Federal Register / Vol. 73, No. 244 / Thursday, December 18, 2008 / Notices 77015 

1 72 FR 68862 (December 7, 2007). 

2 73 FR 1205 (January 7, 2008). 

3 17 CFR Part 35. 

COMMITTEE FOR THE 

IMPLEMENTATION OF TEXTILE 

AGREEMENTS 

Limitation of Duty-free Imports of 

Apparel Articles Assembled in Haiti 

under the Haitian Hemispheric 

Opportunity Through Partnership for 

Encouragement Act (HOPE) 

December 12, 2008. 

AGENCY: Committee for the 

Implementation of Textile Agreements 

(CITA). 

ACTION: Notification of Annual 

Quantitative Limit on Certain Apparel 

under HOPE 

EFFECTIVE DATE: December 18, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Maria Dybczak, International Trade 

Specialist, Office of Textiles and 

Apparel, U.S. Department of Commerce, 

(202) 482-3651. 

SUPPLEMENTARY INFORMATION: 

Authority: The Caribbean Basin Recovery 

Act (‘‘CBERA’’), as amended by the Haitian 

Hemispheric Opportunity Through 

Partnership for Encouragement Act of 2006 

(collectively, ‘‘HOPE’’), Title V of the Tax 

Relief and Health Care Act of 2006 and the 

Food, Conservation, and Energy Act of 2008 

(‘‘HOPE II’’); and Presidential Proclamation 

No. 8114, 72 Fed. Reg. 13655, 13659 (March 

22, 2007) (‘‘Proclamation’’). 

HOPE provides for duty-free 

treatment for certain apparel articles 

imported directly from Haiti. Section 

213A (b)(1)(B) of HOPE outlines the 

requirements for certain apparel articles 

to qualify for duty-free treatment under 

a ‘‘value-added’’ program. In order to 

qualify for duty-free treatment, apparel 

articles must be wholly assembled, or 

knit-to-shape, in Haiti from any 

combination of fabrics, fabric 

components, components knit-to-shape, 

and yarns, as long as the sum of the cost 

or value of materials produced in Haiti 

or one or more countries, as described 

in HOPE, or any combination thereof, 

plus the direct costs of processing 

operations performed in Haiti or one or 

more countries, as described in HOPE, 

or any combination thereof, is not less 

than an applicable percentage of the 

declared customs value of such apparel 

articles. For the period December 20, 

2008 through December 19, 2009, the 

applicable percentage is 50 percent. 

For every twelve month period 

following the effective date of HOPE, 

duty-free treatment under the valueadded program is subject to a 

quantitative limitation, HOPE provides 

that the quantitative limitation will be 

recalculated for each subsequent 12- 

month period. Section 213A (b)(1)(C) of 

HOPE, as amended by HOPE II, requires 

that, for the twelve-month period 

beginning on December 20, 2008, the 

quantitative limitation for qualifying 

apparel imported from Haiti under the 

value-added program will be an amount 

equivalent to 1.25 percent of the 

aggregate square meter equivalent of all 

apparel articles imported into the 

United States in the most recent 12- 

month period for which data are 

available. 

For purposes of this notice, the most 

recent 12-month period for which data 

are available as of December 20, 2008 is 

the 12-month period ending on October 

31, 2008. Therefore, for the one-year 

period beginning on December 20, 2008 

and extending through December 19, 

2009, the quantity of imports eligible for 

preferential treatment under the valueadded program is 305,093,845 square 

meters equivalent. Apparel articles 

entered in excess of these quantities will 

be subject to otherwise applicable 

tariffs. 

These quantities are calculated using 

the aggregate square meters equivalent 

of all apparel articles imported into the 

United States, derived from the set of 

Harmonized System lines listed in the 

Annex to the World Trade Organization 

Agreement on Textiles and Clothing 

(‘‘ATC’’), and the conversion factors for 

units of measure into square meter 

equivalents used by the United States in 

implementing the ATC. 

Janet E. Heinzen, 

Acting Chairman, Committee for the 

Implementation of Textile Agreements. 

[FR Doc. E8–30115 Filed 12–17–08; 8:45 am] 

BILLING CODE 3510–DS 

COMMODITY FUTURES TRADING 

COMMISSION 

Order: (1) Pursuant to Section 4(c) of 

the Commodity Exchange Act (a) 

Permitting Eligible Swap Participants 

To Submit for Clearing and ICE Clear 

U.S., Inc. and Futures Commission 

Merchants To Clear Certain Over-TheCounter Agricultural Swaps and (b) 

Determining Certain Floor Brokers and 

Traders To Be Eligible Swap 

Participants; and (2) Pursuant to 

Section 4d of the Commodity 

Exchange Act, Permitting Certain 

Customer Positions in the Foregoing 

Swaps and Associated Property To Be 

Commingled With Other Property Held 

in Segregated Accounts 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Order. 

SUMMARY: On December 7, 2007, the 

Commodity Futures Trading 

Commission (‘‘CFTC’’ or 

‘‘Commission’’) published for public 

comment requests (a) to permit ICE 

Clear U.S., Inc. (‘‘ICE Clear’’) to clear 

certain over-the-counter (‘‘OTC’’) swap 

contracts and (b) to determine that 

certain ICE Futures U.S., Inc. (‘‘ICE 

Futures’’) floor brokers and traders are 

Eligible Swap Participants (‘‘ESPs’’) for 

the purpose of trading those OTC swaps 

(‘‘Notice.’’).1 On January 7, 2008, the 

comment period was extended to 

February 6, 2008.2 ICE Clear also filed 

a request for an order pursuant to 

Section 4d of the Commodity Exchange 

Act (‘‘CEA’’ or ‘‘Act’’) to allow ICE Clear 

and Futures Commission Merchants 

(‘‘FCMs’’) clearing through ICE Clear to 

commingle positions in those cleared 

OTC swap contracts and property 

supporting those positions with 

property and positions otherwise 

required to be held in customer 

segregated accounts. That request was 

published on the CFTC’s Web site for 

public comment during the same 

timeframe with the same comment 

deadline. The Commission has reviewed 

the comments made in response to the 

requests for comment and the entire 

record in this matter and has 

determined to issue an order granting 

the requests. 

DATES: Effective Date: December 12, 

2008. 

FOR FURTHER INFORMATION CONTACT: Lois 

J. Gregory, Special Counsel, 816–960– 

7719, lgregory@cftc.gov, or Robert B. 

Wasserman, Associate Director, 202– 

418–5092, rwasserman@cftc.gov, 

Division of Clearing and Intermediary 

Oversight; or Duane C. Andresen, Senior 

Special Counsel, 202–418–5492, 

dandresen@cftc.gov, Division of Market 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1151 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. The ICE Clear 4(c) Petition 

ICE Clear, the clearing organization 

for ICE Futures, sought to offer ESPs 

who enter into certain bilateral swap 

transactions involving coffee, sugar, or 

cocoa the opportunity to submit them to 

ICE Clear for clearing. ICE Clear 

represented that swap transactions in 

various agricultural products, including 

coffee, sugar, and cocoa, currently trade 

in OTC markets exempt from provisions 

of the CEA pursuant to Part 35 of the 

Commission’s regulations,3 that these 

swap agreements are commonly entered 

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77016 Federal Register / Vol. 73, No. 244 / Thursday, December 18, 2008 / Notices 

4 Jurisdiction is retained for, inter alia, provisions 

of the CEA proscribing fraud and manipulation. See 

Commission Reg. § 35.2, 17 CFR 35.2 (Commission 

regulations are hereinafter cited as ‘‘Reg. §ll’’). 

5Reg. § 35.1(b)(1)(i). 

6 ‘‘Commodity’’ is defined in Section 1a(4) of the 

CEA 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.’’ 

7See 58 FR 5587 (January 22, 1993). Section 4(c) 

of the CEA was added by section 502(a) of the 

Futures Trading Practices Act of 1992, Pub. L. 102– 

546, 106 Stat. 3590. 

8Pub. L. 06–554, 114 Stat. 2763 (2000). 

9See, e.g., CEA section 2(d), (g), and (h). 

10Reg. § 35.2(b). 

11Reg. § 35.2(a). 

12Reg. § 35.2(c). 

13The OTC transaction would be required to 

involve the coffee, sugar, or cocoa underlying the 

corresponding cleared-only contract. The unit size, 

quality, and other specifications for the OTC coffee, 

sugar, or cocoa transaction would be approximately 

equivalent to the unit size, quality, and other 

specifications of the corresponding physical 

delivery futures contract listed on ICE Futures. 

14Reg. § 35.1(b)(2)(x). 

15The Commission noted that these conditions 

are substantially similar to the conditions included 

in two previously issued Commission orders that 

permit floor members to be Eligible Contract 

Participants (‘‘ECPs’’) pursuant to Section 1a(12)(C) 

of the Act, 7 U.S.C. 1a(12)(C). On March 14, 2006, 

the Commission issued an order that permitted 

Chicago Mercantile Exchange (‘‘CME’’) floor 

members to be ECPs with respect to OTC 

transactions in excluded commodities entered into 

pursuant to Section 2(d)(1) of the Act. On August 

3, 2006, the Commission issued a second order (the 

first was issued February 4, 2003) that permitted 

New York Mercantile Exchange (‘‘NYMEX’’) floor 

members to be ECPs with respect to OTC 

transactions in exempt commodities entered into 

pursuant to Section 2(h)(1) of the Act. 

into by participants exchanging fixed for 

floating reference prices, and that 

participants in these markets include 

trade houses, commodity lenders, 

producers, end users, and large 

speculators. 

Part 35 of the Commission’s 

regulations exempts, subject to 

conditions, swap agreements and 

eligible persons entering into these 

agreements from most provisions of the 

CEA.4 The term ‘‘swap agreement’’ is 

defined to include, among other types of 

agreements, ‘‘a * * * commodity 

swap,’’ 5 which latter term includes 

swaps on agricultural products.6 Part 35 

was promulgated pursuant to authority 

provided to the Commission in Section 

4(c) of the Act to exempt certain 

transactions in order to explicitly permit 

certain off-exchange derivative 

transactions, and thus to promote 

innovation and competition.7 In the 

Commodity Futures Modernization Act 

of 2000,8 Congress enacted a number of 

exemptions and exclusions from the 

CEA for contracts traded outside of 

Designated Contract Markets (‘‘DCMs’’), 

but none apply to agricultural 

contracts.9

Part 35 requires, inter alia, that a 

swap agreement not be part of a fungible 

class of agreements that are 

standardized as to their material 

economic terms,10 that the agreement be 

solely between ESPs,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 

that ICE Clear seeks to establish, OTC 

contracts would be submitted for 

clearing, a process that would 

extinguish the original OTC contract 

and replace it with an equivalent 

number of cash-settled ‘‘cleared-only’’ 

contracts, with the clearinghouse 

interposed as central counterparty.13 A 

cleared-only contract could be offset by 

another cleared-only contract. Thus, 

clearing of these OTC contracts would 

result in contracts that were fungible 

with other cleared-only contracts with 

approximately equivalent terms. In 

addition, due to the clearing guarantee, 

the creditworthiness of the counterparty 

would no longer be a consideration. 

Accordingly, the OTC contracts ICE 

Clear clears in this fashion would not 

fulfill all of the conditions of Part 35. 

ICE Clear also requested an order 

under CEA Section 4d so that ICE Clear 

and its clearing members can hold the 

cleared-only contracts and property 

supporting them in the customer 

segregated account along with 

exchange-listed futures contracts and 

associated property, resulting in 

improved collateral management and 

other benefits. 

II. The ICE Futures Petition 

ICE Futures, a U.S. DCM, sought to 

permit floor traders and floor brokers 

(collectively, floor members) who are 

registered with the Commission, when 

trading for their own accounts, to enter 

into the OTC swap transactions 

discussed above. Part 35, however, 

defines the term ESP to include floor 

members only as follows: (1) Floor 

members generally who are other than 

natural persons or proprietorships; (2) 

floor members who are natural persons, 

provided they have total assets 

exceeding at least $10,000,000; or (3) 

floor members who are proprietorships, 

provided they have total assets 

exceeding at least $10,000,000, or have 

the obligations under the swap 

agreement guaranteed or otherwise 

supported by certain other ESPs, or have 

a net worth of $1,000,000 and enter into 

the swap agreement in connection with 

the conduct of their business or to 

manage the risk of an asset or liability 

owned or incurred in the conduct of 

their business or reasonably likely to be 

owned or incurred in the conduct of 

their business.14 Therefore, ICE Futures 

petitioned the Commission for an order 

pursuant to Section 4(c) of the CEA that 

would permit all ICE Futures floor 

members who are registered with the 

Commission, when trading for their own 

accounts, to be ESPs for the purpose of 

entering into bilateral swap transactions 

involving agricultural commodities as 

described above. 

ICE Futures represented that all floor 

members entering into the swap 

transactions would be sophisticated and 

knowledgeable in the relevant products 

and markets and would be fully capable 

of evaluating the transactions. Further, 

because the transaction results in a 

cleared-only futures contract, floor 

members would not be subject to 

counterparty credit risk and would rely 

on the credit of ICE Clear and their 

clearing FCMs. 

The Commission stated that it 

anticipated that any Section 4(c) order 

issued in response to ICE Futures’ 

request would be subject to the 

following conditions: 

(1) The contracts, agreements, or 

transactions would have to be executed 

pursuant to the requirements of Part 35, 

as modified by the order. 

(2) The ICE Futures floor member 

would have to obtain a financial 

guarantee for the OTC swap transactions 

from an ICE Futures clearing member 

that: 

(i) Is registered with the Commission 

as an FCM; and 

(ii) clears the OTC swap transactions 

thus guaranteed. 

(3) Permissible OTC swap 

transactions would be limited to 

cleared-only contracts in the eligible 

products identified in the order. 

(4) Permissible OTC swap 

transactions would have to be submitted 

for clearance by an ICE Futures clearing 

member to ICE Clear pursuant to ICE 

Clear rules. 

(5) An ICE Futures floor member 

could not enter into OTC swap 

transactions with another ICE Futures 

floor member as the counterparty for 

ICE Clear cleared-only contracts. 

(6) ICE Futures would maintain 

appropriate compliance systems in 

place to monitor the OTC swap 

transactions of its floor members.15

III. Sections 4(c) and 4d of the CEA 

A. Permitting the OTC Contracts To Be 

Cleared 

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

the CFTC to ‘‘promote responsible 

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Federal Register / Vol. 73, No. 244 / Thursday, December 18, 2008 / Notices 77017 

16Section 4(c)(1) of the CEA, 7 U.S.C. 6(c)(1), 

provides in full that: 

In order to promote responsible economic or 

financial innovation and fair competition, the 

Commission by rule, regulation, or order, after 

notice and opportunity for hearing, may (on its own 

initiative or on application of any person, including 

any board of trade designated or registered as a 

contract market or derivatives transaction execution 

facility for transactions for future delivery in any 

commodity under section 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. 

17House Conf. Report No. 102–978, 1992 

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

18Section 4(c)(2) of the CEA, 7 U.S.C. 6(c)(2), 

provides in full that: 

The Commission shall not grant any exemption 

under paragraph (1) from any of the requirements 

of subsection (a) 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. 

economic or financial innovation and 

fair competition’’ by exempting any 

transaction or class of transactions from 

any of the provisions of the CEA 

(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. 

In enacting Section 4(c), Congress 

noted that the goal of the provision ‘‘is 

to give the Commission a means of 

providing certainty and stability to 

existing and emerging markets so that 

financial innovation and market 

development can proceed in an effective 

and competitive manner.’’ 17 The 

Commission requested comment on 

whether it should permit the OTC 

transactions in coffee, sugar, and cocoa 

to be cleared through ICE Clear as 

described above. The Commission also 

requested comment on whether it 

should determine ICE Futures floor 

members, subject to certain conditions, 

to be ESPs for the purpose of entering 

into the OTC transactions in coffee, 

sugar, and cocoa. 

Section 4(c)(2) provides that the 

Commission may grant exemptions from 

Section 4(a) of the CEA 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 CEA; 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 

CEA.18

Section 4(c)(3) includes within the 

term ‘‘appropriate persons’’ a number of 

specified categories of persons deemed 

appropriate under the Act for entering 

into transactions exempt by the 

Commission under Section 4(c). This 

includes persons the Commission 

determines to be appropriate in light of 

their financial or other qualifications, or 

the applicability of appropriate 

regulatory protections. ESPs, as defined 

in Part 35 of the Commission’s 

regulations, will be eligible to submit for 

clearing to ICE Clear the OTC 

transactions described above. That 

definition includes many of the classes 

of persons explicitly referred to in CEA 

Section 4(c)(3) (e.g., a bank or trust 

company) as well as some classes of 

persons who are included under the 

category of Section 4(c)(3)(K) (‘‘[s]uch 

other persons that the Commission 

determines to be appropriate in light of 

their financial or other qualifications, or 

the applicability of appropriate 

regulatory protections’’). ICE Futures 

has requested that the Commission 

expand this list of appropriate persons 

to include ICE Futures floor members. 

The Commission requested comment on 

this determination. The Commission 

also requested comment as to whether 

these exemptions will affect its ability to 

discharge its regulatory responsibilities 

under the CEA, or with the selfregulatory duties of any contract market 

or Derivatives Clearing Organization 

(‘‘DCO’’). 

B. Segregation of Customer Funds 

CEA Section 4d(a)(2) prohibits 

commingling customer positions 

executed on a contract market and 

property supporting such positions 

together with any property not required 

to be so segregated. Section 4d(a)(2) 

provides that the Commission may grant 

exceptions to this prohibition by order. 

In this case, the OTC coffee, sugar, and 

cocoa contracts are not executed on a 

contract market and thus holding them 

together with customer property and 

positions required to be segregated 

would, absent a Commission order, 

violate Section 4d. As discussed further 

below, the Commission has analyzed 

the risks and benefits associated with 

commingling the cleared-only positions 

and associated customer funds with 

positions and customer funds otherwise 

required to be segregated, and 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. 

IV. Comment Letters 

The Commission received eleven 

letters in response to its request for 

comment. An initial comment letter 

from the CME Group Inc. (‘‘CME 

Group’’) requested an extension of the 

comment period and listed various 

concerns CME Group suggested might 

have to be addressed in order for the 

Commission to act on ICE Clear’s 

request for an extension of the swaps 

exemption of Part 35. However, a 

subsequent comment letter from CME 

Group took the position that the 

Commission should permit the clearing 

of OTC agricultural swap contracts but 

pursuant to appropriate conditions to 

protect the market and market 

participants in a manner that would 

establish a level playing field for all 

DCOs. 

Brief comments from two individuals 

expressed concerns related to their 

belief that the OTC transactions would 

be undertaken primarily by large 

traders, such as hedge funds, to the 

detriment of smaller traders who use the 

markets for hedging. Neither of these 

comments provided any evidence that 

would support the conclusion that 

smaller traders would be adversely 

affected by the requested relief. One of 

the comments did note that there was 

no mention of the application of 

speculative limits. As discussed further 

below, the order will require ICE 

Futures to apply position accountability 

levels to the cleared-only contracts that 

are appropriate in light of the position 

accountability levels applicable to the 

underlying futures contracts. 

The remaining seven comment letters 

are from two futures exchanges and five 

commodity trading firms, all of which 

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77018 Federal Register / Vol. 73, No. 244 / Thursday, December 18, 2008 / Notices 

19See supra note 15. 

20The order required that, as part of the report, 

NYMEX review its experiences and the experiences 

of its floor members and clearing members under 

the order during those 18 months. 

21The floor member must have a guarantee from, 

and the trades must be cleared by, a CME clearing 

member FCM. That FCM must have adjusted net 

capital that equals or exceeds the greater of 

$2,500,000, CFTC requirements as computed 

pursuant to Reg. § 1.17, or Securities and Exchange 

Commission requirements. 

22CEA section 3(b), 7 U.S.C. 5(b). 

23CEA section 4(c)(1), 7 U.S.C. 6(c)(1). 

support ICE Clear’s and ICE Futures’ 

requests for exemption. 

With respect to the ICE Futures 

request that floor members be deemed 

ESPs, NYMEX commented regarding the 

Commission’s assertion that the 

proposed conditions pertaining to the 

determination were substantially similar 

to the conditions included in two 

previously issued Commission orders 

that permit floor members to be ECPs 

pursuant to Section 1a(12)(C) of the 

CEA.19 Specifically, NYMEX stated that 

the Commission previously has required 

that the clearing member providing a 

financial guarantee to a floor member 

deemed to be an ECP must maintain 

capitalization of a certain size to be able 

to issue such a guarantee, that the 

financial requirement was not included 

in the list of conditions to be applied to 

ICE Futures clearing members 

guaranteeing floor members deemed to 

be ESPs, and that the Notice did not 

provide any policy rationale for 

imposing different financial standards 

for clearing member guarantors. 

On February 4, 2003, the Commission 

issued to NYMEX the first order 

determining that floor members could 

be ECPs. Due to the order’s novel nature 

and the concern that a trader entering 

into OTC transactions could create 

financial difficulty for the guarantor 

FCM, the clearing entity, or other 

clearing firms, the order required 

clearing members that guaranteed and 

cleared OTC transactions to meet 

specified minimum capital 

requirements, and for NYMEX to submit 

a report to the Commission not later 

than 30 days after the order was in effect 

for 18 months.20

CME subsequently petitioned the 

Commission for an order that would 

permit CME floor members to be 

deemed ECPs. After reviewing the 

impact of the NYMEX order upon 

NYMEX and its floor members, and 

noting the lack of problems associated 

with it, the Commission issued an order 

to CME that did not include a special 

guarantor capitalization requirement.21

Immediately thereafter, Commission 

staff advised NYMEX that it could 

petition for a new or amended order that 

would not include a special guarantor 

capitalization requirement, but NYMEX 

to date has not so petitioned. 

V. Findings and Conclusions 

After considering the complete record 

in this matter, including the comments 

received, the Commission finds that the 

requirements of CEA Section 4(c) have 

been met with respect to the requests for 

an order permitting the clearing of 

certain OTC transactions and 

determining that certain floor brokers 

and floor traders qualify as ESPs. 

First, permitting the clearing of these 

transactions is consistent with the 

public interest and with the purposes of 

the CEA. The purposes of the CEA 

include ‘‘promot[ing] responsible 

innovation and fair competition among 

boards of trade, other markets, and 

market participants.’’ 22 The purpose of 

exemptions is ‘‘to promote economic or 

financial innovation and fair 

competition.’’ 23 Permitting the clearing 

of OTC coffee, sugar, and cocoa 

transactions by ICE Clear, as well as 

permitting ICE Futures floor members to 

trade such products, would appear to 

foster both financial innovation and 

competition. It could benefit the 

marketplace by providing ESPs the 

ability to bring together flexible 

negotiation with central counterparty 

guarantees and capital efficiencies. 

Clearing also may increase the 

transparency of the OTC market. 

Second, the bilateral transactions in 

the OTC agricultural swaps would be 

entered into solely between appropriate 

persons. These would be limited to 

those persons qualifying as ESPs under 

Part 35 and those floor brokers and 

traders deemed ESPs herein by the 

Commission. ICE Futures floor brokers 

or traders that entered into the swap 

would be registered with the 

Commission and would have the 

requisite skills, experience, and market 

expertise to trade for their own 

accounts. Each such floor member 

would be financially backed by the ICE 

Clear clearing member that submits the 

swap for clearing, and all of its activity 

in the OTC agricultural swaps, limited 

only to coffee, sugar, or cocoa, will be 

closely monitored by ICE Futures. 

Third, the exemption would not have 

a material adverse effect on the ability 

of the Commission or any DCM to carry 

out its regulatory responsibilities under 

the CEA. ICE Clear will use the same 

systems, procedures, people, and 

processes to clear the bilateral 

agricultural swap contracts in coffee, 

sugar, and cocoa as it currently employs 

with respect to all of the other 

transactions it clears. 

With respect to ICE Clear’s request for 

an order pursuant to Section 4d 

permitting ICE Clear and FCMs clearing 

through ICE Clear to commingle funds 

supporting positions in the cleared-only 

contracts resulting from these 

agricultural swaps with customer funds 

required to be segregated under CEA 

Section 4d, 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. 

However, the carrying FCM should have 

adequate means to address a default by 

a customer trading these contracts. 

Since each cleared-only contract will 

have identical economic terms as its 

underlying corresponding contract 

listed on ICE Futures and will settle on 

both a daily and final basis to that 

corresponding listed contract, the 

carrying FCM (or, if necessary, ICE 

Clear) economically could hedge any 

contracts that are the subject of a default 

by entering into the offsetting 

underlying exchange-listed contract. 

Therefore, the additional risk would be 

mitigated. The order requires that ICE 

Clear review its members’ risk 

management capabilities to verify that 

all members participating in the 

program maintain sufficient operational 

capability to engage in such offsetting 

transactions. The order also requires 

that ICE Futures (1) maintain a 

coordinated market surveillance 

program that encompasses the clearedonly contracts and the underlying 

futures contracts, and (2) adopt position 

accountability levels for each of the 

cleared-only contracts subject to the 

order that are appropriate in light of the 

position accountability levels applicable 

to the underlying futures contracts. 

These measures should mitigate market 

risk. 

Accordingly, the Commission has 

determined that ICE Clear will be able 

to employ reasonable safeguards to 

protect customer funds, and that it will 

be able to measure, monitor, manage, 

and account for risks associated with 

transactions and open interest in the 

bilateral swap contracts as it does for 

other contracts it clears. The 

Commission believes that ICE Clear has 

demonstrated sufficiently that it will 

continue to comply with all of the core 

principles in CEA Section 5b of the Act 

in connection with holding customer 

positions in OTC agricultural swaps 

with property held in segregated 

accounts pursuant to CEA Section 4d. 

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Federal Register / Vol. 73, No. 244 / Thursday, December 18, 2008 / Notices 77019 

24 44 U.S.C. 3507(d). 

25 7 U.S.C. 19(a). 

VI. Related Matters 

A. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 24 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 

exemption will not require a new 

collection of information from any 

entities that would be subject to the 

exemption. 

B. Cost-Benefit Analysis 

Section 15(a) of the CEA,25 requires 

the Commission to consider the costs 

and benefits of its action before issuing 

an order under the CEA. 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 CEA 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 

CEA. 

The Commission has considered the 

costs and benefits of this exemptive 

order in light of the specific provisions 

of Section 15(a) of the CEA, as follows: 

1. Protection of market participants 

and the public. The contracts that are 

the subject of the exemptive requests 

will only be entered into by persons 

who are ‘‘appropriate persons’’ as set 

forth in Section 4(c) of the Act. Only 

ESPs and those floor brokers and traders 

deemed ESPs pursuant to ICE Futures’ 

request herein will enter into 

transactions in the OTC agricultural 

swaps that are the subject of ICE Clear’s 

request. Allowing the commingling of 

funds supporting positions in the 

resulting cleared-only contracts with 

customer funds required to be 

segregated under CEA Section 4d will 

benefit ESP market participants by 

facilitating clearing and the reduction of 

credit risk for contracts that meet market 

participants’ specific risk-management 

requirements. ESP customers holding 

positions in cleared-only contracts also 

would benefit from having their 

property held in segregated accounts in 

the event of the insolvency of an FCM. 

In addition, the order is premised on 

ICE Clear maintaining a number of 

existing risk management and other 

safeguards. 

2. Efficiency and competition. 

Allowing these swap agreements to be 

cleared appears likely to promote 

liquidity and transparency in the 

markets for OTC derivatives on coffee, 

sugar, and cocoa, as well as on futures 

on those commodities. Determining ICE 

Futures floor members to be ESPs will 

likely increase the flow of trading 

information between markets, increase 

the pool of potential counterparties for 

participants trading OTC, and provide 

additional trading expertise to the 

market. The commingling of funds 

supporting cleared-only positions with 

customer funds supporting exchangetraded positions should result in 

improved, more efficient, collateral 

management and lower administrative 

costs since risk-offsetting positions will 

be held together in the same account 

rendering a more precise estimation of 

the risk posed by the account. These 

types of efficiencies also generally 

support competition. 

3. Financial integrity of futures 

markets and price discovery. Price 

discovery is likely to be enhanced 

through market competition. The 

extended exemption also may promote 

financial integrity by providing the 

benefits of clearing to these OTC 

markets. As discussed above, the risks 

associated with commingling funds 

supporting cleared-only positions with 

customer funds supporting exchangetraded positions are appropriately 

mitigated. 

4. Sound risk management practices. 

Clearing of OTC transactions is likely to 

foster risk management by the 

participant counterparties. ICE Clear’s 

risk management practices in clearing 

these transactions are subject to the 

Commission’s supervision and 

oversight. 

5. Other public interest 

considerations. The granted exemptions 

are likely to encourage market 

competition in agricultural derivatives 

products without unnecessary 

regulatory burden. 

The Commission requested comment 

on its application of these factors in the 

proposing release. No comments were 

received. 

VII. Order 

After considering the above factors 

and the comment letters received in 

response to its request for comments on 

its application of these factors in the 

proposing release, the Commission has 

determined to issue the following: 

Order 

(1) The Commission, pursuant to its 

authority under CEA Section 4(c) and 

subject to the conditions below, hereby: 

(A) Permits ESPs to submit for 

clearing, and FCMs and ICE Clear to 

clear, OTC agricultural swap contracts 

in coffee, sugar, or cocoa; and 

(B) Permits all ICE Futures floor 

members that are registered with the 

Commission, when trading for their own 

accounts, to be deemed ESPs for the 

purpose of entering into bilateral swap 

transactions involving coffee, sugar, or 

cocoa agricultural commodities to be 

cleared on ICE Clear. 

(2) The Commission, pursuant to its 

authority under CEA Section 4d and 

subject to the conditions below, hereby 

permits ICE Clear and its clearing 

members that are registered FCMs and 

acting pursuant to this order to hold 

money, securities, and other property, 

used to margin, guarantee, or secure 

transactions in OTC agricultural swap 

contracts involving coffee, sugar, or 

cocoa and belonging to customers that 

are ESPs (including customers that are 

deemed ESPs in accordance with this 

order) 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 Act in a segregated account or 

accounts maintained in accordance with 

Section 4d of the CEA (including any 

orders issued pursuant to Section 

4d(a)(2) of the CEA) 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 ICE 

Clear clearing member consistently with 

CEA Section 4d and the regulations 

thereunder. 

(3) This order is subject to the 

following conditions: 

(A) The contracts, agreements, or 

transactions subject to this order must 

be executed pursuant to the 

requirements of Part 35 of the 

Commission’s regulations, as modified 

herein, and are limited to cleared-only 

contracts in the following agricultural 

products: coffee, sugar, or cocoa; 

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77020 Federal Register / Vol. 73, No. 244 / Thursday, December 18, 2008 / Notices 

(B) The economic terms and the daily 

settlement prices of each contract, 

agreement, or transaction subject to this 

order must be analogous to the 

economic terms, and equal to the daily 

settlement prices, respectively, of a 

corresponding futures contract listed for 

trading on ICE Futures; 

(C) All contracts, agreements, or 

transactions subject to this order must 

be submitted for clearing by an ICE 

Futures clearing member to ICE Clear 

pursuant to ICE Clear rules; 

(D) Each ICE Futures floor member 

acting as an ESP pursuant to this order 

must be the subject of a financial 

guarantee from a member of ICE Clear 

covering the trading of the OTC swap 

contracts, agreements, or transactions 

subject to this order. The clearing 

member must be registered with the 

Commission as an FCM and must clear 

for the floor member the contracts, 

agreement, or transactions covered by 

the financial guarantee; 

(E) An ICE Futures floor member is 

prohibited from entering into a 

transaction in a cleared-only contract 

subject to this order with another ICE 

Futures floor member as the 

counterparty; 

(F) ICE Clear and its clearing members 

will mark to market each cleared-only 

contract subject to this order on a daily 

basis in accordance with ICE Clear 

rules; 

(G) ICE Clear will apply its margining 

system and calculate margin rates for 

each cleared-only contract subject to 

this order in accordance with its normal 

and customary practices; 

(H) ICE Futures must maintain 

appropriate compliance systems in 

place to monitor the transactions of its 

floor members in the OTC swap 

transactions permitted pursuant to this 

order; 

(I) ICE Clear will apply appropriate 

risk management procedures with 

respect to transactions and open interest 

in the cleared-only contracts subject to 

this order. ICE Clear will conduct 

financial surveillance and oversight of 

its members clearing the cleared-only 

contracts, and will conduct oversight 

sufficient to assure ICE Clear that each 

such member has the appropriate 

operational capabilities necessary to 

manage defaults in such contracts. ICE 

Clear and its clearing members acting 

pursuant to this order will take all other 

steps necessary and appropriate to 

manage risk related to clearing clearedonly contracts; 

(J) ICE Clear will make available open 

interest and settlement price 

information for the cleared-only 

contracts in the eligible products 

(coffee, sugar, and cocoa) on a daily 

basis in the same manner as for 

contracts listed on ICE Futures; 

(K) ICE Futures shall establish and 

maintain a coordinated market 

surveillance program that encompasses 

the cleared-only contracts subject to this 

order and the underlying futures 

contracts listed by ICE Futures on its 

designated contract market. ICE Futures 

shall adopt position accountability 

levels for each of the cleared-only 

contracts subject to this order that are 

appropriate in light of the position 

accountability levels applicable to the 

underlying futures contracts. 

(L) Cleared-only contracts subject to 

this order shall not be treated as 

fungible with any contract listed for 

trading on ICE Futures. 

(M) Each FCM acting pursuant to this 

order shall keep the types of 

information and records that are 

described in CEA Section 4g and 

Commission regulations thereunder, 

including but not limited to Reg. § 1.35, 

with respect to all cleared-only 

contracts in eligible products subject to 

this order. Such information and 

records shall be produced for inspection 

in accordance with the requirements of 

Reg. § 1.31; 

(N) ICE Futures 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; 

(O) ICE Clear will 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; and 

(P) ICE Clear and ICE Futures shall at 

all times fulfill all representations made 

in their requests for relief under CEA 

Sections 4(c) and 4d and all supporting 

materials thereto. 

This order is based upon the 

representations made and supporting 

material provided to the Commission by 

ICE Clear and ICE Futures in their 

requests. Any material change or 

omissions in the facts and 

circumstances pursuant to which this 

order is granted might require the 

Commission to reconsider its finding 

that the exemptions set forth herein are 

appropriate. Further, in its discretion, 

the Commission may condition, modify, 

suspend, terminate, or otherwise restrict 

the exemptions granted in this order, as 

appropriate, on its own motion. 

Issued in Washington, DC, on December 

12, 2008 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

[FR Doc. E8–30057 Filed 12–17–08; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

DoDEA FY 2009 Grant Competition 

Announcement 

AGENCY: Department of Defense 

Education Activity, DoD. 

ACTION: Notice of grant competition 

announcement; amendment. 

SUMMARY: The Department of Defense 

Education Activity (DoDEA) is 

amending the Promoting Student 

Achievement at Schools Impacted by 

Military Force Structure Changes grant 

competition announcement, which 

appeared in the Federal Register on 

November 18, 2008 (73 FR 68423– 

68425). The amendments include a 

change in the expected dates, the 

elimination of the letter of intent, and 

the addition of Web site information 

where questions and answers will be 

posted. 

Expected Dates and Procedures 

Concept Paper Application Available: 

16 Jan 09. 

Deadline for Submission of Concept 

Papers: 06 Mar 09, 5 p.m. (EST). 

Full Applications Available (by 

invitation only): 13 Apr 09. 

Deadline for Submission of Full 

Proposals: 25 May 09, 5 p.m. (EST). 

Deadline for Intergovernmental 

Review: 01 Jul 09. 

Letter of Intent 

There will be no letter of intent. 

Posted Questions and Answers 

DoDEA will post questions and 

answers on its Educational Partnerships’ 

Web site: http:// 

www.militaryk12partners.dodea.edu. 

DoDEA Point of Contact 

Mr. Brian Pritchard, Contracts and 

Grants Liaison, Department of Defense 

Education Activity (DoDEA) E-mail: 

brian.pritchard@hq.dodea.edu. 

Dated: December 11, 2008. 

Patricia L. Toppings, 

OSD Federal Register Liaison Officer, 

Department of Defense. 

[FR Doc. E8–30050 Filed 12–17–08; 8:45 am] 

BILLING CODE 5001–06–P 

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