[Federal Register Volume 74, Number 55 (Tuesday, March 24, 2009)]
[Notices]
[Pages 12316-12320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6369]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION


Order (1) Pursuant to Section 4(c) of the Commodity Exchange Act, 
Permitting the Chicago Mercantile Exchange to Clear Certain Over-the-
Counter Agricultural Swaps and (2) Pursuant to Section 4d of the 
Commodity Exchange Act, Permitting Customer Positions in Such Cleared-
Only Contracts and Associated Funds To Be Commingled With Other 
Positions and Funds Held in Customer Segregated Accounts

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

-----------------------------------------------------------------------

SUMMARY: By petition dated April 21, 2008 (Petition), the Chicago 
Mercantile Exchange Inc. (CME), a registered derivatives clearing 
organization (DCO), and the Board of Trade of the City of Chicago, Inc. 
(CBOT), a designated contract market, requested permission to clear 
certain over-the counter (OTC) swap agreements (swaps) in corn, wheat, 
and soybeans. Authority for granting this request is found in Section 
4(c) of the Commodity Exchange Act (Act).\1\ The Petition also 
requested permission pursuant to Section 4d of the Act \2\ to allow CME 
and futures commission merchants (FCMs) clearing through CME to 
commingle positions in those cleared-only OTC swaps (cleared-only 
contracts) and funds associated with those positions with positions and 
funds otherwise required to be held in a customer segregated account. 
The Commodity Futures Trading Commission (Commission) has reviewed 
public comments and the entire record in this matter and it has 
determined to issue an order granting the requested permission, subject 
to certain terms and conditions.
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 6(c).
    \2\ 7 U.S.C. 6d.

---------------------------------------------------------------------------
DATES: Effective Date: March 18, 2009.

FOR FURTHER INFORMATION CONTACT: Phyllis P. Dietz, Associate Director, 
202-418-5449, <a href="/cdn-cgi/l/email-protection#68180c010d1c12280b0e1c0b460f071e"><span class="__cf_email__" data-cfemail="87f7e3eee2f3fdc7e4e1f3e4a9e0e8f1">[email protected]</span></a>, Division of Clearing and Intermediary 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. The CME/CBOT Petition

    CME, the DCO that provides clearing services for CBOT, and CBOT 
jointly submitted a Petition requesting that the Commission issue an 
exemptive order under Section 4(c) of the Act.\3\ The order would grant 
CME approval to clear OTC corn basis swaps and corn, wheat, and soybean 
calendar swaps, and it would permit CBOT to list those products for 
``clearing-only.'' \4\ The contract size for the basis and calendar 
swaps would be the same as that for corn, wheat, and soybean futures--
5,000 bushels. Each of the proposed cleared-only contracts would be 
cash settled, in contrast to the corresponding futures contracts which 
are physically settled.
---------------------------------------------------------------------------

    \3\ A copy of the petition is available on the Commission's Web 
site at http://www.cftc.gov/.
    \4\ The suite of OTC agricultural swap products that CBOT 
proposes to list for clearing-only is comprised of corn basis swap 
contracts for the following regions: Northeastern Iowa, Northwestern 
Iowa, Southern Iowa, Eastern Nebraska, Eastern South Dakota, and 
Southern Minnesota; and corn, wheat, and soybean calendar swaps.
---------------------------------------------------------------------------

    Part 35 of the Commission's regulations \5\ exempts, subject to 
conditions, swap agreements and eligible persons entering into such 
agreements from most provisions of the Act.\6\ The term ``swap 
agreement'' is defined to include, among other types of agreements, a 
``basis swap'' and a ``commodity swap.'' \7\ Part 35 was promulgated 
pursuant to authority conferred upon the Commission in Section 4(c) of 
the Act to exempt certain transactions in order to explicitly permit 
certain off-exchange derivatives transactions and thus promote 
innovation and competition.\8\ A number of exemptions and exclusions 
for off-exchange derivatives transactions were subsequently added to 
the Act by the Commodity Futures Modernization Act of 2000,\9\ but none 
apply to agricultural contracts.\10\
---------------------------------------------------------------------------

    \5\ 17 CFR Part 35 (Commission regulations are hereinafter cited 
as ``Reg. --'').
    \6\ Jurisdiction is retained for, among other things, provisions 
of the Act proscribing fraud and manipulation. See Reg. 35.2.
    \7\ Reg. 35.1(b)(1)(i). ``Commodity'' is defined in Section 
1a(4) of the Act to include a variety of specified agricultural 
products, ``and all other goods and articles, except onions... and 
all services, rights, and interests in which contracts for future 
delivery are presently or in the future dealt in.''
    \8\ See 58 FR 5587 (Jan. 22, 1993). Section 4(c) of the Act was 
added by Section 502(a) of the Futures Trading Practices Act of 
1992, Public Law 102-546, 106 Stat. 3590 (1992).
    \9\ Public Law 106-554, 114 Stat. 2763 (2000).
    \10\ See, e.g., Sections 2(d), (g) and (h) of the Act, 7 U.S.C. 
2(d), (g), and (h).
---------------------------------------------------------------------------

    Part 35 requires, among other things, that a swap agreement not be 
part of a fungible class of agreements that are

[[Page 12317]]

standardized as to their material economic terms,\11\ and that the 
creditworthiness of any party having an interest under the agreement be 
a material consideration in entering into or negotiating the terms of 
the agreement.\12\ Under the arrangement proposed by CME and CBOT, a 
cleared-only contract could be offset by another cleared-only contract 
with equivalent terms. In addition, due to the introduction of a 
clearing guarantee, the creditworthiness of the counterparty would no 
longer be a consideration. Accordingly, the OTC swaps CME would clear 
would not satisfy all of the conditions of Part 35.\13\
---------------------------------------------------------------------------

    \11\ Reg. 35.2(b).
    \12\ Reg. 35.2(c).
    \13\ The contracts that CBOT proposes to list for clearing-only 
would, however, meet the requirements of Reg. 35.2(a) and (d) in 
that they would be entered into solely between eligible swap 
participants and executed OTC, respectively.
---------------------------------------------------------------------------

    Part 35 permits ``any person [to] apply to the Commission for 
exemption from any of the provisions of the Act * * * for other 
arrangements or facilities.'' \14\ CME and CBOT have petitioned the 
Commission for an order under Section 4(c) of the Act that would exempt 
certain cleared-only contracts involving corn, wheat, or soybeans to 
the same extent as contracts that are exempt pursuant to Part 35 of the 
Commission's regulations.
---------------------------------------------------------------------------

    \14\ Reg. 35.2(d).
---------------------------------------------------------------------------

    In addition, CME and CBOT also requested an order under Section 4d 
of the Act so that CME and clearing members of CBOT could hold 
positions in the cleared-only contracts and associated funds in the 
customer segregated account along with positions in exchange-traded 
futures and customer funds, resulting in improved collateral management 
and other benefits.

II. Sections 4(c) and 4d of the Act

A. Permitting the OTC Swaps To Be Cleared

    In enacting Section 4(c) of the Act, Congress noted that the goal 
of the provision ``is to give the Commission a means of providing 
certainty and stability to existing and emerging markets so that 
financial innovation and market development can proceed in an effective 
and competitive manner.'' \15\ Section 4(c)(1) of the Act empowers the 
Commission to ``promote responsible economic or financial innovation 
and fair competition'' by exempting any transaction or class of 
transactions from any of the provisions of the Act (subject to 
exceptions not relevant here) where the Commission determines that the 
exemption would be consistent with the public interest.\16\ 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.
---------------------------------------------------------------------------

    \15\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 
3213.
    \16\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides in 
full as follows:
    In order to promote responsible economic or financial innovation 
and fair competition, the Commission by rule, regulation, or order, 
after notice and opportunity for hearing, may (on its own initiative 
or on application of any person, including any board of trade 
designated or registered as a contract market or derivatives 
transaction execution facility for transactions for future delivery 
in any commodity under section 7 of this title) exempt any 
agreement, contract, or transaction (or class thereof) that is 
otherwise subject to subsection (a) of this section (including any 
person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated terms 
or conditions or for stated periods and either retroactively or 
prospectively, or both, from any of the requirements of subsection 
(a) of this section, or from any other provision of this chapter 
(except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this 
title, except that the Commission and the Securities and Exchange 
Commission may by rule, regulation, or order jointly exclude any 
agreement, contract, or transaction from section 2(a)(1)(D) of this 
title), if the Commission determines that the exemption would be 
consistent with the public interest.
---------------------------------------------------------------------------

    Section 4(c)(2) of the Act provides that the Commission may grant 
exemptions from Section 4(a) of the Act only when the Commission 
determines that the requirements for which an exemption is being 
provided should not be applied to the agreements, contracts, or 
transactions at issue, and the exemption is consistent with the public 
interest and the purposes of the Act; that the agreements, contracts, 
or transactions will be entered into solely between appropriate 
persons; and that the exemption will not have a material adverse effect 
on the ability of the Commission or any contract market or derivatives 
transaction execution facility to discharge its regulatory or self-
regulatory responsibilities under the Act.\17\
---------------------------------------------------------------------------

    \17\ Section 4(c)(2) of the Act, 7 U.S.C. 6(c)(2), provides in 
full as follows:
    The Commission shall not grant any exemption under paragraph (1) 
from any of the requirements of subsection (a) of this section 
unless the Commission determines that--
    (A) The requirement should not be applied to the agreement, 
contract, or transaction for which the exemption is sought and that 
the exemption would be consistent with the public interest and the 
purposes of this Act; and
    (B) The agreement, contract, or transaction--
    (i) Will be entered into solely between appropriate persons; and
    (ii) Will not have a material adverse effect on the ability of 
the Commission or any contract market or derivatives transaction 
execution facility to discharge its regulatory or self-regulatory 
duties under this Act.
---------------------------------------------------------------------------

    The Commission requested comment on whether it should grant an 
exemption from the requirements of the Act, thereby permitting corn 
basis swaps and corn, wheat, and soybean calendar swaps to be cleared 
through CME. It also requested comment on whether such an exemption 
would affect its ability to discharge its regulatory responsibilities 
under the Act or with the self-regulatory duties of any contract 
market.

B. Permitting Funds To Be Commingled

    Section 4d(a)(2) of the Act prohibits commingling positions 
executed on a contract market and customer funds associated with such 
positions together with any funds not required to be so segregated.\18\ 
Section 4d(a)(2) provides that the Commission may grant exceptions to 
this prohibition by order.
---------------------------------------------------------------------------

    \18\ Under Reg. 1.3(gg), the term ``customer funds'' is defined 
to include all money, securities, and property received by an FCM or 
by a DCO from, for, or on behalf of, customers or option customers 
to margin, guarantee or secure exchange-traded futures contracts or 
options on futures, and all money accruing to such customers as the 
result of such contracts. The term ``funds'' is similarly used 
herein to refer to cash as well as securities and other property 
associated with futures contracts or cleared-only contracts.
---------------------------------------------------------------------------

    In this case, the corn basis swaps and corn, wheat, and soybean 
calendar swaps are not executed on a contract market and, thus, holding 
positions in those contracts and associated funds in an account 
together with positions and customer funds required to be segregated 
would, absent a Commission order, violate Section 4d. Having analyzed 
the risks and benefits associated with commingling such positions and 
funds in a customer segregated account, the Commission has determined 
that the benefits of the proposal outweigh the risks and that the 
proposal, along with conditions set forth by the Commission, will 
provide for a sufficient level of safeguards to address the risks 
adequately.

III. Comment Letters

    The Commission published a request for comments regarding the 4(c) 
exemption in the Federal Register on July 7, 2008.\19\ At the same 
time, it posted the Petition on the Commission's Web site, providing 
the opportunity for the public to comment on any aspect of the 
Petition, including the request for an order under Section 4d of the 
Act. As a result of the non-transmission of a comment letter submitted 
through the Federal eRulemaking Portal, the Commission reopened the 
comment period on December 31, 2008,

[[Page 12318]]

specifically to afford the commenter whose submission was not received, 
the opportunity to resubmit the comment.\20\ In addition, any other 
member of the public was permitted to comment during the reopened 
comment period.
---------------------------------------------------------------------------

    \19\ See 73 FR 38403 (July 7, 2008) (45-day comment period 
closing August 21, 2008).
    \20\ See 73 FR 80367 (Dec. 31, 2008) (reopening the comment 
period for 21 days).
---------------------------------------------------------------------------

    The Commission received seven comment letters, one of which was 
submitted during the reopened comment period. Five letters expressly 
supported the issuance of an exemptive order to permit clearing of the 
OTC swaps, citing such benefits as increased transparency and liquidity 
in the OTC markets, enhanced risk management for market participants, 
and greater regulatory surveillance including large trader reporting. 
Of those letters, two specifically commented on the 4d order request. 
Both of those letters supported the issuance of an order to permit the 
commingling of positions in cleared-only contracts and associated funds 
with positions and customer funds otherwise required to be held in a 
customer segregated account. One letter focused on the bankruptcy 
treatment of cleared-only contract positions and associated funds when 
they are held in a customer segregated account.\21\ One commenter 
opposed the issuance of an exemption permitting clearing of OTC swaps 
based on concerns about the impact of OTC clearing on the use of 
exchange-traded futures contracts for hedging purposes.
---------------------------------------------------------------------------

    \21\ This bankruptcy matter was subsequently addressed in an 
Interpretative Statement issued by the Commission on September 26, 
2008. See 73 FR 65514 (Nov. 4, 2008).
---------------------------------------------------------------------------

IV. Findings and Conclusions

    After considering the complete record in this matter, including the 
comments received, the Commission finds that the requirements of 
Section 4(c) of the Act have been met with respect to the request for 
an order permitting the clearing of certain corn basis swaps and corn, 
wheat, and soybean calendar swaps.
    First, permitting the clearing of these transactions is consistent 
with the public interest and with the purposes of the Act. The purposes 
of the Act include ``promot[ing] responsible innovation and fair 
competition among boards of trade, other markets, and market 
participants.'' \22\ The purpose of an exemption is ``to promote 
economic or financial innovation and fair competition.'' \23\ 
Permitting the clearing of corn basis swaps and corn, wheat, and 
soybean calendar swaps by CME would appear to foster both financial 
innovation and competition. It could benefit the marketplace by 
providing eligible swap participants the ability to bring together 
flexible negotiation with central counterparty guarantees and capital 
efficiencies. Clearing also may increase the liquidity of the OTC 
markets and thereby foster competition in those markets.
---------------------------------------------------------------------------

    \22\ Section 3(b) of the Act, 7 U.S.C. 5(b).
    \23\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1).
---------------------------------------------------------------------------

    Second, the OTC swaps would be entered into solely between 
appropriate persons. Those would be limited to persons qualifying as 
eligible swap participants under Part 35.\24\
---------------------------------------------------------------------------

    \24\ See Reg. 35.1(b)(2) (defining the term ``eligible swap 
participant'').
---------------------------------------------------------------------------

    Third, the exemption would not have a material adverse effect on 
the ability of the Commission or any designated contract market to 
carry out its regulatory or self-regulatory responsibilities under the 
Act. Clearing of OTC swaps will actually enhance the Commission's 
ability to carry out its regulatory responsibilities by, for example, 
facilitating the collection of large trader reports for cleared-only 
contracts. CME will use the same systems, procedures, personnel, and 
processes to clear the OTC swaps as it currently employs with respect 
to all of the other transactions it clears on behalf of CBOT.
    The commenter who opposed granting the exemption raised a question 
as to how clearing OTC swaps would impact trading in the corresponding 
futures contracts, expressing the view that the ability to clear OTC 
contracts would serve as a disincentive to enter into exchange-traded 
futures contracts, thereby drawing business away from those markets to 
OTC markets. Given the lack of empirical data relating to the trading 
behavior of futures market participants when clearing becomes available 
for OTC products, the basis for the commenter's concerns cannot be 
readily substantiated or refuted. As a result, the Commission is unable 
to conclude that providing eligible swap participants with the 
opportunity to clear OTC swaps would undermine the purpose or 
usefulness of trading in the futures markets. Moreover, because 
eligible swap participants already engage in OTC transactions, 
permitting clearing would provide a means for achieving benefits that 
serve the public interest.
    The Commission has concluded that permitting the clearing of OTC 
corn basis swaps and corn, wheat, and soybean calendar swaps, subject 
to the terms and conditions of the order, furthers the goals of market 
transparency and liquidity, and financial risk management. It also 
enhances the Commission's ability to obtain market information and 
conduct oversight once OTC transactions are cleared by a registered 
DCO.
    With respect to the petitioners' request for an order pursuant to 
Section 4d permitting CME and FCMs clearing through CME to commingle 
cleared-only contract positions and associated funds with positions and 
customer funds required to be held in a customer segregated account, 
the Commission has considered whether the additional risk to customers 
presented by such commingling can be adequately addressed and 
mitigated. Additional risk is presented to customers as a result of the 
risk of default involving the commingled cleared-only contracts.
    The carrying FCM should have adequate means to address a default by 
a customer holding cleared-only contracts. In the event of a customer 
default on a position in a cleared-only corn basis swap, the clearing 
firm could offset its risk by entering into an opposite position in the 
OTC corn basis swap market through a broker or dealer. Alternatively, 
the clearing firm could offset its risk by entering into an opposite 
transaction in the cash corn basis market, which is very liquid due to 
participation by country elevators, terminal elevators, ethanol 
processors, and livestock feeders. In the event of a customer default 
on a position in the corn, wheat, or soybean cleared-only calendar 
swaps contracts, the clearing firm could offset its risk by liquidating 
the customer position through a broker or dealer in the calendar swap 
market or by taking an economically equivalent position in the 
corresponding futures contract.
    The order requires that CME review the clearing members' risk 
management capabilities to verify that all members clearing OTC swaps 
maintain sufficient operational capability to manage a default in a 
cleared-only contract. In the event of a clearing firm default, CME 
would have available the same means for managing the default as the 
clearing firm would have in the first instance.
    The order also requires that CBOT (1) maintain a coordinated market 
surveillance program that encompasses the cleared-only contracts and 
the corresponding futures contracts, and (2) adopt speculative position 
limits for each of the cleared-only contracts, that are the same as the 
limits applicable to the corresponding futures contracts. These 
measures should mitigate market risk.
    Accordingly, the Commission has determined that CME will be able to 
employ reasonable safeguards to protect customer funds, and that it 
will be able

[[Page 12319]]

to measure, monitor, manage, and account for risks associated with 
transactions and open interest in the cleared-only contracts as it does 
for other contracts it clears. The Commission believes that CME has 
sufficiently demonstrated that it will continue to comply with the DCO 
core principles set forth in Section 5b of the Act in connection with 
holding customer positions in cleared-only corn basis swaps and corn, 
wheat, and soybean calendar swaps and associated funds with positions 
and customer funds required to be held in a customer segregated account 
pursuant to Section 4d of the Act.

V. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \25\ imposes certain 
requirements on Federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. The Commission's order will not 
require a new collection of information from any entities that would be 
subject to the order.
---------------------------------------------------------------------------

    \25\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

B. Cost-Benefit Analysis

    Section 15(a) of the Act,\26\ requires the Commission to consider 
the costs and benefits of its action before issuing an order under the 
Act. By its terms, Section 15(a) does not require the Commission to 
quantify the costs and benefits of an order or to determine whether the 
benefits of the order outweigh its costs. Rather, Section 15(a) simply 
requires the Commission to ``consider the costs and benefits'' of its 
action.
---------------------------------------------------------------------------

    \26\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    Section 15(a) of the Act further specifies that costs and benefits 
shall be evaluated in light of five broad areas of market and public 
concern: Protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. Accordingly, the Commission could in its discretion 
give greater weight to any one of the five enumerated areas and could 
in its discretion determine that, notwithstanding its costs, a 
particular order was necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or to accomplish any of 
the purposes of the Act.
    The Commission has considered the costs and benefits of this order 
in light of the specific provisions of Section 15(a) of the Act, as 
follows:
    1. Protection of Market Participants and the Public. The cleared-
only contracts will be entered into only by persons who are 
``appropriate persons'' as set forth in Section 4(c) of the Act. Only 
eligible swap participants will enter into the corn basis swaps and 
corn, wheat, and soybean calendar swaps that will be cleared pursuant 
to the Commission's order. Allowing the commingling of positions in 
cleared-only contracts and associated funds with positions and customer 
funds required to be segregated under Section 4d of the Act will 
benefit market participants by facilitating clearing and the reduction 
of credit risk for contracts that meet market participants' specific 
risk management requirements. Customers holding positions in cleared-
only contracts also would benefit from having those positions and 
associated funds held in a customer segregated account in the event of 
the insolvency of an FCM. Futures customers will be protected from 
risks associated with the commingling of funds by a number of existing 
risk management and other safeguards, including CME's financial 
surveillance of clearing members and its financial resources package, 
as supplemented by conditions imposed by the order.
    2. Efficiency and Competition. Allowing the OTC swaps to be cleared 
appears likely to promote liquidity and transparency in the markets for 
OTC derivatives as well as futures on those commodities. The 
commingling of positions in the cleared-only contracts and associated 
funds with positions and customer funds required to be held in a 
customer segregated account should result in improved, more efficient, 
collateral management and lower administrative costs given that risk-
reducing positions will be held together in the same account rendering 
a more precise estimation of the risk posed by the account. The 
availability of cleared-only contracts also provides another risk 
management tool that could compete with other OTC products.
    3. Financial Integrity of Futures Markets and Price Discovery. 
Price discovery is likely to be enhanced by bringing greater 
transparency to the OTC market for the subject commodities. The Section 
4(c) exemption also may promote financial integrity by providing the 
benefits of clearing to the OTC markets. As discussed above, the 
Commission believes that the risks associated with the commingling of 
funds in the customer segregated account can be appropriately 
mitigated.
    4. Sound Risk Management Practices. Clearing of the OTC swaps is 
likely to improve risk management by the participant counterparties. 
CME's risk management practices in clearing these transactions are 
subject to the Commission's supervision and oversight.
    5. Other Public Interest Considerations. The action taken by the 
Commission under Sections 4(c) and 4d of the Act is likely to encourage 
market competition in agricultural derivatives products. It will also 

further the Commission's overall goals in supporting greater market 
transparency, credit risk management, and regulatory oversight by 
encouraging the clearing of OTC products.
    The Commission requested comment on its application of these 
factors in the proposing release. No comments were received.

VI. Order

    After considering the above factors and the comment letters 
received in response to its request for comments, the Commission has 
determined to issue the following:

Order

    (1) The Commission, pursuant to its authority under Section 4(c) of 
the Act and subject to the conditions below, hereby permits eligible 
swap participants to submit for clearing, and FCMs and CME to clear, 
the following OTC agricultural swap contracts (eligible products):
    (a) Corn basis swap contracts for the following regions:
    (i) Northeastern Iowa;
    (ii) Northwestern Iowa;
    (iii) Southern Iowa;
    (iv) Eastern Nebraska;
    (v) Eastern South Dakota; and
    (vi) Southern Minnesota.
    (b) Corn calendar swap contracts.
    (c) Wheat calendar swap contracts.
    (d) Soybean calendar swap contracts.
    (2) The Commission, pursuant to its authority under Section 4d of 
the Act and subject to the conditions below, hereby permits CME and 
clearing members of CBOT that are registered FCMs, acting pursuant to 
this order, to hold money, securities, and other property, used to 
margin, guarantee, or secure cleared-only transactions in eligible 
products (cleared-only contracts), and belonging to customers that are 
eligible swap participants, with other customer funds used to margin, 
guarantee, or secure trades or positions in commodity futures or 
commodity option contracts executed on or subject to the rules of a 
contract market designated pursuant to Section 5 of the

[[Page 12320]]

Act, in a customer segregated account or accounts maintained in 
accordance with Section 4d of the Act (including any orders issued 
pursuant to Section 4d(a)(2) of the Act) and the Commission's 
regulations thereunder, and all such customer funds shall be accounted 
for and treated and dealt with as belonging to the customers of the 
CBOT clearing member, consistent with Section 4d of the Act and the 
regulations thereunder.
    (3) This order is subject to the following conditions:
    (a) The contracts, agreements, or transactions subject to this 
order shall be executed pursuant to the requirements of Part 35 of the 
Commission's regulations, as modified herein, and shall be limited to 
the eligible products enumerated in this order.
    (b) All eligible products shall be submitted for clearing by a CBOT 
clearing member to CME pursuant to CBOT and CME rules.
    (c) Each cleared-only contract shall be marked to market on a daily 
basis, and final settlement prices shall be established in accordance 
with CBOT rules.
    (d) CME shall apply its margining system and calculate performance 
bond rates for each cleared-only contract in accordance with its normal 
and customary practices.
    (e) CME shall apply appropriate risk management procedures with 
respect to transactions and open interest in the cleared-only 
contracts. CME shall conduct financial surveillance and oversight of 
CBOT members clearing the eligible products, and it shall conduct 
oversight sufficient to assure CME that each such member has the 
appropriate operational capabilities necessary to manage defaults in 
such contracts. CME and clearing members of CBOT, acting pursuant to 
this order, shall take all other steps necessary and appropriate to 
manage risk related to clearing eligible products.
    (f) CBOT shall make available open interest and settlement price 
information for the cleared-only contracts on a daily basis in the same 
manner as for contracts listed on CBOT.
    (g) CBOT shall establish and maintain a coordinated market 
surveillance program that encompasses the cleared-only contracts and 
the corresponding futures contracts listed by CBOT on its designated 
contract market.
    (h) CBOT shall adopt speculative position limits for each of the 
cleared-only contracts that are the same as the limits applicable to 
the corresponding futures contracts pursuant to Commission Regulation 
150.2.
    (i) The cleared-only contracts shall not be treated as fungible 
with any contract listed for trading on CBOT.
    (j) Each FCM acting pursuant to this order shall keep the types of 
information and records that are described in Section 4g of the Act and 
Commission regulations thereunder, including but not limited to 
Commission Regulation 1.35, with respect to all cleared-only contracts. 
Such information and records shall be produced for inspection in 
accordance with the requirements of Commission Regulation 1.31.
    (k) CBOT shall provide to the Commission the types of information 
described in Part 16 of the Commission's regulations in the manner 
described in Parts 15 and 16 of the Commission's regulations with 
respect to all cleared-only contracts.
    (l) CBOT shall apply large trader reporting requirements to 
cleared-only contracts in accordance with its rules, and each FCM 
acting pursuant to this order shall provide to the Commission the types 
of information described in Part 17 of the Commission's regulations in 
the manner described in Parts 15 and 17 of the Commission's regulations 
with respect to all cleared-only contracts in which it participates.
    (m) CME and CBOT shall at all times fulfill all representations 
made in their requests for Commission action under Sections 4(c) and 4d 
of the Act and all supporting materials thereto.
    This order is based upon the representations made and supporting 
material provided to the Commission by CME and CBOT in connection with 
their requests. Any material change or omission in the facts and 
circumstances pursuant to which this order is granted might require the 
Commission to reconsider its finding that the actions taken herein are 
appropriate. Further, in its discretion, the Commission may condition, 
suspend, terminate, or otherwise modify this order, as appropriate, on 
its own motion.

    Issued in Washington, DC, on March 18, 2009 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-6369 Filed 3-23-09; 8:45 am]
BILLING CODE 6351-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>