42508 Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law. 111–203, 124 

Stat. 1376 (2010). 

2 7 U.S.C. 1 et seq. 

3Subtitle A of Title VII contains two parts. Part 

I, entitled ‘‘Regulatory Authority,’’ consists of 

sections 711–720; part II, entitled ‘‘Regulation of 

Swap Markets,’’ consists of sections 721–754. 

Subtitle B of Title VII is entitled ‘‘Regulation of 

Security-Based Swap Markets,’’ and consists of 

sections 761–774. References to ‘‘Title VII’’ in this 

Release shall include only subtitle A of Title VII. 

federal_register/ 

code_of_federal_regulations/ 

ibr_locations.html. 

(2) At its option, the Commission may 

use one or more of the following 

methods to determine what sizes of 

children’s upper outerwear are 

equivalent to sizes 2T to 16: 

(i) Garments in girls’ size Large (L) 

and boys’ size Large (L) are equivalent 

to girls’ or boys’ size 12, respectively. 

Garments in girls’ and boys’ sizes 

smaller than Large (L), including ExtraSmall (XS), Small (S), and Medium (M), 

are equivalent to sizes smaller than size 

12. The fact that an item of children’s 

upper outerwear with a hood and neck 

drawstring is labeled as being larger 

than a size Large (L) does not 

necessarily mean that the item is not 

equivalent to a size in the range of 2T 

to 12. 

(ii) Garments in girls’ size Extra-Large 

(XL) and boys’ size Extra-Large (XL) are 

equivalent to size 16. The fact that an 

item of children’s upper outerwear with 

a waist or bottom drawstring is labeled 

as being larger than size Extra-Large 

(XL) does not necessarily mean that the 

item is not equivalent to a size in the 

range of 2T to 16. 

(iii) In cases where garment labels 

give a range of sizes, if the range 

includes any size that is subject to a 

requirement in ASTM F 1816–97, the 

garment will be considered subject, 

even if other sizes in the stated range, 

taken alone, would not be subject to the 

requirement. For example, a coat sized 

12 through 14 remains subject to the 

prohibition of hood and neck area 

drawstrings, even though this 

requirement of ASTM F 1816–97 only 

applies to garments up to size 12. A coat 

size 13 through 15 would not be 

considered within the scope of ASTM F 

1816–97’s prohibition of neck and hood 

drawstrings, but would be subject to the 

requirements for waist or bottom 

drawstrings. 

(iv) To fall within the scope of 

paragraphs (b)(2)(i) through (2)(iii) of 

this section, a garment need not state 

anywhere on it, or on its tags, labels, 

package, or any other materials 

accompanying it, the term ‘‘girls,’’ the 

term ‘‘boys,’’ or whether the garment is 

designed or intended for girls or boys. 

(v) The Commission may use any 

other evidence that would tend to show 

that an item of children’s upper 

outerwear is a size that is equivalent to 

sizes 2T to 16. 

Dated: July 12, 2011. 

Todd A. Stevenson, 

Secretary, U.S. Consumer Product Safety 

Commission. 

[FR Doc. 2011–17961 Filed 7–18–11; 8:45 am] 

BILLING CODE 6355–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Chapter 1 

Effective Date for Swap Regulation 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final Order. 

SUMMARY: On June 17, 2011, the 

Commodity Futures Trading 

Commission (‘‘CFTC’’ or the 

‘‘Commission’’) published for public 

comment in the Federal Register a 

proposed order that would grant, 

pursuant to the Commission’s 

exemptive authority pursuant to the 

Commodity Exchange Act (‘‘CEA’’), 

certain temporary relief from the 

provisions of the CEA added or 

amended by title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

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

reference one or more terms regarding 

entities or instruments that title VII 

requires be ‘‘further defined,’’ such as 

the terms ‘‘swap,’’ ‘‘swap dealer,’’ 

‘‘major swap participant,’’ or ‘‘eligible 

contract participant,’’ to the extent that 

requirements or portions of such 

provisions specifically relate to such 

referenced terms and do not require a 

rulemaking. The CFTC also proposed to 

grant temporary relief from certain 

provisions of the CEA that will or may 

apply to certain agreements, contracts, 

and transactions in exempt or excluded 

commodities as a result of the repeal of 

various CEA exemptions and exclusions 

as of the general effective date set forth 

in section 754 of the Dodd-Frank Act, 

July 16, 2011. Upon consideration of the 

full record, the Commission has 

determined to issue this final exemptive 

order (‘‘Final Order’’) essentially as 

proposed, with appropriate or necessary 

modification or clarification. 

DATES: Effective July 14, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Terry Arbit, Deputy General Counsel, 

202–418–5120, tarbit@cftc.gov, or 

Harold Hardman, Deputy General 

Counsel, 202–418–5120, 

hhardman@cftc.gov, Office of the 

General Counsel, or Steven Kane, 

Consultant, 202–418–5911, 

skane@cftc.gov, Office of the Chief 

Economist, CFTC, Three Lafayette 

Centre, 1151 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act.1 Title VII of 

the Dodd-Frank Act amends the CEA 2

to establish a comprehensive new 

regulatory framework for swaps. The 

legislation was enacted to reduce risk, 

increase transparency, and promote 

market integrity within the financial 

system by, among other things: (1) 

Providing for the registration and 

comprehensive regulation of swap 

dealers and major swap participants; (2) 

imposing clearing and trade execution 

requirements on standardized derivative 

products; (3) creating robust 

recordkeeping and real-time reporting 

regimes; and (4) enhancing the 

rulemaking and enforcement authorities 

of the Commission with respect to, 

among others, all registered entities and 

intermediaries subject to the 

Commission’s oversight. Title VII also 

includes amendments to the federal 

securities laws to establish a similar 

regulatory framework for security-based 

swaps under the authority of the 

Securities and Exchange Commission 

(‘‘SEC’’). 

Section 754 of the Dodd-Frank Act 

states that, unless otherwise provided, 

the provisions of subtitle A of title VII 

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

‘‘shall take effect on the later of 360 

days after the date of the enactment of 

this subtitle or, to the extent a provision 

of this subtitle requires a rulemaking, 

not less than 60 days after publication 

of the final rule or regulation 

implementing such provision of this 

subtitle.’’ The date 360 days after the 

date of enactment is July 16, 2011. 

To implement the Dodd-Frank Act, as 

of July 8, 2011, the Commission has 

issued 52 advance notices of proposed 

rulemaking or notices of proposed 

rulemaking, two interim final rules, six 

final rules, and one proposed 

interpretive order. The regulatory 

requirements that have been proposed 

by the Commission present a 

substantially complete mosaic of the 

Commission’s proposed regulatory 

framework under Title VII. In light of 


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Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations 42509 

4See Reopening and Extension of Comment 

Periods for Rulemakings Implementing the DoddFrank Wall Street Reform and Consumer Protection 

Act, 76 FR 25274, May 4, 2011. 5The Commission has noted its ability to phase 

in implementation of the new requirements based 

on factors such as: The type of swap, including by 

asset class; the type of market participants that 

engage in such trades; the speed with which market 

infrastructures can meet the new requirements; and 

whether registered market infrastructures or 

participants might be required to have policies and 

procedures in place ahead of compliance with such 

policies and procedures by non-registrants. See 

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

@newsroom/documents/file/ 

staffconcepts050211.pdf. 

6Section 712(d)(1) provides: ‘‘Notwithstanding 

any other provision of this title and subsections (b) 

and (c), the Commodity Futures Trading 

Commission and the Securities and Exchange 

Commission, in consultation with the Board of 

Governors [of the Federal Reserve System], shall 

further define the terms ‘swap’, ‘security-based 

swap’, ‘swap dealer’, ‘security-based swap dealer’, 

‘major swap participant’, ‘major security-based 

swap participant’, and ‘security-based swap 

agreement’ in section 1a(47)(A)(v) of the 

Commodity Exchange Act (7 U.S.C. 1a(47)(A)(v)) 

and section 3(a)(78) of the Securities Exchange Act 

of 1934 (15 U.S.C. 78c(a)(78)).’’ 

7Section 721(c) provides: ‘‘To include 

transactions and entities that have been structured 

to evade this subtitle (or an amendment made by 

this subtitle), the Commodity Futures Trading 

Commission shall adopt a rule to further define the 

terms ‘swap’, ‘swap dealer’, ‘major swap 

participant’, and ‘eligible contract participant’.’’ 

8See Further Definition of ‘‘Swap Dealer,’’ 

‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap 

Participant,’’ ‘‘Major Security-Based Swap 

Participant’’ and ‘‘Eligible Contract Participant,’’ 75 

FR 80174, Dec. 21, 2010 (‘‘Entity Definitions’’) and 

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

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

Mixed Swaps; Security-Based Swap Agreement 

Recordkeeping, 76 FR 29818, May 23, 2011. 

9See Notice Regarding the Treatment of Petitions 

Seeking Grandfather Relief for Trading Activity 

Done in Reliance Upon Section 2(h)(1)–(2) of the 

Commodity Exchange Act, 75 FR 56512, 56513, 

Sept. 16, 2010 (‘‘Grandfather Notice’’). 

10 7 U.S.C. 6(c). 

11To be codified at 7 U.S.C. 6s(a), 6s(e) and 6s(h), 

respectively. 

12As stated in footnote 5, supra, the Commission 

has discretion to phase-in implementation of new 

requirements in Category 1 rulemakings as well as 

rulemakings conducted with respect to Category 2 

provisions. Accordingly, the Commission 

anticipates that it may establish compliance dates 

for the substantive requirements established in a 

rulemaking implementing Category 1 provisions 

that differ from the effective date of the rulemaking. 

The effective date and compliance dates for each 

rulemaking will be determined in each rulemaking 

proceeding. Additionally, as stated in footnote 69, 

infra, the Commission has received and has 

solicited public comments with respect to the 

appropriate phase-in of the Dodd-Frank Act 

rulemaking requirements. 

this substantially complete mosaic, the 

Commission reopened or extended the 

comment period of many of its proposed 

rulemakings in order to provide the 

public with an additional opportunity to 

comment on the proposed new 

regulatory framework for swaps, either 

in part or as a whole.4 The extended 

comment period closed on June 3, 2011. 

The Commission also has solicited 

public comments on the phasing of rule 

implementation (i.e., identifying which 

requirements can be met sooner and 

which ones will take more time).5

Section 712(d)(1) of the Dodd-Frank 

Act requires the Commission and the 

SEC to further define certain terms used 

in Title VII, including the terms ‘‘swap,’’ 

‘‘swap dealer,’’ ‘‘major swap 

participant,’’ and ‘‘eligible contract 

participant.’’ 6 Section 721(c) requires 

the Commission to adopt a rule to 

further define the terms ‘‘swap,’’ ‘‘swap 

dealer,’’ ‘‘major swap participant,’’ and 

‘‘eligible contract participant’’ to 

prevent evasion of statutory and 

regulatory obligations.7 The 

Commission has issued two notices of 

proposed rulemaking that address these 

further definitions.8

The Commission’s final rulemakings 

further defining the terms in sections 

712(d) and 721(c) will not be in place 

as of July 16, 2011. Consequently, 

concerns have been raised about effects 

upon the swaps market and the 

applicability of various regulatory 

requirements to certain agreements, 

contracts, and transactions during the 

period between July 16, 2011 and the 

date(s) that those rulemakings have been 

completed. To address these concerns, 

and to ‘‘strive to ensure that current 

practices will not be unduly disrupted 

during the transition to the new 

regulatory regime,’’ 9 the Commission 

proposed to exercise its authority under 

CEA section 4(c) and section 712(f) of 

the Dodd-Frank Act. 

Section 4(c) of the CEA, as amended 

by the Dodd-Frank Act, provides the 

Commission with authority to exempt 

certain agreements, contracts, and 

transactions (referred to hereafter 

collectively as ‘‘transactions’’) that may 

otherwise be subject to the CEA from 

various provisions of the CEA.10 Section 

712(f) of the Dodd-Frank Act states that 

‘‘in order to prepare for the effective 

dates of the provisions of this Act,’’ 

including the general effective date set 

forth in section 754, the Commission 

may ‘‘exempt persons, agreements, 

contracts, or transactions from 

provisions of this Act, under the terms 

contained in this Act.’’ Section 754 

specifies that unless otherwise provided 

in Title VII, provisions requiring a 

rulemaking become effective ‘‘not less 

than 60 days after publication of the 

final rule’’ (but not before July 16, 2011). 

The provisions of Title VII can be 

grouped into four major categories: (1) 

Provisions that require a rulemaking (for 

which relief was not proposed); (2) selfeffectuating provisions that reference 

terms that require further definition; (3) 

self-effectuating provisions that do not 

reference terms that require further 

definition and that repeal provisions of 

current law; and (4) self-effectuating 

provisions for which relief was not 

proposed. 

Category 1 provisions are not selfeffectuating because they require a 

rulemaking. A significant number of the 

Title VII provisions fall into this 

category. Examples of Category 1 

provisions include new CEA section 

4s(a) (governing registration of swap 

dealers and major swap participants), 

new CEA section 4s(e) (governing 

capital and margin requirements for 

swap dealers and major swap 

participants), and new CEA section 

4s(h) (external business conduct 

standards for swap dealers and major 

swap participants).11 Pursuant to 

section 754, the rulemakings to 

implement these provisions of the CEA 

will not become effective, at a 

minimum, until 60 days after 

publication of a final Commission rule 

(and not before July 16, 2011). 

Because the Category 1 provisions are 

not self-effectuating as of July 16, 2011, 

it was not necessary for the Commission 

to propose relief with respect to the 

same. As noted above, the Category 1 

provisions will not go into effect until 

at least 60 days after publication of a 

final Commission rule in the Federal 

Register.12

The Category 4 provisions also fell 

outside the scope of the proposed order. 

They are self-effectuating and do not 

require relief because, in the judgment 

of the Commission, compliance with 

these requirements upon the effective 

date will not cause undue disruption to 

affected transactions, markets, or 

entities, and a delay of the imposition 

of these statutory requirements would 

not be in the public interest. 

The proposed order, as well as lists of 

the Category 1 and Category 4 

provisions prepared by Commission 

staff, were published on the 

Commission’s Web site (http:// 

www.cftc.gov) on June 14, 2011. A list 

of the provisions in each of the four 

categories is provided in the Appendix 

to this Final Order. 

II. The Proposed Order 

On June 14, 2011, the Commission 

issued a proposed order to provide 

temporary exemptive relief in two parts, 

each addressing one of the remaining 

categories of provisions noted above: (1) 

Category 2—provisions that are selfeffectuating (i.e., do not require 

rulemaking) and reference terms that 

require further definition (i.e., ‘‘swap,’’ 

‘‘swap dealer,’’ ‘‘major swap 

participant,’’ or ‘‘eligible contract 


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42510 Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations 

13See Effective Date for Swap Regulation, 76 FR 

35372, June 17, 2011. 

14 76 FR at 35374. In footnote 15 of the proposed 

order, the Commission stated: ‘‘The Commission’s 

authority to provide exemptive relief under CEA 

section 4(c), as amended by section 721(d) of the 

Dodd-Frank Act, may not extend to certain Category 

2 provisions of the Dodd-Frank Act and the CEA. 

These provisions include: new CEA section 4s(l), 7 

U.S.C. 6s(l) (providing for swap dealer segregation 

requirements with respect to uncleared swaps); 

amended CEA section 5b(a), 7 U.S.C. 7a–1(a) 

(prohibiting a DCO from performing the functions 

of a DCO with respect to swaps unless the DCO is 

registered with the Commission); and new CEA 

section 4s(k), 7 U.S.C. 6s(k) (providing for the 

duties and designation of a chief compliance officer 

for swap dealers and major swap participants). As 

such, these provisions will take effect on July 16, 

2011, and may not be subject to the exemptive relief 

noted above granted by the Commission. The 

Commission staff has informed the Commission 

that it is separately considering whether to issue a 

no-action letter in which the staff would state that 

it would not recommend that the Commission 

commence an enforcement action against markets 

or market participants for failure to comply with the 

above-referenced provisions over a similar time 

period.’’ Subsequently, a draft staff no-action letter 

that would provide such relief was posted on the 

Commission’s Web site. See http://www.cftc.gov/ 

ucm/groups/public/@newsroom/documents/file/ 

noaction061411.pdf. 

15To be codified at 7 U.S.C. 6d(f). Thus, for 

example, persons who accept money, securities or 

property (or extend credit in lieu thereof) from, for, 

or on behalf of a swaps customer to margin, 

guarantee, or secure a swap cleared by or through 

a derivatives clearing organization would not be 

required to register as futures commission 

merchants as otherwise required by section 4d(f)(1) 

until the expiration of the exemption in part one of 

the proposed order. 

16 76 FR at 35374. In footnote 16 of the proposed 

order, the Commission stated, ‘‘The Dodd-Frank Act 

amended the CEA’s anti-fraud and antimanipulation provisions to cover ‘swaps.’’’ 

Examples of such provisions include the 

amendments to the antifraud provisions in CEA 

section 4b, 7 U.S.C. 6b, as well as the amendments 

set forth in section 746 of the Dodd-Frank Act, 

which enacted certain insider trading prohibitions 

that apply to, among other things, futures contracts 

and swaps. The Commission stated: ‘‘Although 

these provisions therefore would, under the 

proposed relief, not apply to ‘swaps’ under the 

Dodd-Frank Act because that term is subject to 

further definition, nevertheless, they will apply to 

all transactions other than ‘swaps’ (including, but 

not limited to, futures contracts, options on futures 

contracts, transactions with retail customers in 

foreign currency or other commodities pursuant to 

CEA section 2(c)(2) (7 U.S.C. 2(c)(2)), and 

transactions subject to exemptive relief pursuant to 

part two of the proposed order).’’ 

17 76 FR at 35374. In footnote 17 of the proposed 

order, the Commission included the following 

citation: ‘‘See, e.g., section 737(d) of the DoddFrank Act (amendments regarding position limits 

effective on the date of enactment). Similarly, this 

relief would not affect the effective date of any 

provision that may become effective after July 16, 

2011, such as section 716 of the Dodd-Frank Act.’’ 

18 76 FR at 35374. 

19 Id. 

20 Id. In footnote 18 of the proposed order, the 

Commission stated: ‘‘Accordingly and by way of 

non-exclusive example, where a provision 

references both swaps and futures, this relief does 

not affect in any way the application of the 

provision (and any implementing Commission 

regulations thereunder) insofar as it refers to 

futures.’’ 

21 76 FR at 35374. 

22 76 FR at 35375 (footnotes omitted). 

23 Id. 

participant’’); and (2) Category 3— 

provisions that are self-effectuating (i.e., 

do not require rulemaking) and repeal 

provisions of current law, but that do 

not reference terms that require further 

definition. The Commission’s proposed 

order was published in the Federal 

Register on June 17, 2011.13

With respect to part one of the 

proposed order addressing Category 2 

provisions, the Commission proposed to 

temporarily exempt persons and entities 

from the provisions of the CEA, as 

added or amended by the Dodd-Frank 

Act, that reference one or more of the 

terms regarding entities or instruments 

subject to further definition under 

sections 712(d) and 721(c) of the DoddFrank Act, including the terms ‘‘swap,’’ 

‘‘swap dealer,’’ ‘‘major swap 

participant,’’ or ‘‘eligible contract 

participant.’’ 14 CEA section 4d(f), as 

amended by section 724 of the DoddFrank Act, is an example of a Category 

2 provision to which the exemption 

provided in the proposed order would 

extend.15

The Commission made clear that the 

proposed exemptive relief from such 

provisions would apply only with 

respect to those requirements or 

portions of such provisions that 

specifically relate to such referenced 

terms. Further, the Commission stressed 

that the proposed relief ‘‘would not in 

any way limit the Commission’s 

authority with respect to any person, 

entity, or transaction pursuant to CEA 

sections 2(a)(1)(B), 4b, 4o, 6(c), 6(d), 6c, 

8(a), 9(a)(2), or 13, or the regulations of 

the Commission promulgated pursuant 

to such authorities, including 

regulations pursuant to CEA section 

4c(b) proscribing fraud.’’ 16

The Commission also placed other 

limitations on the relief in part one of 

the proposed order. First, the 

Commission stated that the relief would 

not apply to any provisions of Title VII 

and the CEA that have become effective 

prior to July 16, 2011 or to Commission 

regulations already issued.17 Further, 

the relief would not affect any effective 

date set out in any specific Dodd-Frank 

Act rulemaking by the Commission.18 In 

addition, the proposed order would not 

limit the Commission’s authority under 

section 712(f) of the Dodd-Frank Act to 

issue rules, orders, or exemptions prior 

to the effective date of any provision, in 

order to prepare for the effective date of 

such provision, provided that such rule, 

order, or exemption shall not become 

effective prior to the effective date of the 

provision.19 Finally, the Commission 

stated that the proposed order would 

not affect the applicability of any 

provision of the CEA to futures 

contracts or options on futures 

contracts.20

The Commission proposed that the 

temporary exemptive relief would 

expire upon the earlier of: (1) The 

effective date of the applicable final rule 

further defining the relevant term; or (2) 

December 31, 2011.21 In proposing to 

limit the relief to no more than a fixed 

period (i.e., December 31, 2011), the 

Commission provided the following 

reasons: 

First, the Commission believes it 

appropriate and prudent to periodically 

review the extent and scope of any relief 

provided from the CEA, as amended by the 

Dodd-Frank Act. The Commission anticipates 

that additional rulemakings to implement the 

Dodd-Frank Act will be completed during 

this period of transitional relief. During this 

period the Commission also will be 

considering the appropriate phase-in of the 

various regulatory requirements under the 

Dodd-Frank rulemakings. Accordingly, the 

Commission believes it would be appropriate 

to periodically re-examine the scope and 

extent of the proposed exemptive relief in 

order to ensure that the scope of relief is 

appropriately tailored to the schedule of 

implementation of the Dodd-Frank Act 

requirements. 

Second, the limitation of this exemptive 

relief to no more than a fixed period of time 

is consistent with similar limitations on 

transitional relief provided by the Congress 

elsewhere in Title VII. Section 723(c) of the 

Dodd-Frank Act allows persons to submit 

petitions to the Commission ‘‘to remain 

subject to section 2(h) of the [CEA].’’ In 

acting upon such petitions, the Commission 

may allow persons to ‘‘continue operating 

subject to section 2(h) [of the CEA] for not 

longer than a 1-year period.’’ Similarly, 

section 734 authorizes the Commission to 

grant petitions for persons to remain subject 

to the provisions of section 5d of the CEA 

governing the operation of exempt boards of 

trade (‘‘EBOTs’’) ‘‘for up to 1 year after the 

effective date of this subtitle.’’ In light of 

these provisions authorizing the Commission 

to provide transitional relief for no longer 

than a fixed period of time, the Commission 

believes it would be appropriate to provide 

transitional relief consistent with section 

712(f) of the Dodd-Frank Act and CEA 

section 4(c) under this proposed order for no 

longer than a fixed time period.22

In the proposed order, the 

Commission reiterated its intent: (1) 

That existing practices should not be 

unduly disrupted during any transition 

period; and (2) to deliberatively and 

efficiently proceed to complete the 

rulemakings to implement the DoddFrank Act.23 As to timing, the 

Commission proposed that in the event 

that a further definitions rulemaking is 

completed prior to December 31, 2011, 

the Commission will at the time of such 


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24 Id. 

25 Id. 

26 7 U.S.C. 2(d)(1). 

27The term ‘‘excluded commodity’’ is defined in 

CEA section 1a(13), 7 U.S.C. 1a(13), to include, 

among other things, financial instruments such as 

a currency, interest rate, or exchange rate, or any 

economic or commercial index based on prices, 

rates, values, or levels that are not within the 

control of any party to the transaction. 

28 7 U.S.C. 2(d)(2). 

29 7 U.S.C. 2(g). 

30 7 U.S.C. 2(h)(1)–(2). 

31The term ‘‘exempt commodity’’ is defined in 

CEA section 1a(14), 7 U.S.C. 1a(14), as a commodity 

other than an excluded or agricultural commodity, 

and includes energy and metals commodities. 

32 7 U.S.C. 2(h)(3)–(7). 

33The term ‘‘eligible commercial entity’’ is 

defined in CEA section 1a(11), 7 U.S.C. 1a(11). 

34 7 U.S.C. 7a–3. 

35 7 U.S.C. 2(e). 

36 17 CFR 35.1 et seq. 

37 17 CFR 32.1 et seq. 

38 76 FR at 35375 and 35376 n.36. 

39The Commission notes, as discussed infra, that 

part 35 was originally promulgated in part pursuant 

to the Commission’s plenary options authority in 

CEA section 4c(b), 7 U.S.C. 6c(b). 

40The parties covered under the ESP definition, 

while very broad, are not coextensive with those 

covered by the terms ‘‘eligible commercial entity’’ 

or ‘‘eligible contract participant.’’ Therefore, it is 

possible that a small segment of persons or entities 

that are currently relying on one or more of the CEA 

exclusions or exemptions cited above might not 

qualify as an ESP and consequently would not be 

eligible for exemptive relief under part 35. 

41This condition was designed so that the 

exemption would not establish ‘‘a market in swap 

agreements, the terms of which are fixed and are 

not subject to negotiation that functions essentially 

in the same manner as an exchange but for the 

bilateral execution of transactions.’’ See Exemption 

for Certain Swap Agreements, 58 FR 5587, 5590, 

Jan. 22, 1993. 

42By this condition, the exemption does not 

extend to transactions that are subject to a clearing 

system where the credit risk of individual members 

of the system to each other in a transaction to which 

each is a counterparty is effectively eliminated and 

replaced by a system of mutualized risk of loss that 

binds members generally, whether or not they are 

counterparties to the original transaction. Id. at 

5591. 

43 In this context, a multilateral transaction 

execution facility is a physical or electronic facility 

in which all market makers and other participants 

that are members simultaneously have the ability to 

execute transactions and bind both parties by 

accepting offers which are made by one member 

and open to all members of the facility. Id. 

44 76 FR at 35376. In footnote 36, the proposed 

order also stated that ‘‘part 32 of the Commission’s 

regulations will continue to be available with 

respect to commodity option transactions that meet 

the conditions therein, until such time as part 32 

may be withdrawn, amended, or replaced by the 

Commission.’’ See Commodity Options and 

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

45 76 FR at 35376. 

46 Id. In footnote 37, the proposed order stated 

that commenters responding to the Commission’s 

proposed Entity Definitions have suggested that the 

Continued 

rulemaking address the appropriate 

phase-in and implementation dates of 

the resulting regulatory requirements. 

Alternatively, the Commission stated, 

should the proposed order expire at the 

end of the fixed time period—December 

31, 2011—such expiration will not 

affect the Commission’s ability to 

provide further relief, as appropriate, to 

avoid undue disruption or costs to 

market participants.24

With respect to part two of the 

proposed order addressing Category 3 

provisions, the Commission’s proposed 

order identified the existing provisions 

of the CEA that currently exclude or 

exempt, in whole or in part, certain 

transactions from Commission oversight 

under the CEA.25 These are as follows: 

i. Section 2(d)(1),26 transactions in 

excluded commodities 27 between eligible 

contract participants and not executed or 

traded on a trading facility; 

ii. Section 2(d)(2),28 principal-to-principal 

transactions in excluded commodities 

between certain eligible contract participants 

and executed or traded on an electronic 

trading facility; 

iii. Section 2(g),29 transactions subject to 

individual negotiation between eligible 

contract participants in commodities other 

than agricultural commodities and not 

executed or traded on a trading facility; 

iv. Sections 2(h)(1)–(2),30 transactions in 

exempt commodities 31 between eligible 

contract participants and not entered into on 

a trading facility; 

v. Sections 2(h)(3)–(7),32 principal-toprincipal transactions in exempt 

commodities between eligible commercial 

entities 33 and executed or traded on an 

electronic trading facility (called exempt 

commercial markets, or ‘‘ECMs’’); 

vi. Section 5d,34 transactions in 

commodities, among other things, having a 

nearly inexhaustible deliverable supply or no 

cash market, between eligible contract 

participants and traded on an exempt board 

of trade (‘‘EBOT’’); and 

vii. Section 2(e),35 which generally 

provides that nothing in the CEA governs or 

is applicable to an electronic trading facility 

that limits transactions authorized to be 

conducted on its facilities to those satisfying 

the requirements of sections 2(d)(2), 2(g) or 

2(h)(3). 

Under the Dodd-Frank Act, these 

provisions will be removed from the 

CEA as of July 16, 2011. However, the 

Commission noted that part 35 of the 

Commission’s regulations,36 and part 32 

with respect to options,37 will continue 

to be available with respect to 

transactions that meet the conditions 

therein, until such time as they may be 

withdrawn, amended, or replaced by the 

Commission.38

As the Commission stated in the 

proposed order, part 35 originally was 

promulgated in 1993 pursuant to, 

among others, the Commission’s general 

exemptive authority in CEA section 4(c) 

and authority under section 4c(b), and 

provides a broad-based exemption from 

the CEA for ‘‘swap agreements’’ in any 

commodity.39 Specifically, part 35 

exempts ‘‘swap agreements,’’ as defined 

therein, from most of the provisions of 

the CEA if: (1) They are entered into by 

‘‘eligible swap participants’’ (‘‘ESPs’’); 40

(2) they are not part of a fungible class 

of agreements standardized as to their 

material economic terms; 41 (3) the 

creditworthiness of any party having an 

actual or potential obligation under the 

swap agreement would be a material 

consideration in entering into or 

determining the terms of the swap 

agreement, including pricing, cost, or 

credit enhancement terms; 42 and (4) 

they are not entered into or traded on 

a multilateral transaction execution 

facility.43 The Commission stated that 

transactions fully meeting the 

conditions of part 35 are outside the 

scope of the proposed order.44

However, because part 35 covers 

essentially non-standardized, noncleared, non-exchange traded 

transactions, certain persons or entities 

that currently rely on the CEA 

exclusions or exemptions cited above 

may not qualify for part 35. Therefore, 

and in response to requests from market 

participants for greater clarity regarding 

the applicability of various statutory 

and regulatory requirements to certain 

transactions following the general 

effective date, the Commission, 

pursuant to its authority under CEA 

section 4(c), proposed to grant relief for 

those transactions that satisfy certain 

criteria specified below.45

Specifically, the Commission 

proposed to temporarily exempt a 

transaction in exempt or excluded 

commodities (and any person or entity 

offering or entering into such 

transaction) from the CEA (other than 

the anti-fraud and anti-manipulation 

enforcement provisions identified 

below) following the general effective 

date if the transaction otherwise would 

comply with part 35, notwithstanding 

that: (1) The transaction may be 

executed on a multilateral transaction 

execution facility; (2) the transaction 

may be cleared; (3) persons offering or 

entering into the transaction may be 

eligible contract participants as defined 

in the CEA (prior to July 16, 2011); (4) 

the transaction may be part of a fungible 

class of agreements that are 

standardized as to their material 

economic terms; and/or (5) no more 

than one of the parties to the transaction 

is entering into the transaction in 

conjunction with its line of business, 

but is neither an eligible contract 

participant nor an ESP, and the 

transaction was not and is not marketed 

to the public (the ‘‘line of business 

provision’’).46


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Commission should exercise its authority to further 

define the term ‘‘eligible contract participant’’ to 

encompass the ‘‘line of business’’ provision that 

was a part of the Commission’s Policy Statement 

Concerning Swap Transactions, 54 FR 30694, 

30696–30697, July 21, 1989. The staff is evaluating 

these comments in the context of the Commission’s 

rulemaking to further define the term ‘‘eligible 

contract participant.’’ 

47 76 FR at 35376. In addition, in September 2010, 

the Commission published an order in the Federal 

Register providing that it would extend grandfather 

relief, as provided in sections 723(c) and 734(c) of 

the Dodd-Frank Act, to ECMs and EBOTs provided 

that certain conditions are met. See Order 

Regarding the Treatment of Petitions Seeking 

Grandfather Relief for Exempt Commercial Markets 

and Exempt Boards of Trade, 75 FR 56513, Sept. 16, 

2010 (‘‘grandfather relief orders’’). The Commission 

stated that nothing in the proposed order was 

intended to impact the availability of the 

independent grandfather relief provided in the 

grandfather relief orders. Id. at n.38. 

48 76 FR at 35376. The Commission stated in 

footnote 39 of the proposed order that the 

exemptive relief would not be available to an 

electronic trading facility that, as of July 15, 2011, 

is not already operating as an ECM pursuant to CEA 

sections 2(h)(3)–(7), or to an EBOT that, as of July 

15, 2011, is not already operating pursuant to CEA 

section 5d, or not compliant with the conditions set 

forth in such provisions. 

49 76 FR at 35376. In so doing, the Commission 

noted that ‘‘the addition of the term ‘swap’ to some 

of these provisions would not in any way affect the 

applicability of these anti-fraud and antimanipulation enforcement provisions to 

transactions subject to relief pursuant to part two 

of the proposed order.’’ Id. at n.40. 

50 76 FR at 35376. The Commission noted that the 

proposed order would not affect any Commission 

rulemaking authority over agreements, contracts, or 

transactions that may not depend on the terms 

subject to further definition under sections 712(d) 

or 721(c) of the Dodd-Frank Act. This relief also 

would not affect any provisions of the Dodd-Frank 

Act or the CEA that have become effective prior to 

July 16, 2011 or regulations already issued. Id. at 

n.41. 

51 76 FR at 35376. 

52 Id. 

53 76 FR at 35377. 

54Comments unrelated to the proposed order will 

not be evaluated here, but will inform the 

Commission as it proceeds with its Dodd-Frank Act 

rulemakings. 

55See letter dated June 28, 2011, from Joel G. 

Newman, President and Chief Executive Officer, 

AFIA, at p. 1. 

56See letter dated July 1, 2011, from Dennis M. 

Kelleher, President and Chief Executive Officer and 

Wallace C. Turbeville, Derivatives Specialist, Better 

Markets, at pp. 1, 2. 

57See letter dated July 1, 2011, from Jiri Krol, 

Director of Government & Regulatory Affairs, 

AIMA, at page 2. 

58See letter dated July 1, 2011, from Matt Bruns, 

Chair, Risk Management Committee, NGFA, at p. 1. 

As the Commission noted, the 

proposed temporary exemptive relief 

would not affect the availability of 

either parts 35 or 32 with respect to 

transactions that fully meet the 

conditions therein.47 For transactions 

that fall outside of existing parts 35 or 

32, the Commission made clear that the 

proposed relief would only be available 

to the extent those transactions (and 

persons offering or entering into such 

transactions) fall within the scope of 

any of the existing CEA sections 2(d), 

2(e), 2(g), 2(h), and 5d as in effect prior 

to July 16, 2011 or the line of business 

provision.48

With respect to any transaction within 

the scope of part two of the proposed 

order, the Commission stated that the 

proposed exemptive relief ‘‘would not 

in any way limit the Commission’s 

authority with respect to any person, 

entity, or transaction pursuant to CEA 

sections 2(a)(1)(B), 4b, 4o, 6(c), 6(d), 6c, 

8(a), 9(a)(2) or 13, or the regulations of 

the Commission promulgated pursuant 

to such authorities, including 

regulations pursuant to CEA section 

4c(b) proscribing fraud.’’ 49

Additionally, the Commission stated 

that the proposed relief would not affect 

any Dodd-Frank Act implementing 

regulations (and any implementation 

period contained therein) that the 

Commission promulgates and applies to 

the subject transactions, market 

participants, or markets.50 With respect 

to timing, the Commission proposed 

that this temporary exemptive relief 

would expire upon the earlier of: (1) 

December 31, 2011; or (2) the repeal or 

replacement of parts 35 or 32, as 

applicable.51 The Commission also 

specified that the exemptive relief in 

part two of the proposed order would 

operate for no longer than a fixed period 

of time for the same reasons as 

described above with respect to part one 

of the proposed order.52

III. Comments on the Proposed Relief 

and Commission Determinations 

A. Comments Generally 

The Commission requested comment 

on all aspects of the proposed order, 

including whether the proposed 

temporary exemptions are consistent 

with the public interest and other 

requirements of CEA section 4(c).53 The 

Commission received 19 comment 

letters from a variety of interested 

parties, including market participants 

and trade associations, trading platforms 

and clearing organizations, futures and 

derivatives committees of bar 

associations, a law firm, and a nongovernmental public interest 

organization.54

The majority of commenters generally 

supported the Commission taking action 

to provide clarity and exemptive relief 

with respect to the July 16 effective 

date. For example, the American Feed 

Industry Association (‘‘AFIA’’) 

described the proposed order as ‘‘a 

prudent move’’ to ‘‘ensure current 

practices for bona fide hedgers and endusers of agricultural commodities are 

not unduly disrupted during the 

transition.’’ 55 Better Markets, Inc. 

(‘‘Better Markets’’) described the 

proposed relief as ‘‘appropriate and 

reasonable,’’ and said that a limited 

delay is ‘‘consistent with the DoddFrank Act, informed rulemaking and the 

goal of financial reform.’’ 56 The 

Alternative Investment Management 

Association (‘‘AIMA’’) commented that 

the proposed order was ‘‘clear and 

provide[s] sufficient guidance for 

persons and entities to know which 

rules fall within the order and which do 

not.’’ 57 The National Grain and Feed 

Association (‘‘NGFA’’) commended the 

agency ‘‘for taking steps to ensure the 

continued availability of important risk 

management tools used by hedgers in 

the grain, feed and processing 

industry.’’ 58

Commenters also suggested various 

modifications or clarifications of the 

proposed order to address specific 

issues related to the scope or basis for 

the proposed exemptive relief. These 

issues, which are discussed in the 

remainder of this section below, 

include: (1) The scope of temporary 

relief; (2) the expiration date; (3) 

coverage of commodity options and 

agricultural swaps; (4) coverage of 

eligible contract participants; (5) private 

rights of action; (6) preemption; (7) 

market issues; (8) core principles; (9) 

intermediary issues; and (10) the scope 

of ‘‘appropriate persons’’ under CEA 

section 4(c). After considering the 

complete record in this matter, the 

Commission has determined that the 

requirements of CEA section 4(c) have 

been met. For the reasons discussed 

below, the Commission deems it in the 

public interest to issue this Final Order 

substantially as proposed, except for 

certain clarifications set forth in the 

discussion in this section below, which 

the Commission deems appropriate or 

necessary upon due consideration of the 

comments received. 

B. Scope of Temporary Relief 

1. Comments 

Several commenters expressed 

general support for the Commission’s 

effort to provide exemptive relief but 

urged the Commission to use what they 

stated to be the Commission’s broad 

authority to grant a more comprehensive 

relief. For example, the Committee on 

Futures and Derivatives Regulation of 

the New York City Bar Association 

(‘‘NYCBA’’) stated that the Commission 

has ‘‘ample’’ authority, either based 

solely on CEA Section 4(c) or as 

supplemented by section 754 and 

section 712(f) of the Dodd-Frank Act, to 


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59See letter dated June 30, 2011, from Timothy 

P. Selby, Chair, NYCBA, at p. 3. NYCBA asserted 

that the requirement in section 712(f)(4) that 

exemptions be made ‘‘under the terms of the Act’’ 

is intended to require that they be made under the 

provisions establishing or limiting regulatory 

authority under the Dodd-Frank Act as a whole, 

rather than referring to the substance of the 

exemptive authority available under provisions of 

the CEA. Id. at p. 4. 

60See ABA Derivatives Committee at pp. 2–3. 

The ABA Derivatives Committee stated that the 

Commission’s exemptive authority under the DoddFrank Act is broader than the exemptive authority 

specifically conferred by the CEA, especially in 

light of the different language of section 712(e) as 

compared to section 712(f). Id. at p. 5. 

61See letter dated July 1, 2011, from Lisa Yoho, 

Director, Regulatory Affairs and Matt Schatzman, 

Senior Vice President, Energy Marketing, BGA, at 

pp. 9–10. As discussed in footnote 14, supra, the 

Commission believes that its authority to provide 

exemptive relief under section 4(c), as amended by 

section 721(d) of the Dodd-Frank Act, may not 

extend to certain Category 2 provisions, such as 

CEA sections 4s(l) and 4s(k), though the 

Commission is informed that staff is separately 

considering a no-action letter with respect to these 

provisions. 

62See generally letter dated July 1, 2011, from 

David M. Perlman, Bracewell & Giuliani LLP, on 

behalf of the Coalition of Physical Energy 

Companies, at p. 3 (requesting statement that the 

Commission intends to preserve the legal status quo 

for the swaps market unless and until it 

affirmatively and systematically makes changes). 

63See letter dated July 1, 2011, from American 

Bankers Association, ABA Securities Association, 

Futures Industry Association, Institute of 

International Bankers, International Swaps and 

Derivatives Association, Investment Company 

Institute, and Securities Industry and Financial 

Markets Association, at p. 4. 

64See ABA Derivatives Committee at p. 3. 

65See, e.g., letter dated July 1, 2011, from R. 

Michael Sweeney, Jr., Hunton & Williams, on behalf 

of the Working Group of Commercial Energy Firms 

(‘‘CEF’’), at pp. 3–4. In the alternative, CEF 

recommends that at a minimum, the Commission 

use its authority under sections 723(c)(l)–(2) to 

provide grandfather relief to all persons who 

transact, operate, or otherwise rely on current CEA 

section 2(h) as well as all transactions subject to 

this provision, for a six-month period commencing 

on July 16, 2011. CEF states that the Commission 

may rely on section 712(f) as well as sections 

723(c)(l)–(2) to exempt persons relying on current 

CEA sections 2(h)(l)–(2) in carrying out their 

bilateral exempt commodity transactions, for up to 

a one year period, following the effective date. CEF 

at p. 4. 

66NYCBA at pp. 6–8. 

67See CEA sections 4(c) and 4c(b). 

68See Grandfather Notice, supra, n.9. 

69 During the Dodd-Frank Act rulemaking process 

the Commission has received a number of 

comments recommending that the Commission 

appropriately sequence the effective dates and 

compliance dates under the various Dodd-Frank 

Act rulemakings. As noted in footnote 5, supra, the 

Commission already has held a roundtable and 

solicited public comments with respect to the 

appropriate phase-in of the Dodd-Frank Act 

rulemaking requirements. Prior to the roundtable, 

on April 29, 2011, CFTC staff released a document 

that set forth concepts that the Commission may 

consider with regard to the effective dates of final 

rules for swaps under the Dodd-Frank Act. The 

Commission therefore anticipates that the 

determinations regarding the phase-in of 

compliance dates for and within the various 

rulemakings will continue to be informed by the 

Commission’s further consideration of this issue, 

including public comments. 

70 76 FR at 35375. 

delay the effective date of the DoddFrank Act provisions until the effective 

date of the related implementing 

regulations.59 Similarly, the Derivatives 

and Futures Law Committee of the 

Business Law Section of the American 

Bar Association (‘‘ABA Derivatives 

Committee’’) stated that sections 754 

and 712(f), as well as CEA section 4(c), 

authorize the Commission to 

temporarily grant relief from the DoddFrank Act until all necessary final 

rulemakings, including rulemakings as 

to definitions, are in place.60 Finally, BG 

Americas & Global LNG (‘‘BGA’’) 

contends that section 721(f) of the 

Dodd-Frank Act authorizes the 

Commission to extend exemptive relief 

with respect to CEA sections 4s(l) 

(collateral segregation requirements for 

uncleared swaps) and 4s(k) (duties and 

designation of a chief compliance 

officer).61

The Commission also received 

comments requesting modification or 

clarification regarding the categorization 

of certain provisions of the Dodd-Frank 

Act.62 Specifically, seven trade 

associations (collectively, the 

‘‘Associations’’) filed a joint comment 

letter contending that many provisions 

in Categories 1 and 2 are interdependent 

with related rulemakings (including 

those relating to definitions) and, thus, 

should be extended exemptive relief 

until all of the mutually-interdependent 

rulemakings have been completed.63

The ABA Derivatives Committee 

believes that Category 2 provisions also 

are Category 1 provisions because they 

require the definitional rulemakings to 

be completed.64

Commenters addressing the proposed 

relief for Category 3 provisions urged 

that the Commission use its broad 

authority under CEA section 4(c) and 

section 712(f) of the Dodd-Frank Act to 

amend part 35 of the Commission’s 

regulations to provide blanket 

exemptive relief.65 The NYCBA 

recommended that the Commission 

preserve the current ‘‘safe harbors’’ in 

CEA sections 2(d), 2(e), 2(g), 2(h) and 5d 

until the effective date of the applicable 

final rules with certain clarifications, 

and that such ‘‘safe harbors’’ should be 

available even if the subject transaction 

is cleared.66

2. Commission Determination 

As stated in the proposed order, a 

significant number of Dodd-Frank Act 

provisions are not self-effectuating and, 

thus, it is not necessary to provide relief 

with respect to such provisions (i.e., 

Category 1). With respect to the 

provisions of the Dodd-Frank Act in 

Categories 2 or 3, the Commission has 

determined to use its authority to issue 

this exemptive relief under section 

712(f) of the Dodd-Frank Act coextensively with its exemptive authority 

under the CEA.67 The exemptive relief 

will allow markets and market 

participants to continue to operate 

under the regulatory regime as in effect 

prior to July 16, 2011, but subject to 

various implementing regulations that 

the Commission promulgates and 

applies to the subject transactions, 

market participants, or markets. 

This temporary relief, in the 

Commission’s judgment, is 

appropriately tailored to enable the 

Commission to continue to implement 

the Dodd-Frank Act in an expeditious 

manner, while minimizing undue 

disruption and uncertainty for the 

markets and market participants during 

the transition period. In this regard, the 

Commission reiterates that, in 

considering the appropriate phase-in of 

its various Dodd-Frank Act 

implementing regulations, it intends to 

continue to ‘‘strive to ensure that 

current practices will not be unduly 

disrupted during the transition to the 

new regulatory regime.’’68 While the 

sequencing of the final rules is beyond 

the scope of this Final Order, the 

interdependencies of the various 

rulemakings will be a consideration in 

determining the implementation date 

for each final rule.69

C. Expiration Date 

1. Comments 

The proposed order included an 

outermost, fixed expiration date for 

parts one and two of the exemptive 

relief. Part one would expire on the 

earlier of: (1) The effective date of the 

applicable final rule further defining the 

relevant term; or (2) December 31, 2011. 

Part two of the proposed order would 

expire on the earlier of: (1) December 

31, 2011; or (2) the repeal or 

replacement of part 35 of the 

Commission’s regulations. In the 

proposed order, the Commission 

explained that setting an expiration date 

was ‘‘appropriate to periodically reexamine the scope and extent of the 

proposed exemptive relief’’ and that 

‘‘the limitation of this exemptive relief 

to no more than a fixed period of time 

is consistent with similar limitations on 

transitional relief provided by the 

Congress’’ in section 723(c) and section 

734 of the Dodd-Frank Act.70

Better Markets generally supported 

the expiration date because it believes 

that it is extremely important for the 


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71See Better Markets at p. 2. 

72See ABA Derivatives Committee at p. 6; AIMA 

at p. 2; Associations at p. 6; letter dated July 1, 

2011, from Craig S. Donohue, Chief Executive 

Officer, CME, at p. 2; letter dated June 29, 2011, 

from Richard McVey, Chairman and Chief 

Executive Officer, MarketAxess, at p. 2. 

73See NYCBA at p. 4; ABA Derivatives 

Committee at p. 7. 

74See Associations at p. 6, n.11; CME at p. 2. 

75See NYCBA at p. 5; ABA Derivatives 

Committee at pp. 7–8. NYCBA and the ABA 

Derivatives Committee proposed the following 

language: ‘‘This order shall expire on (1) December 

31, 2011, with respect to any provision for which 

final rules (including final definitional rules) were 

not adopted on or before December 31, 2011, or (2) 

with respect to any provision for which final rules 

(including final definitional rules) were adopted on 

or before December 31, 2011, on the later of the 

effective date of all final definitional rules used in 

the provision and the effective date of the provision 

as set forth in the final rules adopting such 

provision.’’ 

76See CEF at p. 5; ABA Derivatives Committee at 

p. 12; BGA at p. 8. 

77See ABA Derivatives Committee at pp. 9, 11– 

13; letter dated June 29, 2011, from Paul J. Pantano, 

Jr., and Athena Eastwood, Cadwalader, Wickersham 

& Taft LLP, on behalf of the Commodity Options 

and Agricultural Swaps Working Group, at p. 2. 

78See CEF at p. 5, n.12. 

79See ABA Derivatives Committee at pp. 10–11; 

BGA at p. 8, n.22. 

80See NGFA at p. 1. 

81 17 CFR 35.1(b)(1)(i). In addition to the options 

specifically identified in the swap agreement 

definition, in the part 35 adopting release, the 

Commission stated that ‘‘[t]he words ‘any similar 

agreement’ in the definition includes any agreement 

with a similar structure to those transactions 

expressly included in the definition (e.g., a cap, 

collar, or floor) without regard to the nature of the 

underlying commodity interest involved.’’ 

Exemption for Certain Swap Agreements, 58 FR 

5587, 5589 n.16, Jan. 22, 1993. The Commission 

also said that ‘‘[i]n enacting this exemptive rule, the 

Commission is also acting under its plenary 

authority under section 4c(b) of the Act with 

respect to swap agreements that may be regarded as 

commodity options.’’ Id. at 5589. 

82Paragraph (b)(1)(ii) of § 35.1 defines ‘‘any 

combination of the foregoing [list of identified swap 

agreements]’’ as a swap agreement. 

83Paragraph (b)(1)(iii) of § 35.1 defines ‘‘[a] 

master agreement for any of the foregoing [list of 

identified swap agreements] together with all 

supplements thereto’’ as a swap agreement. 

Commission to have the ability to assess 

conditions related to implementation as 

they evolve over the next six months.71

Conversely, the ABA Derivatives 

Committee, AIMA, the Associations, 

CME Group Inc. (‘‘CME’’), and 

MarketAxess Holdings Inc. 

(‘‘MarketAxess’’) argued that a 

predetermined global expiration date 

was not necessary and the Commission 

should provide that the temporary relief 

will expire for a given rule only upon 

the effective date (or compliance date, if 

later) of the applicable final rule.72

In the event the Commission decides 

to include an expiration date, the 

NYCBA and ABA Derivatives 

Committee believe that the Commission 

should revise the proposed order to 

trigger the effectiveness of the relevant 

provision only when both the 

definitional rulemaking and the 

substantive rulemaking for the relevant 

provision become effective.73 Similarly, 

the Associations and CME urged the 

Commission, at a minimum, to extend 

the expiration date to July 2012, 

consistent with the transitional period 

specified in sections 723(c) and 734 of 

the Dodd-Frank Act.74 Finally, to 

address a perceived ‘‘potential gap 

period,’’ the NYCBA and ABA 

Derivatives Committee believe that the 

order should contain language 

specifically addressing situations where 

final rules are adopted within 60 days 

before December 31, 2011, or where a 

final rule otherwise has a prescribed 

effective date after December 31, 2011.75

2. Commission Determination 

The Commission has determined, for 

the reasons discussed in the proposed 

order, not to alter the expiration date(s) 

contained in the proposed order. An 

automatic expiration date of no later 

than December 31, 2011, will allow the 

Commission to review the extent and 

scope of relief provided from the CEA 

on a measured basis. Should the 

Commission deem it appropriate to 

extend any exemptive relief, the 

Commission will be in a better position 

to tailor any exemption at that time. 

Further, as noted in the proposed order, 

limiting exemptive relief to a fixed 

period is consistent with the approach 

to transitional relief provided in 

sections 723(c) and 734 of the DoddFrank Act. With regard to any concerns 

over a potential ‘‘gap period’’ before or 

after the expiration date of December 31, 

2011, the Commission notes that it can 

address compliance date concerns 

within the context of each individual 

rulemaking. Once again, the 

Commission will be able to act in a 

measured manner tailored to the 

particular statutory and regulatory 

provisions. 

D. Commodity Options and Agricultural 

Swaps 

1. Comments 

Several commenters requested that 

the Commission clarify that the relief 

based on part 35 in part two of the 

proposed order, which applies to certain 

transactions in exempt and excluded 

commodities, covers commodity 

options.76 The ABA Derivatives 

Committee also requested that the 

Commission expand the relief based on 

part 35 in part two of the proposed 

order to include swaps and options in 

agricultural commodities.77 Finally, 

commenters including various energy 

companies urged the Commission to 

rely, in part, upon CEA section 4c(b) as 

authority to issue the elements of the 

relief related to options, stating that the 

Commission retains its plenary 

authority to regulate commodity options 

under CEA section 4c(b) 78 and that 

section 4c(b) was unaltered by the 

Dodd-Frank Act.79 The NGFA, though, 

noted that the proposed order addressed 

concerns it had regarding the 

availability of certain option-based 

transactions until final rules authorizing 

their continued use are published.80

2. Commission Determination 

With respect to options, the 

Commission is clarifying that the relief 

in part two of the Final Order that is 

based on part 35 applies to commodity 

options on excluded and exempt 

commodities to the extent they were 

permitted by the applicable statutory 

exemptions and exclusions in effect 

prior to July 16, 2011. As reflected in 

the commenters’ citations to § 35.1 of 

the Commission’s regulations, the text 

of paragraph (b)(1) of the ‘‘swap 

agreement’’ definition in the rule lists 

several types of options, including, but 

not limited to, currency options, interest 

rate options, and rate caps and collars, 

and includes the following text: ‘‘any 

other similar agreement (including any 

option to enter into any of the 

foregoing).’’ 81

Under part two of the Final Order, 

transactions in exempt or excluded 

commodities (and persons offering, 

entering into, or rendering advice or 

rendering other services with respect to 

such transactions) will be temporarily 

exempt from the CEA if such 

transactions comply with part 35 

notwithstanding that: (1) The 

transaction may be executed on a 

multilateral transaction execution 

facility; (2) the transaction may be 

cleared; (3) persons offering or entering 

into the transaction may be eligible 

contract participants as defined in the 

CEA (prior to the enactment of the 

Dodd-Frank Act); (4) the transaction 

may be part of a fungible class of 

agreements that are standardized as to 

their material economic terms; and/or 

(5) no more than one of the parties to 

the transaction is entering into the 

transaction in conjunction with its line 

of business, but is neither an eligible 

contract participant nor an ESP, and the 

transaction was not and is not marketed 

to the public. The options identified in 

the swap agreement definition and any 

options captured by the concluding 

catch-all language, as well as any 

options described in paragraphs 

(b)(1)(ii) 82 and/or (iii) 83 of § 35.1 of the 


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84 In addition to CEA section 4(c) and section 

712(f) of the Dodd-Frank Act, CEA section 4c(b), 7 

U.S.C. 6c(b) also provides the Commission with 

authority to issue the temporary exemptive Order 

with respect to commodity options. Section 4c(b), 

which was unaltered by the Dodd-Frank Act, 

provides the Commission plenary authority to 

regulate commodity options. Parts 32 and 35 were 

issued, in part, based on the Commission’s 

authority under CEA section 4c(b). 

85 7 U.S.C. 1a(4). 

86 17 CFR 32.2. 

87 17 CFR 32.13. The Commission notes that the 

NGFA comment letter generally supported the 

Commission’s approach ‘‘to preserve the 

availability of certain option-based transactions 

such as * * * OTC options until final rules 

authorizing their continued use are published.’’ See 

NGFA at p. 1. 

88See Trade Options on the Enumerated 

Agricultural Commodities, 63 FR 18821, 18829, 

Apr. 16, 1998. § 32.13(a) technically also would be 

available to persons satisfying its terms. However, 

that would require such persons to register as 

agricultural trade option merchants (‘‘ATOMs’’) and 

comply with the ATOM regulatory regime. Only 

one firm has ever registered as an ATOM, and it 

later withdrew its registration. Currently, no firm is 

registered as an ATOM. The Commission recently 

proposed to repeal § 32.13. See Commodity Options 

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

89 76 FR at 35376 n.36. 

90 76 FR at 35373, quoting Grandfather Notice, 

supra, n. 9 (emphasis added). 

91Options on non-enumerated agricultural 

commodities may be conducted pursuant to part 35, 

as the agricultural trade option rules in § 32.13 

apply only to options on the Enumerated 

Agricultural Commodities. 

92 76 FR at 35375. 

93 Id. at 35376. 

94See supra, n.9. The Commission has in the past 

granted exemptive relief pursuant to CEA section 

4(c) from the requirements of part 35 to permit the 

clearing of certain agricultural basis and calendar 

swaps. See orders granted to ICE Clear US, Inc., 73 

FR 77015, Dec. 18, 2008; Chicago Mercantile 

Exchange, 74 FR 12316, Mar. 24, 2009; and Kansas 

City Board of Trade, 75 FR 34983, June 21, 2010. 

Part two of this Final Order does not apply; 

however, parties may continue to rely on these 

prior orders to the extent their transactions fully 

comply with them. 

95See NYCBA at p. 5. 

96See ABA Derivatives Committee at p. 8. 

97See CEF at p. 8; BGA at p. 6. 

Commission’s regulations, involving 

excluded or exempt commodities are, 

therefore, within the scope of the Final 

Order.84

With respect to agricultural 

commodities, part 35 is not currently 

available for option transactions on the 

agricultural commodities enumerated in 

either CEA section 1a(4) 85 or § 32.2 of 

the Commission’s regulations 86 (the 

‘‘Enumerated Agricultural 

Commodities’’). Such option 

transactions may occur only pursuant to 

the agricultural trade option exemption 

in § 32.13 of the Commission’s 

regulations.87 As the Commission noted 

when it adopted § 32.13 as an interim 

final rule, which it later adopted as a 

final rule: 

[o]ne commenter representing swaps dealers 

requested that the Commission clarify that 

the part 35 exemption applies to off-exchange 

agricultural options rather than this 

exemption [17 CFR § 32.13(g)]. The 

Commission disagrees. Any off-exchange 

option on an enumerated agricultural 

commodity must comply with Commission 

rule 32.13(g) for exemption from the Act and 

Commission rules, and no other exemptive 

provision is available.’’ 88

Accordingly, part 35 may not be 

relied upon for options in the 

Enumerated Agricultural Commodities. 

As the Commission noted in the 

proposed order, though, part 32 of the 

Commission’s regulations will continue 

to be available with respect to 

commodity option transactions that 

meet the conditions therein, until such 

time as part 32 may be withdrawn, 

amended, or replaced by the 

Commission.89 The Commission further 

stated in the proposed order that the 

purpose of the proposed relief is to 

‘‘strive to ensure that current practices 

will not be unduly disrupted during the 

transition to the new regulatory 

regime.’’ 90 Accordingly, the 

Commission is clarifying that part two 

of this Final Order does not apply to 

options on Enumerated Agricultural 

Commodities. 

Part 35, however, always has covered 

swap agreements (other than options) on 

the Enumerated Agricultural 

Commodities and swap agreements 

(including options) 91 on nonenumerated agricultural commodities 

(e.g., coffee, sugar, cocoa). As the 

Commission noted in the proposed 

order, part 35 will continue to be 

available with respect to transactions 

that meet the conditions therein, until 

such time as it may be withdrawn, 

amended, or repealed by the 

Commission.92

For certain transactions, part two of 

this Final Order provides relief 

notwithstanding that the transaction 

may not satisfy certain part 35 

requirements (e.g., cleared, executed on 

a multilateral trade execution facility, 

entered into by certain persons that are 

not eligible contract participants, etc.).93

This relief is limited to transactions in 

exempt and excluded commodities, and 

does not extend to transactions in 

agricultural commodities (enumerated 

or non-enumerated). As stated in the 

proposed order, the purpose of part two 

of the Final Order is to provide relief 

with respect to CEA provisions that will 

be repealed as of July 16, 2011— 

specifically, current CEA sections 2(d), 

2(e), 2(g), 2(h), and 5d. These provisions 

apply only to transactions in exempt 

and excluded commodities, and do not 

encompass agricultural commodities. 

Thus, because transactions in 

agricultural commodities cannot today 

be executed in reliance on one or more 

of these provisions to be repealed on 

July 16, extending part two of the Final 

Order to transactions in agricultural 

commodities is not necessary to ‘‘strive 

to ensure that current practices will not 

be unduly disrupted during the 

transition to the new regulatory 

regime.’’ 94

In sum, the Commission is clarifying 

that the temporary exemptive relief in 

part two of the Final Order that is based 

on part 35 applies to commodity options 

on excluded and exempt commodities 

to the extent that these transactions 

were permitted by the applicable 

statutory exclusions and exemptions in 

effect prior to July 16, 2011. It does not 

apply, however, with respect to swaps 

and commodity options on agricultural 

commodities (enumerated or nonenumerated). Market participants may 

continue to rely on part 35 with respect 

to swaps and commodity options on 

non-enumerated agricultural 

commodities, as well as swaps (other 

than commodity options) on 

Enumerated Agricultural Commodities, 

to the extent these transactions fully 

comply with part 35. Market 

participants also may continue to rely 

on part 32 for options on Enumerated 

Agricultural Commodities to the extent 

these transactions are conducted in 

accordance with § 32.13(g) of the 

Commission’s regulations. 

E. Eligible Contract Participants 

1. Comments 

First, with respect to the amendments 

that the Dodd-Frank Act made to the 

existing definition of the term ‘‘eligible 

contract participant’’ in the CEA, the 

NYCBA asked the Commission to 

confirm that these changes are subject to 

exemptive relief under the Final 

Order.95 The ABA Derivatives 

Committee believes that because the 

term ‘‘eligible contract participant’’ 

expressly requires rulemaking, the 

amendments to the existing CEA 

definition would not take effect even in 

the absence of exemptive relief; it asked 

that the Final Order confirm this.96

Comment letters from various energy 

companies supported the request of the 

ABA Derivatives Committee in this 

regard.97

The Associations requested that the 

Commission confirm that amendments 

to CEA sections 2(c)(2)(B), 2(c)(2)(C), 

and 2(c)(2)(E) regarding off-exchange 

foreign currency (‘‘forex’’) transactions 

with retail customers will not become 

effective until relevant required 


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98See Associations at p. 3. 

99 Id. at p. 16. 

100 Id. 

101See Associations at p. 16, n.38. 

102See CEA section 1a(12), 7 U.S.C. 1a(12). 

103The amendments to the definition of the term 

‘‘eligible contract participant’’ in the Dodd-Frank 

Act were motivated largely by concerns regarding 

the marketing of over-the-counter derivatives that 

the Dodd-Frank Act defines as ‘‘swaps.’’ See 

generally Department of the Treasury, Financial 

Regulatory Reform: A New Foundation; Rebuilding 

Financial Supervision and Regulation, at pp. 45–46, 

June 17, 2009. 

104Even if these provisions were placed in 

Category 2, section 742 of the Dodd-Frank Act is 

listed in section 721(d), which places limits on the 

Commission’s exemptive authority under CEA 

section 4(c). 

105To be codified at 7 U.S.C. 2(c)(2)(E). 

106Section 2(c)(2)(E) defines a ‘‘Federal regulatory 

agency’’ to include the Commission, the SEC, the 

National Credit Union Administration, the Farm 

Credit Administration, and an ‘‘appropriate Federal 

banking agency.’’ Section 721(a)(2) of the DoddFrank Act, in turn, adds a new definition of the 

term ‘‘appropriate Federal banking agency’’ in CEA 

section 1a(2), to be codified at 7 U.S.C. 1a(2), that 

includes the Office of the Comptroller of the 

Currency, the Federal Deposit Insurance 

Corporation, and the Board of Governors of the 

Federal Reserve System. 

107The prohibition applies to forex transactions 

of the type described in CEA section 2(c)(2)(B), as 

well as all forex transactions ‘‘that are functionally 

or economically similar’’ to such transactions. 

108See Associations at p. 16. 

109See also supra, n.104. 

rulemakings have been completed.98

The Associations requested that the 

Commission confirm that, 

notwithstanding its general 

classification of the Dodd-Frank Act’s 

retail forex amendments as Category 4 

provisions, it will regard the specific 

provisions that relate to the definition of 

the term ‘‘eligible contract participant’’ 

as Category 1 provisions.99 The 

Associations believe that CEA Section 

2(c)(2)(E) also should be treated as a 

Category 1 provision because it 

explicitly requires rulemakings by other 

financial regulatory agencies. 

Alternatively, the Associations stated, 

these provisions fall in Category 2 

because they depend on the definition 

of the term ‘‘eligible contract 

participant,’’ and thus should be subject 

to section 4(c) exemptive relief.100 The 

Associations requested, if the 

Commission declines to adopt either of 

these categorizations, a nonenforcement position until the rule 

further defining the term ‘‘eligible 

contract participant’’ and the federal 

regulatory agency rules applicable to 

retail forex transactions have been 

finalized, along with a corresponding 

section 4(c) order exempting affected 

persons from private rights of action.101

2. Commission Determination 

With respect to the first issue, the 

term ‘‘eligible contract participant’’ is 

currently defined in the CEA.102 The 

Dodd-Frank Act amended the existing 

CEA definition by, among other things, 

raising the monetary thresholds for 

certain persons and entities to qualify as 

eligible contract participants. As noted, 

the term ‘‘eligible contract participant’’ 

is one of the terms that Congress, in 

sections 712(d) and 721(c), required the 

Commission (jointly with the SEC, and 

in consultation with the Board of 

Governors of the Federal Reserve 

System) to further define. Sections 

712(d) and 721(c) are included in the 

list of Category 1 provisions in the 

Appendix. Accordingly, the 

Commission confirms that pending the 

effective date of the required rulemaking 

to further define the term ‘‘eligible 

contract participant,’’ that term shall 

continue to mean an eligible contract 

participant as defined by the CEA prior 

to the enactment of the Dodd-Frank Act. 

With respect to the second issue, 

sections 741 and 742 of the Dodd-Frank 

Act enacted various amendments to 

CEA sections 2(c)(2)(B) and (C), which 

address certain types of forex 

transactions with retail customers. 

These amendments do not themselves 

require a rulemaking, nor do they 

reference the term ‘‘eligible contract 

participant’’ or any other term requiring 

further definition. Therefore, they are 

appropriately placed in Category 4, 

outside the scope of the Final Order 

granting temporary exemptive relief 

from the July 16 effective date. 

To be sure, both of these provisions, 

in text that was not amended by the 

Dodd-Frank Act, define the ‘‘retail’’ 

customers to which they apply as 

persons that are not eligible contract 

participants. Yet, the amendments in 

sections 741 and 742 of the Dodd-Frank 

Act contain important protections for 

non-eligible contract participants 

engaging in off-exchange forex 

transactions, which represent an area 

that historically has been fraught with 

customer fraud and other abusive sales 

practices. As one example, they clarify 

that an account or pooled investment 

vehicle that is offered for the purpose of 

trading, or that trades, a covered offexchange forex transaction with a noneligible contract participant—in 

addition to the transaction itself—is 

subject to the Commission’s 

jurisdiction, including its anti-fraud 

authority. 

Unlike new statutory terms required 

to be further defined (e.g., ‘‘swap,’’ 

‘‘swap dealer,’’ and ‘‘major swap 

participant’’), the CEA prior to 

enactment of the Dodd-Frank Act 

already contains a definition of the term 

‘‘eligible contract participant’’ that has 

been in place for over a decade.103 The 

Commission does not believe that it is 

necessary or appropriate to delay the 

effective date of the important customer 

protections in amended CEA sections 

2(c)(2)(B) and (C) until such time as it 

issues the final joint rulemaking further 

defining the term ‘‘eligible contract 

participant’’ for purposes of the new 

swap regulatory regime.104 Accordingly, 

the Commission, as proposed, considers 

the amendments to CEA sections 

2(c)(2)(B) and (C) to be Category 4 

provisions in their entirety and is not 

providing exemptive relief from the July 

16 effective date of these provisions. As 

discussed above, though, pending the 

effective date of the required rulemaking 

to further define the term ‘‘eligible 

contract participant,’’ for purposes of 

CEA sections 2(c)(2)(B) and (C) that term 

shall continue to mean an eligible 

contract participant as defined by the 

CEA prior to the enactment of the DoddFrank Act. 

With respect to new CEA section 

2(c)(2)(E) enacted as part of section 742 

of the Dodd-Frank Act,105 it generally 

prohibits a financial institution for 

which there is a Federal regulatory 

agency 106 from entering into certain offexchange forex transactions 107 with 

retail customers (i.e., non-eligible 

contract participants) except pursuant to 

a rule or regulation of the Federal 

regulatory agency allowing the 

transaction under such terms and 

conditions as the Federal regulatory 

agency shall prescribe. The Commission 

does not agree that CEA section 

2(c)(2)(E) should be treated as a 

Category 1 provision on the basis that it 

requires rulemakings by other financial 

regulatory agencies.108 Although section 

2(c)(2)(E) prohibits a financial 

institution from entering into certain 

forex transactions with non-eligible 

contract participants unless its Federal 

regulatory agency adopts rules allowing 

such transactions, it does not require 

Federal regulatory agencies to adopt 

such rules. 

Granting relief from the July 16 

effective date with respect to section 

2(c)(2)(E) would treat this provision 

differently from the Commission’s 

treatment of the similar provisions in 

sections 2(c)(2)(B) and (C) as Category 4 

provisions, as discussed above.109 In 

light of the important customer 

protection interests served by section 

2(c)(2)(E), the Commission does not 

believe that such different treatment is 

necessary or appropriate. Accordingly, 

the Commission, as proposed, considers 

new CEA section 2(c)(2)(E) to be a 

Category 4 provision and is not 


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110Although none of the comment letters 

discussed new CEA section 2(c)(2)(D) enacted in 

section 742 of the Dodd-Frank Act, to be codified 

at 7 U.S.C. 2(c)(2)(D), it provides protections to 

retail customers, which it defines as persons that 

are not eligible contract participants, in transactions 

in commodities other than foreign currency. Thus, 

it raises similar issues. Fraud and abusive practices 

also have been a frequent problem in off-exchange 

transactions with retail customers in commodities 

such as precious metals. In light of these important 

customer protection concerns, and the fact that the 

CEA prior to enactment of the Dodd-Frank Act 

already contains a settled definition of the term 

‘‘eligible contract participant,’’ the Commission is 

clarifying that new CEA section 2(c)(2)(D) similarly 

is a Category 4 provision for which no relief from 

the July 16 effective date is being provided. Pending 

the effective date of the required rulemaking to 

further define the term ‘‘eligible contract 

participant,’’ for purposes of CEA section 2(c)(2)(D) 

that term shall mean an eligible contract participant 

as defined by the CEA prior to the enactment of the 

Dodd-Frank Act. 

111AIMA submitted a comment letter that 

expressed ‘‘support [for] exemptive relief from any 

rule that relies on the amended definition’’ of the 

term ‘‘eligible contract participant.’’ See AIMA at p. 

2. The exemptive relief being issued by the 

Commission applies to various provisions of the 

Dodd-Frank Act and the CEA that otherwise would 

become effective on July 16, 2011. The Commission 

will consider the appropriate effective date and 

compliance date of the rules implementing the 

Dodd-Frank Act in its final rulemakings adopting 

such rules. 

112 7 U.S.C. 25(a)(1)(B). 

113See Associations at p. 12. 

114 Id. at 11. 

115 76 FR at 35374, n.13. 

116The Commission also declines to provide a 

section 4(c) exemption with respect to the 

application of CEA section 22(a)(1)(B) to any 

provision that is the subject of a no-action letter, as 

such relief would be the functional equivalent of 

exemptive relief which may be restricted under the 

limitations on CEA section 4(c) set forth in section 

721(d) of the Dodd-Frank Act. In the absence of 

clear authority to provide such relief in this 

manner, the Commission does not believe that 

granting such relief in this Final Order would 

provide the requested legal clarity. 

117 In addition, the lists of Category 1 and 

Category 4 provisions set forth in the Appendix 

include other changes as compared to the staff lists 

that were posted on the Commission’s Web site on 

June 14, 2011. Specifically with respect to Category 

1: (i) section 711 of the Dodd-Frank Act has been 

added to the ‘‘Required Rulemaking’’ column for 

Teams II and XXI; (ii) section 741(b)(10) of the 

Dodd-Frank Act has been added to the ‘‘Required 

Rulemaking’’ column for Team II; (iii) the reference 

to ‘‘section 2(h)(7)’’ of the CEA for Team XI has 

been modified to read ‘‘section 2(h)(7)(A)–(D);’’ and 

(iv) the separate rows with respect to swap data 

recordkeeping and reporting requirements have 

been combined. And with respect to Category 4: (i) 

sections 722(a) and (c) of the Dodd-Frank Act have 

been added; (ii) new CEA section 5b(h), to be 

codified at 7 U.S.C. 7a–1(h), has been added; (iii) 

section 741(a) of the Dodd-Frank Act has been 

added; (iv) the reference to ‘‘section 741(b)’’ of the 

Dodd-Frank Act has been modified to read ‘‘section 

741(b)(8)–(9);’’ (v) wording changes to the 

‘‘Summary Description’’ of sections 742(a) and (c) 

of the Dodd-Frank Act have been made; (vi) new 

CEA sections 23(g) and (m), to be codified at 7 

U.S.C. 26(g) and (m), have been added with respect 

to section 748 of the Dodd-Frank Act; and (vii) a 

technical correction in the reference to CEA section 

6(b) has been made with respect to section 749 of 

the Dodd-Frank Act. 

118See NYCBA at p. 8. 

119 Id. 

120CEA section 12(e)(2)(B), as amended by 

section 749 of the Dodd-Frank Act, provides that: 

(2) This Act shall supersede and preempt the 

application of any State or local law that prohibits 

or regulates gaming or the operation of bucket shops 

(other than antifraud provisions of general 

applicability) in the case of— 

***

(B) An agreement, contract, or transaction that is 

excluded from this Act under section 2(c) or 2(f) of 

this Act * * * or exempted under section 4(c) of 

this Act (regardless of whether any such agreement, 

contract, or transaction is otherwise subject to this 

Act.) 

121See Associations at p. 14. 

providing exemptive relief from the July 

16 effective date of this provision.110 As 

discussed above, though, pending the 

effective date of the required rulemaking 

to further define the term ‘‘eligible 

contract participant,’’ for purposes of 

CEA section 2(c)(2)(E) that term shall 

mean an eligible contract participant as 

defined by the CEA prior to the 

enactment of the Dodd-Frank Act.111

F. Private Right of Action 

1. Comments 

Section 749 of the Dodd-Frank Act 

amends CEA section 22(a)(1)(B) 112 to 

apply the CEA’s private right of action 

to violations involving swaps. The 

Associations requested that the 

Commission confirm that it is granting 

a temporary exemption pursuant to CEA 

section 4(c) with respect to the DoddFrank Act’s expansion of the private 

right of action to violations involving 

swaps, and to provide a specific section 

4(c) exemption with respect to the 

application of CEA section 22(a)(1)(B) to 

any provision that is the subject of a 

Commission or staff no-action 

position.113 The Associations noted that 

‘‘under the Commission’s proposed 

categorization, it is clear that section 

749’s amendment to CEA Section 

22(a)(1)(B) should logically fall under 

Category 2, and accordingly be the 

subject of a temporary exemption under 

CEA Section 4(c).’’ 114

2. Commission Determination 

As noted in the proposed order, 

amended CEA section 22(a) (private 

right of action with respect to swaps) is 

a provision that amends the CEA and 

that references a term that requires 

further definition, but nevertheless, the 

Commission does not believe that it is 

appropriate to include the provision 

within the scope of the exemptive 

relief.115 To the extent that the Final 

Order provides exemptive relief under 

CEA section 4(c) with respect to 

Category 2 and Category 3 provisions, 

such exemptive relief would, in effect, 

preclude a person from succeeding in a 

private right of action under CEA 

section 22(a) for violation of such 

provisions. Accordingly, the 

Commission believes that the requested 

relief is not necessary to achieve the 

purposes of the Final Order.116

Nevertheless, the staff’s Category 4 list 

that was posted on the CFTC Web site 

identified only CEA sections 22(a)(4) 

and (5)—not section 22(a)(1), which is 

the provision that provides for a private 

right of action for violation of the swap 

provisions. To address this inadvertent 

omission, the Category 4 list in the 

appendix to this Final Order includes 

CEA section 22(a)(1)(B).117

NYCBA requested the Commission to 

‘‘explicitly provide that section 

22(a)(4)(B) of the CEA as amended by 

the Dodd-Frank Act will become 

effective July 16, 2011.’’ 118 The 

Commission notes that the Category 4 

list in the Appendix includes amended 

sections 22(a)(4)–(5) under the DoddFrank Act section 739 provisions 

governing legal certainty for swaps. As 

such, sections 22(a)(4)–(5) become 

effective on July 16, 2011. 

G. Preemption 

1. Comments 

The Commission also received 

comments addressing questions of the 

preemption of state gaming and bucket 

shop laws. NYCBA requested that the 

Final Order clarify that any agreement, 

contract or transaction subject to the 

Final Order ‘‘will benefit from the 

preemption of any state or local laws 

provided by Section 12(e)(2) of the CEA 

because the relief is granted under 

Section 4(c) of the CEA.’’ 119

The Associations noted that because 

the Dodd-Frank Act repealed the 

application of CEA section 

12(e)(2)(B) 120 to certain previously 

exempted swap transactions, ‘‘market 

participants are concerned that 

transactions conducted in accordance 

with the federal statutory provisions 

and rules applicable to swaps could 

potentially be subject to challenges for 

invalidity under state law prohibitions 

against gaming and bucket shops that in 

many cases pre-date even federal 

regulation of futures contracts.’’ 121 To 

address these concerns, the Associations 

suggested the adoption of a permanent 

exemption under section 4(c) for such 

transactions. They noted that ‘‘[i]f the 

Commission extends permanent 

exemptive relief to such transactions, 

this risk would be eliminated, since 

CEA section 12(e)(2)(B) explicitly states 

that the CEA supersedes state gaming 

and bucket shop laws in the case of ‘an 

agreement, contract or transaction * * * 


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122 Id.; see also ABA Derivatives Committee at 

p. 13. 

123 76 FR at 35373. 

124See n.9, supra. 

125See letter dated June 28, 2011, from David C. 

Phelan, Executive Vice President and General 

Counsel, State Street, at p. 3. 

126 Id. at pp. 2–3. 

127See CME at pp. 4–5. 

128See supra, n.47. 

129 Id. at 56515. 

130EBOTs and ECMs that rely on this exemptive 

relief also must comply with part 36 of the 

Commission’s regulations and, in particular, its 

various reporting requirements. 

131The Commission notes that if a DCM intends 

to trade swaps pursuant to the rules, processes, and 

procedures currently regulating trading on its DCM, 

the DCM may need to amend or otherwise update 

applicable rules, processes, and procedures, in 

order to address the trading of swaps, depending 

upon the composition of the DCM’s rules. 

exempted under section 4(c) of [the 

CEA] * * *’ ’’ 122

2. Commission Determination 

The Commission notes that the Final 

Order does not affect the applicability of 

CEA section 12(e)(2)(B) to any 

exemptive relief under section 4(c) that 

is provided by the Final Order. CEA 

section 12(e)(2)(B) as amended by 

section 749 of the Dodd-Frank Act 

provides that the CEA supersedes state 

gaming and bucket shop laws in the 

case of ‘‘an agreement, contract or 

transaction * * * exempted under 

section 4(c)’’ of the CEA. To the extent 

that the Final Order provides temporary 

exemptive relief under CEA section 4(c), 

CEA section 12(e)(2)(B) will apply to 

such transactions that are within the 

scope of such exemptive relief. 

As the Commission explained in its 

proposed order, the purpose of the relief 

is to address concerns that were raised 

about the effects upon the swaps market 

during the period between July 16, 2011 

and the date(s) that the definitional 

rulemakings have been completed.123

Indeed, the Commission reaffirmed in 

its proposed order that it intends to 

‘‘strive to ensure that current practices 

will not be unduly disrupted during the 

transition to the new regulatory 

regime.’’ 124 Insofar as these comments 

seek a permanent exemption under 

section 4(c), the requested relief is 

outside the scope of the Final Order. 

H. Market Issues 

1. Comments 

State Street Corporation (‘‘State 

Street’’) expressed concern that 

‘‘limiting exemptive relief under the 

Commission’s Order and grandfather 

relief under the [swap execution 

facility] rules to the small number of 

firms that are already operating an 

electronic trading platform or system for 

the trading of exempt commodities (in 

the case of ECMs) or the trading of 

futures contracts on excluded 

commodities (in the case of EBOTs) 

would have the effect of making it 

impossible for new entrants—who 

would have to wait for the [swap 

execution facility] rules to be adopted 

and their applications to be approved’’ 

to enter the swaps market and 

compete.125 State Street also requested 

that the Commission clarify that 

electronic trading facilities that operate, 

either currently or at any point during 

the relief period, under CEA sections 

2(d)(2) and 2(e), as in effect prior to July 

16, 2011, will be permitted to conduct 

business operations on a temporary 

basis during the relief period, without 

regard to whether the electronic trading 

facility is currently operating or instead 

commences operations at some point 

during the relief period.126

CME requested that the Commission 

confirm that exemptive relief is not 

needed for a designated contract market 

(‘‘DCM’’) to list swaps for trading on or 

after July 16, so long as those products 

are regulated as futures products and 

market participants trading those 

products are regulated as futures market 

participants. Alternatively, if the 

Commission views it differently, CME 

asks the Commission to issue such 

exemptive relief.127

2. Commission Determination 

In response to the comments, the 

Commission would like to clarify the 

conditions that apply to the grandfather 

relief orders for ECMs and EBOTs that 

were issued by the Commission in 

September 2010.128 Both of those orders 

have three basic conditions. First, the 

ECM or EBOT must file an appropriate 

and timely petition with the 

Commission. In the case of ECMs, the 

filing deadline was September 20, 2010 

and for EBOTs, the deadline is July 15, 

2011. Second, the ECM or EBOT must 

file a DCM or swap execution facility 

(‘‘SEF’’) application with the 

Commission within 60 days of the 

effective date of final regulations 

regarding the DCM or SEF provisions. 

Third, the ECM’s or EBOT’s DCM or 

SEF application must remain pending 

before the Commission. 

The Commission is clarifying the 

second and third conditions, in that the 

Commission has not yet issued any final 

DCM or SEF rulemakings since 

enactment of the Dodd-Frank Act. The 

Commission notes that the list of 

conditions for the ECM and EBOT 

grandfather relief orders are premised 

on the ECM or EBOT ‘‘meet[ing] all of 

the following applicable conditions.’’ 129

Given that the Commission has not yet 

adopted either final DCM or final SEF 

regulations, the ECM and EBOT 

grandfather relief order conditions 

premised on DCM or SEF applications 

are not yet applicable. Accordingly, at 

this point in time, all that an ECM or 

EBOT must do to receive relief pursuant 

to the grandfather relief orders is to have 

satisfied the orders’ petition condition 

in a timely manner. 

The Commission also is clarifying the 

relationship between the grandfather 

relief orders and this Final Order. For 

ECMs that filed their petitions with the 

Commission by September 20, 2010, the 

grandfather relief order operates 

independently and those ECMs may rely 

on either the grandfather relief order or 

this Final Order, or both. For those 

ECMs that did not file a petition for 

grandfather relief by September 20, 

2010, they may qualify for relief under 

this temporary Final Order if they 

satisfy the requisite terms and 

conditions herein.130 Similarly, for 

EBOTs that file or have filed their 

petitions for grandfather relief by July 

15, 2011, that grandfather relief operates 

independently and those EBOTs may 

rely on either the grandfather relief 

order or this Final Order, or both. 

Likewise, for those EBOTs that have not 

filed their petitions for grandfather relief 

by July 15, 2011, they may qualify for 

relief under this Final Order if they, too, 

satisfy the requisite terms and 

conditions herein. 

The Commission stated in footnote 39 

of the proposed order that the proposed 

exemptive relief would not be available 

to an electronic trading facility that, as 

of July 15, 2011, was not already 

operating as an ECM pursuant to CEA 

sections 2(h)(3)–(7), or to an EBOT that, 

as of July 15, 2011, was not already 

operating pursuant to CEA section 5d, 

or not compliant with the conditions set 

forth in such provisions. The 

Commission, however, has determined 

not to limit the Final Order herein to 

those ECMs and EBOTs that already are 

operating as of July 15, 2011. Further, 

the Commission also clarifies that the 

relief under this Final Order is available 

to an electronic trading facility that 

currently operates or commences 

operations during the pendency of this 

relief pursuant to CEA sections 2(d)(2) 

and 2(e), as in effect prior to July 16, 

2011. 

The Commission also confirms that a 

DCM may list and trade swaps on or 

after July 16 under the DCM’s rules 

related to futures contracts, without 

exemptive relief.131


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132CME at p. 4. 

133 7 U.S.C. 7(d) and 7a–1(c)(2). 

134See letter dated July 1, 2011, from Layne G. 

Carlson, Corporate Secretary, MGEX, at pp. 1–2. 

135See letter dated June 30, 2011, from Peter 

Krenkel, President and Chief Executive Officer, 

NGX, at pp. 2–3. 

136See letter dated June 30, 2011, from Paul 

Cusenza, Chief Executive Officer, Nodal Exchange, 

at pp. 1, 4. 

137 Id. at p. 4. 

138See, e.g., CEA section 5(d)(1)(B) and section 

5b(c)(2)(A)(ii), 7 U.S.C. 7(d)(1)(B) and 7a– 

1(c)(2)(A)(ii). 

139See State Street at p. 4. 

140See letter dated July 1, 2011 from Bruce C. 

Bennett, Covington & Burling LLP, at p. 5. 

141 76 FR at 35376. 

142See Exemption for Bilateral Transactions, 65 

FR 78030, 78033, Dec. 13, 2000. 

143See, e.g., 76 FR at 35374 n.16. 

144CEA section 4(c)(1), 7 U.S.C. 6(c)(1), provides 

in full that: 

In order to promote responsible economic or 

financial innovation and fair competition, the 

Commission by rule, regulation, or order, after 

notice and opportunity for hearing, may (on its own 

initiative or on application of any person, including 

any board of trade designated or registered as a 

contract market or derivatives transaction execution 

facility for transactions for future delivery in any 

commodity under section 5 of this Act) exempt any 

agreement, contract, or transaction (or class thereof) 

that is otherwise subject to subsection (a) (including 

any person or class of persons offering, entering 

Continued 

I. Core Principles 

1. Comments 

The Commission received a number 

of comments on the application of the 

Proposed Order to the DCM and 

derivatives clearing organization 

(‘‘DCO’’) core principles. On the one 

hand, CME agreed that the core 

principles for DCMs and DCOs are 

appropriately categorized as Category 4 

provisions for which the Commission is 

not issuing exemptive relief.132

On the other hand, some commenters 

believe that the core principles for 

DCMs and DCOs in CEA sections 5(d) 

and 5b(c)(2), respectively,133 should be 

treated as either Category 1 or 2 

provisions. The Minneapolis Grain 

Exchange, Inc. (‘‘MGEX’’) stated that the 

Commission should grant temporary 

relief from the new core principles of 

the Dodd-Frank Act for DCOs and 

DCMs.134 The Natural Gas Exchange 

(‘‘NGX’’) expressed concern that DCOs 

will have to make modifications to come 

into compliance with amended core 

principles by July 16, 2011, and then 

may be required to again make 

modifications when final rules are 

issued. NGX requested that the 

Commission or its staff adopt a nonenforcement policy against any DCO or 

DCO member or participant with respect 

to compliance with the DCO core 

principles until the implementation of 

final Commission rules governing the 

operation of DCOs or, alternatively, that 

the Commission provide at least a 60- 

day period following July 16, 2011, 

before it takes any enforcement 

action.135

Nodal Exchange cautioned that 

placing the DCM core principles in 

section 735 of the Dodd-Frank Act into 

Category 4, while the core principles for 

SEFs in section 733 are in Category 1, 

may lead to their respective regulations 

being issued and finalized at different 

times.136 Nodal Exchange recommended 

that the Commission issue final rules 

regarding the DCM and SEF core 

principles simultaneously.137

2. Commission Determination 

The Commission has considered these 

comments and believes that the DCO 

and DCM core principles are properly 

treated as Category 4 provisions outside 

the scope of relief of this Final Order. 

These amended core principles apply to 

the trading and clearing of instruments 

on DCMs and DCOs, regardless of 

whether the instrument is a futures 

contract or a swap. The Commission 

sees no need to delay the application of 

these amended core principles to DCMs 

that trade futures contracts or to DCOs 

that clear futures, a term which does not 

require further definition under the 

Dodd-Frank Act. Moreover, the 

amended core principles provide that, 

absent a rule or regulation prescribed by 

the Commission, DCMs and DCOs shall 

have reasonable discretion in 

developing their rules and programs to 

comply with the core principles.138

To the extent that the Commission has 

issued proposed rulemakings with 

regard to these core principles, any 

requirements or guidance in such 

rulemakings will not become effective 

until the effective or compliance date of 

a final rulemaking. The Commission, in 

its discretion, will, where appropriate, 

establish separate compliance dates to 

address issues arising from the impact 

of compliance with any new 

requirements. 

J. Intermediary Issues 

1. Comments 

The Commission received a comment 

on part two of its proposed order 

relating to whether the exemption 

provided under part 35 applies to 

agency transactions. Specifically, State 

Street requested that the Commission 

‘‘make clear that eligible swap 

participants and eligible contract 

participants may continue to rely on the 

Part 35 exemption to effect transactions 

in excluded or exempt commodities, 

either directly or through brokers and 

other agents, as currently permitted by 

Part 35.’’ 139

The Commission also received a 

comment on part two of the Proposed 

Order relating to registration 

requirements for futures commission 

merchants (‘‘FCMs’’), introducing 

brokers (‘‘IBs’’), and commodity trading 

advisors (‘‘CTAs’’). The law firm of 

Covington & Burling noted that many 

participants exclusively in the ‘‘OTC’’ 

swaps market are not currently 

registered with the Commission in any 

capacity, but may have to register with 

the Commission as FCMs, IBs or CTAs 

after the Commission’s Dodd-Frank Act 

rules are made effective. The commenter 

requested that the Commission clarify 

that these entities will not be required 

to register in those capacities based 

solely on their swaps activity until after 

the last adopted final product definition 

rules become effective.140

2. Commission Determination 

The purpose of this exemptive relief 

is to maintain the status quo during the 

implementation process for the DoddFrank Act. As noted in the proposed 

order, the temporary exemptive relief 

would not affect the availability of part 

35 with respect to transactions that fully 

meet the requirements of part 35.141

Thus, the Commission confirms that to 

the extent that agency transactions are 

permitted under part 35, that relief is 

unaffected by the temporary exemptive 

relief provided herein.142 However, for 

transactions that exclusively qualify for 

the temporary exemptive relief in part 

two of this Final Order (i.e., do not 

comply fully with the requirements of 

part 35), such agency transactions 

would only be permitted to the extent 

they were permitted by the applicable 

statutory exclusions and exemptions in 

effect prior to July 16, 2011 (i.e., current 

CEA sections 2(d), 2(e), 2(g), 2(h), and 

5d). 

The Dodd-Frank Act amended various 

intermediary definitions to cover swaps 

activity as well as futures 

transactions.143 The Commission 

confirms that if an entity is exclusively 

participating in the swaps market, it 

would not have to register as an FCM, 

IB or CTA prior to the completion of the 

rulemaking further defining the term 

‘‘swap.’’ In sum, the Commission will 

not require registration in an 

intermediary capacity in this situation 

until the further definition of the term 

‘‘swap’’ becomes effective. 

IV. Section 4(c) of the Commodity 

Exchange Act 

Section 4(c)(1) of the CEA 144

authorizes the CFTC to exempt any 


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into, rendering advice or rendering other services 

with respect to, the agreement, contract, or 

transaction), either unconditionally or on stated 

terms or conditions or for stated periods and either 

retroactively or prospectively, or both, from any of 

the requirements of subsection (a), or from any 

other provision of this Act (except subparagraphs 

(C)(ii) and (D) of section 2(a)(1), except that the 

Commission and the Securities and Exchange 

Commission may by rule, regulation, or order 

jointly exclude any agreement, contract, or 

transaction from section 2(a)(1)(D)), if the 

Commission determines that the exemption would 

be consistent with the public interest. 

145CEA section 4(c)(3), 7 U.S.C. 6(c)(3), includes 

within the term ‘‘appropriate person’’ a number of 

specified categories of persons deemed appropriate 

under the CEA for entering into transactions 

exempted by the Commission under section 4(c). 

This includes persons the Commission determines 

to be appropriate in light of their financial or other 

qualifications, or the applicability of appropriate 

regulatory protections. See CEA section 4(c)(3)(K), 

7 U.S.C 6(c)(3)(K). 

146CEA Section 4(c)(2), 7 U.S.C. 6(c)(2), provides 

in full that: 

The Commission shall not grant any exemption 

under paragraph (1) from any of the requirements 

of subsection (a) unless the Commission determines 

that— 

(A) The requirement should not be applied to the 

agreement, contract, or transaction for which the 

exemption is sought and that the exemption would 

be consistent with the public interest and the 

purposes of this Act; and 

(B) The agreement, contract, or transaction— 

(i) Will be entered into solely between 

appropriate persons; and 

(ii) Will not have a material adverse effect on the 

ability of the Commission or any contract market or 

derivatives transaction execution facility to 

discharge its regulatory or self-regulatory duties 

under this Act. 

147House Conf. Report No. 102–978, 1992 

U.S.C.C.A.N. 3179, 3213. 

148 76 FR at 35377. 

149 Id. 

150 Id. 

151 76 FR at 35377 n.46, citing CEA section 

4(c)(3)(K), 7 U.S.C. 6(c)(3)(K) (appropriate persons 

may include such ‘‘other persons that the 

Commission determines to be appropriate in light 

of their financial or other qualifications, or the 

applicability of appropriate regulatory 

protections’’). 

152 76 FR at 35377. 

153See ABA Derivatives Committee at p. 9. See 

also CEF at p. 7 n.21. The ‘‘line of business’’ 

provision was a part of the Commission’s Policy 

Statement Concerning Swap Transactions, 54 FR 

30694, 30696–30697, July 21, 1989. 

154 44 U.S.C. 3507(d). 

transaction or class of transactions 

(including any person or class of 

persons offering, entering into, 

rendering advice or rendering other 

services with respect to, the transaction) 

from any of the provisions of the CEA 

(subject to certain exceptions). Pursuant 

to CEA section 4(c)(2), the Commission 

must determine that: (1) The exemption 

is appropriate for the transaction and 

consistent with the public interest; (2) 

the exemption is consistent with the 

purposes of the CEA; (3) the transaction 

will be entered into solely between 

‘‘appropriate persons;’’ 145 and (4) the 

exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory responsibilities under the 

CEA.146

The Commission may grant such an 

exemption by rule, regulation or order, 

after notice and opportunity for hearing, 

and may do so on application of any 

person or on its own initiative. Further, 

the Commission may grant such an 

exemption either conditionally or 

unconditionally, or for stated periods 

within the Commission’s discretion. 

Finally, section 712(f) of the DoddFrank Act authorizes the Commission to 

‘‘exempt persons, agreements, contracts, 

or transactions from provisions of the 

Act, under the terms contained in’’ the 

Act, in order to prepare for the effective 

dates of the provisions of Title VII. 

A. The Proposed Order 

In enacting section 4(c), Congress 

noted that the goal of the provision ‘‘is 

to give the Commission a means of 

providing certainty and stability to 

existing and emerging markets so that 

financial innovation and market 

development can proceed in an effective 

and competitive manner.’’ 147 In 

proposing the temporary relief, the 

Commission stated its intention to 

provide clarity and stability to the 

markets and market participants 

concerning the applicability of the 

provisions of the CEA, as added or 

amended by the Dodd-Frank Act (in part 

one), and the current provisions of the 

CEA as repealed by the Dodd-Frank Act 

(in part two), upon the general effective 

date of Title VII, thereby avoiding or 

minimizing undue and unwarranted 

disruptions to the markets.148

The Commission also noted the 

limited duration of the proposed order 

and that it reserved the Commission’s 

anti-fraud and anti-manipulation 

enforcement authority.149 As such, the 

Commission stated its belief that the 

proposed order would be consistent 

with the public interest and purposes of 

the CEA.150 The Commission proposed 

to limit the relief to appropriate persons, 

including persons in current registration 

categories for which the Dodd-Frank Act 

expanded the definition to include 

activities relating to swaps (e.g., IBs, 

commodity pool operators (‘‘CPOs’’), 

CTAs, and associated persons 

thereof).151 The Commission stated its 

belief that the proposed order would not 

have a material adverse effect on the 

ability of the Commission or any 

contract market to discharge its 

regulatory or self-regulatory duties 

under the CEA.152

B. Comments 

The ABA Derivatives Committee 

commented that the Commission should 

exercise its authority under CEA section 

4(c)(3)(K) to make it clear that the 

‘‘appropriate persons’’ who qualify for 

relief under its exemptive order include 

individuals whose total assets exceed 

$10 million and ‘‘persons relying on the 

‘line of business’ exemption to engage in 

swaps without ECP status.’’ 153

C. Commission Determination 

For the purpose of making the 

requisite findings under section 4(c) for 

part two of the Final Order, the 

Commission confirms that individuals 

whose total assets exceed $10 million 

are appropriate persons. Likewise, for 

purposes of part two of this Final Order, 

persons relying on the ‘‘line of 

business’’ exemption as described in the 

proposed order are appropriate persons. 

It should be noted that the explicit 

reference in the proposed order to IBs, 

CPOs, and CTAs (and associated 

persons thereof) as appropriate persons 

was not intended to restrict the scope of 

appropriate persons to only those 

persons. The Commission confirms that 

for the purpose of this temporary Final 

Order, the Commission has found the 

various persons and entities subject to 

this temporary relief to be appropriate 

persons. 

For the reasons provided in the 

proposed order and mentioned above, 

the Commission has determined that: (1) 

The exemption provided by this Final 

Order is appropriate for the subject 

transactions and consistent with the 

public interest; (2) the exemption is 

consistent with the purposes of the 

CEA; (3) the transactions will be entered 

into solely between appropriate persons; 

and (4) the exemption will not have a 

material adverse effect on the ability of 

the Commission or any contract market 

to discharge its regulatory or selfregulatory responsibilities under the 

CEA. 

V. Paperwork Reduction Act 

The Paperwork Reduction Act 

(‘‘PRA’’) 154 imposes certain 

requirements on federal agencies 

(including the Commission) in 

connection with conducting or 

sponsoring any collection of 

information as defined by the PRA. This 

Final Order does not require a new 

collection of information from any 

persons or entities that would be subject 

to the Final Order. 


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155 7 U.S.C. 19(a). 

156See NGX at p. 2. 157See MGEX at p. 2. 

VI. Cost-Benefit Considerations 

Section 15(a) of the CEA 155 requires 

the Commission to consider the costs 

and benefits of its action before issuing 

an order under the CEA. CEA section 

15(a) further specifies that costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission may in its discretion give 

greater weight to any one of the five 

enumerated areas and could in its 

discretion determine that, 

notwithstanding its costs, a particular 

order is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

CEA. 

The Commission has decided to issue, 

pursuant to its authority under CEA 

sections 4(c) and 4c(b), certain 

temporary relief from the provisions of 

the CEA added or amended by Title VII 

of the Dodd-Frank Act that reference 

one or more terms regarding entities or 

instruments that Title VII requires be 

‘‘further defined,’’ such as the terms 

‘‘swap,’’ ‘‘swap dealer,’’ ‘‘major swap 

participant,’’ or ‘‘eligible contract 

participant,’’ to the extent that 

requirements or portions of such 

provisions specifically relate to such 

referenced terms and do not require a 

rulemaking. The Commission also is 

granting temporary relief from certain 

provisions of the CEA that will or may 

apply to certain agreements, contracts, 

and transactions as a result of the repeal 

of various CEA exemptions and 

exclusions as of the general effective 

date of Title VII of the Dodd-Frank Act 

set forth in section 754—July 16, 2011. 

The Commission received no 

comments on the cost and benefit 

considerations section of the proposed 

order. Nevertheless, the Commission 

did receive two specific comments 

requesting additional exemptive relief 

due to potential costs. 

NGX is concerned that DCOs will 

have to make modifications to come into 

compliance with amended core 

principles by July 16, 2011, and then 

may be required to again make 

modifications when final rules are 

issued by the Commission.156 Similarly, 

MGEX states that the Commission 

should grant temporary relief from the 

new core principles of the Dodd-Frank 

Act for DCOs and DCMs in sections 725 

and 735.157

The Commission has decided not to 

grant more relief to DCOs and DCMs. 

The Commission recognizes that DCOs 

and DCMs have discretion in how to 

comply with the core principles unless 

and until the CFTC issues rules in this 

area. 

An analysis of the specific areas of 

concern identified in section 15(a) is set 

out immediately below: 

1. Protection of Market Participants and 

the Public 

As discussed above, the scope of this 

temporary exemptive relief is limited to 

persons who are ‘‘appropriate persons’’ 

as set forth in section 4(c) of the CEA 

and in this Final Order. Further, this 

Final Order does not affect the 

Commission’s existing and future antifraud and anti-manipulation authorities, 

including CEA sections 2(a)(1)(B), 4b, 

4o, 6(c), 6(d), 6c, 8(a), 9(a)(2), or 13, or 

the regulations of the Commission 

promulgated pursuant to such 

authorities, including regulations 

pursuant to CEA section 4c(b) 

proscribing fraud. The Commission 

believes that market participants and 

the public will benefit from the clarity 

offered by the temporary exemptive 

relief, while maintaining the 

Commission’s authorities regarding the 

prevention and deterrence of fraud and 

manipulation. With respect to costs, the 

Commission believes that the exemptive 

relief imposes no affirmative duties or 

obligations on market participants and 

the public. The temporary exemptive 

relief does not contain any requirement 

to create, retain, submit, or disclose any 

information. Furthermore, the 

exemptive relief imposes no 

recordkeeping or related data retention 

or disclosure requirements on any 

person, including small businesses. 

Consequently, the Commission finds it 

unlikely that the exemptive relief will 

impose any additional costs beyond the 

existing costs associated with ongoing 

operations, including those that ensure 

that behavior and statements are not 

fraudulent or manipulative. 

2. Efficiency, Competition, and 

Financial Integrity 

Although the Dodd-Frank Act 

establishes a comprehensive new 

regulatory framework for swaps, the 

Commission’s work to implement that 

framework will not be complete as of 

July 16, 2011. Accordingly, this relief 

offers the benefit of greater clarity in the 

swaps market that is in the interest of 

both the markets and the public. The 

Commission believes that this 

temporary exemptive relief is an 

appropriate measure to facilitate a 

transition to the comprehensive new 

regulatory framework for swaps set out 

in Title VII of the Dodd-Frank Act. Such 

an orderly transition will promote 

market efficiency, competition, and 

financial integrity. 

3. Price Discovery 

As stated above, the temporary relief 

provided here is designed to maintain 

the functioning of the markets until 

such time as the comprehensive new 

regulatory framework for swaps set forth 

in the Dodd-Frank Act is in place. With 

the clarity offered by the exemptive 

relief, markets will function better as 

venues for price discovery. 

4. Sound Risk Management Practices 

Appropriate persons covered by this 

exemptive relief will be subject to the 

Commission’s full array of existing antifraud and anti-manipulation provisions 

and certain new authorities provided 

under the Dodd-Frank Act. Market 

participants and the public will benefit 

substantially from the continuing 

protection through the prevention and 

deterrence of fraud and manipulation. 

Markets protected from fraud and 

manipulation function better as venues 

for price discovery and risk 

management. 

5. Other Public Interest Considerations 

This Final Order is temporary and 

limited. It will not affect the 

applicability of any provision of the 

CEA to futures contracts, options on 

futures contracts, or transactions with 

retail customers in foreign currency or 

other commodities pursuant to CEA 

section 2(c)(2). Further, it will expire at 

an appropriate date, as discussed above. 

The expiration provision will permit the 

Commission to ensure that the scope 

and extent of exemptive relief is 

appropriately tailored to the schedule of 

implementation of the Dodd-Frank Act 

requirements. 

After considering the costs and 

benefits, the Commission has 

determined to issue this Final Order. 

VII. Order 

The Commission, to provide for the 

orderly implementation of the 

requirements of Title VII of the DoddFrank Act, pursuant to sections 4(c) and 

4c(b) of the CEA and section 712(f) of 

the Dodd-Frank Act, hereby issues this 

Order essentially as proposed, 

consistent with the determinations set 

forth above, which are incorporated in 

this Final Order by reference, and: 


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(1) Exempts, subject to the conditions 

set forth in paragraph (3), all 

agreements, contracts, and transactions, 

and any person or entity offering, 

entering into, or rendering advice or 

rendering other services with respect to, 

any such agreement, contract, or 

transaction, from the provisions of the 

CEA, as added or amended by the DoddFrank Act, that reference one or more of 

the terms regarding entities or 

instruments subject to further definition 

under sections 712(d) and 721(c) of the 

Dodd-Frank Act, which provisions are 

listed in Category 2 of the Appendix to 

this Order; provided, however, that the 

foregoing exemption: 

a. Applies only with respect to those 

requirements or portions of such 

provisions that specifically relate to 

such referenced terms; and 

b. Shall expire upon the earlier of: (i) 

the effective date of the applicable final 

rule further defining the relevant term 

referenced in the provision; or (ii) 

December 31, 2011; 

(2) Exempts, subject to the conditions 

set forth in paragraph (3), all 

agreements, contracts, and transactions 

in exempt and excluded (but not 

agricultural) commodities, and any 

person or entity offering, entering into, 

or rendering advice or rendering other 

services with respect to, any such 

agreement, contract, or transaction, from 

the provisions of the CEA, if the 

agreement, contract, or transaction 

complies with part 35 of the 

Commission’s regulations, 

notwithstanding that: 

a. The agreement, contract, or 

transaction may be executed on a 

multilateral transaction execution 

facility; 

b. The agreement, contract, or 

transaction may be cleared; 

c. Persons offering or entering into the 

agreement, contract or transaction may 

not be eligible swap participants, 

provided that all parties are eligible 

contract participants as defined in the 

CEA prior to the date of enactment of 

the Dodd-Frank Act; 

d. The agreement, contract, or 

transaction may be part of a fungible 

class of agreements that are 

standardized as to their material 

economic terms; and/or 

e. No more than one of the parties to 

the agreement, contract, or transaction is 

entering into the agreement, contract, or 

transaction in conjunction with its line 

of business, but is neither an eligible 

contract participant nor an eligible swap 

participant, and the agreement, contract, 

or transaction was not and is not 

marketed to the public; 

Provided, however, that: (i) such 

agreements, contracts, and transactions 

(and persons offering, entering into, or 

rendering advice or rendering other 

services with respect to, any such 

agreement, contract, or transaction) fall 

within the scope of any of the existing 

CEA sections 2(d), 2(e), 2(g), 2(h), and 

5d provisions or the line of business 

provision as in effect prior to July 16, 

2011; and (ii) the foregoing exemption 

shall expire upon the earlier of: (I) the 

repeal, withdrawal or replacement of 

part 35 of the Commission’s regulations; 

or (II) December 31, 2011; 

(3) Provides that the foregoing 

exemptions in paragraphs (1) and (2) 

above shall not: 

a. Limit in any way the Commission’s 

authority with respect to any person, 

entity, or transaction pursuant to CEA 

sections 2(a)(1)(B), 4b, 4o, 6(c), 6(d), 6c, 

8(a), 9(a)(2), or 13, or the regulations of 

the Commission promulgated pursuant 

to such authorities, including 

regulations pursuant to CEA section 

4c(b) proscribing fraud; 

b. Apply to any provision of the 

Dodd-Frank Act or the CEA that has 

become effective prior to July 16, 2011; 

c. Affect any effective or compliance 

date set forth in any rulemaking issued 

by the Commission to implement 

provisions of the Dodd-Frank Act; 

d. Limit in any way the Commission’s 

authority under section 712(f) of the 

Dodd-Frank Act to issue rules, orders, or 

exemptions prior to the effective date of 

any provision of the Dodd-Frank Act 

and the CEA, in order to prepare for the 

effective date of such provision, 

provided that such rule, order, or 

exemption shall not become effective 

prior to the effective date of the 

provision; and 

e. Affect the applicability of any 

provision of the CEA to futures 

contracts or options on futures 

contracts, or to cash markets. 

In its discretion, the Commission may 

condition, suspend, terminate, or 

otherwise modify this Order, as 

appropriate, on its own motion. This 

Final Order shall be effective 

immediately. 

Issued in Washington, DC, on July 14, 2011 

by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Note: The following Commissioner’s 

statement will not appear in the Code of 

Federal Regulations. 

Concurrence of Commissioner Scott D. 

O’Malia on the Order Regarding the 

Effective Date for Swap Regulation 

I concur with the Commission’s 

decision to use its exemptive authority 

under section 4(c) of the Commodity 

Exchange Act (CEA) to provide 

temporary relief from certain provisions 

of the Dodd-Frank Act. This order will 

provide much needed legal certainty to 

the market, at least until December 31, 

2011, while the Commission continues 

its efforts to adopt final rules under the 

Dodd-Frank Act. Whereas I support the 

Commission in providing legal 

certainty, albeit limited, I am 

disappointed in the lack of 

harmonization between our order and 

the exemptive relief that the Securities 

and Exchange Commission (SEC) 

provided. I am also disappointed that 

the final order ignored a number of 

comments from market participants, 

those that have most at stake in each of 

the Commission’s decisions. I hope that 

this order does not foreshadow the 

direction of final rulemakings to come. 

Lack of Harmonization 

In general, the SEC’s order provides 

exemptive relief until the relevant final 

rulemaking is implemented. The 

Commission’s order provides such relief 

only until December 31, 2011. I 

proposed an amendment that would 

have conformed the two orders that the 

Commission rejected. The SEC is a full 

partner in many of our rulemakings; it 

only makes sense to develop identical 

relief policies. The CFTC’s sunset 

provision is based on an arbitrary date 

and cuts short the very legal certainty 

that this order purports to provide. 

Moreover, participants from every 

aspect of our market—including 

investor advocates, a designated 

contract market and derivatives clearing 

organization, a potential swap execution 

facility, and multiple trade associations 

representing intermediaries— 

commented that the December 31, 2011, 

expiration date is unnecessary. In 

contrast, only one commenter supported 

the expiration date. 

Comments From Market Participants 

In addition to not heeding market 

participants with respect to the 

expiration date, the Commission has 

also not addressed the public’s requests 

for an implementation plan. I have 

repeatedly asked the Commission to set 

forth an implementation plan for public 

notice and comment. SEC Chairman 

Shapiro indicated, in her prepared 

remarks before the House Financial 

Services Committee, that the SEC is 

working on an implementation plan that 

will include opportunity for public 

comment. This Commission has already 

begun voting on final rules, but we have 

yet to see a proposed implementation 

plan. 

Market participants bear the burden of 

implementing the multitude of reforms 

that the Commission is proposing. We 


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cannot pretend that Dodd-Frank has any 

chance of meeting its goals if we do not 

work with the public to implement the 

regulatory requirements. 

The Commission is currently 

planning to meet on August 4th to 

consider several final rules. I strongly 

urge the Commission to put forward an 

implementation plan for public 

comment during the month of August. 

This provides a perfect opportunity to 

receive comment on rule order and 

implementation, without delaying the 

Commission schedule this fall. If we 

wait until September, we will only have 

ourselves to blame. 

BILLING CODE 6351–01–P 


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[FR Doc. 2011–18248 Filed 7–18–11; 8:45 am] 

BILLING CODE 6351–01–C 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 40 

[Docket Nos. RM10–15–001 and RM10–16– 

001; Order Nos. 748–A and 749–A] 

Mandatory Reliability Standards for 

Interconnection Reliability Operating 

Limits; System Restoration Reliability 

Standards 

AGENCY: Federal Energy Regulatory 

Commission. 

ACTION: Order on Clarification. 

SUMMARY: On March 17, 2011, the 

Commission issued Order Nos. 748 and 

749, which approved new and revised 

Reliability Standards, including IRO– 

004–2 and EOP–001. In this order, we 

grant the North American Electric 

Reliability Corporation’s (NERC) request 

for clarification of certain aspects of 

Order No. 748 including: The proper 

effective date language for Reliability 

Standard IRO–004–2; the correct version 

identification for the approval of EOP– 

001 intended by the Commission; and 

the proper effective date for Reliability 

Standard EOP–001–2. The Commission 

also grants NERC’s request for 

clarification of Order No. 749 with 

respect to the version EOP–001 the 

Commission intended to approve and its 

effective date. 

DATES: Effective Date: This order on 

rehearing and clarification will become 

effective July 19, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Darrell Piatt (Technical Information), 

Office of Electric Reliability, Division 

of Reliability Standards, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 

20426, Telephone: (202) 502–6687. 

David O’Connor (Technical 

Information), Office of Electric 

Reliability, Division of Reliability 

Standards, Federal Energy Regulatory 

Commission, 888 First Street, NE., 

Washington, DC 20426, (202) 502– 

6695. 

William Edwards (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 

20426, Telephone: (202) 502–6669. 

Terence Burke (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 

20426, (202) 502–6498. 

SUPPLEMENTARY INFORMATION: 

Before Commissioners: Jon Wellinghoff, 

Chairman; Marc Spitzer, Philip D. Moeller, 

John R. Norris, and Cheryl A. LaFleur. 

Order on Clarification 

Issued July 13, 2011 

1. On March 17, 2011, the 

Commission issued Order Nos. 748 and 

749, which approved new and revised 

Reliability Standards, including IRO– 

004–2 and EOP–001. In this order, we 

grant the North American Electric 

Reliability Corporation’s (NERC) request 

for clarification of certain aspects of 

Order No. 748 including: (1) The proper 

effective date language for Reliability 

Standard IRO–004–2; (2) the correct 

version identification for the approval of 

EOP–001 intended by the Commission; 

and (3) the proper effective date for 

Reliability Standard EOP–001–2. The 

Commission also grants NERC’s request 

for clarification of Order No. 749 with 

respect to the version EOP–001 the 

Commission intended to approve and its 

effective date. 


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