12316 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices 

1 7 U.S.C. 6(c). 

2 7 U.S.C. 6d. 

3A copy of the petition is available on the 

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

4The 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. 

5 17 CFR Part 35 (Commission regulations are 

hereinafter cited as ‘‘Reg. l’’). 

6 Jurisdiction is retained for, among other things, 

provisions of the Act proscribing fraud and 

manipulation. See Reg. 35.2. 

7Reg. 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.’’ 

8See 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). 

9Public Law 106–554, 114 Stat. 2763 (2000). 

10See, e.g., Sections 2(d), (g) and (h) of the Act, 

7 U.S.C. 2(d), (g), and (h). 

the commercial fishery could include 

deducting all or some of the prior year 

commercial overage (in weight) from the 

subsequent year’s commercial catch 

limit. 

Proactive AMs for the commercial 

fishery could include adjustable trip 

limits, as a method to prevent ACLs 

from being exceeded. When a given 

percent of the commercial catch limit 

(in weight) is reached, trips limits in the 

fishery for that species could be 

decreased until the total commercial 

catch limit is reached. The fixed 

percentage at which trip limits would 

drop would vary depending on which 

species the limit applies to, and the trip 

limits themselves would be speciesspecific. Other proactive AMs could 

include inseason closures when quotas 

are projected to be attained. Many 

Council-managed species already have 

in place such measures; however, the 

Council may consider additional 

approaches or modification of existing 

reporting requirements in support of 

improving inseason fishery 

management. 

Other Considerations 

The Council could consider 

establishing a periodic formal review by 

the SSC, which would provide the 

opportunity to revise ABC control rules 

every few years after a control rule has 

been implemented. For example, a 5- 

year time period could be used. The 

Council may also identify a broader 

approach to inclusion of species in its 

FMPs that may or may not require 

conservation or management, but that 

may be relevant in trying to further 

ecosystem management in the fishery. 

While not required, the Council could 

identify and include non-target stocks 

and/or ecosystem components in its 

FMPs. The Council may also consider 

ecosystem issues in the development of 

the catch limit framework for any of the 

stocks in the fisheries. Any allocation 

issues relating to the development of 

ABC, ACL, or AMs could also be 

considered by the Council. 

The Council may deviate from these 

examples and develop additional 

approaches, consistent with their 

description in the Magnuson-Stevens 

Act, NS1, and the NS 1 Guidelines. The 

above issues under consideration are 

described in greater detail in the 

scoping document itself; copies may be 

obtained from the Council (see 

ADDRESSES) or via the Internet at http:// 

www.mafmc.org.mid-atlantic/

comments/comments.htm. 

Authority: 16 U.S.C. 1801 et seq. 

Dated: March 19, 2009 

Emily H. Menashes, 

Acting Director, Office of Sustainable 

Fisheries, National Marine Fisheries Service. 

[FR Doc. E9–6468 Filed 3–23–09; 8:45 am] 

BILLING CODE 3510–22–S 

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-theCounter Agricultural Swaps and (2) 

Pursuant to Section 4d of the 

Commodity Exchange Act, Permitting 

Customer Positions in Such ClearedOnly 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 (clearedonly 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. 

DATES: Effective Date: March 18, 2009. 

FOR FURTHER INFORMATION CONTACT: 

Phyllis P. Dietz, Associate Director, 

202–418–5449, pdietz@cftc.gov, 

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 clearedonly contracts would be cash settled, in 

contrast to the corresponding futures 

contracts which are physically settled. 

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 offexchange derivatives transactions were 

subsequently added to the Act by the 

Commodity Futures Modernization Act 

of 2000,9 but none apply to agricultural 

contracts.10

Part 35 requires, among other things, 

that a swap agreement not be part of a 

fungible class of agreements that are 

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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices 12317 

11Reg. 35.2(b). 

12Reg. 35.2(c). 

13The 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. 

14Reg. 35.2(d). 

15House Conf. Report No. 102–978, 1992 

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

16Section 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. 

17Section 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. 

18Under 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. 

19See 73 FR 38403 (July 7, 2008) (45-day 

comment period closing August 21, 2008). 

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 clearedonly 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

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. 

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. 

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

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. 

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, 

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12318 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices 

20See 73 FR 80367 (Dec. 31, 2008) (reopening the 

comment period for 21 days). 

21This bankruptcy matter was subsequently 

addressed in an Interpretative Statement issued by 

the Commission on September 26, 2008. See 73 FR 

65514 (Nov. 4, 2008). 

22Section 3(b) of the Act, 7 U.S.C. 5(b). 

23Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1). 

24See Reg. 35.1(b)(2) (defining the term ‘‘eligible 

swap participant’’). 

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. 

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 clearedonly 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. 

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. 

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

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 exchangetraded 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 

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

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

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. 

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. 

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 clearedonly 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 clearedonly 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 riskreducing positions will be held together 

in the same account rendering a more 

precise estimation of the risk posed by 

the account. The availability of clearedonly 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 

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12320 Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices 

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 clearedonly 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 clearedonly 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 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

[Docket ID: DOD–2009–OS–0046] 

Privacy Act of 1974; Systems of 

Records 

AGENCY: Defense Finance and 

Accounting Service, DoD. 

ACTION: Notice to add a new System of 

Records. 

SUMMARY: The Defense Finance and 

Accounting Service (DFAS) proposes to 

add a new system of records notice to 

its inventory of record systems subject 

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

552a), as amended. 

DATES: This Action will be effective 

without further notice on April 23, 2009 

unless comments are received that 

would result in a contrary 

determination. 

ADDRESSES: Send comments to the 

FOIA/PA Program Manager, Corporate 

Communications and Legislative 

Liaison, Defense Finance and 

Accounting Service, 8899 E. 56th Street, 

Indianapolis, IN 46249–0150. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Linda Krabbenhoft at (720) 242–6631. 

SUPPLEMENTARY INFORMATION: The 

Defense Finance and Accounting 

Service notices for systems of records 

subject to the Privacy Act of 1974 (5 

U.S.C. 552a), as amended, have been 

published in the Federal Register and 

are available from the address above. 

The proposed system report, as 

required by 5 U.S.C. 552a(r) of the 

Privacy Act of 1974, as amended, was 

submitted on March 16, 2009, to the 

House Committee on Government 

Reform, the Senate Committee on 

Governmental Affairs, and the Office of 

Management and Budget (OMB) 

pursuant to paragraph 4c of Appendix I 

to OMB Circular No. A–130, ‘Federal 

Agency Responsibilities for Maintaining 

Records about Individuals,’ dated 

December 12, 2000, 65 FR 239. 

Dated: March 18, 2009. 

Morgan E. Frazier, 

Alternate OSD Federal Register Liaison 

Officer, Department of Defense. 

T5040 

SYSTEM NAME: 

Call Recording Application Records. 

SYSTEM LOCATION: 

Defense Finance and Accounting 

Service, Cleveland, Anthony J. 

Celebrezze Federal Building (Room 

1669), 1240 E. 9th Street, Cleveland, OH 

44199–2055. 

mstockstill on PROD1PC66 with NOTICES