic records, the 

Commission’s existing recordkeeping 

requirements, as they relate to FCMs, 

IBs and DCM members, remain limited 

by a 1996 Commission decision, Gilbert 

v. Lind-Waldock & Co., wherein audio 

tapes of telephone conversations with 

customers were found to be beyond the 

definition of ‘‘records’’ covered by 

regulation 1.35.56

Consequently, where Commissionregulated persons use oral 

communications, the Commission has 

encountered greater difficulties in 

effectively exercising its enforcement 

responsibilities, thereby increasing the 

potential for market abuses. Such 

difficulties have been particularly acute 

in cases where the Commission is 

required to establish a threshold level of 

knowledge and/or intent on the part of 

the actor, such as cases involving 

market manipulation and false 

reporting. The Commission’s 

enforcement success in such cases often 

has correlated directly with the 


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57Financial Services Authority, ‘‘Policy 

Statement: Telephone Recording: recording of voice 

conversations and electronic communications’’ 

(Mar. 2008); Financial Services Authority, ‘‘Taping: 

Removing the mobile phone exemption,’’ (Mar. 

2010); Financial Services Authority, ‘‘Policy 

Statement: Taping of Mobile Phones: Feedback on 

CP 10/7 and Final Rules,’’ (Nov. 2010). 

58Code of Conduct for Persons Licensed by or 

Registered with the Securities and Futures 

Commission para. 3.9 (2010) (H.K.). 

59 General Regulation of the Autorite ́ des Marche ́s 

Financiers art. 313–51 (2010) (Fr.). 

60Press Release, International Organization of 

Securities Commissions, ‘‘IOSCO Publishes 

Recommendations to Enhance Commodity Futures 

Markets Oversight,’’ (Mar. 5, 2009), http:// 

www.iosco.org/news/pdf/IOSCONEWS137.pdf. The 

IOSCO members on the committee formulating the 

recommendations included Brazil, Canada (Ontario 

and Quebec), Dubai, France, Germany, Hong Kong, 

Italy, Japan, Norway, Switzerland, the United 

Kingdom, and the United States. 

61See Financial Services Authority, ‘‘Policy 

Statement: Telephone Recording: recording of voice 

conversations and electronic communications’’ 

(Mar. 2008); Financial Services Authority, ‘‘Taping: 

Removing the mobile phone exemption’’ (Mar. 

2010); Financial Services Authority, ‘‘Policy 

Statement: Taping of Mobile Phones: Feedback on 

CP 10/7 and Final Rules’’ (Nov. 2010). 

62See Interpretative Notice to NFA Compliance 

Rule 2–9, Supervision of Telemarketing Activity, 

9021 (Feb. 18, 1997). 

63See NASD Rule 3010, Supervision (the 

procedures required by this rule include taperecording all telephone conversations between the 

member’s registered persons and both existing and 

potential customers. All tape recordings made 

pursuant to the requirements of this paragraph shall 

be retained for a period of not less than three years 

from the date the tape was created, the first two 

years in an easily accessible place). 

64See Reporting, Recordkeeping, and Daily 

Trading Records Requirements for Swap Dealers 

and Major Swap Participants, 75 FR 7666, Dec. 9, 

2010 (Proposed regulation 23.202(a)(1) would 

require ‘‘[e]ach swap dealer and major swap 

participant [to] make and keep pre-execution trade 

information, including, at a minimum, records of all 

oral and written communications provided or 

received concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, that lead to 

the execution of a swap, whether communicated by 

telephone, voicemail, facsimile, instant messaging, 

chat rooms, electronic mail, mobile device or other 

digital or electronic media’’). 

65The Commission has received several 

comments on the costs and benefits associated with 

its proposed regulation 23.202 Daily Trading 

Records (Reporting, Recordkeeping, and Daily 

Trading Records Requirements for Swap Dealers 

and Major Swap Participants, 75 FR 76666, Dec. 9, 

2010) and will consider those comments in 

connection with these proposed rules. The 

comments are available on the Commission’s Web 

site at http://www.cftc.gov. 

existence of high-quality recordings of 

voice communications between the 

persons involved. Conversely, the 

Commission’s enforcement capabilities 

have been limited in cases where such 

voice recordings were not available. 

Significant technological 

advancements in recent years, 

particularly with respect to the cost of 

capturing and retaining copies of 

electronic material, including telephone 

communications, have made the 

prospect of enhancing the Commission’s 

recordkeeping requirements for oral 

communications more economically 

feasible and systemically prudent. 

Evidence of these trends was examined 

in March 2008 by the United Kingdom’s 

Financial Services Authority (‘‘FSA’’), 

which studied the issue of mandating 

the recording and retention of voice 

conversations and electronic 

communications. The FSA issued a 

Policy Statement detailing its findings 

and ultimately implemented rules 

relating to the recording and retention of 

such communications, including a rule 

requiring all financial service firms to 

record any relevant communication by 

employees on their firm-issued or firmsanctioned cell phones that will take 

effect on November 14, 2011.57 Similar 

rules that mandate recording of certain 

voice and/or telephone conversations 

have been promulgated by the Hong 

Kong Securities and Futures 

Commission 58 and by the Autorite ́ des 

Marche ́s Financiers in France,59 and 

have been recommended by the 

International Organization of Securities 

Commissions (‘‘IOSCO’’).60

Under the FSA rules, firms (identified 

generally as those entities conducting 

any of the following activities: 

receiving, executing, arranging for 

execution of customer orders or 

transactions carried out on behalf of the 

firm) must take reasonable steps to 

record relevant (relevant means 

conversations or communications 

between the firm and the client or when 

the firm is acting on behalf of a client 

with another person) telephone 

conversations (including mobile 

telephones) and keep a copy of relevant 

electronic communications that enable 

the referenced activities to be carried 

out. Firms are required to keep 

recordings of certain telephone lines for 

a period of at least six months in a 

medium that is readily accessible. 

In promulgating this rule, the FSA 

issued guidance stating the following 

benefits: ‘‘i) recorded communication 

may increase the probability of 

successful enforcement; ii) this reduces 

the expected value to be gained from 

committing market abuse; and iii) this, 

in principle, leads to increased market 

confidence and greater price efficiency.’’ 

In determining its policy, the FSA 

conducted a cost-benefit analysis, 

including eight meetings with several 

trade associations including the 

Securities Industry and Financial 

Markets Association (‘‘SIFMA’’), the 

International Swaps and Derivatives 

Association (‘‘ISDA’’), and the Futures 

and Options Association (‘‘FOA’’). The 

FSA report estimated that 80% of 

telephone lines of its firms that would 

need to be recorded were already being 

recorded at the time of its study.61

Indeed, the futures industry has 

imposed a requirement on certain of its 

member firms to tape telephone 

conversations with customers since 

1997. Since then, the National Futures 

Association (‘‘NFA’’) has required 

member firms with more than a certain 

percentage of APs who have been 

disciplined to record all telephone 

conversations between the member’s 

APs and both existing and potential 

customers for a period of two years. 

Those recordings must be retained for a 

period of five years from the date each 

tape is created, and the tapes shall be 

readily accessible during the first two 

years of the five year period.62 A similar 

rule exists in the securities industry.63

Consistent with these developments, 

the proposed change to regulation 

1.35(a) would explicitly require FCMs, 

RFEDs, IBs and members of DCMs and 

SEFs to record all oral communications 

that lead to the execution of transactions 

in a commodity interest or cash 

commodity. In addition to increasing 

consistency across regulatory regimes, 

this proposal would harmonize 

regulation 1.35 with the recordkeeping 

requirements proposed for SDs and 

MSPs under the Dodd-Frank Act.64 The 

proposed amendments to regulation 

1.35 would require that the recorded 

communications be identifiable by 

counterparty and transaction. As noted 

above, one of the proposed revisions to 

regulation 1.31 would require that each 

recorded communication be maintained 

in its native file format and produced in 

a form specified by any Commission 

representative. Records of these 

communications may continue to be 

stored on electronic storage media, 

provided, however, that for electronic 

records, the storage media must 

preserve the native file format of the 

electronic records. Records must be 

maintained for a period of five years and 

shall be readily accessible for the first 

two years of that five-year period. 

The Commission solicits comments 

on the potential costs and benefits of 

requiring registrants to record and 

maintain oral communications as 

provided in the proposed rule.65

As part of the ministerial amendments 

proposed in this release, the 

Commission is proposing to renumber 

portions of regulation 1.35 so that 

paragraphs currently numbered 1.35(a1) and 1.35(a-2) will be renumbered 

1.35(b) and 1.35(c), respectively. As a 

result, paragraphs currently numbered 

1.35(b), (c), (d) and (e) will be 


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66See 71 FR 1964, Jan. 12, 2006. 

67Core Principles and Other Requirements for 

Designated Contract Markets, 75 FR 80572, Dec. 22, 

2010. 

68Section 723(a)(3) of the Dodd-Frank Act 

amends section 2(h) of the CEA, providing that with 

respect to transactions involving a swap subject to 

the clearing requirement of section 2(h)(1) of the 

CEA, counterparties must execute the transaction 

on a DCM or a SEF. 

69See supra note 15 and accompanying text. 

renumbered 1.35(d), (e) (f) and (g), 

respectively. 

Because proposed regulation 1.35 

extends recordkeeping obligations to 

swaps, the Commission has proposed 

special language for swaps, where 

appropriate. In paragraph (b)(2) 

(proposed (d)(2)) (records of futures, 

commodity options, and retail forex 

exchange transactions for each account), 

the Commission has proposed adding 

provision (iv). Proposed regulation 

1.35(d)(2)(iv) would require FCMs, IBs, 

and any clearing members clearing 

swaps executed on a DCM or SEF to 

maintain records describing the date, 

price, quantity, market, commodity, 

and, if cleared, DCO of each swap. 

The Commission recognizes that 

money managers currently execute 

bunched swap orders on behalf of 

clients and allocate the trades to 

individual clients post-execution. The 

Commission believes that the bunched 

order procedures currently applicable to 

futures can be adapted for use in swap 

trading. Therefore, the Commission 

proposes to amend subsection (a-1)(5) 

(proposed (b)(5)), which addresses postexecution allocation of bunched orders. 

As discussed below, the Commission 

also is proposing to delete appendix C 

to part 1, which predated regulation 

1.35(a-1)(5) (proposed (b)(5)) and also 

addresses bunched orders. 

In order to have a single standard for 

all intermediaries that might have 

discretion over customer accounts, the 

Commission is proposing to include 

FCMs and IBs as eligible account 

managers in regulation 1.35(a–1)(5) 

(proposed (b)(5)). Unlike other account 

managers, however, FCMs and IBs are 

prohibited from including proprietary 

trades in a bunched order with customer 

trades. Accordingly, the Commission is 

proposing to add a cross-reference in 

regulation 1.35(a–1)(5) (proposed (b)(5)) 

to regulations 155.3 and 155.4, which 

impose that restriction on FCMs and 

IBs, respectively. The Commission 

requests comment on whether the 

proposal to add FCMs and IBs to the list 

of eligible account managers is 

appropriate. 

The Commission further proposes to 

amend regulation 1.35(a–1) (proposed 

(b)) to provide that specific customer 

account identifiers need not be included 

in confirmations or acknowledgments 

provided pursuant to proposed 

regulation 23.501(a), if the requirements 

of regulation 1.35(a–1)(5) (proposed 

(b)(5)) are met. This would enable 

account managers to bunch orders for 

trades executed bilaterally with SDs or 

MSPs. The proposal would require that, 

similar to the current procedure for 

futures, the allocation be completed by 

the end of the day of execution and 

provided to the counterparty. The 

Commission requests comment on 

whether the proposed procedures for 

handling bunched swap orders would 

be effective. In particular, the 

Commission requests comment on 

whether allocation can be conducted by 

the end of the day of execution. 

The Commission proposes deleting 

paragraphs (f)-(l) of regulation 1.35. 

Pursuant to the CFMA, regulation 38.2 

required DCMs to comply with an 

enumerated list of Commission 

regulations, and exempted them from all 

remaining Commission regulations that 

were no longer applicable post-CFMA.66

Paragraphs (f)-(l) of regulation 1.35 are 

not among those enumerated regulations 

still applicable to DCMs and, therefore, 

have been moot since regulation 38.2 

took effect. Regulations 1.35(f)-(l) 

required contract markets: To identify 

floor brokers, floor traders, and clearing 

members in a certain manner; to keep 

records indicating the time of trade 

executions in a certain manner; to 

maintain records of changes in the price 

of transactions; to demonstrate their 

effectiveness in complying with 

recordkeeping obligations; and to create 

rules imposing certain recordkeeping 

requirements on contract market 

members. The DCM Core Principles 

proposal in December 2010 

substantially revised part 38, but did not 

revoke regulation 38.2.67

As part of the ministerial amendments 

proposed in this release, the 

Commission is proposing to eliminate 

from the Commission’s regulations any 

provisions that have been inapplicable 

to DCMs since the passage of the CFMA, 

and that remain inapplicable after the 

passage of the DFA. Paragraphs (f)-(l) of 

regulation 1.35 are among those 

provisions. Pursuant to the proposed 

removal of paragraph (j) of regulation 

1.35, the Commission also proposes 

copying most of that provision into 

proposed subsection (d)(7)(i) (currently 

(b)(7)(i)). 

Finally, the Commission proposes the 

following technical correction to 

regulation 1.35(b)(3)(v) (proposed 

(d)(3)(v)): that the final sentence 

reference ‘‘commodity futures, retail 

forex, commodity option, or swap books 

and records’’ instead of ‘‘commodity 

retail forex or commodity option books 

and records.’’ 

6. Regulation 1.37: Customer’s or Option 

Customer’s Name, Address, and 

Occupation Recorded; Record of 

Guarantor or Controller of Account 

Dodd-Frank Act section 723(a)(3) 

added a new section 2(h)(8) to the CEA 

to require, among other things, that 

swaps subject to the clearing 

requirement of CEA section 2(h)(1) be 

executed either on a DCM or on a SEF. 

The DFA established SEFs as a new 

category of regulated markets for the 

purpose of trading and executing 

swaps.68 Because SEFs are now 

regulated markets under the CEA, many 

of the Commission’s existing regulatory 

provisions that currently are applicable 

to DCMs also will become applicable to 

SEFs. 

Accordingly, the Commission 

proposes to amend paragraphs (c) and 

(d) of regulation 1.37, pertaining to 

recording foreign traders’ and 

guarantors’ names, addresses, and 

business information. Currently, these 

provisions apply to DCMs and futures 

and options contracts executed on those 

facilities. The proposed revision would 

amend the provisions to also include 

SEFs and swap transactions. 

Additionally, the Commission proposes 

to amend the title and remaining text of 

regulation 1.37 to reflect the proposed 

removal of the term ‘‘option 

customer.’’ 69

7. Regulation 1.39: Simultaneous 

Buying and Selling Orders of Different 

Principals; Execution of, for and 

Between Principals 

Like regulation 1.37, the Commission 

is proposing to amend regulation 1.39 to 

apply it to SEFs and swaps. Regulation 

1.39, which currently applies to 

members of contract markets, governs 

the simultaneous execution of buy and 

sell orders of different principals for the 

same commodity for future delivery by 

a member and permits the execution of 

such orders between such principals on 

a contract market. The Commission 

proposes to amend this provision to 

include eligible contract participants 

(‘‘ECPs’’) on SEFs and registrants, and to 

include swap transactions. The 

Commission is also amending paragraph 

(c) to eliminate the reference to ‘‘cross 

trades’’ as they are no longer defined 

under section 4c(a) of the Act, as 

amended by the DFA. 


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70Public Law 106–554, 114 Stat. 2763, app. E 

(2000) (codified at CEA section 5a, 7 U.S.C. 7a). 

71The Commission is also proposing to delete all 

other references to DTEFs, except those already 

removed by other proposals, throughout its 

regulations. See infra Part II.G. 

72Public Law 106–554, 114 Stat. 2763 (2000). 

73A New Regulatory Framework for Trading 

Facilities, Intermediaries and Clearing 

Organizations, 66 FR 42256, Aug. 10, 2001. 

74Regulation 38.2 exempts designated contract 

markets from all Commission rules not specifically 

reserved. 17 CFR 38.2. The Part 8 rules were not 

reserved. 

75Core Principles and Other Requirements for 

Designated Contract Markets, 75 FR 80572, Dec. 22, 

2010. 

76 75 FR at 80597. Section 735(a) of the DoddFrank Act eliminates all DCM designation criteria, 

including Designation Criterion 6 (Disciplinary 

Procedures). Section 735(b) of the Dodd-Frank Act 

creates a new Core Principle 13 (Disciplinary 

Procedures) that is devoted exclusively to exchange 

disciplinary proceedings, and captures disciplinary 

concepts inherent in both Designation Criterion 6 

and in current DCM Core Principle 2. 

8. Regulation 1.40: Crop, Market 

Information Letters, Reports; Copies 

Required 

Regulation 1.40 requires FCMs, 

RFEDs, IBs and members of contract 

markets to furnish to the Commission 

certain information they publish or 

circulate concerning crop or market 

information affecting prices of 

commodities. The Commission is 

proposing to apply regulation 1.40 to 

ECPs trading on SEFs to the extent that 

such ECPs have trading privileges on 

the SEF. ECPs that do not have trading 

privileges on a SEF would not be subject 

to regulation 1.40. The amendments also 

update the forms of communication 

covered by the regulation by replacing 

the word ‘‘telegram’’ with 

‘‘telecommunication.’’ 

9. Regulation 1.59: Activities of SelfRegulatory Employees, Governing Board 

Members, Committee Members and 

Consultants 

The Commission proposes to amend 

regulation 1.59 to include SEFs and 

swaps. The Commission is also 

proposing to amend regulation 1.59(b) 

to correct certain cross-references to the 

Act and its regulations. Paragraph (c) of 

proposed regulation 1.59 has been 

revised to apply only to registered 

futures associations, as the prohibitions 

contained therein applicable to the 

other SROs already are addressed in 

proposed regulation 40.9. 

10. Regulation 1.63: Service on SelfRegulatory Organization Governing 

Boards or Committees by Persons With 

Disciplinary Histories 

The Commission is proposing to 

amend regulation 1.63 to correct certain 

cross-references to the Act and its 

regulations. The Commission also is 

proposing to amend paragraph (d) to 

incorporate the posting of notices 

required under that paragraph on each 

SRO’s Web site. 

11. Regulation 1.67: Notification of 

Final Disciplinary Action Involving 

Financial Harm to a Customer 

Regulation 1.67 requires contract 

markets, upon taking any final 

disciplinary action involving a member 

causing financial harm to a nonmember, to provide notice to the FCM 

that cleared the transaction. FCMs and 

other registrants on SEFs should also be 

notified of any disciplinary action 

involving transactions on a SEF they 

executed for ECPs. Accordingly, the 

Commission is proposing to amend 

regulation 1.67 to include SEFs, 

registrants and ECPs on such facilities. 

12. Regulation 1.68: Customer Election 

Not To Have Funds, Carried by a 

Futures Commission Merchant for 

Trading on a Registered Derivatives 

Transaction Execution Facility, 

Separately Accounted for and 

Segregated 

The Commission proposes to remove 

regulation 1.68. Regulation 1.68 permits 

a customer of an FCM to allow the FCM 

to not separately account for and 

segregate such customer’s funds if, 

among other things, such funds are 

being carried by the FCM to trade on or 

through the facilities of a DTEF, a 

category of trading organization added 

to the CEA by section 111 of the 

CFMA.70 No DTEF has ever registered 

with the Commission. Furthermore, 

section 734 of the Dodd-Frank Act 

repeals the DTEF provisions in the CEA, 

effective July 15, 2011. Therefore, 

because the statutory provisions 

underpinning regulation 1.68 will be 

repealed, the Commission proposes to 

remove it from the Commission’s 

regulations.71

13. Regulations 1.44, 1.53, and 1.62— 

Deletion of Regulations Inapplicable to 

Designated Contract Markets 

The CFMA adopted core principles 

for DCMs.72 On August 10, 2001, the 

Commission published final rules 

implementing provisions of the CFMA, 

in which it concluded that the CFMA’s 

framework effectively constituted a 

broad exemption from many of the 

existing regulations applicable to 

DCMs.73 In implementing the 

provisions of the CFMA, the final rule 

exempted DCMs from such regulations. 

Specifically, the final rule codified 

regulation 38.2, which required DCMs 

to comply with an enumerated list of 

Commission regulations, and exempted 

them from all remaining Commission 

regulations no longer applicable postCFMA. As part of the ministerial 

amendments proposed in this release, 

the Commission is proposing to 

eliminate from the Commission’s 

regulations any provisions that have 

been inapplicable to DCMs since the 

CFMA was enacted and that remain 

inapplicable after enactment of the DFA. 

Accordingly, the Commission proposes 

to eliminate the following regulations: 

Regulation 1.44 (Records and reports of 

warehouses, depositories, and other 

similar entities; visitation of premises), 

regulation 1.53 (Enforcement of contract 

market bylaws, rules, regulations, and 

resolutions), and regulation 1.62 

(Contract market requirement for floor 

broker and floor trader registration). 

14. Appendix C to Part 1: Bunched 

Orders and Account Identification 

The Commission proposes to 

eliminate appendix C to part 1. 

Appendix C consists of a Commission 

Interpretation regarding certain account 

identification requirements pertaining 

to the practice of combining orders for 

different accounts into a single order 

book, referred to as bunched orders. The 

procedures for bunched orders are set 

forth in regulation 1.35(a–1)(5). 

Accordingly, the procedures under 

appendix C to part 1 are duplicative and 

no longer necessary. 

B. Part 7 

The Commission is proposing to 

rename part 7 of the Commission’s 

regulations ‘‘Registered Entity Rules 

Altered or Supplemented by the 

Commission,’’ thus reflecting the 

language in section 8a(7) of the Act, as 

amended by the Dodd-Frank Act, which 

provides the basis for Part 7. The 

Commission is also proposing to make 

a similar change in regulation 7.1, 

replacing contract market rules with 

registered entity rules. Finally, the 

Commission is proposing to remove and 

reserve subparts B (Chicago Mercantile 

Exchange Rules) and C (Board of Trade 

of the City of Chicago Rules) and their 

associated sections. 

C. Part 8 

The Commission proposes to remove 

part 8 of its regulations.74 As part of its 

implementation of the Dodd-Frank Act, 

on December 1, 2010, the Commission 

issued a comprehensive NPRM for 

DCMs.75 In the NPRM, the Commission 

proposed regulations in ‘‘Subpart N— 

Disciplinary Procedures’’ of part 38 to 

amend the disciplinary procedure 

requirements applicable to DCMs.76

Several of the proposed regulations in 


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77Paragraph (b)(4) of the acceptable practices for 

former Core Principle 2 referenced part 8 of the 

Commission’s regulations as an example that DCMs 

could follow to comply with Core Principle 2. 17 

CFR pt. 38, app. B, Acceptable Practices for Core 

Principle 2 at (b)(4). In its experience, the 

Commission has found that many DCMs’ 

disciplinary programs do in fact model their 

disciplinary structures and processes on part 8. 

78 75 FR at 80597. 

79 75 FR 56513, Sept. 16, 2010. 

80Part 36 provisions apply to ECMs and EBOTs. 

The Commission is not proposing to delete part 36 

in its entirety because part 36 provisions will 

continue to apply to ECMs and EBOTs that 

continue to operate under the Grandfather Relief 

Orders. 

81For a detailed discussion of the proposed rules 

as they directly relate to SEFs, see 76 FR 1214, Jan. 

7, 2011. 

82Section 5b of the CEA provided for the 

registration of DTEFs. Although secondary 

references to DTEFs remain in the act, none of those 

would enable an entity to commence operations as 

a DTEF. The proposed deletions are in regulations 

41.2, 41.12, 41.13, 41.21–41.25, 41.27, 41.43 and 

41.49. 

83This proposed rulemaking is not deleting those 

DTEF references that other NPRMs have already 

proposed deleting from the Commission’s 

regulations (e.g., some references in part 3 and all 

references in part 40). 

subpart N of part 38 are similar to the 

text of the disciplinary procedures 

found in part 8 of the Commission’s 

regulations.77 Although the Commission 

noted in the DCM NPRM that the 

proposed disciplinary procedures 

propose new disciplinary procedures for 

inclusion in part 38, the Commission 

proposes to remove part 8 from its 

regulations to avoid any confusion that 

could result from those regulations 

containing two sets of exchange 

disciplinary procedures.78 The effective 

date of any deletion of these part 8 

regulations would be contemporaneous 

with the effective date of any changes to 

the part 38 regulations. 

D. Parts 15, 18, 21, and 36 

The Commission also proposes to 

incorporate changes into parts 15, 18, 

21, and 36 of its regulations to account 

for (1) the DFA’s elimination of two 

categories of exempt markets, exempt 

commercial markets (‘‘ECMs’’) and 

electronic boards of trade (‘‘EBOTs’’); 

and (2) the DFA’s grandfather relief 

provisions for such entities. 

Section 723 of the DFA strikes CEA 

section 2(h), thus eliminating the ECM 

category. Section 734 of the DFA strikes 

CEA section 5d, thus eliminating the 

EBOT category. Section 734 also strikes 

CEA section 5a, thus eliminating the 

DTEF category of regulated markets 

effective July 15, 2011, as discussed 

above. 

Both sections 723 and 734 of the 

Dodd-Frank Act contain grandfather 

provisions whereby ECMs and EBOTs 

may petition the Commission to 

continue to operate as ECMs and 

EBOTs. Pursuant to the grandfather 

provisions, in September 2010, the 

Commission issued orders regarding the 

treatment of such grandfather petitions 

(the ‘‘Grandfather Relief Orders’’).79

Under the Grandfather Relief Orders, 

the Commission may, subject to certain 

conditions, provide relief to ECMs and 

EBOTs for up to one year. 

Pursuant to the DFA and the 

Grandfather Relief Orders, the 

Commission proposes to remove from 

parts 15, 18, 21 and 36 80 references to 

CEA sections 2(h) and 5d and to replace 

those references, where appropriate, 

with references to the Grandfather Relief 

Orders as the authority under which 

ECMs and EBOTs can continue to 

operate. The Commission also proposes 

to remove from parts 15, 18, 21, and 36 

of its regulations references to CEA 

sections 2(d), 2(g), and 5a, as well as 

references to DTEFs. 

E. Parts 41, 140, and 145 

The Commission also proposes to 

incorporate changes into its regulations 

to account for other new categories of 

registered entities and to include new 

products now subject to Commission 

jurisdiction. Section 733 of the DoddFrank Act added new section 5h to the 

CEA and created SEFs. Section 728 of 

the Dodd-Frank Act added new section 

21 to the CEA and created SDRs. SEFs 

will allow for the trading and clearing 

of swap transactions between ECPs, as 

that term is defined in CEA section 

1a(18).81 In addition to the amendments 

contained in proposed part 37, the 

Commission is proposing additional 

amendments throughout the regulations 

to include SEFs and SDRs where 

necessary. The Commission also 

proposes to delete from part 41 

references to DTEFs as that term was 

deleted from CEA section 5b by the 

Dodd-Frank Act, effective July 15, 

2011.82

The proposed changes throughout 

parts 140 (Organization, Functions and 

Procedures of the Commission) and 145 

(Commission Records and Information) 

reflect the need to incorporate SEFs and 

SDRs into the Commission’s regulations 

dealing with the rights and obligations 

of other registered entities. Proposed 

regulation 140.72 provides the 

Commission with the authority to 

disclose confidential information to 

SEFs and SDRs. This provision allows 

the Commission, or specifically 

identified Commission personnel, to 

disclose information necessary to 

effectuate the purposes of the CEA, 

including such matters as transactions 

or market operations. Proposed 

regulation 140.96 authorizes the 

Commission to publish in the Federal 

Register information pertaining to the 

applications for registration of DCMs, 

SEFs and SDRs, as well as new rules 

and rule amendments which present 

novel or complex issues that require 

additional time to analyze, an 

inadequate explanation by the 

submitting registered entity, or a 

potential inconsistency with the Act, or 

regulations under the Act. Proposed 

regulation 140.99 also includes SEFs 

and SDRs in the category of registered 

entities that may petition the 

Commission for exemptive relief and 

no-action and interpretative letters. 

Proposed regulation 140.735–3 adds 

SEFs and SDRs to the list of entities 

from which Commission members and 

employees may not accept employment 

or compensation. The Commission 

proposes adding swaps to those 

agreements, contracts or transactions 

Commission staff may not trade. The 

Commission would like to take this 

opportunity to also add retail forex 

transactions, as that term is defined in 

regulation 5.1(m), to this list. 

Finally, proposed regulation 145.9 

expands the definition of ‘‘submitter’’ by 

adding SEFs and SDRs to the list of 

registered entities to which a person’s 

confidential information has been 

submitted, and which, in turn, submit 

that information to the Commission. 

This amendment allows individuals 

who have submitted information to a 

SEF or SDR to request confidential 

treatment under regulation 145.9. 

F. Part 155 

1. Regulation 155.2: Trading Standards 

for Floor Brokers 

The Commission proposes removing 

the references to regulation 1.41 within 

regulation 155.2 because the 

Commission removed and reserved 

regulation 1.41 in 2001 (66 FR 42256) 

pursuant to the CFMA. The Commission 

also proposes removing the related 

reference to former section 5a(a)(12)(A) 

of the Act. 

G. Other General Changes to CFTC 

Regulations 

1. Removal of References to DTEFs 

The Commission proposes the 

removal of references to DTEFs and 

regulations pertaining to DTEFs in parts 

1, 5, 15, 36, 41, 140, and 155 because 

section 734 of the DFA abolished 

DTEFs, effective July 15, 2011.83

2. Other Conforming Changes 

The Commission also proposes in 

various parts of its regulations to update 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
33076 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

84 44 U.S.C. 3501 et seq. 

85Reporting, Recordkeeping, and Daily Trading 

Records Requirements for Swap Dealers and Major 

Swap Participants, 75 FR 76666, Dec. 9, 2010. 

86Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

Financial Managers, http://www.bls.gov/oes/ 

current/oes113031.htm (May 2009). 

cross-references to CEA provisions, now 

renumbered after the passage of the 

DFA. An example of one such change is 

proposed regulation 166.5, in which the 

Commission proposes to update the 

statutory reference to ‘‘eligible contract 

participant,’’ to reflect the Dodd-Frank 

Act’s renumbering of CEA section 1a. 

Additionally, where typographical 

errors or other minor inconsistencies 

were discovered while reviewing CFTC 

regulations, the Proposal includes 

instructions and proposed regulations to 

correct them. 

III. Request for Comment 

The Commission requests comment 

generally on all aspects of the proposed 

rules. As discussed in more detail 

above, the Commission also requests 

comment on: whether any changes to 

the ‘‘physical’’ definition in regulation 

1.3 are necessary or warranted; the 

potential costs and effects of the 

proposed new requirements that all 

books and records be maintained in 

their original form (for paper) and their 

native file format (for electronic 

records); whether the retention period 

for any communication medium (e.g., 

oral communications) should be shorter 

than the retention period applicable to 

other required records; the potential 

costs and effects of requiring registrants 

to record and maintain oral 

communications; whether the proposal 

to add FCMs and IBs to the list of 

eligible account managers is 

appropriate; and whether the proposed 

procedures for handling bunched swap 

orders are feasible. 

IV. Administrative Compliance 

A. Paperwork Reduction Act 

The Paperwork Reduction Act 

provides that an agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information unless it has been approved 

by the Office of Management and 

Budget (‘‘OMB’’) and displays a 

currently valid control number.84 This 

proposed rulemaking contains new 

collections of information for which the 

Commission must seek a valid control 

number. The Commission therefore is 

submitting this proposal to OMB for its 

review in accordance with 44 U.S.C. 

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

these new collections of information is 

‘‘Books and Records Requirements for 

Certain Registrants and Other Market 

Participants.’’ Responses to these 

information collections would be 

mandatory. 

With respect to all of the 

Commission’s collections, 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 

Commodity Exchange Act strictly 

prohibits the Commission, unless 

specifically authorized by the Act, from 

making public ‘‘data and information 

that would separately disclose the 

business transactions or market 

positions of any person and trade 

secrets or names of customers.’’ The 

Commission also is required to protect 

certain information contained in a 

government system of records according 

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

552a. 

1. Information To Be Provided by 

Reporting Entities/Persons 

a. Proposed Amendments to Regulation 

1.31 (Books and Records; Keeping and 

Inspection) 

Regulation 1.31 describes the manner 

in which ‘‘all books and records 

required to be kept by the Act’’ must be 

maintained. Most of the requirements of 

regulation 1.31 are applicable to FCMs, 

IBs, RFEDs, CTAs, CPOs, and members 

of DCMs and SEFs in conjunction with 

other part 1 regulations, and the PRA 

burdens either have been or will be 

covered by the OMB control numbers 

associated with the other part 1 

regulations. Examples of these other 

part 1 regulations are regulation 1.33, 

which requires certain registrants to 

produce monthly and confirmation 

statements, and regulation 1.35, which 

requires the maintenance of records of 

cash commodity, futures, and option 

transactions. Regulation 1.31 would also 

be applicable to SDs and MSPs in 

conjunction with proposed part 23 

regulations.85

i. Obligation To Develop and Maintain 

Recordkeeping Policies and Controls 

Regulation 1.31 additionally contains 

discrete stand-alone collections for 

which a control number must be sought. 

Subsection (b)(3)(ii) requires persons 

keeping records using electronic storage 

media to ‘‘develop and maintain written 

operational procedures and controls (an 

‘audit system’) designed to provide 

accountability over [the entry of records 

into the electronic storage media].’’ This 

provision is already applicable to FCMs, 

RFEDs, IBs, CTAs, CPOs, and members 

of DCMs, and would be applicable to 

SDs and MSPs pursuant to the proposed 

part 23 regulations. As members of SEFs 

will be newly subject to the part 1 

regulations, the Commission must 

estimate the burden of subsection 

(b)(3)(ii) on these entities and seek OMB 

approval for this new application of the 

subsection. 

The Commission anticipates that 

members of SEFs may incur certain onetime start-up costs in connection with 

establishing the audit system. This will 

include drafting and adopting 

procedures and controls and may 

include updates to existing 

recordkeeping systems. The 

Commission estimates the burden hours 

associated with these one-time start-up 

costs to be 100 hours. 

As there will not be any SEFs 

operating until after the Dodd-Frank Act 

becomes effective in July 2011, it is not 

possible for the Commission to estimate 

with precision how many SEF members 

there will be or how many of those SEF 

members will be FCMs, SDs, or MSPs 

that are being covered by already 

pending existing information 

collections. Nonetheless, the 

Commission has estimated that 35 SEFs 

will register with it after the Dodd-Frank 

Act becomes effective, and now is 

estimating that there may be on average 

100 members of a SEF that will not fall 

under one of the other collections. 

Accordingly, the aggregate new burden 

of subsection (b)(3)(ii) is estimated to be 

100 one-time burden hours to 

approximately 3,500 SEF members. 

The Commission expects that 

compliance and operations managers 

will be employed in the establishment 

of the written procedures and controls 

under subsection (b)(3)(ii). According to 

recent Bureau of Labor Statistics, the 

mean hourly wage of an employee 

under occupation code 11–3031, 

‘‘Financial Managers,’’ that is employed 

by the ‘‘Securities and Commodity 

Contracts Intermediation and Brokerage’’ 

industry is $74.41.86 Because members 

of SEFs may be large entities that may 

engage employees with wages above the 

mean, the Commission has 

conservatively chosen to use a mean 

hourly wage of $100 per hour. 

Accordingly, the burden associated with 

developing written procedures and 

controls will total approximately 

$10,000 for each applicable member of 

a SEF on a one-time basis. 

ii. Representation to the Commission 

Members of SEFs will also have to 

comply with regulation 1.31(c), which 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33077 

87As with subsection (b)(3)(ii), regulation 1.31(c) 

is already applicable or will be made applicable by 

other actions to FCMs, IBs, DCM members, as well 

as SDs or MSPs pursuant to proposed part 23 

regulations. 

88Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

Financial Managers, http://www.bls.gov/oes/ 

current/oes113031.htm (May 2009). 

89Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

Financial Managers, http://www.bls.gov/oes/ 

current/oes113031.htm (May 2009). 

90Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

Financial Managers, http://www.bls.gov/oes/ 

current/oes113031.htm (May 2009). 

91Occupational Employment Statistics, 

Occupational Employment and Wages: 15–1021, 

Computer Programmers, http://www.bls.gov/oes/ 

current/oes151021.htm (May 2009); Occupational 

Employment Statistics, Occupational Employment 

and Wages: 15–1031, Computer Software Engineers, 

Applications, http://www.bls.gov/oes/current/ 

oes151031.htm (May 2009); Occupational 

Employment Statistics, Occupational Employment 

and Wages: 15–1032, Computer Software Engineers, 

Systems Software, http://www.bls.gov/oes/current/ 

oes151032.htm (May 2009). 

requires persons employing an 

electronic storage system to provide a 

representation to the Commission prior 

to the initial use of the system.87 The 

Commission estimates the burden of 

drafting this representation in 

accordance with regulation 1.31(c) and 

submitting it to the Commission to be 1 

hour. 

According to recent Bureau of Labor 

Statistics, the mean hourly wage of an 

employee under occupation code 11– 

3031, ‘‘Financial Managers,’’ (which 

includes operations managers) that is 

employed by the ‘‘Securities and 

Commodity Contracts Intermediation 

and Brokerage’’ industry is $74.41.88

Because members of SEFs may be large 

entities that may engage employees with 

wages above the mean, the Commission 

has conservatively chosen to use a mean 

hourly wage of $100 per hour. 

Accordingly, the burden associated with 

drafting and submitting the 

representation prior to using an 

electronic storage system would be $100 

per affected member of a SEF. 

b. Proposed Amendments to Regulation 

1.33 (Monthly and Confirmation 

Statements) 

The Commission proposes amending 

regulation 1.33 by requiring FCMs to 

include in their monthly and 

confirmation statements sent to 

customers certain specified information 

related to a customer’s swap positions. 

The information required to be 

summarized in respect of swap 

transactions would be analogous to 

information currently required to be 

kept in respect of futures and 

commodity option transactions. The 

Commission estimates the burden of 

complying with regulation 1.33 in 

respect of swap transactions to be 1 

hour for each swap confirmation and 1 

hour for each monthly statement. 

According to recent Bureau of Labor 

Statistics, the mean hourly wage of an 

employee under occupation code 11– 

3031, ‘‘Financial Managers,’’ (which 

includes operations managers) that is 

employed by the ‘‘Securities and 

Commodity Contracts Intermediation 

and Brokerage’’ industry is $74.41.89

Accordingly the burden associated with 

complying with 1.33 in respect of a 

swap confirmation and each monthly 

statement to be $74.41 ($74.41 × 1 hour) 

for each swap transaction entered into. 

c. Proposed Amendments to Regulation 

1.35 (Records of Commodity Interest 

and Cash Commodity Transactions) 

The proposed amendments would 

require members of SEFs to comply 

with the regulation 1.35 recordkeeping 

requirements that are currently followed 

by FCMs, IBs, RFEDs, and members of 

DCMs. The Commission anticipates that 

members of SEFs will spend 

approximately eight hours per trading 

day (or 2,016 hours per year based on 

252 trading days) compiling and 

maintaining transaction records. 

According to recent Bureau of Labor 

Statistics, the mean hourly wage of an 

employee under occupation code 11– 

3031, ‘‘Financial Managers,’’ (which 

includes operations managers) that is 

employed by the ‘‘Securities and 

Commodity Contracts Intermediation 

and Brokerage’’ industry is $74.41.90

Because members of SEFs may be large 

entities that may engage employees with 

wages above the mean, the Commission 

has conservatively chosen to use a mean 

hourly wage of $100 per hour. Thus, 

each SEF member will have a burden of 

$201,600 per year (2,016 hours × $100/ 

hour). 

The proposed amendments to 

regulation 1.35 would also require 

FCMs, RFEDs, IBs, and members of 

DCMs to comply with the regulation 

1.35 recordkeeping requirements for any 

swap transactions into which they enter. 

Because the proposed recordkeeping 

requirements for swaps would be 

equivalent to the recordkeeping 

requirements they must currently follow 

in respect of futures and commodity 

option transactions, the additional 

burden for any swap transaction would 

be the same for any additional futures 

and commodity option transaction for 

which they keep records pursuant to 

regulation 1.35 in its current form. The 

Commission estimates that the 

recordkeeping burden associated with 

each swap transaction would be 0.5 

hours, for a total burden of $50 per 

transaction. 

The proposed amendments to 

regulation 1.35 would also require that 

each FCM, IB, RFED and member of a 

DCM or SEF retain all oral and written 

communications provided or received 

concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, 

that lead to the execution of transactions 

in a commodity interest or cash 

commodity, whether communicated by 

telephone, voicemail, facsimile, instant 

messaging, chat rooms, electronic mail, 

mobile device or other digital or 

electronic media, with a further 

requirement that each transaction record 

be maintained as a separate electronic 

file identifiable by transaction and 

counterparty. 

The Commission anticipates that the 

aforementioned registrants and 

members of DCMs and SEFs may incur 

certain one-time start-up costs in 

connection with establishing a system to 

retain oral communications. The 

Commission estimates that the cost of 

procuring systems to record these oral 

communications will be $55,000 for an 

average large entity that does not 

already have such systems in place, and 

estimates procurement costs of $10,000 

for each small entity that does not 

already have such systems in place. 

The Commission estimates the burden 

hours associated with these start-up 

costs to be 135 hours for any entity that 

does not already have a system in place. 

According to the recent Bureau of Labor 

Statistics, the mean hourly wage of 

computer programmers under 

occupation code 15–1021 and computer 

software engineers under program codes 

15–1031 and 1032 are between $34.10 

and $44.94.91 Because members of SEFs 

may be large entities that may engage 

employees with wages above the mean, 

the Commission has conservatively 

chosen to use a mean hourly 

programming wage of $50 per hour for 

each of the categories of persons who 

will have to establish the system for 

maintaining oral records. Accordingly, 

the start-up burden associated with 

establishing an audit system would be 

$6,750 ($50 × 135 hours) per affected 

FCM, IB, RFED, member of a DCM, and 

member of a SEF. 

The Commission also estimates that 

each of these persons will have to 

devote one hour per trading day to 

ensure the operation of the system to 

retain oral records. This would lead to 

$12,600 per year (1 hour per trading day 

× 252 trading days per year × $50/hour) 

per affected FCM, IB, RFED, member of 

a DCM, and member of a SEF. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
33078 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

92Occupational Employment Statistics, National 

Industry-Specific Occupational Employment and 

Wage Estimates, NAICS 523100—Securities and 

Commodity Contracts Intermediation and 

Brokerage, http://www.bls.gov/oes/current/ 

naics4_523100.htm#43-0000 (May 2009). 93Occupational Employment Statistics, 

Occupational Employment and Wages: 15–1021, 

Computer Programmers, http://www.bls.gov/oes/ 

current/oes151021.htm (May 2009); Occupational 

Employment Statistics, Occupational Employment 

and Wages: 15–1031, Computer Software Engineers, 

Applications, http://www.bls.gov/oes/current/ 

oes151031.htm (May 2009); Occupational 

Employment Statistics, Occupational Employment 

and Wages: 15–1032, Computer Software Engineers, 

Systems Software, http://www.bls.gov/oes/current/ 

oes151032.htm (May 2009). 

94 5 U.S.C. 601 et seq. 

95See respectively and as indicated: 47 FR 18618, 

18619, Apr. 30, 1982 (DCMs, FCMs, and large 

traders); 66 FR 20740, 20743, Apr. 25, 2001 (ECPs); 

and 75 FR 55410, 55416, Sept. 19, 2010 (RFEDs). 

d. Amendments to Regulation 1.37 

(Customer’s Name, Address, and 

Occupation Recorded; Record of 

Guarantor or Controller of Account) 

The Commission proposes amending 

regulation 1.37(a) by requiring each 

FCM, IB, and member of a DCM to keep 

the same kind of record (showing the 

customer’s name, address, occupation or 

business, and name of any other person 

guaranteeing the account or exercising 

any trading control over it) for any swap 

transactions it ‘‘carries or introduces’’ for 

another person. The Commission 

estimates that it will take each of these 

entities an average of 0.4 hours to gather 

the information and file it or key it into 

the entity’s customer recordkeeping 

programs. 

The Commission also proposes 

amending regulation 1.37(b) by 

requiring each FCM carrying an 

omnibus account for another FCM, a 

foreign broker, a member of a DCM or 

any other person to maintain a daily 

record for such account of the total open 

long contracts and the total open short 

contracts in each swap. FCMs presently 

have an equivalent obligation with 

respect to futures and commodity 

option transactions. These daily records 

typically are maintained in electronic 

form. Therefore, once a position is 

entered into the entity’s systems, the 

daily record will be automatically 

available. The Commission estimates 

that entering the position into the 

system, commencing with the 

placement of an order and ending with 

execution will take each of these entities 

an average of 0.4 hours. 

The Commission additionally 

proposes amending regulation 1.37(c) by 

requiring SEFs to comply with a 

provision that DCMs must currently 

follow: Keep a record showing the true 

name, address, and principal 

occupation or business of any foreign 

trader executing transactions on the 

facility or exchange. According to 

regulation 1.37(d), this provision does 

not apply in respect of futures/options/ 

swaps that foreign traders execute 

through FCMs or IBs. 

The Commission estimates that it 

would take a SEF a total of 0.4 hours to 

prepare each record in accordance with 

regulation 1.37(c). According to the 

Bureau of Labor Statistics, the mean 

hourly wage of an employee under 

occupation code 43–9021, ‘‘Data Entry 

Keyer,’’ that is employed in ‘‘Office and 

Administrative Support’’ is $14.03.92

Because SEFs may be large entities 

employing persons at wages higher than 

the average, the Commission 

conservatively estimates the mean 

hourly wage to be $19.03 per hour. 

Thus, the burden associated with 

preparing a record with regulation 

1.37(c) would be $7.61 ($19.03/hour × 

0.4 hours). 

e. Amendments to Regulation 1.39 

(Simultaneous Buying and Selling 

Orders of Different Principals; 

Execution of, for and Between 

Principals) 

The Commission proposes amending 

regulation 1.39, which currently applies 

to DCMs, by enabling members of SEFs 

to execute simultaneous buying and 

selling orders of different principals 

pursuant to rules of the SEF if certain 

conditions are met. Among those 

conditions, a SEF would have to record 

these transactions in a manner that 

‘‘shows all transaction details required 

to be captured by the Act, Commission 

rule, or regulation.’’ The Commission 

anticipates that the data to be captured 

would already exist in the SEF’s trading 

system. The Commission estimates that 

it will take the SEF an average of 0.1 

hours to capture this data, and storage 

costs of less than $1 per record. 

According to the recent Bureau of 

Labor Statistics, the mean hourly wage 

of computer programmers under 

occupation code 15–1021 and computer 

software engineers under program codes 

15–1031 and 1032 are between $34.10 

and $44.94.93 Because SEFs may be 

large entities that may engage 

employees with wages above the mean, 

the Commission has conservatively 

chosen to use a mean hourly 

programming wage of $50 per hour for 

each of the categories of persons who 

will have to establish the system for 

maintaining oral records. Accordingly, 

the start-up burden associated with the 

data capture requirements would be an 

average of $5. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 94 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. The rules proposed by the 

Commission are for the most part 

technical amendments to conform the 

affected parts to provisions of the DoddFrank Act and, as such, non-substantive. 

The Commission is also amending its 

books and records regulations to require 

FCMs, IBs, RFEDs, and members of 

DCMs to observe recordkeeping 

requirements for swaps that they 

currently observe in respect of futures 

and commodity option transactions. 

Additionally, the Commission is 

proposing to apply certain of those 

books and records regulations to 

members of SEFs, mirroring obligations 

that currently are met by members of 

DCMs. The Commission is also 

proposing to add a substantive rule 

change to regulation 1.35. The 

substantive rules would affect FCMs, 

IBs, RFEDs, and members of DCMs and 

SEFs. 

Except for the new regulations 

requiring FCMs, IBs, RFEDs, and 

members of DCMs and SEFs to record 

all oral communications leading to the 

execution of transactions in a 

commodity interest or cash commodity, 

the Commission has determined that 

none of the proposed rules will have a 

significant economic impact on any 

substantial number of entities. 

Additionally, as presented below, the 

Commission previously has determined 

or is now determining that all entities 

except for certain IBs are not small 

entities for the purposes of the RFA. 

Therefore, according to 5 U.S.C. 

605(b), the Chairman, on behalf of the 

Commission, is hereby certifying that all 

rules except for the oral 

communications recordkeeping rules 

will not have a significant economic 

effect on a significant number of small 

entities. A regulatory flexibility analysis 

addressing the impact of the oral 

communications recordkeeping rules on 

certain IBs is provided herein. 

1. FCMs, RFEDs, DCMs, ECPs, and Large 

Traders 

The Commission has previously 

determined that registered FCMs, 

RFEDs, DCMs, ECPs, and large traders 

are not small entities for purposes of the 

RFA.95 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 


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Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33079 

96 In promulgating its own taping rule, the 

Financial Services Authority issued guidance 

stating the following benefits: ‘‘(i) Recorded 

communication may increase the probability of 

successful enforcement; (ii) this reduces the 

expected value to be gained from committing 

market abuse; and (iii) this, in principle, leads to 

increased market confidence and greater price 

efficiency.’’ See Financial Services Authority, 

‘‘Policy Statement: Telephone Recording: recording 

of voice conversations and electronic 

communications’’ (Mar. 2008). 

97See Reporting, Recordkeeping, and Daily 

Trading Records Requirements for Swap Dealers 

and Major Swap Participants, 75 FR 76666, Dec. 9, 

2010. 98 7 U.S.C. 6g and 12a(5). 

significant economic impact on a 

substantial number of small entities 

with respect to these entities. 

2. SEFs 

SEFs are new categories of registrant 

under the Dodd-Frank Act. Therefore, 

the Commission has not previously 

addressed the question of whether SEFs 

are, in fact, ‘‘small entities’’ for purposes 

of the RFA. For the reasons that follow, 

the Commission is hereby determining 

that none of these entities would be 

small entities. Accordingly, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that the proposed rules, with 

respect to SEFs, will not have a 

significant impact on a substantial 

number of small entities. 

The Dodd-Frank Act defines a SEF as 

a trading system or platform in which 

multiple participants have the ability to 

accept bids and offers made by multiple 

participants in the facility or system, 

through any means of interstate 

commerce, including any trading 

facility that facilitates the execution of 

swaps between persons and is not a 

DCM. The Commission previously 

determined that a DCM is not a small 

entity because, among other things, it 

may only be designated when it meets 

specific criteria, including expenditure 

of sufficient resources to establish and 

maintain adequate self-regulatory 

programs. Likewise, the Commission 

will register an entity as a SEF only after 

it has met specific criteria, including the 

expenditure of sufficient resources to 

establish and maintain an adequate selfregulatory program. Moreover, members 

of SEFs, to whom many of the proposed 

regulations would apply, additionally 

are not small entities for the purposes of 

the RFA. As noted above, the 

Commission previously determined that 

ECPs are not small entities, and the 

Dodd-Frank Act provides that only ECPs 

can enter into swaps on a SEF. 

Accordingly, as with DCMs, the 

Commission is hereby determining that 

SEFs and members of SEFs are not 

‘‘small entities’’ for purposes of the RFA. 

3. Regulatory Flexibility Analysis for 

Oral Communication Rules Applicable 

to IBs 

The Commission has not previously 

determined that IBs are not ‘‘small 

entities’’ for the purposes of the RFA. 

Historically, the Commission has 

evaluated within the context of a 

particular regulatory proposal whether 

all or some affected IBs would be 

considered to be small entities and, if 

so, the economic impact on them of the 

particular regulation. 

Accordingly, the Commission offers, 

pursuant to 5 U.S.C. 603, the following 

initial regulatory flexibility analysis, 

which it shall transmit to the Chief 

Counsel for Advocacy of the Small 

Business Administration as 5 U.S.C. 603 

requires: 

a. A Description of the Reasons Why 

Action by the Agency Is Being 

Considered 

The Commission is considering the 

adoption of the proposed amendments 

to regulation 1.35 requiring FCMs, 

RFEDs, IBs and DCM and SEF members 

to keep records of all oral 

communications leading to the 

execution of transactions in a 

commodity interest or cash commodity 

for several reasons. To begin, such an 

amendment to regulation 1.35 would 

protect customers from abusive sales 

practices, would protect registrants from 

the risks associated with transactional 

disputes, and would allow registrants to 

follow-up more effectively on customer 

complaints of abuses by their associated 

persons. Additionally, the amendment 

would make enforcement investigations 

more efficient by preserving critical 

evidence that otherwise may be lost to 

lapsed and inconsistent memories. This, 

in turn, is expected to increase the 

success of enforcement actions, which 

benefits customers, regulated entities, 

and the markets as a whole.96 Finally, 

it is being proposed for regulatory 

parity, as it has been proposed recently 

for SDs and MSPs as part of their 

recordkeeping and reporting 

obligations.97

b. A Succinct Statement of the 

Objectives of, and Legal Basis for, the 

Proposed Rule 

As stated above, the objective of the 

proposed amendment to regulation 1.35 

is to protect the market participants and 

the public, as well as to increase market 

integrity. In terms of the legal basis for 

this proposed rule, the Commission has 

been authorized by sections 4g and 8a(5) 

of the CEA to adopt regulations 

requiring registrants to keep books and 

records pertaining to such transactions 

and positions in a form and manner and 

for such period as may be required by 

the Commission.98

c. A Description of and, Where Feasible, 

an Estimate of the Number of Small 

Entities To Which the Proposed Rule 

Will Apply 

There are an estimated 1,500 IBs 

registered with the Commission at any 

given time. Between 80 and 90% of 

these IBs are ‘‘guaranteed introducing 

brokers,’’ many of which may be small 

entities. There are an estimated 11,500 

members of DCMs, some of which may 

be small entities. The Commission 

believes, however, that it is likely that 

less than 10% of the members of DCMs 

would be small entities given the capital 

and other resources they would need to 

comply with DCM rules. 

d. A Description of the Projected 

Reporting, Recordkeeping, and Other 

Compliance Requirements of the 

Proposed Rule, Including an Estimate of 

the Classes of Small Entities Which Will 

Be Subject to the Requirement and the 

Type of Professional Skills Necessary 

for Preparation of the Report or Record 

Proposed regulation 1.35 would 

require all FCMs, RFEDs, IBs and 

members of DCMs or SEFs to keep 

records of all oral communications that 

lead to the execution of a commodity 

interest or cash commodity transaction. 

All small IBs and small DCM or SEF 

members will be subject to this 

requirement. The proposed regulation is 

primarily a recordkeeping requirement, 

which will obligate those firms that do 

not already do so to tape the telephone 

lines of their traders and sales forces. 

Maintenance of these oral 

communications for five years will 

require investments in hardware, 

software, and information technology 

personnel, all of which will be scalable 

to the size of the enterprise. There may 

be periodic reporting requirements, 

most frequently in response to a 

subpoena from the Commission, any 

other federal agency that has regulatory 

or civil enforcement authority over the 

firm, and the markets in which it 

conducts business, as well as law 

enforcement. 

e. Identification, to the Extent 

Practicable, of All Relevant Federal 

Rules Which May Duplicate, Overlap or 

Conflict With the Proposed Rule 

The Commission has not identified 

any Federal rules which may duplicate, 

overlap, or conflict with the proposed 

rule. Certain firms may be obligated to 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
33080 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

99Financial Services Authority, ‘‘Policy 

Statement: Telephone Recording: recording of voice 

conversations and electronic communications’’ 

(Mar. 2008). In addition to the rules promulgated 

by the Financial Services Authority, similar rules 

which mandate recording of certain voice and/or 

telephone conversations have been promulgated by 

the Comissa ̃o de Valores Mobilia ́rios in Brazil and 

by the Autorite ́ des Marche ́s Financiers in France. 

100 7 U.S.C. 19(a). 

retain oral communications by rule of a 

private SRO. 

f. Description of Any Significant 

Alternatives to the Proposed Rule 

Which Accomplish the Stated 

Objectives of Applicable Statutes and 

Which Minimize Any Significant 

Economic Impact of the Proposed Rule 

on Small Entities 

The Commission has identified no 

significant alternatives that may 

minimize any significant economic 

impact of the proposed rule amendment 

on small entities. Clarification, 

consolidation, or simplification of 

compliance and reporting requirements 

would leave a large portion of the sales 

operations in the futures industry 

uncovered, and in consequence, the 

customers that transact business with 

them. Moreover, the benefits from the 

enforcement of the CEA by the 

Commission and by the Department of 

Justice at the criminal level would be 

lost. Finally, leaving a large portion of 

the sales operations uncovered by this 

rule could create regulatory arbitrage, 

causing large entities subject to this rule 

to move their sales operations into a 

series of small firms. The same would 

apply for exemptions. 

Given the foregoing, the Commission 

has determined to treat equally all 

entities that engage in oral 

communications that lead to the 

execution of commodity interest and 

cash commodity transactions. 

To the extent that certain IBs and 

members of DCMs and SEFs are 

impacted by the proposed amendments, 

the RFA analysis focuses on whether the 

proposed amendments will have a 

significant economic impact on a 

substantial number of small entities. At 

present, such entities are subject to 

certain recordkeeping retention and 

reporting requirements, based on the 

nature of their respective businesses; the 

proposed amendments would augment 

the existing recordkeeping retention and 

reporting requirements of these firms. 

The Commission understands that 

recent advancements in technology, 

particularly with respect to capturing 

records and storing such records, will 

enable all affected entities, including 

small entities, to incorporate into their 

existing recordkeeping programs the 

enhanced requirements set forth in the 

proposed amendments, without 

encountering a significant economic 

impact. The United Kingdom’s FSA, 

which recently adopted similar 

recordkeeping requirements, discussed 

the declining costs of such 

recordkeeping programs in a Policy 

Statement addressing these and other 

issues.99

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 100 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA. Section 15(a) specifies that the 

costs and benefits shall be considered 

against 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 give greater weight to 

one or more of the five enumerated 

considerations to determine, in its 

discretion, that 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. 

1. Costs 

a. Amendments to Regulation 1.31 

With respect to costs, the Commission 

has determined that for FCMs, IBs, 

CPOs, CTAs and members of DCMs, 

costs to institute recordkeeping systems 

to retain swap records for the life of the 

swap (i.e., until the termination, 

maturity, expiration, transfer, 

assignment, or novation date of the 

transaction) and for five years after that 

date would be far outweighed by the 

benefits to the financial system as a 

whole. The Commission is not imposing 

any cost that a prudent FCM, IB, CPO, 

CTA, and DCM member would not 

already incur in maintaining records for 

swap transactions. A prudent registrant 

would retain a swap record for the life 

of the swap to ensure that its rights 

under the contract are protected and its 

obligations are fulfilled. 

As to the proposed requirements that 

records be kept in their original form 

(for paper records) and native file format 

(for electronic records), that the method 

of storage maintains electronic records 

in their native file format, and that the 

records be produced to the Commission 

in a form specified by the Commission, 

the Commission is not imposing 

significant new burdens on registrants 

and regulated entities. The Commission 

understands that registrants and 

regulated entities already retain 

electronic records in these forms. 

Moreover, to the extent that a 

registrant’s transactional activity is 

retained on a platform operated by or 

additionally is captured by a regulated 

entity, trading mechanism, 

clearinghouse or another regulated 

entity (for example, where an IB 

transacts through an FCM) that is 

required to maintain these records in 

the same form, the registrant may rely 

on the retention requirements of the 

other registrant in order to comply with 

the proposed requirements of regulation 

1.31. 

b. Amendments to Regulation 1.33, 1.35, 

1.37, and 1.39 

The proposed regulations would 

require FCMs, IBs, RFEDs, DCMs and 

members of DCMs to comply with the 

same recordkeeping functions for swaps 

that they currently adhere to with 

respect to futures and commodity 

option transactions. The Commission 

anticipates that in complying with 

amended regulations 1.33, 1.35, 1.37 

and 1.39, the aforementioned persons 

will already have the framework for 

producing and storing records and 

would only make adjustments as 

necessary to provide the additional 

information regarding swaps. Because 

the recordkeeping requirements in 

respect of swaps would be equivalent to 

the existing recordkeeping requirements 

for futures and commodity option 

transactions, the cost of complying with 

the proposed amendments should not 

differ materially from the cost of 

recording additional futures or 

commodity option transactions. 

The Commission has also amended 

the aforementioned recordkeeping 

regulations by applying them to SEFs 

and their members. These persons will 

therefore need to factor in the costs in 

complying with these regulations before 

commencing their operations. 

c. Amendments to Regulation 1.35 

(Records of Oral Communications). 

To the extent FCMs, RFEDs, IBs, 

members of DCMs, and members of 

SEFs enter into transactions in a 

commodity interest or cash commodity, 

the newly proposed requirements under 

regulation 1.35 would require them to 

record all oral communications that lead 

to the execution of transactions in a 

commodity interest or cash commodity. 

As described above, it is expected that 

any additional cost imposed by the 

recordkeeping requirements of proposed 

amendments to regulation 1.35 would 

be minimal for the average large FCM, 


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101The Commission preliminarily has determined 

that any additional cost imposed by the 

recordkeeping requirements of proposed regulation 

23.202(a)(1) (which has an analogous requirement 

for SDs and MSPs relating to retention of oral and 

written communications that lead to the execution 

of swaps) ‘‘would be minimal because the 

information and data required to be recorded is 

information and data a prudent swap dealer or 

major swap participant would already maintain 

during the ordinary course of its business,’’ and 

‘‘[m]oreover, most swap dealers and major swap 

participants have adequate, existing resources and 

recordkeeping structures that are capable of 

adjusting to the new regulatory framework without 

material diversion of resources away from 

commercial operations.’’ See Reporting, 

Recordkeeping, and Daily Trading Records 

Requirements for Swap Dealers and Major Swap 

Participants, 75 FR 76666, 76673, Dec. 9, 2010. 

102 75 FR 76666, Dec. 9, 2010. 

RFED, IB, or DCM or SEF member 

because the information and data 

required to be recorded is information 

and data a prudent FCM, RFED, IB, or 

DCM or SEF member would already 

maintain during the ordinary course of 

its business.101 Moreover, most FCMs, 

RFEDs, IBs, or members of DCMs or 

SEFs have adequate existing resources, 

technology systems, and recordkeeping 

structures that are capable of adjusting 

to the new regulatory framework 

without material diversion of resources 

away from commercial operations. 

The Commission also believes that 

such costs would be minimal for the 

average small IB or member of a SEF 

who does not have digital telephone 

systems in place and may not have 

robust or up-to-date electronic data 

saving and storage capacity. 

2. Benefits 

a. Amendments to Regulation 1.31. 

The Commission believes that the 

benefit of requiring FCMs, IBs, CPOs, 

CTAs, and DCM and SEF members to 

maintain swap records for the life of the 

swap (i.e., until the termination, 

maturity, expiration, transfer, 

assignment, or novation date of the 

transaction) and for five years after that 

date is significant, as is the requirement 

to maintain records in their native 

format. Proposed regulation 23.203(b)(2) 

has already proposed requiring SDs and 

MSPs to maintain swap records for the 

life of the swap and for five years after 

termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction.102 It would therefore be 

inconsistent not to require other 

registrants, as well as DCM and SEF 

members to have the same obligation for 

swap records that they keep. The fiveyear retention period, which already 

applies to records for futures and 

commodity option transactions, is 

meant to protect market participants, 

the integrity of the market, and the 

public at large by ensuring that an audit 

trail is maintained for routine 

compliance examinations, in the event 

of counterparty complaints, or in case of 

other events that may trigger an 

investigation by the Commission and 

other government agencies. 

b. Amendments to Regulations 1.33, 

1.35, 1.37, and 1.39 

The Commission believes that there 

are significant benefits in requiring 

FCMs, IBs, RFEDs, DCMs and members 

of DCMs to comply with the same 

recordkeeping functions for swaps that 

they currently adhere to with respect to 

futures and commodity option 

transactions. The Commission also 

believes that there are significant 

benefits in requiring SEFs and members 

of SEFs to comply with certain of the 

recordkeeping functions contained in 

regulations 1.33, 1.35, 1.37 and 1.39. 

First is the issue of regulatory parity: 

Because many swaps will be executed 

on trading platforms, they should be 

subject to the same recordkeeping 

requirements as futures and commodity 

options. Moreover, these recordkeeping 

rules are fundamental to the 

Commission’s efforts to maintain an 

orderly marketplace and to remain 

informed about market positions. 

c. Amendments to Regulation 1.35 

(Records of Oral Communications) 

The proposed amendments to 

regulation 1.35 would newly require 

FCMs, RFEDs, IBs, and DCM and SEF 

members to comply with regulation 1.35 

for any swap transactions into which 

they enter. The benefit of this 

amendment is significant because it 

requires these registrants to perform the 

same recordkeeping functions for swaps 

that they already perform for futures 

transactions, which protect the integrity 

and efficiency of the markets, market 

participants, and the public at large by 

ensuring that these records are available 

in the event of customer disputes, 

routine compliance examinations, and 

regulatory investigations. 

Notwithstanding the potential costs 

described above that could be incurred 

by FCMs, RFEDs, IBs, and DCM and SEF 

members in complying with the 

proposed amendments that would 

newly require them to record all oral 

communications that lead to the 

execution of a transaction in a 

commodity interest or cash commodity, 

the Commission believes the benefits of 

the proposed amendments are 

significant and important. 

First, the Commission believes that 

the proposed amendments will enhance 

the protection of market participants 

and the public by increasing the 

probability of timely successful 

enforcement of the CEA and 

Commission regulations, particularly in 

cases involving suspected fraud, market 

manipulation and/or false reporting, by 

deterring market abuses, and 

additionally by reducing the expected 

value to be gained from committing 

market abuse. The Commission believes 

that increasing the quantity and quality 

of contemporaneous records that 

affected persons must retain, as 

provided under the proposed 

amendments, will protect market 

participants and the public from harm 

by wrongdoers. Such increases in the 

quantity and quality of 

contemporaneous records will enable 

the Commission to more fully and 

accurately establish the knowledge and 

intent of wrongdoers at the time of their 

wrongful acts. The Commission believes 

that the enhanced protection of market 

participants and the public outweighs 

the costs that may be borne by persons 

under the proposed amendments who 

do not already maintain oral 

communications. 

Second, the Commission anticipates 

that the proposed amendments will lead 

to increased market confidence and 

greater price efficiency by reducing the 

expected value to be gained from 

committing market abuse, thereby 

deterring such inefficient acts. By 

requiring the recording of oral 

communications, which could be 

evidence of anti-competitive behavior, 

the proposed amendments will 

discourage anti-competitive behavior, 

thereby enhancing competition. 

Third, the Commission believes that 

the proposed amendments, by 

increasing the probability of timely 

successful enforcement of the CEA and 

Commission regulations, and by 

deterring market abuses, will benefit the 

financial integrity of futures markets 

and lead to more effective price 

discovery. The Commission anticipates 

that such benefits will be achieved 

through the resultant enhanced 

investigative capabilities in cases 

involving suspected fraud, market 

manipulation, and/or false reporting. 

Fourth, the Commission believes that 

the enhanced investigative and 

enforcement capabilities made possible 

under the proposed amendments 

ultimately will decrease the likelihood 

that incidents of wrongdoing, 

particularly with respect to cases of 

fraud, market manipulation and/or false 

reporting, will go undetected or 

unproven. The Commission believes 

that the cumulative impact of the 

proposed amendments will result in 

more successful prosecutions of 

wrongdoing under the CEA as well as 


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fewer market abuses being committed, 

which will benefit both market 

participants and the general public. 

After considering these factors, the 

Commission has determined to propose 

the amendments described above. The 

Commission invites public comment on 

its application of the cost-benefit 

provision. Commenters also are invited 

to submit, with their comment letters, 

any data that quantifies the costs and 

benefits of the proposed amendments. 

Other than the foregoing, these 

proposed rules do not impose any 

substantive regulatory obligations on 

any person. Rather, the Commission is 

adopting technical amendments to 

conform to the Dodd-Frank Act. 

Accordingly, there are no quantifiable 

costs associated with this rulemaking 

other than those discussed above. The 

sole qualitative benefit associated with 

this rulemaking, other than as discussed 

above, is accuracy. 

List of Subjects 

17 CFR Part 1 

Agricultural commodity, Agriculture, 

Brokers, Committees, Commodity 

futures, Conflicts of interest, Consumer 

protection, Definitions, Designated 

contract markets, Directors, Major swap 

participants, Minimum financial 

requirements for intermediaries, 

Reporting and recordkeeping 

requirements, Swap dealers. 

17 CFR Part 5 

Bulk transfers, Commodity pool 

operators, Commodity trading advisors, 

Consumer protection, Customer’s 

money, Securities and property, 

Definitions, Foreign exchange, 

Minimum financial and reporting 

requirements, Prohibited transactions in 

retail foreign exchange, Recordkeeping 

requirements, Retail foreign exchange 

dealers, Risk assessment, Special calls, 

Trading practices. 

17 CFR Part 7 

Commodity futures, Consumer 

protection, Registered entity. 

17 CFR Part 8 

Commodity futures, Reporting and 

recordkeeping requirements. 

17 CFR Part 15 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements, Electronic trading facility. 

17 CFR Part 18 

Commodity futures, Reporting and 

recordkeeping requirements, 

Grandfather relief order. 

17 CFR Part 21 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements, Grandfather relief order. 

17 CFR Part 36 

Commodity futures, Commodity 

Futures Trading Commission, Electronic 

trading facility, Eligible commercial 

entities, Eligible contract participants, 

Federal financial regulatory authority, 

Principal-to-principal, Special calls, 

Systemic market event. 

17 CFR Part 41 

Brokers, Reporting and recordkeeping 

requirements, Security futures products. 

17 CFR Part 140 

Authority delegations (Government 

agencies), Conflict of interests, 

Organizations and functions 

(Government agencies). 

17 CFR Part 145 

Confidential business information, 

Freedom of information. 

17 CFR Part 155 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements, Swaps. 

17 CFR Part 166 

Brokers, Commodity futures, 

Consumer protection, Reporting and 

recordkeeping requirements, Swaps. 

For the reasons stated in the 

preamble, under the authority of 7 

U.S.C. 1 et seq., the Commodity Futures 

Trading Commission proposes to amend 

Chapter I of Title 17 of the Code of 

Federal Regulations as set forth below: 

PART 1—GENERAL REGULATIONS 

UNDER THE COMMODITY EXCHANGE 

ACT 

1. The authority citation for part 1 is 

revised to read as follows: 

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

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

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

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

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

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

1376 (2010). 

2. Amend § 1.3 by: 

a. Revising paragraphs (a), (b), (c), (d), 

(e), (g), (h), (k), (n), (p), (q), (r), (s), (t), 

(x), (y) introductory text, (y)(1), (y)(2) 

introductory text, (y)(2)(iii)(B), 

(y)(2)(iii)(C), (y)(2)(v)(B), (y)(2)(v)(C), 

(y)(2)(vii), (y)(2)(viii), (z)(1), (aa)(1)(i), 

(aa)(2)(i), (aa)(5), (bb), (cc), (ee), (ff), (gg), 

(ii), (kk), (mm)(1), (mm)(2) introductory 

text, (mm)(2)(i), (nn), (oo), (pp), (rr)(2), 

(ss), (tt), (vv), (xx), and (yy); 

b. Removing and reserving paragraphs 

(jj) and (uu); and 

c. Adding paragraphs (zz), (aaa), (bbb), 

(ccc), (ddd), (eee), (fff), (ggg), (hhh), (iii), 

(jjj), (kkk), and (lll), to read as follows: 

§ 1.3 Definitions. 

(a) Board of Trade. This term means 

an organized exchange or other trading 

facility. 

(b) Business day. This term means any 

day other than a Sunday or holiday. In 

all notices required by the Act or by the 

rules and regulations in this chapter to 

be given in terms of business days the 

rule for computing time shall be to 

exclude the day on which notice is 

given and include the day on which 

shall take place the act of which notice 

is given. 

(c) Clearing member. This term means 

any person who is a member of, or 

enjoys the privilege of clearing trades in 

his own name through, the clearing 

organization of a designated contract 

market. 

(d) Clearing organization. This term 

means the person or organization which 

acts as a medium for clearing 

transactions in commodities for future 

delivery or commodity option 

transactions, or for effecting settlements 

of contracts for future delivery or 

commodity option transactions, for and 

between members of any designated 

contract market. 

(e) Commodity. This term means and 

includes wheat, cotton, rice, corn, oats, 

barley, rye, flaxseed, grain sorghums, 

millfeeds, butter, eggs, Irish potatoes, 

wool, wool tops, fats and oils (including 

lard, tallow, cottonseed oil, peanut oil, 

soybean oil, and all other fats and oils), 

cottonseed meal, cottonseed, peanuts, 

soybeans, soybean meal, livestock, 

livestock products, and frozen 

concentrated orange juice, and all other 

goods and articles, except onions (as 

provided by the first section of Pub. L. 

85–839) and motion picture box office 

receipts (or any index, measure, value or 

data related to such receipts), and all 

services, rights and interests (except 

motion picture box office receipts, or 

any index, measure, value or data 

related to such receipts) in which 

contracts for future delivery are 

presently or in the future dealt in. 

* * * * * 

(g) Institutional customer. This term 

has the same meaning as ‘‘eligible 

contract participant’’ as defined in 

section 1a(18) of the Act. 

(h) Contract market; designated 

contract market. These terms mean a 

board of trade designated by the 

Commission as a contract market under 


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the Act or in accordance with the 

provisions of part 38 of this chapter. 

* * * * * 

(k) Customer. This term means any 

person who uses a futures commission 

merchant, introducing broker, 

commodity trading advisor, or 

commodity pool operator as an agent in 

connection with trading in any 

commodity interest; Provided, however, 

an owner or holder of a proprietary 

account as defined in paragraph (y) of 

this section shall not be deemed to be 

a customer within the meaning of 

section 4d of the Act, the regulations 

that implement sections 4d and 4f of the 

Act and § 1.35, and such an owner or 

holder of such a proprietary account 

shall otherwise be deemed to be a 

customer within the meaning of the Act 

and §§ 1.37 and 1.46 and all other 

sections of these rules, regulations, and 

orders which do not implement sections 

4d and 4f of the Act. 

* * * * * 

(n) Floor broker. This term means any 

person: 

(1) Who, in or surrounding any pit, 

ring, post or other place provided by a 

contract market for the meeting of 

persons similarly engaged, shall 

purchase or sell for any other person— 

(i) Any commodity for future delivery, 

security futures product, or swap; or 

(ii) Any commodity option authorized 

under section 4c of the Act; or 

(2) Who is registered with the 

Commission as a floor broker. 

* * * * * 

(p) Futures commission merchant. 

This term means: 

(1) Any individual, association, 

partnership, corporation, or trust— 

(i) Who is engaged in soliciting or in 

accepting orders for the purchase or sale 

of any commodity for future delivery; a 

security futures product; a swap; any 

agreement, contract, or transaction 

described in section 2(c)(2)(C)(i) or 

section 2(c)(2)(D)(i) of the Act; a 

commodity option authorized under 

section 4c of the Act; a leverage 

transaction authorized under section 19 

of the Act; or acting as a counterparty 

in any agreement, contract or 

transaction described in section 

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

Act and 

(ii) Who, in connection with any of 

these activities accepts any money, 

securities, or property (or extends credit 

in lieu thereof) to margin, guarantee, or 

secure any trades or contracts that result 

or may result therefrom; and 

(2) Any person that is registered as a 

futures Commission merchant. 

(q) Member. This term means: 

(1) An individual, association, 

partnership, corporation, or trust— 

(i) Owning or holding membership in, 

or admitted to membership 

representation on, a registered entity; or 

(ii) Having trading privileges on a 

registered entity. 

(2) A participant in an alternative 

trading system that is designated as a 

contract market pursuant to section 5f of 

the Act is deemed a member of the 

contract market for purposes of 

transactions in security futures products 

through the contract market. 

(r) Net equity. (1) For futures and 

commodity option positions, this term 

means the credit balance which would 

be obtained by combining the margin 

balance of any person with the net profit 

or loss, if any, accruing on the open 

futures or commodity option positions 

of such person. 

(2) For swap positions other than 

commodity option positions, this term 

means the credit balance which would 

be obtained by combining the margin 

balance of any person with the net profit 

or loss, if any, accruing on the open 

swap positions of such person. 

(s) Net deficit. (1) For futures and 

commodity option positions, this term 

means the debit balance which would 

be obtained by combining the margin 

balance of any person with the net profit 

or loss, if any, accruing on the open 

futures or commodity option positions 

of such person. 

(2) For swap positions other than 

commodity option positions, this term 

means the debit balance which would 

be obtained by combining the margin 

balance of any person with the net profit 

or loss, if any, accruing on the open 

swap positions of such person. 

(t) Open positions. This term means: 

(1) Contracts of purchase or sale of 

any commodity made by or for any 

person on or subject to the rules of a 

board of trade for future delivery during 

a specified month or delivery period 

that have neither been fulfilled by 

delivery nor been offset by other 

contracts of purchase or sale in the same 

commodity and delivery month; 

(2) Commodity option transactions 

that have not expired, been exercised, or 

offset; and 

(3) Swaps that have neither expired 

nor been terminated. 

* * * * * 

(x) Floor trader. This term means any 

person: 

(1) Who, in or surrounding any pit, 

ring, post or other place provided by a 

contract market for the meeting of 

persons similarly engaged, purchases, or 

sells solely for such person’s own 

account – 

(i) Any commodity for future delivery, 

security futures product, or swap; or 

(ii) Any commodity option authorized 

under section 4c of the Act; or 

(2) Who is registered with the 

Commission as a floor trader. 

(y) Proprietary account. This term 

means a commodity futures, commodity 

option, or swap trading account carried 

on the books and records of an 

individual, a partnership, corporation or 

other type of association: 

(1) For one of the following persons, 

or 

(2) Of which ten percent or more is 

owned by one of the following persons, 

or an aggregate of ten percent or more 

of which is owned by more than one of 

the following persons: 

* * * * * 

(iii) * * * 

(B) The handling of the trades of 

customers or customer funds of such 

partnership, 

(C) The keeping of records pertaining 

to the trades of customers or customer 

funds of such partnership, or 

* * * * * 

(v) * * * 

(B) The handling of the trades of 

customers or customer funds of such 

individual, partnership, corporation or 

association, 

(C) The keeping of records pertaining 

to the trades of customers or customer 

funds of such individual, partnership, 

corporation or association, or 

* * * * * 

(vii) A business affiliate that directly 

or indirectly controls such individual, 

partnership, corporation or association; 

or 

(viii) A business affiliate that, directly 

or indirectly is controlled by or is under 

common control with, such individual, 

partnership, corporation or association. 

Provided, however, That an account 

owned by any shareholder or member of 

a cooperative association of producers, 

within the meaning of section 6a of the 

Act, which association is registered as a 

futures commission merchant and 

carries such account on its records, shall 

be deemed to be an account of a 

customer and not a proprietary account 

of such association, unless the 

shareholder or member is an officer, 

director or manager of the association. 

(z) Bona fide hedging transactions 

and positions—(1) General definition. (i) 

Bona fide hedging transactions and 

positions shall mean transactions or 

positions in a contract for future 

delivery on any contract market, or in a 

commodity option, where such 

transactions or positions normally 

represent a substitute for transactions to 

be made or positions to be taken at a 

later time in a physical marketing 

channel, and where they are 


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economically appropriate to the 

reduction of risks in the conduct and 

management of a commercial enterprise, 

and where they arise from: 

(A) The potential change in the value 

of assets which a person owns, 

produces, manufactures, processes, or 

merchandises or anticipates owning, 

producing, manufacturing, processing, 

or merchandising, or 

(B) The potential change in the value 

of liabilities which a person owns or 

anticipates incurring, or 

(C) The potential change in the value 

of services which a person provides, 

purchases, or anticipates providing or 

purchasing. 

(ii) Notwithstanding the foregoing, no 

transactions or positions shall be 

classified as bona fide hedging unless 

their purpose is to offset price risks 

incidental to commercial cash or spot 

operations and such positions are 

established and liquidated in an orderly 

manner in accordance with sound 

commercial practices and, for 

transactions or positions on contract 

markets subject to trading and position 

limits in effect pursuant to section 4a of 

the Act, unless the provisions of 

paragraph (z)(2) and (3) of this section 

have been satisfied. 

* * * * * 

(aa) * * * 

(1) * * * 

(i) The solicitation or acceptance of 

customers’ orders (other than in a 

clerical capacity) or 

* * * * * 

(2) * * * 

(i) The solicitation or acceptance of 

customers’ orders (other than in a 

clerical capacity) or 

* * * * * 

(5) A leverage transaction merchant as 

a partner, officer, employee, consultant, 

or agent (or any natural person 

occupying a similar status or performing 

similar functions), in any capacity 

which involves: 

(i) The solicitation or acceptance of 

leverage customers’ orders (other than 

in a clerical capacity) for leverage 

transactions as defined in § 31.4(x) of 

this chapter, or 

(ii) The supervision of any person or 

persons so engaged. 

(bb)(1) Commodity trading advisor. 

This term means any person who, for 

compensation or profit, engages in the 

business of advising others, either 

directly or through publications, 

writings or electronic media, as to the 

value of or the advisability of trading in 

any contract of sale of a commodity for 

future delivery, security futures 

product, or swap; any agreement, 

contract or transaction described in 

section 2(c)(2)(C)(i) or section 

2(c)(2)(D)(i) of the Act; any commodity 

option authorized under section 4c of 

the Act; any leverage transaction 

authorized under section 19 of the Act; 

any person registered with the 

Commission as a commodity trading 

advisor; or any person, who, for 

compensation or profit, and as part of a 

regular business, issues or promulgates 

analyses or reports concerning any of 

the foregoing. The term does not include 

any bank or trust company or any 

person acting as an employee thereof, 

any news reporter, news columnist, or 

news editor of the print or electronic 

media or any lawyer, accountant, or 

teacher, any floor broker or futures 

commission merchant, the publisher or 

producer of any print or electronic data 

of general and regular dissemination, 

including its employees, the named 

fiduciary, or trustee, of any defined 

benefit plan which is subject to the 

provisions of the Employee Retirement 

Income Security Act of 1974, or any 

fiduciary whose sole business is to 

advise that plan, any contract market, 

and such other persons not within the 

intent of this definition as the 

Commission may specify by rule, 

regulation or order: Provided, That the 

furnishing of such services by the 

foregoing persons is solely incidental to 

the conduct of their business or 

profession: Provided further, That the 

Commission, by rule or regulation, may 

include within this definition, any 

person advising as to the value of 

commodities or issuing reports or 

analyses concerning commodities, if the 

Commission determines that such rule 

or regulation will effectuate the 

purposes of this provision. 

(2) Client. This term, as it relates to a 

commodity trading advisor, means any 

person: 

(i) To whom a commodity trading 

advisor provides advice, for 

compensation or profit, either directly 

or through publications, writings, or 

electronic media, as to the value of, or 

the advisability of trading in, any 

contract of sale of a commodity for 

future delivery, security futures product 

or swap; any agreement, contract or 

transaction described in section 

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

Act; any commodity option authorized 

under section 4c of the Act; any leverage 

transaction authorized under section 19 

of the Act; or 

(ii) To whom, for compensation or 

profit, and as part of a regular business, 

the commodity trading advisor issues or 

promulgates analyses or reports 

concerning any of the activities referred 

to in paragraph (bb)(2)(i) of this section. 

The term ‘‘client’’ includes, without 

limitation, any subscriber of a 

commodity trading advisor. 

(cc) Commodity pool operator. This 

term means any person engaged in a 

business which is of the nature of a 

commodity pool, investment trust, 

syndicate, or similar form of enterprise, 

and who, in connection therewith, 

solicits, accepts, or receives from others, 

funds, securities, or property, either 

directly or through capital 

contributions, the sale of stock or other 

forms of securities, or otherwise, for the 

purpose of trading in commodity 

interests, including any commodity for 

future delivery, security futures 

product, or swap; any agreement, 

contract or transaction described in 

section 2(c)(2)(C)(i) or section 

2(c)(2)(D)(i) of the Act; any commodity 

option authorized under section 4c of 

the Act; any leverage transaction 

authorized under section 19 of the Act; 

or any person who is registered with the 

Commission as a commodity pool 

operator, but does not include such 

persons not within the intent of this 

definition as the Commission may 

specify by rule or regulation or by order. 

* * * * * 

(ee) Self-regulatory organization. This 

term means a contract market (as 

defined in § 1.3(h)), a swap execution 

facility (as defined in § 1.3(kkk)), a 

derivatives clearing organization (as 

defined in section 1a(15) of the Act), or 

a registered futures association under 

section 17 of the Act. 

(ff) Designated self-regulatory 

organization. This term means: 

(1) Self-regulatory organization of 

which a futures commission merchant, 

an introducing broker, a leverage 

transaction merchant, a retail foreign 

exchange dealer, a swap dealer, or a 

major swap participant is a member; or 

(2) If a Commission registrant other 

than a leverage transaction merchant is 

a member of more than one selfregulatory organization and such 

registrant is the subject of an approved 

plan under § 1.52 of this part, then a 

self-regulatory organization delegated 

the responsibility by such a plan for 

monitoring and auditing such registrant 

for compliance with the minimum 

financial and related reporting 

requirements of the self-regulatory 

organizations of which the registrant is 

a member, and for receiving the 

financial reports necessitated by such 

minimum financial and related 

reporting requirements from such 

registrant; or 

(3) If a leverage transaction merchant 

is a member of more than one selfregulatory organization and such 

leverage transaction merchant is the 


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Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33085 

subject of an approved plan under 

§ 31.28 of this chapter, then a selfregulatory organization delegated the 

responsibility by such a plan for 

monitoring and auditing such leverage 

transaction merchant for compliance 

with the minimum financial, cover, 

segregation and sales practice, and 

related reporting requirements of the 

self-regulatory organizations of which 

the leverage transaction merchant is a 

member, and for receiving the reports 

necessitated by such minimum 

financial, cover, segregation and sales 

practice, and related reporting 

requirements from such leverage 

transaction merchant. 

(gg) Customer funds. This term means 

all money, securities, and property 

received by a futures commission 

merchant or by a clearing organization 

from, for, or on behalf of, customers: 

(1) To margin, guarantee, or secure 

contracts for future delivery or swaps 

(other than commodity options) on or 

subject to the rules of a contract market, 

swap execution facility, or derivatives 

clearing organization, as the case may 

be, and all money accruing to such 

customers as the result of such 

contracts; and 

(2) In connection with a commodity 

option transaction on or subject to the 

rules of a contract market, swap 

execution facility, or derivatives 

clearing organization, as the case may 

be: 

(i) To be used as a premium for the 

purchase of a commodity option 

transaction for a customer; 

(ii) As a premium payable to a 

customer; 

(iii) To guarantee or secure 

performance of a commodity option by 

a customer; or 

(iv) Representing accruals (including, 

for purchasers of a commodity option 

for which the full premium has been 

paid, the market value of such 

commodity option) to a customer. 

(3) Notwithstanding paragraphs 

(gg)(1) and (2) of this section, the term 

customer funds shall exclude money, 

securities or property held to margin, 

guarantee or secure security futures 

products held in a securities account, 

and all money accruing as the result of 

such security futures products. 

* * * * * 

(ii) Premium. This term means the 

amount agreed upon between the 

purchaser and seller, or their agents, for 

the purchase or sale of a commodity 

option. 

(jj) [Reserved] 

(kk) Strike price. This term means the 

price, per unit, at which a person may 

purchase or sell the commodity, swap or 

contract of sale of a commodity for 

future delivery that is the subject of a 

commodity option: Provided, That for 

purposes of § 1.17, the term strike price 

means the total price at which a person 

may purchase or sell the commodity, 

swap, or contract of sale of a commodity 

for future delivery that is the subject of 

a commodity option (i.e., price per unit 

times the number of units). 

* * * * * 

(mm) * * * 

(1) Any person who, for compensation 

or profit, whether direct or indirect, 

(i) Is engaged in soliciting or in 

accepting orders (other than in a clerical 

capacity) for the purchase or sale of any 

commodity for future delivery, security 

futures product, or swap; any 

agreement, contract or transaction 

described in section 2(c)(2)(C)(i) or 

section 2(c)(2)(D)(i) of the Act; any 

commodity option transaction 

authorized under section 4c; or any 

leverage transaction authorized under 

section 19; or who is registered with the 

Commission as an introducing broker; 

and 

(ii) Does not accept any money, 

securities, or property (or extend credit 

in lieu thereof) to margin, guarantee, or 

secure any trades or contracts that result 

or may result therefrom. 

(2) The term introducing broker shall 

not include: 

(i) Any futures commission merchant, 

floor broker, associated person, or 

associated person of a swap dealer or 

major swap participant acting in its 

capacity as such, regardless of whether 

that futures commission merchant, floor 

broker, or associated person is registered 

or exempt from registration in such 

capacity; 

* * * * * 

(nn) Guarantee agreement. This term 

means an agreement of guarantee in the 

form set forth in part B or C of Form 1– 

FR, executed by a registered futures 

commission merchant or retail foreign 

exchange dealer, as appropriate, and by 

an introducing broker or applicant for 

registration as an introducing broker on 

behalf of an introducing broker or 

applicant for registration as an 

introducing broker in satisfaction of the 

alternative adjusted net capital 

requirement set forth in § 1.17(a)(1)(iii). 

(oo) Leverage transaction merchant. 

This term means and includes any 

individual, association, partnership, 

corporation, trust or other person that is 

engaged in the business of offering to 

enter into, entering into or confirming 

the execution of leverage contracts, or 

soliciting or accepting orders for 

leverage contracts, and who accepts 

leverage customer funds (or extends 

credit in lieu thereof) in connection 

therewith. 

(pp) Leverage customer funds. This 

term means all money, securities and 

property received, directly or indirectly 

by a leverage transaction merchant from, 

for, or on behalf of leverage customers 

to margin, guarantee or secure leverage 

contracts and all money, securities and 

property accruing to such customers as 

the result of such contracts, or the 

customers’ leverage equity. In the case 

of a long leverage transaction, profit or 

loss accruing to a leverage customer is 

the difference between the leverage 

transaction merchant’s current bid price 

for the leverage contract and the ask 

price of the leverage contract when 

entered into. In the case of a short 

leverage transaction, profit or loss 

accruing to a leverage customer is the 

difference between the bid price of the 

leverage contract when entered into and 

the leverage transaction merchant’s 

current ask price for the leverage 

contract. 

* * * * * 

(rr) * * * 

(2) In the case of foreign options 

customers in connection with open 

foreign options transactions, money, 

securities and property representing 

premiums paid or received, plus any 

other funds required to guarantee or 

secure open transactions plus or minus 

any unrealized gain or loss on such 

transactions. 

(ss) Foreign board of trade. This term 

means any board of trade, exchange or 

market located outside the United 

States, its territories or possessions, 

whether incorporated or 

unincorporated, where foreign futures, 

foreign options, or foreign swaps are 

entered into. 

(tt) Electronic signature. This term 

means an electronic sound, symbol, or 

process attached to or logically 

associated with a record and executed 

or adopted by a person with the intent 

to sign the record. 

(uu) [Reserved] 

(vv) Futures account. This term 

means an account that is maintained in 

accordance with the segregation 

requirements of section 4d(a) of the Act 

and the rules thereunder. 

* * * * * 

(xx) Foreign broker. This term means 

any person located outside the United 

States, its territories or possessions who 

is engaged in soliciting or in accepting 

orders only from persons located 

outside the United States, its territories 

or possessions for the purchase or sale 

of any commodity interest transaction 

on or subject to the rules of any 

designated contract market or swap 


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execution facility and that, in or in 

connection with such solicitation or 

acceptance of orders, accepts any 

money, securities or property (or 

extends credit in lieu thereof) to margin, 

guarantee, or secure any trades or 

contracts that result or may result 

therefrom. 

(yy) Commodity interest. This term 

means: 

(1) Any contract for the purchase or 

sale of a commodity for future delivery; 

(2) Any contract, agreement or 

transaction subject to a Commission 

regulation under section 4c or 19 of the 

Act; 

(3) Any contract, agreement or 

transaction subject to Commission 

jurisdiction under section 2(c)(2) of the 

Act; and 

(4) Any swap as defined in the Act, 

the Commission’s regulations, a 

Commission order or interpretation, or a 

joint interpretation or order issued by 

the Commission and the Securities and 

Exchange Commission. 

(zz) Associated person of a swap 

dealer or major swap participant. This 

term means any person who is 

associated with a swap dealer or major 

swap participant as a partner, officer, 

employee, or agent (or any person 

occupying a similar status or performing 

similar functions), in any capacity that 

involves the solicitation or acceptance 

of swaps, or the supervision of any 

person or persons so engaged. Provided, 

however, That the term does not include 

any person associated with a swap 

dealer or major swap participant the 

functions of which are solely clerical or 

ministerial. 

(aaa) Confirmation. When used in 

reference to a futures commission 

merchant, introducing broker, or 

commodity trading advisor, this term 

means documentation (electronic or 

otherwise) that memorializes specified 

terms of a transaction executed on 

behalf of a customer. When used in 

reference to a swap dealer or major 

swap participant, this term means 

documentation (electronic or otherwise) 

that memorializes specified terms of a 

transaction executed opposite a 

counterparty. 

(bbb) Electronic trading facility. This 

term means a trading facility that— 

(1) Operates by means of an electronic 

or telecommunications network; and 

(2) Maintains an automated audit trail 

of bids, offers, and the matching of 

orders or the execution of transactions 

on the facility. 

(ccc) Order. This term means an 

instruction or authorization provided by 

a customer to a futures commission 

merchant, introducing broker or 

commodity trading advisor regarding 

trading in a commodity interest on 

behalf of the customer. 

(ddd) Organized exchange. This term 

means a trading facility that— 

(1) Permits trading— 

(i) By or on behalf of a person that is 

not an eligible contract participant; or 

(ii) By persons other than on a 

principal-to-principal basis; or 

(2) Has adopted (directly or through 

another nongovernmental entity) rules 

that— 

(i) Govern the conduct of participants, 

other than rules that govern the 

submission of orders or execution of 

transactions on the trading facility; and 

(ii) Include disciplinary sanctions 

other than the exclusion of participants 

from trading. 

(eee) Prudential regulator. This term 

has the meaning given to the term in 

section 1a(39) of the Commodity 

Exchange Act and includes the Board of 

Governors of the Federal Reserve 

System, the Office of the Comptroller of 

the Currency, the Federal Deposit 

Insurance Corporation, the Farm Credit 

Administration, and the Federal 

Housing Finance Agency, as applicable 

to the swap dealer or major swap 

participant. The term also includes the 

Federal Deposit Insurance Corporation, 

with respect to any financial company 

as defined in section 201 of the DoddFrank Wall Street Reform and Consumer 

Protection Act or any insured 

depository institution under the Federal 

Deposit Insurance Act, and with respect 

to each affiliate of any such company or 

institution. 

(fff) Registered entity. This term 

means: 

(1) A board of trade designated as a 

contract market under section 5 of the 

Act; 

(2) A derivatives clearing organization 

registered under section 5b of the Act; 

(3) A board of trade designated as a 

contract market under section 5f of the 

Act; 

(4) A swap execution facility 

registered under section 5h of the Act; 

(5) A swap data repository registered 

under section 21 of the Act; and 

(6) With respect to a contract that the 

Commission determines is a significant 

price discovery contract, any electronic 

trading facility on which the contract is 

executed or traded. 

(ggg) Registrant. This term means a 

commodity pool operator; commodity 

trading advisor; futures commission 

merchant; introducing broker; leverage 

transaction merchant; floor broker; floor 

trader; major swap participant; retail 

foreign exchange dealer; or swap dealer 

that is subject to these regulations; or an 

associated person of any of the foregoing 

other than an associated person of a 

swap dealer or major swap participant. 

(hhh) Retail forex customer. This term 

means a person, other than an eligible 

contract participant as defined in 

section 1a(18) of the Act, acting on its 

own behalf and trading in any account, 

agreement, contract or transaction 

described in section 2(c)(2)(B) or 

2(c)(2)(C) of the Act. 

(iii) Swap account. This term means 

an account that is maintained in 

accordance with the segregation 

requirements of section 4d(f) of the Act 

and the rules thereunder. 

(jjj) Swap data repository. This term 

means any person that collects and 

maintains information or records with 

respect to transactions or positions in, 

or the terms and conditions of, swaps 

entered into by third parties for the 

purpose of providing a centralized 

recordkeeping facility for swaps. 

(kkk) Swap execution facility. This 

term means a trading system or platform 

in which multiple participants have the 

ability to execute or trade swaps by 

accepting bids and offers made by 

multiple participants in the facility or 

system, through any means of interstate 

commerce, including any trading 

facility, that— 

(1) Facilitates the execution of swaps 

between persons; and 

(2) Is not a designated contract 

market. 

(lll) Trading facility. This term has the 

meaning set forth in section 1a(51) of 

the Act. 

3. Revise § 1.4 to read as follows: 

§ 1.4 Use of electronic signatures, 

acknowledgments and verifications. 

For purposes of complying with any 

provision in the Commodity Exchange 

Act or the rules or regulations in this 

Chapter I that requires a swap 

transaction to be acknowledged by a 

swap dealer or major swap participant 

or a document to be signed or verified 

by a customer of a futures commission 

merchant or introducing broker, a retail 

forex customer of a retail foreign 

exchange dealer or futures commission 

merchant, a pool participant or a client 

of a commodity trading advisor, or a 

counterparty of a swap dealer or major 

swap participant, an electronic 

signature executed by the customer, 

retail forex customer, participant, client, 

counterparty, swap dealer or major 

swap participant will be sufficient, if 

the futures commission merchant, retail 

foreign exchange dealer, introducing 

broker, commodity pool operator, 

commodity trading advisor, swap dealer 

or major swap participant elects 

generally to accept electronic signatures, 

acknowledgments or verifications or 

another Commission rule permits the 

use of electronic signatures for the 


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purposes listed above; Provided, 

however, That the electronic signature 

must comply with applicable Federal 

laws and other Commission rules; And, 

Provided further, That the futures 

commission merchant, retail foreign 

exchange dealer, introducing broker, 

commodity pool operator, commodity 

trading advisor, swap dealer or major 

swap participant must adopt and use 

reasonable safeguards regarding the use 

of electronic signatures, including at a 

minimum safeguards employed to 

prevent alteration of the electronic 

record with which the electronic 

signature is associated, after such record 

has been electronically signed. 

4. Remove and reserve paragraph 

(a)(1)(ii) of § 1.17 to read as follows: 

§ 1.17 Minimum financial requirements for 

futures commission merchants and 

introducing brokers. 

(a)(1)(i) * * * 

(ii) [Reserved] 

* * * * * 

5. Revise § 1.20 to read as follows: 

§ 1.20 Customer funds to be segregated 

and separately accounted for. 

(a) All customer funds shall be 

separately accounted for and segregated 

as belonging to customers. Such 

customer funds when deposited with 

any bank, trust company, clearing 

organization or another futures 

commission merchant shall be 

deposited under an account name 

which clearly identifies them as such 

and shows that they are segregated as 

required by the Act and this part. Each 

registrant shall obtain and retain in its 

files for the period provided in § 1.31 a 

written acknowledgment from such 

bank, trust company, clearing 

organization, or futures commission 

merchant, that it was informed that the 

customer funds deposited therein are 

those of customers and are being held in 

accordance with the provisions of the 

Act and this part: Provided however, 

that an acknowledgment need not be 

obtained from a clearing organization 

that has adopted and submitted to the 

Commission rules that provide for the 

segregation as customer funds, in 

accordance with all relevant provisions 

of the Act and the rules and orders 

promulgated thereunder, of all funds 

held on behalf of customers. Under no 

circumstances shall any portion of 

customer funds be obligated to a 

clearing organization, any member of a 

contract market, a futures commission 

merchant, or any depository except to 

purchase, margin, guarantee, secure, 

transfer, adjust or settle trades, contracts 

or commodity option transactions of 

customers. No person, including any 

clearing organization or any depository, 

that has received customer funds for 

deposit in a segregated account, as 

provided in this section, may hold, 

dispose of, or use any such funds as 

belonging to any person other than the 

customers of the futures commission 

merchant which deposited such funds. 

(b) All customer funds received by a 

clearing organization from a member of 

the clearing organization to purchase, 

margin, guarantee, secure or settle the 

trades, contracts or commodity options 

of the clearing member’s customers and 

all money accruing to such customers as 

the result of trades, contracts or 

commodity options so carried shall be 

separately accounted for and segregated 

as belonging to such customers, and a 

clearing organization shall not hold, use 

or dispose of such customer funds 

except as belonging to such customers. 

Such customer funds when deposited in 

a bank or trust company shall be 

deposited under an account name 

which clearly shows that they are the 

customer funds of the customers of 

clearing members, segregated as 

required by the Act and these 

regulations. The clearing organization 

shall obtain and retain in its files for the 

period provided by § 1.31 an 

acknowledgment from such bank or 

trust company that it was informed that 

the customer funds deposited therein 

are those of customers of its clearing 

members and are being held in 

accordance with the provisions of the 

Act and these regulations. 

(c) Each futures commission merchant 

shall treat and deal with the customer 

funds of a customer as belonging to such 

customer. All customer funds shall be 

separately accounted for, and shall not 

be commingled with the money, 

securities or property of a futures 

commission merchant or of any other 

person, or be used to secure or 

guarantee the trades, contracts or 

commodity options, or to secure or 

extend the credit, of any person other 

than the one for whom the same are 

held: Provided, however, That customer 

funds treated as belonging to the 

customers of a futures commission 

merchant may for convenience be 

commingled and deposited in the same 

account or accounts with any bank or 

trust company, with another person 

registered as a futures commission 

merchant, or with a clearing 

organization, and that such share 

thereof as in the normal course of 

business is necessary to purchase, 

margin, guarantee, secure, transfer, 

adjust, or settle the trades, contracts or 

commodity options of such customers 

or resulting market positions, with the 

clearing organization or with any other 

person registered as a futures 

commission merchant, may be 

withdrawn and applied to such 

purposes, including the payment of 

premiums to option grantors, 

commissions, brokerage, interest, taxes, 

storage and other fees and charges, 

lawfully accruing in connection with 

such trades, contracts or commodity 

options: Provided further, That 

customer funds may be invested in 

instruments described in § 1.25. 

6. Revise § 1.21 to read as follows: 

§ 1.21 Care of money and equities 

accruing to customers. 

All money received directly or 

indirectly by, and all money and 

equities accruing to, a futures 

commission merchant from any clearing 

organization or from any clearing 

member or from any member of a 

contract market incident to or resulting 

from any trade, contract or commodity 

option made by or through such futures 

commission merchant on behalf of any 

customer shall be considered as 

accruing to such customer within the 

meaning of the Act and these 

regulations. Such money and equities 

shall be treated and dealt with as 

belonging to such customer in 

accordance with the provisions of the 

Act and these regulations. Money and 

equities accruing in connection with 

customers’ open trades, contracts, or 

commodity options need not be 

separately credited to individual 

accounts but may be treated and dealt 

with as belonging undivided to all 

customers having open trades, contracts, 

or commodity option positions which if 

closed would result in a credit to such 

customers. 

7. Revise § 1.22 to read as follows: 

§ 1.22 Use of customer funds restricted. 

No futures commission merchant 

shall use, or permit the use of, the 

customer funds of one customer to 

purchase, margin, or settle the trades, 

contracts, or commodity options of, or 

to secure or extend the credit of, any 

person other than such customer. 

Customer funds shall not be used to 

carry trades or positions of the same 

customer other than in commodities or 

commodity options traded through the 

facilities of a contract market. 

8. Revise § 1.23 to read as follows: 

§ 1.23 Interest of futures commission 

merchant in segregated funds; additions 

and withdrawals. 

The provision in section 4d(a)(2) of 

the Act and the provision in § 1.20(c), 

which prohibit the commingling of 

customer funds with the funds of a 

futures commission merchant, shall not 

be construed to prevent a futures 


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commission merchant from having a 

residual financial interest in the 

customer funds, segregated as required 

by the Act and the rules in this part and 

set apart for the benefit of customers; 

nor shall such provisions be construed 

to prevent a futures commission 

merchant from adding to such 

segregated customer funds such amount 

or amounts of money, from its own 

funds or unencumbered securities from 

its own inventory, of the type set forth 

in § 1.25, as it may deem necessary to 

ensure any and all customers’ accounts 

from becoming undersegregated at any 

time. The books and records of a futures 

commission merchant shall at all times 

accurately reflect its interest in the 

segregated funds. A futures commission 

merchant may draw upon such 

segregated funds to its own order, to the 

extent of its actual interest therein, 

including the withdrawal of securities 

held in segregated safekeeping accounts 

held by a bank, trust company, contract 

market, clearing organization or other 

futures commission merchant. Such 

withdrawal shall not result in the funds 

of one customer being used to purchase, 

margin or carry the trades, contracts or 

commodity options, or extend the credit 

of any other customer or other person. 

9. Revise § 1.24 to read as follows: 

§ 1.24 Segregated funds; exclusions 

therefrom. 

Money held in a segregated account 

by a futures commission merchant shall 

not include: (a) Money invested in 

obligations or stocks of any clearing 

organization or in memberships in or 

obligations of any contract market; or 

(b) Money held by any clearing 

organization which it may use for any 

purpose other than to purchase, margin, 

guarantee, secure, transfer, adjust, or 

settle the contracts, trades, or 

commodity options of the customers of 

such futures commission merchant. 

10. Revise § 1.26 to read as follows: 

§ 1.26 Deposit of instruments purchased 

with customer funds. 

(a) Each futures commission merchant 

who invests customer funds in 

instruments described in § 1.25 shall 

separately account for such instruments 

and segregate such instruments as 

belonging to such customers. Such 

instruments, when deposited with a 

bank, trust company, clearing 

organization or another futures 

commission merchant, shall be 

deposited under an account name 

which clearly shows that they belong to 

customers and are segregated as 

required by the Act and this part. Each 

futures commission merchant upon 

opening such an account shall obtain 

and retain in its files an 

acknowledgment from such bank, trust 

company, clearing organization or other 

futures commission merchant that it 

was informed that the instruments 

belong to customers and are being held 

in accordance with the provisions of the 

Act and this part. Provided, however, 

that an acknowledgment need not be 

obtained from a clearing organization 

that has adopted and submitted to the 

Commission rules that provide for the 

segregation as customer funds, in 

accordance with all relevant provisions 

of the Act and the rules and orders 

promulgated thereunder, of all funds 

held on behalf of customers and all 

instruments purchased with customer 

funds. Such acknowledgment shall be 

retained in accordance with § 1.31. Such 

bank, trust company, clearing 

organization or other futures 

commission merchant shall allow 

inspection of such obligations at any 

reasonable time by representatives of 

the Commission. 

(b) Each clearing organization which 

invests money belonging or accruing to 

customers of its clearing members in 

instruments described in § 1.25 shall 

separately account for such instruments 

and segregate such instruments as 

belonging to such customers. Such 

instruments, when deposited with a 

bank or trust company, shall be 

deposited under an account name 

which will clearly show that they 

belong to customers and are segregated 

as required by the Act and this part. 

Each clearing organization upon 

opening such an account shall obtain 

and retain in its files a written 

acknowledgment from such bank or 

trust company that it was informed that 

the instruments belong to customers of 

clearing members and are being held in 

accordance with the provisions of the 

Act and this part. Such 

acknowledgment shall be retained in 

accordance with § 1.31. Such bank or 

trust company shall allow inspection of 

such instruments at any reasonable time 

by representatives of the Commission. 

11. Revise the introductory text of 

paragraph (a) in § 1.27 to read as 

follows: 

§ 1.27 Record of investments. 

(a) Each futures commission merchant 

which invests customer funds, and each 

derivatives clearing organization which 

invests customer funds of its clearing 

members’ customers, shall keep a record 

showing the following: 

* * * * * 

12. Revise § 1.30 to read as follows: 

§ 1.30 Loans by futures commission 

merchants; treatment of proceeds. 

Nothing in the regulations in this part 

shall prevent a futures commission 

merchant from lending its own funds to 

customers on securities and property 

pledged by such customers, or from 

repledging or selling such securities and 

property pursuant to specific written 

agreement with such customers. The 

proceeds of such loans used to 

purchase, margin, guarantee, or secure 

the trades, contracts, or commodity 

options of customers shall be treated 

and dealt with by a futures commission 

merchant as belonging to such 

customers, in accordance with and 

subject to the provisions of section 

4d(a)(2) of the Act and these regulations. 

13. Amend § 1.31 by revising 

paragraphs (a)(1), (a)(2), (b) introductory 

text, (b)(1)(ii)(D), (b)(2)(i), (b)(2)(ii), 

(b)(2)(iii), (b)(2)(v)(B), (b)(3)(i), 

(b)(3)(ii)(A), (b)(3)(ii)(C), (b)(3)(iii)(A), 

and (b)(4)(i), to read as follows: 

§ 1.31 Books and records; keeping and 

inspection. 

(a)(1) All books and records required 

to be kept by the Act or by these 

regulations shall be kept in their 

original form (for paper records) or 

native file format (for electronic records) 

for a period of five years from the date 

thereof and shall be readily accessible 

during the first 2 years of the 5-year 

period; Provided, however, That records 

of any swap or related cash or forward 

transaction shall be kept until the 

termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction and for a period of five 

years after such date. All such books 

and records shall be open to inspection 

by any representative of the 

Commission, the United States 

Department of Justice, any applicable 

prudential regulator as that term is 

defined in section 1a(39) of the Act, or, 

in connection with those security-based 

swap agreements described in section 

1a(47)(A)(v) of the Act, the United 

States Securities and Exchange 

Commission. For purposes of this 

section, native file format means an 

electronic file that exists in the format 

it was originally created. 

(2) Persons required to keep books 

and records by the Act or by these 

regulations shall produce such records 

in a form specified by any 

representative of the Commission. Such 

production shall be made, at the 

expense of the person required to keep 

the book or record, to a Commission 

representative upon the representative’s 

request. Instead of furnishing a copy, 

such person may provide the original 

book or record for reproduction, which 


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the representative may temporarily 

remove from such person’s premises for 

this purpose. All copies or originals 

shall be provided promptly. Upon 

request, the Commission representative 

shall issue a receipt provided by such 

person for any copy or original book or 

record received. At the request of the 

Commission representative, such person 

shall, upon the return thereof, issue a 

receipt for any copy or original book or 

record returned by the representative. 

(b) Except as provided in paragraph 

(d) of this section, books and records 

required to be kept by the Act or by 

these regulations may be stored on 

either ‘‘micrographic media’’ (as defined 

in paragraph (b)(1)(i) of this section) or 

‘‘electronic storage media’’ (as defined in 

paragraph (b)(1)(ii) of this section) for 

the required time period under the 

conditions set forth in this paragraph 

(b); Provided, however, For electronic 

records, such storage media must 

preserve the native file format of the 

electronic records as required by 

paragraph (a)(1) of this section. 

(1) * * * 

(ii) * * * 

(D) Permits the immediate 

downloading of indexes and records 

preserved on the electronic storage 

media onto paper, microfilm, microfiche 

or other medium acceptable under this 

paragraph (b) upon the request of 

representatives of the Commission, the 

Department of Justice, any applicable 

prudential regulator as that term is 

defined in section 1a(39) of the Act, or 

the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act. 

(2) * * * 

(i) Have available at all times, for 

examination by representatives of the 

Commission, the Department of Justice, 

any applicable prudential regulator as 

that term is defined in section 1a(39) of 

the Act, or the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act, facilities for immediate, easily 

readable projection or production of 

micrographic media or electronic 

storage media images; 

(ii) Be ready at all times to provide, 

and immediately provide at the expense 

of the person required to keep such 

records, any easily readable hard-copy 

image that representatives of the 

Commission, the Department of Justice, 

any applicable prudential regulator as 

that term is defined in section 1a(39) of 

the Act, or the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act, may request; 

(iii) Keep only Commission-required 

records on the individual medium 

employed (e.g., a disk or sheets of 

microfiche); 

* * * * * 

(v) * * * 

(B) The index is available at all times 

for immediate examination by 

representatives of the Commission, the 

Department of Justice, any applicable 

prudential regulator as that term is 

defined in section 1a(39) of the Act, or 

the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act; 

* * * * * 

(3) * * * 

(i) Be ready at all times to provide, 

and immediately provide at the expense 

of the person required to keep such 

records, copies of such records on such 

approved compatible data processing 

media as defined in § 15.00(d) of this 

chapter which any representative of the 

Commission, the Department of Justice, 

any applicable prudential regulator as 

that term is defined in section 1a(39) of 

the Act, or the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act, may request. Records must use a 

format and coding structure specified in 

the request. 

(ii) * * * 

(A) The results of such audit system 

are available at all times for immediate 

examination by representatives of the 

Commission, the Department of Justice, 

any applicable prudential regulator as 

that term is defined in section 1a(39) of 

the Act, or the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act; 

* * * * * 

(C) The written operational 

procedures and controls are available at 

all times for immediate examination by 

representatives of the Commission, the 

Department of Justice, any applicable 

prudential regulator as that term is 

defined in section 1a(39) of the Act, or 

the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act. 

(iii) * * * 

(A) Maintain, keep current, and make 

available at all times for immediate 

examination by representatives of the 

Commission, the Department of Justice, 

any applicable prudential regulator as 

that term is defined in section 1a(39) of 

the Act, or the Securities and Exchange 

Commission with respect to those 

security-based swap agreements 

described in section 1a(47)(A)(5) of the 

Act, all information necessary to access 

records and indexes maintained on the 

electronic storage media; or 

* * * * * 

(4) * * * 

(i) The Technical Consultant must file 

with the Commission an undertaking in 

a form acceptable to the Commission, 

signed by the Technical Consultant or a 

person duly authorized by the Technical 

Consultant. An acceptable undertaking 

must include the following provision 

with respect to the Electronic 

Recordkeeper:* * * 

With respect to any books and records 

maintained or preserved on behalf of the 

Electronic Recordkeeper, the undersigned 

hereby undertakes to furnish promptly to any 

representative of the United States 

Commodity Futures Trading Commission, 

the United States Department of Justice, any 

applicable prudential regulator as that term 

is defined in section 1a(39) of the Act, or the 

United States Securities and Exchange 

Commission with respect to those securitybased swap agreements described in section 

1a(47)(A)(5) of the Act (the ‘‘Representative’’), 

upon reasonable request, such information as 

is deemed necessary by the Representative to 

download information kept on the Electronic 

Recordkeeper’s electronic storage media to 

any medium acceptable under 17 CFR 1.31. 

The undersigned also undertakes to take 

reasonable steps to provide access to 

information contained on the Electronic 

Recordkeeper’s electronic storage media, 

including, as appropriate, arrangements for 

the downloading of any record required to be 

maintained under the Commodity Exchange 

Act or the rules, regulations, or orders of the 

United States Commodity Futures Trading 

Commission, in a format acceptable to the 

Representative. In the event the Electronic 

Recordkeeper fails to download a record into 

a readable format and after reasonable notice 

to the Electronic Recordkeeper, upon being 

provided with the appropriate electronic 

storage medium, the undersigned will 

undertake to do so, at no charge to the United 

States, as the Representative may request. 

* * * * * 

14. Revise paragraphs (a)(1) and (a)(2) 

of § 1.32 to read as follows: 

§ 1.32 Segregated account; daily 

computation and record. 

(a) * * * 

(1) The total amount of customer 

funds on deposit in segregated accounts 

on behalf of customers; 

(2) The amount of such customer 

funds required by the Act and these 

regulations to be on deposit in 

segregated accounts on behalf of such 

customers; and 

* * * * * 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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15. Amend § 1.33 by: 

a. Revising paragraph (a) introductory 

text, (a)(1) introductory text, (a)(1)(i), 

(a)(1)(ii), (a)(2) introductory text, and 

(a)(2)(v); 

b. Adding paragraph (a)(3); 

c. Revising paragraph (b) introductory 

text and paragraph (b)(1), redesignating 

paragraphs (b)(2) through (b)(4) as 

paragraphs (b)(3) through (b)(5), 

respectively, and adding paragraph 

(b)(2); 

d. Revising redesignated paragraph 

(b)(3) introductory text, and 

redesignated paragraphs (b)(3)(i), (b)(4), 

and (b)(5); and 

e. Revising paragraph (d) introductory 

text to read as follows: 

§ 1.33 Monthly and confirmation 

statements. 

(a) Monthly statements. Each futures 

commission merchant must promptly 

furnish in writing to each customer, and 

to each foreign futures and foreign 

options customer, as of the close of the 

last business day of each month or as of 

any regular monthly date selected, 

except for accounts in which there are 

neither open positions at the end of the 

statement period nor any changes to the 

account balance since the prior 

statement period, but in any event not 

less frequently than once every three 

months, a statement which clearly 

shows: 

(1) For each commodity futures and 

foreign futures position— 

(i) The open position with prices at 

which acquired; 

(ii) The net unrealized profits or 

losses in all open positions marked to 

the market; 

* * * * * 

(2) For each commodity option 

position and foreign option position— 

* * * * * 

(v) A detailed accounting of all 

financial charges and credits to such 

customer’s account(s) during the 

monthly reporting period, including all 

customer funds and funds on deposit 

with respect to foreign option 

transactions in accordance with § 30.7 

of this chapter received from or 

disbursed to such customer, premiums 

charged and received, and realized 

profits and losses. 

(3) For each swap position— 

(i) All swaps caused to be executed by 

the futures commission merchant for the 

customer; 

(ii) The net unrealized profits or 

losses in all swaps marked to the 

market; 

(iii) Any customer funds carried with 

the futures commission merchant; and 

(iv) A detailed accounting of all 

financial charges and credits to such 

customer accounts during the monthly 

reporting period, including all customer 

funds received from or disbursed to 

such customer and realized profits and 

losses. 

(b) Confirmation statement. Each 

futures commission merchant must, not 

later than the next business day after 

any commodity interest or commodity 

option transaction, including any 

foreign futures or foreign options 

transactions, furnish to each customer: 

(1) A written confirmation of each 

commodity futures transaction caused 

to be executed by it for the customer. 

(2) A written confirmation of each 

swap caused to be executed by it for the 

customer, containing at least the 

following information: 

(i) The unique swap identifier, as 

required by § 45.4(a) of this chapter, for 

each swap and date each swap was 

executed; 

(ii) The product name of each swap; 

(iii) The price at which the swap was 

executed; 

(iv) The date of maturity for each 

swap; and 

(v) If cleared, the derivatives clearing 

organization through which it is cleared. 

(3) A written confirmation of each 

commodity option transaction, 

containing at least the following 

information: 

(i) The customer’s account 

identification number; 

* * * * * 

(4) Upon the expiration or exercise of 

any commodity option, a written 

confirmation statement thereof, which 

statement shall include the date of such 

occurrence, a description of the option 

involved, and, in the case of exercise, 

the details of the futures or physical 

position which resulted therefrom 

including, if applicable, the final trading 

date of the contract for future delivery 

underlying the option. 

(5) Notwithstanding the provisions of 

paragraphs (b)(1) through (b)(4) of this 

section, a commodity interest 

transaction that is caused to be executed 

for a commodity pool need be 

confirmed only to the operator of the 

commodity pool. 

* * * * * 

(d) Controlled accounts. With respect 

to any account controlled by any person 

other than the customer for whom such 

account is carried, each futures 

commission merchant shall: 

* * * * * 

16. Revise § 1.34 to read as follows: 

§ 1.34 Monthly record, ‘‘point balance’’. 

(a) With respect to commodity futures 

transactions, each futures commission 

merchant shall prepare, and retain in 

accordance with the requirements of 

§ 1.31, a statement commonly known as 

a ‘‘point balance,’’ which accrues or 

brings to the official closing price, or 

settlement price fixed by the clearing 

organization, all open positions of 

customers as of the last business day of 

each month or of any regular monthly 

date selected: Provided, however, That a 

futures commission merchant who 

carries part or all of customers’ open 

positions with other futures commission 

merchants on an ‘‘instruct basis’’ will be 

deemed to have met the requirements of 

this section as to open positions so 

carried if a monthly statement is 

prepared which shows that the prices 

and amounts of such positions long and 

short in the customers’ accounts are in 

balance with those in the carrying 

futures commission merchants’ 

accounts, and such statements are 

retained in accordance with the 

requirements of § 1.31. 

(b) With respect to commodity option 

transactions, each futures commission 

merchant shall prepare, and retain in 

accordance with the requirements of 

§ 1.31, a listing in which all open 

commodity option positions carried for 

customers are marked to the market. 

Such listing shall be prepared as of the 

last business day of each month, or as 

of any regular monthly date selected, 

and shall be by put or by call, by 

underlying contract for future delivery 

(by delivery month) or underlying 

physical (by option expiration date), 

and by strike price. 

17. Section 1.35 is revised to read as 

follows: 

§ 1.35 Records of commodity interest and 

cash commodity transactions. 

(a) Futures commission merchants, 

retail foreign exchange dealers, 

introducing brokers, and members of 

designated contract markets or swap 

execution facilities. Each futures 

commission merchant, retail foreign 

exchange dealer, introducing broker, 

and member of a designated contract 

market or swap execution facility shall 

keep full, complete, and systematic 

records, which include all pertinent 

data and memoranda, of all transactions 

relating to its business of dealing in 

commodity interests and cash 

commodities. Each futures commission 

merchant, retail foreign exchange 

dealer, introducing broker, and member 

of a designated contract market or swap 

execution facility shall retain the 

required records in accordance with the 

requirements of § 1.31, and produce 

them for inspection and furnish true 

and correct information and reports as 

to the contents or the meaning thereof, 

when and as requested by an authorized 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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representative of the Commission or the 

United States Department of Justice. 

Included among such records shall be 

all orders (filled, unfilled, or canceled), 

trading cards, signature cards, street 

books, journals, ledgers, canceled 

checks, copies of confirmations, copies 

of statements of purchase and sale, and 

all other records, which have been 

prepared in the course of its business of 

dealing in commodity interests and cash 

commodities, and all oral and written 

communications provided or received 

concerning quotes, solicitations, bids, 

offers, instructions, trading, and prices, 

that lead to the execution of transactions 

in a commodity interest or cash 

commodity, whether communicated by 

telephone, voicemail, facsimile, instant 

messaging, chat rooms, electronic mail, 

mobile device or other digital or 

electronic media. Each transaction 

record shall be maintained as a separate 

electronic file identifiable by transaction 

and counterparty. Among such records 

each member of a designated contract 

market or swap execution facility must 

retain and produce for inspection are all 

documents on which trade information 

is originally recorded, whether or not 

such documents must be prepared 

pursuant to the rules or regulations of 

either the Commission, the designated 

contract market or the swap execution 

facility. For purposes of this section, 

such documents are referred to as 

‘‘original source documents.’’ 

(b) Futures commission merchants, 

retail foreign exchange dealers, 

introducing brokers, and members of 

designated contract markets and swap 

execution facilities: Recording of 

customers’ orders. (1) Each futures 

commission merchant, each retail 

foreign exchange dealer, each 

introducing broker, and each member of 

a designated contract market or swap 

execution facility receiving a customer’s 

order that cannot immediately be 

entered into a trade matching engine 

shall immediately upon receipt thereof 

prepare a written record of the order 

including the account identification, 

except as provided in paragraph (b)(5) of 

this section, and order number, and 

shall record thereon, by time stamp or 

other timing device, the date and time, 

to the nearest minute, the order is 

received, and in addition, for 

commodity option orders, the time, to 

the nearest minute, the order is 

transmitted for execution. 

(2)(i) Each member of a designated 

contract market who on the floor of such 

designated contract market receives a 

customer’s order which is not in the 

form of a written record including the 

account identification, order number, 

and the date and time, to the nearest 

minute, the order was transmitted or 

received on the floor of such designated 

contract market, shall immediately upon 

receipt thereof prepare a written record 

of the order in nonerasable ink, 

including the account identification, 

except as provided in paragraph (b)(5) of 

this section, and order number and shall 

record thereon, by time stamp or other 

timing device, the date and time, to the 

nearest minute, the order is received. 

(ii) Except as provided in paragraph 

(b)(3) of this section: 

(A) Each member of a designated 

contract market who on the floor of such 

designated contract market receives an 

order from another member present on 

the floor which is not in the form of a 

written record shall, immediately upon 

receipt of such order, prepare a written 

record of the order or obtain from the 

member who placed the order a written 

record of the order, in non-erasable ink, 

including the account identification and 

order number and shall record thereon, 

by time stamp or other timing device, 

the date and time, to the nearest minute, 

the order is received; or 

(B) When a member of a designated 

contract market present on the floor 

places an order, which is not in the form 

of a written record, for his own account 

or an account over which he has 

control, with another member of such 

designated contract market for 

execution: 

(1) The member placing such order 

immediately upon placement of the 

order shall record the order and time of 

placement to the nearest minute on a 

sequentially numbered trading card 

maintained in accordance with the 

requirements of paragraph (f) of this 

section; 

(2) The member receiving and 

executing such order immediately upon 

execution of the order shall record the 

time of execution to the nearest minute 

on a trading card or other record 

maintained pursuant to the 

requirements of paragraph (f) of this 

section; and 

(3) The member receiving and 

executing the order shall return such 

trading card or other record to the 

member placing the order. The member 

placing the order then must submit 

together both of the trading cards or 

other records documenting such trade to 

designated contract market personnel or 

the clearing member. 

(3)(i) The requirements of paragraph 

(b)(2)(ii) of this section will not apply if 

a designated contract market maintains 

in effect rules which provide for an 

exemption where: 

(A) A member of a designated contract 

market places with another member of 

such designated contract market an 

order that is part of a spread transaction; 

(B) The member placing the order 

personally executes one or more legs of 

the spread; and 

(C) The member receiving and 

executing such order immediately upon 

execution of the order records the time 

of execution to the nearest minute on 

his trading card or other record 

maintained in accordance with the 

requirements of paragraph (f) of this 

section. 

(4) Each member of a designated 

contract market reporting the execution 

from the floor of the designated contract 

market of a customer’s order or the 

order of another member of the 

designated contract market received in 

accordance with paragraphs (b)(2)(i) or 

(b)(2)(ii)(A) of this section, shall record 

on a written record of the order, 

including the account identification, 

except as provided in paragraph (b)(5) of 

this section, and order number, by time 

stamp or other timing device, the date 

and time to the nearest minute such 

report of execution is made. Each 

member of a designated contract market 

shall submit the written records of 

customer orders or orders from other 

designated contract market members to 

designated contract market personnel or 

to the clearing member responsible for 

the collection of orders prepared 

pursuant to this paragraph. The 

execution price and other information 

reported on the order tickets must be 

written in nonerasable ink. 

(5) Post-execution allocation of 

bunched orders. Specific customer 

account identifiers for accounts 

included in bunched orders executed on 

designated contract markets or swap 

execution facilities need not be recorded 

at time of order placement or upon 

report of execution if the requirements 

of paragraphs (b)(5)(i) through (v) of this 

section are met. Specific customer 

account identifiers for accounts 

included in bunched orders involving 

swaps need not be included in 

confirmations or acknowledgments 

provided by swap dealers or major swap 

participants pursuant to § 23.501(a) of 

this chapter if the requirements of 

paragraphs (b)(5)(i) through (v) of this 

section are met. 

(i) Eligible account managers for 

orders executed on designated contract 

markets or swap execution facilities. 

The person placing and directing the 

allocation of an order eligible for postexecution allocation must have been 

granted written investment discretion 

with regard to participating customer 

accounts. The following persons shall 

qualify as eligible account managers for 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
33092 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

trades executed on designated contract 

markets or swap execution facilities: 

(A) A commodity trading advisor 

registered with the Commission 

pursuant to the Act or excluded or 

exempt from registration under the Act 

or the Commission’s rules, except for 

entities exempt under § 4.14(a)(3) of this 

chapter; 

(B) An investment adviser registered 

with the Securities and Exchange 

Commission pursuant to the Investment 

Advisers Act of 1940 or with a state 

pursuant to applicable state law or 

excluded or exempt from registration 

under such Act or applicable state law 

or rule; 

(C) A bank, insurance company, trust 

company, or savings and loan 

association subject to federal or state 

regulation; 

(D) A foreign adviser that exercises 

discretionary trading authority solely 

over the accounts of non-U.S. persons, 

as defined in § 4.7(a)(1)(iv) of this 

chapter; 

(E) A futures commission merchant 

registered with the Commission 

pursuant to the Act; or 

(F) An introducing broker registered 

with the Commission pursuant to the 

Act. 

(ii) Eligible account managers for 

orders executed bilaterally. The person 

placing and directing the allocation of 

an order eligible for post-execution 

allocation must have been granted 

written investment discretion with 

regard to participating customer 

accounts. The following persons shall 

qualify as eligible account managers for 

trades executed bilaterally: 

(A) A commodity trading advisor 

registered with the Commission 

pursuant to the Act or excluded or 

exempt from registration under the Act 

or the Commission’s rules, except for 

entities exempt under § 4.14(a)(3) of this 

chapter; 

(B) A futures commission merchant 

registered with the Commission 

pursuant to the Act; or 

(C) An introducing broker registered 

with the Commission pursuant to the 

Act. 

(iii) Information. Eligible account 

managers shall make the following 

information available to customers upon 

request: 

(A) The general nature of the 

allocation methodology the account 

manager will use; 

(B) Whether accounts in which the 

account manager may have any interest 

may be included with customer 

accounts in bunched orders eligible for 

post-execution allocation; and 

(C) Summary or composite data 

sufficient for that customer to compare 

its results with those of other 

comparable customers and, if applicable 

and consistent with § 155.3(a)(1) and 

§ 155.4(a)(1) of this chapter, any account 

in which the account manager has an 

interest. 

(iv) Allocation. Orders eligible for 

post-execution allocation must be 

allocated by an eligible account manager 

in accordance with the following: 

(A) Allocations must be made as soon 

as practicable after the entire transaction 

is executed, but in any event no later 

than the following times: For cleared 

trades, account managers must provide 

allocation information to futures 

commission merchants no later than a 

time sufficiently before the end of the 

day the order is executed to ensure that 

clearing records identify the ultimate 

customer for each trade. For uncleared 

trades, account managers must provide 

allocation information to the 

counterparty no later than the end of the 

calendar day that the swap was 

executed. 

(B) Allocations must be fair and 

equitable. No account or group of 

accounts may receive consistently 

favorable or unfavorable treatment. 

(C) The allocation methodology must 

be sufficiently objective and specific to 

permit independent verification of the 

fairness of the allocations using that 

methodology by appropriate regulatory 

and self-regulatory authorities and by 

outside auditors. 

(v) Records. (A) Eligible account 

managers shall keep and must make 

available upon request of any 

representative of the Commission, the 

United States Department of Justice, or 

other appropriate regulatory agency, the 

information specified in paragraph 

(b)(5)(iii) of this section. 

(B) Eligible account managers shall 

keep and must make available upon 

request of any representative of the 

Commission, the United States 

Department of Justice, or other 

appropriate regulatory agency, records 

sufficient to demonstrate that all 

allocations meet the standards of 

paragraph (b)(5)(iv) of this section and 

to permit the reconstruction of the 

handling of the order from the time of 

placement by the account manager to 

the allocation to individual accounts. 

(C) Futures commission merchants, 

introducing brokers, or commodity 

trading advisors that execute orders or 

that carry accounts eligible for postexecution allocation, and members of 

designated contract markets or swap 

execution facilities that execute such 

orders, must maintain records that, as 

applicable, identify each order subject 

to post-execution allocation and the 

accounts to which contracts executed 

for such order are allocated. 

(D) In addition to any other remedies 

that may be available under the Act or 

otherwise, if the Commission has reason 

to believe that an account manager has 

failed to provide information requested 

pursuant to paragraph (b)(5)(v)(A) or 

(b)(5)(v)(B) of this section, the 

Commission may inform in writing any 

designated contract market, swap 

execution facility, swap dealer, or major 

swap participant, and that designated 

contract market, swap execution facility, 

swap dealer, or major swap participant 

shall prohibit the account manager from 

submitting orders for execution except 

for liquidation of open positions and no 

futures commission merchant shall 

accept orders for execution on any 

designated contract market, swap 

execution facility, or bilaterally from the 

account manager except for liquidation 

of open positions. 

(E) Any account manager that believes 

he or she is or may be adversely affected 

or aggrieved by action taken by the 

Commission under paragraph 

(b)(5)(v)(D) of this section shall have the 

opportunity for a prompt hearing in 

accordance with the provisions of 

§ 21.03(g) of this chapter. 

(c)(1) Futures commission merchants, 

introducing brokers, and members of 

designated contract markets and swap 

execution facilities. Upon request of the 

designated contract market or swap 

execution facility, the Commission, or 

the United States Department of Justice, 

each futures commission merchant, 

introducing broker, and member of a 

designated contract market or swap 

execution facility shall request from its 

customers and, upon receipt thereof, 

provide to the requesting body 

documentation of cash transactions 

underlying exchanges of futures or 

swaps for cash commodities or 

exchanges of futures or swaps in 

connection with cash commodity 

transactions. 

(2) Customers. Each customer of a 

futures commission merchant, 

introducing broker, or member of a 

designated contract market or swap 

execution facility shall create, retain, 

and produce upon request of the 

designated contract market or swap 

execution facility, the Commission, or 

the United States Department of Justice 

documentation of cash transactions 

underlying exchanges of futures or 

swaps for cash commodities or 

exchanges of futures or swaps in 

connection with cash commodity 

transactions. 

(3) Documentation. For the purposes 

of this paragraph, documentation means 

those documents customarily generated 


emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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in accordance with cash market 

practices which demonstrate the 

existence and nature of the underlying 

cash transactions, including, but not 

limited to, contracts, confirmation 

statements, telex printouts, invoices, 

and warehouse receipts or other 

documents of title. 

(d) Futures commission merchants, 

retail foreign exchange dealers, 

introducing brokers, and members of 

derivatives clearing organizations 

clearing trades executed on designated 

contract markets and swap execution 

facilities. Each futures commission 

merchant, each retail foreign exchange 

dealer, and each member of a 

derivatives clearing organization 

clearing trades executed on a designated 

contract market or swap execution 

facility and, for purposes of paragraph 

(d)(3) of this section, each introducing 

broker, shall, as a minimum 

requirement, prepare regularly and 

promptly, and keep systematically and 

in permanent form, the following: 

(1) A financial ledger record which 

will show separately for each customer 

all charges against and credits to such 

customer’s account, including but not 

limited to customer funds deposited, 

withdrawn, or transferred, and charges 

or credits resulting from losses or gains 

on closed transactions; 

(2) A record of transactions which 

will show separately for each account 

(including proprietary accounts): 

(i) All commodity futures transactions 

executed for such account, including 

the date, price, quantity, market, 

commodity and future; 

(ii) All retail forex transactions 

executed for such account, including 

the date, price, quantity, and currency; 

(iii) All commodity option 

transactions executed for such account, 

including the date, whether the 

transaction involved a put or call, 

expiration date, quantity, underlying 

contract for future delivery or 

underlying physical, strike price, and 

details of the purchase price of the 

option, including premium, mark-up, 

commission and fees; and 

(iv) All swap transactions executed 

for such account, including the date, 

price, quantity, market, commodity, 

swap, and, if cleared, the derivatives 

clearing organization; and 

(3) A record or journal which will 

separately show for each business day 

complete details of: 

(i) All commodity futures transactions 

executed on that day, including the 

date, price, quantity, market, 

commodity, future and the person for 

whom such transaction was made; 

(ii) All retail forex transactions 

executed on that day for such account, 

including the date, price, quantity, 

currency and the person who whom 

such transaction was made; 

(iii) All commodity option 

transactions executed on that day, 

including the date, whether the 

transaction involved a put or call, the 

expiration date, quantity, underlying 

contract for future delivery or 

underlying physical, strike price, details 

of the purchase price of the option, 

including premium, mark-up, 

commission and fees, and the person for 

whom the transaction was made; 

(iv) All swap transactions executed on 

that day, including the date, price, 

quantity, market, commodity, swap, the 

person for whom such transaction was 

made, and, if cleared, the derivatives 

clearing organization; and 

(v) In the case of an introducing 

broker, the record or journal required by 

this paragraph (d)(3) shall also include 

the futures commission merchant or 

retail foreign exchange dealer carrying 

the account for which each commodity 

futures, retail forex, commodity option, 

and swap transaction was executed on 

that day. Provided, however, that where 

reproductions on microfilm, microfiche 

or optical disk are substituted for hard 

copy in accordance with the provisions 

of § 1.31(b) of this part, the requirements 

of paragraphs (d)(1) and (d)(2) of this 

section will be considered met if the 

person required to keep such records is 

ready at all times to provide, and 

immediately provides in the same city 

as that in which such person’s 

commodity futures, retail forex, 

commodity option, or swap books and 

records are maintained, at the expense 

of such person, reproduced copies 

which show the records as specified in 

paragraphs (b)(1) and (b)(2) of this 

section, on request of any 

representatives of the Commission or 

the U.S. Department of Justice. 

(e) Members of derivatives clearing 

organizations clearing trades executed 

on designated contract markets and 

swap execution facilities. In the daily 

record or journal required to be kept 

under paragraph (d)(3) of this section, 

each member of a derivatives clearing 

organization clearing trades executed on 

a designated contract market or swap 

execution facility shall also show the 

floor broker or floor trader executing 

each transaction, the opposite floor 

broker or floor trader, and the opposite 

clearing member with whom it was 

made. 

(f) Members of designated contract 

markets. (1) Each member of a 

designated contract market who, in the 

place provided by the designated 

contract market for the meeting of 

persons similarly engaged, executes 

purchases or sales of any commodity for 

future delivery, commodity option, or 

swap on or subject to the rules of such 

designated contract market, shall 

prepare regularly and promptly a 

trading card or other record showing 

such purchases and sales. Such trading 

card or record shall show the member’s 

name, the name of the clearing member, 

transaction date, time, quantity, and, as 

applicable, underlying commodity, 

contract for future delivery, swap or 

physical, price or premium, delivery 

month or expiration date, whether the 

transaction involved a put or a call, and 

strike price. Such trading card or other 

record shall also clearly identify the 

opposite floor broker or floor trader with 

whom the transaction was executed, 

and the opposite clearing member (if 

such opposite clearing member is made 

known to the member). 

(2) Each member of a designated 

contract market recording purchases 

and sales on trading cards must record 

such purchases and sales in exact 

chronological order of execution on 

sequential lines of the trading card 

without skipping lines between trades; 

Provided, however, That if lines remain 

after the last execution recorded on a 

trading card, the remaining lines must 

be marked through. 

(3) Each member of a designated 

contract market must identify on his or 

her trading cards the purchases and 

sales executed during the opening and 

closing periods designated by the 

designated contract market. 

(4) Trading cards prepared by a 

member of a designated contract market 

must contain: 

(i) Pre-printed member identification 

or other unique identifying information 

which would permit the trading cards of 

one member to be distinguished from 

those of all other members; 

(ii) Pre-printed sequence numbers to 

permit the intra-day sequencing of the 

cards; and 

(iii) Unique and pre-printed 

identifying information which would 

distinguish each of the trading cards 

prepared by the member from other 

such trading cards for no less than a 

one-week period. 

(5) Trading cards prepared by a 

member of a designated contract market 

and submitted pursuant to paragraph 

(f)(7)(i) of this section must be timestamped promptly to the nearest minute 

upon collection by either the designated 

contract market or the relevant clearing 

member. 

(6) Each member of a designated 

contract market shall be accountable for 

all trading cards prepared in exact 

numerical sequence, whether or not 


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such trading cards are relied on as 

original source documents. 

(7) Trading records prepared by a 

member of a designated contract market 

must: 

(i) Be submitted to designated 

contract market personnel or the 

clearing member within 15 minutes of 

designated intervals not to exceed 30 

minutes, commencing with the 

beginning of each trading session. The 

time period for submission of trading 

records after the close of trading in each 

market shall not exceed 15 minutes 

from the close. Such documents should 

nevertheless be submitted as often as is 

practicable to the designated contract 

market or relevant clearing member; and 

(ii) Be completed in non-erasable ink. 

A member may correct any errors by 

crossing out erroneous information 

without obliterating or otherwise 

making illegible any of the originally 

recorded information. With regard to 

trading cards only, a member may 

correct erroneous information by 

rewriting the trading card; Provided, 

however, that the member must submit 

a ply of the trading card, or in the 

absence of plies the original trading 

card, that is subsequently rewritten in 

accordance with the collection schedule 

for trading cards and provided further, 

that the member is accountable for any 

trading card that subsequently is 

rewritten pursuant to paragraph (f)(6) of 

this section. 

(8) Each member of a designated 

contract market must use a new trading 

card at the beginning of each designated 

30-minute interval (or such lesser 

interval as may be determined 

appropriate) or as may be required 

pursuant hereto. 

(g) Members of derivatives clearing 

organizations clearing trades executed 

on designated contract markets and 

swap execution facilities. (1) Each 

member of a derivatives clearing 

organization clearing trades executed on 

a designated contract market or swap 

execution facility shall maintain a single 

record which shall show for each 

futures, option or swap trade: the 

transaction date, time, quantity, and, as 

applicable, underlying commodity, 

contract for future delivery, swap or 

physical, price or premium, delivery 

month or expiration date, whether the 

transaction involved a put or a call, 

strike price, floor broker or floor trader 

buying, clearing member buying, floor 

broker or floor trader selling, clearing 

member selling, and symbols indicating 

the buying and selling customer types. 

The customer type indicator shall show, 

with respect to each person executing 

the trade, whether such person: 

(i) Was trading for his or her own 

account, or an account for which he or 

she has discretion; 

(ii) Was trading for his or her clearing 

member’s house account; 

(iii) Was trading for another member 

present on the exchange floor, or an 

account controlled by such other 

member; or 

(iv) Was trading for any other type of 

customer. 

(2) The record required by this 

paragraph (g) shall also show, by 

appropriate and uniform symbols, any 

transaction which is made noncompetitively in accordance with the 

provisions of subpart J of part 38 of this 

chapter, and trades cleared on dates 

other than the date of execution. Except 

as otherwise approved by the 

Commission for good cause shown, the 

record required by this paragraph (g) 

shall be maintained in a format and 

coding structure approved by the 

Commission— 

(i) In hard copy or on microfilm as 

specified in § 1.31, and 

(ii) For 60 days in computer-readable 

form on compatible magnetic tapes or 

discs. 

18. Revise § 1.36 to read as follows: 

§ 1.36 Record of securities and property 

received from customers. 

(a) Each futures commission merchant 

and each retail foreign exchange dealer 

shall maintain, as provided in § 1.31, a 

record of all securities and property 

received from customers or retail forex 

customers in lieu of money to margin, 

purchase, guarantee, or secure the 

commodity interests of such customers 

or retail forex customers. Such record 

shall show separately for each customer 

or retail forex customer: A description 

of the securities or property received; 

the name and address of such customer 

or retail forex customer; the dates when 

the securities or property were received; 

the identity of the depositories or other 

places where such securities or property 

are segregated or held; the dates of 

deposits and withdrawals from such 

depositories; and the dates of return of 

such securities or property to such 

customer or retail forex customer, or 

other disposition thereof, together with 

the facts and circumstances of such 

other disposition. In the event any 

futures commission merchant deposits 

with a clearing organization, directly or 

with a bank or trust company acting as 

custodian for such clearing 

organization, securities and/or property 

which belong to a particular customer, 

such futures commission merchant shall 

obtain written acknowledgment from 

such clearing organization that it was 

informed that such securities or 

property belong to customers of the 

futures commission merchant making 

the deposit. Such acknowledgment shall 

be retained as provided in § 1.31. 

(b) Each clearing organization which 

receives from members securities or 

property belonging to particular 

customers of such members in lieu of 

money to margin, purchase, guarantee, 

or secure the commodity interests of 

such customers, or receives notice that 

any such securities or property have 

been received by a bank or trust 

company acting as custodian for such 

clearing organization, shall maintain, as 

provided in § 1.31, a record which will 

show separately for each member, the 

dates when such securities or property 

were received, the identity of the 

depositories or other places where such 

securities or property are segregated, the 

dates such securities or property were 

returned to the member, or otherwise 

disposed of, together with the facts and 

circumstances of such other disposition 

including the authorization therefor. 

19. Revise § 1.37 to read as follows: 

§ 1.37 Customer’s name, address, and 

occupation recorded; record of guarantor 

or controller of account. 

(a) Each futures commission 

merchant, retail foreign exchange 

dealer, introducing broker, and member 

of a contract market shall keep a record 

in permanent form which shall show for 

each commodity interest account 

carried or introduced by it the true 

name and address of the person for 

whom such account is carried or 

introduced and the principal occupation 

or business of such person as well as the 

name of any other person guaranteeing 

such account or exercising any trading 

control with respect to such account. 

For each such commodity option 

account, the records kept by such 

futures commission merchant, 

introducing broker, and member of a 

contract market must also show the 

name of the person who has solicited 

and is responsible for each customer’s 

account or assign account numbers in 

such a manner to identify that person. 

(b) As of the close of the market each 

day, each futures commission merchant 

which carries an account for another 

futures commission merchant, foreign 

broker (as defined in § 15.00 of this 

chapter), member of a contract market, 

or other person, on an omnibus basis 

shall maintain a daily record for each 

such omnibus account of the total open 

long contracts and the total open short 

contracts in each future and in each 

swap and, for commodity option 

transactions, the total open put options 

purchased, the total open put options 

granted, the total open call options 


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purchased, and the total open call 

options granted for each commodity 

option expiration date. 

(c) Each designated contract market 

and swap execution facility shall keep 

a record in permanent form, which shall 

show the true name, address, and 

principal occupation or business of any 

foreign trader executing transactions on 

the facility or exchange. In addition, 

upon request, a designated contract 

market or swap execution facility shall 

provide to the Commission information 

regarding the name of any person 

guaranteeing such transactions or 

exercising any control over the trading 

of such foreign trader. 

(d) Paragraph (c) of this section shall 

not apply to a designated contract 

market or swap execution facility on 

which transactions in futures, swaps or 

options (other than swaps) contracts of 

foreign traders are executed through, or 

the resulting transactions are 

maintained in, accounts carried by a 

registered futures commission merchant 

or introduced by a registered 

introducing broker subject to the 

provisions of paragraph (a) of this 

section. 

20. Amend § 1.39 by revising 

paragraph (a) introductory text, (a)(1)(ii), 

(a)(2), (a)(3), (a)(4), (b) introductory text, 

(b)(2), and (c), to read as follows: 

§ 1.39 Simultaneous buying and selling 

orders of different principals; execution of, 

for and between principals. 

(a) Conditions and requirements. A 

member of a contract market or a swap 

execution facility who shall have at the 

same time both buying and selling 

orders of different principals for the 

same swap, commodity for future 

delivery in the same delivery month or 

the same option (both puts or both calls, 

with the same underlying contract for 

future delivery or the same underlying 

physical, expiration date and strike 

price) may execute such orders for and 

directly between such principals at the 

market price, if in conformity with 

written rules of such contract market or 

swap execution facility which have 

been approved by or self-certified to the 

Commission, and: 

(1) * * * 

(ii) When in non-pit trading in swaps 

or contracts of sale for future delivery, 

bids and offers are posted on a board, 

such member: 

(A) Pursuant to such buying order 

posts a bid on the board and, incident 

to the execution of such selling order, 

accepts such bid and all other bids 

posted at prices equal to or higher than 

the bid posted by him, or 

(B) Pursuant to such selling order 

posts an offer on the board and, incident 

to the execution of such buying order, 

accepts such offer and all other offers 

posted at prices equal to or lower than 

the offer posted by him; 

(2) Such member executes such orders 

in the presence of an official 

representative of such contract market 

designated to observe such transactions 

or on a system or platform accessible by 

an official representative of such swap 

execution facility and, by appropriate 

descriptive words or symbol, clearly 

identifies all such transactions on his 

trading card or other record, made at the 

time of execution, and notes thereon the 

exact time of execution and promptly 

presents or makes available said record 

to such official representative for 

verification and initialing, as 

appropriate; 

(3) Such swap execution facility or 

contract market keeps a record in 

permanent form of each such 

transaction showing all transaction 

details required to be captured by the 

Act, Commission rule or regulation; and 

(4) Neither the futures commission 

merchant, other registrant receiving nor 

the member executing such orders has 

any interest therein, directly or 

indirectly, except as a fiduciary. 

(b) Large order execution procedures. 

A member of a contract market or a 

swap execution facility may execute 

simultaneous buying and selling orders 

of different principals directly between 

the principals in compliance with 

Commission regulations and large order 

execution procedures established by 

written rules of the contract market or 

swap execution facility that have been 

approved by or self-certified to the 

Commission: Provided, That, to the 

extent such large order execution 

procedures do not meet the conditions 

and requirements of paragraph (a) of 

this section, the contract market or swap 

execution facility has petitioned the 

Commission for, and the Commission 

has granted, an exemption from the 

conditions and requirements of 

paragraph (a) of this section. Any such 

petition must be accompanied by 

proposed contract market or swap 

execution facility rules to implement 

the large order execution procedures. 

The petition shall include: 

* * * * * 

(2) A description of a special 

surveillance program that would be 

followed by the contract market or swap 

execution facility in monitoring the 

large order execution procedures. 

* * * * * 

(c) Not deemed filling orders by offset. 

The execution of orders in compliance 

with the conditions herein set forth will 

not be deemed to constitute the filling 

of orders by offset within the meaning 

of section 4b(a) of the Act. 

21. Revise § 1.40 to read as follows: 

§ 1.40 Crop, market information letters, 

reports; copies required. 

Each futures commission merchant, 

each retail foreign exchange dealer, each 

introducing broker, each member of a 

contract market and each eligible 

contract participant with trading 

privileges on a swap execution facility 

shall, upon request, furnish or cause to 

be furnished to the Commission a true 

copy of any letter, circular, 

telecommunication, or report published 

or given general circulation by such 

futures commission merchant, retail 

foreign exchange dealer, introducing 

broker, member or eligible contract 

participant which concerns crop or 

market information or conditions that 

affect or tend to affect the price of any 

commodity, including any exchange 

rate, and the true source of or authority 

for the information contained therein. 

§ 1.44 [Removed and Reserved] 

22. Remove and reserve § 1.44. 

23. Amend § 1.46 by revising 

paragraph (a)(1) introductory text and 

paragraphs (a)(1)(iii), (a)(1)(iv), 

(a)(2)(iii), (a)(2)(iv), and (b), to read as 

follows: 

§ 1.46 Application and closing out of 

offsetting long and short positions. 

(a) Application of purchases and 

sales. (1) Except with respect to 

purchases or sales which are for 

omnibus accounts, or where the 

customer or account controller has 

instructed otherwise, any futures 

commission merchant who, on or 

subject to the rules of a designated 

contract market: 

* * * * * 

(iii) Purchases a put or call option for 

the account of any customer when the 

account of such customer at the time of 

such purchase has a short put or call 

option position with the same 

underlying futures contract or same 

underlying physical, strike price, 

expiration date and contract market as 

that purchased; or 

(iv) Sells a put or call option for the 

account of any customer when the 

account of such customer at the time of 

such sale has a long put or call option 

position with the same underlying 

futures contract or same underlying 

physical, strike price, expiration date 

and contract market as that sold—shall 

on the same day apply such purchase or 

sale against such previously held short 

or long futures or option position, as the 

case may be, and shall, for futures 

transactions, promptly furnish such 


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33096 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

customer a statement showing the 

financial result of the transactions 

involved and, if applicable, that the 

account was introduced to the futures 

commission merchant by an introducing 

broker and the names of the futures 

commission merchant and introducing 

broker. 

(2) * * * 

(iii) Purchases a put or call option 

involving foreign currency for the 

account of any customer when the 

account of such customer at the time of 

such purchase has a short put or call 

option position with the same 

underlying currency, strike price, and 

expiration date as that purchased; or 

(iv) Sells a put or call option 

involving foreign currency for the 

account of any customer when the 

account of such customer at the time of 

such sale has a long put or call option 

position with the same underlying 

currency, strike price, and expiration 

date as that sold—shall immediately 

apply such purchase or sale against 

such previously held opposite 

transaction, and shall promptly furnish 

such retail forex customer a statement 

showing the financial result of the 

transactions involved and, if applicable, 

that the account was introduced to the 

futures commission merchant or retail 

foreign exchange dealer by an 

introducing broker and the names of the 

futures commission merchant or retail 

foreign exchange dealer, and the 

introducing broker. 

(b) Close-out against oldest open 

position. In all instances wherein the 

short or long futures, retail forex 

transaction or option position in such 

customer’s or retail forex customer’s 

account immediately prior to such 

offsetting purchase or sale is greater 

than the quantity purchased or sold, the 

futures commission merchant or retail 

foreign exchange dealer shall apply 

such offsetting purchase or sale to the 

oldest portion of the previously held 

short or long position: Provided, That 

upon specific instructions from the 

customer the offsetting transaction shall 

be applied as specified by the customer 

without regard to the date of acquisition 

of the previously held position; and 

Provided, further, That a futures 

commission merchant or retail foreign 

exchange dealer, if permitted by the 

rules of a registered futures association, 

may offset, at the customer’s request, 

retail forex transactions of the same size, 

even if the customer holds other 

transactions of a different size, but in 

each case must offset the transaction 

against the oldest transaction of the 

same size. Such instructions may also 

be accepted from any person who, by 

power of attorney or otherwise, actually 

directs trading in the customer’s or 

retail forex customer’s account unless 

the person directing the trading is the 

futures commission merchant or retail 

foreign exchange dealer (including any 

partner thereof), or is an officer, 

employee, or agent of the futures 

commission merchant or retail foreign 

exchange dealer. With respect to every 

such offsetting transaction that, in 

accordance with such specific 

instructions, is not applied to the oldest 

portion of the previously held position, 

the futures commission merchant or 

retail foreign exchange dealer shall 

clearly show on the statement issued to 

the customer or retail forex customer in 

connection with the transaction, that 

because of the specific instructions 

given by or on behalf of the customer or 

retail forex customer the transaction was 

not applied in the usual manner, i.e., 

against the oldest portion of the 

previously held position. However, no 

such showing need be made if the 

futures commission merchant or retail 

foreign exchange dealer has received 

such specific instructions in writing 

from the customer or retail forex 

customer for whom such account is 

carried. 

* * * * * 

24. Revise paragraph (b)(1)(iii) of 

§ 1.49 to read as follows: 

§ 1.49 Denomination of customer funds 

and location of depositories. 

* * * * * 

(b) * * * (1) * * * 

(iii) In a currency in which funds 

have accrued to the customer as a result 

of trading conducted on a designated 

contract market, to the extent of such 

accruals. 

* * * * * 

§ 1.53 [Removed and Reserved] 

25. Remove and reserve § 1.53. 

26. Amend § 1.57 by revising 

paragraph (a)(1), (a)(2) introductory text, 

(a)(2)(ii), (c) introductory text, (c)(2), 

(c)(4)(i), and (c)(4)(iv), to read as 

follows: 

§ 1.57 Operations and activities of 

introducing brokers. 

(a) * * * 

(1) Open and carry each customer’s 

account with a carrying futures 

commission merchant on a fullydisclosed basis: Provided, however, That 

an introducing broker which has 

entered into a guarantee agreement with 

a futures commission merchant in 

accordance with the provisions of 

§ 1.10(j) of this part must open and carry 

such customer’s account with such 

guarantor futures commission merchant 

on a fully-disclosed basis; and 

(2) Transmit promptly for execution 

all customer orders to: 

* * * * * 

(ii) A floor broker, if the introducing 

broker identifies its carrying futures 

commission merchant and that carrying 

futures commission merchant is also the 

clearing member with respect to the 

customer’s order. 

* * * * * 

(c) An introducing broker may not 

accept any money, securities or property 

(or extend credit in lieu thereof) to 

margin, guarantee or secure any trades 

or contracts of customers, or any money, 

securities or property accruing as a 

result of such trades or contracts: 

Provided, however, That an 

introducing broker may deposit a check 

in a qualifying account or forward a 

check drawn by a customer if: 

* * * * * 

(2) The check is payable to the futures 

commission merchant carrying the 

customer’s account; 

* * * * * 

(4) * * * 

(i) Which is maintained in an account 

name which clearly identifies the funds 

therein as belonging to customers of the 

futures commission merchant carrying 

the customer’s account; 

* * * * * 

(iv) For which the bank or trust 

company provides the futures 

commission merchant carrying the 

customer’s account with a written 

acknowledgment, which the futures 

commission merchant must retain in its 

files in accordance with § 1.31, that it 

was informed that the funds deposited 

therein are those of customers and are 

being held in accordance with the 

provisions of the Act and these 

regulations. 

27. Amend § 1.59 by revising 

paragraphs (a)(4)(i), (a)(5), (a)(7), (a)(8), 

(a)(9) introductory text, (a)(10), (b)(1) 

introductory text, (b)(1)(i)(A), 

(b)(1)(i)(C), and (c), to read as follows: 

§ 1.59 Activities of self-regulatory 

organization employees, governing board 

members, committee members and 

consultants. 

(a) * * * 

(4) * * * 

(i) Any governing board member 

compensated by a self-regulatory 

organization solely for governing board 

activities; or 

* * * * * 

(5) Material information means 

information which, if such information 

were publicly known, would be 

considered important by a reasonable 

person in deciding whether to trade a 

particular commodity interest on a 


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contract market or a swap execution 

facility, or to clear a swap contract 

through a derivatives clearing 

organization. As used in this section, 

‘‘material information’’ includes, but is 

not limited to, information relating to 

present or anticipated cash positions, 

commodity interests, trading strategies, 

the financial condition of members of 

self-regulatory organizations or 

members of linked exchanges or their 

customers, or the regulatory actions or 

proposed regulatory actions of a selfregulatory organization or a linked 

exchange. 

* * * * * 

(7) Linked exchange means: 

(i) Any board of trade, exchange or 

market outside the United States, its 

territories or possessions, which has an 

agreement with a contract market or 

swap execution facility in the United 

States that permits positions in a 

commodity interest which have been 

established on one of the two markets to 

be liquidated on the other market; 

(ii) Any board of trade, exchange or 

market outside the United States, its 

territories or possessions, the products 

of which are listed on a United States 

contract market, swap execution facility, 

or a trading facility thereof; 

(iii) Any securities exchange, the 

products of which are held as margin in 

a commodity account or cleared by a 

securities clearing organization 

pursuant to a cross-margining 

arrangement with a futures clearing 

organization; or 

(iv) Any clearing organization which 

clears the products of any of the 

foregoing markets. 

(8) Commodity interest means any 

commodity futures, commodity option 

or swap contract traded on or subject to 

the rules of a contract market, a swap 

execution facility or linked exchange, or 

cleared by a derivatives clearing 

organization, or cash commodities 

traded on or subject to the rules of a 

board of trade which has been 

designated as a contract market. 

(9) Related commodity interest means 

any commodity interest which is traded 

on or subject to the rules of a contract 

market, swap execution facility, linked 

exchange, or other board of trade, 

exchange, or market, or cleared by a 

derivatives clearing organization, other 

than the self-regulatory organization by 

which a person is employed, and with 

respect to which: 

* * * * * 

(10) Pooled investment vehicle means 

a trading vehicle organized and 

operated as a commodity pool within 

the meaning of § 4.10(d) of this chapter, 

and whose units of participation have 

been registered under the Securities Act 

of 1933, or a trading vehicle for which 

§ 4.5 of this chapter makes available 

relief from regulation as a commodity 

pool operator, i.e., registered investment 

companies, insurance company separate 

accounts, bank trust funds, and certain 

pension plans. 

(b) Employees of self-regulatory 

organizations; Self-regulatory 

organization rules. (1) Each selfregulatory organization must maintain 

in effect rules which have been 

submitted to the Commission pursuant 

to section 5c(c) of the Act and part 40 

of this chapter (or, pursuant to section 

17(j) of the Act in the case of a 

registered futures association) that, at a 

minimum, prohibit: 

(i) * * * 

(A) Trading, directly or indirectly, in 

any commodity interest traded on or 

cleared by the employing contract 

market, swap execution facility, or 

clearing organization; 

* * * * * 

(C) Trading, directly or indirectly, in 

a commodity interest traded on contract 

markets or swap execution facilities or 

cleared by derivatives clearing 

organizations other than the employing 

self-regulatory organization if the 

employee has access to material, nonpublic information concerning such 

commodity interest; 

* * * * * 

(c) Governing board members, 

committee members, and consultants; 

Registered futures association rules. 

Each registered futures association must 

maintain in effect rules which have 

been submitted to the Commission 

pursuant to section 17(j) of the Act 

which provide that no governing board 

member, committee member, or 

consultant shall use or disclose —for 

any purpose other than the performance 

of official duties as a governing board 

member, committee member, or 

consultant—material, non-public 

information obtained as a result of the 

performance of such person’s official 

duties. 

* * * * * 

§ 1.62 [Removed and Reserved] 

28. Remove and reserve § 1.62. 

29. Amend § 1.63 by revising 

paragraph (a)(1), (b) introductory text 

and (d) to read as follows: 

§ 1.63 Service on self-regulatory 

organization governing boards or 

committees by persons with disciplinary 

histories. 

(a) * * * 

(1) Self-regulatory organization means 

a ‘‘self-regulatory organization’’ as 

defined in § 1.3(ee) of this chapter, and 

includes a ‘‘clearing organization’’ as 

defined in § 1.3(d) of this chapter, 

except as defined in paragraph (b)(6) of 

this section. 

* * * * * 

(b) Each self-regulatory organization 

must maintain in effect rules which 

have been submitted to the Commission 

pursuant to section 5c(c) of the Act and 

part 40 of this chapter or, in the case of 

a registered futures association, 

pursuant to section 17(j) of the Act, that 

render a person ineligible to serve on its 

disciplinary committees, arbitration 

panels, oversight panels or governing 

board who: 

* * * * * 

(d) Each self-regulatory organization 

shall submit to the Commission a 

schedule listing all those rule violations 

which constitute disciplinary offenses 

as defined in paragraph (a)(6)(i) of this 

section and to the extent necessary to 

reflect revisions shall submit an 

amended schedule within thirty days of 

the end of each calendar year. Each selfregulatory organization must maintain 

and keep current the schedule required 

by this section, and post the schedule 

on the self-regulatory organization’s 

website so that it is in a public place 

designed to provide notice to members 

and otherwise ensure its availability to 

the general public. 

* * * * * 

30. Revise paragraph (a)(1) and 

paragraph (b) of § 1.67 to read as 

follows: 

§ 1.67 Notification of final disciplinary 

action involving financial harm to a 

customer. 

(a) * * * 

(1) Final disciplinary action means 

any decision by or settlement with a 

contract market or swap execution 

facility in a disciplinary matter which 

cannot be further appealed at the 

contract market or swap execution 

facility, is not subject to the stay of the 

Commission or a court of competent 

jurisdiction, and has not been reversed 

by the Commission or any court of 

competent jurisdiction. 

* * * * * 

(b) Upon any final disciplinary action 

in which a contract market or swap 

execution facility finds that a member 

has committed a rule violation that 

involved a transaction for a customer, 

whether executed or not, and that 

resulted in financial harm to the 

customer: 

(1)(i) The contract market or swap 

execution facility shall promptly 

provide written notice of the 

disciplinary action to the futures 

commission merchant or other 

registrant; and 


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(ii) A futures commission merchant or 

other registrant that receives a notice, 

under paragraph (b)(1)(i) of this section 

shall promptly provide written notice of 

the disciplinary action to the customer 

as disclosed on its books and records. If 

the customer is another futures 

commission merchant or other 

registrant, such futures commission 

merchant or other registrant shall 

promptly provide notice to the 

customer. 

(2) A written notice required by 

paragraph (b)(1) of this section must 

include the principal facts of the 

disciplinary action and a statement that 

the contract market or swap execution 

facility has found that the member has 

committed a rule violation that involved 

a transaction for the customer, whether 

executed or not, and that resulted in 

financial harm to the customer. For the 

purposes of this paragraph, a notice 

which includes the information listed in 

§ 9.11(b) of this chapter shall be deemed 

to include the principal facts of the 

disciplinary action thereof. 

§ 1.68 [Removed and Reserved] 

31. Remove and reserve § 1.68. 

32. Amend Appendix B to part 1 by 

revising paragraph (b) to read as follows: 

Appendix B to Part 1—Fees for 

Contract Market Rule Enforcement 

Reviews and Financial Reviews 

* * * * * 

(b) The Commission determines fees 

charged to exchanges based upon a formula 

that considers both actual costs and trading 

volume. 

* * * * * 

Appendix C to Part 1—[Removed and 

Reserved] 

33. Remove and reserve Appendix C to 

part 1. 

PART 5—OFF-EXCHANGE FOREIGN 

CURRENCY TRANSACTIONS 

34a. The authority citation for part 5 

continues to read as follows: 

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

6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 

12, 12a, 13b, 13c, 16a, 18, 19, 21, 23. 

34b. Revise paragraphs (k) and (m) of 

§ 5.1 to read as follows: 

§ 5.1 Definitions. 

* * * * * 

(k) Retail forex customer means a 

person, other than an eligible contract 

participant as defined in section 1a(18) 

of the Act, acting on its own behalf and 

trading in any account, agreement, 

contract or transaction described in 

section 2(c)(2)(B) or 2(c)(2)(C) of the Act. 

* * * * * 

(m) Retail forex transaction means 

any account, agreement, contract or 

transaction described in section 

2(c)(2)(B) or 2(c)(2)(C) of the Act. A 

retail forex transaction does not include 

an account, agreement, contract or 

transaction in foreign currency that is a 

contract of sale of a commodity for 

future delivery (or an option thereon) 

that is executed, traded on or otherwise 

subject to the rules of a contract market 

designated pursuant to section 5(a) of 

the Act. 

PART 7—CONTRACT MARKET RULES 

ALTERED OR SUPPLEMENTED BY 

THE COMMISSION 

35. Revise part 7 to read as follows: 

PART 7—REGISTERED ENTITY RULES 

ALTERED OR SUPPLEMENTED BY 

THE COMMISSION 

Authority: 7 U.S.C. 7a–2(c) and 12a(7), as 

amended by Title VII of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, 

Pub. L. 111–203, 124 Stat. 1376 (2010). 

Subpart A—General Provisions 

§ 7.1. Scope of rules. 

This part sets forth registered entity 

rules altered or supplemented by the 

Commission pursuant to section 8a(7) of 

the Act. 

Subpart B—[Reserved] 

Subpart C—[Reserved] 

PART 8—[REMOVED AND RESERVED] 

36. Remove and reserve part 8. 

PART 15—REPORTS—GENERAL 

PROVISIONS 

37a. The authority citation for part 15 

is revised to read as follows: 

Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 

6k, 6m, 6n, 7, 9, 12a, 19, and 21, as amended 

by Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376 (2010). 

37b. Revise paragraphs (a), (e), (f), (g) 

and (h) of § 15.05 to read as follows: 

§ 15.05 Designation of agent for foreign 

persons. 

(a) For purposes of this section, the 

term ‘‘futures contract’’ means any 

contract for the purchase or sale of any 

commodity for future delivery, or a 

contract identified under § 36.3(c)(1)(i) 

traded on an electronic trading facility 

operating in reliance on the exemption 

set forth in § 36.3 of this chapter, traded 

or executed on or subject to the rules of 

any designated contract market, or for 

the purposes of paragraph (i) of this 

section, a reporting market (including 

all agreements, contracts and 

transactions that are treated by a 

clearing organization as fungible with 

such contracts); the term ‘‘option 

contract’’ means any contract for the 

purchase or sale of a commodity option, 

or as applicable, any other instrument 

subject to the Act, traded or executed on 

or subject to the rules of any designated 

contract market, or for the purposes of 

paragraph (i) of this section, a reporting 

market (including all agreements, 

contracts and transactions that are 

treated by a clearing organization as 

fungible with such contracts); the term 

‘‘customer’’ means any person for whose 

benefit a foreign broker makes or causes 

to be made any futures contract or 

option contract; and the term 

‘‘communication’’ means any summons, 

complaint, order, subpoena, special call, 

request for information, or notice, as 

well as any other written document or 

correspondence. 

* * * * * 

(e) Any designated contract market 

that permits a foreign broker to 

intermediate contracts, agreements or 

transactions, or permits a foreign trader 

to effect contracts, agreements or 

transactions on the facility or exchange, 

shall be deemed to be the agent of the 

foreign broker and any of its customers 

for whom the transactions were 

executed, or the foreign trader, for 

purposes of accepting delivery and 

service of any communication issued by 

or on behalf of the Commission to the 

foreign broker, any of its customers or 

the foreign trader with respect to any 

contracts, agreements or transactions 

executed by the foreign broker or the 

foreign trader on the designated contract 

market. Service or delivery of any 

communication issued by or on behalf 

of the Commission to a designated 

contract market shall constitute valid 

and effective service upon the foreign 

broker, any of its customers or the 

foreign trader. A designated contract 

market which has been served with, or 

to which there has been delivered, a 

communication issued by or on behalf 

of the Commission to a foreign broker, 

any of its customers or a foreign trader 

shall transmit the communication 

promptly and in a manner which is 

reasonable under the circumstances, or 

in a manner specified by the 

Commission in the communication, to 

the foreign broker, any of its customers 

or the foreign trader. 

(f) It shall be unlawful for any 

designated contract market to permit a 

foreign broker, any of its customers or 

a foreign trader to effect contracts, 

agreements or transactions on the 

facility unless the designated contract 


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market prior thereto informs the foreign 

broker, any of its customers or the 

foreign trader, in any reasonable manner 

the facility deems to be appropriate, of 

the requirements of this section. 

(g) The requirements of paragraphs (e) 

and (f) of this section shall not apply to 

any contracts, transactions or 

agreements traded on any designated 

contract market if the foreign broker, 

any of its customers or the foreign trader 

has duly executed and maintains in 

effect a written agency agreement in 

compliance with this paragraph with a 

person domiciled in the United States 

and has provided a copy of the 

agreement to the designated contract 

market prior to effecting any contract, 

agreement or transaction on the facility. 

This agreement must authorize the 

person domiciled in the United States to 

serve as the agent of the foreign broker, 

any of its customers or the foreign trader 

for purposes of accepting delivery and 

service of all communications issued by 

or on behalf of the Commission to the 

foreign broker, any of its customers or 

the foreign trader and must provide an 

address in the United States where the 

agent will accept delivery and service of 

communications from the Commission. 

This agreement must be filed with the 

Commission by the designated contract 

market prior to permitting the foreign 

broker, any of its customers or the 

foreign trader to effect any transactions 

in futures or option contracts. Unless 

otherwise specified by the Commission, 

the agreements required to be filed with 

the Commission shall be filed with the 

Secretary of the Commission at Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. A foreign 

broker, any of its customers or a foreign 

trader shall notify the Commission 

immediately if the written agency 

agreement is terminated, revoked, or is 

otherwise no longer in effect. If the 

designated contract market knows or 

should know that the agreement has 

expired, been terminated, or is no longer 

in effect, the designated contract market 

shall notify the Secretary of the 

Commission immediately. If the written 

agency agreement expires, terminates, or 

is not in effect, the designated contract 

market and the foreign broker, any of its 

customers or the foreign trader are 

subject to the provisions of paragraphs 

(e) and (f) of this section. 

(h) The provisions of paragraphs (e), 

(f) and (g) of this section shall not apply 

to a designated contract market on 

which all transactions of foreign 

brokers, their customers or foreign 

traders in futures or option contracts are 

executed through, or the resulting 

transactions are maintained in, accounts 

carried by a registered futures 

commission merchant or introduced by 

a registered introducing broker subject 

to the provisions of paragraphs (a), (b), 

(c) and (d) of this section. 

* * * * * 

PART 18—REPORTS BY TRADERS 

38a. The authority citation for part 18 

is revised to read as follows: 

Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 

6k, 6m, 6n, 12a and 19, as amended by Title 

VII of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act, Public Law 

111–203, 124 Stat. 1376 (2010); 5 U.S.C. 552 

and 552(b), unless otherwise noted. 

38b. Revise paragraphs (a)(2), (a)(3), 

and (a)(4) of § 18.05 to read as follows: 

§ 18.05 Maintenance of books and records. 

(a) * * * 

(2) Executed over the counter or 

pursuant to part 35 of this chapter; 

(3) On exempt commercial markets 

operating under a Commission 

grandfather relief order issued pursuant 

to Section 723(c)(2)(B) of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Pub. L. 111–203, 124 

Stat. 1376 (2010)); 

(4) On exempt boards of trade 

operating under a Commission 

grandfather relief order issued pursuant 

to Section 734(c)(2) of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (Pub. L. 111–203, 124 

Stat. 1376 (2010)); and 

* * * * * 

PART 21—SPECIAL CALLS 

39a. The authority citation for part 21 

is revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6a, 6c, 6f, 6g, 

6i, 6k, 6m, 6n, 7, 12a, 19 and 21, as amended 

by Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376 (2010); 5 U.S.C. 552 

and 552(b), unless otherwise noted. 

39b. Revise paragraph (b) of § 21.03 to 

read as follows: 

§ 21.03 Selected special calls—duties of 

foreign brokers, domestic and foreign 

traders, futures commission merchants, 

clearing members, introducing brokers, and 

reporting markets. 

* * * * * 

(b) It shall be unlawful for a futures 

commission merchant to open a futures 

or options account or to effect 

transactions in futures or options 

contracts for an existing account, or for 

an introducing broker to introduce such 

an account, for any customer for whom 

the futures commission merchant or 

introducing broker is required to 

provide the explanation provided for in 

§ 15.05(c) of this chapter, or for a 

reporting market that is a registered 

entity under section 1a(40)(F) of the Act, 

to cause to open an account, or to cause 

transactions to be effected, in a contract 

traded in reliance on a Commission 

grandfather relief order issued pursuant 

to Section 723(c)(2)(B) of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Pub. L. 111–203, 124 

Stat. 1376 (2010)), for an existing 

account for any person that is a foreign 

clearing member or foreign trader, until 

the futures commission merchant, 

introducing broker, clearing member or 

reporting market has explained fully to 

the customer, in any manner that such 

person deems appropriate, the 

provisions of this section. 

* * * * * 

PART 36—EXEMPT MARKETS 

40a. The authority citation for part 36 

is revised to read as follows: 

Authority: 7 U.S.C. 2, 6, 6c and 12a, as 

amended by Title VII of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, 

Pub. L. 111–203, 124 Stat. 1376 (2010); 

Sections 723(c)(2)(B) and 734(c)(2), Pub. L. 

111–203, 124 Stat. 1376 (2010). 

40b. Section 36.1 is revised to read as 

follows: 

§ 36.1 Scope. 

The provisions of this part apply to 

any board of trade or electronic trading 

facility that operates as: 

(a) An exempt commercial market 

operating under a grandfather relief 

order issued by the Commission 

pursuant to Section 723(c)(2)(B) of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Pub. L. 111– 

203, 124 Stat. 1376 (2010)), or 

(b) An exempt board of trade 

operating under a grandfather relief 

order issued by the Commission 

pursuant to Section 734(c)(2) of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Pub. L. 111– 

203, 124 Stat. 1376 (2010)). 

41. Amend § 36.2 by: 

a. Revising paragraph (a) introductory 

text and (a)(2)(i); 

b. Adding paragraph (a)(3); and 

c. Revising paragraph (b) introductory 

text, (c)(1), (c)(2)(i) introductory text, 

(c)(2)(ii) introductory text, (c)(2)(iii), 

(c)(2)(iv)(A) introductory text, and (c)(3), 

to read as follows: 

§ 36.2 Exempt boards of trade. 

(a) Eligible commodities. 

Commodities eligible to be traded by an 

exempt board of trade are: 

* * * * * 

(2) * * * 

(i) The commodities defined in 

section 1a(19) of the Act as ‘‘excluded 

commodities’’ (other than a security, 


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including any group or index thereof or 

any interest in, or based on the value of, 

any security or group or index of 

securities); and 

* * * * * 

(3) Such contracts must be entered 

into only between persons that are 

eligible contract participants, as defined 

in section 1a(18) of the Act and as 

further defined by the Commission, at 

the time at which the persons entered 

into the contract. 

(b) Notification. Boards of trade 

operating as exempt boards of trade 

shall maintain on file with the Secretary 

of the Commission at the Commission’s 

Washington, DC headquarters, in 

electronic form, a ‘‘Notification of 

Operation as an Exempt Board of 

Trade,’’ and it shall include: 

* * * * * 

(c) Additional requirements—(1) 

Prohibited representation. A board of 

trade that meets the criteria set forth in 

this section and operates as an exempt 

board of trade shall not represent to any 

person that it is registered with, 

designated, recognized, licensed or 

approved by the Commission. 

(2) Market data dissemination—(i) 

Criteria for price discovery 

determination. An exempt board of 

trade performs a significant price 

discovery function for transactions in 

the cash market for a commodity 

underlying any agreement, contract or 

transaction executed or traded on the 

facility when: 

* * * * * 

(ii) Notification. An exempt board of 

trade operating a market in reliance on 

the criteria set forth in this section shall 

notify the Commission when: 

* * * * * 

(iii) Price discovery determination. 

Following receipt of notice under 

paragraph (c)(2)(ii) of this section, or on 

its own initiative, the Commission may 

notify an exempt board of trade that the 

facility appears to meet the criteria for 

performing a significant price discovery 

function under paragraph (c)(2)(i)(A) or 

(B) of this section. Before making a final 

price discovery determination under 

this paragraph, the Commission shall 

provide the exempt board of trade with 

an opportunity for a hearing through the 

submission of written data, views and 

arguments. Any such written data, 

views and arguments shall be filed with 

the Secretary of the Commission in the 

form and manner and within the time 

specified by the Commission. After 

consideration of all relevant matters, the 

Commission shall issue an order 

containing its determination whether 

the facility performs a significant price 

discovery function under the criteria of 

paragraph (c)(2)(i)(A) or (B) of this 

section. 

(iv) Price dissemination. (A) An 

exempt board of trade that the 

Commission has determined performs a 

significant price discovery function 

under paragraph (c)(2)(iii) of this section 

shall disseminate publicly, and on a 

daily basis, all of the following 

information with respect to transactions 

executed in reliance on the criteria set 

forth in this section: 

* * * * * 

(3) Annual certification. A board of 

trade operating as an exempt board of 

trade shall file with the Commission 

annually, no later than the end of each 

calendar year, a notice that includes: 

(i) A statement that it continues to 

operate under the exemption; and 

(ii) A certification that the 

information contained in the previous 

Notification of Operation as an Exempt 

Board of Trade is still correct. 

42. Section 36.3 is revised to read as 

follows: 

§ 36.3 Exempt commercial markets. 

(a) Eligible transactions. Agreements, 

contracts or transactions in an exempt 

commodity eligible to be entered into on 

an exempt commercial market must be: 

(1) Entered into on a principal-toprincipal basis solely between persons 

that are eligible commercial entities, as 

that term is defined in section 1a(17) of 

the Act, at the time the persons enter 

into the agreement, contract or 

transaction; and 

(2) Executed or traded on an 

electronic trading facility. 

(b) Notification. An electronic trading 

facility relying upon the exemption set 

forth in this section shall maintain on 

file with the Secretary of the 

Commission at the Commission’s 

Washington, DC headquarters, in 

electronic form, a ‘‘Notification of 

Operation as an Exempt Commercial 

Market,’’ and it shall include the 

information and certifications specified 

in this section. 

(c) Required information—(1) All 

electronic trading facilities. A facility 

operating in reliance on the exemption 

set forth in this section on an on-going 

basis, must: 

(i) Provide the Commission with the 

terms and conditions, as defined in 

§ 40.1(i) of this chapter and product 

descriptions for each agreement, 

contract or transaction listed by the 

facility in reliance on the exemption set 

forth in this section, as well as trading 

conventions, mechanisms and practices; 

(ii) Provide the Commission with 

information explaining how the facility 

meets the definition of ‘‘trading facility’’ 

contained in section 1a(51) of the Act 

and provide the Commission with 

access to the electronic trading facility’s 

trading protocols, in a format specified 

by the Commission; 

(iii) Demonstrate to the Commission 

that the facility requires, and will 

require, with respect to all current and 

future agreements, contracts and 

transactions, that each participant 

agrees to comply with all applicable 

laws; that the authorized participants 

are ‘‘eligible commercial entities’’ as 

defined in section 1a(17) of the Act; that 

all agreements, contracts and 

transactions are and will be entered into 

solely on a principal-to-principal basis; 

and that the facility has in place a 

program to routinely monitor 

participants’ compliance with these 

requirements; 

(iv) At the request of the Commission, 

provide any other information that the 

Commission, in its discretion, deems 

relevant to its determination whether an 

agreement, contract, or transaction 

performs a significant price discovery 

function; and 

(v) File with the Commission 

annually, no later than the end of each 

calendar year, a completed copy of 

CFTC Form 205—Exempt Commercial 

Market Annual Certification. The 

information submitted in Form 205 

shall include: 

(A) A statement indicating whether 

the electronic trading facility continues 

to operate under the exemption; and 

(B) A certification that affirms the 

accuracy of and/or updates the 

information contained in the previous 

Notification of Operation as an Exempt 

Commercial Market. 

(2) Electronic trading facilities trading 

or executing agreements, contracts or 

transactions other than significant price 

discovery contracts. In addition to the 

requirements of paragraph (c)(1) of this 

section, a facility operating in reliance 

on the exemption set forth in this 

section, with respect to agreements, 

contracts or transactions that have not 

been determined to perform significant 

price discovery function, on an on-going 

basis must: 

(i) Identify to the Commission those 

agreements, contracts and transactions 

conducted on the electronic trading 

facility with respect to which it intends, 

in good faith, to rely on the exemption 

set forth in this section, and which 

averaged five trades per day or more 

over the most recent calendar quarter; 

and, with respect to such agreements, 

contracts and transactions, either: 

(A) Submit to the Commission, in a 

form and manner acceptable to the 

Commission, a report for each business 

day. Each such report shall be 

electronically transmitted weekly, 


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within such time period as is acceptable 

to the Commission after the end of the 

week to which the data applies, and 

shall show for each agreement, contract 

or transaction executed the following 

information: 

(1) The underlying commodity, the 

delivery or price-basing location 

specified in the agreement, contract or 

transaction maturity date, whether it is 

a financially settled or physically 

delivered instrument, and the date of 

execution, time of execution, price, and 

quantity; 

(2) Total daily volume and, if cleared, 

open interest; 

(3) For an option instrument, in 

addition to the foregoing information, 

the type of option (i.e., call or put) and 

strike prices; and 

(4) Such other information as the 

Commission may determine; or 

(B) Provide to the Commission, in a 

form and manner acceptable to the 

Commission, electronic access to those 

transactions conducted on the electronic 

trading facility in reliance on the 

exemption set forth in this section, and 

meeting the average five trades per day 

or more threshold test of this section, 

which would allow the Commission to 

compile the information set forth in 

paragraph (c)(2)(i)(A) of this section and 

create a permanent record thereof. 

(ii) Maintain a record of allegations or 

complaints received by the electronic 

trading facility concerning instances of 

suspected fraud or manipulation in 

trading activity conducted in reliance 

on the exemption set forth in this 

section. The record shall contain the 

name of the complainant, if provided, 

date of the complaint, market 

instrument, substance of the allegations, 

and name of the person at the electronic 

trading facility who received the 

complaint; 

(iii) Provide to the Commission, in the 

form and manner prescribed by the 

Commission, a copy of the record of 

each complaint received pursuant to 

paragraph (c)(2)(ii) of this section that 

alleges, or relates to, facts that would 

constitute a violation of the Act or 

Commission regulations. Such copy 

shall be provided to the Commission no 

later than 30 calendar days after the 

complaint is received; Provided, 

however, that in the case of a complaint 

alleging, or relating to, facts that would 

constitute an ongoing fraud or market 

manipulation under the Act or 

Commission rules, such copy shall be 

provided to the Commission within 

three business days after the complaint 

is received; and 

(iv) Provide to the Commission on a 

quarterly basis, within 15 calendar days 

of the close of each quarter, a list of each 

agreement, contract or transaction 

executed on the electronic trading 

facility in reliance on the exemption set 

forth in this section and indicate for 

each such agreement, contract or 

transaction the contract terms and 

conditions, the contract’s average daily 

trading volume, and the most recent 

open interest figures. 

(3) Electronic trading facilities trading 

or executing significant price discovery 

contracts. In addition to the 

requirements of paragraph (c)(1) of this 

section, if the Commission determines 

that a facility operating in reliance on 

the exemption set forth in this section 

trades or executes an agreement, 

contract or transaction that performs a 

significant price discovery function, the 

facility must, with respect to any 

significant price discovery contract, 

publish and provide to the Commission 

the information required by § 16.01 of 

this chapter. 

(4) Delegation of authority. The 

Commission hereby delegates, until the 

Commission orders otherwise, the 

authority to determine the form and 

manner of submitting the required 

information under paragraphs (c)(1) 

through (3) of this section, to the 

Director of the Division of Market 

Oversight and such members of the 

Commission’s staff as the Director may 

designate. The Director may submit to 

the Commission for its consideration 

any matter that has been delegated by 

this paragraph. Nothing in this 

paragraph prohibits the Commission, at 

its election, from exercising the 

authority delegated in this paragraph 

(c)(4). 

(5) Special calls. (i) All information 

required upon special call of the 

Commission shall be transmitted at the 

same time and to the office of the 

Commission as may be specified in the 

call. 

(ii) Such information shall include 

information related to the facility’s 

business as an exempt electronic trading 

facility in reliance on the exemption set 

forth in this section, including 

information relating to data entry and 

transaction details in respect of 

transactions entered into in reliance on 

the exemption, as the Commission may 

determine appropriate— 

(A) To enforce the antifraud and antimanipulation provisions of the Act and 

Commission regulations, and 

(B) To evaluate a systemic market 

event; or 

(C) To obtain information requested 

by a Federal financial regulatory 

authority in order to enable the 

regulator to fulfill its regulatory or 

supervisory responsibilities. 

(iii) The Commission hereby 

delegates, until the Commission orders 

otherwise, the authority to make special 

calls to the Directors of the Division of 

Market Oversight, the Division of 

Clearing and Intermediary Oversight, 

and the Division of Enforcement to be 

exercised by each such Director or by 

such other employee or employees as 

the Director may designate. The 

Directors may submit to the 

Commission for its consideration any 

matter that has been delegated in this 

paragraph (c)(5). Nothing in this 

paragraph prohibits the Commission, at 

its election, from exercising the 

authority delegated in this paragraph. 

(6) Subpoenas to foreign persons. A 

foreign person whose access to an 

electronic trading facility is limited or 

denied at the direction of the 

Commission based on the Commission’s 

belief that the foreign person has failed 

timely to comply with a subpoena shall 

have an opportunity for a prompt 

hearing under the procedures provided 

in § 21.03(b) and (h) of this chapter. 

(7) Prohibited representation. An 

electronic trading facility relying upon 

the exemption set forth in this section, 

with respect to agreements, contracts or 

transactions that are not significant 

price discovery contracts, shall not 

represent to any person that it is 

registered with, designated, recognized, 

licensed or approved by the 

Commission. 

(d) Significant price discovery 

contracts—(1) Criteria for significant 

price discovery determination. The 

Commission may determine, in its 

discretion, that an electronic trading 

facility operating a market in reliance on 

the exemption set forth in this section 

performs a significant price discovery 

function for transactions in the cash 

market for a commodity underlying any 

agreement, contract or transaction 

executed or traded on the facility. In 

making such a determination, the 

Commission shall consider, as 

appropriate: 

(i) Price linkage. The extent to which 

the agreement, contract or transaction 

uses or otherwise relies on a daily or 

final settlement price, or other major 

price parameter, of a contract or 

contracts listed for trading on or subject 

to the rules of a designated contract 

market, or a significant price discovery 

contract traded on an electronic trading 

facility, to value a position, transfer or 

convert a position, cash or financially 

settle a position, or close out a position; 

(ii) Arbitrage. The extent to which the 

price for the agreement, contract or 

transaction is sufficiently related to the 

price of a contract or contracts listed for 

trading on or subject to the rules of a 


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designated contract market, or a 

significant price discovery contract or 

contracts trading on or subject to the 

rules of an electronic trading facility, so 

as to permit market participants to 

effectively arbitrage between the 

markets by simultaneously maintaining 

positions or executing trades in the 

contracts on a frequent and recurring 

basis; 

(iii) Material price reference. The 

extent to which, on a frequent and 

recurring basis, bids, offers, or 

transactions in a commodity are directly 

based on, or are determined by 

referencing, the prices generated by 

agreements, contracts or transactions 

being traded or executed on the 

electronic trading facility; 

(iv) Material liquidity. The extent to 

which the volume of agreements, 

contracts or transactions in the 

commodity being traded on the 

electronic trading facility is sufficient to 

have a material effect on other 

agreements, contracts or transactions 

listed for trading on or subject to the 

rules of a designated contract market or 

an electronic trading facility operating 

in reliance on the exemption set forth in 

this section; 

(v) Other material factors. [Reserved] 

(2) Notification of possible significant 

price discovery contract conditions. An 

electronic trading facility operating in 

reliance on the exemption set forth in 

this section shall promptly notify the 

Commission, and such notification shall 

be accompanied by supporting 

information or data concerning any 

contract that: 

(i) Averaged five trades per day or 

more over the most recent calendar 

quarter; and 

(ii)(A) For which the exchange sells 

its price information regarding the 

contract to market participants or 

industry publications; or 

(B) Whose daily closing or settlement 

prices on 95 percent or more of the days 

in the most recent quarter were within 

2.5 percent of the contemporaneously 

determined closing, settlement or other 

daily price of another agreement, 

contract or transaction. 

(3) Procedure for significant price 

discovery determination. Before making 

a final price discovery determination 

under this paragraph, the Commission 

shall publish notice in the Federal 

Register that it intends to undertake a 

determination with respect to whether a 

particular agreement, contract or 

transaction performs a significant price 

discovery function and to receive 

written data, views and arguments 

relevant to its determination from the 

electronic trading facility and other 

interested persons. Any such written 

data, views and arguments shall be filed 

with the Secretary of the Commission, 

in the form and manner specified by the 

Commission, within 30 calendar days of 

publication of notice in the Federal 

Register or within such other time 

specified by the Commission. After 

prompt consideration of all relevant 

information, the Commission shall, 

within a reasonable period of time after 

the close of the comment period, issue 

an order explaining its determination 

whether the agreement, contract or 

transaction executed or traded by the 

electronic trading facility performs a 

significant price discovery function 

under the criteria specified in paragraph 

(d)(1)(i) through (v) of this section. 

(4) Compliance with core principles. 

(i) Following the issuance of an order by 

the Commission that the electronic 

trading facility executes or trades an 

agreement, contract or transaction that 

performs a significant price discovery 

function, the electronic trading facility 

must demonstrate, with respect to that 

agreement, contract or transaction, 

compliance with the Core Principles set 

forth in this section and the applicable 

provisions of this part. If the 

Commission’s order represents the first 

time it has determined that one of the 

electronic trading facility’s agreements, 

contracts or transactions performs a 

significant price discovery function, the 

facility must submit a written 

demonstration of compliance with the 

Core Principles within 90 calendar days 

of the date of the Commission’s order. 

For each subsequent determination by 

the Commission that the electronic 

trading facility has an additional 

agreement, contract or transaction that 

performs a significant price discovery 

function, the facility must submit a 

written demonstration of compliance 

with the Core Principles within 30 

calendar days of the date of the 

Commission’s order. Attention is 

directed to Appendix B of this part for 

guidance on and acceptable practices for 

complying with the Core Principles. 

Submissions demonstrating how the 

electronic trading facility complies with 

the Core Principles with respect to its 

significant price discovery contract 

must be filed with the Secretary of the 

Commission at its Washington, DC 

headquarters. Submissions must include 

the following: 

(A) A written certification that the 

significant price discovery contract(s) 

complies with the Act and regulations 

thereunder; 

(B) A copy of the electronic trading 

facility’s rules (as defined in § 40.1 of 

this chapter) and any technical manuals, 

other guides or instructions for users of, 

or participants in, the market, including 

minimum financial standards for 

members or market participants. 

Subsequent rule changes must be 

certified by the electronic trading 

facility pursuant to section 5c(c) of the 

Act and § 40.6 of this chapter. The 

electronic trading facility also may 

request Commission approval of any 

rule changes pursuant to section 5c(c) of 

the Act and § 40.5 of this chapter; 

(C) A description of the trading 

system, algorithm, security and access 

limitation procedures with a timeline 

for an order from input through 

settlement, and a copy of any system 

test procedures, tests conducted, test 

results and contingency or disaster 

recovery plans; 

(D) A copy of any documents 

pertaining to or describing the 

electronic trading system’s legal status 

and governance structure, including 

governance fitness information; 

(E) An executed or executable copy of 

any agreements or contracts entered into 

or to be entered into by the electronic 

trading facility, including partnership or 

limited liability company, third-party 

regulatory service, or member or user 

agreements, that enable or empower the 

electronic trading facility to comply 

with a Core Principle; 

(F) A copy of any manual or other 

document describing, with specificity, 

the manner in which the trading facility 

will conduct trade practice, market and 

financial surveillance; 

(G) To the extent that any of the items 

in paragraphs (d)(4)(ii) through (vi) of 

this section raise issues that are novel, 

or for which compliance with a Core 

Principle is not self-evident, an 

explanation of how that item satisfies 

the applicable Core Principle or 

Principles. 

(ii) The electronic trading facility 

must identify with particularity 

information in the submission that will 

be subject to a request for confidential 

treatment pursuant to § 145.09 of this 

chapter. The electronic trading facility 

must follow the procedures specified in 

§ 40.8 of this chapter with respect to any 

information in its submission for which 

confidential treatment is requested. 

(5) Determination of compliance with 

core principles. The Commission shall 

take into consideration differences 

between cleared and uncleared 

significant price discovery contracts 

when reviewing the implementation of 

the Core Principles by an electronic 

trading facility. The electronic facility 

has reasonable discretion in accounting 

for differences between cleared and 

uncleared significant price discovery 

contracts when establishing the manner 

in which it complies with the Core 

Principles. 


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(6) Information relating to compliance 

with core principles. Upon request by 

the Commission, an electronic trading 

facility trading a significant price 

discovery contract shall file with the 

Commission a written demonstration, 

containing such supporting data, 

information and documents, in the form 

and manner and within such time as the 

Commission may specify, that the 

electronic trading facility is in 

compliance with one or more Core 

Principles as specified in the request, or 

that is otherwise requested by the 

Commission to enable the Commission 

to satisfy its obligations under the Act. 

(7) Enforceability. An agreement, 

contract or transaction entered into on 

or pursuant to the rules of an electronic 

trading facility trading or executing a 

significant price discovery contract shall 

not be void, voidable, subject to 

rescission or otherwise invalidated or 

rendered unenforceable as a result of: 

(i) A violation by the electronic 

trading facility of the provisions set 

forth in this section; or 

(ii) Any Commission proceeding to 

alter or supplement a rule, term or 

condition under section 8a(7) of the Act, 

to declare an emergency under section 

8a(9) of the Act, or any other proceeding 

the effect of which is to alter, 

supplement or require an electronic 

trading facility to adopt a specific term 

or condition, trading rule or procedure, 

or to take or refrain from taking a 

specific action. 

(8) Procedures for vacating a 

determination of a significant price 

discovery function—(i) By the electronic 

trading facility. An electronic trading 

facility that executes or trades an 

agreement, contract or transaction that 

the Commission has determined 

performs a significant price discovery 

function under paragraph (d)(3) of this 

section may petition the Commission to 

vacate that determination. The petition 

shall demonstrate that the agreement, 

contract or transaction no longer 

performs a significant price discovery 

function under the criteria specified in 

paragraph (d)(1), and has not done so for 

at least the prior 12 months. An 

electronic trading facility shall not 

petition for a vacation of a significant 

price discovery determination more 

frequently than once every 12 months 

for any individual contract. 

(ii) By the Commission. The 

Commission may, on its own initiative, 

begin vacation proceedings if it believes 

that an agreement, contract or 

transaction has not performed a 

significant price discovery function for 

at least the prior 12 months. 

(iii) Procedure. Before making a final 

determination whether an agreement, 

contract or transaction has ceased to 

perform a significant price discovery 

function, the Commission shall publish 

notice in the Federal Register that it 

intends to undertake such a 

determination and to receive written 

data, views and arguments relevant to 

its determination from the electronic 

trading facility and other interested 

persons. Written submissions shall be 

filed with the Secretary of the 

Commission in the form and manner 

specified by the Commission, within 30 

calendar days of publication of notice in 

the Federal Register, or within such 

other time specified by the Commission. 

After consideration of all relevant 

information, the Commission shall issue 

an order explaining its determination 

whether the agreement, contract or 

transaction has ceased to perform a 

significant price discovery function and, 

if so, vacating its prior order. If such an 

order issues, and the Commission 

subsequently determines, on its own 

initiative or after notification by the 

electronic trading facility, that the 

agreement, contract or transaction that 

was subject to the vacation order again 

performs a significant price discovery 

function, the electronic trading facility 

must comply with the Core Principles 

within 30 calendar days of the date of 

the Commission’s order. 

(iv) Automatic vacation of significant 

price discovery determination. 

Regardless of whether a proceeding to 

vacate has been initiated, any significant 

price discovery contract that has no 

open interest and in which no trading 

has occurred for a period of 12 complete 

and consecutive calendar months shall, 

without further proceedings, no longer 

be considered to be a significant price 

discovery contract. 

(e) Commission Review. The 

Commission shall, at least annually, 

evaluate as appropriate agreements, 

contracts or transactions conducted on 

an electronic trading facility in reliance 

on the exemption set forth in this 

section to determine whether they serve 

a significant price discovery function as 

set forth in paragraph (d)(1) above. 

43. Amend Appendix A to part 36 by 

revising introductory paragraph 1, the 

headings to paragraphs (A), (B), and (C), 

and paragraphs (D)2. and (D)4., to read 

as follows: 

Appendix A to Part 36—Guidance on 

Specific Price Discovery Contracts 

1. There are four factors that the 

Commission must consider, as appropriate, 

in making a determination that a contract is 

performing a significant price discovery 

function. The four factors prescribed by the 

statute are: Price Linkage; Arbitrage; Material 

Price Reference; and Material Liquidity. 

* * * * * 

(A) MATERIAL LIQUIDITY—The extent to 

which the volume of agreements, contracts or 

transactions in the commodity being traded 

on the electronic trading facility is sufficient 

to have a material effect on other agreements, 

contracts or transactions listed for trading on 

or subject to the rules of a designated 

contract market, or an electronic trading 

facility operating in reliance on the 

exemption set forth in this section. 

* * * * * 

(B) PRICE LINKAGE—The extent to which 

the agreement, contract or transaction uses 

or otherwise relies on a daily or final 

settlement price, or other major price 

parameter, of a contract or contracts listed 

for trading on or subject to the rules of a 

designated contract market, or a significant 

price discovery contract traded on an 

electronic trading facility, to value a position, 

transfer or convert a position, cash or 

financially settle a position, or close out a 

position. 

* * * * * 

(C) ARBITRAGE CONTRACTS—The extent 

to which the price for the agreement, contract 

or transaction is sufficiently related to the 

price of a contract or contracts listed for 

trading on or subject to the rules of a 

designated contract market or a significant 

price discovery contract or contracts trading 

on or subject to the rules of an electronic 

trading facility, so as to permit market 

participants to effectively arbitrage between 

the markets by simultaneously maintaining 

positions or executing trades in the contracts 

on a frequent and recurring basis. 

* * * * * 

(D) * * * 

* * * * * 

2. In evaluating a contract’s price discovery 

role as a directly referenced price source, the 

Commission will perform an analysis to 

determine whether cash market participants 

are quoting bid or offer prices or entering into 

transactions at prices that are set either 

explicitly or implicitly at a differential to 

prices established for the contract. Cash 

market prices are set explicitly at a 

differential to the contract being traded on 

the electronic trading facility when, for 

instance, they are quoted in dollars and cents 

above or below the reference contract’s price. 

Cash market prices are set implicitly at a 

differential to a contract being traded on the 

electronic trading facility when, for instance, 

they are arrived at after adding to, or 

subtracting from the contract being traded on 

the electronic trading facility, but then 

quoted or reported at a flat price. The 

Commission will also consider whether cash 

market entities are quoting cash prices based 

on a contract being traded on the electronic 

trading facility on a frequent and recurring 

basis. 

* * * * * 

4. In applying this criterion, consideration 

will be given to whether prices established 

by a contract being traded on the electronic 

trading facility are reported in a widely 

distributed industry publication. In making 


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33104 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

this determination, the Commission will 

consider the reputation of the publication 

within the industry, how frequently it is 

published, and whether the information 

contained in the publication is routinely 

consulted by industry participants in pricing 

cash market transactions. 

* * * * * 

44. Revise Appendix B to Part 36 to 

read as follows: 

Appendix B to Part 36—Guidance on, 

and Acceptable Practices in, 

Compliance With Core Principles 

1. This Appendix provides guidance on 

complying with the core principles set forth 

in this part, both initially and on an ongoing 

basis. The guidance is provided in paragraph 

(a) following each core principle and can be 

used to demonstrate to the Commission core 

principle compliance under § 36.3(d)(4). The 

guidance for each core principle is 

illustrative only of the types of matters an 

electronic trading facility may address, as 

applicable, and is not intended to be used as 

a mandatory checklist. Addressing the issues 

and questions set forth in this guidance will 

help the Commission in its consideration of 

whether the electronic trading facility is in 

compliance with the core principles. A 

submission pursuant to § 36.3(d)(4) should 

include an explanation or other form of 

documentation demonstrating that the 

electronic trading facility complies with the 

core principles. 

2. Acceptable practices meeting selected 

requirements of the core principles are set 

forth in paragraph (b) following each core 

principle. Electronic trading facilities on 

which significant price discovery contracts 

are traded or executed that follow the 

specific practices outlined under paragraph 

(b) for any core principle in this appendix 

will meet the selected requirements of the 

applicable core principle. Paragraph (b) is for 

illustrative purposes only, and does not state 

the exclusive means for satisfying a core 

principle. 

CORE PRINCIPLE I—CONTRACTS NOT 

READILY SUSCEPTIBLE TO 

MANIPULATION. The electronic trading 

facility shall list only significant price 

discovery contracts that are not readily 

susceptible to manipulation. 

(a) Guidance. Upon determination by the 

Commission that a contract listed for trading 

on an electronic trading facility is a 

significant price discovery contract, the 

electronic trading facility must self-certify 

the terms and conditions of the significant 

price discovery contract under § 36.3(d)(4) 

within 90 calendar days of the date of the 

Commission’s order if the contract is the 

electronic trading facility’s first significant 

price discovery contract; or 30 days from the 

date of the Commission’s order if the contract 

is not the electronic trading facility’s first 

significant price discovery contract. Once the 

Commission determines that a contract 

performs a significant price discovery 

function, subsequent rule changes must be 

self-certified to the Commission by the 

electronic trading facility pursuant to § 40.6 

or submitted to the Commission for review 

and approval pursuant to § 40.5. 

(b) Acceptable practices. Guideline No.1, 

17 CFR part 40, Appendix A may be used as 

guidance in meeting this core principle for 

significant price discovery contracts. 

CORE PRINCIPLE II—MONITORING OF 

TRADING. The electronic trading facility 

shall monitor trading in significant price 

discovery contracts to prevent market 

manipulation, price distortion, and 

disruptions of the delivery of cash-settlement 

process through market surveillance, 

compliance and disciplinary practices and 

procedures, including methods for 

conducting real-time monitoring of trading 

and comprehensive and accurate trade 

reconstructions. 

(a) Guidance. An electronic trading facility 

on which significant price discovery 

contracts are traded or executed should, with 

respect to those contracts, demonstrate a 

capacity to prevent market manipulation and 

have trading and participation rules to detect 

and deter abuses. The facility should seek to 

prevent market manipulation and other 

trading abuses through a dedicated regulatory 

department or by delegation of that function 

to an appropriate third party. An electronic 

trading facility also should have the authority 

to intervene as necessary to maintain an 

orderly market. 

(b) Acceptable practices—(1) An 

acceptable trade monitoring program. An 

acceptable trade monitoring program should 

facilitate, on both a routine and non-routine 

basis, arrangements and resources to detect 

and deter abuses through direct surveillance 

of each significant price discovery contract. 

Direct surveillance of each significant price 

discovery contract will generally involve the 

collection of various market data, including 

information on participants’ market activity. 

Those data should be evaluated on an 

ongoing basis in order to make an 

appropriate regulatory response to potential 

market disruptions or abusive practices. For 

contracts with a substantial number of 

participants, an effective surveillance 

program should employ a much more 

comprehensive large trader reporting system. 

(2) Authority to collect information and 

documents. The electronic trading facility 

should have the authority to collect 

information and documents in order to 

reconstruct trading for appropriate market 

analysis. Appropriate market analysis should 

enable the electronic trading facility to assess 

whether each significant price discovery 

contract is responding to the forces of supply 

and demand. Appropriate data usually 

include various fundamental data about the 

underlying commodity, its supply, its 

demand, and its movement through market 

channels. Especially important are data 

related to the size and ownership of 

deliverable supplies—the existing supply 

and the future or potential supply—and to 

the pricing of the deliverable commodity 

relative to the futures price and relative to 

the similar, but non-deliverable, kinds of the 

commodity. For cash-settled contracts, it is 

more appropriate to pay attention to the 

availability and pricing of the commodity 

making up the index to which the contract 

will be settled, as well as monitoring the 

continued suitability of the methodology for 

deriving the index. 

(3) Ability to assess participants’ market 

activity and power. To assess participants’ 

activity and potential power in a market, 

electronic trading facilities, with respect to 

significant price discovery contracts, at a 

minimum should have routine access to the 

positions and trading of its participants and, 

if applicable, should provide for such access 

through its agreements with its third-party 

provider of clearing services. 

CORE PRINCIPLE III—ABILITY TO 

OBTAIN INFORMATION. The electronic 

trading facility shall establish and enforce 

rules that allow the electronic trading facility 

to obtain any necessary information to 

perform any of the functions set forth in this 

subparagraph, provide the information to the 

Commission upon request, and have the 

capacity to carry out such international 

information-sharing agreements as the 

Commission may require. 

(a) Guidance. An electronic trading facility 

on which significant price discovery 

contracts are traded or executed should, with 

respect to those contracts, have the ability 

and authority to collect information and 

documents on both a routine and non-routine 

basis, including the examination of books 

and records kept by participants. This 

includes having arrangements and resources 

for recording full data entry and trade details 

and safely storing audit trail data. An 

electronic trading facility should have 

systems sufficient to enable it to use the 

information for purposes of assisting in the 

prevention of participant and market abuses 

through reconstruction of trading and 

providing evidence of any violations of the 

electronic trading facility’s rules. 

(b) Acceptable practices—(1) The goal of 

an audit trail is to detect and deter market 

abuse. An effective contract audit trail should 

capture and retain sufficient trade-related 

information to permit electronic trading 

facility staff to detect trading abuses and to 

reconstruct all transactions within a 

reasonable period of time. An audit trail 

should include specialized electronic 

surveillance programs that identify 

potentially abusive trades and trade patterns. 

An acceptable audit trail must be able to 

track an order from time of entry into the 

trading system through its fill. The electronic 

trading facility must create and maintain an 

electronic transaction history database that 

contains information with respect to 

transactions executed on each significant 

price discovery contract. 

(2) An acceptable audit trail should 

include the following: original source 

documents, transaction history, electronic 

analysis capability, and safe storage 

capability. An acceptable audit trail system 

would satisfy the following practices. 

(i) Original source documents. Original 

source documents include unalterable, 

sequentially identified records on which 

trade execution information is originally 

recorded. For each order (whether filled, 

unfilled or cancelled, each of which should 

be retained or electronically captured), such 

records reflect the terms of the order, an 

account identifier that relates back to the 

account(s) owner(s), and the time of order 

entry. 


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(ii) Transaction history. A transaction 

history consists of an electronic history of 

each transaction, including: 

(A) All the data that are input into the 

trade entry or matching system for the 

transaction to match and clear; 

(B) Timing and sequencing data adequate 

to reconstruct trading; and 

(C) The identification of each account to 

which fills are allocated. 

(iii) Electronic analysis capability. An 

electronic analysis capability permits sorting 

and presenting data included in the 

transaction history so as to reconstruct 

trading and to identify possible trading 

violations with respect to market abuse. 

(iv) Safe storage capability. Safe storage 

capability provides for a method of storing 

the data included in the transaction history 

in a manner that protects the data from 

unauthorized alteration, as well as from 

accidental erasure or other loss. Data should 

be retained in the form and manner specified 

by the Commission or, where no acceptable 

manner of retention is specified, in 

accordance with the recordkeeping standards 

of Commission rule 1.31 (17 CFR 1.31). 

(3) Arrangements and resources for the 

disclosure of the obtained information and 

documents to the Commission upon request. 

The electronic trading facility should 

maintain records of all information and 

documents related to each significant price 

discovery contract in a form and manner 

acceptable to the Commission. Where no 

acceptable manner of maintenance is 

specified, records should be maintained in 

accordance with the recordkeeping standards 

of Commission rule 1.31 (17 CFR 1.31). 

(4) The capacity to carry out appropriate 

information-sharing agreements as the 

Commission may require. Appropriate 

information-sharing agreements could be 

established with other markets or the 

Commission can act in conjunction with the 

electronic trading facility to carry out such 

information sharing. 

CORE PRINCIPLE IV—POSITION 

LIMITATIONS OR ACCOUNTABILITY. The 

electronic trading facility shall adopt, where 

necessary and appropriate, position 

limitations or position accountability for 

speculators in significant price discovery 

contracts, taking into account positions in 

other agreements, contracts and transactions 

that are treated by a derivatives clearing 

organization, whether registered or not 

registered, as fungible with such significant 

price discovery contracts to reduce the 

potential threat of market manipulation or 

congestion, especially during trading in the 

delivery month. 

(a) Guidance. [Reserved] 

(b) Acceptable practices for uncleared 

trades. [Reserved] 

(c) Acceptable practices for cleared 

trades—(1) Introduction. In order to diminish 

potential problems arising from excessively 

large speculative positions, and to facilitate 

orderly liquidation of expiring contracts, an 

electronic trading facility relying on the 

exemption set forth in this section should 

adopt rules that set position limits or 

accountability levels on traders’ cleared 

positions in significant price discovery 

contracts. These position limit rules 

specifically may exempt bona fide hedging; 

permit other exemptions; or set limits 

differently by market, delivery month or time 

period. For the purpose of evaluating a 

significant price discovery contract’s 

speculative-limit program for cleared 

positions, the Commission will consider the 

specified position limits or accountability 

levels, aggregation policies, types of 

exemptions allowed, methods for monitoring 

compliance with the specified limits or 

levels, and procedures for dealing with 

violations. 

(2) Accounting for cleared trades—(i) 

Speculative-limit levels typically should be 

set in terms of a trader’s combined position 

involving cleared trades in a significant price 

discovery contract, plus positions in 

agreements, contracts and transactions that 

are treated by a derivatives clearing 

organization, whether registered or not 

registered, as fungible with such significant 

price discovery contract. (This circumstance 

typically exists where an exempt commercial 

market lists a particular contract for trading 

but also allows for positions in that contract 

to be cleared together with positions 

established through bilateral or off-exchange 

transactions, such as block trades, in the 

same contract. Essentially, both the onfacility and off-facility transactions are 

considered fungible with each other.) In this 

connection, the electronic trading facility 

should make arrangements to ensure that it 

is able to ascertain accurate position data for 

the market. 

(ii) For significant price discovery 

contracts that are traded on a cleared basis, 

the electronic trading facility should apply 

position limits to cleared transactions in the 

contract. 

(3) Limitations on spot-month positions. 

Spot-month limits should be adopted for 

significant price discovery contracts to 

minimize the susceptibility of the market to 

manipulation or price distortions, including 

squeezes and corners or other abusive trading 

practices. 

(i) Contracts economically equivalent to an 

existing contract. An electronic trading 

facility that lists a significant price discovery 

contract that is economically-equivalent to 

another significant price discovery contract 

or to a contract traded on a designated 

contract market should set the spot-month 

limit for its significant price discovery 

contract at the same level as that specified for 

the economically-equivalent contract. 

(ii) Contracts that are not economically 

equivalent to an existing contract. There may 

not be an economically-equivalent significant 

price discovery contract or economicallyequivalent contract traded on a designated 

contract market. In this case, the spot-month 

speculative position limit should be 

established in the following manner. The 

spot-month limit for a physical delivery 

market should be based upon an analysis of 

deliverable supplies and the history of spotmonth liquidations. The spot-month limit for 

a physical-delivery market is appropriately 

set at no more than 25 percent of the 

estimated deliverable supply. In the case 

where a significant price discovery contract 

has a cash settlement provision, the spotmonth limit should be set at a level that 

minimizes the potential for price 

manipulation or distortion in the significant 

price discovery contract itself; in related 

futures and options contracts traded on a 

designated contract market; in other 

significant price discovery contracts; in other 

fungible agreements, contracts and 

transactions; and in the underlying 

commodity. 

(4) Position accountability for non-spotmonth positions. The electronic trading 

facility should establish for its significant 

price discovery contracts non-spot individual 

month position accountability levels and allmonths-combined position accountability 

levels. An electronic trading facility may 

establish non-spot individual month position 

limits and all-months-combined position 

limits for its significant price discovery 

contracts in lieu of position accountability 

levels. 

(i) Definition. Position accountability 

provisions provide a means for an exchange 

to monitor traders’ positions that may 

threaten orderly trading. An acceptable 

accountability provision sets target 

accountability threshold levels that may be 

exceeded, but once a trader breaches such 

accountability levels, the electronic trading 

facility should initiate an inquiry to 

determine whether the individual’s trading 

activity is justified and is not intended to 

manipulate the market. As part of its 

investigation, the electronic trading facility 

may inquire about the trader’s rationale for 

holding a position in excess of the 

accountability levels. An acceptable 

accountability provision should provide the 

electronic trading facility with the authority 

to order the trader not to further increase 

positions. If a trader fails to comply with a 

request for information about positions held, 

provides information that does not 

sufficiently justify the position, or continues 

to increase contract positions after a request 

not to do so is issued by the facility, then the 

accountability provision should enable the 

electronic trading facility to require the 

trader to reduce positions. 

(ii) Contracts economically equivalent to 

an existing contract. When an electronic 

trading facility lists a significant price 

discovery contract that is economically 

equivalent to another significant price 

discovery contract or to a contract traded on 

a designated contract market, the electronic 

trading facility should set the non-spot 

individual month position accountability 

level and all-months-combined position 

accountability level for its significant price 

discovery contract at the same levels, or 

lower, as those specified for the 

economically-equivalent contract. 

(iii) Contracts that are not economically 

equivalent to an existing contract. For 

significant price discovery contracts that are 

not economically equivalent to an existing 

contract, the trading facility shall adopt nonspot individual month and all-monthscombined position accountability levels that 

are no greater than 10 percent of the average 

combined futures and delta-adjusted option 

month-end open interest for the most recent 

calendar year. For electronic trading facilities 

that choose to adopt non-spot individual 

month and all-months-combined position 


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limits in lieu of position accountability levels 

for their significant price discovery contracts, 

the limits should be set in the same manner 

as the accountability levels. 

(iv) Contracts economically equivalent to 

an existing contract with position limits. If a 

significant price discovery contract is 

economically equivalent to another 

significant price discovery contract or to a 

contract traded on a designated contract 

market that has adopted non-spot or allmonths-combined position limits, the 

electronic trading facility should set non-spot 

month position limits and all-monthscombined position limits for its significant 

price discovery contract at the same (or 

lower) levels as those specified for the 

economically-equivalent contract. 

(5) Account aggregation. An electronic 

trading facility should have aggregation rules 

for significant price discovery contracts that 

apply to accounts under common control, 

those with common ownership, i.e., where 

there is a ten percent or greater financial 

interest, and those traded according to an 

express or implied agreement. Such 

aggregation rules should apply to cleared 

transactions with respect to applicable 

speculative position limits. An electronic 

trading facility will be permitted to set more 

stringent aggregation policies. An electronic 

trading facility may grant exemptions to its 

price discovery contracts’ position limits for 

bona fide hedging (as defined in § 1.3(z) of 

this chapter) and may grant exemptions for 

reduced risk positions, such as spreads, 

straddles and arbitrage positions. 

(6) Implementation deadlines. An 

electronic trading facility with a significant 

price discovery contract is required to 

comply with Core Principle IV within 90 

calendar days of the date of the 

Commission’s order determining that the 

contract performs a significant price 

discovery function if such contract is the 

electronic trading facility’s first significant 

price discovery contract, or within 30 days of 

the date of the Commission’s order if such 

contract is not the electronic trading facility’s 

first significant price discovery contract. For 

the purpose of applying limits on speculative 

positions in newly-determined significant 

price discovery contracts, the Commission 

will permit a grace period following issuance 

of its order for traders with cleared positions 

in such contracts to become compliant with 

applicable position limit rules. Traders who 

hold cleared positions on a net basis in the 

electronic trading facility’s significant price 

discovery contract must be at or below the 

specified position limit level no later than 90 

calendar days from the date of the electronic 

trading facility’s implementation of position 

limit rules, unless a hedge exemption is 

granted by the electronic trading facility. 

This grace period applies to both initial and 

subsequent price discovery contracts. 

Electronic trading facilities should notify 

traders of this requirement promptly upon 

implementation of such rules. 

(7) Enforcement provisions. The electronic 

trading facility should have appropriate 

procedures in place to monitor its position 

limit and accountability provisions and to 

address violations. 

(i) An electronic trading facility with 

significant price discovery contracts should 

use an automated means of detecting traders’ 

violations of speculative limits or 

exemptions, particularly if the significant 

price discovery contracts have large numbers 

of traders. An electronic trading facility 

should monitor the continuing 

appropriateness of approved exemptions by 

periodically reviewing each trader’s basis for 

exemption or requiring a reapplication. An 

automated system also should be used to 

determine whether a trader has exceeded 

applicable non-spot individual month 

position accountability levels and allmonths-combined position accountability 

levels. 

(ii) An electronic trading facility should 

establish a program for effective enforcement 

of position limits for significant price 

discovery contracts. Electronic trading 

facilities should use a large trader reporting 

system to monitor and enforce daily 

compliance with position limit rules. The 

Commission notes that an electronic trading 

facility may allow traders to periodically 

apply to the electronic trading facility for an 

exemption and, if appropriate, be granted a 

position level higher than the applicable 

speculative limit. The electronic trading 

facility should establish a program to monitor 

approved exemptions from the limits. The 

position levels granted under such hedge 

exemptions generally should be based upon 

the trader’s commercial activity in related 

markets including, but not limited to, 

positions held in related futures and options 

contracts listed for trading on designated 

contract markets, fungible agreements, 

contracts and transactions, as determined by 

a derivatives clearing organization. Electronic 

trading facilities may allow a brief grace 

period where a qualifying trader may exceed 

speculative limits or an existing exemption 

level pending the submission and approval of 

appropriate justification. An electronic 

trading facility should consider whether it 

wants to restrict exemptions during the last 

several days of trading in a delivery month. 

Acceptable procedures for obtaining and 

granting exemptions include a requirement 

that the electronic trading facility approve a 

specific maximum higher level. 

(iii) An acceptable speculative limit 

program should have specific policies for 

taking regulatory action once a violation of a 

position limit or exemption is detected. The 

electronic trading facility policies should 

consider appropriate actions. 

(8) Violation of Commission rules. A 

violation of position limits for significant 

price discovery contracts that have been selfcertified by an electronic trading facility is 

also a violation of section 4a(e) of the Act. 

CORE PRINCIPLE V—EMERGENCY 

AUTHORITY. The electronic trading facility 

shall adopt rules to provide for the exercise 

of emergency authority, in consultation or 

cooperation with the Commission, where 

necessary and appropriate, including the 

authority to liquidate open positions in 

significant price discovery contracts and to 

suspend or curtail trading in a significant 

price discovery contract. 

(a) Guidance. An electronic trading facility 

on which significant price discovery 

contracts are traded should have clear 

procedures and guidelines for decisionmaking regarding emergency intervention in 

the market, including procedures and 

guidelines to avoid conflicts of interest while 

carrying out such decision-making. An 

electronic trading facility on which 

significant price discovery contracts are 

executed or traded should also have the 

authority to intervene as necessary to 

maintain markets with fair and orderly 

trading as well as procedures for carrying out 

the intervention. Procedures and guidelines 

should include notifying the Commission of 

the exercise of the electronic trading facility’s 

regulatory emergency authority, explaining 

how conflicts of interest are minimized, and 

documenting the electronic trading facility’s 

decision-making process and the reasons for 

using its emergency action authority. 

Information on steps taken under such 

procedures should be included in a 

submission of a certified rule and any related 

submissions for rule approval pursuant to 

part 40 of this chapter, when carried out 

pursuant to an electronic trading facility’s 

emergency authority. To address perceived 

market threats, the electronic trading facility 

on which significant price discovery 

contracts are executed or traded should, 

among other things, be able to impose 

position limits in the delivery month, impose 

or modify price limits, modify circuit 

breakers, call for additional margin either 

from market participants or clearing members 

(for contracts that are cleared through a 

clearinghouse), order the liquidation or 

transfer of open positions, order the fixing of 

a settlement price, order a reduction in 

positions, extend or shorten the expiration 

date or the trading hours, suspend or curtail 

trading on the electronic trading facility, 

order the transfer of contracts and the margin 

for such contracts from one market 

participant to another, or alter the delivery 

terms or conditions or, if applicable, should 

provide for such actions through its 

agreements with its third-party provider of 

clearing services. 

(b) Acceptable practices. [Reserved] 

CORE PRINCIPLE VI—DAILY 

PUBLICATION OF TRADING 

INFORMATION. The electronic trading 

facility shall make public daily information 

on price, trading volume, and other trading 

data to the extent appropriate for significant 

price discovery contracts. 

(a) Guidance. An electronic trading facility, 

with respect to significant price discovery 

contracts, should provide to the public 

information regarding settlement prices, 

price range, volume, open interest, and other 

related market information for all applicable 

contracts as determined by the Commission 

on a fair, equitable and timely basis. 

Provision of information for any applicable 

contract can be through such means as 

provision of the information to a financial 

information service or by timely placement of 

the information on the electronic trading 

facility’s public Web site. 

(b) Acceptable practices. Compliance with 

§ 16.01 of this chapter, which is mandatory, 

is an acceptable practice that satisfies the 

requirements of Core Principle VI. 

CORE PRINCIPLE VII—COMPLIANCE 

WITH RULES. The electronic trading facility 

shall monitor and enforce compliance with 


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the rules of the electronic trading facility, 

including the terms and conditions of any 

contracts to be traded and any limitations on 

access to the electronic trading facility. 

(a) Guidance—(1) An electronic trading 

facility on which significant price discovery 

contracts are executed or traded should have 

appropriate arrangements and resources for 

effective trade practice surveillance 

programs, with the authority to collect 

information and documents on both a routine 

and non-routine basis, including the 

examination of books and records kept by its 

market participants. The arrangements and 

resources should facilitate the direct 

supervision of the market and the analysis of 

data collected. Trade practice surveillance 

programs may be carried out by the 

electronic trading facility itself or through 

delegation or contracting-out to a third party. 

If the electronic trading facility on which 

significant price discovery contracts are 

executed or traded delegates or contracts-out 

the trade practice surveillance responsibility 

to a third party, such third party should have 

the capacity and authority to carry out such 

programs, and the electronic trading facility 

should retain appropriate supervisory 

authority over the third party. 

(2) An electronic trading facility on which 

significant price discovery contracts are 

executed or traded should have 

arrangements, resources and authority for 

effective rule enforcement. The Commission 

believes that this should include the 

authority and ability to discipline and limit 

or suspend the activities of a market 

participant as well as the authority and 

ability to terminate the activities of a market 

participant pursuant to clear and fair 

standards. The electronic trading facility can 

satisfy this criterion for market participants 

by expelling or denying such person’s future 

access upon a determination that such a 

person has violated the electronic trading 

facility’s rules. 

(b) Acceptable practices. An acceptable 

trade practice surveillance program generally 

would include: 

(1) Maintenance of data reflecting the 

details of each transaction executed on the 

electronic trading facility; 

(2) Electronic analysis of this data 

routinely to detect potential trading 

violations; 

(3) Appropriate and thorough investigative 

analysis of these and other potential trading 

violations brought to the electronic trading 

facility’s attention; and 

(4) Prompt and effective disciplinary action 

for any violation that is found to have been 

committed. The Commission believes that 

the latter element should include the 

authority and ability to discipline and limit 

or suspend the activities of a market 

participant pursuant to clear and fair 

standards that are available to market 

participants. 

CORE PRINCIPLE VIII—CONFLICTS OF 

INTEREST. The electronic trading facility on 

which significant price discovery contracts 

are executed or traded shall establish and 

enforce rules to minimize conflicts of interest 

in the decision-making process of the 

electronic trading facility and establish a 

process for resolving such conflicts of 

interest. 

(a) Guidance. (1) The means to address 

conflicts of interest in the decision-making of 

an electronic trading facility on which 

significant price discovery contracts are 

executed or traded should include methods 

to ascertain the presence of conflicts of 

interest and to make decisions in the event 

of such a conflict. In addition, the 

Commission believes that the electronic 

trading facility on which significant price 

discovery contracts are executed or traded 

should provide for appropriate limitations on 

the use or disclosure of material non-public 

information gained through the performance 

of official duties by board members, 

committee members and electronic trading 

facility employees or gained through an 

ownership interest in the electronic trading 

facility or its parent organization(s). 

(2) All electronic trading facilities on 

which significant price discovery contracts 

are traded bear special responsibility to 

regulate effectively, impartially, and with 

due consideration of the public interest, as 

provided in section 3 of the Act. Under Core 

Principle VIII, they are also required to 

minimize conflicts of interest in their 

decision-making processes. To comply with 

this core principle, electronic trading 

facilities on which significant price discovery 

contracts are traded should be particularly 

vigilant for such conflicts between and 

among any of their self-regulatory 

responsibilities, their commercial interests, 

and the several interests of their 

management, members, owners, market 

participants, other industry participants and 

other constituencies. 

(b) Acceptable practices. [Reserved] 

CORE PRINCIPLE IX—ANTITRUST 

CONSIDERATIONS. Unless necessary or 

appropriate to achieve the purposes of this 

Act, the electronic trading facility, with 

respect to any significant price discovery 

contracts, shall endeavor to avoid adopting 

any rules or taking any actions that result in 

any unreasonable restraints of trade or 

imposing any material anticompetitive 

burden on trading on the electronic trading 

facility. 

(a) Guidance. An electronic trading facility, 

with respect to a significant price discovery 

contract, may at any time request that the 

Commission consider under the provisions of 

section 15(b) of the Act any of the electronic 

trading facility’s rules, which may be trading 

protocols or policies, operational rules, or 

terms or conditions of any significant price 

discovery contract. The Commission intends 

to apply section 15(b) of the Act to its 

consideration of issues under this core 

principle in a manner consistent with that 

previously applied to contract markets. 

(b) Acceptable practices. [Reserved] 

PART 41—SECURITY FUTURES 

PRODUCTS 

45a. The authority citation for part 41 

continues to read as follows: 

Authority: Sections 206, 251 and 252, Pub. 

L. 106–554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 

6j, 7a–2, 12a; 15 U.S.C. 78g(c)(2). 

45b. Revise § 41.2 to read as follows: 

§ 41.2 Required records. 

A designated contract market that 

trades a security index or security 

futures product shall maintain in 

accordance with the requirements of 

§ 1.31 of this chapter books and records 

of all activities related to the trading of 

such products, including: Records 

related to any determination under 

subpart B of this part whether or not a 

futures contract on a security index is a 

narrow-based security index or a broadbased security index. 

46. Revise paragraph (a) introductory 

text of § 41.12 to read as follows: 

§ 41.12 Indexes underlying futures 

contracts trading for fewer than 30 days. 

(a) An index on which a contract of 

sale for future delivery is trading on a 

designated contract market or foreign 

board of trade is not a narrow-based 

security index under section 1a(25) of 

the Act (7 U.S.C. 1a(25)) for the first 30 

days of trading, if: 

* * * * * 

47. Revise § 41.13 to read as follows: 

§ 41.13 Futures contracts on security 

indexes trading on or subject to the rules 

of a foreign board of trade. 

When a contract of sale for future 

delivery on a security index is traded on 

or subject to the rules of a foreign board 

of trade, such index shall not be a 

narrow-based security index if it would 

not be a narrow-based security index if 

a futures contract on such index were 

traded on a designated contract market. 

48. Revise paragraphs (a)(1), (a)(3) and 

(b)(4) of § 41.21 to read as follows: 

§ 41.21 Requirements for underlying 

securities. 

(a) * * * 

(1) The underlying security is 

registered pursuant to section 12 of the 

Securities Exchange Act of 1934; 

* * * * * 

(3) The underlying security conforms 

with the listing standards for the 

security futures product that the 

designated contract market has filed 

with the SEC under section 19(b) of the 

Securities Exchange Act of 1934. 

(b) * * * 

(4) The index conforms with the 

listing standards for the security futures 

product that the designated contract 

market has filed with the SEC under 

section 19(b) of the Securities Exchange 

Act of 1934. 

49. Revise the introductory text and 

paragraph (e) of § 41.22 to read as 

follows: 

§ 41.22 Required certifications. 

It shall be unlawful for a designated 

contract market to list for trading or 


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execution a security futures product 

unless the designated contract market 

has provided the Commission with a 

certification that the specific security 

futures product or products and the 

designated contract market meet, as 

applicable, the following criteria: 

* * * * * 

(e) If the board of trade is a designated 

contract market pursuant to section 5 of 

the Act, dual trading in these security 

futures products is restricted in 

accordance with § 41.27; 

* * * * * 

50. Revise paragraph (a) introductory 

text, paragraph (a)(5), and paragraph (b) 

of § 41.23 to read as follows: 

§ 41.23 Listing of security futures 

products for trading. 

(a) Initial listing of products for 

trading. To list new security futures 

products for trading, a designated 

contract market shall submit to the 

Commission at its Washington, DC 

headquarters, either in electronic or 

hard-copy form, to be received by the 

Commission no later than the day prior 

to the initiation of trading, a filing that: 

* * * * * 

(5) If the board of trade is a designated 

contract market pursuant to section 5 of 

the Act, it includes a certification that 

the security futures product complies 

with the Act and rules thereunder; and 

* * * * * 

(b) Voluntary submission of security 

futures products for Commission 

approval. A designated contract market 

may request that the Commission 

approve any security futures product 

under the procedures of § 40.5 of this 

chapter, provided however, that the 

registered entity shall include the 

certification required by § 41.22 with its 

submission under § 40.5 of this chapter. 

Notice designated contract markets may 

not request Commission approval of 

security futures products. 

51. Amend § 41.24 by removing 

paragraph (b), redesignating paragraph 

(c) as paragraph (b), and revising 

redesignated paragraph (b), to read as 

follows: 

§ 41.24 Rule amendments to security 

futures products. 

* * * * * 

(b) Voluntary submission of rules for 

Commission review and approval. A 

designated contract market or a 

registered derivatives clearing 

organization clearing security futures 

products may request that the 

Commission approve any rule or 

proposed rule or rule amendment 

relating to a security futures product 

under the procedures of § 40.5 of this 

chapter, provided however, that the 

registered entity shall include the 

certifications required by § 41.22 with 

its submission under § 40.5 of this 

chapter. Notice designated contract 

markets may not request Commission 

approval of rules. 

52. Revise paragraphs (a)(1), (a)(2) 

introductory text, (a)(3) introductory 

text, (a)(3)(i)(A), (a)(3)(i)(B), (a)(3)(iv), 

and (d) of § 41.25 to read as follows: 

§ 41.25 Additional conditions for trading 

for security futures products. 

(a) Common provisions—(1) Reporting 

of data. The designated contract market 

shall comply with chapter 16 of this 

title requiring the daily reporting of 

market data. 

(2) Regulatory trading halts. The rules 

of a designated contract market that lists 

or trades one or more security futures 

products must include the following 

provisions: 

* * * * * 

(3) Speculative position limits. The 

designated contract market shall have 

rules in place establishing position 

limits or position accountability 

procedures for the expiring futures 

contract month. The designated contract 

market shall: 

(i) * * * 

(A) For security futures products 

where the average daily trading volume 

in the underlying security exceeds 20 

million shares, or exceeds 15 million 

shares and there are more than 40 

million shares of the underlying 

security outstanding, the designated 

contract market may adopt a net 

position limit no greater than 22,500 

(100-share) contracts applicable to 

positions held during the last five 

trading days of an expiring contract 

month; or 

(B) For security futures products 

where the average daily trading volume 

in the underlying security exceeds 20 

million shares and there are more than 

40 million shares of the underlying 

security outstanding, the designated 

contract market may adopt a position 

accountability rule. Upon request by the 

designated contract market, traders who 

hold net positions greater than 22,500 

(100-share) contracts, or such lower 

level specified by exchange rules, must 

provide information to the exchange 

and consent to halt increasing their 

positions when so ordered by the 

exchange. 

* * * * * 

(iv) For purposes of this section, 

average daily trading volume shall be 

calculated monthly, using data for the 

most recent six-month period. If the 

data justify a higher or lower 

speculative limit for a security future, 

the designated contract market may 

raise or lower the position limit for that 

security future effective no earlier than 

the day after it has provided notification 

to the Commission and to the public 

under the submission requirements of 

§ 41.24. If the data require imposition of 

a reduced position limit for a security 

future, the designated contract market 

may permit any trader holding a 

position in compliance with the 

previous position limit, but in excess of 

the reduced limit, to maintain such 

position through the expiration of the 

security futures contract; provided, that 

the designated contract market does not 

find that the position poses a threat to 

the orderly expiration of such contract. 

* * * * * 

(d) The Commission may exempt a 

designated contract market from the 

provisions of paragraphs (a)(2) and (b) of 

this section, either unconditionally or 

on specified terms and conditions, if the 

Commission determines that such 

exemption is consistent with the public 

interest and the protection of customers. 

An exemption granted pursuant to this 

paragraph shall not operate as an 

exemption from any Securities and 

Exchange Commission rules. Any 

exemption that may be required from 

such rules must be obtained separately 

from the Securities and Exchange 

Commission. 

53. Amend § 41.27 by: 

a. Revising paragraphs (a)(1), (a)(3) 

introductory text, (a)(4)(v), (a)(5), (b), (d) 

introductory text, (d)(1), (d)(4), and (f); 

and 

b. Removing and reserving paragraphs 

(c)(2) and (e)(2), to read as follows: 

§ 41.27 Prohibition of dual trading in 

security futures products by floor brokers. 

(a) * * * 

(1) Trading session means hours 

during which a designated contract 

market is scheduled to trade 

continuously during a trading day, as 

set forth in its rules, including any 

related post settlement trading session. 

A designated contract market may have 

more than one trading session during a 

trading day. 

* * * * * 

(3) Broker association includes two or 

more designated contract market 

members with floor trading privileges of 

whom at least one is acting as a floor 

broker who: 

* * * * * 

(4) * * * 

(v) An account for another member 

present on the floor of a designated 

contract market or an account controlled 

by such other member. 

(5) Dual trading means the execution 

of customer orders by a floor broker 


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through open outcry during the same 

trading session in which the floor broker 

executes directly or by initiating and 

passing to another member, either 

through open outcry or through a 

trading system that electronically 

matches bids and offers pursuant to a 

predetermined algorithm, a transaction 

for the same security futures product on 

the same designated contract market for 

an account described in paragraphs 

(a)(4)(i) through (v) of this section. 

(b) Dual trading prohibition. (1) No 

floor broker shall engage in dual trading 

in a security futures product on a 

designated contract market, except as 

otherwise provided under paragraphs 

(d), (e), and (f) of this section. 

(2) A designated contract market 

operating an electronic market or 

electronic trading system that provides 

market participants with a time or place 

advantage or the ability to override a 

predetermined algorithm must submit 

an appropriate rule proposal to the 

Commission consistent with the 

procedures set forth in § 40.5. The 

proposed rule must prohibit electronic 

market participants with a time or place 

advantage or the ability to override a 

predetermined algorithm from trading a 

security futures product for accounts in 

which these same participants have any 

interest during the same trading session 

that they also trade the same security 

futures product for other accounts. This 

paragraph, however, is not applicable 

with respect to execution priorities or 

quantity guarantees granted to market 

makers who perform that function, or to 

market participants who receive 

execution priorities based on price 

improvement activity, in accordance 

with the rules governing the designated 

contract market. 

(c) * * * 

(2) [Reserved] 

(d) Specific permitted exceptions. 

Notwithstanding the applicability of a 

dual trading prohibition under 

paragraph (b) of this section, dual 

trading may be permitted on a 

designated contract market pursuant to 

one or more of the following specific 

exceptions: 

(1) Correction of errors. To offset 

trading errors resulting from the 

execution of customer orders, provided, 

that the floor broker must liquidate the 

position in his or her personal error 

account resulting from that error 

through open outcry or through a 

trading system that electronically 

matches bids and offers as soon as 

practicable, but, except as provided 

herein, not later than the close of 

business on the business day following 

the discovery of error. In the event that 

a floor broker is unable to offset the 

error trade because the daily price 

fluctuation limit is reached, a trading 

halt is imposed by the designated 

contract market, or an emergency is 

declared pursuant to the rules of the 

designated contract market, the floor 

broker must liquidate the position in his 

or her personal error account resulting 

from that error as soon as practicable 

thereafter. 

* * * * * 

(4) Market emergencies. To address 

emergency market conditions resulting 

in a temporary emergency action as 

determined by a designated contract 

market. 

(e) * * * 

(2) [Reserved] 

(f) Unique or special characteristics of 

agreements, contracts or transactions, or 

of designated contract markets. 

Notwithstanding the applicability of a 

dual trading prohibition under 

paragraph (b) of this section, dual 

trading may be permitted on a 

designated contract market to address 

unique or special characteristics of 

agreements, contracts, or transactions, 

or of the designated contract market as 

provided herein. Any rule of a 

designated contract market that would 

permit dual trading when it would 

otherwise be prohibited, based on a 

unique or special characteristic of 

agreements, contracts, or transactions, 

or of the designated contract market 

must be submitted to the Commission 

for prior approval under the procedures 

set forth in § 40.5 of this chapter. The 

rule submission must include a detailed 

demonstration of why an exception is 

warranted. 

54. Revise paragraph (a)(30) of § 41.43 

to read as follows: 

§ 41.43 Definitions. 

(a) * * * 

(30) Self-regulatory authority means a 

national securities exchange registered 

under section 6 of the Exchange Act, a 

national securities association registered 

under section 15A of the Exchange Act, 

or a contract market registered under 

section 5 of the Act or section 5f of the 

Act. 

* * * * * 

55. Revise paragraph (b) introductory 

text of § 41.49 to read as follows: 

§ 41.49 Filing proposed margin rule 

changes with the Commission. 

* * * * * 

(b) Filing requirements under the Act. 

Any self-regulatory authority that is 

registered with the Commission as a 

designated contract market under 

section 5 of the Act shall, when filing 

a proposed rule change regarding 

customer margin for security futures 

with the SEC for approval in accordance 

with section 19(b)(2) of the Securities 

Exchange Act, submit such proposed 

rule change to the Commission as 

follows: 

* * * * * 

PART 140—ORGANIZATION, 

FUNCTIONS, AND PROCEDURES OF 

THE COMMISSION 

56a. The authority citation for part 

140 continues to read as follows: 

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

56b. Amend § 140.72 by 

a. Revising the heading; and 

b. Revising paragraphs (a), (b), (d) and 

(f), to read as follows: 

§ 140.72 Delegation of authority to 

disclose confidential information to a 

contract market, swap execution facility, 

swap data repository, registered futures 

association or self-regulatory organization. 

(a) Pursuant to the authority granted 

under sections 2(a)(11), 8a(5) and 8a(6) 

of the Act, the Commission hereby 

delegates, until such time as the 

Commission orders otherwise, to the 

Executive Director, the Deputy 

Executive Director, the Special Assistant 

to the Executive Director, the Director of 

the Division of Clearing and 

Intermediary Oversight, each Deputy 

Director of the Division of Clearing and 

Intermediary Oversight, the Chief 

Accountant, the General Counsel, each 

Deputy General Counsel, the Director of 

the Division of Market Oversight, each 

Deputy Director of the Division of 

Market Oversight, the Director of the 

Market Surveillance Section, the 

Director of the Division of Enforcement, 

each Deputy Director of the Division of 

Enforcement, each Associate Director of 

the Division of Enforcement, the Chief 

Counsel of the Division of Enforcement, 

each Regional Counsel of the Division of 

Enforcement, each of the Regional 

Administrators, each of the Directors of 

the Market Surveillance Branches, the 

Chief Economist of the Office of the 

Chief Economist, the Deputy Chief 

Economist of the Office of the Chief 

Economist, the Director of the Office of 

International Affairs, and the Deputy 

Director of the Office of International 

Affairs, the authority to disclose to an 

official of any contract market, swap 

execution facility, swap data repository, 

registered futures association, or selfregulatory organization as defined in 

section 3(a)(26) of the Securities 

Exchange Act of 1934, any information 

necessary or appropriate to effectuate 

the purposes of the Act, including, but 

not limited to, the full facts concerning 

any transaction or market operation, 

including the names of the parties 


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thereto. This authority to disclose shall 

be based on a determination that the 

transaction or market operation disrupts 

or tends to disrupt any market or is 

otherwise harmful or against the best 

interests of producers, consumers, or 

investors or that disclosure is necessary 

or appropriate to effectuate the purposes 

of the Act. The authority to make such 

a determination is also delegated by the 

Commission to the Commission 

employees identified in this section. A 

Commission employee delegated 

authority under this section may 

exercise that authority on his or her own 

initiative or in response to a request by 

an official of a contract market, swap 

execution facility, swap data repository, 

registered futures association or selfregulatory organization. 

(b) Disclosure under this section shall 

only be made to a contract market, swap 

execution facility, swap data repository, 

registered futures association or selfregulatory organization official who is 

named in a list filed with the 

Commission by the chief executive 

officer of the contract market, swap 

execution facility, swap data repository, 

registered futures association or selfregulatory organization, which sets forth 

the official’s name, business address 

and telephone number. The chief 

executive officer shall thereafter notify 

the Commission of any deletions or 

additions to the list of officials 

authorized to receive disclosures under 

this section. The original list and any 

supplemental list required by this 

paragraph shall be filed with the 

Secretary of the Commission, and a 

copy thereof shall also be filed with the 

Regional Coordinator for the region in 

which the contract market, swap 

execution facility, or swap data 

repository is located or in which the 

registered futures association or selfregulatory organization has its principal 

office. 

* * * * * 

(d) For purposes of this section, the 

term ‘‘official’’ shall mean any officer or 

member of a committee of a contract 

market, swap execution facility, swap 

data repository, registered futures 

association or self-regulatory 

organization who is specifically charged 

with market surveillance or audit or 

investigative responsibilities, or their 

duly authorized representative or agent, 

who is named on the list filed pursuant 

to paragraph (b) of this section or any 

supplement thereto. 

* * * * * 

(f) Any contract market, swap 

execution facility, swap data repository, 

registered futures association or selfregulatory organization receiving 

information from the Commission under 

these provisions shall not disclose such 

information except that disclosure may 

be made in any self-regulatory action or 

proceeding. 

57. Amend § 140.77 by: 

a. Revising the heading; and 

b. Revising paragraph (a) to read as 

follows: 

§ 140.77 Delegation of authority to 

determine that applications for contract 

market designation, swap execution facility 

registration, or swap data repository 

registration are materially incomplete. 

(a) The Commodity Futures Trading 

Commission hereby delegates, until 

such time as the Commission orders 

otherwise, to the Director of the 

Division of Market Oversight or the 

Director’s designees, the authority to 

determine that an application for 

contract market designation, swap 

execution facility registration, or swap 

data repository registration is materially 

incomplete under section 6 of the 

Commodity Exchange Act and to so 

notify the applicant. 

* * * * * 

58. Revise paragraphs (a) and (b) of 

§ 140.96 to read as follows: 

§ 140.96 Delegation of authority to publish 

in the Federal Register. 

(a) The Commodity Futures Trading 

Commission hereby delegates, until 

such time as the Commission orders 

otherwise, to the Director of the 

Division of Market Oversight or the 

Director’s designee, with the 

concurrence of the General Counsel or 

the General Counsel’s designee, the 

authority to publish in the Federal 

Register notice of the availability for 

comment of the proposed terms and 

conditions of applications for contract 

market designation, swap execution 

facility and swap data repository 

registration, and to determine to 

publish, and to publish, requests for 

public comment on proposed exchange, 

swap execution facility, or swap data 

repository rules, and rule amendments, 

when there exists novel or complex 

issues that require additional time to 

analyze, an inadequate explanation by 

the submitting registered entity, or a 

potential inconsistency with the Act, 

including regulations under the Act. 

(b) The Commodity Futures Trading 

Commission hereby delegates, until 

such time as the Commission orders 

otherwise, to the Director of the 

Division of Market Oversight or the 

Director’s designee, and to the Director 

of the Division of Clearing and 

Intermediary Oversight or the Director’s 

designee, with the concurrence of the 

General Counsel or the General 

Counsel’s designee, the authority to 

determine to publish, and to publish, in 

the Federal Register, requests for public 

comment on proposed exchange and 

self-regulatory organization rule 

amendments when publication of the 

proposed rule amendment is in the 

public interest and will assist the 

Commission in considering the views of 

interested persons. 

* * * * * 

59. Revise paragraph (d)(2) of § 140.99 

to read as follows: 

§ 140.99 Requests for exemptive, noaction and interpretative letters. 

* * * * * 

(d) * * * 

(2) A request for a Letter relating to 

the provisions of the Act or the 

Commission’s rules, regulations or 

orders governing designated contract 

markets, registered swap execution 

facilities, registered swap data 

repositories, exempt commercial 

markets, exempt boards of trade, the 

nature of particular transactions and 

whether they are exempt or excluded 

from being required to be traded on one 

of the foregoing entities, foreign trading 

terminals, hedging exemptions, and the 

reporting of market positions shall be 

filed with the Director, Division of 

Market Oversight, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. A request for a 

Letter relating to all other provisions of 

the Act or Commission rules shall be 

filed with the Director, Division of 

Clearing and Intermediary Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. The request must be submitted 

electronically using the e-mail address 

dmoletters@cftc.gov (for requests filed 

with the Division of Market Oversight), 

or dcioletters@cftc.gov (for requests filed 

with the Division of Clearing and 

Intermediary Oversight), as appropriate, 

and a properly signed paper copy of the 

request must be provided to the 

Division of Market Oversight or the 

Division of Clearing and Intermediary 

Oversight, as appropriate, within ten 

days for purposes of verification of the 

electronic submission. 

* * * * * 

60. Amend § 140.735–2 by: 

a. Redesignating paragraphs (b)(1)(i), 

(b)(1)(ii), and (b)(1)(iii) as (b)(1)(ii), 

(b)(1)(iv), and (b)(1)(v), respectively; 

b. Adding paragraphs (b)(1)(i) and 

(b)(1)(iii); and 

c. Revising paragraphs (b)(2) and (c), 

to read as follows: 


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2As used in this subpart, ‘‘General Counsel’’ refers 

to the General Counsel in his or her capacity as 

counselor for the Commission and designated 

agency ethics official for the Commission, and 

includes his or her designee and the alternate 

designated agency ethics official appointed by the 

agency head pursuant to 5 CFR 2638.202. 

3Although not required, if they choose to do so, 

members or employees may use powers of attorney 

or other arrangements in order to meet the notice 

requirements of, and to assure that they have no 

control or knowledge of, futures or options 

transactions permitted under paragraph (c) of this 

section. A member or employee considering such 

arrangements should consult with the Office of 

General Counsel in advance for approval. Should a 

member or employee gain knowledge of an actual 

futures, commodity option, or swap transaction 

entered into by an operation described in paragraph 

(c) of this section that has already taken place and 

the market position represented by that transaction 

remains open, he or she should promptly report 

that fact and all other details to the General Counsel 

and seek advice as to what action, including recusal 

from any particular matter that will have a direct 

and predictable effect on the financial interest in 

question, may be appropriate. 

5As defined in section 1a(38) of the Commodity 

Exchange Act and 17 CFR 1.3(u) thereunder, a 

‘‘person’’ includes an individual, association, 

partnership, corporation and a trust. 

6Attention is directed to 18 U.S.C. 208. 

11Attention is directed to section 2(a)(8) of the 

Commodity Exchange Act, which provides, among 

other things, that no Commission member or 

employee shall accept employment or 

compensation from any person, exchange or 

clearinghouse subject to regulation by the 

Commission, or participate, directly or indirectly, 

in any contract market operations or transactions of 

a character subject to regulation by the Commission. 

§ 140.735–2 Prohibited transactions. 

* * * * * 

(b) * * * 

(1) * * * 

(i) In swaps; 

* * * * * 

(iii) In retail forex transactions, as that 

term is defined in § 5.1(m); 

* * * * * 

(2) Effect any purchase or sale of a 

commodity option, futures contract, or 

swap involving a security or group of 

securities; 

* * * * * 

(c) Exception for farming, ranching, 

and natural resource operations. The 

prohibitions in paragraphs (b)(1)(i) and 

(ii) of this section shall not apply to a 

transaction in connection with any 

farming, ranching, oil and gas, mineral 

rights, or other natural resource 

operation in which the member or 

employee has a financial interest, if he 

or she is not involved in the decision to 

engage in, and does not have prior 

knowledge of, the actual futures, 

commodity option, or swap transaction 

and has previously notified the General 

Counsel 2 in writing of the nature of the 

operation, the extent of the member’s or 

employee’s interest, the types of 

transactions in which the operation may 

engage, and the identity of the person or 

persons who will make trading 

decisions for the operation; 3

* * * * * 

61. Revise paragraph (b)(1) of 

§ 140.735–2a to read as follows: 

§ 140.735–2a Prohibited Interests. 

* * * * * 

(b) * * * 

(1) Have a financial interest, through 

ownership of securities or otherwise, in 

any person 5 registered with the 

Commission (including futures 

commission merchants, associated 

persons and agents of futures 

commission merchants, floor brokers, 

commodity trading advisors and 

commodity pool operators, and any 

other persons required to be registered 

in a fashion similar to any of the above 

under the Commodity Exchange Act or 

pursuant to any rule or regulation 

promulgated by the Commission), or 

any contract market, swap execution 

facility, swap data repository, board of 

trade, or other trading facility, or any 

clearing organization subject to 

regulation or oversight by the 

Commission; 6

* * * * * 

62. Revise § 140.735–3 to read as 

follows: 

§ 140.735–3 Non-governmental 

employment and other outside activity. 

A Commission member or employee 

shall not accept employment or 

compensation from any person, 

exchange, swap execution facility, swap 

data repository or clearinghouse subject 

to regulation by the Commission. For 

purposes of this section, a person 

subject to regulation by the Commission 

includes but is not limited to a contract 

market, swap execution facility, swap 

data repository or clearinghouse or 

member thereof, a registered futures 

commission merchant, any person 

associated with a futures commission 

merchant or with any agent of a futures 

commission merchant, floor broker, 

commodity trading advisor, commodity 

pool operator or any person required to 

be registered in a fashion similar to any 

of the above or file reports under the Act 

or pursuant to any rule or regulation 

promulgated by the Commission.11

PART 145—COMMISSION RECORDS 

AND INFORMATION 

63a. The authority citation for part 

145 continues to read as follows: 

Authority: Pub. L. 99–570, 100 Stat. 3207; 

Pub. L. 89–554, 80 Stat. 383; Pub. L. 90–23, 

81 Stat. 54; Pub. L. 98–502, 88 Stat. 1561– 

1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93– 

463, 88 Stat. 1389 (5 U.S.C. 4a(j)); unless 

otherwise noted. 

63b. Revise paragraph (c)(1), (d)(1) 

introductory text, and (d)(1)(vi) of 

§ 145.9 to read as follows: 

§ 145.9 Petition for confidential treatment 

of information submitted to the 

Commission. 

* * * * * 

(c) * * * 

(1) Submitter. A ‘‘submitter’’ is any 

person who submits any information or 

material to the Commission or who 

permits any information or material to 

be submitted to the Commission. For 

purposes of paragraph (d)(1)(ii) of this 

section only, ‘‘submitter’’ includes any 

person whose information has been 

submitted to a designated contract 

market, derivatives clearing 

organization, swap execution facility, 

swap data repository or registered 

futures association that in turn has 

submitted the information to the 

Commission. 

* * * * * 

(d) Written request for confidential 

treatment. (1) Any submitter may 

request in writing that the Commission 

afford confidential treatment under the 

Freedom of Information Act to any 

information that he or she submits to 

the Commission. Except as provided in 

paragraph (d)(4) of this section, no oral 

requests for confidential treatment will 

be accepted by the Commission. The 

submitter shall specify the grounds on 

which confidential treatment is being 

requested but need not provide a 

detailed written justification of the 

request unless required to do so under 

paragraph (e) of this section. 

Confidential treatment may be requested 

only on the grounds that disclosure: 

* * * * * 

(vi) Would reveal investigatory 

records compiled for law enforcement 

purposes when disclosure would 

interfere with enforcement proceedings 

or disclose investigative techniques and 

procedures, provided, that the claim 

may be made only by a designated 

contract market, derivatives clearing 

organization, swap execution facility, 

swap data repository or registered 

futures association with regard to its 

own investigatory records. 

* * * * * 

64. Revise paragraphs (a)(6), (a)(8), 

and (b)(13) of Appendix A to part 145 

to read as follows: 

Appendix A To Part 145—Compilation 

of Commission Records Available to the 

Public 

* * * * * 

(a) * * * 


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33112 Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 

(6) Rule enforcement and financial reviews 

(public version). 

* * * * * 

(8) Commission rules and regulations, 

Federal Register notices, interpretative 

letters. 

* * * * * 

(b) * * * 

(13) Publicly available portions of 

applications to become a registered entity 

including the transmittal letter, application 

form, proposed rules, proposed bylaws, 

corporate documents, any overview or 

similar summary provided by the applicant, 

any documents pertaining to the applicant’s 

legal status and governance structure, 

including governance fitness information, 

and any other part of the application not 

covered by a request for confidential 

treatment. 

* * * * * 

PART 155—TRADING STANDARDS 

65a. The authority citation for part 

155 continues to read as follows: 

Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, 

unless otherwise noted. 

65b. Revise the introductory text of 

§ 155.2 to read as follows: 

§ 155.2 Trading standards for floor 

brokers. 

Each contract market shall adopt rules 

which shall, at a minimum, with respect 

to each member of the contract market 

acting as a floor broker: 

* * * * * 

66. Revise paragraphs (a)(1), (b)(2)(ii), 

and (c)(1) of § 155.3 to read as follows: 

§ 155.3 Trading standards for futures 

commission merchants. 

(a) * * * 

(1) Insure, to the extent possible, that 

each order received from a customer 

which is executable at or near the 

market price is transmitted to the floor 

of the appropriate contract market 

before any order in any future or in any 

commodity option in the same 

commodity for any proprietary account, 

any other account in which an affiliated 

person has an interest, or any account 

for which an affiliated person may 

originate orders without the prior 

specific consent of the account owner, 

if the affiliated person has gained 

knowledge of the customer’s order prior 

to the transmission to the floor of the 

appropriate contract market of the order 

for a proprietary account, an account in 

which the affiliated person has an 

interest, or an account in which the 

affiliated person may originate orders 

without the prior specific consent of the 

account owner; and 

* * * * * 

(b) * * * 

(2) * * * 

(ii) In the case of a customer who does 

not qualify as an ‘‘institutional 

customer’’ as defined in § 1.3(g) of this 

chapter, a futures commission merchant 

must obtain the customer’s prior 

consent through a signed 

acknowledgment, which may be 

accomplished in accordance with 

§ 1.55(d) of this chapter. 

(c) * * * 

(1) Receives written authorization 

from a person designated by such other 

futures commission merchant or 

introducing broker with responsibility 

for the surveillance over such account 

pursuant to paragraph (a)(2) of this 

section or § 155.4(a)(2), respectively; 

* * * * * 

67. Revise paragraphs (a)(1), (b)(2)(ii), 

and (c)(2) of § 155.4 to read as follows: 

§ 155.4 Trading standards for introducing 

brokers. 

(a) * * * 

(1) Insure, to the extent possible, that 

each order received from a customer 

which is executable at or near the 

market price is transmitted to the 

futures commission merchant carrying 

the account of the customer before any 

order in any future or in any commodity 

option in the same commodity for any 

proprietary account, any other account 

in which an affiliated person has an 

interest, or any account for which an 

affiliated person may originate orders 

without the prior specific consent of the 

account owner, if the affiliated person 

has gained knowledge of the customer’s 

order prior to the transmission to the 

floor of the appropriate contract market 

of the order for a proprietary account, an 

account in which the affiliated person 

has an interest, or an account in which 

the affiliated person may originate 

orders without the prior specific 

consent of the account owner; and 

* * * * * 

(b) * * * 

(2) * * * 

(ii) In the case of a customer who does 

not qualify as an ‘‘institutional 

customer’’ as defined in § 1.3(g) of this 

chapter, an introducing broker must 

obtain the customer’s prior consent 

through a signed acknowledgment, 

which may be accomplished in 

accordance with § 1.55(d) of this 

chapter. 

* * * * * 

(c) * * * 

(2) Copies of all statements for such 

account and of all written records 

prepared by such futures commission 

merchant upon receipt of orders for 

such account pursuant to § 155.3(c)(2) 

are transmitted on a regular basis to the 

introducing broker with which such 

person is affiliated. 

§ 155.6 [Removed and Reserved] 

68. Remove and reserve § 155.6. 

PART 166—CUSTOMER PROTECTION 

RULES 

69a. The authority citation for part 

155 is revised to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 

6h, 6k, 6l, 6o, 7, 12a, 21, and 23, as amended 

by Title VII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, Pub. L. 

111–203, 124 Stat. 1376 (2010). 

69b. Revise paragraph (a) introductory 

text and paragraph (b) of § 166.2 to read 

as follows: 

§ 166.2 Authorization to trade. 

* * * * * 

(a) With respect to a commodity 

interest as defined in any paragraph of 

the commodity interest definition in 

§ 1.3(yy) of this chapter, specifically 

authorized the futures commission 

merchant, retail foreign exchange 

dealer, introducing broker or any of 

their associated persons to effect the 

transaction (a transaction is ‘‘specifically 

authorized’’ if the customer or person 

designated by the customer to control 

the account specifies— 

* * * * * 

(b) With respect to a commodity 

interest as defined in paragraph (1) or 

(2) of the commodity interest definition 

in § 1.3(yy) of this chapter, authorized 

in writing the futures commission 

merchant, introducing broker or any of 

their associated persons to effect 

transactions in commodity interests for 

the account without the customer’s 

specific authorization; Provided, 

however, That if any such futures 

commission merchant, introducing 

broker or any of their associated persons 

is also authorized to effect transactions 

in foreign futures or foreign options 

without the customer’s specific 

authorization, such authorization must 

be expressly documented. 

70. Revise paragraph (a)(2) of § 166.5 

to read as follows: 

§ 166.5 Dispute settlement procedures. 

(a) * * * 

(2) The term customer as used in this 

section includes any person for or on 

behalf of whom a member of a 

designated contract market, or a 

participant transacting on or through 

such designated contract market, effects 

a transaction on such contract market, 

except another member of or participant 

in such designated contract market. 

Provided, however, a person who is an 

‘‘eligible contract participant’’ as defined 

in section 1a(18) of the Act shall not be 


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Federal Register / Vol. 76, No. 109 / Tuesday, June 7, 2011 / Proposed Rules 33113 

deemed to be a customer within the 

meaning of this section. 

* * * * * 

Issued in Washington, DC on April 27, 

2011, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Adaptation of 

Regulations To Incorporate Swaps— 

Commission Voting Summary and 

Statements of Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Chilton and O’Malia 

voted in the affirmative; Commissioner 

Sommers voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rulemaking to adapt 

existing CFTC regulations to the new 

requirements of the Dodd-Frank Act. The Act 

expanded the scope of the Commodity 

Exchange Act to include swaps. In addition 

to rulemakings implementing specific 

provisions of the Act, conforming changes 

across the Commission’s existing regulations 

are needed to incorporate that expanded 

scope. Specifically, this proposed rulemaking 

would update the definitions of futures 

commission merchant (FCM) and introducing 

broker (IB) to fulfill the Dodd-Frank Act’s 

requirement to permit those entities to trade 

swaps on behalf of their customers. The 

proposal also would add swap execution 

facilities (SEFs) to the list of CFTC-regulated 

trading venues. The proposal includes 

recordkeeping requirements for FCMs, IBs 

and SEFs to ensure that similar records are 

kept for swaps as are currently kept for 

futures, among other protections that already 

exist in the futures markets. The rules for 

FCMs with regard to allocations of bunched 

orders for swaps will be consistent with 

those rules for futures. 

[FR Doc. 2011–12270 Filed 6–6–11; 8:45 am] 

BILLING CODE 6351–01–P 


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