Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Proposed Rules 3475 

1The Act is codified at 7 U.S.C. 1 et seq. (2000). 

The acceptable practices for the DCM core 

principles reside in Appendix B to Part 38 of the 

Commission’s Regulations, 17 CFR Part 38, App. B. 

Core Principle 15 states: ‘‘CONFLICTS OF 

INTEREST—The board of trade shall establish and 

enforce rules to minimize conflicts of interest in the 

decision making process of the contract market and 

establish a process for resolving such conflicts of 

interest.’’ CEA section 5(d)(15). 7 U.S.C. 7(d)(15). 

2 72 FR 6936 (February 14, 2007). 

3 72 FR 14051 (March 26, 2007). Under the 

acceptable practices, the definition of ‘‘public 

director’’ is also relevant to members of DCM 

regulatory oversight committees (all of whom must 

be public directors) and to members of DCM 

disciplinary panels (panelists need not be directors, 

but panels must include at least one member who 

meets certain elements of the public director 

definition). 

4The comment letters are available on the 

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

lawandregulation/federalregister/ 

federalregistercomments/2007/07-001.html. 

5 72 FR 65658 (November 23, 2007). 

(vii) The certificate holder ensures the 

time spent conducting boarding duties 

applies towards daily duty time limits 

and is considered when determining 

crewmember rest requirements. 

(viii) The certificate holder does not 

permit the substitution of a flightcrew 

member for a flight attendant to 

interfere with the safe operation of the 

flight. If all flightcrew members are 

required to perform preflight duties, 

passenger boarding must not commence 

until the flight attendants required by 

§ 121.391(a) are on board the airplane. 

(ix) The airplane engines are shut 

down. 

(x) At least one floor-level exit 

remains open for the deplaning of 

passengers. 

(b) During passenger deplaning, on 

each airplane for which more than one 

flight attendant is required by 

§ 121.391(a), the certificate holder may 

reduce the number of flight attendants 

required by that paragraph provided: 

(1) The airplane engines are shut 

down; 

(2) At least one floor level exit 

remains open to provide for the 

deplaning of passengers; 

(3) The number of flight attendants on 

board is at least half the number 

required by § 121.391(a), rounded down 

to the next lower number in the case of 

fractions, but never fewer than one. 

(c) If only one flight attendant is on 

the airplane during passenger boarding 

or deplaning, that flight attendant must 

be located in accordance with the 

certificate holder’s FAA-approved 

operating procedures. If more than one 

flight attendant is on the airplane during 

passenger boarding or deplaning, the 

flight attendants must be evenly 

distributed throughout the airplane 

cabin, in the vicinity of the floor-level 

exits, to provide the most effective 

assistance in the event of an emergency. 

Issued in Washington, DC, on January 14, 

2009. 

John M. Allen, 

Director, Flight Standards Service. 

[FR Doc. E9–1140 Filed 1–16–09; 8:45 am] 

BILLING CODE 4910–13–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 38 

RIN 3038–AC28 

Conflicts of Interest in Self-Regulation 

and Self-Regulatory Organizations 

AGENCY: Commodity Futures Trading 

Commission (‘‘Commission’’). 

ACTION: Proposed rule; withdrawal of 

previous proposed rule. 

SUMMARY: On January 31, 2007, the 

Commission adopted its first acceptable 

practices for Section 5(d)(15) (‘‘Core 

Principle 15’’) of the Commodity 

Exchange Act (‘‘Act’’).1 As with all other 

acceptable practices, those for Core 

Principle 15 are a safe harbor that 

designated contract markets (‘‘DCMs’’) 

can use to demonstrate core principle 

compliance. The acceptable practices 

contain four provisions—three are 

‘‘operational provisions’’ and one 

provides necessary definitions, 

including a definition of ‘‘public 

director.’’ All four provisions were 

published simultaneously in the 

Federal Register on February 14, 2007, 

and became effective on March 16, 

2007.2 Existing DCMs were given a twoyear phase-in period to implement the 

acceptable practices or otherwise 

demonstrate full compliance with Core 

Principle 15. 

On March 26, 2007, the Commission 

published certain proposed 

amendments to the definition of public 

director in the acceptable practices.3

The Commission received six comment 

letters, but did not act upon the 

proposed amendments.4 Subsequently, 

on November 23, 2007, the Commission 

published a stay of the entire acceptable 

practices for Core Principle 15 in the 

Federal Register.5 The Commission 

noted that absent a clear and settled 

definition of public director, the 

acceptable practices’ three operational 

provisions were difficult to implement. 

To bring further clarity to this term and 

move to finalize the underlying 

acceptable practices, the Commission 

hereby withdraws the proposed 

amendments to the definition of public 

director published on March 26, 2007, 

and proposes and seeks public comment 

on updated proposed amendments to 

the definition of public director, as 

described below. This proposal does not 

amend the other provisions contained in 

the adopted acceptable practices, 

including the DCM requirement for a 

regulatory oversight committee (‘‘ROC’’) 

consisting of all public directors and a 

board of directors with at least 35% 

public directors. The November 23, 

2007 stay remains in effect until further 

notice by the Commission. 

DATES: Comments on the new proposed 

amendments should be submitted on or 

before February 20, 2009. 

ADDRESSES: Comments should be sent to 

David Stawick, Secretary, Commodity 

Futures Trading Commission, Three 

Lafayette Centre, 1155 21st Street, NW., 

Washington, DC 20581. Comments may 

be submitted via e-mail at 

secretary@cftc.gov. ‘‘Regulatory 

Governance’’ must be in the subject 

field of responses submitted via e-mail, 

and clearly indicated on written 

submissions. Comments may also be 

submitted at http:// 

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Rachel F. Berdansky, Deputy Director 

for Market Compliance, 202–418–5429, 

or Sebastian Pujol Schott, Special 

Counsel, 202–418–5641, Division of 

Market Oversight, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, Washington, 

DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Procedural History 

As noted above, the Commission 

adopted its first acceptable practices for 

Core Principle 15 on January 31, 2007. 

In order to receive the benefit of the safe 

harbor provided by the acceptable 

practices, a DCM is required to satisfy 

all four of the included provisions. The 

acceptable practices include three 

operational provisions pertaining to 

DCM boards of directors, the insulation 

and oversight of self-regulatory 

functions, and the composition of 

disciplinary panels. In particular, the 

acceptable practices require that a 

DCM’s board be composed of at least 

35% public directors. They also require 

that a DCM’s regulatory programs fall 

under the authority and oversight of a 

board-level ROC consisting exclusively 

of public directors. Finally, the 

acceptable practices require that a 

DCM’s disciplinary panels include at 

least one public person. These 

provisions remain unchanged by this 

proposed rule. 

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3476 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Proposed Rules 

6While not required under these acceptable 

practices, the Commission believes DCMs benefit 

from endeavoring to recruit their public directors 

from a broad and culturally diverse pool of 

qualified candidates. 

7 In addition to the clarifying amendments, the 

Commission also proposed to correct a technical 

drafting error. 

8CFE Comment Letter at 1. 

9CME and KCBT Comment Letter at 2. 

10 Id. 

11The Commission carefully reviewed and 

addressed challenges to its authority when it 

originally adopted the acceptable practices for Core 

Principle 15. See 72 FR 6936, 6940–6943 (providing 

an overview of the Commission’s authority to issue 

the acceptable practices and explaining that the 

acceptable practices for Core Principle 15: (a) Do 

not conflict with Core Principle 16; (b) are not 

contrary to the text of the Act; (c) are not contrary 

to Congressional intent in enacting the Commodity 

Futures Modernization Act; (d) no not 

impermissibly shift the burden to DCMs for 

demonstrating compliance; (e) do not conflict with 

the guidance to Core Principle 14; and (f) are 

justified as a prophylactic measure). 

12CBOT Comment Letter at 1. 

13FIA Comment Letter at 1–2. 

14 Id. at 2. 

15NFA Comment Letter at 1. 

16 Id at 2. 

17 Gartman Comment Letter at 1. 

18 72 FR 65658, 65659 (November 23, 2007). 

All three operational provisions are 

dependent on the presence of one or 

more ‘‘public’’ persons, either public 

directors serving on the board, public 

directors serving on the ROC, or public 

disciplinary panel members serving on 

adjudicatory bodies. Thus, the 

acceptable practices include an 

important fourth provision that defines 

‘‘public director’’ and also impacts 

disciplinary panel members. The 

definition of public director includes 

two separate elements.6 The first and 

most important element is an 

overarching materiality test, which 

provides that to qualify as a public 

director, the director must first be found 

‘‘to have no material relationship with 

the contract market.’’ The second 

element consists of a series of brightline tests that outline specific 

relationships that are per se material 

and automatically disqualify a director 

from service as a public director. 

The acceptable practices were 

published in the Federal Register on 

February 14, 2007, with an effective 

date of March 16, 2007. Shortly 

thereafter, the Commission proposed 

certain clarifying and other amendments 

to the definition of public director.7

However, those amendments were 

limited to the bright-line tests. In 

proposing those amendments, the 

Commission emphasized that they 

should not be read as a diminution of 

the public representation, conflict-ofinterest mitigation, and self-regulatory 

insulation intended by the acceptable 

practices. To that end, all three 

operational provisions in the acceptable 

practices remained as originally 

adopted. The Commission received six 

comment letters in response to the 

March 26, 2007, proposed amendments, 

including letters from the National 

Futures Association (‘‘NFA’’); the 

Futures Industry Association (‘‘FIA’’); 

the CBOE Futures Exchange (‘‘CFE’’); 

the Chicago Board of Trade (‘‘CBOT’’); 

the Chicago Mercantile Exchange 

(‘‘CME’’) and Kansas City Board of 

Trade (‘‘KCBT’’) writing jointly; and Mr. 

Dennis Gartman (‘‘Gartman’’). 

The six comment letters included 

general observations on the merits of the 

entire acceptable practices for Core 

Principle 15. They also included 

comments on specific provisions of the 

acceptable practices and on the 

proposed amendments to the definition 

of public director itself. CFE, for 

example, stated its belief that the 

acceptable practices will ‘‘serve to 

enhance the self regulatory process’’ and 

‘‘have a positive impact’’ on exchange 

governance and conflicts of interest.8 At 

the same time, CFE requested 

amendments or clarifications with 

respect to the payments permitted to 

public directors; allowing overlapping 

public directors between a DCM and its 

affiliates; and compensation for director 

services. 

The joint comment letter from CME 

and KCBT repeated prior arguments 

against the acceptable practices. Among 

other things, the two exchanges stated 

that ‘‘the CEA does not grant the 

Commission authority to require an 

arbitrary minimum percentage of 

‘public’ directors on publicly-traded 

DCM boards.’’ 9 They also stated that 

‘‘the Act does not grant the Commission 

power to dictate the formation or 

conduct of a ROC.’’ 10 The Commission 

has considered these arguments before 

and addressed them at length in the 

public record.11

The CBOT’s comment letter noted 

that CBOT ‘‘continues to question the 

need for the acceptable practices in 

general’’ and that it ‘‘believes that the 

Commission’s definition of a public 

director is overbroad.’’ 12 CBOT also 

elaborated on its specific concerns 

regarding the definition of public 

director. The FIA stated that ‘‘FIA is 

supportive of the acceptable practices 

adopted by the Commission * * * and 

compliments the Commission and its 

staff for their extensive work in this 

important area.’’ 13 However, FIA also 

asked the Commission to reconsider 

elements of the bright-line tests for 

public director. In particular, FIA 

argued that ‘‘the Commission’s $100,000 

professional service payment criterion 

sweeps too broadly insofar as it equates 

service to a DCM with service to a DCM 

member.’’ 14

Additional comment letters were 

received from NFA and from Gartman. 

NFA noted that the acceptable practices 

for Core Principle 15 ‘‘do not apply to 

NFA’s governance and NFA again 

applauds the Commission’s decision not 

to include registered futures 

association’s [sic]’’ under these 

acceptable practices.15 NFA then 

provided examples of how the 

acceptable practices might impact NFA 

if they were applicable to it. NFA also 

proposed changes to the definition of 

public director, including that the 

Commission ‘‘eliminate * * * criteria 

based upon payments to ‘firms’ by 

‘members’.’’ 16 Finally, Gartman 

summarized his experience in the 

futures industry and noted that he 

served as a director of the KCBT. 

Gartman was concerned that the 

limitation on payments to public 

directors would preclude him from 

serving as a director of the exchange. 

Gartman stated that he ‘‘clearly earn[s] 

more than $100,000/year from business 

directly related to the futures industry, 

and it is because of that relationship 

that your new rules will preclude me 

from remaining as a Director of the KC 

Board of Trade.’’ 17

The Commission carefully considered 

the six comment letters noted above. 

After due deliberation, however, it 

determined not to act on the proposed 

amendments or the comments received. 

Instead, on November 23, 2007, the 

Commission gave notice via the Federal 

Register that the acceptable practices for 

Core Principle 15 were stayed 

indefinitely and in their entirety. 

Likewise, the two-year compliance 

period for existing DCMs also was 

stayed. With the definition of public 

director in flux, the Commission, with 

its two new members, concluded that a 

stay was an appropriate response to the 

resulting regulatory uncertainty while it 

considered ways to move forward on the 

proposal. 

In issuing the stay, the Commission 

explained that it would ‘‘carefully 

consider its next steps’’ with respect to 

the acceptable practices.18 It is 

noteworthy, however, that the 

Commission did not repeal or in any 

way diminish the acceptable practices, 

nor did it abandon its commitment to 

the principles that they embody. Now, 

returning again to those principles, the 

Commission fully reasserts the 

fundamental philosophy underpinning 

the acceptable practices for Core 

Principle 15: that potential conflicts of 

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Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Proposed Rules 3477 

19Acceptable practices for Core Principle 15 at 

(b)(2)(i). 

20 Id. 

interest in self-regulation by for-profit 

and publicly-traded DCMs—structural 

conflicts of interest—can be addressed 

successfully through appropriate 

measures embedded in DCMs’ 

governance structures. 

B. The Commission Remains Committed 

to the Acceptable Practices for Core 

Principle 15 

Through this release, and the 

proposed amendments to the bright-line 

tests for public director contained 

herein, the Commission reaffirms its 

support for public representation on 

DCM boards of directors and 

disciplinary panels, including the 35% 

public board standard first enunciated 

in the acceptable practices. Likewise, 

the Commission reaffirms its strong 

commitment to ROCs, consisting 

exclusively of public directors, to 

oversee all facets of DCMs’ selfregulatory programs and staff. In short, 

while the definition of public director is 

subject to refinement, the importance of 

public directors’ purpose and placement 

at the center of effective self-regulation 

remains intact, as do the acceptable 

practices for Core Principle 15 that 

provide secure safe harbors for 

compliance. 

Equally important, the Commission 

remains committed to a definition of 

public director that is both meaningful 

and effective. To that end, the 

Commission hereby withdraws its 

previous proposal to amend the brightline tests for public director and seeks 

public comment on new bright-lines 

that simplify and clarify the definition 

of ‘‘public director’’ while maintaining 

its integrity and effectiveness. 

The Commission believes that, while 

the changes summarized below are 

material, they are fundamentally 

consistent with the design and purposes 

of the acceptable practices as originally 

conceived. Most importantly, the new 

proposed amendments touch only on 

the bright-line tests. Thus, the single 

most important element of the 

definition of public director—the 

overarching ‘‘material relationship’’ test 

in section (2)(i)—remains unchanged. 

As before, ‘‘[t]o qualify as a public 

director of a contract market, an 

individual must first be found, by the 

board of directors, on the record, to have 

no material relationship with the 

contract market.’’ 19 And, as before, ‘‘[a] 

material relationship is one that 

reasonably could affect the independent 

judgment or decision making of the 

director.’’ 20

The practical consequence of the 

amended bright-line tests for public 

director is that certain relationships that 

were once automatically disqualifying 

now must be analyzed under the 

material relationship test recited above. 

This in no way diminishes the 

importance of such relationships. 

Instead, it makes it incumbent upon 

DCMs to conduct the necessary facts 

and circumstances analysis to determine 

whether a potential public director’s 

relationship with his or her DCM in fact 

rises to the level of a material 

relationship. The Commission believes 

that requiring the DCM to conduct this 

analysis is consistent with the spirit and 

intent of the acceptable practices. 

Fundamentally, the proposed 

amendments to the bright-line tests 

restate the proposition that while 

certain director-DCM relationships are 

so clearly material that the Commission 

must automatically preclude them in 

public directors, the materiality of all 

other relationships is best determined 

by the DCM, as the need arises and the 

specific facts present themselves. This is 

especially true with respect to the 

complex business, social, and other 

relationships that exist at the highest 

levels of corporate management and 

directorship in the financial services 

industry. In addition, the proposed 

amendments also serve to streamline 

and clarify the definition of public 

director in certain areas, with the 

understanding that, in those areas, the 

overarching material relationship test 

will continue to give the necessary 

protection to the integrity of the ‘‘public 

director’’ designation. 

Finally, while reemphasizing the 

importance of the material relationship 

test in the definition of public director, 

the Commission also notes its continued 

commitment to specific bright-line tests 

for director-DCM relationships that, as 

explained above, are so clearly material 

that they must automatically preclude 

service as a public director. 

Accordingly, the proposed amendments 

to the bright-line tests retain most of the 

original substantive content of the tests. 

As with the original bright-line tests, 

those now proposed touch on a 

potential public director’s (A) 

Employment relationships with the 

contract market; (B) direct and indirect 

membership relationships with the 

contract market; (C) direct and indirect 

compensation relationships with the 

contract market; and (D) familial 

relationships with the contract market. 

The one-year look back period also 

remains intact, as does the requirement 

that a DCM disclose to the Commission 

those members of its board that are 

public directors and the basis for those 

determinations. The Commission will 

also closely scrutinize the 

implementation of the materiality and 

bright-line tests when conducting its 

routine rule enforcement reviews of the 

exchanges, to ensure that the 

independence of these public directors 

is upheld. The proposed amendments 

are summarized below. 

C. The Proposed Amendments 

First, in subsection (2)(ii), the 

Commission proposes to make its 

vocabulary more consistent with that in 

subsection (2)(i), but without altering its 

meaning. As adopted, the provision 

states that ‘‘* * * a director shall not be 

considered public if [the bright-line 

tests are not met].’’ The Commission 

proposes that subsection (2)(ii) should 

instead read ‘‘* * * a director shall be 

considered to have a ‘material 

relationship’ with the contract market if 

[the bright-line tests are not met].’’ 

Because the overarching material 

relationship test in subsection (2)(i) 

precludes a person with a material 

relationship from serving as a public 

director, the purpose and effect of the 

provision remains unchanged. 

Second, in subsections (2)(ii)(A) and 

(2)(iv), the Commission proposes 

amendments that will free a DCM’s 

public directors from bright-line tests 

that they would have failed if they also 

served as directors of the DCM’s 

affiliates. For this purpose, ‘‘affiliate’’ is 

proposed to be defined in subsection 

(2)(ii)(A) to include ‘‘parents or 

subsidiaries of the contract market or 

entities that share a common parent 

with the contract market.’’ Previously, a 

DCM’s public directors could also serve 

as directors of its parent company, but 

not as directors of its subsidiary or sister 

companies. With this amendment, the 

latter two relationships no longer suffer 

automatic exclusion. Thus, for example, 

an exchange holding company owning 

two DCMs could place the same public 

director on the boards of all three 

entities without falling afoul of the 

acceptable practices and voluntary safe 

harbor for Core Principle 15 if the 

director separately qualified as a public 

director for each entity. 

The Commission cautions, however, 

that any affiliate relationships must still 

be scrutinized carefully under the 

material relationship test in subsection 

(2)(i). As stated previously, the fact that 

an interlocking director relationship is 

no longer automatically precluded 

under the bright-line tests does not 

signal that the Commission is no longer 

concerned with this type of 

relationship. Instead, the point of 

analysis is simply shifted from a 

preemptive, bright-line determination 

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3478 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Proposed Rules 

21 7 U.S.C. 19(a). 

22E.g., Fishermen’s Dock Co-op., Inc. v. Brown, 75 

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

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

discretion to weigh factors in undertaking cost 

benefit analyses). 

by the Commission to an overarching 

material relationship test applied by the 

DCM and its board of directors. In this 

context, the Commission notes that 

certain affiliate relationships could 

certainly be material. For example, a 

DCM affiliate that is also subject to the 

DCM’s regulatory authority (e.g., as a 

member of the DCM or as a participant 

in its markets) raises obvious concerns. 

Third, the Commission proposes to 

amend subsection (2)(ii)(B) of the 

definition of public director. As 

adopted, this subsection precludes DCM 

members, employees of members, and 

persons affiliated with members from 

service as public directors. Currently, 

the acceptable practices define 

‘‘affiliated with a member’’ as being an 

officer or director of a member, or 

having ‘‘any other relationship with the 

member such that his or her impartiality 

could be called into question in matters 

concerning the member’’ (emphasis 

added). As is obvious from the statutory 

text, subsection (2)(ii)(B) effectively 

inserts another material relationship 

determination in what is an otherwise 

bright-line test. Thus, not only are 

members and their employees, officers, 

and directors excluded as public 

directors, but another category of 

potential directors—those having any 

relationship with a member such that 

his or her impartiality could be called 

into question in matters concerning the 

member—is also excluded. 

The Commission believes that 

subsection (2)(ii)(B) should be 

streamlined in three ways. First, any 

material relationship determinations 

made pursuant to section (2) should 

take place under the overarching 

material relationship test of subsection 

(2)(i), and not under the bright-line tests 

of subsection (2)(ii). Second, subsection 

(2)(ii)(B) should set forth the exact 

membership relationships that are 

automatically precluded. Finally, the 

subsection should allow the DCM to 

conduct the necessary analysis of the 

facts and circumstances to determine 

whether employment by a member—or, 

more likely, employment of his or her 

spouse, parent, child, or sibling—should 

prove fatal to an otherwise qualified 

public director. 

Each of these changes is reflected in 

the proposed amendments to subsection 

(2)(ii)(B). The proposed amendments 

eliminate the material relationship test 

embedded in the original subsection 

and restructure it as a strict bright-line 

test. The amended subsection also states 

with precision which membership 

relationships are automatically 

considered material relationships: 

Neither a DCM member nor its officers 

or directors may serve as public 

directors of the DCM. Finally, a DCM 

member’s employees are no longer 

automatically precluded (unless they 

are employed as officers or directors). 

As with other amendments proposed 

herein, however, the Commission again 

reiterates that the amendments merely 

shift the point of analysis from the 

bright-lines of subsection (2)(ii) to the 

overarching material relationship test of 

subsection (2)(i). As before, the 

Commission remains concerned about 

any relationship between potential 

public directors and DCM members that 

could ‘‘affect the independent judgment 

or decision making of the director.’’ 

Finally, the Commission proposes to 

amend subsection (2)(ii)(C) of the brightline tests. Here again, the Commission 

seeks to simplify and clarify the 

provision, and to ensure that the brightline tests are clearly articulated. As 

adopted, subsection (2)(ii)(C) creates a 

$100,000 combined annual payments 

test for potential public directors and 

the firms with which they may be 

affiliated (‘‘payment recipients’’). A 

particular payment’s relevance to the 

$100,000 bright-line test depends upon 

the source (‘‘payment provider’’) and 

nature of the payment. In this regard, 

the subsection does not specify which 

payments should count towards the 

$100,000 annual cap—-all payments or 

only those for certain types of services. 

In addition, the subsection also contains 

potential ambiguity with respect to the 

universe of potential payment providers 

and payment recipients. 

The first proposed amendment to 

subsection (2)(ii)(C) defines the nature 

of ‘‘payment,’’ specifying that it is 

payment for ‘‘legal, accounting, or 

consulting services.’’ The second 

proposed amendment clarifies that the 

relevant payment recipients include the 

potential public director and any firm in 

which the director is an officer, partner, 

or director. The third proposed 

amendment to subsection (2)(ii)(C) 

clarifies that the relevant payment 

providers include the DCM and any 

parent, sister, or subsidiary company of 

the DCM. Notably, the proposed new 

payment providers provision no longer 

captures DCM members or persons or 

entities affiliated with members, 

although such relationships should still 

be analyzed under the overarching 

materiality test of subsection (2)(i). 

Finally, the Commission proposes to 

amend subsection (2)(ii)(C) to take into 

account payments to a public director in 

excess of $100,000 by sister and 

subsidiary companies of the DCM. This 

is consistent with the Commission’s 

intent, previously articulated, not to 

automatically prohibit overlapping 

public directors between DCMs and 

their affiliates. 

II. Related Matters 

A. Cost-Benefit Analysis 

Section 15(a) of the Act requires the 

Commission to consider the costs and 

benefits of its actions before issuing a 

new regulation or order under the Act.21

By its terms, Section 15(a) requires the 

Commission to ‘‘consider the costs and 

benefits’’ of a subject rule or order, 

without requiring it to quantify the costs 

and benefits of its action or to determine 

whether the benefits of the action 

outweigh its costs. Section 15(a) 

requires that the costs and benefits of 

proposed rules 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 interests considerations. In 

conducting its analysis, the Commission 

may, in its discretion, give greater 

weight to any one of the five 

enumerated areas of concerns and may 

determine that notwithstanding its 

costs, a particular rule is necessary or 

appropriate to protect the public interest 

or to effectuate any of the provisions or 

to accomplish any of the purposes of the 

CEA.22

On February 14, 2007, the 

Commission published final acceptable 

practices for Core Principle 15 that 

included prophylactic measures 

designed to minimize conflicts of 

interest in DCMs’ decision making 

processes. The final rulemaking 

thoroughly considered the costs and 

benefits of the acceptable practices and 

responded to comments relating to the 

costs of adhering to their requirements. 

The new amendments herein to the 

definition of public director are 

proposed to bring further clarity and 

finality to the acceptable practices for 

Core Principle 15. The Commission 

believes that the proposed amendments 

are fully consistent with the design and 

purpose of the acceptable practices as 

originally conceived. Furthermore, 

through more consistent, streamlined, 

and precise articulations, the proposed 

amendments will facilitate DCMs’ 

implementation of the acceptable 

practices and thereby further important 

public interest considerations with 

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23 7 U.S.C. 7(d)(15). 

24See Policy Statement and Establishment of 

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

Regulatory Flexibility Act, 47 FR 18618, 18619 

(Apr. 30, 1982). 

respect to conflicts of interest in DCM 

self-regulation. In particular, the 

acceptable practices offer all DCMs a 

safe harbor for compliance with Core 

Principle 15, which requires them to 

‘‘establish and enforce rules to minimize 

conflicts of interest in the decision 

making process of the contract market. 

* * *’’ 23 The acceptable practices’ safe 

harbor is based on the inclusion of 

public directors on their boards; the 

creation and empowerment of ROCs 

consisting exclusively of public 

directors; and the presence of public 

persons on DCM disciplinary panels. 

Thus, each of these provisions depends 

heavily on a clear and settled definition 

of public director. The Commission 

believes that the proposed amendments 

will not impose any additional costs 

upon DCMs. To the contrary, they may 

reduce the costs of compliance through 

improvements in the bright-line tests for 

public director, such that the tests truly 

operate as bright-lines and the 

definition of public director is wellsettled. 

After considering the above 

mentioned factors and issues, the 

Commission has determined to propose 

these amendments to the acceptable 

practices for Core Principle 15. The 

Commission specifically invites public 

comment on its application of the 

criteria contained in Section 15(a) of the 

Act and further invites interested parties 

to submit any quantifiable data that they 

may have concerning the costs and 

benefits of the proposed amendments to 

the acceptable practices for Core 

Principle 15. 

B. Paperwork Reduction Act of 1995 

These proposed amendments to the 

acceptable practices for Core Principle 

15 will not impose any new 

recordkeeping or information collection 

requirements, or other collections of 

information that require approval of the 

Office of Management and Budget under 

44 U.S.C. 3501, et seq. Accordingly, the 

Paperwork Reduction Act does not 

apply. We solicit comments on the 

accuracy of our estimate that no 

additional recordkeeping or information 

collection requirements or changes to 

existing collection requirements would 

result from the amendments proposed 

herein. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act, 5 

U.S.C. 601 et seq. requires federal 

agencies, in promulgating rules, to 

consider the impact of those rules on 

small entities. The proposed 

amendments to the Acceptable Practices 

for Core Principle 15 affect DCMs. The 

Commission has previously determined 

that DCMs are not small entities for 

purposes of the Regulatory Flexibility 

Act.24 Accordingly, the Acting 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that the proposed amendments to 

the acceptable practices will not have a 

significant economic impact on a 

substantial number of small entities. 

III. Text of Proposed Amendments 

List of Subjects in 17 CFR Part 38 

Commodity futures, Reporting and 

recordkeeping requirements. 

In light of the foregoing, and pursuant 

to the authority in the Act, and in 

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

of the Act, the Commission hereby 

proposes to amend Part 38 of Title 17 

of the Code of Federal Regulations as 

follows: 

PART 38—DESIGNATED CONTRACT 

MARKETS 

1. The authority citation for part 38 

continues to read as follows: 

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

12a, as amended by Appendix E of Public 

Law 106–554, 114 Stat. 2763A–365. 

2. In Appendix B to Part 38 revise 

paragraphs (b)(2)(ii) through (b)(2)(v) of 

the acceptable practices for Core 

Principle 15 to read as follows: 

Appendix B to Part 38—Guidance on, 

and Acceptable Practices in, 

Compliance With Core Principles 

* * * * * 

Core Principle 15 of section 5(d) of the Act: 

CONFLICTS OF INTEREST 

* * * * * 

(b) * * * 

(2) * * * 

(ii) In addition, a director shall be 

considered to have a ‘‘material relationship’’ 

with the contract market if any of the 

following circumstances exist: 

(A) The director is an officer or employee 

of the contract market or an officer or 

employee of its affiliate. In this context, 

‘‘affiliate’’ includes parents or subsidiaries of 

the contract market or entities that share a 

common parent with the contract market; 

(B) The director is a member of the contract 

market, or an officer or director of a member. 

‘‘Member’’ is defined according to Section 

1a(24) of the Commodity Exchange Act and 

Commission Regulation 1.3(q); 

(C) The director, or a firm with which the 

director is an officer, director, or partner, 

receives more than $100,000 in combined 

annual payments from the contract market, or 

any affiliate of the contract market (as 

defined in Subsection (2)(ii)(A)), for legal, 

accounting, or consulting services. 

Compensation for services as a director of the 

contract market or as a director of an affiliate 

of the contract market does not count toward 

the $100,000 payment limit, nor does 

deferred compensation for services prior to 

becoming a director, so long as such 

compensation is in no way contingent, 

conditioned, or revocable; 

(D) Any of the relationships above apply to 

a member of the director’s ‘‘immediate 

family,’’ i.e., spouse, parents, children and 

siblings. 

(iii) All of the disqualifying circumstances 

described in Subsection (2)(ii) shall be 

subject to a one-year look back. 

(iv) A contract market’s public directors 

may also serve as directors of the contract 

market’s affiliate (as defined in Subsection 

(2)(ii)(A)) if they otherwise meet the 

definition of public director in this Section 

(2). 

(v) A contract market shall disclose to the 

Commission which members of its board are 

public directors, and the basis for those 

determinations. 

* * * * * 

Issued in Washington, DC, on January 12, 

2009 by the Commission. 

David Stawick, 

Secretary of the Commission. 

Concurring Statement of Commissioner 

Jill E. Sommers Regarding the 

Withdrawal of Previously Proposed 

Amendments to the Acceptable 

Practices for Core Principle 15 and 

Solicitation of Public Comments on 

New Proposed Amendments 

I fully support the Commission’s 

decision to issue these proposed 

amendments to the bright-line tests for 

determining when a board member has 

a material relationship with an 

exchange such that he or she is 

disqualified from serving as a public 

director. The proposed amendments 

attempt to cure certain ambiguities and 

complexities that existed in the 

acceptable practices adopted by the 

Commission on January 31, 2007, and 

the proposed amendments thereto 

published on March 26, 2007. I 

commend Commission staff for their 

dedication to this important project and 

their resolve, through several changes in 

Commission membership, to get it right. 

I believe the amendments proposed 

today provide a workable method of 

discerning the existence of those 

relationships that should be deemed 

automatically ‘‘material,’’ and 

appropriately leave to the exchanges the 

responsibility for determining whether 

other circumstances not specified in the 

bright-line tests may give rise to 

potential conflicts of interest. 

I write separately, however, to express 

my disagreement with issuing the 

statement contained in footnote six of 

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3480 Federal Register / Vol. 74, No. 12 / Wednesday, January 21, 2009 / Proposed Rules 

the proposal, that ‘‘the Commission 

believes DCMs benefit from endeavoring 

to recruit their public directors from a 

broad and culturally diverse pool of 

qualified candidates.’’ The purpose of 

the acceptable practices is to ‘‘ensure 

that there is adequate independence 

within [exchange] board[s] to insulate 

[their] regulatory functions from the 

interests of the exchange’s management, 

members and other business interests of 

the market itself.’’ 71 FR 38740 (July 7, 

2006). It is not clear to me how 

recruiting directors from a culturally 

diverse pool of candidates advances that 

goal, nor is it a given that seating a wellqualified board that is culturally diverse 

is something that may be practicably 

accomplished. My primary objection, 

however, is based on the fact that we 

have no legal authority to issue 

pronouncements on the subject. We are 

not a commission of general 

jurisdiction. Our authority and oversight 

responsibilities are specifically limited 

by statute and do not include the 

promotion of equal employment 

opportunity. Moreover, to the extent the 

Commission may be suggesting that 

exchanges consider factors such as race, 

gender, national origin, or religion in 

selecting public directors, we may be 

encouraging activity that could 

potentially violate Title VII of the Civil 

Rights Act of 1964. 

Concurring Statement of Commissioner 

Bart Chilton Regarding the Withdrawal 

of Previously Proposed Amendments to 

the Acceptable Practices for Core 

Principle 15 and Solicitation of Public 

Comments on New Proposed 

Amendments 

I concur in the Commission’s issuance 

of the above-referenced action. I write 

separately, however, to comment on 

certain aspects of the proposal of 

particular interest to me. 

First, I am gratified to see language in 

the proposal relating to my longstanding 

request that we note to designated 

contract markets the benefits of 

diversity in recruiting public directors. 

While this is, as stated, not a 

requirement under the acceptable 

practices, it is quite obviously a 

laudable and attainable goal, and one 

that should be encouraged. 

Second, I would ask commenters to 

respond specifically as to whether the 

Commission has included within the 

proposal all appropriate decisionmaking bodies at designated contract 

markets, or whether the class should be 

broadened to include entities other than 

boards of directors, executive 

committees or similarly empowered 

bodies, regulatory oversight committees, 

and disciplinary panels. 

Lastly, I note with some concern the 

timeline of this proposal. In November 

2007, the Commission stayed the ‘‘final’’ 

acceptable practices that had been 

issued in February 2007. This was a 

necessary action, although unfortunate 

in that it created further delay in an 

already protracted and flawed process. 

Even more unfortunate, swift action was 

promised on this proposal in December 

2007, yet it has taken more than a full 

year to see any progress. As public 

servants, we can and should do better to 

serve American consumers and 

businesses. 

[FR Doc. E9–891 Filed 1–16–09; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF JUSTICE 

Drug Enforcement Administration 

21 CFR Parts 1300, 1301, 1304, 1305, 

and 1307 

[Docket No. DEA–316A] 

RIN 1117–AB18 

Disposal of Controlled Substances by 

Persons Not Registered With the Drug 

Enforcement Administration 

AGENCY: Drug Enforcement 

Administration (DEA), Justice. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: In response to concerns raised 

by individuals, public and private 

organizations, the healthcare industry, 

and the law enforcement community, 

the Drug Enforcement Administration 

(DEA) is soliciting information on the 

disposal of controlled substances 

dispensed to individual patients, also 

defined as ultimate users, as well as 

long term care facilities. DEA is seeking 

options for the safe and responsible 

disposal of dispensed controlled 

substances in a manner consistent with 

the Controlled Substances Act and its 

implementing regulations. 

DATES: Written comments must be 

postmarked on or before March 23, 

2009, and electronic comments must be 

sent on or before midnight Eastern time 

March 23, 2009. 

ADDRESSES: To ensure proper handling 

of comments, please reference ‘‘Docket 

No. DEA–316’’ on all written and 

electronic correspondence. Written 

comments being sent via regular or 

express mail should be sent to the Drug 

Enforcement Administration, Attention: 

DEA Federal Register Representative/ 

ODL, 8701 Morrissette Drive, 

Springfield, VA 22152. Comments may 

be sent to DEA by sending an electronic 

message to 

dea.diversion.policy@usdoj.gov. 

Comments may also be sent 

electronically through http:// 

www.regulations.gov using the 

electronic comment form provided on 

that site. An electronic copy of this 

document is also available at the 

http://www.regulations.gov Web site. 

DEA will accept attachments to 

electronic comments in Microsoft Word, 

WordPerfect, Adobe PDF, or Excel file 

formats only. DEA will not accept any 

file formats other than those specifically 

listed here. 

Please note that DEA is requesting 

that electronic comments be submitted 

before midnight Eastern time on the day 

the comment period closes because 

http://www.regulations.gov terminates 

the public’s ability to submit comments 

at midnight Eastern time on the day the 

comment period closes. Commenters in 

time zones other than Eastern time may 

want to consider this so that their 

electronic comments are received. All 

comments sent via regular or express 

mail will be considered timely if 

postmarked on the day the comment 

period closes. 

FOR FURTHER INFORMATION CONTACT: 

Mark W. Caverly, Chief, Liaison and 

Policy Section, Office of Diversion 

Control, Drug Enforcement 

Administration, 8701 Morrissette Drive, 

Springfield, VA 22152, Telephone (202) 

307–7297. 

SUPPLEMENTARY INFORMATION: 

Posting of Public Comments: Please 

note that all comments received are 

considered part of the public record and 

made available for public inspection 

online at http://www.regulations.gov 

and in the Drug Enforcement 

Administration’s public docket. Such 

information includes personal 

identifying information (such as your 

name, address, etc.) voluntarily 

submitted by the commenter. 

If you want to submit personal 

identifying information (such as your 

name, address, etc.) as part of your 

comment, but do not want it to be 

posted online or made available in the 

public docket, you must include the 

phrase ‘‘PERSONAL IDENTIFYING 

INFORMATION’’ in the first paragraph 

of your comment. You must also place 

all the personal identifying information 

you do not want posted online or made 

available in the public docket in the first 

paragraph of your comment and identify 

what information you want redacted. 

If you want to submit confidential 

business information as part of your 

comment, but do not want it to be 

posted online or made available in the 

mstockstill on PROD1PC66 with PROPOSALS