Vol. 77 Friday, 

No. 213 November 2, 2012 

Part III 

Commodity Futures Trading Commission 

17 CFR Parts 1, 4, 5, et al. 

Adaptation of Regulations to Incorporate Swaps; Final Rule 


emcdonald on DSK67QTVN1PROD with RULES3
66288 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

1See 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. 

2Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

3 7 U.S.C. 1 et seq. (2006). 4Adaptation of Regulations to Incorporate Swaps, 

76 FR 33066 (June 7, 2011) (‘‘Proposing Release’’). 5Comment letters are available in the comment 

file on www.cftc.gov. 

6All Commission regulations are in Chapter I of 

Title 17 of the CFR. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 1, 4, 5, 7, 8, 15, 16, 18, 

21, 22, 36, 38, 41, 140, 145, 155, and 

166 

RIN Number 3038–AD53 

Adaptation of Regulations To 

Incorporate Swaps 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rules. 

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 and finalized numerous rules 

to satisfy its obligations under the DFA. 

This rulemaking makes a number of 

conforming amendments to integrate the 

CFTC’s regulations more fully with the 

new framework created by the DoddFrank Act. 

DATES: Effective January 2, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Peter A. Kals, Special Counsel, 202– 

418–5466, pkals@cftc.gov, Division of 

Clearing and Risk; Elizabeth Miller, 

Attorney-Advisor, 202–418–5450, 

emiller@cftc.gov, Division of Swap 

Dealer and Intermediary Oversight; 

David E. Aron, Counsel, 202–418–6621, 

daron@cftc.gov, Office of General 

Counsel; Alexis Hall-Bugg, AttorneyAdvisor, 202–418–6711, 

ahallbugg@cftc.gov, Division of Market 

Oversight; Katherine Driscoll, Senior 

Trial Attorney, 202–418–5544, 

kdriscoll@cftc.gov, Division of 

Enforcement, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1151 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION:

Table of Contents 

I. Background 

II. Amended Regulations 

A. Part 1 

1. Regulation 1.3: Definitions 

a. General Changes 

b. Various Amended and New Definitions 

(Regulation 1.3) 

c. Regulation 1.3(t): Open Contract 

d. Regulation 1.3(ll): Physical 

e. Regulation 1.3(ss): Foreign Board of 

Trade 

f. Regulation 1.3(yy): Commodity Interest 

g. Regulation 1.3(z): Bona Fide Hedging 

Transactions and Positions 

h. Lack of a Definition of ‘‘End-User’’ in 

Regulation 1.3 

2. Regulation 1.4: Use of Electronic 

Signatures 

3. Regulation 1.31: Books and Records; 

Keeping and Inspection 

4. Regulations 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. Technical Changes to Part 1 in Order 

to Accommodate Recently Finalized Part 

22 and Corresponding Changes to Part 22 

B. Part 7 

C. Part 8 

D. Parts 15, 18, 21, and 36 

E. Parts 41, 140 and 145 

F. Parts 155 and 156 

G. Other General Changes to CFTC 

Regulations 

1. Removal of References to DTEFs 

2. Other Conforming Changes 

III. Administrative Compliance 

A. Paperwork Reduction Act 

B. Regulatory Flexibility Act 

C. Consideration of Costs and Benefits 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act into law.1

Title VII of the Dodd-Frank Act 2 (‘‘Title 

VII’’) amended the CEA 3 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 by, among other things: (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 security-based 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. 

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. On June 7, 

2011, the Commission published in the 

Federal Register a proposal to make 

such changes (‘‘the Proposal’’).4 There 

was a 60-day period for the public to 

comment on the Proposal, which ended 

on August 8, 2011. The Commission 

received 39 comment letters from a 

variety of institutions, including 

designated contract markets (‘‘DCMs’’), 

agricultural trade associations, and 

agricultural cooperatives.5 The 

Commission has determined to adopt 

the proposed rules primarily in the form 

proposed with certain modifications, 

discussed below, to address the 

comments the Commission received. 

With respect to certain of the proposed 

changes to regulation 1.35 6 (regarding 

recording of oral communications and 

the scope of written communications) 

and related amendments to regulation 

1.31, the Commission has determined to 

address those changes in a final rule in 

a separate release. 

The Commission is mindful of, and 

continues to consider, the comments 

received on the Proposal’s amendments 

to regulation 1.35 (records of 

commodity interest and cash 

commodity transactions). Those 

comments were submitted by various 

groups, including DCMs, representatives 

of the FCM and IB communities, energy 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66289 

7Commenters on this issue include: American 

Cotton Shippers Association; Agribusiness 

Association of Iowa; Agribusiness Association of 

Ohio; Agribusiness Council of Indiana; Trade 

Association of American Cotton Cooperatives; 

Commodity Markets Council; Falmouth Farm 

Supply; American Feed Industry Association; Grain 

and Feed Association of Illinois; Minnesota Grain 

and Feed Association; National Grain and Feed 

Association; Oklahoma Grain and Feed Association; 

Rocky Mountain Agribusiness Association; South 

Dakota Grain and Feed Association; Land O’Lakes; 

National Council of Farmer Cooperatives; American 

Gas Association; National Gas Supply Association; 

Fertilizer Institute; American Petroleum Institute; 

Electric Power Supply Association; National Rural 

Electric Cooperative Association; American Public 

Power Association; Large Public Power Council; 

Edison Electric Institute; Working Group of 

Commercial Energy Firms; 

IntercontinentalExchange Inc.; Kansas City Board of 

Trade; Minneapolis Grain Exchange; CME Group; 

Futures Industry Association; Barclays Capital; 

Henderson & Lyman; National Introducing Brokers 

Association; and National Futures Association. 

8Public Law 106–554, 114 Stat. 2763 (2000). 

9See Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants, 77 FR 20128 (Apr. 3, 2012) (adopting for 

SDs and MSPs reporting and recordkeeping 

standards now found in 17 CFR 23.201–23.203). 

10The redline does not, in and of itself, have any 

legal authority. 

11A joint letter by the American Gas Association, 

Commodity Markets Council, National Gas Supply 

Association, and the Fertilizer Institute (‘‘AGA et 

al.’’); Commodity Markets Council (‘‘CMC’’); 

Electric Power Supply Association; certain Electric 

Utility Trade Associations; and the Working Group 

of Commercial Energy Firms (‘‘Working Group’’). 12See ETA Letter (claiming that ‘‘[t]he [Proposal] 

cannot fairly apprise interested persons of the 

nature of the Commission’s rulemaking, nor can it 

provide notice of ‘the terms of substance of the 

proposed rule or a description of the subjects and 

issues involved,’ as required by the [APA], when 

the proposed rules purport to adapt to a moving 

target.’’). 

end-users, and agricultural trade 

associations and cooperatives.7 These 

commenters focused primarily on: the 

proposed oral communications 

recordkeeping requirement, in general; 

the proposed requirement that all 

members of a DCM or SEF, including 

unregistered commercial end-users and 

non-intermediaries, keep records of the 

oral communications that lead to the 

execution of a cash commodity 

transaction; and the proposed 

requirement that each record be 

maintained in a separately identifiable 

electronic file identifiable by transaction 

and counterparty. Many of the 

comments were directed specifically 

toward narrowing the scope of the 

proposed changes to regulation 1.35 

regarding recording of oral 

communications and written 

communications (and related 

amendments to regulation 1.31). 

The amendments adopted by this 

rulemaking primarily affect part 1 of the 

Commission’s regulations, but also 

affect parts 4, 5, 7, 8, 15, 16, 18, 21, 22, 

36, 41, 140, 145, 155, and 166. This 

rulemaking contains amendments of 

three different types: ministerial, 

accommodating, and substantive. Many 

of the amendments are purely 

ministerial—for instance, several 

changes 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 

trading facility added to the CEA by 

section 111 of the Commodity Futures 

Modernization Act of 2000 (‘‘CFMA’’),8

which the DFA eliminated; correct 

various statutory cross-references to the 

CEA in the regulations; and remove 

regulations in whole or in part that were 

rendered moot by the CFMA. 

The 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 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 and swap execution facilities 

(‘‘SEFs’’) in 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 substantive amendments are 

changes that align requirements or 

procedures across futures and swap 

markets. They consist of amendments to 

regulation 1.31 that harmonize some of 

the current part 1 recordkeeping 

requirements with some of those 

applicable to SDs and MSPs under part 

23 regulations 9 and amend procedures 

pertaining to the post-execution 

allocation of bunched orders (regulation 

1.35(a)). Under the amendments to the 

bunched orders provisions, ‘‘eligible 

account managers’’ can allocate such 

orders post-execution similarly to how 

they currently do so with futures. 

To aid the public in understanding 

the numerous changes to different parts 

of the CFTC’s regulations adopted by 

this release, the Commission will also 

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

the affected regulations which will 

clearly reflect the additions and 

deletions.10

II. Comments Received and Amended 

Regulations 

A. General Comments 

Several commenters argued that the 

Proposal was premature because many 

other rules remained to be proposed and 

finalized,11 and subsequent final 

rulemakings may dictate which 

conforming amendments will be 

necessary. A joint letter by certain 

Electric Utility Trade Associations (‘‘the 

ETA’’) contended that the incomplete 

nature of the swap regulatory regime 

renders it unable to ‘‘effectively 

comment,’’ because it lacks a full 

understanding of the entire swap 

regulatory landscape. In the ETA’s view, 

the ‘‘premature’’ nature of the Proposal 

rises to the level of a violation of the 

Administrative Procedures Act 

(‘‘APA’’).12 The ETA commented further 

that because the Proposal updated 

certain regulations by treating swaps 

equivalently to futures, the Proposal 

‘‘represents a fundamental 

misunderstanding’’ of the executing 

electric industry swap market, and, 

consequently, should be withdrawn. 

The ETA also noted that, ‘‘[f]rom time 

to time, the Commission’s staff has 

declined to consider whether 

nonfinancial commodity and related 

swap markets are indeed different in 

any meaningful way from other 

markets,’’ and that the ETA ‘‘continues 

to urge the Commission to engage in a 

considered analysis of such differences 

and the implications of such differences 

for its rulemaking process.’’ The CME 

Group (‘‘CME’’) argued that the 

Commission should have waited to 

propose the voice and electronic 

recordkeeping requirements in 

regulation 1.35(a) until SEFs register, 

the Dodd-Frank Act clearing and 

exchange trading requirements take 

effect, and Dodd-Frank Act 

recordkeeping and reporting 

requirements take effect. The Electric 

Power Supply Association (‘‘EPSA’’) 

commented that final rules defining 

swap, SD, and MSP must be published 

prior to proposing a rule conforming the 

Commission’s regulations to the DoddFrank Act and related regulations. 

Therefore, EPSA argued, the Proposal 

should be withdrawn. Mr. Chris Barnard 

generally supported the Proposal, 

commenting that the proposed changes 

were either common sense or required 

by the DFA. 

The Commission believes it was 

appropriate to have published the 

Proposal when it did. The purpose of 

this rulemaking is to conform the 

Commission’s regulations to the CEA as 


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66290 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

13CEA section 1a, 7 U.S.C. 1a. 

14CFTC No-Action Letter No. 04–34 at 3 (Sept. 

16, 2004). 

15FSR stated that the lenders it described receive 

compensation ‘‘in connection with lending and 

retaining risk and not in connection with 

introducing a [swap provider].’’ A key element of 

both the previous and amended definitions of IB is 

that the person engages in the described conduct 

‘‘for compensation or profit, whether direct or 

indirect.’’ 17 CFR 1.3(mm). This analysis is 

consistent with past Commission guidance 

requiring an individual to register as an IB based 

on referring customers to a commodity trading 

advisor and receiving compensation in return. 

CFTC Interp. Letter No. 86–27 (Introducing Broker 

Registration Requirements), Comm. Fut. L. Rep. 

(CCH) ¶ 23,364, CFTC (Nov. 24, 1986). This letter 

emphasized that ‘‘the presence or absence or[sic] 

per-trade compensation is not determinative of 

whether one falls within the definition of an 

introducing broker. The Commission’s final rule 

expressly eliminated the form and manner of 

compensation as the principal measure of whether 

registration as an introducing broker would be 

required * * * [P]ursuant to the express terms of 

the introducing broker definition in rule 1.3(mm), 

any compensation (without regard to whether such 

compensation is per-trade or otherwise) for the 

solicitation or acceptance of orders * * * brings 

one within the definition.’’ Id. (footnotes omitted). 

Therefore, if the lenders FSR described receive 

compensation from the swap providers for their 

customer referrals, then the lenders would fall 

within the definition and be required to register as 

IBs. 

16Separately, the Commission notes that the 

activity of an associated person ‘‘AP’’ of an SD may 

resemble the swap activity of an IB. The definition 

of IB in regulation 1.3(mm), as amended by today’s 

final rule, excludes an AP, including an AP of an 

SD. Pursuant to paragraph (6) of the definition of 

AP in regulation 1.3(aa), an AP of an SD could be 

an agent of the SD while not an employee of the 

SD. This may be the case, for example, where an 

employee of an affiliate of the SD is authorized to 

negotiate swap transactions on behalf of the SD. 

Where such an agency relationship is present, the 

Commission would not consider the employer of 

such an AP of an SD to be an IB due to the activities 

of that AP of the SD. 

17 DCO General Provisions and Core Principles, 

76 FR 69334 (Nov. 8, 2011). 

revised by the DFA where necessary (to 

avoid conflicting statutory and 

regulatory definitions of the same term, 

for example) or desirable (e.g., to make 

retention periods for records of all swap 

transactions consistent with those 

recently adopted for the records of swap 

transactions of SDs). The Commission 

viewed many of these changes to be 

non-controversial. For example, the 

DFA amended the definition of FCM in 

section 1a of the CEA to permit FCMs 

to execute and clear swaps for 

customers in addition to futures. 

Accordingly, the Proposal updated 

regulation 1.3’s definition of FCM, as 

well as recordkeeping requirements in 

regulations 1.31, 1.33, and 1.35, so that 

an FCM’s duties with respect to swaps 

would mirror its duties with respect to 

futures. Because IBs and FCMs can 

execute or clear cleared swaps 

analogously to futures, the Commission 

believes that certain of the requirements 

in regulations 1.31, 1.33, and 1.35, 

which describe recordkeeping 

requirements for FCMs and IBs, can and 

should apply equivalently to an FCM’s 

futures and cleared swaps business. In 

response to the ETA’s comment that the 

Proposal inappropriately equated swaps 

with futures, the Commission notes that 

part 23 of the Commission’s regulations 

addresses issues unique to the swap 

market by describing recordkeeping and 

other ‘‘business conduct’’ requirements 

for SDs and MSPs. 

The Commission believes it is 

appropriate to make these conforming 

changes at this time. In adopting this 

final rule, the Commission is 

incorporating any changes necessitated 

by other final Dodd-Frank Act 

rulemakings. 

B. Part 1 

1. Regulation 1.3: Definitions 

a. General Changes 

The Commission is revising 

regulation 1.3 so that its definitions, 

which are used throughout the 

Commission’s regulations, incorporate 

relevant provisions of the DFA. For 

instance, amended 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,13 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 

‘‘commodity pool operator,’’ 

‘‘commodity trading advisor,’’ ‘‘futures 

commission merchant,’’ ‘‘introducing 

broker,’’ ‘‘floor broker,’’ ‘‘floor trader,’’ 

‘‘swap data repository,’’ and ‘‘swap 

execution facility.’’ For example, section 

721(a)(5) of the DFA amended the 

definition of ‘‘commodity pool 

operator’’ (‘‘CPO’’) in CEA section 1a to 

add swaps to those contracts for which 

soliciting funds for a collective 

investment renders a person a CPO. 

Consequently, today’s final rulemaking 

updates the definition of CPO in 

regulation 1.3 to match the DFA’s new 

definition of that term. The Commission 

did not receive comments about the 

Proposal’s revised definitions of 

‘‘commodity pool operator,’’ 

‘‘commodity trading advisor,’’ ‘‘futures 

commission merchant,’’ ‘‘floor broker,’’ 

‘‘floor trader,’’ ‘‘swap data repository,’’ 

and ‘‘swap execution facility.’’ The 

Commission is adopting these 

definitions as proposed. 

In response to the proposed 

conforming amendments to the 

definition of ‘‘introducing broker,’’ 

Financial Services Roundtable (‘‘FSR’’) 

commented that a small commercial 

lender facilitating a swap transaction 

between a borrower and a third party, 

solely in connection with the lender’s 

loan origination or syndication, should 

not have to register as an introducing 

broker (‘‘IB’’), but could possibly be 

required to do so under the amended 

definition. FSR commented further that 

such a result would be inconsistent with 

a 2004 staff no-action letter,14 in which 

the Commission’s Division of Clearing 

and Intermediary Oversight explained 

that the purpose of registering and 

regulating IBs is to protect the public 

from sales abuses—according to FSR, 

such a concern does not exist in the 

situation FSR described. Specifically, 

FSR recommended that the Commission 

further define the term ‘‘introducing 

broker’’ to specifically exclude the 

lenders it described, or in the 

alternative, that the Commission issue 

interpretative guidance addressing this 

issue. 

The Commission declines to further 

define the term ‘‘introducing broker’’ as 

FSR requested, and is adopting the term 

as proposed. However, the Commission 

believes that in the situation described 

by FSR, the small commercial lender 

would not be required to register as an 

IB, as long as it did not receive 

compensation from the third party with 

whom the lender arranges the 

borrower’s swap. This analysis is based 

solely on the facts as presented by FSR 

in its comment letter and is consistent 

with previously issued staff no-action or 

interpretative letters.15 Staff can issue 

further guidance, as appropriate, on a 

case-by-case basis under regulation 

140.99.16

Additionally, the Proposal revised the 

definition of ‘‘self-regulatory 

organization’’ (‘‘SRO’’) (regulation 

1.3(ee)) to include SEFs, a new category 

of regulated markets under the DFA, 

and derivatives clearing organizations 

(‘‘DCOs’’). The Commission did not 

receive any comments concerning its 

proposal to amend this definition. 

Today’s final rulemaking amends the 

definition of SRO by including SEFs. 

However, it does not amend the 

definition of SRO to include DCOs. 

Upon further reflection, the Commission 

has determined that the part 1 

regulations applicable to SROs need not 

apply to DCOs in light of recently 

finalized regulations in part 39 

implementing the Act’s Core Principles 

for DCOs.17 For example, paragraph (6) 

of regulation 39.12(a) (‘‘Participant and 

product eligibility’’) requires a DCO to 

have the ability to enforce compliance 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66291 

18Requirements for DCOs, DCMs, and SEFs 

Regarding the Mitigation of Conflicts of Interest, 75 

FR 63732 (Oct. 18, 2010); and Governance 

Requirements for DCOs, DCMs, and SEFs; 

Additional Requirements Regarding the Mitigation 

of Conflicts of Interest, 76 FR 722 (Jan. 6, 2011). 

19The Commission proposed 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. 

20For example, proposed regulation 1.33 

(Monthly and confirmation statements) required an 

FCM to document a customer’s positions in futures 

contracts differently from its option or swap 

positions. Proposed regulation 1.33 preserved these 

distinctions, even though it referred only to 

‘‘customers’’ as opposed to ‘‘commodity 

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

customers.’’ 

21A single entity could be registered in more than 

one capacity, for example, as both an SD and a 

CTA. Which rules were applicable would depend 

on the capacity in which such an entity was 

performing a particular function. 

22 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). 

with its participation requirements and 

to establish procedures for the 

suspension and orderly removal of 

clearing members that no longer meet 

the requirements. Moreover, the 

Commission is in the midst of other 

rulemakings pertaining to the 

responsibilities of SROs and DCOs, e.g., 

proposed regulations regarding the 

governance of DCOs.18

b. Various Amended and New 

Definitions (Regulation 1.3) 

The Commission is (1) simplifying or 

clarifying certain existing regulation 1.3 

definitions, and (2) adding several new 

definitions to regulation 1.3, pursuant to 

amendments to the CEA by the DoddFrank Act, existing regulations, and 

other amendments in the Proposal. 

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 

has decided to revise the definition to 

mean contract market and designated 

contract market (‘‘DCM’’). Proposed 

regulation 1.3(h) contained one 

definition identified by the title 

‘‘Contract market; designated contract 

market.’’ The proposed definition also 

corrected an erroneous cross-reference 

to part 33 as the regulations applicable 

to DCMs, which the Commission is 

correcting by changing it to a reference 

to part 38 of the Commission’s 

regulations. No commenters addressed 

these changes. The Commission is 

adopting the definition in regulation 

1.3(h) as proposed with one 

modification to reflect the fact that the 

Commission designates a board of trade 

as a contract market ‘‘under the Act and 

in accordance with part 38’’ as opposed 

to ‘‘under the Act or in accordance with 

part 38.’’ 

The Proposal contained a similar 

clarification regarding the definition of 

‘‘customer.’’ It simplified 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 by adding swaps 

to the proposed definition. Therefore, 

the proposed definition included swap 

customers, commodity customers, and 

option customers, referring to them all 

with the single term, ‘‘customer.’’ 

Furthermore, the Commission proposed 

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.’’ 19 The 

proposed revisions retained references 

to requirements specific to certain 

contracts.20 Today’s final rulemaking 

revises the definition of ‘‘customer’’ 

(regulation 1.3(k)), as proposed, and 

deletes the definition of ‘‘option 

customer’’ (regulation 1.3(jj)), as 

proposed. The Commission did not 

receive comments about the proposed 

deletion of the term ‘‘option customer.’’ 

ETA commented that counterparties 

to electricity swap contracts are not 

customers analogous to futures 

customers, and, therefore, by expanding 

the ‘‘customer’’ concept to include 

entities that execute swaps, the 

Commission would impose ‘‘significant 

and inappropriate obligations’’ on swap 

counterparties. The Commission has 

decided to finalize the definition of 

customer, as proposed. ETA is correct 

that counterparties to bilaterallyexecuted swaps are principals, which is 

unlike trading futures, where FCMs are 

agents of their customers. However, 

FCMs will execute and clear swap 

transactions, as agents, equivalently to 

the manner in which they currently 

execute and clear futures transactions. 

The Commission proposed 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 an 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.21 No 

commenters addressed the proposed 

definition of ‘‘confirmation,’’ and the 

Commission has decided to adopt it as 

proposed. 

The Commission proposed 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 proposed 

definition of ‘‘registered entity’’ 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 proposed to replace 

the current ‘‘Member of a contract 

market’’ definition with a new 

definition of ‘‘Member,’’ in regulation 

1.3(q), 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.22 The proposed ‘‘Member’’ 

definition was broadened to 

accommodate newly established SEFs, 

and it includes those ‘‘owning or 

holding membership in, or admitted to 

membership representation on, the 

registered entity; or having trading 

privileges on the registered entity.’’ 

Additionally, for ease of reference, 

proposed regulation 1.3 added several 

terms defined under the CEA, using 

identical definitions, including 

‘‘electronic trading facility,’’ ‘‘organized 

exchange,’’ and ‘‘trading facility.’’ 

The ETA commented that the 

Commission should wait to define 

‘‘registered entity,’’ ‘‘organized 

exchange,’’ ‘‘electronic trading facility,’’ 

and ‘‘trading facility’’ until the 

Commission enters into an MOU with 

FERC and publishes rules defining the 

scope of its jurisdiction over 

nonfinancial energy commodity swaps. 

According to the ETA, a SEF should not 

be deemed a registered entity. In 

addition, the ETA does not believe SEF 

participants should fall within the 

Commission’s proposed definition of 

‘‘member,’’ suggesting that it is 

inappropriate or premature to require 

SEF participants to have the same 

recordkeeping requirements as DCM 

members under regulation 1.35. 

The Commission disagrees with the 

ETA’s comment that it should wait to 

define the terms ‘‘registered entity,’’ 

‘‘organized exchange,’’ ‘‘electronic 

trading facility’’ and ‘‘trading facility’’ 

until the Commission enters into an 

MOU with FERC and publishes rules 

defining the scope of its jurisdiction 


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66292 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

23CEA section 1a(34), 7 U.S.C. 1a(34). 

24Proposing Release, 76 FR at 33068 and 33070. 

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.’’ Id. at 33088. 

25Registration of Swap Dealers and Major Swap 

Participants, 77 FR 2613, 2615 and 2625 (Jan. 19, 

2012). 

26 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.’’ This final rulemaking amends the definition 

in part 5 only to reflect the renumbering of section 

1a of the CEA by the Dodd-Frank Act, and adds an 

identically amended definition to regulation 1.3. 

See infra Part II.G.2. 

27Regulation 22.1 was promulgated as part of 

Protection of Cleared Swaps Customer Contracts 

and Collateral; Conforming Amendments to the 

Commodity Broker Bankruptcy Provisions, 77 FR 

6336 (Feb. 7, 2012). 

28Section 4c of the CEA grants the Commission 

authority over all three of these categories of 

options. 

29See Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based Swap 

Agreement’’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping, 77 FR 48207 (Aug. 13, 

2012). 

over nonfinancial energy commodity 

swaps. As explained in the Proposal, the 

definitions proposed for each of those 

terms are identical to their statutory 

definitions under the CEA. The 

Commission may further define these 

terms in the future if necessitated by an 

MOU with FERC or by Commission 

rules defining the scope of its 

jurisdiction over nonfinancial energy 

commodity swaps. 

With respect to the ETA’s assertion 

that SEFs should not be deemed 

‘‘registered entities,’’ the Commission 

notes that SEFs are already deemed 

‘‘registered entities’’ under section 

1a(40) of the CEA. Lastly, the term 

‘‘member,’’ as defined under the CEA, 

includes ‘‘with respect to a registered 

entity * * * an individual, association, 

partnership, corporation or trust * * * 

having trading privileges on the 

registered entity.’’ 23 Accordingly, the 

CEA considers participants on a SEF 

‘‘members’’ by virtue of their having 

trading privileges on the SEF. For the 

foregoing reasons, the Commission is 

adopting the definitions of ‘‘registered 

entity,’’ ‘‘organized exchange,’’ 

‘‘electronic trading facility,’’ ‘‘trading 

facility,’’ and ‘‘member’’ as proposed. 

The Commission also proposed to add 

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

term had not previously been defined by 

Commission regulations, although it is 

used in several of them, e.g., 17 CFR 

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. 

No commenters addressed the proposed 

definition, and the Commission is 

adopting it as proposed. 

Because proposed amendments to 

regulation 1.31 incorporated the term 

‘‘prudential regulator,’’ as added to the 

CEA by the Dodd-Frank Act, the 

Commission proposed to define the 

term in regulation 1.3.24 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. No commenters addressed 

this proposed definition, but the 

amendments to regulation 1.31 adopted 

today no longer reference the term 

‘‘prudential regulator.’’ Nonetheless, the 

Commission has determined to adopt 

the definition as proposed, in 

anticipation of future rulemakings and 

regulations possibly using the term 

‘‘prudential regulator.’’ 

The Commission also proposed to add 

the term ‘‘registrant’’ to regulation 1.3 so 

that certain regulations in part 1 could 

refer to various intermediaries (e.g., 

FCMs, IBs, CPOs), their employees 

(associated persons), and other 

registrants (MSPs). Because the DFA 

created a definition of and several 

Commission regulations refer to 

‘‘associated persons of swap dealers or 

major swap participants,’’ the 

Commission proposed to add that term 

to regulation 1.3 as well. No 

commenters addressed these changes, 

but the Commission will only be 

adopting the definition of ‘‘registrant’’ 

as proposed. Since the Proposal’s 

publication, a separate final rulemaking 

establishing the registration process for 

SDs and MSPs amended the existing 

definition of ‘‘associated person’’ found 

in regulation 1.3(aa) to incorporate 

associated persons of SDs and MSPs in 

a manner consistent with CEA section 

1a, as amended by the Dodd-Frank 

Act.25 In light of that rulemaking, the 

Commission is not adopting a separate 

definition of ‘‘associated person of swap 

dealers and major swap participants’’ in 

regulation 1.3. 

The Commission also proposed, and 

is hereby adopting, a definition of the 

term ‘‘retail forex customer’’ in 

regulation 1.3 because it appears in 

several regulations in part 1 and 

currently is only defined in part 5. The 

definition is identical in all material 

respects to the definition of this term as 

it currently appears in regulation 

5.1(k).26 The Commission did not 

receive any comments to the Proposal’s 

addition of a definition of ‘‘retail forex 

customer’’ to regulation 1.3. 

The Commission is also finalizing the 

revised definition of ‘‘strike price’’ 

(regulation 1.3(kk)) as proposed so that 

this definition encompasses swaps in 

addition to futures. The Commission 

received no comments about this 

proposal. 

c. Regulation 1.3(t): Open Contract 

The Proposal changed the defined 

term from ‘‘open contract’’ to ‘‘open 

position’’ and added provisions for 

commodity option transactions and 

swaps. CME commented that it is 

unclear whether the proposed definition 

is intended to cover options on swaps. 

If so, then the word ‘‘commodity’’ 

should be deleted from the phrase, 

‘‘commodity option transaction.’’ 

According to CME’s comment letter to 

the Proposal, the Commission should 

also clarify whether, or which, options 

are covered by proposed paragraph (t)(3) 

(swaps). CME also argues that proposed 

paragraph (t)(3) does not adequately 

characterize open positions in cleared 

swaps. Proposed paragraph (t)(1)’s 

terminology, CME believes, more 

appropriately characterizes cleared 

swaps because, like futures, cleared 

swaps may be fulfilled by delivery or 

they may be offset. 

The Commission has decided to 

finalize the definition with a few 

modifications. The final definition 

retains the original title of the term, 

‘‘open contract.’’ It also narrows its 

applicability from all swaps to only 

Cleared Swaps, as regulation 22.1 

defines that term.27

The Commission notes that the option 

component of the definition (paragraph 

(t)(2)) covers all options: i.e., options on 

futures; options on swaps 

(‘‘swaptions’’); and options on 

commodities.28 In response to CME’s 

comment, the Commission notes that 

although, pursuant to the Dodd-Frank 

Act, swaptions and options on 

commodities (other than options on 

futures) are swaps, it is nevertheless 

appropriate for the definition of ‘‘open 

contract’’ to describe them with 

language suitable only to options and 

not to other swaps. In other words, the 

definition of ‘‘open contract’’ merely 

describes types of contracts; it is not 

intended to classify these contracts for 

regulatory purposes or to elaborate on 

the definition of ‘‘swap,’’ which the 

Commission recently published in final 

form.29

Because the only references in the 

regulations to the term ‘‘open contracts’’ 

apply to cleared contracts, i.e. futures 

contracts and Cleared Swaps, the final 

definition only includes Cleared Swaps 

in paragraph (t)(3). The final rule also 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66293 

30See infra section II.A.4. (discussing 

amendments to regulation 1.33). 

31Proposing Release, 76 FR at 33068–69. 

32 Id. at 33069. 

33 Id. at 33069. 

34 Id. 

35 Id. 

36 Id. 

modifies paragraph (t)(3) to reflect the 

fact that Cleared Swaps can be fulfilled 

by delivery or by offset against other 

Cleared Swaps, as is the case with 

futures. Thus, paragraph (t)(3) states in 

final form, ‘‘swaps that have not been 

fulfilled by delivery; not offset; not 

expired; and not been terminated.’’ 

In the Proposal, pursuant to the 

revision of the definition of ‘‘open 

contract’’ in regulation 1.3(t), the 

Commission proposed to change ‘‘open 

contract’’ to ‘‘open position’’ in 

regulations 1.33 (‘‘Monthly and 

confirmation statements’’) and 1.34 

(‘‘Monthly record, ‘point balance’ ’’). 

The Commission did not receive 

comments about these changes. In light 

of the fact that the Commission is 

retaining the title ‘‘open contract,’’ in 

the final revisions to regulation 1.3(t), 

the Commission is preserving those 

references to ‘‘open contract’’ in 

regulations 1.33 and 1.34.30

d. Regulation 1.3(ll): Physical 

i. Proposal 

As part of the Proposal, the 

Commission explained that current 

regulation 1.3(ll) defines ‘‘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.’’ 31

The Commission noted that, other than 

the reference to options, the term 

‘‘physical’’ was similar to the definition 

of ‘‘commodity’’ in regulation 1.3(e), 

which includes, in relevant part ‘‘all 

* * * goods and articles * * * and all 

services, rights and interests in which 

contracts for future delivery are 

presently or in the future dealt in.’’ The 

quoted portions of the ‘‘physical’’ and 

‘‘commodity’’ definitions are effectively 

the same, differing only in the potential 

overlying instrument with respect to 

which the respective terms are defined. 

In addition, the Commission noted that 

the introductory language in regulation 

1.3 provides that ‘‘[t]he following terms, 

as used in the rules and regulations of 

this chapter, shall have the meaning 

hereby assigned to them, unless the 

context otherwise requires.’’ 32

In the Proposal, the Commission also 

traced the history of the term ‘‘physical’’ 

in its regulations, noting that the 

definition of ‘‘physical’’ was first added 

to its regulations ‘‘to enable trading, on 

DCMs, in options to buy or sell an 

underlying commodity’’ and that the 

definition had not been substantively 

amended.33 The Commission added 

that, in 1982, when the Commission 

proposed to add the definition of 

‘‘physical’’ to its regulations, ‘‘cashsettled futures on non-physical 

commodities had just been introduced 

in the form of the Chicago Mercantile 

Exchange’s Eurodollar futures’’ and that, 

‘‘[i]n that context * * * it made sense 

to name such options based on physical 

commodities, which constituted the vast 

majority of commodities covered by 

then-existing futures contracts.’’ 34

While options may have primarily been 

written on physical commodities in 

1982, the Commission noted in the 

Proposal that ‘‘[a]t present * * * 

options may be traded on both 

physically deliverable and nonphysically deliverable commodities, 

such as interest rates and temperatures’’ 

and that, given that change, using the 

term ‘‘physical’’ to refer to an option on 

both physically deliverable and nonphysically deliverable commodities may 

be confusing.35 The Commission added 

that the intended-to-be-physicallysettled element of the forward exclusion 

from the swap definition ‘‘would be 

meaningless if ‘physical’ included nonphysical.’’ 36

In light of (1) The overlapping 

definitions of ‘‘commodity’’ and 

‘‘physical’’ in Commission regulation 

1.3, (2) the fact that options now are 

written on a wide range of non-physical 

commodities, and (3) the Commission’s 

desire that the term ‘‘physical’’ not be 

interpreted to permit cash settled 

transactions to rely on the forward 

exclusion from the swap definition 

(unless otherwise permitted by 

Commission interpretations with 

respect to such exclusion, such as those 

discussed in the Commission’s 

rulemaking jointly (with the Securities 

and Exchange Commission) further 

defining ‘‘swap’’), the Commission, in 

the Proposal, requested comment on 

various possible approaches to the 

definition of ‘‘physical’’ in regulation 

1.3(ll). One possible approach on which 

the Commission requested comment 

was whether it should eliminate the 

definition, on the theory that its 

meaning is self-evident, and rely on the 

ability of interested parties to interpret 

the term ‘‘physical.’’ The Commission 

also requested comment on not 

amending the definition in reliance 

upon the introductory language in 

regulation 1.3, which applies the 

regulation 1.3(ll) definition of 

‘‘physical’’ unless the context otherwise 

requires. 

ii. Comments 

Three commenters addressed the 

definition of physical in regulation 

1.3(ll). The ETA commented that the 

proposed definition of ‘‘physical’’ 

should be withdrawn because 

addressing it in terms of swaps is 

premature prior to the Commission 

publishing the further definition of 

‘‘swap,’’ including, in particular, 

defining the term ‘‘nonfinancial 

commodity,’’ which the ETA 

characterized as a key component of the 

forward exclusion from the swap 

definition. The ETA stated that, in 

proposing such a substantive rule, the 

Commission must explain how defining 

‘‘physical’’ would affect all of its 

regulations and requested that the 

Commission re-propose any revised 

definition of ‘‘physical’’ with a 

‘‘comprehensive analysis of the way 

such word, whether used as an adjective 

or an adverb, interrelates with the DoddFrank statutory term ‘nonfinancial 

commodity,’ as well as the concepts of 

‘cash market,’ ‘physical market 

channels’ and the ‘bona fide hedging 

exemption’.’’ 

The Environmental Markets 

Association (‘‘EMA’’) believes that the 

‘‘very broad’’ definition of the word 

‘‘physical’’ in current Commission 

regulations ‘‘certainly’’ encompasses 

environmental commodities, which the 

EMA states are subject to the forward 

exclusion from the definition of swap. 

The EMA requested that the CFTC issue 

a final rule clarifying that 

environmental commodities are not 

swaps even though intangible, that they 

are nonfinancial commodities that can 

rely on the forward exclusion, and that 

intangibility of a commodity does not 

prevent it from being ‘‘physically 

settled.’’ The Coalition for Emission 

Reduction Policy (‘‘CERP’’) similarly 

argued that environmental and other 

intangible commodity transactions that 

result in actual delivery of a commodity, 

intangible or not, as opposed to 

transactions that settle in cash, can be 

subject to the forward exclusion because 

such transactions can be physically 

settled. CERP also claimed that the 

Commission’s proposed interpretation 

of forward contracts in nonfinancial 

commodities in the definition of ‘‘swap’’ 

supports its interpretation of 

‘‘physically settled’’ in that forward 

sales of environmental commodities are 

commercial merchandising transactions 

because both buyer and seller ultimately 

need and intend the transfer of 

ownership of the emission allowances 

or offset credits. 


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66294 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

37See Executive Order 13563 of January 18, 2011, 

Improving Regulation and Regulatory Review, at 

section 6(a), 76 FR 3821, 3822 (Jan. 21, 2011) 

(stating ‘‘To facilitate the periodic review of existing 

significant regulations, agencies shall consider how 

best to promote retrospective analysis of rules that 

may be outmoded, ineffective, insufficient, or 

excessively burdensome, and to modify, streamline, 

expand, or repeal them in accordance with what 

has been learned.’’). 

38 Domestic Exchange-Traded Commodity 

Options; Expansion of Pilot Program To Include 

Options on Physicals, 47 FR 56996, 56998 (Dec. 22, 

1982). 39Commodity Options, 77 FR 25320 (Apr. 27, 

2012). 

40Reducing Regulatory Burden; Retrospective 

Review Under E.O. 13563, 76 FR 38328 (June 30, 

2011). 

EMA also expressed that the 

Commission’s request for comment with 

regard to whether the definition of 

‘‘physical’’ should rely on the ‘‘common 

sense meaning’’ of the word was 

unclear. In particular, EMA argued that 

environmental commodities traded in 

the spot or forward markets are 

physically delivered via a registry or an 

exchange of paperwork and eventually 

consumed through retirement. Further, 

according to EMA, environmental 

commodities are goods because Uniform 

Commercial Code (‘‘UCC’’) section 

2105(1) defines ‘‘good’’ as ‘‘anything 

that can be moved other than money.’’ 

iii. Final Rules 

The Commission is removing from 

regulation 1.3(ll) the definition of 

‘‘physical,’’ which term will therefore 

have the meaning dictated by the 

context of the individual Commission 

regulations in which it appears. In 

addition, the Commission is adopting 

conforming changes to other regulations 

to address the deletion of the definition. 

The Commission is adopting these 

changes for ease of reference for market 

participants and to reduce confusion in 

interpreting the Commission’s 

regulations, consistent with the spirit of 

Executive Order 13563, which seeks, 

among other goals, to eliminate agency 

regulations that have outlived their 

usefulness.37 As explained further 

below, these modifications are not 

intended to alter the substantive 

provisions of the Commission’s 

regulations. 

When the Commission added the 

definition of ‘‘physical’’ to regulation 

1.3 in 1982, the intent was to 

distinguish between options on futures 

contracts and other options subject to 

the Commission’s jurisdiction; the 

Commission termed such other options 

‘‘options on physicals.’’ The 

Commission added the ‘‘physical’’ 

definition because, while the 1982 

rulemaking including provisions 

applicable both to DCM-listed options 

on futures and DCM-listed options on 

commodities, it also contained 

regulations applicable solely to options 

on futures. Thus, the purpose of the 

definition was ‘‘principally to enable 

the Commission to differentiate, where 

necessary, between references to options 

on physicals and options on futures 

contracts.’’ 38 Although the intent of 

Commission regulation 1.3(ll) was only 

to address the distinction between 

options on futures and other options, 

the Commission believes that the use of 

such a broad term to apply to a narrow 

circumstance can create confusion 

because the definition is not expressly 

so limited. While the introduction to 

regulation 1.3 says that the definitions 

therein have the meanings set forth 

therein unless the context otherwise 

requires, determining when regulation 

1.3(ll) applies as drafted and when the 

context dictates a different meaning can 

be subjective and result in confusion. 

The Commission did not intend, 

when it promulgated the definition in 

regulation 1.3(ll), to apply it to 

circumstances such as the definition of 

‘‘physically’’ settled. Given the intent of 

the definition of the term ‘‘physical’’ (to 

distinguish options on futures from 

other options) and the introductory 

language in regulation 1.3 regarding 

contextual interpretations of the defined 

terms therein, in regulations where it is 

not necessary to distinguish between 

different types of options, the definition 

of ‘‘physical’’ in Commission regulation 

1.3(ll) is not useful and can be 

overbroad. For example, the definition 

of ‘‘physical’’ is not useful with respect 

to the term ‘‘physical safeguards’’ in 

regulation 160.30, which pertains to 

procedures to safeguard customer 

records and information. Because the 

scope of the definition of ‘‘physical’’ 

essentially includes options on any 

commodity, which would include nonphysical commodities such as 

temperatures and interest rates, 

effectively, the restriction that 

‘‘physical’’ in regulation 1.3(ll) is 

limited to any goods, article, service, 

right or interest upon which a 

commodity may be traded in accordance 

with the CEA and the Commission’s 

regulations is not much of a restriction 

at all. 

The Commission also notes that it 

recently promulgated final and interim 

final rules amending parts 32 and 33 of 

the Commission’s regulations.39 While 

part 33 continues to address options on 

futures contracts, the other options 

subject to the Commission’s jurisdiction 

that also were previously addressed in 

part 33 now are addressed in part 32 

rather than in part 33. Further, the 

Commission no longer refers to such 

other options as ‘‘options on physicals.’’ 

Instead, the Commission generally uses 

the term ‘‘commodity option’’ as a 

reference to both options on futures and 

other CFTC-jurisdictional options. 

Where the Commission distinguishes 

the regulatory treatment for options on 

futures from the regulatory treatment of 

other options, it specifically identifies 

options on futures as ‘‘commodity 

option transactions on a contract of sale 

of a commodity for future delivery.’’ 

With these recent amendments, the 

definition of ‘‘physical’’ in regulation 

1.3(ll) will not help to distinguish 

between options on futures and other 

commodity options because the rules 

generally addressing the regulatory 

treatment of other commodity options 

no longer use the term ‘‘physical’’ to 

refer to such transactions. 

In light of these considerations, the 

Commission believes that deleting the 

definition of physical will reduce the 

potential for confusion on the part of 

market participants, as the appropriate 

definition of that term will be based on 

the context of the individual rules in 

which the term is utilized. These 

amendments will also serve the goals of 

Executive Order 13563 by amending the 

Commission’s regulations because they 

no longer are ‘‘effective[] in achieving 

the objectives for which they were 

adopted.’’ 40

Further, various Commission 

regulations relating to options also refer 

to a ‘‘physical’’ when discussing an 

option on a commodity. In order to 

conform those regulations with the 

adapting changes discussed above, the 

Commission is adopting a number of 

non-substantive changes including, but 

not limited to, replacing certain 

references to ‘‘physical’’ with references 

to ‘‘commodity.’’ Where appropriate, the 

Commission is also replacing references 

to ‘‘underlying physical’’ with 

references to ‘‘underlying commodity.’’ 

For the reasons discussed above, these 

conforming amendments will not result 

in substantive changes. Therefore, the 

Commission is amending the following 

regulations as described above: 

Regulations 1.3(kk); 1.3(ll); 

1.17(c)(1)(iii), (c)(5)(ii)(A), and 

(c)(5)(xiii)(C); 1.33; 1.34(b); 

1.35(b)(2)(iii), (b)(3), (d) and (e); 1.39(a) 

and (a)(3); 1.46(a)(1)(iii) and (iv); 4.23(a) 

and (b); 4.33(b)(1); 15.00(p)(1)(ii); 

16.00(a); and 16.01(a)(1)(ii) and (iv), and 

(b)(1)(ii) and (iv). The Commission is 

leaving unchanged other references to 

‘‘physical’’ in its existing definitions 

because, given the context in which the 

term is used in those rules, such 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66295 

41Registration of Foreign Boards of Trade, 76 FR 

80674 (Dec. 23, 2011). 

42Proposing Release, 76 FR at 33069. 

43See 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. 

44For example, the term ‘‘contract for the 

purchase or sale of a commodity for future 

delivery’’ in current regulation 1.3(yy)(1) 

encompasses security futures products. Similarly, 

the term ‘‘swap’’ would include mixed swaps 

(though mixed swaps are swaps, they also are 

security-based swaps, so the Commission shares 

authority over mixed swaps with the SEC). Of 

course, the impact of the scope of proposed 

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

regulations referencing it. 

45 DFA section 721(a)(21); codified at 7 U.S.C. 

1a(47). 

46Further Definition of ‘‘Swap,’’ ‘‘Security-Based 

Swap,’’ and ‘‘Security-Based Swap Agreement’’; 

Mixed Swaps; Security-Based Swap Agreement 

Recordkeeping, 77 FR 48207 (August 13, 2012) 

(adopting 17 CFR 1.3(xxx), which defines the term 

‘‘Swap’’). 

47Position Limits for Derivatives, 76 FR 4752 

(Jan. 26, 2011). 

references are limited to physical 

commodities. 

The Commission is replacing the 

word ‘‘physical’’ in regulations 

1.17(c)(1)(iii) and 1.17(c)(5)(xi) with the 

word ‘‘commodity,’’ and is replacing the 

word ‘‘physical’’ in regulation 

1.17(c)(5)(ii)(A) with the term ‘‘physical 

commodity.’’ In so doing, the 

Commission does not intend to change 

the meaning of any of these paragraphs. 

Thus, final regulations 1.17(c)(1)(iii) and 

1.17(c)(5)(xi) will continue to apply to 

options that overly any commodity, not 

just a tangible commodity. By contrast, 

final regulation 1.17(c)(5)(ii)(A) will 

continue to apply to the options 

described therein, which cover tangible 

commodities only. 

While some commenters requested 

that the Commission interpret 

‘‘physical’’ for purposes of the term 

‘‘physically settled’’ within the forward 

exclusion for swaps, or generally 

address the definition of ‘‘physical’’ as 

it relates to other terms, the Commission 

declines to do so for purposes of this 

release. The conforming amendments to 

the definition of physical are nonsubstantive changes that are designed to 

increase clarity for market participants. 

As noted above, rather than have a 

definition of physical that applies 

unless the context ‘‘otherwise requires,’’ 

the Commission will apply the 

definition based on the particular 

context of the applicable regulation. 

Because the current definition already 

applies in this manner, the 

modifications addressed herein do not 

amount to a substantive change in the 

regulations. 

e. Regulation 1.3(ss): Foreign Board of 

Trade 

The Commission proposed to amend 

the definition of foreign board of trade 

to mean ‘‘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 swap transactions are entered 

into.’’ The Commission received no 

comments regarding the proposed 

definition of ‘‘foreign board of trade’’ 

and is modifying the proposed 

definition to make it consistent with the 

definition provided in the final 

rulemaking for Registration of Foreign 

Boards of Trade.41 Accordingly, new 

regulation 1.3(ss) defines the term 

‘‘foreign board of trade’’ as ‘‘any board 

of trade, exchange or market located 

outside the United States, its territories 

or possessions, whether incorporated or 

unincorporated.’’ 

f. Regulation 1.3(yy): Commodity 

Interest 

The Commission proposed adding 

‘‘swap’’ to the definition of ‘‘commodity 

interest’’ in regulation 1.3(yy).42

Currently, commodity interest 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.’’ At the time of the 

proposal, the term was cross-referenced 

by 33 other Commission regulations and 

appendices to parts of Commission 

regulations.43 Generally, the term 

‘‘commodity interest’’ 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.44

The Dodd-Frank Act added a 

definition of the term ‘‘swap’’ to the 

CEA.45 DFA section 712(d)(1) requires 

the Commission to further define the 

term ‘‘swap’’ jointly with the Securities 

and Exchange Commission (‘‘SEC’’), and 

the Commission has recently adopted 

regulations further defining the term 

‘‘swap,’’ among other terms, jointly with 

the SEC.46

In their comment letter, the ETA 

objected to the Proposal’s addition of 

the term ‘‘swap’’ to the definition of 

commodity interest because, as 

discussed on page 6, above, the ETA 

objected to the manner in which the 

Proposal analogized swaps to futures. 

The Commission believes it is 

appropriate to add ‘‘swap’’ to the 

definition of commodity interest 

because the Dodd-Frank Act amended 

various intermediary definitions in 

section 1a of the Act (the Dodd-Frank 

Act updated the definitions of CPO, 

CTA, FCM, IB, Floor Trader and Floor 

Broker) to include their use of swaps. 

For example, the Act’s present 

definition of FCM, as amended by the 

Dodd-Frank Act, authorizes this 

intermediary to accept customer orders 

for ‘‘swaps’’ in addition to accepting 

customer orders for ‘‘the purchase or 

sale of any commodity for future 

delivery.’’ If the Commission did not 

update the definition of ‘‘commodity 

interest’’ to include swaps, then various 

regulations applicable to intermediaries 

using the term ‘‘commodity interest’’ 

would not apply to intermediaries’ swap 

activities. The Commission has 

reviewed all uses of the term 

‘‘commodity interest’’ throughout the 

regulations and believes they 

appropriately refer to both futures and 

swaps. 

Thus, the Commission has decided to 

finalize a revised definition of 

‘‘commodity interest’’ by adding 

paragraph (yy)(4) to include swaps. The 

final version adopted today makes only 

minor changes to the proposed 

paragraph. Whereas the proposed 

paragraph referenced ‘‘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 [SEC],’’ amended regulation 

1.3(yy)(4) now states ‘‘any swap as 

defined in the Act, by the Commission, 

or jointly by the Commission and the 

Securities and Exchange Commission.’’ 

The Commission is making this change 

because, for the purposes of the 

definition of ‘‘commodity interest,’’ it 

does not matter whether the 

Commission defines a swap pursuant to 

an order, interpretation, or joint 

interpretation. 

g. Regulation 1.3(z): Bona Fide Hedging 

Transactions and Positions 

The Proposal made technical 

amendments to this definition by 

omitting references to regulations 1.47 

and 1.48 because the proposed rule on 

Position Limits deleted those 

regulations 47 and omitting references to 

‘‘option customers’’ on account of this 

rulemaking’s deletion of that term. The 

Commission is not promulgating these 

amendments in this rulemaking because 

the final rule on Position Limits has 

already extensively revised regulation 


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66296 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

48Position Limits for Futures and Swaps, 76 FR 

71626 (Nov. 18, 2011). 

49Recently adopted regulation 39.6 establishes 

the end-user exception to clearing by defining 

which parties are eligible to opt out of the clearing 

requirement pursuant to section 2(h)(7) of the CEA, 

as amended by the DFA. See End-User Exception 

to the Clearing Requirement for Swaps, 77 FR 42560 

(July 19, 2012). 

50 7 U.S.C. 6s(i)(1). 

51 7 U.S.C. 6s(i)(2). 

52Confirmation, Portfolio Reconciliation, 

Portfolio Compression, and Swap Trading 

Relationship Documentation Requirements for 

Swap Dealers and Major Swap Participants, 77 FR 

55904, 55961 (September 11, 2012). 

53 Id. 

54 Id. 

55Confirmation, Portfolio Reconciliation, and 

Portfolio Compression Requirements for Swap 

Dealers and Major Swap Participants, 75 FR 81519, 

81522 (Dec. 28, 2010). 

56 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. 

57Use of Electronic Signatures by Customers, 

Participants and Clients of Registrants, 64 FR 47151 

(Aug. 30, 1999). 

58This includes revision to the title of regulation 

1.4 to reflect these changes. Regulation 1.4, as 

amended by this release, is entitled ‘‘Use of 

electronic signatures, acknowledgments and 

verifications.’’ 

59Certain proposed amendments to § 1.35 

(regarding recording of communications), and 

related amendments to § 1.31, are not addressed in 

this final rule. The Commission intends to address 

these amendments in a final rule in a separate 

Federal Register release. 

1.3(z).48 Mr. Chris Barnard commented 

that the definition of ‘‘bona fide hedging 

transactions and positions’’ should be 

amended to state that such transactions 

‘‘are not held for a purpose that is in the 

nature of speculation or trading’’ and 

‘‘not held to hedge or mitigate the risk 

of another position, unless that other 

position itself is held for the purpose of 

reducing risk.’’ Mr. Barnard commented 

further that the determination of 

whether a transaction meets the 

definition should be made at the time 

the transaction is entered into, 

considering the circumstances existing 

at that time. The Commission has 

decided not to amend regulation 1.3(z) 

pursuant to these comments, which 

address substantive issues that are 

beyond the scope of this rulemaking. 

h. Lack of a Definition of ‘‘End-User’’ in 

Regulation 1.3 

The ETA requested that the 

Commission, the SEC, and prudential 

regulators agree on a definition of ‘‘enduser’’ because the DFA does not define 

this term and regulators have used the 

term inconsistently. The Proposal did 

not add a definition of ‘‘end-user’’ to 

regulation 1.3 because the DFA did not 

add a definition of that term to CEA 

section 1a. The Proposal’s intention was 

to conform the Commission’s 

regulations to the DFA’s revisions to the 

CEA. 

The Commission has decided not to 

add a definition of ‘‘end-user.’’ The 

Commission has no reason to define 

‘‘end-user’’ because the Commission’s 

regulations do not use this term, and 

even the recently adopted Commission 

regulations implementing the CEA’s 

end-user exception to clearing do not 

define it.49 The issue of whether the 

Commission’s regulations should use 

the term ‘‘end-user’’ is beyond the scope 

of this final rulemaking. 

2. Regulation 1.4: Use of Electronic 

Signatures 

The Commission proposed to revise 

regulation 1.4 to extend the benefit of 

electronic signatures and other 

electronic actions to SDs and MSPs. 

Section 731 of the Dodd-Frank Act 

amended the CEA by adding new 

section 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,’’ 50 and adding new section 

4s(i)(2), requiring the Commission to 

adopt rules ‘‘governing documentation 

standards for swap dealers and major 

swap participants.’’ 51

Pursuant to the foregoing authority, 

the Commission has adopted new 

regulation 23.501(a)(1), which requires 

‘‘[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.52 Also pursuant to the 

foregoing authority, the Commission has 

adopted a new regulation 23.501(a)(2), 

which requires ‘‘[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.53 Regulation 23.500(a) defines 

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.’’ 54 In 

proposing the confirmation and 

acknowledgment rules, 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.’’ 55

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.56 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’’) 57 applies 

equally to SDs and MSPs. No 

commenters addressed the amendments 

to regulation 1.4, and the Commission is 

adopting them as proposed. Therefore, 

the Commission is hereby adding SDs 

and MSPs to the list of entities covered 

by regulation 1.4 and amending its 

structure to account for the provisions 

of the Commission’s confirmation and 

acknowledgement obligations discussed 

above.58

3. Regulation 1.31: Books and Records; 

Keeping and Inspection 

a. Record Retention Period and 

Inspection 

To conform the existing 

recordkeeping requirements under 

regulation 1.31 to the recordkeeping 

requirements under proposed regulation 

23.203(b) for SDs and MSPs relating to 

their swap transactions, the Commission 

proposed to amend regulation 1.31 to 

require that records of a swap 

transaction or related cash or forward 

transaction, including records of oral 

communications, be kept until the 

termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction and for five years after 

such date.59

CME suggested that conversations 

should only have to be retained for six 

months after the execution of a 

transaction. FIA commented that the 

Commission failed to provide a 

justification for requiring that a swap 

record be maintained for the life of the 

swap plus five years. Encana requested 

clarification that regulation 1.31 does 

not apply to a non-financial end-user 

who enters into swaps, but is not an 

FCM, IB, or member of a DCM or SEF. 

Encana also made a general request that 

the Commission specify in its final rules 

which recordkeeping and reporting 

rules apply to non-financial end-users. 

In contrast to other commenters, Mr. 

Chris Barnard asserted that all records 

should be kept indefinitely and scanned 

after two years, arguing that there is no 

technological or practical reason to limit 

the record retention period. Mr. Barnard 

specifically commented that records of 

voice communications also should be 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66297 

60http://www.iosco.org/news/pdf/ 

IOSCONEWS137.pdf. 

61 17 CFR 1.31(a) (emphasis added). 

62See Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants, 77 FR 20128, 20204 (Apr. 3, 2012) 

(‘‘Provided, however, that records of oral 

communications communicated by telephone, 

voicemail, mobile device, or other digital or 

electronic media pursuant to § 23.202(a)(1) and 

(b)(1) shall be kept for a period of one year.’’). 

63As noted above, the proposed amendments to 

regulation 1.35 that would require the recording of 

certain oral communications by certain entities in 

addition to SDs and MSPs will be the subject of a 

separate final release. The Commission will 

consider any related amendments to regulation 1.31 

at that same time. 

64Until such time as the Commission adopts 

amendments to regulation 1.35 regarding the 

recording of oral communications, only SDs and 

MSPs are required, pursuant to regulation 23.202, 

to record certain oral communications relating to 

swap transactions and related cash and forward 

transactions. However, regulation 1.35, as amended 

herein, requires certain other entities, in addition to 

SDs and MSPs, to keep certain records of all 

transactions relating to their business of dealing in, 

among other things, swap transactions. As noted in 

text, regulation 1.31 as amended herein, applies to 

these records. 65 17 CFR 23.203(b). 

kept indefinitely. To support the 

asserted usefulness of such records, Mr. 

Barnard cited a 2009 IOSCO report 

stating that telephone records could 

benefit enforcement investigations.60

The Commission also proposed to 

amend regulation 1.31 to conform to the 

proposed regulation 23.203(b)(2) 

requirement for SDs and MSPs and their 

swap transactions by proposing to 

require that all records kept pursuant to 

the Act or the Commission’s regulations 

be made available for inspection 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 SEC. 

By contrast, existing regulation 1.31, 

which pertains to ‘‘all books and records 

required to be kept by the Act or by 

these regulations,’’ requires that records 

be kept for five years and be made 

available only to the Commission and 

the Department of Justice.61 The 

Commission did not receive comment 

on this proposed revision. 

b. Final Rule 

The Commission has determined to 

adopt the proposed revision to 

regulation 1.31 regarding record 

retention periods with two 

modifications. First, in final regulation 

1.31, the retention period for records of 

oral communications leading to the 

execution of a swap or related cash or 

forward transaction, as required of SDs 

and MSPs under regulation 23.202(a)(1) 

and (b)1), respectively, will be one year 

(rather than five years after the 

termination, maturity, expiration, 

transfer, assignment, or novation date of 

the transaction, as proposed). This 

modification is consistent with the final 

provision for an SD’s or MSP’s oral 

communications under new regulation 

23.203(b)(2) in the Reporting, 

Recordkeeping, and Daily Trading 

Record Requirements final 

rulemaking.62 The Commission believes 

that this retention period for SDs and 

MSPs with respect to records of oral 

communications leading to the 

execution of a swap or related cash or 

forward transaction will enable it to 

adequately execute its enforcement 

responsibilities under the Act and these 

regulations while minimizing the 

storage costs imposed on these affected 

entities.63

With respect to Encana’s request for 

clarification concerning the 

applicability of regulation 1.31 to 

commercial end-users, regulation 1.31 

applies to all records required to be kept 

by the Act or the Commission’s 

regulations, for example, records 

required to be kept under regulations 

1.35, 18.05 and 23.202. If these rules 

require end-users to keep records (e.g., 

regulation 18.05, Maintenance of Books 

and Records), then those records must 

be kept in accordance with regulation 

1.31. 

In response to CME’s comment that 

although the Commission suggests that 

the retention period for swaps applies 

only to SDs and MSPs, as addressed in 

proposed regulation 23.203(b), the 

proposed amendment to regulation 1.31 

is ambiguous in that it could be read to 

apply to all entities, the Commission 

clarifies that the final provision in 

regulation 1.31 regarding the retention 

period for records of swap transactions 

is triggered by the type of record and not 

the entity that is required to keep the 

record. Therefore, although regulation 

23.203(b) only applies to SDs and MSPs 

with regard to their swap transactions, 

the final corresponding provision in 

regulation 1.31 applies to anyone who is 

required by the Act or by these 

regulations to keep records of, among 

other things, swap transactions.64

Second, the Commission also has 

determined not to adopt the proposed 

revisions to regulation 1.31(a)(1), 

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

(b)(3)(ii)(C), (b)(3)(iii)(A), and (b)(4)(i) 

regarding the parties to whom 

documents must be made available for 

inspection. The proposed revisions were 

intended to require only SDs and MSPs 

to make the records that the CEA or the 

Commission’s regulations require them 

to maintain available for inspection to, 

in addition to the Commission and DOJ, 

any applicable prudential regulator 

(and, in the case of security-based swap 

agreement records, to the SEC). 

However, as drafted, the proposed 

regulation text would have applied to 

all persons covered by regulation 1.31, 

not just to SDs and MSPs. The 

Commission’s final swap recordkeeping 

rules require SDs and MSPs to make the 

records that the CEA or the 

Commission’s regulations require them 

to maintain available for inspection to, 

in addition to the Commission and DOJ, 

any applicable prudential regulator or, 

in the case of security-based swap 

agreements, to the SEC, capturing the 

intent of the proposed revisions to 

regulation 1.31(a)(1), (b)(2)(ii), 

(b)(2)(v)(B), (b)(3)(i), (b)(3)(ii)(C), 

(b)(3)(iii)(A), and (b)(4)(i).65 Therefore, 

those proposed revisions have become 

superfluous. Consequently, the final 

rule provides that, instead of having to 

make records available for inspection to 

the Commission, the Department of 

Justice, any applicable prudential 

regulator or, in the case of securitybased swap agreements, to the 

Securities and Exchange Commission, 

persons covered by regulation 1.31 will 

continue to be required to make records 

available for inspection only to the 

Commission and the Department of 

Justice. 

c. Format of Retained Records 

The Commission also proposed 

revising regulation 1.31(a)(1), (a)(2), and 

(b) to require that: all books and records 

required to be kept by the Act or by the 

Commission’s regulations be kept in 

their original form (for paper records) or 

native file format (for electronic 

records); and production of such records 

be made in a form specified by the 

Commission. 

CME believes that the native file 

format requirement should not require 

the retention of raw, unprocessed data 

generated or transmitted by an 

electronic trading or clearing system. 

Otherwise, CME argued, DCOs and 

DCMs would have to change the way 

they retain records. CME stated that its 

recommendation is not intended to alter 

the type or format of data that DCOs and 

DCMs currently capture and store for 

both business and regulatory purposes. 

Rather, it asked the Commission to 

clarify that the ‘‘native file format’’ 

provision does not impose a new or 

additional recordkeeping requirement 

on DCOs and DCMs as it relates to their 

electronic trading or clearing systems. 


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66298 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

66See Letter of Working Group of Commercial 

Energy Firms, dated February 7, 2011, in response 

to Notice of Proposed Rulemaking for Reporting, 

Recordkeeping, and Daily Trading Requirements for 

Swap Dealers and Major Swap Participants (75 FR 

76666, Dec. 9, 2010). The Commission addressed 

the Working Group’s comment in the final rule for 

SD and MSP recordkeeping requirements stating, 

‘‘[t]he Commission believes that The Working 

Group’s concerns about § 1.31 have been addressed 

by a subsequent rule proposal to amend § 1.31 to 

reflect current technologies and industry practices 

related to digitized data storage. If these 

amendments are finalized, the Commission believes 

that § 1.31 will be compatible with electronic 

records in a trading system and other records that 

do not originate from a written document.’’ See 

Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants, 77 FR 20128, 20134 (Apr. 3, 2012). 

67See 64 FR 28735 (May 27, 1999). 

68 In 1999, the Commission stated that, ‘‘[t]he 

requirement that recordkeepers provide documents 

to the Commission in one of the many identified 

formats arises out of practical limitations on the 

Commission’s ability to process data stored in the 

full range of available formats and coding structures 

on the full range of storage media available to 

recordkeepers.’’ 64 FR 28735, 28740 (May 27, 1999). 

CME also asked for clarification as to 

which proposed revisions to regulation 

1.31 apply only to swaps. MGEX sought 

clarification that proposed regulation 

1.31 does not require a firm to keep both 

paper and electronic records concerning 

the same communications. 

CME commented that the original 

form requirement is confusing and 

superfluous in light of current 

regulation 1.31(b), which permits the 

storage of paper records on microfilm, 

microfiche, or a similar medium, and 

that it is not clear what the Commission 

means by ‘‘native file format.’’ 

Similarly, NFA requested clarification 

that regulation 1.31(b) would continue 

to permit firms to retain paper records 

on micrographic or electronic storage 

media in lieu of maintaining paper 

records in their original format. NFA 

commented that the proposed revisions 

fail to provide a reason for requiring that 

electronic records be kept in their native 

file format. 

FIA and NFA believe that existing 

regulation 1.31 complies with Federal 

Rule of Civil Procedure 34. Therefore, 

they asserted, there is no reason for the 

Commission to require that records be 

kept in their original form for paper 

records and native file format for 

electronic records. FIA and NFA further 

asserted that there is no reason for the 

Commission to depart from a rule that 

was designed, in 1999, to harmonize 

with the SEC’s recordkeeping rules. 

Similarly, ACSA commented that 

requiring paper records to be 

maintained in their original form for 

five years and be readily accessible for 

the first two would conflict with SEC 

rules. FIA commented that firms 

currently rely on regulation 1.31(b) to 

transfer electronic records from their 

original format to new forms of 

electronic media. CME similarly 

commented that electronic files often 

must be migrated, upgraded or 

converted in order to meet ever-evolving 

technology standards. Therefore, CME 

argued that, because some swaps could 

exist for 30 to 50 years, the technology 

used to generate or store electronic 

records related to such swap 

transactions may become outdated or 

obsolete in a much shorter period of 

time. Therefore, CME recommended 

that the Commission eliminate the 

requirement to retain swap records in 

their native file format for the life of the 

swap. 

CME argued that the Commission 

should re-propose other rules 

referencing regulation 1.31 (e.g., DCO 

Core Principles, DCM Core Principles, 

SEF Core Principles, and SD and MSP 

Recordkeeping) because the proposed 

revisions to the form a record must take 

under regulation 1.31 substantially 

change the requirements proposed by 

those rulemakings. In contrast to other 

comments, the Working Group, in 

response to the proposed regulation 

23.203(b) requiring SDs and MSPs to 

maintain records in accordance with 

existing regulation 1.31, asserted that, to 

be made workable for purposes of 

complying with the Commission’s 

proposed requirements under regulation 

23.203(b), regulation 1.31 should be 

revised to reflect current technologies 

and industry practices relating to 

digitized data storage.66

Having considered these comments, 

the Commission is adopting the 

revisions to regulation 1.31 regarding 

the form in which records must be kept 

as proposed. In 1999, as commenters 

highlighted, the Commission adopted 

amendments to the recordkeeping 

obligations established in regulation 

1.31 by, among other things, allowing 

most categories of records to be stored 

on either micrographic or electronic 

storage media for the full five-year 

maintenance period.67 The Commission 

reasserts one of its intentions in 

undertaking the 1999 update, which 

was to ‘‘provide recordkeepers with 

opportunities to reduce costs and 

improve both the efficiency and security 

of their recordkeeping systems.’’ Thus, 

the Commission clarifies that 

recordkeepers will be in compliance 

with the new requirement to keep paper 

records in their original form if they 

continue to store paper records ‘‘on 

either ‘micrographic media’ * * * or 

‘electronic storage media’ for the 

required time period,’’ as provided 

under regulation 1.31(b). However, one 

of the Commission’s other stated goals 

in amending regulation 1.31 in 1999 

was to further the Commission’s need 

for access to complete and accurate 

records when necessary in a format that 

the Commission can process, i.e., a 

usable format.68 Thus, the Commission 

is now making clear that paper records 

are not usable by the Commission as a 

substitute for the underlying financial 

data used to create that paper. 

Therefore, it is necessary that electronic 

records be maintained in their native 

file format and not reduced to paper. 

Accordingly, for records that include 

data stored in a database, the ‘‘native 

file format’’ is the format in which the 

data is maintained in that database, not 

a format reduced to paper or imaged 

format, which is essentially the 

equivalent of paper. This is true 

regardless of the imaged format, such as 

portable document format (‘‘PDF’’), 

whether machine-readable through 

optical character recognition (‘‘OCR’’) or 

any other process. Thus, the underlying 

financial data from which an FCM 

creates PDF versions of customer 

account statements must be kept in its 

‘‘native file format’’ because, if and 

when the Commission requests those 

financial records, it will not be 

sufficient for the recordkeeper to 

produce the paper and/or PDF 

statements. Where the data is used to 

generate a paper document (including, 

but not limited to a PDF), such as a 

customer account statement, the paper 

document must be maintained in its 

original form, while the data must be 

maintained in its native file format. 

Specifically regarding records of swap 

transactions, the Commission has 

decided to keep the requirement that 

these records be maintained in their 

native file format for the life of the swap 

plus five years. In response to CME’s 

specific concerns about the need to 

migrate, update or convert electronic 

files over the potentially long life of a 

swap to meet evolving technology 

standards, the Commission confirms 

that maintaining data in native file 

format (i.e., the format in which it was 

originally created or maintained) does 

not prohibit a recordkeeper from 

migrating that data from an obsolete or 

legacy system or database to a new 

system or database, where it will then 

be maintained in the native file format 

of the new system or database. If due to 

the proprietary nature of the system, it 

is impossible or impracticable to 

provide the Commission with the data 

in its native file format because, for 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66299 

69Under current § 15.00(d), ‘‘Compatible data 

processing media’’ means ‘‘data processing media 

approved by the Commission or its designee.’’ This 

term has existed under § 15.00 since as early as 

1986. See 17 CFR 15.01 (1986). At that time, the 

definition included a list of what the Commission 

considered to be compatible data processing media, 

but deleted those references to specific media in 

1997 in response to comments suggesting that a 

regulatory definition was impractical given the fast 

pace of evolving technology. See 64 FR 28735, 

28739 (May 27, 1999) (citing 62 FR 24026, 24028 

(May 2, 1997)). 

70 DFA section 721(a)(13). Today’s rulemaking 

similarly incorporates those changes into the 

corresponding definition of ‘‘futures commission 

merchant’’ in regulation 1.3. 

71Protection of Cleared Swaps Customer 

Contracts and Collateral; Conforming Amendments 

to the Commodity Broker Bankruptcy Provisions, 77 

FR 6336 (Feb. 7, 2012). See infra pt. II.A.14 

(discussing technical changes to parts 1 and 22). 

72The Commission proposed to amend regulation 

1.35(a) so that FCMs, RFEDs, IBs, and members of 

a DCM or SEF would be required to record 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, however communicated. The 

proposed amendments to regulation 1.35(a) also 

included a requirement that each transaction record 

be maintained in a separate electronic file 

identifiably by transaction and counterparty. As 

noted above, the Commission will consider these 

proposed amendments to regulation 1.35(a) in a 

separate release. 

73 In the Proposal, the Commission requested 

comment as to whether it would be appropriate to 

add FCMs and IBs to the list of eligible account 

managers. Proposing Release, 76 FR at 33073. 

example, the native file format would 

not be accessible by the Commission, as 

it may not otherwise have that 

proprietary system, or the system does 

not readily export the requested data in 

native file format, then a recordkeeper 

may provide the data in a commonly 

accessible, non-proprietary format. 

In the proposed changes to regulation 

1.31, the Commission proposed to 

amend regulation 1.31(b)(3)(i) by 

replacing ‘‘approved machine-readable 

media as defined in regulation 15.00(l)’’ 

with ‘‘compatible data processing media 

as defined in regulation 15.00(d).’’ The 

proposed change was intended to 

update this paragraph of regulation 1.31 

to reflect that regulation 15.00(l) no 

longer exists and, when it existed, was 

a definition of ‘‘compatible data 

processing media’’ and not ‘‘machinereadable media.’’ 69 Having received no 

comments on this proposed ministerial 

change, the Commission has determined 

to adopt the changes to regulation 

1.31(b)(3)(i) as proposed. 

In response to CME’s request for 

clarification of the scope of ‘‘native file 

format,’’ the Commission confirms that 

the definition of ‘‘native file format’’ 

excludes raw, unprocessed data 

generated or transmitted by an 

electronic trading or clearing system. 

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.70 Therefore, the 

Commission proposed adding 

requirements for monthly and 

confirmation statements applicable to 

swaps. The Commission did not receive 

comments concerning these 

amendments and is adopting these 

provisions mostly as proposed. 

The Commission has decided to 

replace a reference to ‘‘open positions’’ 

in the existing paragraph (a) 

introductory text with ‘‘open contracts.’’ 

This amendment makes the regulation 

1.33(a) introductory text consistent with 

the Commission’s revised definition of 

‘‘open contracts’’ in regulation 1.3(t). 

In finalizing paragraphs (a)(3) and 

(b)(2), the Commission is replacing 

proposed references to ‘‘swaps’’ with 

‘‘Cleared Swaps,’’ as regulation 22.1 

defines that term. Since the publication 

of the Proposal, the Commission has 

finalized part 22 concerning the 

segregation of ‘‘Cleared Swaps Customer 

Collateral.’’ 71 Because an FCM will only 

clear those swaps that are ‘‘Cleared 

Swaps,’’ regulation 1.33 should only 

refer to ‘‘Cleared Swaps.’’ For the same 

reason, the Commission is using the 

terms ‘‘Cleared Swaps Customer’’ and 

‘‘Cleared Swaps Customer Collateral,’’ 

as now defined in regulation 1.3. These 

corrections are being made in 

conjunction with technical corrections 

described below, in section II.A.14 

(Technical corrections to parts 1 and 

22). 

Finally, in paragraph (a)(3) of 

regulation 1.33, the Commission is 

replacing the phrase ‘‘caused to be 

executed by’’ with ‘‘carried by.’’ The 

reason is that an FCM might not provide 

a trade execution function for every 

swap that it clears. 

5. Regulation 1.35: Records of Cash 

Commodity, Futures and Option 

Transactions 72

As part of the ministerial amendments 

contained in this release, the 

Commission is renumbering portions of 

regulation 1.35 so that paragraphs 

currently numbered 1.35(a–1) 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) have been renumbered as 

1.35(d), (e), (f) and (g), respectively. 

Because amended regulation 1.35 

extends recordkeeping obligations to 

swaps, the Commission has created 

special language for swaps, where 

appropriate. In regulation 1.35(d)(2) 

(formerly (b)(2)) (records of futures, 

commodity options, and retail forex 

exchange transactions for each account), 

the Commission has added paragraph 

(iv), as proposed. The Commission did 

not receive comments about this 

amendment and is adopting it as 

proposed. Amended regulation 

1.35(d)(2)(iv) requires 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. 

a. Bunched Orders 

The Commission recognizes that 

investment 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 

proposed amending regulation 1.35(a– 

1)(5) (redesignated as (b)(5) pursuant to 

this rulemaking), addressing postexecution allocation of bunched 

orders.73 The Commission received one 

comment letter concerning this topic. 

The Swaps and Derivatives Market 

Association (‘‘SDMA’’) strongly 

supported the proposed amendment on 

the grounds that it would promote 

operational and execution efficiency in 

both the cleared and uncleared swaps 

markets. Specifically, SDMA noted that 

industry precedent supports the 

proposed post-execution time limits (for 

cleared swaps, no later than a time 

sufficiently before the end of the 

calendar day the order is executed to 

ensure that clearing records identify the 

ultimate customer for each trade; for 

uncleared swaps, no later than the end 

of the day the swap was executed). 

SDMA also noted that regulation 1.35(a– 

1)(5)’s bunched order provisions for 

futures provide an appropriate model 

for swaps and that FCMs generally have 

sufficient risk control capability 

(technologically speaking) to allocate 

swap orders post-execution. 

In its final rulemaking concerning 

Customer Clearing Documentation, 

Time of Acceptance for Clearing, and 

Clearing Member Risk Management, the 

Commission adopted the Proposal’s 


emcdonald on DSK67QTVN1PROD with RULES3
66300 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

74Customer Clearing Documentation, Time of 

Acceptance for Clearing, and Clearing Member Risk 

Management, 77 FR 21278, 21306 (Apr. 9, 2012). 

75See 71 FR 1964 (Jan. 12, 2006). 

76Core Principles and Other Requirements for 

Designated Contract Markets, 77 FR 36612 (June 19, 

2012). 

77See supra, section II.A.b. for a discussion of the 

deletion of the defined term ‘‘option customer’’ 

(1.3(jj)). 

amendments to regulation 1.35(a–1)(5) 

concerning the post-execution time 

limits referred to above.74

In this rulemaking, the Commission is 

adding FCMs and IBs to the list of 

eligible account managers in regulation 

1.35(a–1)(5) (redesignated as (b)(5)), as 

proposed, in order to have a single 

standard for all intermediaries that 

might have discretion over customer 

accounts. Unlike other account 

managers, however, under regulations 

155.3 and 155.4, FCMs and IBs are 

prohibited from including proprietary 

trades in a bunched order with customer 

trades. Accordingly, as proposed, the 

Commission has added a cross-reference 

in regulation 1.35(a–1)(5) (re-designated 

herein as (b)(5)) to those regulations. 

The Commission did not receive 

comments to this segment of the 

Proposal. 

The Commission is further amending 

regulation 1.35(a–1) (redesignated 

herein as (b)) in order to provide that 

specific customer account identifiers 

need not be included in confirmations 

or acknowledgments provided pursuant 

to regulation 23.501(a), if the 

requirements of regulation 1.35(a–1)(5) 

(redesignated herein as (b)(5)) are met. 

This will enable account managers to 

bunch orders for trades executed 

bilaterally with SDs or MSPs. This will 

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 is 

making this revision as proposed; it did 

not receive comments to this revision. 

Also as proposed, the Commission is 

deleting appendix C to part 1, which 

predated regulation 1.35(a–1)(5) (redesignated herein as (b)(5)) and also 

addresses bunched orders. 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) (redesignated herein as (b)(5)). 

Accordingly, the procedures under 

appendix C to part 1 are duplicative and 

no longer necessary. The Commission 

received no comments concerning its 

proposal to delete appendix C to part 1 

and is hereby deleting that appendix. 

b. Other Changes to Regulation 1.35 

The Commission has deleted 

paragraphs (f)–(l) of regulation 1.35, as 

proposed. To implement 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.75 The DCM Core 

Principles final rulemaking 

substantially revised part 38, but did not 

revoke regulation 38.2.76 Instead, it 

updated the list of Commission 

regulations that are applicable to DCMs. 

Unlike its predecessor, regulation 38.2, 

as revised by the DCM Core Principles 

final rulemaking, only enumerates the 

Commission regulations from which 

DCMs are exempt. 

As part of the ministerial amendments 

contained in this rulemaking, the 

Commission has eliminated 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 deletion 

paragraph (j) of regulation 1.35, the 

Commission has copied most of that 

provision into new subsection (d)(7)(i) 

(formerly (b)(7)(i)). The Commission 

made these changes as proposed; it did 

not receive any comments on these 

provisions. 

Also as part of the ministerial 

amendments contained in this 

rulemaking, the Commission proposed 

to eliminate regulations 1.35(a–1)(3)(ii) 

and 1.35(a–2)(3). However, regulation 

38.2, as revised by the DCM Core 

Principles final rule, no longer exempts 

DCMs from these provisions. 

Accordingly, these provisions will not 

be eliminated in this rulemaking, and 

they are redesignated as regulations 

1.35(b)(3)(ii) and 1.35(c)(3), 

respectively. 

Regulation 1.35, as revised by this 

rulemaking, no longer agrees with 

regulation 38.2. As this rulemaking 

eliminates the provisions of regulation 

1.35 that remain inapplicable to DCMs, 

the Commission is revising regulation 

38.2 to remove references to those 

provisions of regulation 1.35 with 

which DCMs are not required to 

comply. The Commission considers this 

revision to regulation 38.2 technical in 

nature as it merely cleans up the 

discrepancy created by the revisions to 

regulation 1.35. 

Finally, the Commission has made a 

technical correction to regulation 

1.35(b)(3)(v) (redesignated herein as 

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

references ‘‘commodity futures, retail 

forex, commodity option, or swap books 

and records’’ instead of ‘‘commodity 

retail forex or commodity option books 

and records.’’ The Commission has 

made this change as proposed; it did not 

receive any comments on this provision. 

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. 

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, as 

proposed, has amended 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. This revision amends the 

provisions to also include SEFs and 

swap transactions. Additionally, the 

Commission is amending the title and 

remaining text of regulation 1.37 to 

reflect the removal of the term ‘‘option 

customer.’’ 77 The Commission received 

no comments on these provisions. 

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 amending regulation 1.39 to apply it 

to SEFs and swaps. Regulation 1.39, 

which has applied 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 is 

amending this provision to include 

members of SEFs, and to include swap 

transactions. The Commission is also 

amending paragraph (c) to eliminate the 

reference to ‘‘cross trades,’’ as they are 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66301 

78Requirements for Derivatives Clearing 

Organizations, Designated Contract Markets, and 

Swap Execution Facilities Regarding the Mitigation 

of Conflicts of Interest, 75 FR 63732 (Oct. 18, 2010). 

79The Commission is also hereby deleting all 

other references to DTEFs, except those already 

removed by other Commission rulemakings, 

throughout its regulations. See infra Part II.G. 

80Public Law 106–554, 114 Stat. 2763 (2000). 

81A New Regulatory Framework for Trading 

Facilities, Intermediaries and Clearing 

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

82Protection of Cleared Swaps Customer 

Contracts and Collateral; Conforming Amendments 

to the Commodity Broker Bankruptcy Provisions, 77 

FR 6336 (Feb. 7, 2012) (‘‘Cleared Swaps Customer 

Final Rule’’). 

83Part 22 capitalizes definitions, but part 1 does 

not. Hence, in this rulemaking, terms defined in 

regulation 22.1 are capitalized, and terms defined 

in regulation 1.3 are not. 

no longer defined under section 4c(a) of 

the Act, as amended by the DFA. The 

Commission received no comments and 

is making these revisions as proposed, 

with a slight modification to further 

clarify that the rule applies to SEFs in 

the same manner that it applies to 

DCMs. 

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 

amending regulation 1.40 to apply it to 

trading on a SEF, to the extent that 

persons have trading privileges on the 

SEF. Persons without trading privileges 

on a SEF will 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.’’ The Commission 

is making these revisions as proposed; 

the Commission received no comments 

on these provisions. 

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

Members, Committee Members and 

Consultants 

The Commission proposed to amend 

regulation 1.59 to include SEFs and 

swaps. The Commission also proposed 

to amend regulation 1.59(b) to correct 

certain cross-references to the Act and 

Commission regulations. Regulation 

1.59(c) 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 

40.9.78 The Commission is making these 

revisions as proposed; the Commission 

received no comments. 

10. Regulation 1.63: Service on SelfRegulatory Organization Governing 

Boards or Committees by Persons With 

Disciplinary Histories 

The Commission proposed to amend 

regulation 1.63 to correct certain crossreferences to the Act and its regulations. 

The Commission also proposed to 

amend paragraph (d) to incorporate the 

posting of notices required under that 

paragraph on each SRO’s Web site. The 

Commission received no comments 

regarding the proposed amendments to 

regulation 1.63 and is adopting the 

amendments without modification. 

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 proposed to amend 

regulation 1.67 to include SEFs, 

registrants and ECPs on such facilities. 

The Commission received no comments 

regarding proposed regulation 1.67 and 

is adopting the rule without 

modification. 

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 is hereby removing 

and reserving regulation 1.68. 

Regulation 1.68 had permitted 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. No 

DTEF has ever registered with the 

Commission. Furthermore, section 734 

of the Dodd-Frank Act repealed the 

DTEF provisions in the CEA, effective 

July 15, 2011. Therefore, because the 

statutory provisions underpinning 

regulation 1.68 have been repealed, the 

Commission is removing it from the 

Commission’s regulations.79

13. Regulations 1.44, 1.53, and 1.62— 

Deletion of Regulations Inapplicable to 

Designated Contract Markets 

The CFMA adopted core principles 

for DCMs.80 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.81 Accordingly, the final rules 

included 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 post-CFMA. As part of 

the ministerial amendments contained 

in the Proposal, the Commission 

proposed 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 proposed 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). The Commission 

received no comments regarding the 

proposed deletion of these provisions 

and is hereby deleting such provisions 

as proposed. 

14. Technical Changes to Part 1 and Part 

22 in Order To Accommodate Recently 

Finalized Part 22 

On February 7, 2012, the Commission 

finalized regulations in part 22 

regarding the Protection of Cleared 

Swaps Customer Contracts and 

Collateral (‘‘Cleared Swaps Customer 

Final Rule’’).82 The Cleared Swaps 

Customer Final Rule took effect on April 

9, 2012, although the compliance date 

for the rule is November 8, 2012. The 

Cleared Swaps Customer Final Rule 

established a segregation regime 

applicable to FCMs and DCOs for 

‘‘Cleared Swaps Customer Collateral,’’ 

as regulation 22.1 defines that term.83

The rulemaking process involved 

extensive public comment, including 

through both an advanced notice of 

proposed rulemaking and a notice of 

proposed rulemaking. 

The Cleared Swaps Customer Final 

Rule carefully established the basic 

architecture for protecting Cleared 

Swaps Customer Collateral. Both the 

Cleared Swaps Customer Final Rule and 


emcdonald on DSK67QTVN1PROD with RULES3
66302 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

84Protection of Cleared Swaps Customer 

Contracts and Collateral; Conforming Amendments 

to the Commodity Broker Bankruptcy Provisions, 76 

FR 33818 (June 9, 2011). 

85See generally Cleared Swaps Customer Final 

Rule, 77 FR at 6363 (‘‘Sections 22.2 through 22.10 

implement the basic architecture of a system of 

segregation for swaps customer funds roughly 

comparable to the system used for customer funds 

for futures contracts under CEA sections 4d(a)(2) 

and 4d(b) and Commission regulations 1.20 through 

1.30 and 1.49.’’). 

86As finalized, the definition of customer in 

regulation 1.3(k) preserves existing treatment of 

proprietary accounts. 

87The Cleared Swaps Customer Final Rule 

created analogous requirements in part 22 with 

the related proposed rule 84 described 

how and to what extent the part 22 

regulations for cleared swaps parallel 

and deviate from the part 1 regulations 

applicable to FCMs and DCOs relating 

to Customers’ Money, Securities, and 

Property for exchange-traded contracts 

(referred to herein as the ‘‘Part 1 

Segregation Regulations’’). In today’s 

final rulemaking, the Commission is 

making technical corrections to certain 

of the Part 1 Segregation Regulations to 

make unambiguous that certain parallel 

Part 1 Segregation Regulations do not 

apply to Cleared Swaps Customer 

Collateral. These Part 1 Segregation 

Regulations only apply to the 

segregation of customer funds used to 

margin, guarantee, or secure contracts 

for future delivery on or subject to the 

rules of a contract market, and all 

money accruing to such customers as a 

result of such contracts (referred to 

herein as ‘‘futures contracts’’), as well as 

to customer funds used to margin 

commodity option transactions on or 

subject to the rules of a contract market 

or DCO (referred to herein as ‘‘options 

on futures contracts’’).85

For the reasons stated above, the 

Commission is hereby making the 

following technical corrections: 

In regulation 1.3, the Commission has 

added a definition of ‘‘futures customer 

funds’’ to reference only those funds 

used to margin futures contracts or 

commodity option transactions on or 

subject to the rules of a contract market, 

or DCO, as the case may be. This 

definition matches the existing 

definition of customer funds (regulation 

1.3(gg)). The Commission is also adding 

a definition of ‘‘Cleared Swaps 

Customer Collateral,’’ which crossreferences regulation 22.1’s definition of 

this term. Regulation 1.3(gg)(‘‘customer 

funds’’) applies to both ‘‘futures 

customer funds’’ and ‘‘Cleared Swaps 

Customer Collateral.’’ The Proposal’s 

definition in regulation 1.3(gg) had 

already applied to customer funds used 

to margin both futures and swaps. 

Relatedly, the Commission is adding 

a definition of ‘‘futures customer’’ to 

regulation 1.3 and a definition of 

‘‘Cleared Swaps Customer,’’ which 

cross-references regulation 22.1’s 

definition of that term. As discussed 

above in section II.A.1.b. of this 

preamble, the definition of ‘‘customer’’ 

in regulation 1.3(k) will be finalized as 

proposed, to reference ‘‘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.’’ 86 The 

definition of ‘‘customer’’ refers to both 

a ‘‘futures customer’’ and a ‘‘Cleared 

Swaps Customer’’ because, as described 

in section II.A.1.f. of this preamble, this 

rulemaking is adopting a revised 

definition of ‘‘commodity interest’’ 

(regulation 1.3(yy)), largely as proposed, 

to reference futures, swaps, and 

contracts subject to Commission 

sections 2(c)(2), 4c or 19 of the Act. 

The Proposal included an amendment 

to the definition of ‘‘futures account’’ in 

regulation 1.3(vv) to reference a related 

futures segregation provision of section 

4 of the Act, as amended by the DoddFrank Act, i.e., section 4d(a). The 

Proposal neglected to reference 

subsection (b) of section 4d, so today’s 

final definition of ‘‘futures account’’ 

references sections 4d(a) and 4d(b) of 

the Act. The Commission did not 

receive comments about its proposed 

revisions to this definition. As a 

technical correction, the Commission is 

adding a definition of ‘‘Cleared Swaps 

Customer Account,’’ which references 

regulation 22.1’s definition of that term. 

Relatedly, the Commission is adding a 

definition of ‘‘customer account’’ in 

regulation 1.3 to connote both a ‘‘futures 

account’’ and a ‘‘Cleared Swaps 

Customer Account,’’ as regulation 1.3 

defines each of those terms. 

The Commission is making a 

technical correction to paragraph 

(c)(5)(xiii)(C) of regulation 1.17 

(‘‘Minimum financial requirements for 

futures commission merchants and 

introducing brokers’’) to restrict a 

provision pertaining to a foreign broker 

granted relief pursuant to regulation 

30.10 to ‘‘the foreign futures or foreign 

options secured amount, as § 1.3(rr) of 

this part defines such term.’’ This 

provision has always referenced the 

foreign futures or foreign options 

secured amount. Thus, because 

‘‘customer funds’’ includes both 

‘‘futures customer funds’’ and ‘‘Cleared 

Swaps Customer Collateral,’’ the 

Commission is making a technical 

correction to replace the term ‘‘customer 

funds’’ in paragraph (c)(5)(xiii)(C) of 

regulation 1.17 with the term ‘‘foreign 

futures or foreign options secured 

amount.’’ 

The Commission is making technical 

corrections to regulation 1.20 

(‘‘Customer funds to be segregated and 

separately accounted for’’) by: changing 

the title to ‘‘Futures customer funds to 

be segregated and separately account 

for’’; replacing references to ‘‘customer 

funds’’ and ‘‘customers’’ to ‘‘futures 

customer funds’’ and ‘‘futures 

customers’’; and linking the regulation 

to those provisions of section 4d of the 

Act, as amended by the Dodd-Frank Act, 

pertaining to the segregation of futures 

customer funds (i.e., sections 4d(a) and 

(b)). 

The Commission is making technical 

corrections to regulation 1.21 (‘‘Care of 

money and equities accruing to 

customers’’) by changing the title to 

‘‘Care of money and equities accruing to 

futures customer’’ and replacing 

references to ‘‘customer’’ with 

references to ‘‘futures customer.’’ The 

Cleared Swaps Customer Final Rule did 

not create a parallel regulation in part 

22 on the grounds that such parallels 

were not necessary because: (1) 

Regulation 22.1 broadly includes 

‘‘accruals’’ in the definition of Cleared 

Swaps Customer Collateral, and (2) 

regulation 22.2(e) permits an FCM to 

commingle the Cleared Swaps Customer 

Collateral of multiple Cleared Swaps 

Customers. Thus, although revised 

regulation 1.21 is limited to futures 

customers and there is no parallel 

regulation in part 22, part 22 captures 

the substance of regulation 1.21 with 

respect to Cleared Swaps Customers and 

Cleared Swaps Customer Collateral. 

The Commission is making technical 

corrections to regulation 1.22 (‘‘Use of 

customer funds restricted’’) by changing 

the title to ‘‘Use of futures customer 

funds restricted’’ and replacing 

references to ‘‘customer funds’’ and 

‘‘customer’’ with references to ‘‘futures 

customer funds’’ and ‘‘futures 

customer.’’ The Cleared Swaps 

Customer Final Rule incorporated these 

requirements into part 22 with respect 

to Cleared Swaps Customer Collateral 

and Cleared Swaps Customers. 

The Commission is making technical 

corrections to regulation 1.23 (‘‘Interest 

of futures commission merchant in 

funds; additions and withdrawals’’) by 

changing the title to ‘‘Interest of futures 

commission merchant in segregated 

futures customer funds; additions and 

withdrawals;’’ replacing references to 

‘‘customer funds’’ and ‘‘customer’’ with 

references to ‘‘futures customer funds’’ 

and ‘‘futures customer;’’ and linking the 

regulation to sections 4d(a) and (b) of 

the Act.87


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respect to Cleared Swaps Customer Collateral and 

Cleared Swaps Customers. See 17 CFR 22.2(e)(3). 

88The Cleared Swaps Customer Final Rule 

created analogous provisions in part 22 with respect 

to Cleared Swaps Customers. See 17 CFR 22.2(d)(3). 

89The Cleared Swaps Customer Final Rule 

created analogous requirements in regulation 22.5 

17 CFR 22.5. 

90The Cleared Swaps Customer Final Rule 

mirrored some of regulation 1.32’s requirements in 

part 22 with respect to Cleared Swaps Customer 

Collateral and Cleared Swaps Customers. See 17 

CFR 22.2(g). 

91Public Law 106–55, 114 Stat. 2763 (Effective 

December 21, 2000). 

The Commission is making technical 

corrections to regulation 1.24 

(‘‘Segregated funds; exclusions 

therefrom’’) by replacing a reference to 

‘‘customers’’ with ‘‘futures 

customers.’’ 88

The Commission is making technical 

corrections to regulation 1.26 (‘‘Deposit 

of instruments purchased with customer 

funds’’) by: changing the title to 

‘‘Deposit of instruments purchased with 

futures customer funds’’; replacing 

references to ‘‘customer funds’’ and 

‘‘customer’’ with references to ‘‘futures 

customer funds’’ and ‘‘futures 

customer;’’ and linking the regulation to 

sections 4d(a) and (b) of the Act.89

The Commission is making technical 

corrections to regulation 1.32 

(‘‘Segregated account; daily 

computation and record’’) by replacing 

references to ‘‘customer funds,’’ 

‘‘customer,’’ and ‘‘customer account’’ 

with references to ‘‘futures customer 

funds,’’ ‘‘futures customer,’’ and 

‘‘futures customer account.’’ 90

The Commission is making a 

technical correction to regulations 1.21, 

1.23, 1.24, 1.26, 1.29, 140.735–2a, and 

140.735–3 by replacing the term 

‘‘clearing organization’’ or 

‘‘clearinghouse’’ with ‘‘derivatives 

clearing organization.’’ Since Congress’ 

enactment of the CFMA in 2000,91

which added ‘‘derivatives clearing 

organization’’ as a new defined term to 

section 1a of the Act, the intent of these 

regulations has been to refer to 

‘‘derivatives clearing organizations.’’ 

The Commission is making technical 

changes to subsection (1)(iii) of 

regulation 1.33 (‘‘Monthly and 

Confirmation statements’’) to 

specifically reference ‘‘futures customer 

funds’’ and the ‘‘foreign futures and 

foreign options secured amount.’’ This 

subsection presently refers to these 

classes of customer funds; the intention 

of this technical amendment is to clarify 

that meaning. 

Proposed amended regulation 

1.33(a)(3) described what ‘‘swap 

positions’’ information an FCM must 

provide in monthly statements to its 

customers. The Commission did not 

receive comments on this proposal and 

is publishing it as proposed, except for 

the following. In line with the 

aforementioned technical corrections, 

today’s final version of regulation 1.33 

replaces ‘‘swap position’’ with ‘‘Cleared 

Swaps Customer.’’ Today’s final 

rulemaking also makes a technical 

correction to regulation 1.33 by 

combining subsections (a)(1)(iv), 

(a)(2)(v), and proposed (a)(3)(iv) into a 

new paragraph (a)(4). 

Unlike the aforementioned Part 1 

Segregation Regulations, Regulation 

1.25 (‘‘Investment of customer funds’’), 

on the other hand, now properly applies 

to both futures customer funds and 

Cleared Swaps Customer Collateral. 

Thus, its title will continue to refer to 

‘‘customer funds,’’ which, as defined by 

revised regulation 1.3(gg), includes both 

futures customer funds and Cleared 

Swaps Customer Collateral. However, 

the Commission is making technical 

corrections to regulation 1.25 as part of 

today’s final rulemaking by adding 

references to regulation 22.5 (‘‘Futures 

commission merchants and derivatives 

clearing organizations: Written 

acknowledgment’’) alongside current 

references to regulation 1.26 (‘‘Deposit 

of instruments purchased with customer 

funds’’) (to be amended herein as 

‘‘Deposit of instruments purchased with 

futures customer funds’’). The 

Commission explains this reference to 

regulation 22.5 in a new provision at the 

end of paragraph (d)(13) of regulation 

1.25. 

The foregoing technical corrections to 

the Part 1 Segregation Regulations are 

designed to ensure that, when taken 

together with the Cleared Swaps 

Customer Final Rule, they do not create 

redundant, and potentially conflicting, 

duties for FCMs and DCOs. For similar 

reasons, the Commission is making 

certain equivalent technical corrections 

to part 22. As mentioned above, none of 

these technical changes alter the 

meaning of any regulation of part 22. 

First, the Commission is deleting the 

definition of ‘‘Customer’’ from 

regulation 22.1 (‘‘Definitions’’). Because 

of the aforementioned addition of the 

definition of ‘‘futures customer’’ in 

regulation 1.3, regulation 22.1’s 

definition of ‘‘Customer’’ is no longer 

needed or correct. Consequently, in 

regulation 22.2 (‘‘Futures Commission 

Merchants: Treatment of Cleared Swaps 

and Associated Cleared Swaps 

Customer Collateral’’), the Commission 

is replacing references to ‘‘Customers’’ 

with references to ‘‘futures customers’’ 

or ‘‘foreign futures or foreign options 

customers,’’ as regulation 30.1(c) defines 

that term. For the same reason, in 

regulation 22.3(b)(2)(iii) (‘‘Derivatives 

clearing organizations: Treatment of 

Cleared Swaps Customer Collateral’’); 

paragraphs (a) and (b) of regulation 22.5 

(‘‘Futures commission merchants and 

derivatives clearing organizations: 

Written acknowledgement’’); and 

paragraph (a) of regulation 22.9 

(‘‘Denomination of Cleared Swaps 

Customer Collateral and location of 

depositories’’), the Commission is 

replacing references to funds belonging 

to ‘‘Customers’’ with references to 

‘‘futures customer funds.’’ 

In addition, since, as described above, 

regulation 1.25 (‘‘Investment of 

customer funds’’) applies to both futures 

customer funds and Cleared Swaps 

Customer Collateral, the Commission is 

making a technical correction to 

paragraph (e)(1) of regulation 22.2 and 

paragraph (d) of regulation 22.3 by 

omitting, ‘‘which section shall apply to 

such money, securities, or other 

property as if they comprised customer 

funds or customer money subject to 

segregation pursuant to section 4d(a) of 

the Act and the regulations thereunder.’’ 

Similarly, the Commission is making 

a technical correction to regulation 22.9 

(‘‘Denomination of Cleared Swaps 

Customer Collateral and location of 

depositories’’) by omitting a reference to 

Cleared Swaps Customer Collateral. 

Regulation 22.9 cross-references 

regulation 1.49 (‘‘Denomination of 

customer funds and location of 

depositories’’). Because the new revised 

definition of ‘‘customer funds’’ in 

regulation 1.3 references both futures 

customer funds and Cleared Swaps 

Customer Collateral, regulation 1.49 

references to both classes of funds. 

Therefore, regulation 22.9 can reference 

regulation 1.49 without making a 

specific reference to Cleared Swaps 

Customer Collateral, which the 

Commission has always intended. 

Moreover, as a result of the 

corrections to the definition described 

above, the Commission is making (1) a 

technical correction to regulation 22.10 

(‘‘Application of other regulatory 

provisions’’) to avoid confusion as to the 

applicability of regulations 1.27, 1.28, 

1.29, and 1.30 to Cleared Swaps, 

Cleared Swaps Customers, and Cleared 

Swaps Customer Collateral, and (2) 

technical corrections to regulations 

22.13(a)(2) and 22.15 to incorporate the 

new ‘‘Futures Customer’’ and ‘‘Foreign 

Futures or Foreign Options Customer’’ 

terms. 

The Commission is also making 

technical corrections to regulation 

22.11, regulation 22.13(a)(1), the title of 

regulation 22.14, regulation 22.14(a)(2), 

regulation 22.14(c)(2), regulation 22.15, 

and the title of regulation of 22.16 by 

replacing references to ‘‘Customer’’ with 


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66304 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

92 77 FR 3661 (June 19, 2012) (Effective date: 

August 20, 2012). 

93 17 CFR 38.2. 

94 77 FR at 36649. The DCM Core Principles final 

rules take effect on August 20, 2012. Section 735 

of the Dodd-Frank Act eliminates all DCM 

designation criteria, including Designation Criterion 

6 (Disciplinary Procedures). Section 735 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. 

95Paragraph (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. 

96 75 FR 56513 (Sept. 16, 2010). 

97 77 FR 41260 (July 13, 2012). 

98Part 36 provisions apply to ECMs and EBOTs. 

The Commission is not deleting 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. 

99For a detailed discussion of the proposed rules 

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

7, 2011). 

100Section 5b of the CEA provided for the 

registration of DTEFs. Although secondary 

references to DTEFs remain in the CEA, none of the 

the correct term ‘‘Cleared Swaps 

Customer.’’ Since its publication, 

regulation 22.11 has always intended to 

reference only Cleared Swaps 

Customers. 

In addition, the Commission is 

making technical corrections to 

regulation 22.12 (‘‘Information to be 

maintained regarding Cleared Swaps 

Customer Collateral’’) by replacing the 

term ‘‘Cleared Swaps Customer Funds,’’ 

with the correct term, ‘‘Cleared Swaps 

Customer Collateral.’’ 

The Commission notes that its 

regulations refer to ‘‘customer funds’’ in 

the following regulations: 3.10, 3.21, 

5.5, 39.15, 39.16, and 170.5, as well as 

in Appendices to part 190. ‘‘Customer 

funds’’ also appears in the following 

regulations recently amended by the 

Commission’s final rulemaking 

concerning Core Principles and Other 

Requirements for Designated Contract 

Markets: 92 1.52, 38.603, 38.604, and 

Appendix B to part 38. The Commission 

believes that these provisions properly 

refer to ‘‘customer funds’’ as revised 

regulation 1.3(gg) now defines that term, 

i.e., to connote both ‘‘futures customer 

funds’’ and ‘‘Cleared Swaps Customer 

Collateral.’’ 

B. Part 7 

The Commission proposed 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 also 

proposed to make a similar change in 

regulation 7.1, replacing contract market 

rules with registered entity rules. 

Finally, the Commission proposed 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. The 

Commission received no comments 

regarding the proposed amendments to 

part 7 and is adopting these 

amendments as proposed. 

C. Part 8 

The Commission proposed to remove 

part 8 of its regulations. Regulation 38.2 

enumerates the provisions with which 

DCMs are not required to comply. The 

part 8 regulations are among those 

provisions.93 In the DCM Core 

Principles final rules, the Commission 

adopted regulations in ‘‘Subpart N— 

Disciplinary Procedures’’ of part 38 to 

amend the disciplinary procedure 

requirements applicable to DCMs.94

Several of the regulations adopted in 

subpart N of part 38 are similar to the 

text of the disciplinary procedures 

found in part 8 of the Commission’s 

regulations.95 The Commission 

proposed to remove part 8 from its 

regulations to avoid any confusion that 

could result from those regulations 

containing two sets of exchange 

disciplinary procedures. The 

Commission received no comments 

regarding the proposed deletion of part 

8 and is therefore deleting those 

regulations as proposed. 

D. Parts 15, 18, 21, and 36 

The Commission also proposed 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 repealed CEA 

section 2(h), thus eliminating the ECM 

category. Section 734 of the DFA 

repealed CEA section 5d, thus 

eliminating the EBOT category. Section 

734 also repealed 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 allowing ECMs and EBOTs to 

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’’).96 Under the 

Grandfather Relief Orders, the 

Commission may, subject to certain 

conditions, provide relief to ECMs and 

EBOTs for up to one year from the 

general effective date of the DFA’s 

amendments to the CEA. On July 13, 

2012, the Commission amended for the 

second time a Commission order dated 

July 14, 2011, by, among other things, 

allowing ECMs and EBOTs, as well as 

markets that rely on pre-DFA CEA 

section 2(d)(2), to rely only on the 

amended order (‘‘Second Amended July 

14 Order’’) after July 16, 2012.97

Pursuant to the DFA and the 

Grandfather Relief Orders, the 

Commission proposed to remove from 

parts 15, 18, 21 and 36 98 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 proposed 

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. The Commission 

received no comments regarding the 

amendments to parts 15, 18, 21, and 36. 

The Commission is revising regulation 

36.1 in order to account for the 

expiration of the Grandfather Relief 

Orders on July 16, 2012, as well as 

reliance by ECMs and EBOTs on the 

Second Amended July 14 Order. 

Otherwise, the Commission is adopting 

the amendments to parts 15, 18, 21, and 

36 as proposed. 

E. Parts 41, 140, and 145 

The Commission also proposed 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 of swap 

transactions between ECPs, as that term 

is defined in CEA section 1a(18).99 In 

addition to the amendments contained 

in proposed part 37, the Commission 

proposed additional amendments 

throughout the regulations to include 

SEFs and SDRs where necessary. The 

Commission also proposed 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, 2011.100 The Commission received 


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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. 

101Provisions Common to Registered Entities, 76 

FR 44776, 44797 (July 27, 2011). 

102 In November 2011, the Commission published 

a final version of Regulation 39.3 (‘‘Procedures for 

[DCO] registration’’). To be consistent with 

Regulation 40.8(a), subsection (a)(5) of Regulation 

39.3 (‘‘Public information’’) references the ‘‘first 

page of the Form DCO cover sheet.’’ See Derivatives 

Clearing Organization General Provisions and Core 

Principles Regarding Rulemaking, 76 FR 69334, 

69431(Nov. 8, 2011). Form DCO is the application 

for registration to become a DCO. Thus, today’s 

technical correction to subsection (b)(13) of 

Appendix A is consistent with both Regulation 

40.8(a) and Regulation 39.3(a)(5). 

103 66 FR 42256. 

no comments to its deletion of the term 

DTEF from part 41 and is adopting this 

change as proposed. In addition, as part 

of today’s final rulemaking, the 

Commission is making a technical 

change to part 41 so that references to 

the definition of ‘‘narrow-based security 

index’’ is cited as section 1a(35) of the 

Act instead of section 1a(25) of the Act. 

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. The 

Commission proposed amending 

regulation 140.72 to provide 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. The Commission 

proposed amending regulation 140.96 to 

authorize 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. The Proposal 

included an amendment to regulation 

140.99 to include SEFs and SDRs to the 

categories of registered entities that may 

petition the Commission for exemptive 

relief and no-action and interpretative 

letters. 

The Commission proposed amending 

regulation 140.735–2 by adding swap 

and retail forex transactions, as 

regulation 5.1(m) defines the latter term, 

to those agreements, contracts or 

transactions Commission staff may not 

trade. The Commission proposed 

amending regulation 140.735–3 to add 

SEFs and SDRs to the list of entities 

from which Commission members and 

employees may not accept employment 

or compensation. 

The Commission received no 

comments about these proposed 

amendments to part 140 and is adopting 

them as proposed, except for two 

technical corrections to regulation 

140.735–2. The Proposal added ‘‘swap 

transaction’’ to the text of paragraph (c) 

but inadvertently omitted updating a 

cross-reference to paragraph (b) that 

references ‘‘swaps.’’ Today’s final 

rulemaking updates that cross-reference 

accordingly. Similarly, the Proposal 

added ‘‘swap transaction’’ to one 

sentence of paragraph (c)’s footnote 

three but, inadvertently, did not add 

‘‘swap transaction’’ to another sentence 

of that paragraph. Thus, today’s 

rulemaking makes a technical correction 

by adding ‘‘swap transaction’’ to that 

other sentence. 

The Commission proposed amending 

regulation 145.9 to expand 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. The Commission received no 

comments about this proposed 

amendment and is adopting it as 

proposed. 

Appendix A to Part 145 discusses 

those portions of Commission records 

made available to the public. Section (b) 

discusses information made available in 

the public reading area of the 

Commission’s Office of the Secretariat. 

The Proposal amended subsection 

(b)(13) by adding ‘‘application form’’ to 

the list of publicly available portions of 

applications for becoming a registered 

entity. One month following the 

publication of the Proposal, i.e. in July 

2011, the Commission published final 

amendments to Regulation 40.8(a) 

(‘‘Availability of public 

information’’).101 Regulation 40.8(a) is 

consistent with proposed (b)(13) of 

Appendix A except for the fact that 

Regulation 40.8(a) references a ‘‘first 

page of the application cover sheet’’ 

instead of an ‘‘application form.’’ Thus, 

as part of today’s final rulemaking, the 

Commission is making a technical 

correction by deleting the proposed 

language, ‘‘application form,’’ and 

replacing it with ‘‘first page of the 

application cover sheet’’ so that it is 

consistent with regulation 40.8(a.) 102

F. Parts 155 and 166 

1. Regulation 155.2: Trading Standards 

for Floor Brokers 

The Commission is removing the 

references to regulation 1.41 within 

regulation 155.2 because the 

Commission removed and reserved 

regulation 1.41 in 2001 103 pursuant to 

the CFMA. The Commission is also 

removing the related reference to former 

section 5a(a)(12)(A) of the Act. The 

Commission did not receive any 

comments on these changes in the 

Proposal and is finalizing them as 

proposed. 

2. Regulation 155.3: Trading Standards 

for Futures Commission Merchants and 

Regulation 155.4: Trading Standards for 

Introducing Brokers 

The Commission is removing 

references to ‘‘option customer’’ in these 

two regulations pursuant to this final 

rulemaking’s deletion of that term from 

regulation 1.3, described above. The 

Commission did not receive comments 

about this change following publication 

of the Proposal and is amending 

regulations 155.3 and 155.4 as 

proposed. 

3. Regulation 166.2: Authorization To 

Trade 

The Commission is revising this 

regulation by incorporating the revised 

definition of ‘‘commodity interest’’ 

(regulation 1.3(yy)), discussed above. 

The Commission believes that 

paragraph (a) of regulation 166.2 should 

refer to futures, options, or swaps and 

that paragraph (b) should refer only to 

futures or options. The Commission did 

not receive comments about these 

changes and is adopting them as 

proposed. 

4. Regulation 166.5: Dispute Settlement 

Procedures 

The Commission is revising this 

regulation by deleting a reference to 

‘‘option customer’’ because, as 

described above, today’s rulemaking 

deletes that term from regulation 1.3. 

The Commission is also making a 

conforming, technical change to 

regulation 166.5, described in section 

G.2., below. 

G. Other General Changes to CFTC 

Regulations 

1. Removal of References to DTEFs 

The Commission is removing 

references to DTEFs and regulations 

pertaining to DTEFs in parts 1, 5, 15, 36, 


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66306 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

104This rulemaking is not deleting those DTEF 

references that other rulemakings have deleted or 

will delete from the Commission’s regulations (e.g., 

some references in part 3 and all references in part 

40). 105 44 U.S.C. 3501 et seq. 106 Id. 

107Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules, 77 FR 

20128 (Apr. 3, 2012). 

108Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

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

current/oes113031.htm (May 2011). 

41, 140, and 155 because section 734 of 

the DFA abolished DTEFs, effective July 

15, 2011.104

2. Other Conforming Changes 

The Commission is also making 

changes to various parts of its 

regulations to update cross-references to 

CEA provisions, now renumbered after 

the passage of the DFA. An example of 

one such change is amended regulation 

166.5, in which the Commission has 

updated the reference to the statutory 

definition of the term ‘‘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, this rulemaking includes 

instructions and amended regulations to 

correct them. 

III. Administrative Compliance 

A. Paperwork Reduction Act 

Sections 1.31, 1.33, 1.35, 1.37, and 

1.39 of the Commission’s regulations are 

being amended to provide that records 

of swap transactions be kept in a similar 

manner to records of futures 

transactions. These amended provisions 

impose new information recordkeeping 

requirements that constitute the 

collection of information within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).105 Under the PRA, 

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.106 This rulemaking contains 

new collections of information for 

which the Commission must seek a 

valid control number. The Commission 

therefore has requested that OMB assign 

a control number for this collection of 

information. The Commission has also 

submitted the proposed rulemaking, this 

final rule release, and supporting 

documentation to OMB for review in 

accordance with 44 U.S.C. 3507(d) and 

5 CFR 1320.11. The title for these new 

collections of information is 

‘‘Adaptation of Regulations to 

Incorporate Swaps,’’ OMB Control 

Number 3038–0090. Responses to these 

information collections will 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 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. 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 confirmation 

statements, and regulation 1.35, which 

requires the maintenance of records of 

cash commodity, futures, and option 

transactions (as finalized, Records of 

commodity interest and cash 

commodity transactions). Regulation 

1.31 is applicable to SDs and MSPs by 

way of the part 23 regulations.107

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 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 per SEF member. 

As there are not any SEFs operating 

at the present, in light of the fact that 

the Commission has not yet finalized 

regulations concerning SEF Core 

Principles, 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 DoddFrank 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 $80.90.108

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 

Prior to Initial Use of System 

Members of SEFs will also have to 

comply with regulation 1.31(c), which 

requires persons employing an 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66307 

109As 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 the part 23 regulations. 

110Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

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

current/oes113031.htm (May 2011). 

111Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

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

current/oes113031.htm (May 2011). 

112Occupational Employment Statistics, 

Occupation Employment and Wages: 11–3031 

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

current/oes113031.htm (May 2011). 

electronic storage system to provide a 

representation to the Commission prior 

to the initial use of the system.109 The 

Commission estimates the burden of 

drafting this representation in 

accordance with regulation 1.31(c) and 

submitting it to the Commission to be 

one 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 $80.90.110

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 will be $100 

($100 x 1 hour) per affected member of 

a SEF. 

iii. Comments Received 

The Commission did not receive any 

comments concerning the cost for SEF 

members to comply with the 

recordkeeping requirements contained 

in regulation 1.31. 

b. Amendments to Regulation 1.33 

(Monthly and Confirmation Statements) 

The Commission is 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 Cleared Swap 

positions. The information required to 

be summarized in respect of swap 

transactions will 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 Cleared 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 $80.90.111

Accordingly the burden associated with 

complying with regulation 1.33 in 

respect of each Cleared Swap 

confirmation will be $80.90 ($80.90 × 1 

hour), and the burden will be $80.90 

($80.90 × 1 hour) for each monthly 

statement regarding Cleared Swaps. 

i. Comments Received 

The Commission did not receive any 

comments concerning the cost for FCMs 

to comply with the recordkeeping 

requirements contained in regulation 

1.33 with respect to their swap 

transactions. 

c. Amendments to Regulation 1.35 

(Records of Commodity Interest and 

Cash Commodity Transactions) 

i. Obligation To Develop and Maintain 

Recordkeeping Policies and Controls 

The amendments will 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 $80.90.112

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 amendments to regulation 1.35 

will 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. 

ii. Comments Received 

The Commission did not receive any 

comments concerning the excepted cost 

of complying with the aforementioned 

revisions to regulation 1.35. 

d. Amendments to Regulation 1.37 

(Customer’s Name, Address, and 

Occupation Recorded; Record of 

Guarantor or Controller of Account) 

i. Obligation To Develop and Maintain 

Recordkeeping Policies and Controls 

The Commission is 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 is 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 is 

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 


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113Occupational 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/ 

oes439021.htm (May 2011). 

114Occupational Employment Statistics, 

Occupational Employment and Wages: 15–1131, 

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

current/oes151131.htm (May 2011); Occupational 

Employment Statistics, Occupational Employment 

and Wages: 15–1132, Computer Software 

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

oes151132.htm (May 2011). 

115 5 U.S.C. 601 et seq. 

116See Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants, 77 FR 20128 (Apr. 3, 2012) (adopting for 

SDs and MSPs reporting and recordkeeping 

standards now found in 17 CFR 23.201–23.203). 

117See Policy Statement and Establishment of 

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

Regulatory Flexibility Act, 47 FR 18618, 18619, 

Apr. 30, 1982 (DCMs, FCMs, and large traders) 

(‘‘RFA Small Entities Definitions’’); Opting Out of 

Segregation, 66 FR 20740, 20743, Apr. 25, 2001 

(ECPs); Regulation of Off-Exchange Retail Foreign 

Exchange Transactions and Intermediaries, 75 FR 

55410, 55416, Sept. 19, 2010 (RFEDs) (‘‘Retail Forex 

Final Rules’’); and Position Limits for Futures and 

Swaps; Final Rule and Interim Final Rule, 76 FR 

71626, 71680, Nov. 18, 2011 (SEFs). 

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,’’ is $13.95.113 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). 

ii. Comments Received 

The Commission did not receive any 

comments concerning the extension of 

regulation 1.37 to swap transactions 

executed by FCMs, IBs, and other DCM 

members. 

e. Amendments to Regulation 1.39 

(Simultaneous Buying and Selling 

Orders of Different Principals; 

Execution of, for and Between 

Principals) 

i. Obligation To Develop and Maintain 

Recordkeeping Policies and Controls 

The Commission is 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 15–1131 and computer 

software developers under program 

codes 15–1132 are between $36.54 and 

$44.27.114 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. 

ii. Comments Received 

The Commission did not receive any 

comments concerning the extension of 

regulation 1.39 to transactions executed 

on a SEF. 

B. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires that agencies consider 

whether the rules they propose will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis respecting the 

impact.115 The rules adopted by the 

Commission are for the most part 

technical amendments to conform the 

affected parts to provisions of the DoddFrank Act and, as such, are nonsubstantive and will not have a 

significant economic impact on a 

substantial number of any types of 

entities, whether or not they are small 

entities. In order to conform the 

Commission’s existing records 

regulations to its new recordkeeping 

requirements for SDs and MSPs 

(Regulation 23.202 (‘‘Daily Trading 

Records’’)),116 the Commission also is 

amending its regulation 1.35 records 

requirements (as finalized, Records of 

commodity interest and cash 

commodity transactions) to require 

FCMs, IBs, RFEDs, and members of 

DCMs to observe recordkeeping 

requirements for swaps that they 

currently observe with respect to their 

futures and commodity option 

transactions. 

Additionally, the Commission is 

applying certain of those books and 

records regulations to members of SEFs, 

mirroring obligations that apply to 

members of DCMs. 

Accordingly, the Commission is 

hereby determining that most of the 

entities affected by this rulemaking will 

not be significantly economically 

impacted by the conforming and 

technical rules being adopted. As 

discussed below, the Commission is 

also determining that most of the 

entities that will be subject to 

compliance with this rulemaking are not 

small entities for the purposes of the 

RFA. Therefore, pursuant to 5 U.S.C. 

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

Commission, certifies by category of 

market participant below that the final 

rules will not have a significant 

economic effect on a substantial number 

of small entities. 

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

Large Traders 

The Commission has previously 

determined that registered FCMs, 

RFEDs, DCMs, ECPs, SEFs and large 

traders are not small entities for 

purposes of the RFA.117 The 

Commission has been informed, in the 

context of other rulemakings, that there 

are some entities that are both ECPs as 

defined in the CEA and also are small 

entities as defined by the Small 

Business Administration (‘‘SBA’’). In 

particular, the SBA has defined as small 

entities those entities that are engaged 

in the generation, transmission, and/or 

distribution of electric energy for sale 

and whose total electric output for the 

preceding year did not exceed four 

million megawatt hours. As noted 

previously, however, this rulemaking 

involves primarily technical conforming 

amendments that alone do not impose 

significant economic impacts on any 

group of entities, and that overlap with 

substantive rulemakings in which the 

Commission has assessed or will assess 

the economic impact on small entities to 

the extent required under the RFA. 

Accordingly, the Chairman, on behalf of 

the Commission, hereby certifies 

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

rules will not have a significant 

economic impact on a substantial 

number of small entities with respect to 

these entities. 


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118See 76 FR 33066, 33079–80, June 7, 2011. 119 76 FR 33066. 

2. IBs 

As discussed above, most of the 

provisions of this rulemaking are 

technical and conforming in nature, and 

overlap with substantive rulemakings in 

which the Commission has conducted 

RFA analyses to the extent such are 

required. 

The Commission provided an initial 

regulatory flexibility analysis for IBs in 

the its proposing release, as required by 

5 U.S.C. 603, because the oral 

recordkeeping requirement under 

regulation 1.35(a), as proposed, may 

have had a significant economic impact 

on a significant number of small IBs.118

As discussed above, the Commission 

has decided not to adopt the proposed 

oral communications recordkeeping 

requirement under regulation 1.35(a) as 

part of today’s final rule. Instead, the 

Commission intends to adopt that 

requirement in a future final 

rulemaking. 

C. Consideration of Costs and Benefits 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of the 

following 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 considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors. 

In July 2010, Congress passed the 

Dodd-Frank Act which, among other 

things, establishes a comprehensive 

regime for the regulation of swaps. The 

Dodd-Frank Act brings swaps under the 

Commission’s jurisdiction and obligates 

the Commission to adopt new 

regulations related to registration and 

regulation of SDs and MSPs, trade 

execution and clearing requirements, 

and swap data recordkeeping and real 

time reporting. In section 721 of the 

Dodd-Frank Act, Congress added CEA 

section 1a(47) to add a definition of the 

term ‘‘swap.’’ 

In response to Congress’s act of 

placing swaps under the Commission’s 

authority, the Commission is exercising 

its discretion to amend its regulations to 

ensure that SDs, MSPs, SEFs, and swaps 

are subject to the Commission’s 

comprehensive regulatory regime, and 

in June 2011, proposed to amend parts 

1, 5, 7, 8, 15, 18, 21, 36, 41, 140, 145, 

155, and 166 to update its regulations 

accordingly.119

As described in the Background, 

above (section I. of this preamble), some 

of the amendments contained in this 

release are technical in nature; for 

example, they amend various 

definitions in regulation 1.3 to track the 

DFA’s amendments to the CEA’s 

definitions of the same term, such as 

futures commission merchants. Another 

example of a technical change is the 

deletion of references to derivatives 

transaction execution facilities, a 

category of exchange that the DFA 

eliminated. Other revisions contained in 

this rulemaking amend recordkeeping 

and reporting requirements, which 

presently apply to futures, so that they 

cover swap transactions as well. An 

example of this type of change is the 

revision to parts 15, 18, 21, and 36 to 

implement DFA’s grandfathering and 

phase-out of exempt boards of trade and 

exempt commercial markets. Certain 

amendments in this release are designed 

to harmonize recordkeeping 

requirements for various registered 

entities transacting in swaps. For 

example, the amendments to §§ 1.31 

harmonize part 1 recordkeeping 

requirements with those applicable to 

SDs and MSPs under part 23 

regulations. Lastly, this rulemaking 

amends procedures pertaining to the 

post-execution allocation of bunched 

orders so that they can be used in 

respect of swap transactions similarly to 

how they are currently used for futures 

transactions. 

The benefits and costs that the 

Commission considers below are those 

attributable to its amendments of the 

rules discussed compared to a scenario 

in which these rules were not amended. 

Section 1.31 Books and Records; 

Keeping and Information 

Summary Description 

Prior to the amendments made in this 

final rule, § 1.31 specified the 

conditions under which records 

required by the Act of any applicable 

entity shall be maintained. The section 

stated that these records shall be kept 

for a period of five years from the 

transaction date, must be ‘‘readily 

accessible’’ for the first two years, and 

stipulated a number of further 

conditions pertaining to the auditing of 

record storage systems, storing duplicate 

copies of records, and other items. As 

described above in II.A.3, the 

amendments in this final rule specify 

that: (1) Required books and records 

must be kept in their original form (for 

paper records) or in their native file 

formats (for electronic records); (2) 

when books and records are requested 

by the Commission, they must be 

produced in a form and on any media 

specified by the Commission; (3) 

required records of any swap or related 

cash or forward transaction must be 

kept until the ‘‘termination, maturity, 

expiration, transfer, assignment, or 

novation date of the transaction’’ and 

then for an additional five-year period; 

and (4) records of oral communications 

required to be maintained pursuant to 

regulation 23.202(a)(1) and (b)(1) must 

be kept until the ‘‘termination, maturity, 

expiration, transfer, assignment, or 

novation date of the transaction’’ and 

then for an additional one-year period. 

Benefits 

The public and the financial integrity 

of the markets benefit from this 

amendment because it promotes 

retention of metadata (i.e., data about 

data). This amendment enhances the 

Commission’s forensic capabilities, 

including the ability to trace 

communications and transactions. 

Moreover, requiring entities to retain 

data in its native file format reduces the 

likelihood that data could be 

manipulated or corrupted, either 

intentionally or unintentionally, which 

makes it more reliable. 

In addition, if entities are not required 

to store data in its native file format, 

some entities may choose to store some 

of their data on paper records or in 

electronic image formats (such as PDF) 

which cannot be easily converted into a 

form that allows it to be read by 

programs that the Commission 

sometimes uses for purposes of 

investigation and analysis. For example, 

market participants have sometimes 

submitted large amounts of financial 

data to the Commission on printed 

pages arguing that OCR technology 

makes such pages ‘‘machine readable’’ 

and therefore is compliant with the 

existing requirements under 

§ 1.31(b)(3)(i). While OCR technology is 

useful in converting printed text into an 

electronic form, it has not been similarly 

helpful in converting financial data 

provided to the Commission. When 

market participants have submitted 

large data sets to the Commission on 

printed pages, it has been problematic, 

forcing the Commission to either enter 

extraordinary amounts of data into its 

systems manually, an expensive process 

that introduces the possibility of data 

entry errors, or to abandon the use of 

programs that are often helpful in the 


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120See e.g., FIA and NFA. 

121 § 1.31(b)(3)(ii). 

122Calculations in the PRA section rely 

calculations rely on wage estimates from the Bureau 

of Labor Statistics. However, for the purposes of the 

Cost Benefit Considerations section, we have used 

wage estimates that are taken from the SIFMA 

‘‘Report on Management and Professional Earnings 

in the Securities Industry 2011’’ because industry 

participants are likely to be more familiar with 

them. Hourly costs are calculated assuming 2,000 

hours per year and a multiplier of 5.35 to account 

for overhead and bonuses. All totals calculated on 

the basis of cost estimates are rounded to two 

significant digits. 

This estimate assumes 20–40 hours of a 

compliance attorney’s time, 20–40 hours of an 

intermediate compliance specialist’s time, 5–15 

hours of a senior database administrator’s time, and 

5–15 hours of an office manager’s time in order to 

design and implement the written procedures and 

controls. The average cost for a compliance attorney 

is $351.24/hour [($131,303 per year)/(2000 hours 

per year) * 5.35 = $351.24 per hour]. The average 

cost for an intermediate compliance specialist is 

$351.24/hour [($58,303 per year)/(2000 hours per 

year) * 5.35 = $351.24 per hour]. The average cost 

for a senior database administrator’s time is 

$280.22/hour [($104,755 per year)/(2000 hours per 

year) * 5.35 = $280.22 per hour]. The average cost 

for an office manager’s time is $229.72/hour 

[($85,875 per year)/(2000 hours per year) * 5.35 = 

$229.72 per hour]. 

course of investigation, which severely 

limits the usefulness of that data for 

investigation purposes. 

Requiring all entities subject to 

regulation 1.31 to retain data in its 

native file format mitigates the potential 

that market participants could discard 

records in an effort to thwart 

Commission investigations, or that they 

could do so unintentionally but with 

similar effect and increases the 

likelihood that the data will exist in a 

form that can be converted to meet the 

Commission’s needs. The requirement 

that entities present that data to the 

Commission in a format and on a 

medium requested by the Commission 

will help to ensure that the Commission 

is able to obtain data from market 

participants in a form that it can use 

effectively for detecting and prosecuting 

prohibited market activities. And by 

improving the efficiency and 

effectiveness of the Commission’s 

enforcement efforts, these requirements 

help deter fraud and manipulation, and 

promote the integrity of the markets 

subject to the jurisdiction of the 

Commission. 

By providing that required written 

records pertaining to swaps and related 

cash or forward transactions must be 

retained for the life of the swap plus five 

years, the Commission will have the 

ability to create a sufficient audit trail 

from which to ascertain and, if 

necessary recreate, the facts and 

circumstances giving rise to the 

transaction, even if the need to do so 

arises several months or even a few 

years after the relevant transactions 

occurred. 

Costs 

The amended requirement to store 

electronic records in their native format 

will likely create additional data storage 

costs for market participants. The 

incremental cost of storage depends on 

whether or not the entity in question 

was previously storing data in its native 

format and the number and size of 

records that must be stored in their 

native format. The Commission 

requested but received no data from 

commenters quantifying such costs. In 

order to quantify these costs the 

Commission would need data sufficient 

to estimate the number of entities that 

do not store data in its native file 

format, and the amount of additional 

data that they would, on average, have 

to retain in order to store it in its native 

file format. The Commission does not 

have that information. 

In addition, market participants will 

have additional storage costs because 

the rule provides that required swap 

and related cash and forward 

transaction data must be retained for the 

life of the swap plus five years. These 

costs will depend on the number and 

tenor of swaps and related cash and 

forward transactions that an entity 

enters into. These factors are likely to 

vary widely among market participants. 

The Commission does not have 

adequate information to estimate how 

many firms are currently storing data in 

its native format, the number of swap 

transactions that will be affected by the 

timelines implemented here, or to 

estimate their tenor and the storage 

space required to store related data. 

Therefore it is not possible to estimate 

the additional storage space or cost of 

additional storage. 

The requirement that entities submit 

information to the Commission in a 

format and on a medium determined by 

the Commission will create some costs 

for market participants. Entities that 

keep data in proprietary systems or in 

formats that are not read by programs 

that the Commission uses to aid in its 

investigations would need to adapt their 

systems in order to develop this 

capability. And when requested to do so 

by the Commission, such entities would 

have to convert their data into the 

format requested by the Commission, 

which creates some incremental costs as 

well. The Commission cannot estimate 

these additional costs because it does 

not have adequate information to 

estimate the number of entities that 

would need to adapt their systems in 

order to allow for data conversion that 

meets the Commission’s needs. 

Moreover, it does not have information 

regarding the number of inquiries that 

will require data conversion, or the 

amount of time that entities would need 

to spend converting data when 

necessary. The latter is likely to vary 

widely, depending on the data formats 

currently used by market participants 

and the presence or absence of standard 

data conversion software that might 

assist with such needs. 

The rules provides that required swap 

and related cash and forward 

transaction data must be retained for the 

life of the swap plus five years also 

creates some data migration costs. 

Entities engaging in long-dated swaps 

will likely upgrade their recordkeeping 

systems during the period of time that 

they are required to keep data related to 

those swaps and related cash or forward 

transactions. Such entities will have to 

implement backward-compatible 

systems, or will have to reformat older 

data so that it can be retained and 

retrieved using newer systems. Either of 

these approaches will create some cost, 

however, it is not possible to determine 

which approach entities are likely to 

take or the cost that would likely result 

in either case. Therefore, the 

Commission is not able to estimate the 

cost at this time. 

Some commenters noted costs that 

would result from not being allowed to 

convert paper records to electronic 

media for storage.120 In response, the 

Commission notes that regulation 

1.31(b) still provides that paper records 

stored on micrographic media or 

electronic storage media (e.g. scanned 

copies) is sufficient to fulfill the 

requirements of regulation 1.31(a)(1), 

and therefore the cost that these 

commenters noted will not occur. 

Similarly, the Minneapolis Grain 

Exchange expressed a concern that 

amendments to regulations 1.31 and 

1.35, taken together, could ‘‘require an 

electronic and paper copy of the same 

information,’’ leading to unnecessary 

costs on the part of firms. As stated 

above, the Commission is not requiring 

that entities retain both paper and 

electronic copies of the same 

information. 

The amendments to the requirements 

for keeping and inspection of records, 

mandated in this section, create certain 

costs. It is likely that some SEF 

members will not have not been subject 

to regulation 1.31 previously and 

therefore will need to design written 

procedures and controls for maintaining 

their recordkeeping system.121 For 

entities that need to develop such 

procedures and controls for the first 

time, the Commission estimates a onetime cost of approximately $13,000 to 

$28,000.122


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123See § 1.31(c). 

124The average wage for an intermediate 

compliance specialist is $155.96 [($58,303 per 

year)/(2,000 hours per year) * 5.35 = $155.96] 

125Mr. Chris Barnard. 

126See Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants, 77 FR 20128, 20172 (Apr. 3, 2012). 

In addition, the members of SEFs that 

have not previously been subject to 

regulation 1.31 will have to provide a 

representation to the Commission prior 

to their initial use of the system.123 The 

Commission estimates that such entities 

will spend approximately 0.5 hours 

providing the submission, and therefore 

the estimated cost for the submission is 

$78.124

Consideration of Alternatives 

One commenter suggested that the 

Commission require records to be kept 

indefinitely.125 In the Proposal, the 

Commission did not propose to alter the 

requirements regarding the length of 

time during which written records must 

be retained by relevant entities for any 

of the transactions that were previously 

covered by the requirement, and 

continues to believe that the existing 

requirements ensure access to relevant 

records for a reasonable period of time 

while also limiting costs to market 

participants. However, the amendments 

to regulation 1.31 added swaps and 

related cash and forward transactions to 

the types of transactions that are 

covered, and as described above, 

established a longer recordkeeping 

requirement for required books and 

records regarding those transactions. 

The Commission believes that the long 

product life of some swaps necessitates 

longer recordkeeping requirements for 

related documents and data. However, 

the Commission anticipates that data 

related to such transactions will not be 

needed for enforcement purposes more 

than five years beyond the time when 

the swap has been terminated, novated, 

etc. Therefore, providing that market 

participants must retain required data 

more than five years beyond that date 

would, in the Commission’s view, 

impose unnecessary cost upon market 

participants without significant added 

benefit. 

The Proposal would have required 

oral records to be retained by SDs and 

MSPs until the swap has been 

terminated, novated, etc., and for five 

years thereafter, whereas the final rule 

requires these entities to retain such 

records until the swap has been 

terminated, novated, etc., and for a 

period of one year thereafter. This may 

create some cost by limiting the 

Commission’s ability to obtain from SDs 

and MSPs recordings related to events 

that occurred more than one year ago, 

which could reduce the Commission’s 

effectiveness in identifying and 

prosecuting certain violations. However, 

the Commission anticipates that in most 

cases, the one year requirementafter the 

life of the swap, will be sufficient, and 

notes that the reduced retention 

requirement reduces storage costs to 

market participants. 

Section 1.35 Records of Commodity 

Interest and Cash Commodity 

Transactions Introduction 

Prior to this amendment, § 1.35 

specified which parties are required to 

keep records related to commodity 

futures, commodity options, and cash 

commodities. The requirements of 

§ 1.35 applied to FCMs, RFEDs, IBs, and 

members of contract markets. The 

amendments to regulation 1.35 extend 

these recordkeeping requirements to 

swap transactions and to members of 

SEFs. 

As described above in II.A.5, the 

amended rule also applies the bunched 

order procedures for futures 

transactions to swaps, and adds FCMs 

and IBs to the list of eligible account 

managers for orders executed on a DCM 

or SEF, and also adds CTAs, FCMs, and 

IBs as eligible account managers for 

orders executed bilaterally. 

Benefits 

As it explained when adopting similar 

transactional level recordkeeping 

requirements for SDs and MSPs, the 

Commission believes these 

recordkeeping requirements for swap 

transactions will contribute to 

important, though unquantifiable, 

benefits.126 More specifically, complete, 

rigorous transactional recordkeeping is a 

necessary element to promote market 

integrity, as well as customer protection, 

by providing an audit trail of past swap 

transactions. For, a strong audit trail, 

among other things: 

• Provides a basis for efficiently 

resolving transactional disputes. 

• Facilitates a firm’s ability to 

recognize and manage its risk, thereby 

enhancing the risk management of the 

market as a whole. 

• Acts as a disincentive to engage in 

unduly risky, injurious, or illegal 

conduct in that the conduct will be 

traceable. 

• And, in the event such conduct 

does occur, provides a mechanism for 

policing such conduct, both internally 

as part of a firm’s compliance efforts 

and externally by regulators enforcing 

applicable laws and regulations. 

The rule also applies the procedures 

for handling bunched orders of futures, 

to swaps, which enables account 

managers to reduce transaction costs to 

customers by executing a single, large 

transaction on behalf of multiple 

customers at the same time, and then 

allocating the positions that were 

component parts of that transaction to 

specific customers after the transaction 

has been executed. In addition, bunched 

orders provide additional protection to 

customers against favoritism. In the 

absence of bunched orders, when an 

account manager has several customers 

that each need to take out positions in 

the same swap, the manager would 

place several sequential orders for that 

swap. The series of orders may move the 

price for that swap, in which case the 

last customer order would receive a less 

favorable price than the first customer 

order. By combining the orders, the 

manager is more likely to find a single 

counterparty and a single price for the 

orders, in which case the account 

manager can distribute the appropriate 

number of shares to each account at a 

constant price per share. No customer is 

favored over another in such a 

distribution. This promotes customer 

protection and the integrity of the 

financial markets. 

In addition, by adding FCMs and IBs 

to the list of eligible account managers 

for orders executed on a DCM or SEF, 

and also adding CTAs, FCMs, and IBs as 

eligible account managers for orders 

executed bilaterally, the rule promotes 

competition among entities that are 

permitted to execute bunched orders, 

which in turn, promotes competitive 

pricing for account managers who want 

to execute bunched orders. And by 

promoting competitive pricing, the 

amendment promotes market efficiency. 

In addition, by permitting FCMs, IBs, 

and CTAs to engage in bunched order 

transactions, the amendment creates 

benefits for those entities because it 

allows them to provide an additional 

service to clients, giving them an 

additional source of revenue. 

Costs 

Amendments in this final rule will 

require SEF members to comply with 

regulation 1.35, and it is likely that 

some of those members will not have 

been subject to § 1.35 previously. The 

Commission estimates that SEF 

members that are newly subject to § 1.35 

will spend additional time each day 

compiling and maintaining transaction 

records. The Commission estimates that 

the cost of that additional time is 


emcdonald on DSK67QTVN1PROD with RULES3
66312 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

127This is estimated to take 6–10 hours per day 

(assuming 252 days per year) of the time of an office 

services supervisor. The average wage for an office 

services supervisor is $155.96 [($58,303 per year)/ 

(2,000 hours per year) * 5.35 = $155.96]. $155.95 

* 6 * 252 = 235,812.31. $155.95 * 10 * 252 = 

393,020.52. 

128This estimates 0.5 hours of time from an office 

services supervisor. The average salary for an office 

services supervisor is $165.25/hour [($61,776 per 

year)/(2,000 hours per year) * 5.35 = $165.25 per 

hour]. $165.25 * 0.5 = $82.63 

$236,000 to $393,000 per entity per 

year.127

Also, the amendments in this final 

rule will 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. The Commission 

estimates that such entities will spend 

an additional 0.5 hours per swap 

capturing and maintaining the records 

required under § 1.35, and therefore 

estimates that the per-swap cost will be 

$83.00.128

Section 1.3 Definitions 

Introduction 

As discussed in II.A.1, the 

Commission is amending and adding 

several definitions in order to 

incorporate swaps within the 

Commission’s regulatory framework. 

Included among them are definitions for 

‘‘customer,’’ ‘‘futures commission 

merchant,’’ ‘‘member,’’ ‘‘net deficit,’’ 

‘‘proprietary account,’’ ‘‘commodity 

trading advisor,’’ ‘‘commodity pool 

operator,’’ ‘‘designated self-regulatory 

organization,’’ ‘‘customer funds,’’ 

‘‘strike price,’’ ‘‘introducing broker,’’ 

‘‘registered entity,’’ ‘‘registrant,’’ ‘‘open 

contract,’’ ‘‘physical,’’ and ‘‘commodity 

interest.’’ 

As discussed throughout this release, 

Congress amended the CEA to address 

swaps. The amendments to regulation 

1.3 (‘‘Definitions’’) help effectuate that 

mandate and do not, in and of 

themselves, implicate any costs or 

benefits. Any costs and benefits are 

associated with substantive regulations 

that rely upon the revised definitions 

contained in regulation 1.3. 

Section 1.4 Electronic Signatures 

Introduction 

In its original form, § 1.4 allowed a 

customer of an FCM or IB, a retail forex 

customer of an RFED or FCM, and a 

pool participant or a client of a CTA to 

use an electronic signature to provide 

any required signatures under the CEA, 

as long as the FCM, RFED, IB, CPO, or 

CTA elects generally to accept 

electronic signatures for such purposes 

and ‘‘reasonable safeguards’’ are in 

place. The amended rule published as 

part of today’s final rulemaking extends 

the benefit of electronic signatures by 

including SDs, MSPs, and 

counterparties of SDs and MSPs in the 

list of entities that may use electronic 

signatures for acknowledgement of swap 

transactions. 

Benefits 

With respect to the protection of 

market participants and the public, 

permitting FCMs, IBs, CPOs, CTAs, SDs, 

and MSPs to utilize electronic 

signatures when executing swap 

transactions enables more rapid 

processing of steps in the transaction 

process that requires signatures than 

would be possible if using faxed copies 

or hard copies for such purposes. This, 

in turn, reduces costs to market 

participants by reducing the amount of 

time they spend handling paperwork 

and enhances market efficiency by 

allowing transactions to be confirmed 

more rapidly. In addition, this facilitates 

straight through processing of swaps, 

which provides numerous efficiency 

and risk reduction benefits. 

Costs 

The amendment to § 1.4 is permissive, 

allowing SDs, MSPs, and their 

counterparties to use electronic 

signatures if they choose, and also 

allowing FCM’s, IBs, CPOs, and CTAs to 

use electronic signatures when engaging 

in swap transactions. The rule does not 

create any affirmative obligations for 

market participants, and therefore does 

not create direct costs to entities subject 

to § 1.4. Costs to other market 

participants and the public would only 

occur if electronic signatures were 

somehow more susceptible to be 

falsified or corrupted than nonelectronic signatures. The Commission 

is not aware of any such risk, and 

believes that it is unlikely, given that 

electronic signatures are already widely 

used among market participants, 

including other registered entities. 

Sections 1.33 and 1.37 

Introduction 

These amended regulations require 

FCMs, IBs, RFEDs, SEFs, 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. Regulation 1.33 

deals with monthly confirmation 

statements, and regulation 1.37 deals 

with customers’ names and addresses as 

well as daily records showing total open 

long and short contracts. 

Benefits 

By incorporating swaps into FCM, IB, 

RFED, DCM, and DCM members’ 

reporting requirements, the rule extends 

the benefits of such reporting 

requirements to a new range of 

transactions, and to additional 

customers of such entities. The benefits 

are likely to be increased awareness 

among market participants of any losses 

or gains due to their swap transactions, 

which may contribute to sound risk 

management. Moreover, the monthly 

statements and the confirmation 

statements required by § 1.33 provide 

customers with additional opportunities 

to identify potential mistakes made over 

the course of their transaction that could 

result in an undesirable outcome, 

providing further protection to 

customers of such entities that are 

clearing swaps. Participants would also 

be able to view a list of fees charged to 

their accounts and verify that all are 

valid charges and would thus be better 

protected against accidental or 

fraudulent fees and charges. 

The requirements of § 1.37 will ensure 

that proper records are maintained to 

identify the rightful owners of customer 

funds, and that are kept on an omnibus 

basis, as well as to identify parties who 

own, guarantee, or exercise control over 

any customer cleared swap accounts. 

Proper records regarding the name of 

individuals or entities that own 

customer funds, and daily reconciliation 

of balances in the omnibus account, 

promote protection of customer funds 

held by entities that place customer 

funds in such accounts. Furthermore, by 

requiring each FCM carrying an 

omnibus account for any other person to 

maintain a daily record of the total open 

long contracts and total open short 

contracts in each swap, the final rule 

provides protection for the customers 

that hold funds in such accounts. The 

daily records may be used by the FCM 

to reconcile the omnibus accounts to 

their individual customer obligations, 

thus helping to ensure that the omnibus 

accounts have sufficient funds to meet 

their customer obligations. 

Costs 

Costs of this proposal include the cost 

of compliance on the part of FCMs to 

compile and deliver monthly statements 

and confirmations after every 

transaction. FCMs will bear a one-time 

cost to design the confirmation 

statements, swap section of the monthly 

reports, and to set up automated 

systems to produce them. The 

amendment is not likely to necessitate 

new technology since FCMs can use the 

systems that produce existing monthly 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66313 

129Estimate assumes 10–30 hours of IT 

professional time and 2–10 hours of a regulatory 

attorney’s time in order to create and automate the 

report. The average salary for a senior programmer 

is $306.86/hour [($114,714 per year)/(2000 hours 

per year) * 5.35 = $306.86 per hour]. The average 

salary for a compliance attorney is $351.24/hour 

[($131,303 per year)/(2000 hours per year) * 5.35 = 

$351.24 per hour]. 

130The estimates assume an office services 

supervisor spends 5 minutes per transaction. The 

average salary for an office services supervisor is 

$165.25/hour [($61,776 per year)/(2,000 hours per 

year) * 5.35 = $165.25 per hour]. 5/60 * $165.25 = 

$1.38. 131Estimate assumes 2–10 hours monthly of IT 

personnel time and 2–16 hours of middle office 

personnel time. The average salary for a 

programmer is $220.74/hour [($82,518 per year)/ 

(2,000 hours per year) * 5.35 = $220.74 per hour], 

and the average salary for an office services 

supervisor is $165.25/hour [($61,776 per year)/ 

(2,000 hours per year) * 5.35 = $165.25 per hour]. 

The Commission anticipates that most monthly 

reports will be sent to clients electronically, but 

includes an additional $1,000 monthly for paper, 

postage, and printing costs. 

132This is estimated to take 1–10 hours of time 

from IT personnel. The average salary for a 

programmer is $220.74/hour [($82,518 per year)/ 

(2,000 hours per year) * 5.35 = $220.74 per hour]. 

133The Commission assumes 10–20 hours per 

year will be required. The average salary for an 

office services supervisor is $165.25/hour [($61,776 

per year)/(2,000 hours per year) * 5.35 = $165.25 

per hour]. 10 hours * $165.25/hour = $1,652.50; and 

20 hours * $165.25/hour = $ 3,305.00. 

134This estimates 1–3 hours of time from a 

compliance attorney and 10–40 hours of time from 

IT personnel. The average compensation for a 

compliance attorney is $351.24/hour [$131,303 per 

year/(2,000 hours per year) * 5.35 is $351.24 per 

hour]. The average compensation for a programmer 

is $220.74/hour [($82,518 per year)/(2,000 hours per 

year) * 5.35 = $220.74 per hour]. 1 * $351.24 = 

$351.24. 3 * $351.24 = $1,053.71. $351.24 * 10 = 

$2,207.36. $351.24 * 40 = $8,829.43. 

135The estimate assumes 0.2 hours of labor per 

transaction from an office services supervisor. The 

average salary for an office services supervisor is 

$165.25/hour [($61,776 per year)/(2,000 hours per 

year) * 5.35 = $165.25 per hour]. 0.2 * $165.25 = 

$33.05. 

136The estimates assume an office services 

supervisor spends between 0.1 and 0.5 hours per 

transaction. The average salary for an office services 

supervisor is $165.25/hour [($61,776 per year)/ 

(2,000 hours per year) * 5.35 = $165.25 per hour]. 

0.1 * $165.25 = $16.52; 0.5 * $165.25 = 82.63. 

137The estimates assume an office services 

supervisor spends between 0.1 per transaction. The 

average salary for an office services supervisor is 

$165.25/hour [($61,776 per year)/(2,000 hours per 

year) * 5.35 = $165.25 per hour]. 0.1 * $165.25 = 

$16.52. 

statements and confirmations to 

produce statements pertaining to swaps. 

FCMs, however, will bear some costs 

designing and setting up their systems 

to produce swap transaction 

confirmations and the swap section of 

monthly statements. The Commission 

estimates that the per-entity set-up cost 

will be between $4,900 and $17,000.129

The reports are likely to be highly 

automated, which mitigates ongoing 

costs. Such costs are also likely to be 

similar in magnitude to those incurred 

through compliance with § 1.33 as it 

pertains to futures positions. The 

Commission estimates that it will cost 

FCMs approximately $1.40 per swap 

transaction for the FCM to input the 

data that is required.130 The 

Commission estimates that entities are 

likely to spend $3,700 to $7,300 

monthly in order to maintain the 

systems and to produce the relevant 

statements.131

Adding the requirement that certain 

entities maintain records of the name, 

address, and occupation of customers 

that have deposited funds with them 

will not create any set-up costs. The 

Commission assumes that entities 

subject to § 1.37 already have systems 

that incorporate such information.132

The Commission estimates that the 

ongoing cost to capture such 

information is $1,650 to $3,300 per 

year.133 The Commission expects that 

creating the daily report that provides 

the daily total of open long and short 

positions in each omnibus account will 

require some modifications to existing 

systems. The Commission estimates that 

this cost will be approximately $2,600 

to $9,900.134 Producing the daily report 

is likely to be a process that is 

automated and therefore the 

Commission does not believe that there 

will be incremental daily costs to 

produce the report. In addition, the 

Commission recognizes that the 

requirements will obligate FCMs to 

enter position data into their systems 

and estimates that this will require 

approximately 0.2 hours of personnel 

time per swap transaction, which results 

in a cost of approximately $33.00 per 

transaction.135 In addition, the 

Commission estimates that for a SEF 

that will have to keep records of foreign 

traders’ names, addresses, and 

occupations executing transactions on 

an exchange, the SEF will spend 

between $17.00 and $83.00.136

Section 1.39 Simultaneous Buying and 

Selling Orders of Different Principals; 

Execution of, for and Between 

Principals 

Introduction 

As described above in II.A.7, 

regulation 1.39 permits the member of a 

contract market to execute simultaneous 

buy and sell orders for the same contract 

on behalf of different principals if the 

orders are executed on the exchange and 

subject to certain procedures. The 

amendments to this rule incorporate 

SEFs and swaps. 

The amendments also delete language 

barring cross trades; such trades are no 

longer defined under 4c(a) as amended 

by DFA. This latter amendment is made 

pursuant to the DFA without the 

exercise of Commission discretion and 

therefore is beyond the scope of 

consideration in this section. 

Benefits 

Under CEA Section 5(d)(9), DCMs 

have an obligation to provide a 

competitive, open, and efficient market. 

If a member were to match two orders 

of its own customers without first 

making it available to the broader 

market through the steps required in 

regulation 1.39, the trade would be 

neither open nor competitive. The trade 

would, thus, be open to the risk of noncompetitive pricing, which could harm 

one of the two customers involved in 

the trade and would, at least minimally, 

detract from price discovery. By 

requiring that bids or offers related to 

the member’s customer positions are 

made available to other parties, the rule 

ensures that they are open and that a 

member only matches one customer 

against another in a trade if the terms of 

that trade are competitive. This protects 

each customer and also promotes 

effective price discovery. Incorporating 

SEFs into regulation § 1.39 extends the 

same benefits to SEF members, 

providing improved price discovery, 

protection for SEF members’ customers, 

and promoting integrity of the financial 

markets. 

Costs 

In order to comply with the rules, a 

SEF member will be required to take 

certain steps before executing one 

customer’s order against another 

customer’s order. Those additional steps 

include first offering its customers’ bid 

and offer to the other members of the 

SEF through open outcry or submission 

to an electronic platform. Whether its 

customers’ orders are filled against 

others in the market or against one 

another, by offering the trade through 

the exchange the member will be subject 

to some fees imposed by the exchange 

that they would not have otherwise 

experienced. The fees vary significantly 

based on the market and product. In 

addition, the requirement that a SEF 

record these transactions in a manner 

that ‘‘shows all transaction details 

required to be captured by the Act, 

Commission rule, or regulation’’ will 

create additional data capture costs for 

the SEF. The Commission estimates that 

the cost will be approximately $17.00 

per transaction and storage costs of less 

than $1 per record.137


emcdonald on DSK67QTVN1PROD with RULES3
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138 § 1.63(d). 

139Calculations assume that posting the notice 

will require 5 to 60 minutes of work by non-senior 

IT personnel. The average salary for a programmer 

is $220.74/hour [($82,518 per year)/(2,000 hours per 

year) * 5.35 = $220.74 per hour]. 5/60 * $220.74 = 

$18.40; 60/60 * $220.74 = $220.74. 

Section 1.40 Crop, Market Information 

Letters, Reports 

Introduction 

As described above in II.A.8, the 

changes to § 1.40 incorporate members 

of a SEF into the requirement that such 

entities provide to the Commission 

copies of any circular, 

telecommunication, or report that they 

publish or circulate through other 

entities concerning crop conditions, or 

market conditions that would tend to 

affect the price of any commodity. 

Benefits 

Regulation 1.40 addresses the need for 

the Commission to have access to any 

published or circulated information 

about market-affecting commodity 

prices for the prevention and/or 

identification of manipulative behavior 

such as false reporting. The benefit of 

extending regulation 1.40 to members of 

a SEF is that it will give the Commission 

the same ability to prevent and/or 

identify similar manipulative activities 

in connection with any commodity 

prices underlying the swap transactions 

that will be executed on a SEF. 

Costs 

The requirement will create de 

minimis costs for members of a SEF 

related to printing and postage costs for 

one copy of such communications when 

the Commission requests a copy. Such 

requests are infrequent on a per entity 

basis and therefore the Commission 

does not expect most entities to bear 

such costs frequently. 

Section 1.59 Activities of SelfRegulatory Organizations Employees, 

etc. 

Introduction 

Regulation 1.59 imposes restrictions 

on employees and governing board 

members of SROs that prevent them 

from disclosing or trading in any 

contracts traded or cleared by the 

employing contract market, or in any 

related commodity interest. Moreover, it 

prevents such persons from trading on 

the basis of material non-public 

information. As discussed above in 

II.A.9, the Commission is amending 

regulation 1.59 to include SEFs and 

swaps. 

Benefits 

By preventing employees and 

governing board members from trading 

in contracts traded or cleared by their 

employing exchange or other related 

commodity interests, the rule helps to 

prevent conflicts of interest that might 

otherwise incent employees of an 

exchange to perform their duties in a 

way that benefits their own investments 

rather than benefiting the members of 

the exchange and the public more 

generally. In doing so, the rule promotes 

the integrity of financial markets. 

Moreover, the rule prevents employees 

and governing board members from 

trading to their own advantage, using 

material non-public information. In 

doing so, the rule protects other market 

participants that would be on the 

opposite side of such trades, and would 

be disadvantaged by not having access 

to the same material non-public 

information. 

Costs 

The amendments adding SEFs and 

swaps to the entities and instruments 

referenced in this rule will, as stated 

above, prevent employees and 

governing board members of SROs from 

investing in certain instruments. There 

will, therefore, be opportunity costs to 

those employees. The Commission 

cannot quantify those opportunity costs 

because it does not have data adequate 

to determine what investments 

employees might have made without 

such restrictions, what return they 

would expect on those investments 

compared to their existing investments, 

or the amount of money such employees 

have invested. However, the 

Commission believes that guarding 

against conflicts of interest at the SROs 

is an important step to maintaining 

integrity in the financial markets. 

Section 1.63 Service on SelfRegulatory Organization Governing 

Boards or Committees by Persons With 

Disciplinary Histories 

Introduction 

Prior to the amendments adopted in 

this rule, regulation 1.63 required SROs 

to maintain a schedule listing all rule 

violations which constitute disciplinary 

offences, to submit that schedule to the 

Commission and to post it in a public 

place. This final rule amends the rule to 

specify that the public place in which 

the SROs must post the schedule is the 

SRO’s Web site.138

Benefits 

The amendments to regulation 1.63 

promote integrity in the financial 

markets by ensuring that the 

information contained in the schedule is 

posted in a public place that fulfills the 

intent of the obligation, namely, that the 

SRO can provide notice to members and 

the general public. 

Costs 

Many SROs likely already post the 

schedules on their Web sites. To the 

extent that SROs were not previously 

posting the schedule to their Web sites, 

they will bear the costs associated with 

posting schedules on their Web sites. 

However, this cost will be offset by 

eliminating the need to post the 

schedule in whatever alternative public 

place the SRO was previously using. 

The Commission estimates that the 

incremental cost is between $18.00 and 

$220.00.139

Section 1.67 Notification of Final 

Disciplinary Action Involving Financial 

Harm to a Customer 

Introduction 

This rule adds that upon any final 

disciplinary action in which a SEF finds 

that a member has committed a rule 

violation, which involved a transaction 

for a customer that resulted in financial 

harm to the customer, a SEF, like a 

DCM, must provide written notice to 

such member of the disciplinary action 

taken against that member. This rule 

additionally requires members of SEFs, 

like members of DCMs, to provide 

written notice of the disciplinary action 

to the customer upon receipt of such 

notice from the SEF. 

Benefits 

By requiring members of a SEF to 

communicate disciplinary actions taken 

against them to the customers that were 

impacted by the activities leading to 

such disciplinary action, the rule 

promotes integrity in the financial 

markets. Customers harmed by a 

member’s actions will, if they choose, 

have an opportunity to bring legal 

action against the member that has 

caused financial harm to them and may 

also choose to take their business to 

another member. Both consequences are 

enabled by the rule, and both serve as 

an incentive to SEF members to avoid 

any activity that would harm their 

customers. 

Costs 

This amendment is an extension of 

previously existing regulations that now 

apply to SEFs as well as DCMs. The 

costs to SEFs will likely be on par with 

those to DCMs and will be minimal, 

covering only the cost of 

communicating disciplinary actions to 

members. The Commission estimates 


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140This estimates 2–4 hours from a compliance 

attorney and 10–40 hours from IT personnel. The 

average salary for a compliance attorney is $351.24/ 

hour [($131,303 per year)/(2000 hours per year) * 

5.35 = $351.24 per hour]. The average salary for a 

programmer is $220.74/hour [($82,518 per year)/ 

(2,000 hours per year) * 5.35 = $220.74 per hour]. 

141This estimates 2–4 hours from a compliance 

attorney and 10–40 hours from IT personnel. The 

average salary for a compliance attorney is $351.24/ 

hour [($131,303 per year)/(2000 hours per year) * 

5.35 = $351.24 per hour]. The average salary for a 

programmer is $220.74/hour [($82,518 per year)/ 

(2,000 hours per year) * 5.35 = $220.74 per hour]. 

that such notification will cost the SEF 

approximately $350.00 per notification 

because appropriate personnel will have 

to draft and send the required 

communication. 

Sections 15.05, 18.05, 21.03, 36.1, 36.2, 

36.3, Appendix A to Part 36, and 

Appendix B to Part 36 

Introduction 

As described in II.A.15.D, DFA 

eliminated ECMs and EBOTs and 

provided a grandfather relief provision 

for such entities. The amendments here 

remove references to the sections of the 

CEA that were deleted by DFA and 

insert reference to the Grandfather 

Relief Orders issued by the Commission. 

ECMs and EBOTs are allowed to 

continue operating as such during the 

period provided by the Grandfather 

Relief Orders, creating benefits for those 

entities that intend to register with the 

Commission as SEFs, and that wish to 

continue operating as ECMs or EBOTs 

until they are able to make such 

registration. However, those benefits are 

conferred by the Act and the 

Grandfather Relief Order. The changes 

here are merely technical edits to ensure 

that the regulations reflect the changes 

to the CEA that were made by DFA. 

Therefore, there are no costs or benefits 

associated with these changes. 

Parts 140 and 145 

Introduction 

As discussed above in II.A.15.E, the 

changes to parts 140 and 145 

incorporate SEFs and SDRs into existing 

Commission regulations. The proposed 

changes would: (1) Facilitate the 

disclosure of confidential information to 

SEFs and SDRs in order to effectuate the 

purposes of the CEA; (2) facilitate 

publication of information in the 

Federal Register related to the 

applications for registration of SEFs and 

SDRs as well as new rules and rule 

amendments that require additional 

time to analyze; (3) include SEFs and 

SDRs in the category of registered 

entities that may petition the 

Commission for exemptive relief and 

no-action interpretive letters; (4) add 

SEFs and SDRs to the list of entities 

from which Commission members and 

employees may not accept employment 

or compensation; and (5) expand 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, and also allows 

such individuals to request confidential 

treatment under § 145.9. 

Benefits 

The amendments described above 

create the following benefits: (1) By 

facilitating disclosure of confidential 

information to SEFs and SDRs, they 

assist the Commission in performing its 

regulatory role with respect to swaps, 

thus providing additional protection to 

swap market participants, promoting the 

integrity of financial markets, and 

promoting protection for the public. (2) 

Facilitating publication of information 

in the Federal Register related to 

registration applications for prospective 

SEFs and SDRs as well as new rule 

amendments, will assist the 

Commission when obtaining additional 

information from the public in order to 

ensure that its determinations regarding 

such applications and rules are wellinformed. (3) Including SEFs and SDRs 

in the category of entities that may 

petition for exemptive relief and noaction interpretive letters gives these 

entities the opportunity to pursue 

individualized treatment with respect to 

Commission regulations in 

circumstances where they believe such 

treatment is appropriate, which in turn, 

gives the Commission the opportunity 

to grant such relief or to issue a noaction interpretive letter if it believes 

doing so is not contrary to the public 

interest or the intent of the regulations 

for which such relief is sought. 

(4) Adding SEFs and SDRs to the list 

of registered entities from which 

Commission members and employees 

may not accept employment or 

compensation prevents conflicts of 

interest and in so doing promotes the 

Commission’s ability to protect market 

participants and the public as well as to 

promote the integrity of the financial 

markets. (5) The changes ensure that 

personal information submitted to SEFs 

and SDRs is subject to the same 

protections under the Commission’s 

regulations as personal information 

submitted to other registered entities. 

Costs 

SEFs and SDRs may bear some cost 

due to their obligation to submit 

personal information that they receive 

to the Commission. Such submissions 

will likely be automated and therefore 

the SEFs and SDRs will bear an initial 

cost that is necessary to modify their 

systems to submit the required 

information, and an ongoing cost to 

submit it when required. The 

Commission estimates that the initial 

cost is between $2,100 and $10,000,140

and the ongoing cost is between $230 

and $460 per month.141

The other amendments do not impose 

affirmative obligations on market 

participants and therefore do not create 

costs for them or the public. 

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, Swaps. 

17 CFR Part 4 

Advertising, Brokers, Commodity 

futures, Commodity pool operators, 

Commodity trading advisors, Consumer 

protection, Reporting and recordkeeping 

requirements, Swaps. 

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 16 

Commodity futures, Reporting and 

recordkeeping requirements. 

17 CFR Part 18 

Commodity futures, Reporting and 

recordkeeping requirements, 

Grandfather relief order. 


emcdonald on DSK67QTVN1PROD with RULES3
66316 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

17 CFR Part 21 

Brokers, Commodity futures, 

Reporting and recordkeeping 

requirements, Grandfather relief order. 

17 CFR Part 22 

Brokers, Clearing, Consumer 

protection, Reporting and recordkeeping 

requirements, Swaps. 

17 CFR Part 36 

Commodity futures, Electronic trading 

facility, Eligible commercial entities, 

Eligible contract participants, Federal 

financial regulatory authority, Principalto-principal, Special calls, Systemic 

market event. 

17 CFR Part 38 

Commodity futures, Reporting and 

recordkeeping requirements. 

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 hereby amends 

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), (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), (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), (ll) and (uu); and 

■ c. Adding paragraphs (k), (cccc), 

(dddd), (eeee), (ffff), (gggg), (hhhh), (iiii), 

(jjjj), (kkkk), (llll), (mmmm), (nnnn), 

(oooo), (pppp), (qqqq), (rrrr), and (ssss) 

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. 

* * * * * 

(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 

the Act and 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. 


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(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 contracts. This term means: 

(1) Positions in 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) Positions in commodity option 

transactions that have not expired, been 

exercised, or offset; and 

(3) Positions in Cleared Swaps, as 

§ 22.1 of this chapter defines that term, 

that have not been fulfilled by delivery; 

not been offset; not expired; and not 

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. 

* * * * * 

(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: 

(i) Any bank or trust company or any 

person acting as an employee thereof; 

(ii) Any news reporter, news 

columnist, or news editor of the print or 

electronic media or any lawyer, 

accountant, or teacher; 

(iii) Any floor broker or futures 

commission merchant; 

(iv) The publisher or producer of any 

print or electronic data of general and 

regular dissemination, including its 

employees; 

(v) 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; 

(vi) Any contract market; and 

(vii) 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 


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66318 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

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(rrrr)), 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, 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 

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, collectively, Cleared Swaps 

Customer Collateral and futures 

customer funds. 

* * * * * 

(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). 

(ll) [Reserved] 

(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 


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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. 

(tt) Electronic signature. This term 

means an electronic sounds, 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 sections 4d(a) and 4d(b) 

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 

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, 

by the Commission, or jointly by the 

Commission and the Securities and 

Exchange Commission. 

* * * * * 

(cccc) Cleared Swaps Customer. This 

term has the meaning provided in § 22.1 

of this chapter. 

(dddd) Cleared Swaps Customer 

Account. This term has the meaning 

provided in § 22.1 of this chapter. 

(eeee) Cleared Swaps Customer 

Collateral. This term has the meaning 

provided in § 22.1 of this chapter. 

(ffff) 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 has the 

meaning set forth in § 23.500 of this 

chapter. 

(gggg) Customer Account. This term 

references both a Cleared Swaps 

Customer Account and a Futures 

Account, as defined by paragraphs 

(dddd) and (vv) of this section. 

(hhhh) 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. 

(iiii) Futures 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 contract 

for the purchase of sale of a commodity 

for future delivery or any option on 

such contract; 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 

futures customer within the meaning of 

sections 4d(a) and 4d(b) 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 futures 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. 

(jjjj) Futures customer funds. This 

term means all money, securities, and 

property received by a futures 

commission merchant or by a 

derivatives clearing organization from, 

for, or on behalf of, futures customers: 

(1) To margin, guarantee, or secure 

contracts for future delivery on or 

subject to the rules of a contract market 

or derivatives clearing organization, as 

the case may be, and all money accruing 

to such futures 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, 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 futures customer; 

(ii) As a premium payable to a futures 

customer; 

(iii) To guarantee or secure 

performance of a commodity option by 

a futures 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 futures 

customer. 

(3) Notwithstanding paragraphs (1) 

and (2) of this definition, the term 

‘‘futures 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. 

(kkkk) 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. 

(llll) 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. 

(mmmm) 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 


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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. 

(nnnn) 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. 

(oooo) 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. 

(pppp) 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. 

(qqqq) 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. 

(rrrr) 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. 

(ssss) 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 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 

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. Revise paragraph (a)(4) of § 1.16 to 

read as follows: 

§ 1.16 Qualifications and reports of 

accountants. 

(a) * * * 

(4) Customer. The term ‘‘customer’’ 

means customer (as defined in § 1.3(k)) 

and includes a foreign futures or foreign 

options customer (as defined in § 30.1(c) 

of this chapter). 

* * * * * 

■ 5. Amend § 1.17 by: 

■ a. Removing and reserving paragraph 

(a)(1)(ii); 

■ b. Removing from paragraph (c)(1)(iii) 

the term ‘‘physical’’ in all places it 

appears and adding in its place the term 

‘‘commodity’’; 

■ c. Revising paragraph (c)(5)(ii)(A); 

■ d. Removing from paragraph (c)(5)(xi) 

the term ‘‘physical’’ and adding in its 

place the term ‘‘commodity’’; and 

■ e. Revising paragraph (c)(5)(xiii)(C). 

The revisions read as follows: 

§ 1.17 Minimum financial requirements for 

futures commission merchants and 

introducing brokers. 

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

(ii) [Reserved] 

* * * * * 

(c) * * * 

(5) * * * 

(ii) * * * 

(A) Inventory which is currently 

registered as deliverable on a contract 

market and covered by an open futures 

contract or by a commodity option on a 

physical commodity—No charge. 

* * * * * 

(xiii) * * * 

(C) A foreign broker that has been 

granted comparability relief pursuant to 

§ 30.10 of this chapter, Provided, 

however, that the amount of the 

unsecured receivable not subject to the 

five percent capital charge is no greater 

than 150 percent of the current amount 

required to maintain futures and options 

positions in accounts with the foreign 

broker, or 100 percent of such greater 

amount required to maintain futures 

and option positions in the accounts at 

any time during the previous six-month 

period, and Provided, that, in the case 

of the foreign futures or foreign options 

secured amount, as § 1.3(rr) defines 

such term, such account is treated in 

accordance with the special 

requirements of the applicable 

Commission order issued under § 30.10 

of this chapter. 

* * * * * 

■ 6. Revise § 1.20 to read as follows: 

§ 1.20 Futures customer funds to be 

segregated and separately accounted for. 

(a) All futures customer funds shall be 

separately accounted for and segregated 

as belonging to futures customers. Such 

futures customer funds when deposited 

with any bank, trust company, 

derivatives clearing organization or 

another futures commission merchant 

shall be deposited under an account 

name which clearly identifies them as 


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such and shows that they are segregated 

as required by sections 4d(a) and 4d(b) 

of 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, derivatives clearing 

organization, or futures commission 

merchant, that it was informed that the 

futures customer funds deposited 

therein are those of futures 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 derivatives clearing organization 

that has adopted and submitted to the 

Commission rules that provide for the 

segregation as futures 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 futures 

customers. Under no circumstances 

shall any portion of futures customer 

funds be obligated to a derivatives 

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 

futures customers. No person, including 

any derivatives clearing organization or 

any depository, that has received futures 

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 futures customers of the 

futures commission merchant which 

deposited such funds. 

(b) All futures customer funds 

received by a derivatives clearing 

organization from a member of the 

derivatives clearing organization to 

purchase, margin, guarantee, secure or 

settle the trades, contracts or commodity 

options of the clearing member’s futures 

customers and all money accruing to 

such futures customers as the result of 

trades, contracts or commodity options 

so carried shall be separately accounted 

for and segregated as belonging to such 

futures customers, and a derivatives 

clearing organization shall not hold, use 

or dispose of such futures customer 

funds except as belonging to such 

futures customers. Such futures 

customer funds when deposited in a 

bank or trust company shall be 

deposited under an account name 

which clearly shows that they are the 

futures customer funds of the futures 

customers of clearing members, 

segregated as required by sections 4d(a) 

and 4d(b) of the Act and these 

regulations. The derivatives 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 futures customer funds deposited 

therein are those of futures 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 futures 

customer funds of a futures customer as 

belonging to such futures customer. All 

futures 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 futures 

customer funds treated as belonging to 

the futures 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 derivatives 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 futures 

customers or resulting market positions, 

with the derivatives 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 futures customer funds may be 

invested in instruments described in 

§ 1.25. 

■ 7. Revise § 1.21 to read as follows: 

§ 1.21 Care of money and equities 

accruing to futures customers. 

All money received directly or 

indirectly by, and all money and 

equities accruing to, a futures 

commission merchant from any 

derivatives 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 futures customer shall be 

considered as accruing to such futures 

customer within the meaning of the Act 

and these regulations. Such money and 

equities shall be treated and dealt with 

as belonging to such futures customer in 

accordance with the provisions of the 

Act and these regulations. Money and 

equities accruing in connection with 

futures 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 

futures customers having open trades, 

contracts, or commodity option 

positions which if closed would result 

in a credit to such futures customers. 

■ 8. Revise § 1.22 to read as follows: 

§ 1.22 Use of futures customer funds 

restricted. 

No futures commission merchant 

shall use, or permit the use of, the 

futures customer funds of one futures 

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 

futures customer. Futures customer 

funds shall not be used to carry trades 

or positions of the same futures 

customer other than in commodities or 

commodity options traded through the 

facilities of a contract market. 

■ 9. Revise § 1.23 to read as follows: 

§ 1.23 Interest of futures commission 

merchant in segregated futures customer 

funds; additions and withdrawals. 

The provisions in section 4d(a) and 

4d(b) of the Act and the provision in 

§ 1.20(c), which prohibit the 

commingling of futures customer funds 

with the funds of a futures commission 

merchant, shall not be construed to 

prevent a futures commission merchant 

from having a residual financial interest 

in the futures customer funds, 

segregated as required by the Act and 

the rules in this part and set apart for 

the benefit of futures customers; nor 

shall such provisions be construed to 

prevent a futures commission merchant 

from adding to such segregated futures 

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 futures 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 


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withdrawal of securities held in 

segregated safekeeping accounts held by 

a bank, trust company, contract market, 

derivatives clearing organization or 

other futures commission merchant. 

Such withdrawal shall not result in the 

funds of one futures customer being 

used to purchase, margin or carry the 

trades, contracts or commodity options, 

or extend the credit of any other futures 

customer or other person. 

■ 10. 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 derivatives 

clearing organization or in memberships 

in or obligations of any contract market; 

or 

(b) Money held by any derivatives 

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 futures 

customers of such futures commission 

merchant. 

■ 11. Revise paragraphs (c)(3) and (e) of 

§ 1.25 to read as follows: 

§ 1.25 Investment of customer funds. 

* * * * * 

(c) * * * 

(3) A futures commission merchant or 

derivatives clearing organization shall 

maintain the confirmation relating to 

the purchase in its records in 

accordance with § 1.31 and note the 

ownership of fund shares (by book-entry 

or otherwise) in a custody account of 

the futures commission merchant or 

derivatives clearing organization in 

accordance with §§ 1.26 and 22.5 of this 

chapter. The futures commission 

merchant or the derivatives clearing 

organization shall obtain the 

acknowledgment letter required by 

§§ 1.26 and 22.5 of this chapter from an 

entity that has substantial control over 

the fund shares purchased with 

customer funds and has the knowledge 

and authority to facilitate redemption 

and payment or transfer of the customer 

funds. Such entity may include the fund 

sponsor or depository acting as 

custodian for fund shares. 

* * * * * 

(e) Deposit of firm-owned securities 

into segregation. A futures commission 

merchant shall not be prohibited from 

directly depositing unencumbered 

securities of the type specified in this 

section, which it owns for its own 

account, into a segregated safekeeping 

account or from transferring any such 

securities from a segregated account to 

its own account, up to the extent of its 

residual financial interest in customers’ 

segregated funds; provided, however, 

that such investments, transfers of 

securities, and disposition of proceeds 

from the sale or maturity of such 

securities are recorded in the record of 

investments required to be maintained 

by § 1.27. All such securities may be 

segregated in safekeeping only with a 

bank, trust company, derivatives 

clearing organization, or other registered 

futures commission merchant. 

Furthermore, for purposes of §§ 1.25, 

1.27, 1.28, and 1.29, investments 

permitted by § 1.25 that are owned by 

the futures commission merchant and 

deposited into such segregated account 

shall be considered customer funds 

until such investments are withdrawn 

from segregation. Investments permitted 

by § 1.25 that are owned by the futures 

commission merchant and deposited 

into a segregated account pursuant to 

§ 1.26 shall be considered futures 

customer funds until such investments 

are withdrawn from segregation. 

Investments permitted by § 1.25 that are 

owned by the futures commission 

merchant and deposited into a 

segregated account pursuant to § 22.5 of 

this chapter shall be considered Cleared 

Swaps Customer Collateral until such 

investments are withdrawn from 

segregation. 

* * * * * 

■ 12. Revise § 1.26 to read as follows: 

§ 1.26 Deposit of instruments purchased 

with futures customer funds. 

(a) Each futures commission merchant 

who invests futures customer funds in 

instruments described in § 1.25 shall 

separately account for such instruments 

and segregate such instruments as 

belonging to such futures customers. 

Such instruments, when deposited with 

a bank, trust company, derivatives 

clearing organization or another futures 

commission merchant, shall be 

deposited under an account name 

which clearly shows that they belong to 

futures 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, derivatives clearing 

organization or other futures 

commission merchant that it was 

informed that the instruments belong to 

futures 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 derivatives clearing 

organization that has adopted and 

submitted to the Commission rules that 

provide for the segregation as futures 

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 futures customers and all instruments 

purchased with futures customer funds. 

Such acknowledgment shall be retained 

in accordance with § 1.31. Such bank, 

trust company, derivatives clearing 

organization or other futures 

commission merchant shall allow 

inspection of such obligations at any 

reasonable time by representatives of 

the Commission. 

(b) Each derivatives clearing 

organization which invests money 

belonging or accruing to futures 

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 futures 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 futures customers and are 

segregated as required by the Act and 

this part. Each derivatives 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 

futures 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. 

■ 13. Revise paragraph (a) introductory 

text and paragraph (a)(6) of § 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: 

* * * * * 

(6) The date on which such 

investments were liquidated or 

otherwise disposed of and the amount 

of money or current market value of 

securities received on such disposition, 

if any; and 

* * * * * 

■ 14. Revise § 1.29 to read as follows: 

§ 1.29 Increment or interest resulting from 

investment of customer funds. 

The investment of customer funds in 

instruments described in § 1.25 shall not 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66323 

prevent the futures commission 

merchant or derivatives clearing 

organization so investing such funds 

from receiving and retaining as its own 

any increment or interest resulting 

therefrom. 

■ 15. Revise § 1.30 to read as follows: 

§ 1.30 Loans by futures commission 

merchants; treatment of proceeds. 

Nothing in the regulations in this 

chapter 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 the Act and 

these regulations. 

■ 16. Amend § 1.31 by revising 

paragraphs (a), (b) introductory text, 

(b)(2)(iii), and (b)(3)(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. Records of oral 

communications kept pursuant to 

§ 23.202(a)(1) and (b)(1) of this chapter 

shall be kept for a period of one year. 

All such books and records shall be 

open to inspection by any representative 

of the Commission or the United States 

Department of Justice. For purposes of 

this section, native file format means an 

electronic file that exists in the format 

in which 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 

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. 

* * * * * 

(2) * * * 

(iii) Keep only Commission-required 

records on the individual medium 

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

microfiche); 

* * * * * 

(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 

compatible data processing media as 

defined in § 15.00(d) of this chapter 

which any representative of the 

Commission or the Department of 

Justice may request. Records must use a 

format and coding structure specified in 

the request. 

* * * * * 

■ 17. Revise paragraphs (a)(1), (a)(2), 

(a)(3), and (b) of § 1.32 to read as 

follows: 

§ 1.32 Segregated account; daily 

computation and record. 

(a) * * * 

(1) The total amount of futures 

customer funds on deposit in segregated 

accounts on behalf of futures customers; 

(2) The amount of such futures 

customer funds required by the Act and 

these regulations to be on deposit in 

segregated accounts on behalf of such 

futures customers; and 

(3) The amount of the futures 

commission merchant’s residual interest 

in such futures customer funds. 

(b) In computing the amount of 

futures customer funds required to be in 

segregated accounts, a futures 

commission merchant may offset any 

net deficit in a particular futures 

customer’s account against the current 

market value of readily marketable 

securities, less applicable percentage 

deductions (i.e., ‘‘securities haircuts’’) 

as set forth in Rule 15c3–1(c)(2)(vi) of 

the Securities and Exchange 

Commission (17 CFR 240.15c3– 

1(c)(2)(vi)), held for the same futures 

customer’s account. The futures 

commission merchant must maintain a 

security interest in the securities, 

including a written authorization to 

liquidate the securities at the futures 

commission merchant’s discretion, and 

must segregate the securities in a 

safekeeping account with a bank, trust 

company, derivatives clearing 

organization, or another futures 

commission merchant. For purposes of 

this section, a security will be 

considered readily marketable if it is 

traded on a ‘‘ready market’’ as defined 

in Rule 15c3–1(c)(11)(i) of the Securities 

and Exchange Commission (17 CFR 

240.15c3–1(c)(11)(i)). 

* * * * * 

■ 18. Amend § 1.33 by: 

■ a. Revising paragraphs (a) 

introductory text, (a)(1) introductory 

text, and (a)(1)(iii); 

■ b. Removing paragraph (a)(1)(iv); 

■ c. Revising paragraphs (a)(2) 

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

(a)(2)(iv); 

■ d. Adding paragraphs (a)(3) and (a)(4); 

■ e. Revising paragraph (b) introductory 

text, and (b)(1); 

■ f. Redesignating paragraphs (b)(2) 

through (b)(4) as paragraphs (b)(3) 

through (b)(5); 

■ g. Adding a new paragraph (b)(2); 

■ h. Revising newly designated 

paragraphs (b)(3)(i), (b)(3)(iv), (b)(4), and 

(b)(5); and 

■ i. Revising paragraph (d) introductory 

text. 

The revisions and additions 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 or foreign 

options customer, as defined by § 30.1 

of this chapter, 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 contracts 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 


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months, a statement which clearly 

shows: 

(1) For each commodity futures 

customer and foreign futures or foreign 

options customer position— 

* * * * * 

(iii) Any futures customer funds or 

foreign futures or foreign options 

secured amount, as defined by § 1.3(rr), 

carried with the futures commission 

merchant. 

(2) For each commodity option 

position and foreign option position— 

(i) All commodity options and foreign 

options purchased, sold, exercised, or 

expired during the monthly reporting 

period, identified by underlying futures 

contract or underlying commodity, 

strike price, transaction date, and 

expiration date; 

(ii) The open commodity option and 

foreign option positions carried for such 

customer or foreign futures or foreign 

options customer as of the end of the 

monthly reporting period, identified by 

underlying futures contract or 

underlying commodity, strike price, 

transaction date, and expiration date; 

* * * * * 

(iv) Any related customer funds 

carried in such customer’s account(s) or 

any related foreign futures or foreign 

options secured amount carried in the 

account(s) of a foreign futures or foreign 

options customer. 

(3) For each Cleared Swaps Customer 

position— 

(i) The Cleared Swaps, as § 22.1 of 

this chapter defines that term, carried by 

the futures commission merchant for the 

Cleared Swaps Customer; 

(ii) The net unrealized profits or 

losses in all Cleared Swaps marked to 

the market; 

(iii) Any Cleared Swaps Customer 

Collateral carried with the futures 

commission merchant; and 

(4) A detailed accounting of all 

financial charges and credits to 

customers and foreign futures or foreign 

options customers, during the monthly 

reporting period, including all customer 

funds and any foreign futures or foreign 

options secured amount, received from 

or disbursed to customers or foreign 

futures or foreign options customers, as 

well as 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 

or foreign futures or foreign options 

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 

Cleared Swap carried by the futures 

commission merchant, containing at 

least the following information: 

(i) The unique swap identifier, as 

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

each Cleared Swap and the date each 

Cleared Swap was executed; 

(ii) The product name of each Cleared 

Swap; 

(iii) The price at which the Cleared 

Swap was executed; 

(iv) The date of maturity for each 

Cleared Swap; and 

(v) 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; 

* * * * * 

(iv) The underlying futures contract or 

underlying commodity; 

* * * * * 

(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: 

* * * * * 

■ 19. 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 contracts 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 

contracts with other futures commission 

merchants on an ‘‘instruct basis’’ will be 

deemed to have met the requirements of 

this section as to open contracts so 

carried if a monthly statement is 

prepared which shows that the prices 

and amounts of such contracts 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 

commodity (by option expiration date), 

and by strike price. 

■ 20. 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 

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 


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commodities. 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 timestamp 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 non-erasable ink, 

including the account identification, 

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

this section, and order number and shall 

record thereon, by timestamp 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. 

(ii) Each contract market shall, as part 

of its trade practice surveillance 

program, conduct surveillance for 

compliance with the recordkeeping and 

other requirements under paragraphs 

(b)(2) and (3) of this section, and for 

trading abuses related to the execution 

of orders for members present on the 

floor of the contract market. 

(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 timestamp 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 non-erasable 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 

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; 


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(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) Contract markets. Every contract 

market shall adopt rules which require 

its members to provide documentation 

of cash transactions underlying 

exchanges of futures for cash 

commodities or exchanges of futures in 

connection with cash commodity 

transactions upon request of the 

contract market. 

(4) Documentation. For the purposes 

of this paragraph (c), documentation 

means those documents customarily 

generated 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. 


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(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 commodity, 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 commodity, 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), 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 (d)(1) and (d)(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, or swap, 

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 

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 


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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, or swap, 

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. 

■ 21. 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 derivatives clearing organization, 

directly or with a bank or trust company 

acting as custodian for such derivatives 

clearing organization, securities and/or 

property which belong to a particular 

customer, such futures commission 

merchant shall obtain written 

acknowledgment from such derivatives 

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 derivatives 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 derivatives 

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. 

■ 22. 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 

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 


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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. 

■ 23. Amend § 1.39 by revising 

paragraph (a) introductory text and 

paragraphs (a)(1)(ii), (a)(2), (a)(3), (a)(4), 

(b), 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 

commodity, 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 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 

or swap execution facility designated to 

observe such transactions 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. 

(1) 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: 

(i) An explanation of why the 

proposed large order execution rules do 

not comply with paragraph (a) of this 

section; and 

(ii) 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. 

(2) The Commission may, in its 

discretion and upon such terms and 

conditions as it deems appropriate, 

grant such petition for exemption if it 

finds that the exemption is not contrary 

to the public interest and the purpose of 

the provision from which explanation is 

sought. The petition shall be considered 

concurrently with the proposed large 

order execution rules. 

(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. 

■ 24. 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, and each member of 

a contract market or 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] 

■ 25. Remove and reserve § 1.44. 

■ 26. 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 commodity, 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 

commodity, 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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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. 

* * * * * 

■ 27. 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] 

■ 28. Remove and reserve § 1.53. 

■ 29. Amend § 1.57 by revising 

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

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

(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) must open and carry such 

customer’s account with such guarantor 

futures commission merchant on a fullydisclosed 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: 

(1) The futures commission merchant 

carrying the customer’s account 

authorizes the introducing broker, in 

writing, to receive a check in the name 

of the futures commission merchant, 

and the introducing broker retains such 

written authorization in its files in 

accordance with § 1.31; 

(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 the 

regulations in this chapter. 

■ 30. Amend § 1.59 by revising 

paragraphs (a)(1), (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) * * * 

(1) Self-regulatory organization means 

‘‘self-regulatory organization,’’ as 

defined in § 1.3(ee), and includes the 


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term ‘‘clearing organization,’’ as defined 

in § 1.3(d). 

(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 

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] 

■ 31. Remove and reserve § 1.62. 

■ 32. Amend § 1.63 by revising 

paragraphs (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), and includes a 

‘‘clearing organization’’ as defined in 

§ 1.3(d), 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 

Web site so that it is in a public place 

designed to provide notice to members 

and otherwise ensure its availability to 

the general public. 

* * * * * 

■ 33. Revise § 1.67 to read as follows: 

§ 1.67 Notification of final disciplinary 

action involving financial harm to a 

customer. 

(a) Definitions. For purposes of this 

section: 

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 


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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 

(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] 

■ 34. Remove and reserve § 1.68. 

■ 35. Amend Appendix B to part 1 by 

revising paragraph (b) to read as follows: 

Appendix B—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] 

■ 36. Remove and reserve Appendix C 

to Part 1. 

PART 4—COMMODITY POOL 

OPERATORS AND COMMODITY 

TRADING ADVISORS 

■ 37. The authority citation for part 4 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 

6l, 6m, 6n, 6o, 12a and 23, as amended by 

the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111–203, 

124 Stat. 1376 (2010). 

§ 4.23 [Amended] 

■ 38. Amend § 4.23 by removing the 

term ‘‘physical’’ in paragraphs (a)(1) and 

(b)(1) and adding in its place the term 

‘‘commodity’’. 

§ 4.33 [Amended] 

■ 39. Amend § 4.33 by removing the 

word ‘‘physical’’ in paragraph (b)(1) and 

adding in its place the word 

‘‘commodity’’. 

PART 5—OFF-EXCHANGE FOREIGN 

CURRENCY TRANSACTIONS 

■ 40. 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, 8, 9, 9a, 12, 

12a, 13b, 13c, 16a, 18, 19, 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 (Jul. 21, 

2010). 

■ 41. 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. 

■ 42. 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] 

■ 43. Remove and reserve part 8. 

PART 15—REPORTS—GENERAL 

PROVISIONS 

■ 44. The authority citation for part 15 

continues to read as follows: 

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

6k, 6m, 6n, 7, 7a, 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). 

■ 45. Revise paragraph (p)(1)(ii) of 

§ 15.00 to read as follows: 

§ 15.00 Definitions of terms used in parts 

15 to 19, and 21 of this chapter. 

* * * * * 

(p) * * * 

(1) * * * 

(ii) Long or short put or call options 

that exercise into the same future of any 

commodity, or other long or short put or 

call commodity options that have 

identical expirations and exercise into 

the same commodity, on any one 

reporting market. 

* * * * * 

■ 46. 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 


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‘‘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 

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 16—REPORTS BY REPORTING 

MARKETS 

■ 47. The authority citation for part 16 

continues to read as follows: 

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

and 12a, as amended by Title XIII of the 

Food, Conservation and Energy Act of 2008, 

Pub. L. 110–246, 122 Stat. 1624 (June 18, 

2008), unless otherwise noted. 

■ 48. Revise paragraph (a) introductory 

text of § 16.00 to read as follows: 

§ 16.00 Clearing member reports. 

(a) Information to be provided. Each 

reporting market shall submit to the 

Commission, in accordance with 

paragraph (b) of this section, a report for 

each business day, showing for each 

clearing member, by proprietary and 

customer account, the following 

information separately for futures by 

commodity and by future, and, for 

options, by underlying futures contract 

(for options on futures contracts) or by 

underlying commodity (for other 

commodity options), and by put, by call, 

by expiration date and by strike price: 

* * * * * 

■ 49. Amend § 16.01 by revising the 

section heading and paragraphs 

(a)(1)(ii), (a)(1)(iv), (b)(1)(ii), and 

(b)(1)(iv) to read as follows: 

§ 16.01 Publication of market data on 

futures, swaps and options thereon: trading 

volume, open contracts, prices, and critical 

dates. 

(a) * * * 

(1) * * * 

(ii) For options, by underlying futures 

contracts for options on futures 

contracts or by underlying commodity 

for options on commodities, and by put, 

by call, by expiration date and by strike 

price; 

* * * * * 

(iv) For options on swaps or classes of 

options on swaps, by underlying swap 

contracts for options on swap contracts 

or by underlying commodity for options 

on swaps on commodities, and by put, 

by call, by expiration date and by strike 

price. 

* * * * * 

(b) * * * 

(1) * * * 

(ii) For options, by underlying futures 

contracts for options on futures 

contracts or by underlying commodity 

for options on commodities, and by put, 

by call, by expiration date and by strike 

price; 

* * * * * 

(iv) For options on swaps or classes of 

options on swaps, by underlying swap 

contracts for options on swap contracts 

or by underlying commodity for options 

on swaps on commodities, and by put, 

by call, by expiration date and by strike 

price. 

* * * * * 

PART 18—REPORTS BY TRADERS 

■ 50. The authority citation for part 18 

continues to read as follows: 


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Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 

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

Title XIII of the Food, Conservation and 

Energy Act of 2008, Pub. L. 110–246, 122 

Stat. 1624 (June 18, 2008); 5 U.S.C. 552 and 

552(b), unless otherwise noted. 

■ 51. 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 

■ 52. The authority citation for part 21 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 2a, 4, 6a, 6c, 6f, 

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

amended by Pub. L. 111–203, 124 Stat. 1376; 

5 U.S.C. 552 and 552(b), unless otherwise 

noted. 

■ 53. 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 22—CLEARED SWAPS 

■ 54. The authority citation for part 22 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 6d, 7a–1 as 

amended by Pub. L. 111–203, 124 Stat. 1376. 

§ 22.1 [Amended] 

■ 55. Amend § 22.1 by removing the 

definition of ‘‘Customer.’’ 

■ 56. Amend § 22.2 by revising 

paragraphs (c)(2)(ii) and (e)(1) to read as 

follows: 

§ 22.2 Futures Commission Merchants: 

Treatment of Cleared Swaps and 

Associated Cleared Swaps Customer 

Collateral. 

* * * * * 

(c) * * * 

(2) * * * 

(ii) Other categories of funds 

belonging to Futures Customers (as § 1.3 

of this chapter defines that term), or 

Foreign Futures or Foreign Options 

Customers (as § 30.1 of this chapter 

defines that term) of the futures 

commission merchant, including 

Futures Customer Funds (as § 1.3 of this 

chapter defines such term) or the foreign 

futures or foreign options secured 

amount (as § 1.3 of this chapter defines 

such term), except as expressly 

permitted by Commission rule, 

regulation, or order, or by a derivatives 

clearing organization rule approved in 

accordance with § 39.15(b)(2) of this 

chapter. 

* * * * * 

(e) * * * 

(1) Permitted investments. A futures 

commission merchant may invest 

money, securities, or other property 

constituting Cleared Swaps Customer 

Collateral in accordance with § 1.25 of 

this chapter. 

* * * * * 

■ 57. Amend § 22.3 by revising 

paragraphs (c)(2)(iii) and (d) to read as 

follows: 

§ 22.3 Derivatives clearing organizations: 

Treatment of cleared swaps customer 

collateral. 

* * * * * 

(c) * * * 

(2) * * * 

(iii) Futures Customer Funds (as § 1.3 

of this chapter defines such term) or the 

foreign futures or foreign options 

secured amount (as § 1.3 of this chapter 

defines such term), except as expressly 

permitted by Commission rule, 

regulation, or order, (or by a derivatives 

clearing organization rule approved in 

accordance with § 39.15(b)(2) of this 

chapter). 

(d) Exceptions; Permitted 

Investments. Notwithstanding the 

foregoing and § 22.15, a derivatives 

clearing organization may invest the 

money, securities, or other property 

constituting Cleared Swaps Customer 

Collateral in accordance with § 1.25 of 

this chapter. 

■ 58. Amend § 22.5 by revising 

paragraphs (a) and (b) to read as follows: 

§ 22.5 Futures commission merchants and 

derivatives clearing organizations: Written 

acknowledgement. 

(a) Before depositing Cleared Swaps 

Customer Collateral, the futures 

commission merchant or derivatives 

clearing organization shall obtain and 

retain in its files a separate written 

acknowledgement letter from each 

depository in accordance with §§ 1.20 

and 1.26 of this chapter, with all 

references to ‘‘Futures Customer Funds’’ 

modified to apply to Cleared Swaps 

Customer Collateral, and with all 

references to section 4d(a) or 4d(b) of 

the Act and the regulations thereunder 

modified to apply to section 4d(f) of the 

Act and the regulations thereunder. 

(b) The futures commission merchant 

or derivatives clearing organization 

shall adhere to all requirements 

specified in §§ 1.20 and 1.26 of this 

chapter regarding retaining, permitting 

access to, filing, or amending the 

written acknowledgement letter, in all 

cases as if the Cleared Swaps Customer 

Collateral comprised Futures Customer 

Funds subject to segregation pursuant to 

section 4d(a) or 4d(b) of the Act and the 

regulations thereunder. 

* * * * * 

■ 59. Amend § 22.9 by revising 

paragraphs (a) and (b) to read as follows: 

§ 22.9 Denomination of Cleared Swaps 

Customer Collateral and location of 

depositories. 

(a) Subject to paragraph (b) of this 

section, futures commission merchants 

and derivatives clearing organizations 

may hold Cleared Swaps Customer 

Collateral in the denominations, at the 

locations and depositories, and subject 

to the segregation requirements 

specified in § 1.49 of this chapter. 

(b) Notwithstanding the requirements 

in § 1.49 of this chapter, a futures 

commission merchant’s obligations to a 

Cleared Swaps Customer may be 

denominated in a currency in which 

funds have accrued to the Cleared 


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Swaps Customer as a result of a Cleared 

Swap carried through such futures 

commission merchant, to the extent of 

such accruals. 

* * * * * 

■ 60. Revise § 22.10 to read as follows: 

§ 22.10 Application of other regulatory 

provisions. 

Sections 1.27, 1.28, 1.29, and 1.30 of 

this chapter shall apply to the Cleared 

Swaps Customer Collateral in 

accordance with the terms therein. 

■ 61. Amend § 22.11 by revising the 

section heading and paragraphs (a)(1), 

(a)(2), (b)(2), (c)(1), (c)(2), and (d)(2), to 

read as follows: 

§ 22.11 Information to be provided 

regarding Cleared Swaps Customers and 

their Cleared Swaps. 

(a) * * * 

(1) The first time that the Depositing 

Futures Commission Merchant 

intermediates a Cleared Swap for a 

Cleared Swaps Customer with a 

Collecting Futures Commission 

Merchant, provide information 

sufficient to identify such Cleared 

Swaps Customer to the relevant 

Collection Futures Commission 

Merchant; and 

(2) At least once each business day 

thereafter, provide information to the 

relevant Collecting Futures Commission 

Merchant sufficient to identify, for each 

Cleared Swaps Customer, the portfolio 

of rights and obligations arising from the 

Cleared Swaps that the Depositing 

Futures Commission Merchant 

intermediates for such Cleared Swaps 

Customer. 

(b) * * * 

(2) The information that such entity 

must provide to its Collecting Futures 

Commission Merchant pursuant to 

paragraph (a)(2) of this section shall also 

include information sufficient to 

identify, for each Cleared Swaps 

Customer referenced in paragraph (b)(1) 

of this section, the portfolio of rights 

and obligations arising from the Cleared 

Swaps that such entity intermediates as 

a Collecting Futures Commission 

Merchant, on behalf of its Depositing 

Futures Commission Merchant, for such 

Cleared Swaps Customer. 

(c) * * * 

(1) The first time that such futures 

commission merchant intermediates a 

Cleared Swap for a Cleared Swaps 

Customer, provide information to the 

relevant derivatives clearing 

organization sufficient to identify such 

Cleared Swaps Customer; and 

(2) At least once each business day 

thereafter, provide information to the 

relevant derivatives clearing 

organization sufficient to identify, for 

each Cleared Swaps Customer, the 

portfolio of rights and obligations 

arising from the Cleared Swaps that 

such futures commission merchant 

intermediates for such Cleared Swaps 

Customer. 

(d) * * * 

(2) The information that it must 

provide to the derivatives clearing 

organization pursuant to paragraph 

(c)(2) of this section shall also include 

information sufficient to identify, for 

each Cleared Swaps Customer 

referenced in paragraph (d)(1) of this 

section, the portfolio of rights and 

obligations arising from the Cleared 

Swaps that the Collecting Futures 

Commission Merchant intermediates, on 

behalf of the Depositing Futures 

Commission Merchant, for such Cleared 

Swaps Customer. 

* * * * * 

■ 62. Amend § 22.12 by revising 

paragraph (a) introductory text and 

paragraph (c) introductory text to read 

as follows: 

§ 22.12 Information to be maintained 

regarding Cleared Swaps Customer 

Collateral. 

(a) Each Collecting Futures 

Commission Merchant receiving Cleared 

Swaps Customer Collateral from an 

entity serving as a Depositing Futures 

Commission Merchant shall, no less 

frequently than once each business day, 

calculate and record: 

* * * * * 

(c) Each derivatives clearing 

organization receiving Cleared Swaps 

Customer Collateral from a futures 

commission merchant shall, no less 

frequently than once each business day, 

calculate and record: 

* * * * * 

■ 63. Amend § 22.13 by revising 

paragraph (a) to read as follows: 

§ 22.13 Additions to Cleared Swaps 

Customer Collateral. 

(a)(1) At the election of the derivatives 

clearing organization or Collecting 

Futures Commission Merchant, the 

collateral requirement referred to in 

§ 22.12(a), (c), and (d) applicable to a 

particular Cleared Swaps Customer or 

group of Cleared Swaps Customers may 

be increased based on an evaluation of 

the credit risk posed by such Cleared 

Swaps Customer or group, in which 

case the derivatives clearing 

organization or Collecting Futures 

Commission Merchant shall collect and 

record such higher amount as provided 

in § 22.12. 

(2) Nothing in paragraph (a)(1) of this 

section is intended to interfere with the 

right of a futures commission merchant 

to increase the collateral requirements at 

such futures commission merchant with 

respect to any of its Cleared Swaps 

Customers, Futures Customers (as § 1.3 

of this chapter defines that term), or 

Foreign Futures or Foreign Options 

Customers (as § 30.1 of this chapter 

defines that term). 

* * * * * 

■ 64. Amend § 22.14 by revising the 

section heading and paragraphs (a)(2) 

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

§ 22.14 Futures Commission Merchant 

failure to meet a Cleared Swaps Customer 

Margin Call in full. 

(a) * * * 

(2) Advise the Collecting Futures 

Commission Merchant of the identity of 

each such Cleared Swaps Customer, and 

the amount transmitted on behalf of 

each such Cleared Swaps Customer. 

* * * * * 

(c) * * * 

(2) Advise the derivatives clearing 

organization of the identity of each such 

Cleared Swaps Customer, and the 

amount transmitted on behalf of each 

such Cleared Swaps Customer. 

* * * * * 

■ 65. Section 22.15 is revised to read as 

follows: 

§ 22.15 Treatment of Cleared Swaps 

Customer Collateral on an individual basis. 

Subject to § 22.3(d), each derivatives 

clearing organization and each 

Collecting Futures Commission 

Merchant receiving Cleared Swaps 

Customer Collateral from a futures 

commission merchant shall treat the 

value of collateral required with respect 

to the portfolio of rights and obligations 

arising out of the Cleared Swaps 

intermediated for each Cleared Swaps 

Customer, and collected from the 

futures commission merchant, as 

belonging to such Cleared Swaps 

Customer, and such amount shall not be 

used to margin, guarantee, or secure the 

Cleared Swaps or other obligations of 

the futures commission merchant, or of 

any other Cleared Swaps Customer, 

Futures Customer (as § 1.3 of this 

chapter defines that term), or Foreign 

Futures or Foreign Options Customer (as 

§ 30.1 of this chapter defines that term). 

Nothing contained herein shall be 

construed to limit, in any way, the right 

of a derivatives clearing organization or 

Collecting Futures Commission 

Merchant to liquidate any or all 

positions in a Cleared Swaps Customer 

Account in the event of a default of a 

clearing member or Depositing Futures 

Commission Merchant. 

■ 66. Amend § 22.16 by revising the 

section heading to read as follows: 


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§ 22.16 Disclosures to Cleared Swaps 

Customers. 

* * * * * 

PART 36—EXEMPT MARKETS 

■ 67. The authority citation for part 36 

continues to read as follows: 

Authority: 7 U.S.C. 2, 2(h)(7), 6, 6c and 

12a, as amended by Title XIII of the Food, 

Conservation and Energy Act of 2008, Pub. L. 

110–246, 122 Stat. 1624 (June 18, 2008). 

■ 68. 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: 

(1) Until July 16, 2012, 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 

(2) Any other applicable relief granted 

by the Commission; or 

(b) An exempt board of trade 

operating under: 

(1) Until July 16, 2012, 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)), or 

(2) Any other applicable relief granted 

by the Commission. 

■ 69. 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, 

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. 

■ 70. 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 


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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, 

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 in 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 Risk, the Division of Swap 

Dealer and Intermediary Oversight, and 

the Division of Enforcement to be 

exercised by each such Director or by 

such other employee or employees as 


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the Director may designate. The 

Directors may submit to the 

Commission for its consideration any 

matter that has been delegated in this 

paragraph. Nothing in this paragraph 

prohibits the Commission, at its 

election, from exercising the authority 

delegated in this paragraph (c)(5). 

(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 

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 


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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)(i)(A) through (F) 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. 

(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) of this 

section. 

■ 71. 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 


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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 

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. 

* * * * * 

■ 72. 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 

of this chapter or submitted to the 

Commission for review and approval 

pursuant to § 40.5 of this chapter. 

(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. 


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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. 

(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 § 1.31 of this chapter. 

(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 § 1.31 of this chapter. 

(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 


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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 

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 


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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 

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. See, e.g., 17 CFR part 8. 

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 38—DESIGNATED CONTRACT 

MARKETS 

■ 73. The authority citation for part 38 

continues to read as follows: 

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

6f, 6g, 6i, 6j, 6k, 6l, 6m, 6n, 7, 7a–2, 7b, 7b– 

1, 7b–3, 8, 9, 15, and 21, as amended by the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub. L. 111– 

203,124 Stat. 1376 (2010). 

■ 74. Revise § 38.2 to read as follows: 

§ 38.2 Exempt provisions. 

A designated contract market, the 

designated contract market’s operator 

and transactions traded on or through a 

designated contract market under 

section 5 of the Act shall comply with 

all applicable regulations under Title 17 


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of the Code of Federal Regulations, 

except for the requirements of § 1.39(b), 

§ 1.44, § 1.53, § 1.54, § 1.59(b) and (c), 

§ 1.62, § 1.63(a) and (b) and (d) through 

(f), § 1.64, § 1.69, part 8, § 100.1, § 155.2, 

and part 156. 

PART 41—SECURITY FUTURES 

PRODUCTS 

■ 75. 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). 

■ 76. Revise paragraph (e) of § 41.1 to 

read as follows: 

§ 41.1 Definitions 

* * * * * 

(e) Narrow-based security index has 

the same meaning as in section 1a(35) 

of the Commodity Exchange Act. 

* * * * * 

■ 77. 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. 

■ 78. Amend § 41.11 by revising 

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

introductory text, (b)(2) introductory 

text, (c), and (d)(5) introductory text to 

read as follows: 

§ 41.11 Method for determining market 

capitalization and dollar value of average 

daily trading volume; application of the 

definition of narrow-based security index. 

(a) Market capitalization. For 

purposes of section 1a(35)(B) of the Act 

(7 U.S.C. 1a(35)(B)): 

* * * * * 

(b) * * * 

(1) For purposes of section 1a(35)(A) 

and (B) of the Act (7 U.S.C. 1a(35)(A) 

and (B)): 

* * * * * 

(2) For purposes of section 

1a(35)(B)(III)(cc) of the Act (7 U.S.C. 

1a(35)(B)(III)(cc)): 

* * * * * 

(c) Depositary Shares and Section 12 

Registration. For purposes of section 

1a(35)(B)(III)(aa) of the Act (7 U.S.C. 

1a(35)(B)(III)(aa)), the requirement that 

each component security of an index be 

registered pursuant to section 12 of the 

Securities Exchange Act of 1934 (15 

U.S.C. 78l) shall be satisfied with 

respect to any security that is a 

depositary share if the deposited 

securities underlying the depositary 

share are registered pursuant to section 

12 of the Securities Exchange Act of 

1934 and the depositary share is 

registered under the Securities Act of 

1933 (15 U.S.C. 77a et seq.) on Form F– 

6 (17 CFR 239.36). 

(d) * * * 

(5) Lowest weighted 25% of an index. 

With respect to any particular day, the 

lowest weighted component securities 

comprising, in the aggregate, 25% of an 

index’s weighting for purposes of 

section 1a(35)(A)(iv) of the Act (7 U.S.C. 

1a(35)(A)(iv)) (‘‘lowest weighted 25% of 

an index’’) means those securities: 

* * * * * 

■ 79. 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(35) of 

the Act (7 U.S.C. 1a(35)) for the first 30 

days of trading, if: 

* * * * * 

■ 80. 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. 

■ 81. Revise paragraphs (a)(1), (a)(3), 

(b)(1), (b)(2), 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) * * * 

(1) The index is a narrow-based 

security index as defined in section 

1a(35) of the Act; 

(2) The securities in the index are 

registered pursuant to section 12 of the 

Securities Exchange Act of 1934; 

* * * * * 

(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. 

■ 82. 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 

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; 

* * * * * 

■ 83. 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. 

■ 84. Amend § 41.24 by removing 

paragraph (b), redesignating paragraph 


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(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. 

■ 85. 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 part 16 of this 

chapter 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. 

■ 86. 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 

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 


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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. The rule submission 

must include a detailed demonstration 

of why an exception is warranted. 

■ 87. Revise paragraphs (a)(4)(i)(B) and 

(a)(30) of § 41.43 to read as follows: 

§ 41.43 Definitions. 

(a) * * * 

(4) * * * 

(i) * * * 

(B) If the instrument underlying such 

security future is a narrow-based 

security index, as defined in section 

1a(35)(A) of the Act, the product of the 

daily settlement price of such security 

future as shown by any regularly 

published reporting or quotation 

service, and the applicable contract 

multiplier. 

* * * * * 

(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. 

* * * * * 

■ 88. 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 Exchange 

Act, submit such proposed rule change 

to the Commission as follows: 

* * * * * 

PART 140—ORGANIZATION, 

FUNCTIONS, AND PROCEDURES OF 

THE COMMISSION 

■ 89. The authority citation for part 140 

continues to read as follows: 

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

■ 90. Amend § 140.72 by revising the 

section heading and 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 Deputy Director 

of the Market and Trade Practice 

Surveillance Branch, 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, 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 

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 


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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. 

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. 

■ 91. Amend § 140.77 by revising the 

section heading and 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. 

* * * * * 

■ 92. 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. 

* * * * * 

■ 93. 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 email 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. 

* * * * * 

■ 94. 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: 

§ 140.735–2 Prohibited transactions. 

* * * * * 

(b) * * * 

(1) * * * 

(i) In swaps; 

* * * * * 

(iii) In retail forex transactions, as that 

term is defined in § 5.1(m) of this 

chapter; 

* * * * * 

(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), (ii), 

and (iv) 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 


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66348 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

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, commodity 

option, or swap 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 

derivatives clearing organization (‘‘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. 

persons who will make trading 

decisions for the operation; 3 or 

* * * * * 

■ 95. 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 

derivatives clearing organization subject 

to regulation or oversight by the 

Commission; 6

* * * * * 

■ 96. 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 derivatives clearing 

organization 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 derivatives clearing organization 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 

■ 97. 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. 

■ 98. Revise paragraphs (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. 

* * * * * 

■ 99. 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) * * * 

(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, first page of 

the application cover sheet, 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 

■ 100. 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. 

■ 101. 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: 

* * * * * 


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Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 66349 

■ 102. 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; 

* * * * * 

■ 103. 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] 

■ 104. Remove and reserve § 155.6. 

PART 166—CUSTOMER PROTECTION 

RULES 

■ 105. The authority citation for part 

155 continues 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). 

■ 106. 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. 

■ 107. 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 deemed to be a customer within 

the meaning of this section. 

* * * * * 

Issued in Washington, DC on October 16, 

2012, by the Commission. 

Sauntia S. Warfield, 

Assistant 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 Sommers, Chilton, O’Malia 

and Wetjen voted in the affirmative; no 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the final rule to amend and 

conform certain provisions of the Commodity 

Futures Trading Commission’s (CFTC) 

regulations to incorporate swaps. These final 

conforming amendments are crucial to 

integrating the CFTC’s regulations with the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank Act), 

which expanded the scope of the Commodity 

Exchange Act to cover swaps. 


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66350 Federal Register / Vol. 77, No. 213 / Friday, November 2, 2012 / Rules and Regulations 

Specifically, this final rule updates the 

CFTC’s definitions of futures commission 

merchant (FCM) and introducing broker (IB) 

to fulfill the Dodd-Frank Act’s requirement to 

permit these entities to trade swaps on behalf 

of their customers. This final rule also 

updates the definitions of commodity 

interest, customer, and customer funds to 

incorporate swaps. In addition, the final rule 

adds swap execution facilities (SEFs) to the 

list of CFTC-regulated trading venues. 

The final rule amends existing 

recordkeeping requirements for FCMs and 

IBs to ensure that similar records are kept for 

swaps as are currently kept for futures. In 

addition, SEF members will be obligated to 

comply with the same recordkeeping duties 

as are required of designated contract market 

(DCM) members. 

[FR Doc. 2012–25764 Filed 11–1–12; 8:45 am] 

BILLING CODE 6351–01–P 


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