Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 42633 

1See infra note 2. 

2 68 FR 17809 (April 11, 2003). The White Paper 

considers new risks present in the post-September 

11 environment, addresses steps needed to 

strengthen the overall resilience of the U.S. 

financial system in the event of a wide-scale 

disruption, and is the principal source of common 

business continuity and disaster recovery standards 

applicable across the U.S. financial sector. 

3Because there are no Derivatives Transaction 

Facilities (‘‘DTEFs’’) currently registered with the 

Commission, the Commission has chosen to refrain 

from similarly modifying any regulations or 

guidance applicable to DTEFs at this time. 

4See 68 FR at 17811. 

5See id. at 17811. 

(Lat. 43°34′56′′ N., long. 71°12′06′′ W.) 

Point in Space Coordinates 

(Lat. 43°35′15′′ N., long. 71°11′19′′ W.) 

That airspace extending upward from 700 

feet above the surface within a 6-mile radius 

of the Point in Space Coordinates (lat. 

43°35′15′′ N., long. 71°11′19′′ W.) serving the 

Huggins Hospital. 

Issued in College Park, Georgia, on July 13, 

2010. 

Mark D. Ward, 

Manager, Operations Support Group, Eastern 

Service Center, Air Traffic Organization. 

[FR Doc. 2010–17954 Filed 7–21–10; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 38, 39, and 40 

RIN 3038–AC91 

Business Continuity and Disaster 

Recovery 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) is proposing a rule that 

would establish standards for recovery 

and resumption of trading and clearing 

operations by designated contract 

markets (‘‘DCMs’’) and registered 

derivatives clearing organizations 

(‘‘DCOs’’) that the Commission 

determines to be critical financial 

markets or core clearing and settlement 

organizations in the event of a widescale disruption affecting such entities’ 

trading or clearing operations. These 

proposed standards would require such 

entities to maintain business continuity 

and disaster recovery resources 

sufficient to meet a same-day recovery 

time objective for trading and clearing, 

and maintain geographic dispersal of 

infrastructure and personnel sufficient 

to enable achievement of a same-day 

recovery time objective, in the event of 

a wide-scale disruption. The proposed 

amendments also revise application 

guidance and acceptable practices under 

the Core Principles for DCMs relating to 

business continuity and disaster 

recovery matters that would harmonize 

acceptable practices for DCMs and 

DCOs. 

DATES: Comments must be received on 

or before August 23, 2010. 

ADDRESSES: Comments should be sent to 

David Stawick, Secretary, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. Comments may 

be submitted via e-mail at 

BCDR@cftc.gov. ‘‘Business Continuity 

and Disaster Recovery’’ must be in the 

subject field of responses submitted via 

e-mail, and clearly indicated on written 

submissions. Comments may also be 

submitted at http:// 

www.regulations.gov. All comments 

must be submitted in English, or if not, 

accompanied by an English translation. 

FOR FURTHER INFORMATION CONTACT: 

Robert B. Wasserman, Associate 

Director, Division of Clearing and 

Intermediary Oversight, 202–418–5092, 

rwasserman@cftc.gov; David Taylor, 

Special Counsel, Division of Market 

Oversight, 202–418–5488, 

dtaylor@cftc.gov; Jocelyn Partridge, 

Special Counsel, Division of Clearing 

and Intermediary Oversight, 202–418– 

5926, jpartridge@cftc.gov; or Cody J. 

Alvarez, Attorney Advisor, Division of 

Market Oversight, 202–418–5404, 

calvarez@cftc.gov; Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Introduction 

While the experience of the 

Commission is that DCMs and DCOs 

registered with it maintain adequate 

business continuity and disaster 

recovery (‘‘BC–DR’’) programs, the 

Commission believes that additional 

regulatory steps should be taken to 

further improve the resiliency and 

recovery capabilities of registered 

entities, particularly those organizations 

which meet the financial sector’s 

accepted definitions of ‘‘critical 

financial markets’’ and ‘‘core clearing 

and settlement organizations.’’ 1 These 

accepted definitions come from the 

Interagency Paper on Sound Practices to 

Strengthen the Resilience of the U.S. 

Financial System, commonly known as 

the ‘‘White Paper,’’ that was issued by 

the Board of Governors of the Federal 

Reserve System (‘‘Fed’’), the Department 

of the Treasury (‘‘Treasury’’), and the 

Securities and Exchange Commission 

(‘‘SEC’’) in 2003.2 Although the 

Commission did not participate in the 

issuance of the White Paper, the 

Commission has determined that it 

would be appropriate to apply standards 

analogous to those set forth in the White 

Paper to DCMs and DCOs.3

B. Standards Established by Regulators 

of Comparable Financial Entities 

The White Paper explained that 

critical financial markets are those 

markets that provide the means for 

financial institutions to adjust their cash 

and securities positions and those of 

their customers in order to manage 

liquidity, market, and other risks to 

their organizations, and provide support 

for the provision of a wide range of 

financial services to U.S. businesses and 

consumers. The White Paper defined 

‘‘critical financial markets’’ as ‘‘markets 

for [(1)] federal funds, foreign exchange, 

and commercial paper; [(2)] U.S. 

government and agency securities; and 

[(3)] corporate debt and equity 

securities.’’ 4 ‘‘Core clearing and 

settlement organizations’’ are those that 

(a) provide clearing and settlement 

services for critical financial markets, or 

(b) act as large-value payment systems 

operators and present systemic risk 

should they be unable to perform.5 This 

proposal would apply these White 

Paper standards to futures markets 

related to the aforementioned 

instruments and extend it to futures 

markets for essential physical 

commodities. 

The Commission believes that some of 

the registered entities regulated by the 

Commission may be ‘‘critical financial 

markets’’ or ‘‘core clearing and 

settlement organizations.’’ They provide 

the means for financial institutions to 

adjust their financial positions and 

those of their customers in order to 

manage liquidity, market, and other 

risks, and provide support for provision 

of a wide range of financial services to 

U.S. businesses and consumers. Their 

products include futures on U.S. 

government and agency securities, 

equity indexes, foreign exchange and 

physical commodities that comprise 

critical components of the world 

financial system. For these reasons, it 

might present unacceptable risks to the 

U.S. financial system if these entities 

were to become inoperative and 

unavailable for an extended period of 

time for any reason up to and including 

a wide-scale disruption. The ability of 

critical financial markets and core 

clearing and settlement organizations to 

recover and resume trading and clearing 

promptly in the event of a wide-scale 


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42634 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 

6The White Paper also mentions, as an 

aspirational ‘‘overall goal,’’ an RTO of two hours for 

core clearing and settlement organizations. 

7See generally, White Paper, 68 FR at 17813. 

8See 68 FR 56656 (October 1, 2003) (Release No. 

34–48545; File No. S7–17–03). 

9We understand that an exception to this general 

observation is the listing and trading of certain 

index option products that may be subject to 

exclusive licensing arrangements. 

10Section 3(b), 7 U.S.C. 5(c). Congress gave the 

Commission broad authority in Section 8a(5) of the 

Act, 7 U.S.C. 12a(5), to make and promulgate rules, 

such as those contained in this Proposal, that are 

reasonably necessary to prevent disruptions to 

market integrity, ensure the financial integrity of 

futures and options transactions and promote the 

avoidance of systemic risk. 

11 7 U.S.C. 7(d)(6). 

12 7 U.S.C. 7(d)(9). 

13 7 U.S.C. 7a–1(c)(2)(I). 

14See Application Guidance set forth in 

Appendix B to Part 38 of the Commission’s 

Regulations relating to Core Principle 6. 

15See Application Guidance set forth in 

Appendix B to Part 38 of the Commission’s 

Regulations relating to Core Principle 9. 

16See Section 5b(c)(2)(I) of the Act, 7 U.S.C. 7a– 

1(c)(2)(I). 

17See Public Law 106–554 (December 21, 2000). 

disruption is important to the U.S. 

economy. 

The White Paper calls for core 

clearing and settlement organizations to 

have the capacity to meet a same-day 

recovery time objective (‘‘RTO’’); that is, 

the capacity to recover and resume 

clearing and settlement activities within 

the business day on which the 

disruption occurs.6 Further, the White 

Paper recognizes that the ability to meet 

a same-day RTO during a wide-scale 

disruption requires an appropriate level 

of geographic diversity between primary 

and backup sites, with the latter as far 

away as necessary to avoid being subject 

to the same set of risks as the primary 

site. Backup sites should not rely on the 

same transportation, 

telecommunications, power, water, or 

other critical infrastructure components 

as the primary location. In addition, 

operation of the backup site should not 

be impaired by a wide-scale evacuation 

at, or the inaccessibility of staff that 

service, the primary site. Therefore, the 

White Paper calls for core clearing and 

settlement organizations to maintain 

backup facilities that are a significant 

distance away from their primary 

facilities, a distance sufficient to address 

the risk that a wide-scale disruption 

could make the organization’s labor 

pool across the entire metropolitan or 

other geographic area of the primary site 

(including adjacent communities 

economically integrated with it) 

unavailable to support achievement of 

the organization’s RTO.7

While the White Paper defines critical 

financial markets, it establishes an RTO 

only for core clearing and settlement 

organizations. The Policy Statement: 

Business Continuity Planning for 

Trading Markets issued by the 

Securities and Exchange Commission 

(‘‘SEC Policy Statement’’) establishes an 

RTO and a geographic dispersal of 

disaster recovery resources requirement 

for U.S. securities markets.8 The SEC 

Policy Statement recognizes that U.S. 

securities markets collectively 

constitute critical financial markets. It 

establishes a next-day, rather than sameday, RTO for securities markets because 

securities trading is ‘‘relatively fungible 

across markets,’’ since most securities 

are traded on more than one market.9 As 

a result, if trading on one securities 

market were incapacitated, that trading 

could be shifted to one or more of the 

other securities markets. By contrast, 

trading of futures is generally not 

fungible across markets. The geographic 

dispersal requirement for securities 

markets set in the SEC Policy Statement 

is the same as that set forth in the White 

Paper for core clearing and settlement 

organizations. 

C. Applicable Provisions of the 

Commodity Exchange Act 

The Commodity Exchange Act (‘‘CEA’’ 

or ‘‘Act’’) provides for the protection of 

the ‘‘public interest’’ through a system of 

effective self-regulation of trading 

facilities, clearing systems and markets 

participants under Commission 

oversight. As specifically set forth in the 

Act, ensuring the integrity of the futures 

markets and the avoidance of systemic 

risk are critical functions of the 

Commission.10 Accordingly, the 

Commission believes that this proposal 

relating to BC–DR standards is essential 

for the proper functioning of the futures 

markets and the U.S. financial system. 

The BC–DR requirements currently 

applicable to DCMs are set forth in Core 

Principle 6, Emergency Authority (‘‘Core 

Principle 6’’),11 Core Principle 9, 

Execution of Transactions (‘‘Core 

Principle 9’’),12 and Part 38 of the 

Commission’s Regulations. The BC–DR 

requirements currently applicable to 

DCOs are set forth in Core Principle I, 

System Safeguards (‘‘Core Principle 

I’’) 13 and Part 39 of the Commission’s 

Regulations. Pursuant to these 

provisions, DCMs and DCOs are 

required to have appropriate emergency 

authority, emergency procedures, 

backup facilities, and disaster recovery 

plans. Such entities must also ensure 

the proper functioning, adequate 

capacity, and security of their 

automated trading and clearing systems, 

and conduct adequate testing and 

review of those systems. 

With respect to DCMs, Core Principle 

6, Emergency Authority, requires DCMs 

to adopt rules providing for the exercise 

of emergency authority. The 

Application Guidance set forth in 

Appendix B to Part 38 of the 

Commission’s Regulations relating to 

Core Principle 6 notes that this 

authority should allow the DCM to 

‘‘intervene as necessary to maintain 

markets with fair and orderly trading as 

well as procedures for carrying out the 

intervention.’’ 14 Core Principle 9, 

Execution of Transactions, also requires 

DCMs to ‘‘provide a competitive, open, 

and efficient market and mechanism for 

executing transactions.’’ Consistent with 

Core Principle 9, DCMs are required to 

periodically test and review automated 

systems to ensure proper system 

functioning, adequate capacity, and 

security.15

With respect to DCOs, Core Principle 

I, System Safeguards, requires DCOs to 

maintain ‘‘a program of oversight and 

risk analysis to ensure that the 

automated systems of the [DCO] 

function properly and have adequate 

capacity and security.’’ It also requires 

DCOs to ‘‘maintain emergency 

procedures and a plan for disaster 

recovery, and to periodically test 

backup facilities sufficient to ensure 

daily processing, clearing, and 

settlement of transactions.’’ 16

In the near-decade that has passed 

since the Act’s Core Principles were 

established by the Commodity Futures 

Modernization Act of 2000 (‘‘CFMA’’),17

historical events have resulted in 

substantial and important changes in 

BC–DR standards for financial sector 

organizations. The events of September 

11, 2001, the Northeast regional power 

outages of 2003, the economic events of 

2008–2009, and the current rise in cyber 

threats have resulted in important 

lessons learned, and in changed 

thinking about how normal financial 

institution operations could be 

disrupted, and the preparedness 

principles that should be followed to 

ensure the financial sector’s ability to 

recover and resume operations promptly 

after a disruption. In light of these 

developments, and of the vital 

importance of critical financial markets 

and core clearing and settlement 

organizations to the national economy, 

the Commission believes that the 

additional, new standards proposed for 

those DCMs and DCOs that the 

Commission may determine to be 

critical financial markets or core 

clearing and settlement organizations 

are essential to ensure the capacity of 

such entities to recover and resume 

operations promptly in the event they 

are affected by a wide-scale disruption. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 42635 

18The same-day RTO is not intended to mandate 

the specific response of a particular entity to a 

particular disaster. Rather, the objective is intended 

to establish the recovery goal that the BC–DR plans 

of certain registrants must be designed to meet and, 

in turn, the resources that such registrants are 

expected to allocate to ensure that they are capable 

of achieving the objective. The Commission 

recognizes that a wide-scale disruption could occur 

near the close of a business day, and would 

interpret this requirement in a practical manner in 

such an event. 

The Commission also believes that, to 

better ensure the resiliency of futures 

and options trading and the ability of 

the industry to respond to current 

threats to its operations, the application 

guidance and acceptable practices 

language concerning BC–DR standards 

applicable to all DCMs should be 

updated and harmonized with the BC– 

DR standards applicable to DCOs. The 

proposed amendments to the existing 

BC–DR standards for all DCMs also seek 

to better explain those standards 

through the use of current terms of art 

with respect to BC–DR matters. The 

Commission believes the approach to 

BC–DR standards taken by the White 

Paper and the SEC Policy Statement, 

particularly with respect to the recovery 

time objective and geographic dispersal 

requirements needed to provide 

resiliency in the event of a wide-scale 

disruption, is appropriate for the 

Commission to take in adopting 

requirements applicable to registered 

entities that are critical financial 

markets or core clearing and settlement 

organizations. 

The Commission believes that certain 

DCMs and DCOs may be critical 

financial markets or core clearing and 

settlement organizations. Some DCMs 

and DCOs provide the means for 

financial institutions to adjust their 

financial positions and those of their 

customers in order to manage liquidity, 

market, and other risks, and provide 

support for provision of a wide range of 

financial services to U.S. businesses and 

consumers. The available products 

include futures contracts and related 

options on U.S. government and agency 

securities, equity indexes, foreign 

exchange and physical commodities 

that comprise critical components of the 

world financial system. For these 

reasons, it might present unacceptable 

risks to the U.S. financial system if such 

DCMs or DCOs were to become 

inoperative and unavailable for an 

extended period of time for any reason 

up to and including a wide-scale 

disruption, and their ability to recover 

and resume trading and clearing 

promptly in the event of a wide-scale 

disruption may be critically important 

to the U.S. economy. Mitigating 

systemic risk through the application of 

consistent, same-day RTOs for clearing 

and settlement activities across the 

nation’s critical financial markets in the 

event of a wide-scale disruption may be 

important to financial sector resiliency. 

Sufficient geographic dispersal of BC– 

DR resources, including both technology 

and personnel, is an essential means of 

ensuring that critical financial markets 

and core clearing and settlement 

organizations have the ability to recover 

and resume trading and clearing within 

a same-day RTO. 

II. Proposed New Regulation 40.9 

The Commission proposes 

amendments to Part 40 of its 

Regulations as follows: (1) The addition 

of new definitions in Regulation 40.1; 

(2) adoption of new Regulation 40.9 

setting forth same-day RTO and 

geographic dispersal requirements for 

critical financial markets and core 

clearing and settlement organizations; 

and (3) the adoption of new Appendix 

E providing guidance regarding the 

Commission’s determination of critical 

financial markets and core clearing and 

settlement organizations. The 

Commission also proposes to amend the 

application guidance provided in 

Appendix B to Part 38 and Appendix A 

to Part 39 of the Commission’s 

regulations to incorporate the new Part 

40 requirements. 

Five new definitions are proposed to 

be added to Regulation 40.1. The terms 

defined include ‘‘critical financial 

market,’’ ‘‘core clearing and settlement 

organization,’’ ‘‘relevant area,’’ ‘‘recovery 

time objective,’’ and ‘‘wide-scale 

disruption.’’ 

Proposed Regulation 40.1(j) would 

define ‘‘critical financial market’’ to 

mean a DCM that provides the means 

for financial institutions to adjust their 

financial positions and those of their 

customers in order to manage liquidity, 

market, and other risks to their 

organizations, and provides support for 

the provision of a wide range of 

financial services to businesses and 

consumers in the United States, 

particularly including markets whose 

trading impacts federal funds, foreign 

exchange, commercial paper, U.S. 

government and agency securities, 

corporate debt, equity securities, or 

physical commodities of broad, major 

importance to the national or 

international economy. 

Proposed Regulation 40.1(k) would 

define ‘‘core clearing and settlement 

organization’’ as a DCO that provides 

clearing and settlement services integral 

to a critical financial market (or to 

multiple DCMs that are critical financial 

markets on a collective rather than 

individual basis). 

Proposed Regulation 40.1(l) would 

define ‘‘relevant area,’’ for the purposes 

of Part 40, as the metropolitan or other 

geographic area within which a critical 

financial market or core clearing and 

settlement organization has physical 

infrastructure or personnel necessary for 

it to, as appropriate, (a) conduct 

electronic trading, (b) disseminate 

market data and provide price reporting, 

(c) conduct electronic surveillance and 

maintain access to audit trail 

information, or (d) conduct activities 

necessary to the clearance and 

settlement of existing and new 

contracts, including communities 

economically integrated with, adjacent 

to, or within normal commuting 

distance of that metropolitan or other 

geographic area. 

Proposed Regulation 40.1(m) would 

define ‘‘recovery time objective’’ as the 

time period within which an entity 

should be able to achieve recovery and 

resumption of, as appropriate, (a) 

electronic trading, (b) market data 

dissemination and price reporting, (c) 

access to audit trail information and 

electronic surveillance tools, or (d) 

clearing and settlement of existing and 

new contracts, after those capabilities 

become temporarily inoperable for any 

reason up to or including a wide-scale 

disruption. 

Proposed Regulation 40.1(n) would 

define ‘‘wide-scale disruption’’ to mean 

an event that causes a severe disruption 

or destruction of transportation, 

telecommunications, power, water, or 

other critical infrastructure components 

in a relevant area, or an event that 

results in the evacuation or 

unavailability of the population in a 

relevant area. 

Proposed Regulation 40.9(a) would 

require any registered entity that the 

Commission determines is a critical 

financial market or core clearing and 

settlement organization to maintain a 

disaster recovery plan and BC–DR 

resources, including infrastructure and 

personnel, sufficient to enable it to 

achieve a same-day RTO in the event of 

a wide-scale disruption affecting the 

relevant area of any of its normal-use 

trading or clearing operations. 

Proposed Regulation 40.9(b) would 

provide that a same-day RTO is one 

calling for recovery and resumption of 

trading and clearing within the business 

day on which the disruption occurs.18

Proposed Regulation 40.9(c) would set 

forth the minimal requirements for 

geographic dispersal of infrastructure 

and personnel needed to meet a sameday RTO. It would provide that 

infrastructure sufficient to enable a 

critical financial market or core clearing 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
42636 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 

19 1 U.S.C. 1 et seq. 

20 Dodd-Frank Wall Street Reform and Consumer 

Protection Act, H.R. 4173, 111th Cong. (2010). 

21 5 U.S.C. 601 et seq. 

22See 47 FR 18618 at 18619 (April 30, 1982) with 

respect to DCMs, and 66 FR 45604 at 45609 (August 

29, 2001) with respect to DCOs. 

23 44 U.S.C. 3501 et seq. 

and settlement organization to meet a 

same-day recovery time objective after 

interruption of normal trading and 

clearing by a wide-scale disruption must 

be located outside the relevant area of 

the infrastructure the entity normally 

relies upon to (a) conduct electronic 

trading, (b) disseminate market data and 

provide price reporting, (c) conduct 

electronic surveillance and maintain 

access to audit trail information, or (d) 

conduct activities necessary to the 

clearance and settlement of existing and 

new contracts, and may not rely on the 

same critical transportation, 

telecommunications, power, water, or 

other critical infrastructure components 

as the infrastructure the entity normally 

relies upon for such activities. It would 

also provide that personnel sufficient to 

enable the critical financial market or 

core clearing and settlement 

organization to meet a same-day 

recovery time objective, after 

interruption of normal trading or 

clearing by a wide-scale disruption 

affecting the relevant area in which the 

personnel the entity normally relies 

upon to engage in such activities are 

located, must live and work outside that 

relevant area, so that they will not be 

made unavailable by a wide-scale 

evacuation or unavailability of 

personnel who live or work in that 

relevant area. 

Proposed Regulation 40.9(d) would 

require every registered entity that the 

Commission determines is a critical 

financial market or core clearing and 

settlement organization to conduct 

regular, periodic tests of its business 

continuity and disaster recovery plans 

and resources and its capacity to 

achieve a same-day RTO in the event of 

a wide-scale disruption. 

New Appendix E to Part 40 would 

provide guidance on the process the 

Commission will follow, and the factors 

it will consider, to determine that a 

registered entity is a critical financial 

market or a core clearing and settlement 

organization. Appendix E would also 

describe the notice and opportunity for 

comment that the Commission would 

provide in this connection. 

In connection with its proposal to 

adopt new Regulation 40.9, the 

Commission has also proposed 

conforming amendments to certain 

application guidance provisions of 

Commission Regulations relating to 

various Core Principles. Specifically, 

Appendix B to Part 38 and Appendix A 

to Part 39 are proposed to be amended 

to revise acceptable practices provisions 

under Core Principle 6 and Core 

Principle 9 in Part 38 and application 

guidance under Core Principle I in Part 

39, to note that Proposed Regulation 

40.9 would govern the obligations of 

registered entities that the Commission 

determines to be critical financial 

markets or core clearing and settlement 

organizations, with respect to 

maintenance and geographic dispersal 

of disaster recovery resources sufficient 

to meet a same-day RTO in the event of 

a wide-scale disruption. These proposed 

revisions would further note that, 

therefore, Proposed Regulation 40.9 

itself would establish the application 

guidance and acceptable practices for 

core principle compliance relating to 

those matters set forth in Regulation 

40.9. 

As previously discussed, the 

Commission in this proposal would 

amend the acceptable practices 

provisions for Core Principle 9 set forth 

in Appendix B to Part 38, to harmonize 

the language of those provisions 

regarding BC–DR matters with the 

language of the parallel application 

guidance provisions for Core Principle I 

in Part 39. Moreover, the proposed 

revisions would also better explain the 

BC–DR standards currently applicable 

to DCMs. DCMs that have not been 

determined to be critical financial 

markets would be subject to the 

generally applicable BC–DR 

requirements set forth in these 

revisions, but would not be required to 

comply with the additional obligations 

imposed on critical markets by new 

Regulation 40.9. The Commission is 

aware that proposed legislation pending 

before Congress would amend the Act,19

including certain portions that govern 

DCMs and DCOs.20 At the time the 

Commission approved this proposed 

rulemaking, that legislation contained 

provisions that would create a new Core 

Principle 20, System Safeguards, 

explicitly setting forth BC–DR 

requirements for all DCMs. In the event 

that this pending legislation is enacted 

into law, the proposed application 

guidance and acceptable practices 

provisions relating to Core Principle 9 

set forth below may be considered by 

the Commission in connection with 

creation of application guidance and 

acceptable practices provisions relating 

to Core Principle 20. 

III. Proposed Effective Date 

The Commission requests comment 

on a reasonable date for the proposed 

amendments to become effective. 

IV. Solicitation of Comments 

The Commission requests comments 

on all aspects of the proposed rule 

amendments, including the question of 

what RTO (e.g., the proposed same-day 

RTO or the aspirational two-hour RTO 

also mentioned in the White Paper) is 

appropriate. As noted above, at the time 

that the Commission approved this 

proposal, legislation was pending before 

Congress that would amend the CEA. 

The Commission specifically requests 

comment on the effect, if any, the 

legislation would have on this proposal. 

V. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that Federal agencies, 

in proposing rules, consider the impact 

of those rules on small businesses.21

New requirements related to the 

proposed rule amendments would fall 

on DCMs and DCOs which the 

Commission may determine to be 

critical financial markets or core 

clearing and settlement organizations. 

The Commission has previously 

determined that DCMs and DCOs are 

not small entities for purposes of the 

RFA.22 Accordingly, the Commission 

does not expect the rules proposed 

herein to have a significant economic 

impact on any small entities. Therefore, 

the Chairman, on behalf of the 

Commission, hereby certifies, pursuant 

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

proposed to be taken herein will not 

have a significant economic impact on 

a substantial number of small entities. 

B. Paperwork Reduction Act 

These proposed rule amendments will 

not impose any new recordkeeping or 

information collection requirements, or 

other collections of information that 

require approval of the Office of 

Management and Budget under the 

Paperwork Reduction Act.23 All 

recordkeeping or information collection 

requirements relevant to the subject of 

this proposed rulemaking, or discussed 

herein, already exist under current law. 

Accordingly, the Paperwork Reduction 

Act does not apply. The Commission 

invites public comment on the accuracy 

of its estimate that no additional 

recordkeeping or information collection 

requirements or changes to existing 

collection requirements would result 

from the amendments proposed herein. 

C. Cost-Benefit Analysis 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its actions before issuing a 


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Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 42637 

24 7 U.S.C. 19(a). 25E.g., Fishermen’s Dock Co-op., Inc. v. Brown, 75 

F3d 164 (4th Cir. 1996); Center for Auto Safety v. 

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

discretion to weigh factors in undertaking costbenefit analyses). 

new regulation or order under the Act.24

By its terms, Section 15(a) does not 

require the Commission to quantify the 

costs and benefits of a new rule or to 

determine whether the benefits of the 

adopted rule outweigh its costs. Rather, 

section 15(a) requires the Commission 

to ‘‘consider the costs and benefits’’ of a 

subject rule. Section 15(a) further 

specifies that the costs and benefits of 

proposed rules shall be evaluated in 

light of five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. In 

conducting its analysis, the Commission 

may, in its discretion, give greater 

weight to any one of the five 

enumerated areas of concern and may 

determine that, notwithstanding its 

costs, a particular rule is necessary or 

appropriate to protect the public interest 

or to effectuate any of the provisions or 

to accomplish any of the purposes of the 

Act.25

As discussed above, the proposed rule 

amendments would require DCMs and 

DCOs that the Commission determines 

to be critical financial markets or core 

clearing and settlement organizations to 

(1) maintain business continuity and 

disaster recovery resources sufficient to 

meet a same-day RTO for trading and 

clearing, and (2) maintain geographic 

dispersal of infrastructure and 

personnel sufficient to enable 

achievement of a same-day RTO in the 

event of a wide-scale disruption. The 

Commission cannot fully quantify the 

costs that would be borne by such 

entities in complying with the proposed 

rule amendments, as the Commission 

has not yet determined which entities 

are critical financial markets or core 

clearing or settlement organizations. 

Moreover, the cost to comply with the 

proposed rule amendments would be 

likely to vary depending on the nature 

and location of infrastructure and 

personnel available to enable 

achievement of a same-day RTO that are 

presently maintained by each such 

entity. 

Notwithstanding the potential costs 

that could be incurred by DCMs or 

DCOs that the Commission determines 

to be critical financial markets or core 

clearing and settlement organizations in 

complying with the proposed rule 

amendments, the Commission believes 

the benefits of the proposed rule 

amendments are significant and 

important. The ability of critical 

financial markets and core clearing and 

settlement organizations to recover and 

resume trading and clearing promptly in 

the event of a wide-scale disruption is 

significant to the U.S. economy. 

Therefore, the proposed rule 

amendments may be crucially important 

to sound risk management practices for 

such markets, an area of concern that 

may deserve great weight in this 

connection. As such, they may be 

needed to protect market participants 

and ensure the continued efficiency, 

competitiveness, financial integrity, and 

price discovery function of such 

markets in the event of a wide-scale 

disruption. Accordingly, the 

Commission believes that the proposal 

is consistent with the Act and would 

serve to protect the public interest by 

promoting market integrity and the 

avoidance of systemic risk. 

After considering the costs and 

benefits noted above, the Commission 

has determined to issue the proposed 

rule amendments. The Commission 

invites public comment on its 

application of the cost-benefit provision. 

Commenters are also invited to submit 

any data that they may have quantifying 

the costs and benefits of the proposed 

rule amendments with their comment 

letter. 

VI. Text of Proposed Amendments 

List of Subjects 

17 CFR Part 38 

Commodity futures, Reporting and 

recordkeeping requirements. 

17 CFR Part 39 

Commodity futures, Consumer 

protection, Reporting and recordkeeping 

requirements. 

17 CFR Part 40 

Commodity futures, Reporting and 

recordkeeping requirements. 

In light of the foregoing, and pursuant 

to the authority in the Act, and in 

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

of the Act, the Commission hereby 

proposes to amend Parts 38, 39, and 40 

of Title 17 of the Code of Federal 

Regulations as follows: 

PART 38—DESIGNATED CONTRACT 

MARKETS 

1. The authority citation for part 38 

continues to read as follows: 

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

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

106–554, 114 Stat. 2763A–365. 

2. Amend Appendix B to Part 38 by 

revising paragraph (b) of Core Principle 

6; and paragraph (a)(2) and paragraph 

(b) of Core Principle 9, to read as 

follows: 

Appendix B to Part 38—Guidance on, 

and Acceptable Practices in, 

Compliance With Core Principles 

* * * * * 

Core Principle 6 of section 5(d) of the Act: 

EMERGENCY AUTHORITY * * * 

* * * * * 

(b) Acceptable practices. Commission 

Regulation 40.9 governs the obligations of 

designated contract markets that the 

Commission has determined to be critical 

financial markets with respect to 

maintenance and geographic dispersal of 

disaster recovery resources sufficient to meet 

a same-day recovery time objective in the 

event of a wide-scale disruption. Therefore, 

Regulation 40.9 itself establishes the 

guidance and acceptable practices for core 

principle compliance in that respect. 

* * * * * 

Core Principle 9 of section 5(d) of the Act: 

EXECUTION OF TRANSACTIONS * * * 

* * * * * 

(a) * * * 

(2) The board of trade shall: 

(i) Establish and maintain a program of risk 

analysis and oversight to identify and 

minimize sources of operational risk, through 

the development of appropriate controls and 

procedures; 

(ii) Establish and maintain a program of 

regular, periodic testing to ensure that all 

automated systems used by the board of trade 

function properly and have adequate security 

and capacity; and 

(iii) Establish and maintain emergency 

procedures, backup facilities, a disaster 

recovery plan, and regular, periodic testing to 

ensure timely recovery and resumption of 

order processing and trade matching, market 

data dissemination and price reporting, 

market and trade practice surveillance, and 

maintenance of a comprehensive and 

accurate audit trail. 

* * * * * 

(b) Acceptable practices. (1) Testing and 

review of automated systems should be 

conducted by qualified, independent 

professionals. Such qualified independent 

professionals may be independent 

contractors or employees of the board of 

trade, but should not be persons responsible 

for development or operation of the systems 

being tested. Pursuant to the provisions of 

Commission Regulations Sections 1.31 and 

1.35, the board of trade must keep records of 

all such tests, and make all test results 

available to the Commission upon request. 

(2) In fulfilling its obligations set forth in 

the Application Guidance above with respect 

to its automated systems, the board of trade 

should follow the guidelines issued by the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) in 1990 (the ‘‘IOSCO 

Principles’’), and adopted by the Commission 

on November 21, 1990 (55 FR 48670), as 

supplemented and amended, and any similar 

guidelines issued by the Commission or its 

staff. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
42638 Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 

(3) Commission Regulation 40.9 governs 

the obligations of registered entities that the 

Commission has determined to be critical 

financial markets, with respect to 

maintenance and geographic dispersal of 

disaster recovery resources sufficient to meet 

a same-day recovery time objective in the 

event of a wide-scale disruption. Therefore, 

Regulation 40.9 itself establishes the 

guidance and acceptable practices for core 

principle compliance in that respect. 

* * * * * 

PART 39—DERIVATIVES CLEARING 

ORGANIZATIONS 

3. The authority citation for part 39 

continues to read as follows: 

Authority: 7 U.S.C. 7b as added by 

Appendix E of Pub. L. 106–554, 114 Stat. 

2763A–365. 

4. Amend Appendix A to Part 39 by 

adding a new paragraph 3 after 

paragraph 2.b. of the guidance under 

Core Principle I, as follows: 

Appendix A to Part 39—Application 

Guidance and Compliance With Core 

Principles 

* * * * * 

Core Principle I: SYSTEM SAFEGUARDS 

* * * 

* * * * * 

2. * * * 

b. * * * 

3. Commission Regulation 40.9 governs the 

obligations of derivatives clearing 

organizations that the Commission 

determines to be core clearing and settlement 

organizations, with respect to maintenance 

and geographic dispersal of disaster recovery 

resources sufficient to meet a same-day 

recovery time objective in the event of a 

wide-scale disruption. Therefore, Regulation 

40.9 itself establishes the guidance for core 

principle compliance in that respect. 

* * * * * 

PART 40—PROVISIONS COMMON TO 

REGISTERED ENTITIES 

5. The authority citation for part 40 

continues to read as follows: 

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

8 and 12a, as amended by Title XIII of the 

Food, Conservation and Energy Act of 2008, 

Public Law No. 110–246, 122 Stat. 1624 (June 

18, 2008). 

6. Amend § 40.1 by adding paragraphs 

(j) through (n) to read as follows: 

§ 40.1 Definitions. 

* * * * * 

(j) Critical financial market means a 

designated contract market that 

provides the means for financial 

institutions to adjust their financial 

positions and those of their customers 

in order to manage liquidity, market, 

and other risks to their organizations, 

and provides support for the provision 

of a wide range of financial services to 

businesses and consumers in the United 

States, particularly including markets 

whose trading impacts federal funds, 

foreign exchange, commercial paper, 

U.S. government and agency securities, 

corporate debt, equity securities, or 

physical commodities of broad, major 

importance to the national and 

international economy. Guidance as to 

how the Commission will determine 

whether a registered entity is a critical 

financial market is set forth in 

Appendix E to Part 40. 

(k) Core clearing and settlement 

organization means a derivatives 

clearing organization that provides 

clearing and settlement services integral 

to a critical financial market (or to 

multiple designated contract markets 

that are critical financial markets on a 

collective rather than individual basis). 

Guidance as to how the Commission 

will determine whether a derivatives 

clearing organization is a core clearing 

and settlement organization is set forth 

in Appendix E to Part 40. 

(l) Relevant area means the 

metropolitan or other geographic area 

within which a critical financial market 

or core clearing and settlement 

organization has physical infrastructure 

or personnel necessary for it to, as 

appropriate, conduct electronic trading, 

disseminate market data and provide 

price reporting, conduct electronic 

surveillance and maintain access to 

audit trail information, or conduct 

activities necessary to the clearance and 

settlement of existing and new 

contracts; including communities 

economically integrated with, adjacent 

to, or within normal commuting 

distance of that metropolitan or other 

geographic area. 

(m) Recovery time objective means the 

time period within which an entity 

should be able to achieve recovery and 

resumption of, as appropriate, electronic 

trading, market data dissemination and 

price reporting, access to audit trail 

information and electronic surveillance 

tools, or clearing and settlement of 

existing and new contracts, after those 

capabilities become temporarily 

inoperable for any reason up to or 

including a wide-scale disruption. 

(n) Wide-scale disruption means an 

event that causes a severe disruption or 

destruction of transportation, 

telecommunications, power, water, or 

other critical infrastructure components 

in a relevant area, or an event that 

results in an evacuation or 

unavailability of the population in a 

relevant area. 

7. Add § 40.9 to read as follows: 

§ 40.9 Disaster recovery requirements for 

critical financial markets and core clearing 

and settlement organizations. 

(a) Each designated contract market or 

derivatives clearing organization that 

the Commission determines is a critical 

financial market or a core clearing and 

settlement organization must maintain a 

disaster recovery plan and business 

continuity and disaster recovery 

resources, including infrastructure and 

personnel, sufficient to enable it to 

achieve a same-day recovery time 

objective in the event that its normal 

trading or clearing and settlement 

capabilities become temporarily 

inoperable for any reason up to and 

including a wide-scale disruption. 

(b) A same-day recovery time 

objective is a recovery time objective 

within the same business day on which 

normal trading or clearing and 

settlement capabilities become 

temporarily inoperable for any reason 

up to and including a wide-scale 

disruption. 

(c) To ensure its ability to achieve a 

same-day recovery time objective in the 

event of a wide-scale disruption, each 

designated contract market or 

derivatives clearing organization that 

the Commission determines is a critical 

financial market or a core clearing and 

settlement organization must maintain a 

degree of geographic dispersal of both 

infrastructure and personnel such that: 

(1) Infrastructure sufficient to enable 

the entity to meet a same-day recovery 

time objective after interruption of 

normal trading and clearing by a widescale disruption is located outside the 

relevant area of the infrastructure the 

entity normally relies upon to conduct 

electronic trading, disseminate market 

data and provide price reporting, 

conduct electronic surveillance and 

maintain access to audit trail 

information, or conduct activities 

necessary to the clearance and 

settlement of existing and new 

contracts, and does not rely on the same 

critical transportation, 

telecommunications, power, water, or 

other critical infrastructure components 

the entity normally relies upon for such 

activities; and 

(2) Personnel sufficient to enable the 

entity to meet a same-day recovery time 

objective, after interruption of normal 

trading or clearing by a wide-scale 

disruption affecting the relevant area in 

which the personnel the entity normally 

relies upon to engage in such activities 

are located, live and work outside that 

relevant area. 

(d) Each registered entity that the 

Commission determines is a critical 

financial market or core clearing and 

settlement organization must conduct 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 75, No. 140 / Thursday, July 22, 2010 / Proposed Rules 42639 

regular, periodic tests of its business 

continuity and disaster recovery plans 

and resources and its capacity to 

achieve a same-day recovery time 

objective in the event of a wide-scale 

disruption. 

* * * * * 

8. Add Appendix E to Part 40 to read 

as follows: 

Appendix E to Part 40—Guidance on 

Critical Financial Market and Core 

Clearing and Settlement Organization 

Determination 

(a) Critical financial market determination. 

(1) The Commission may determine, in its 

discretion, whether a designated contract 

market is a critical financial market. In 

making such a determination, the 

Commission will evaluate each such entity 

on a case-by-case basis, giving consideration 

to whether the entity provides the means for 

financial institutions to adjust their financial 

positions and those of their customers in 

order to manage liquidity, market, and other 

risks to their organizations, and provides 

support for the provision of a wide range of 

financial services to businesses and 

consumers in the United States; or whether 

the entity conducts trading that impacts 

Federal funds, foreign exchange, commercial 

paper, U.S. government and agency 

securities, corporate debt, equity securities, 

or physical commodities of broad, major 

importance to the national and international 

economy. The Commission may also 

consider other relevant factors that it finds 

important. 

(2) The Commission will notify the 

designated contract market that it intends to 

undertake a determination with respect to 

whether it is a critical financial market. The 

entity may provide written data, views, and 

arguments relevant to the Commission’s 

determination. 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 receiving notice or 

within such other time specified by the 

Commission. After prompt consideration of 

all relevant information, the Commission will 

issue an order directly to the designated 

contract market explaining the Commission’s 

determination of whether it is a critical 

financial market as defined by § 40.1(j). 

(b) Core clearing and settlement 

organization determination. (1) The 

Commission may determine, in its discretion, 

whether a derivatives clearing organization is 

a core clearing and settlement organization. 

In making such a determination, the 

Commission will evaluate each such entity 

on a case-by-case basis, giving consideration 

to whether the entity provides clearing and 

settlement services integral to a critical 

financial market (or to multiple designated 

contract markets that are critical financial 

markets on a collective rather than individual 

basis). The Commission may also consider 

other relevant factors that it finds important. 

(2) The Commission will notify the 

derivatives clearing organization that it 

intends to undertake a determination with 

respect to whether it is a core clearing and 

settlement organization. The entity may 

provide written data, views, and arguments 

relevant to the Commission’s determination. 

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 receiving notice or within 

such other time specified by the Commission. 

After prompt consideration of all relevant 

information, the Commission will issue an 

order directly to the derivatives clearing 

organization explaining the Commission’s 

determination of whether it is a core clearing 

and settlement organization as defined by 

§ 40.1(k). 

Issued in Washington, DC, on July 14, 

2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. 2010–17606 Filed 7–21–10; 8:45 am] 

BILLING CODE P 

SOCIAL SECURITY ADMINISTRATION 

20 CFR Parts 404 and 416 

[Docket No. SSA–2007–0092] 

RIN 0960–AG72 

Amendments to Procedures for Certain 

Determinations and Decisions 

AGENCY: Social Security Administration. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: We propose to revise the 

procedures for how claimants who 

request hearings before administrative 

law judges (ALJs) may seek further 

review of their fully favorable revised 

determinations based on prehearing 

case reviews or fully favorable attorney 

advisor decisions. We also propose to 

notify claimants who receive partially 

favorable determinations based on 

prehearing case reviews that an ALJ will 

still hold a hearing unless all parties to 

the hearing tell us in writing that we 

should dismiss the hearing requests. We 

expect that these changes will simplify 

the process and free up scarce 

administrative resources that we can 

better use to reduce the hearings level 

case backlog. 

DATES: To ensure that your comments 

are considered, we must receive them 

no later than September 20, 2010. 

ADDRESSES: You may submit comments 

by any one of three methods—Internet, 

fax, or mail. Do not submit the same 

comments multiple times or by more 

than one method. Regardless of which 

method you choose, please state that 

your comments refer to Docket No. 

SSA–2007–0092 so that we can 

associate your comments with the 

correct regulation: 

Caution: You should be careful to 

include in your comments only 

information that you wish to make 

publicly available. We strongly urge you 

not to include in your comments any 

personal information, such as Social 

Security numbers or medical 

information. 

1. Internet: We strongly recommend 

this method for submitting your 

comments. Visit the Federal 

eRulemaking portal at http:// 

www.regulations.gov. Use the Search 

function of the Web page to find docket 

number SSA–2007–0092 and then 

submit your comment. Once you submit 

your comment, the system will issue 

you a tracking number to confirm your 

submission. You will not be able to 

view your comment immediately as we 

must manually post each comment. It 

may take up to a week for your 

comment to be viewable. 

2. Fax: Fax comments to (410) 966– 

2830. 

3. Mail: Address your comments to 

the Office of Regulations, Social 

Security Administration, 137 Altmeyer 

Building, 6401 Security Boulevard, 

Baltimore, Maryland 21235–6401. 

Comments are available for public 

viewing on the Federal eRulemaking 

portal at http://www.regulations.gov or 

in person, during regular business 

hours, by arranging with the contact 

person identified below. 

FOR FURTHER INFORMATION CONTACT: 

Joshua Silverman, Office of Regulations, 

Social Security Administration, 6401 

Security Boulevard, Baltimore, MD 

21235–6401, (410) 594–2128. For 

information on eligibility or filing for 

benefits, call our national toll-free 

number, 1–800–772–1213 or TTY 1– 

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

Social Security Online, at http:// 

www.socialsecurity.gov. 

SUPPLEMENTARY INFORMATION: 

Electronic Version 

The electronic file of this document is 

available on the date of publication in 

the Federal Register at http:// 

www.gpoaccess.gov/fr/index.html. 

Background 

In most cases, we decide claims for 

benefits using an administrative review 

process that consists of four levels: 

Initial determination, reconsideration, 

hearing, and appeal. 20 CFR 404.900 

and 416.1400. We make an initial 

determination at the first level. A 

claimant who is dissatisfied with the 

initial determination may request 


emcdonald on DSK2BSOYB1PROD with PROPOSALS