Federal Register / Vol. 74, No. 13 / Thursday, January 22, 2009 / Rules and Regulations 3967 

1 15 U.S.C. 77a et seq. 

2 15 U.S.C. 78a et seq. 

3 15 U.S.C. 77aaa et seq. 

4A nonexclusive list of the Commission’s actions 

to stabilize financial markets during this credit 

crisis include: adopting a package of measures to 

strengthen investor protections against naked short 

selling, including rules requiring a hard T+3 closeout, eliminating the options market maker 

exception of Regulation SHO, and expressly 

targeting fraud in short selling transactions (See 

Securities Exchange Act Release No. 58572 

(September 17, 2008), 73 FR 54875 (September 23, 

2008)); issuing an emergency order to enhance 

protections against naked short selling in the 

securities of primary dealers, Federal National 

Mortgage Association (‘‘Fannie Mae’’), and Federal 

Home Loan Mortgage Corporation (‘‘Freddie Mac’’) 

(See Securities Exchange Act Release No. 58166 

(July 15, 2008), 73 FR 42379 (July 21, 2008)); taking 

temporary emergency action to ban short selling in 

financial securities (See Securities Exchange Act 

Release No. 58592 (September 18, 2008), 73 FR 

55169 (September 24, 2008)); approving emergency 

rulemaking to ensure disclosure of short positions 

by hedge funds and other institutional money 

managers (See Securities Exchange Act Release No. 

58591A (September 21, 2008), 73 FR 55557 

(September 25, 2008)); proposing rules to 

strengthen the regulation of credit rating agencies 

and making the limits and purposes of credit ratings 

clearer to investors (See Securities Exchange Act 

Release No. 57967 (June 16, 2008), 73 FR 36212 

(June 25, 2008); entering into a Memorandum of 

Understanding with the Board of Governors of the 

Federal Reserve System (‘‘FRB’’) to make sure key 

federal financial regulators share information and 

coordinate regulatory activities in important areas 

of common interest (See Memorandum of 

Understanding Between the U.S. Securities and 

Exchange Commission and the Board of Governors 

of the Federal Reserve System Regarding 

Coordination and Information Sharing in Areas of 

Common Regulatory and Supervisory Interest (July 

7, 2008), http://www.sec.gov/news/press/2008/

2008-134_mou.pdf). 

5 In addition to the potential systemic risks that 

CDS pose to financial stability, we are concerned 

about other potential risks in this market, including 

operational risks, risks relating to manipulation and 

fraud, and regulatory arbitrage risks. 

6See Policy Objectives for the OTC Derivatives 

Market, The President’s Working Group on 

Continued 

Franklin, VA, Franklin Muni-John Beverly 

Rose, Takeoff Minimums and Obstacle DP, 

Amdt 2 

Clintonville, WI, Clintonville Muni, NDB 

RWY 32, Amdt 7, CANCELLED 

Manitowoc, WI, Manitowoc County, ILS OR 

LOC RWY 17, Amdt 5 

Medford, WI, Taylor County, GPS RWY 27, 

Orig-A, CANCELLED 

Medford, WI, Taylor County, NDB RWY 34, 

Amdt 7 

Medford, WI, Taylor County, RNAV (GPS) 

RWY 27, Orig 

Medford, WI, Taylor County, Takeoff 

Minimums and Obstacle DP, Amdt 2 

[FR Doc. E9–324 Filed 1–21–09; 8:45 am] 

BILLING CODE 4910–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR PARTS 230, 240 and 260 

[Release Nos. 33–8999; 34–59246; 39–2549; 

File No. S7–02–09] 

RIN 3235–AK26 

Temporary Exemptions for Eligible 

Credit Default Swaps To Facilitate 

Operation of Central Counterparties To 

Clear and Settle Credit Default Swaps 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Interim final temporary rules; 

request for comments. 

SUMMARY: We are adopting interim final 

temporary rules providing exemptions 

under the Securities Act of 1933, the 

Securities Exchange Act of 1934, and 

the Trust Indenture Act of 1939 for 

certain credit default swaps to facilitate 

the operation of one or more central 

counterparties for those credit default 

swaps. The interim final temporary 

rules define such credit default swaps as 

‘‘eligible credit default swaps’’ and 

exempt them from all provisions of the 

Securities Act, other than the Section 

17(a) anti-fraud provisions, as well as 

from Exchange Act registration 

requirements and from the provisions of 

the Trust Indenture Act, provided 

certain conditions are met. Our interim 

final temporary rules also define as a 

‘‘qualified purchaser,’’ for purposes of 

the ‘‘covered securities’’ provisions of 

Section 18 of the Securities Act, any 

‘‘eligible contract participant,’’ as 

defined in Section 1a(12) of the 

Commodity Exchange Act (‘‘CEA’’), 

other than a person who is an eligible 

contract participant under Section 

1a(12)(C) of the CEA, to whom a sale of 

a eligible credit default swap is made in 

reliance on the interim final temporary 

Securities Act exemption. 

DATES: Effective Date: The interim final 

temporary rules are effective January 22, 

2009 until September 25, 2009. 

Comment Date: Comments on the 

interim final temporary rules should be 

received on or before March 23, 2009. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/interim-final-temp.shtml); 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number S7–02–09 on the subject line; 

or 

• Use the Federal Rulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–02–09. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/interim-finaltemp.shtml). Comments are also 

available for public inspection and 

copying in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. All comments received 

will be posted without change; we do 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Amy M. Starr, Senior Special Counsel, 

or Kim McManus, Special Counsel, 

Office of Chief Counsel, Division of 

Corporation Finance, at (202) 551–3500, 

U.S. Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: We are 

adopting interim final temporary Rule 

239T and a temporary amendment to 

Rule 146 under the Securities Act of 

1933 (‘‘Securities Act’’).1 We are also 

adopting interim final temporary Rule 

12a–10T and Rule 12h–1(h)T under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 2 and interim final 

temporary Rule 4d–11T under the Trust 

Indenture Act of 1939 (‘‘Trust Indenture 

Act’’).3

I. Background 

In response to the recent turmoil in 

the financial markets, we have taken 

multiple actions to protect investors and 

ensure the integrity of the nation’s 

securities markets.4 Today we are taking 

further action designed to address 

concerns related to the market in credit 

default swaps (‘‘CDS’’). The over-thecounter (‘‘OTC’’) market for CDS has 

been a source of concerns to us and 

other financial regulators. These 

concerns include the systemic risk 

posed by CDS, highlighted by the 

possible inability of parties to meet their 

obligations as counterparties and the 

potential resulting adverse effects on 

other markets and the financial system.5

Recent credit market events have 

demonstrated the seriousness of these 

risks in a CDS market operating without 

meaningful regulation, transparency,6 or 


rmajette on PRODPC74 with RULES
3968 Federal Register / Vol. 74, No. 13 / Thursday, January 22, 2009 / Rules and Regulations 

Financial Markets (November 14, 2008), http:// 

www.ustreas.gov/press/releases/reports/

policyobjectives.pdf (‘‘Public reporting of prices, 

trading volumes and aggregate open interest should 

be required to increase market transparency for 

participants and the public.’’). 

7See The Role of Credit Derivatives in the U.S. 

Economy Before the H. Agric. Comm., 110th Cong. 

(2008) (Statement of Erik Sirri, Director of the 

Division of Trading and Markets, Commission). 

8See id. 

9See Policy Objectives for the OTC Derivatives 

Market, The President’s Working Group on 

Financial Markets (November 14, 2008), http:// 

www.ustreas.gov/press/releases/reports/

policyobjectives.pdf. See also Policy Statement on 

Financial Market Developments, The President’s 

Working Group on Financial Markets (March 13, 

2008), http://www.treas.gov/press/releases/reports/

pwgpolicystatemktturmoil_03122008.pdf; Progress 

Update on March Policy Statement on Financial 

Market Developments, The President’s Working 

Group on Financial Markets (October 2008), 

http://www.treas.gov/press/releases/reports/

q4progress%20update.pdf.1 

10See Memorandum of Understanding Between 

the Board of Governors of the Federal Reserve 

System, the U.S. Commodity Futures Trading 

Commission and the U.S. Securities and Exchange 

Commission Regarding Central Counterparties for 

Credit Default Swaps (November 14, 2008), http:// 

www.treas.gov/press/releases/reports/finalmou.pdf 

(‘‘MOU’’). 

11See Semiannual OTC derivatives statistics at 

end-December 2007, Bank for International 

Settlements (‘‘BIS’’), available at http:// 

www.bis.org/statistics/otcder/dt1920a.pdf. 12CDS were initially created to meet the demand 

of banking institutions looking to hedge and 

diversify the credit risk attendant with their lending 

activities. However, financial institutions such as 

insurance companies, pension funds, securities 

firms and hedge funds have entered the CDS 

market. 13 ‘‘Novation’’ is a ‘‘process through which the 

original obligation between a buyer and seller is 

discharged through the substitution of the CCP as 

seller to buyer and buyer to seller, creating two new 

contracts.’’ Committee on Payment and Settlement 

Systems, Technical Committee of the International 

Organization of Securities Commissioners, 

Recommendations for Central Counterparties 

(November 2004) at 66. 14 15 U.S.C. 78q–1. 

15See 7 U.S.C. 1a(12). 

16See Securities Exchange Act Release Nos. 

59164 and 59165 (December 24, 2008). 

17 15 U.S.C. 78e and 78f. 

central counterparties (‘‘CCPs’’).7 These 

events have emphasized the need for 

CCPs as mechanisms to help control 

such risks.8 A CCP for CDS could be an 

important step in reducing the 

counterparty risks inherent in the CDS 

market, and thereby help mitigate 

potential systemic impacts. In 

November 2008, the President’s 

Working Group on Financial Markets 

stated that the implementation of a CCP 

for CDS was a top priority 9 and, in 

furtherance of this recommendation, the 

Commission, the FRB and the 

Commodity Futures Trading 

Commission (‘‘CFTC’’) signed a 

Memorandum of Understanding 10 that 

establishes a framework for consultation 

and information sharing on issues 

related to CCPs for CDS. Given the 

continued uncertainty in this market, 

taking action to help foster the prompt 

development of CCPs, including 

granting conditional exemptions from 

certain provisions of the federal 

securities laws, is in the public interest. 

The interim final temporary rules we are 

adopting are intended to facilitate the 

ability of one or more CCPs for CDS to 

operate by providing exemptions from 

certain regulatory provisions that might 

otherwise prevent them from engaging 

in such activities. 

A CDS is a bilateral contract between 

two parties, known as counterparties. 

The value of this financial contract is 

based on underlying obligations 

(‘‘reference obligations’’) of a single 

entity (a ‘‘reference entity’’) or on a 

particular security or other debt 

obligation (‘‘reference security’’), or an 

index of several such entities, securities, 

or obligations. The obligation of a seller 

to make payments under a CDS contract 

is triggered by a default or other credit 

event as to such entity or entities or 

such security or securities. Investors 

may use CDS for a variety of reasons, 

including to offset or insure against risk 

in their fixed-income portfolios, to take 

synthetic positions in bonds or in 

segments of the debt market as 

represented by an index, or to capitalize 

on the volatility in credit spreads during 

times of economic uncertainty. In recent 

years, CDS market volumes have rapidly 

increased.11 This growth has coincided 

with a significant rise in the types and 

number of entities participating in the 

CDS market.12

The operation of a well-regulated CCP 

can significantly reduce counterparty 

risks by preventing the failure of a 

single market participant from having a 

disproportionate effect on the overall 

market. A CCP would novate bilateral 

trades, which would result in the CCP 

entering into separate contractual 

arrangements with both 

counterparties—becoming buyer to one 

and seller to the other.13 Today, CDS 

agreements generally are negotiated and 

entered into bilaterally, but both parties 

may agree that one party may novate the 

agreement and substitute another party 

to take responsibility for performance, 

by acting as the counterparty, under the 

agreement. In a CCP arrangement, both 

parties entering a CDS would novate 

their trades to the CCP, and the CCP 

would stand in as the counterparty to all 

parties of the CDS it clears. Through this 

novation process, the counterparty risk 

of a CDS would be effectively 

concentrated in the CCP. 

In companion actions to these interim 

final temporary rules, we are 

temporarily exempting, subject to 

conditions, a clearing agency acting as 

a CCP from the requirement to register 

as a clearing agency under Section 17A 

of the Exchange Act 14 solely to perform 

the functions of a clearing agency for 

certain CDS transactions, and also 

certain eligible contract participants 15

and others from certain Exchange Act 

requirements with respect to certain 

CDS.16 We also are temporarily 

exempting any exchange that effects 

transactions in certain CDS from the 

requirements under Sections 5 and 6 of 

the Exchange Act 17 to register as a 

national securities exchange, and any 

broker or dealer that effects transactions 

on an exchange in certain CDS from the 

requirements of Section 5 of the 

Exchange Act. 

In connection with these actions to 

facilitate the operation of these CCPs for 

the CDS market, we believe that it is 

appropriate and necessary to provide 

temporary exemptions from certain 

provisions of the Securities Act, the 

Exchange Act and the Trust Indenture 

Act, subject to certain conditions 

described in the companion exemptive 

orders and in the exemptions 

themselves. We believe that these 

interim final temporary rules, and the 

exemptive orders we are providing 

under the Exchange Act, will facilitate 

the operation of one or more CCPs that 

will clear and settle CDS transactions 

while enabling us to provide oversight 

to the CDS market. 

We believe that the operation of one 

or more CCPs in accordance with our 

exemptions likely would improve the 

efficiency and effectiveness of the CDS 

market, provide for increased 

transparency of exposures to particular 

reference entities or reference securities, 

and increase available information 

about reference entities or reference 

securities. The conditions in the 

companion exemptive orders will 

enable us to oversee the development of 

CDS CCPs and exchanges as they 

evolve, and to take such additional 

action as we may deem necessary to 

promote the public interest and the 

protection of investors. Moreover, the 

limited duration of the exemptions and 

the interim final temporary rules 

provided today will enable one or more 

CCPs and CDS exchanges to become 

operational while we gain useful 

experience with the CDS market and 

evaluate the public input, including 

comments, we receive on the temporary 

rules and exemptions. 

II. Discussion of the Interim Final 

Temporary Rules and Amendments 

We are adopting interim final 

temporary rules and amendments to 


rmajette on PRODPC74 with RULES
Federal Register / Vol. 74, No. 13 / Thursday, January 22, 2009 / Rules and Regulations 3969 

18 15 U.S.C. 77b(b)–1 and 15 U.S.C. 78c–1. 

Section 2A of the Securities Act and Section 3A of 

the Exchange Act excludes both a non-securitybased and a security-based ‘‘swap agreement’’ from 

the definition of ‘‘security’’ under Section 2(a)(1) of 

the Securities Act, 15 U.S.C. 77b(a)(1) and Section 

3(a)(10) of the Exchange Act, 15 U.S.C. 78c(a)(10). 

Section 206A of the Gramm-Leach-Bliley Act 

defines a ‘‘swap agreement’’ as ‘‘any agreement, 

contract, or transaction between eligible contract 

participants (as defined in section 1a(12) of the 

Commodity Exchange Act * * *) * * * the 

material terms of which (other than price and 

quantity) are subject to individual negotiation. 

* * *’’ 15 U.S.C. 78c note. 

19Section 28 of the Securities Act authorizes us 

to exempt any person, security or transaction from 

any provision of the Securities Act by rule or 

regulation to the extent that the exemption is 

necessary or appropriate in the public interest and 

consistent with the protection of investors. 15 

U.S.C. 77z–3. Similarly, Section 36 of the Exchange 

Act gives us the authority to exempt any person, 

security or transaction from any Exchange Act 

provision by rule, regulation or order, to the extent 

that the exemption is necessary or appropriate in 

the public interest and consistent with the 

protection of investors. 15 U.S.C. 78mm. Finally, 

Section 304(d) of the Trust Indenture Act authorizes 

us to exempt conditionally or unconditionally any 

person, security or transaction from any Trust 

Indenture Act provision by rules or regulation to 

the extent that the exemption is necessary or 

appropriate in the public interest and consistent 

with the protection of investors and the purposes 

fairly intended by the Trust Indenture Act. 15 

U.S.C. 77ddd(d). 

20As we discuss below, we have included a 

definition of ‘‘eligible credit default swap’’ in 

interim final temporary Securities Act Rule 239T. 

21 15 U.S.C. § 77q. This exemption is consistent 

with the Securities Act exemptions for standardized 

options and security futures products. See Section 

3(a)(14) [15 U.S.C. § 77c(a)(14)] and Securities Act 

Rule 238 [17 CFR 230.238]. 

22See 7 U.S.C. 1(a)(12). The exemption would be 

limited to those persons defined as eligible contract 

participants in the statute and would not extend to 

those persons that are included in the definition 

through regulatory action by the CFTC. See 7 U.S.C. 

1(a)(12)(C). 

23We note that among the conditions of the 

exemptions, or representations in the exemptive 

requests on which we are relying, from clearing 

registration are that: (1) Information is available 

about the terms of the CDS, the creditworthiness of 

the CCP or any guarantor, and the clearing and 

settlement process for the CDS; and (2) the 

reference entity, the issuer of the reference security, 

or the reference security is one of the following: an 

entity reporting under the Exchange Act, providing 

Securities Act Rule 144A(d)(4) information, or 

about which financial information is otherwise 

publicly available; a foreign private issuer that has 

securities listed outside the United States and has 

its principal trading market outside the United 

States; a foreign sovereign debt security; an assetbacked security, as defined in Regulation AB [17 

CFR 229.1100], issued in a registered transaction 

with publicly available distribution reports; an 

asset-backed security issued or guaranteed by 

Fannie Mae, Freddie Mac or the Government 

National Mortgage Association (‘‘Ginnie Mae’’); or 

indexes in which 80 percent or more of the index’s 

weight is comprised of these reference entities or 

reference securities. 

existing rules (collectively, ‘‘interim 

final temporary rules’’) to provide 

certain conditional exemptions under 

the Securities Act, the Exchange Act 

and the Trust Indenture Act. 

A. Scope of the Interim Final Temporary 

Rules 

Our authority over the OTC market for 

CDS is limited. Specifically, Section 2A 

of the Securities Act and Section 3A of 

the Exchange Act limit our authority 

over ‘‘swap agreements’’ as defined in 

Section 206A of the Gramm-LeachBliley Act.18 For those CDS that are 

swap agreements, the exclusion from 

the definition of security in Section 2A 

of the Securities Act and Section 3A of 

the Exchange Act and related provisions 

will continue to apply. Our action today 

does not affect these CDS, and these 

interim final temporary rules do not 

apply to them. For those CDS that are 

not swap agreements (‘‘non-excluded 

CDS’’), our action today provides certain 

conditional exemptions from the 

provisions of the Securities Act, the 

Exchange Act, and the Trust Indenture 

Act and is designed to encourage the 

development and operation of one or 

more CDS CCPs and CDS exchanges.19

B. Securities Act Rule 239T 

We are adopting interim final 

temporary Securities Act Rule 239T to 

exempt certain CDS (‘‘eligible CDS’’) 20

that are being or will be issued or 

cleared by a CCP satisfying the 

conditions set forth in the companion 

exemptions, or registered as a clearing 

agency under Section 17A of the 

Exchange Act (‘‘Registered or Exempt 

CCP’’), to eligible contract participants 

from all provisions of the Securities Act, 

except the anti-fraud provisions of 

Section 17(a) of the Securities Act.21

Securities Act Rule 239T will permit the 

offer and sale of such eligible CDS that 

are or will be issued or cleared by a 

Registered or Exempt CCP without 

requiring compliance with Section 5 of 

the Securities Act, and communications 

used in connection with such offers and 

sales will not be subject to Section 

12(a)(2) liability under the Securities 

Act. 

Absent this exemption, the Securities 

Act may require registration of the offer 

and sale of eligible CDS that are or will 

be issued or cleared by a Registered or 

Exempt CCP. We believe that the 

interim final temporary rules exempting 

offers and sales of such eligible CDS by 

a Registered or Exempt CCP will 

facilitate the use by eligible contract 

participants of CCPs for eligible CDS. 

Indeed, without also exempting the 

offers and sales of the eligible CDS by 

a Registered or Exempt CCP from the 

registration requirements of the 

Securities Act and the Exchange Act 

and the provisions of the Trust 

Indenture Act, we believe that the CCPs 

would not be able to operate in the 

manner contemplated by the Exchange 

Act exemptive orders. In addition, the 

Securities Act, Exchange Act and Trust 

Indenture Act exemptions should 

encourage market participants to clear 

their CDS through the CCPs. 

Under Securities Act Rule 239T, an 

eligible CDS would be exempt from the 

registration requirements of the 

Securities Act if it is or will be issued 

or cleared by a Registered or Exempt 

CCP, and if the eligible CDS is offered 

and sold only to an ‘‘eligible contract 

participant’’ (as defined in Section 

1a(12) of the CEA as in effect on the date 

of adoption of this rule, other than a 

person who is an eligible contract 

participant under Section 1a(12)(C) of 

the CEA).22 We have included a 

definition of eligible CDS solely for 

purposes of the interim final temporary 

rules. Under this definition, an eligible 

CDS is a bilateral executory derivative 

contract not subject to individual 

negotiation (1) in which a buyer makes 

payments to the seller and, in return, 

receives a payout if there is a default or 

other credit event involving the 

reference obligation(s) or reference 

entity(ies) within a certain time, and (2) 

the agreement for which includes the: 

• Specification of the reference 

obligation or obligor; or, in the case of 

a reference group or index thereof, all of 

the reference obligations or obligors 

comprising any such group or index); 

• Term of the agreement; 

• Notional amount upon which 

payment obligations are calculated; 

• Credit-related events that trigger a 

settlement obligation; and 

• Obligations to be delivered if there 

is a credit-related event or, if it is a cash 

settlement, the obligations whose value 

is to be used to determine the amount 

of settlement obligation under the 

eligible credit default swap. 

Securities Act Rule 239T will permit 

the offer and sale of eligible CDS that 

are or will be issued or cleared by a 

Registered or Exempt CCP without 

requiring compliance with Section 5 of 

the Securities Act, while assuring the 

availability of information to buyers and 

sellers of CDS, due to certain 

information conditions in the 

companion exemptive orders,23 and 

preserving anti-fraud liability under 

Section 17(a) of the Securities Act, 

which currently applies to securitybased swap agreements. Securities Act 

Rule 239T also provides an exemption 

from the liability provisions of 

Securities Act Section 12. Thus, oral or 

written communications used in 

connection with the offer and sale of 

eligible CDS that are or will be issued 

or cleared by a Registered or Exempt 

CCP in reliance on the rule will not be 


rmajette on PRODPC74 with RULES
3970 Federal Register / Vol. 74, No. 13 / Thursday, January 22, 2009 / Rules and Regulations 

24See Title III of the Commodity Futures 

Modernization Act of 2000 (Pub. L. 106–554) and 

the definition of eligible contract participant in 

Title I of the Commodity Futures Modernization 

Act of 2000 [7 U.S.C. 1a(12)]. The term ‘‘eligible 

contract participant’’ generally includes various 

regulated financial institutions, business enterprises 

that meet certain tests relating to total assets or net 

worth, certain pension funds, state and local 

governments, and certain wealthy individuals. 

In addition, the provisions of Section 16 of the 

Exchange Act apply to security-based swap 

agreements. See 15 U.S.C. 78p(g). The exemptions 

are available only with regard to non-excluded CDS 

satisfying the exemption’s conditions and not other 

types of derivative contracts. 

25This provision is similar to the condition in the 

Securities Act exemption in Rule 238 for 

standardized options [17 CFR 230.238] and in 

Securities Act Section 2(a)(3) [15 U.S.C. 77b(a)(3)] 

relating to security futures products. 

26State securities regulation of covered securities 

generally is limited under Section 18(b). Under 

Section 18(b)(3), covered securities are securities 

offered and sold to qualified purchasers, as defined 

by the Commission. 

27See 7 U.S.C. 16(e)(2). 

28 15 U.S.C. 78l(a). 

29 15 U.S.C. 78l(g). 

30The Trust Indenture Act applies to debt 

securities sold through the use of the mails or 

interstate commerce. Section 304 of the Trust 

Indenture Act exempts from the Act a number of 

securities and transactions. Section 304(a) of the 

Trust Indenture Act exempts securities that are 

exempt under Securities Act Section 3(a) but does 

not exempt from the Trust Indenture Act securities 

that are exempt by Commission rule. Accordingly, 

while Securities Act Rule 239T would exempt the 

offer and sale of eligible CDS satisfying certain 

conditions from all the provisions of the Securities 

Act (other than Section 17(a)), the Trust Indenture 

Act would continue to apply. 

31See 15 U.S.C.77bbb(a). 

32 15 U.S.C. 77bbb(a). 

subject to liability under Securities Act 

Section 12(a)(2). 

The Securities Act exemption in the 

interim final temporary rule is limited 

to offers and sales to eligible contract 

participants (as defined in Section 

1a(12) of the CEA as in effect on the date 

of adoption of the rule, other than a 

person that is an eligible contract 

participant under Section 1a(12)(C) of 

the CEA). Under Securities Act Section 

2A, a security-based swap agreement 

that is entered into between eligible 

contract participants is not permitted to 

be registered under the Securities Act, 

but the provisions of Securities Act 

Section 17(a) continue to apply to such 

transactions. The operation of one or 

more CCPs pursuant to the actions we 

are taking today will allow such 

security-based swap agreements to 

continue to be entered into between 

eligible contract participants and then 

be novated to the CCP. The Securities 

Act exemption is intended to limit 

investor involvement in eligible CDS 

that are issued or cleared by a 

Registered or Exempt CCP to eligible 

contract participants, who are those 

persons Congress determined were 

qualified to engage in activities in the 

generally unregulated (other than with 

respect to the antifraud provisions of the 

Securities Act and the Exchange Act) 24

OTC CDS market. 

The Securities Act interim final 

temporary rule also provides that any 

offer or sale of an eligible CDS that is 

or will be issued or cleared by a 

Registered or Exempt CCP by or on 

behalf of the issuer of a security, an 

affiliate of such issuer, or an 

underwriter, if such security is 

delivered in settlement or whose value 

is used to determine the amount of the 

settlement obligation, will constitute a 

‘‘contract for sale of,’’ ‘‘sale of,’’ ‘‘offer 

for sale,’’ or ‘‘offer to sell’’ such security 

under Section 2(a)(3) of the Securities 

Act. This provision is intended to 

ensure that an eligible CDS that is or 

will be issued or cleared by a Registered 

or Exempt CCP cannot be used by an 

issuer, affiliate of an issuer or 

underwriter to circumvent the 

registration requirements of Section 5 

with respect to an issuer’s security for 

such eligible CDS.25 As a result, a 

transaction by such persons in an 

eligible CDS that is or will be issued or 

cleared by a Registered or Exempt CCP 

having such securities of the issuer also 

is a transaction in the issuer’s securities 

that must be registered under the 

Securities Act, unless an exemption 

from registration is available. 

Further, we are adopting on an 

interim final temporary basis an 

amendment to Securities Act Rule 146. 

Under the temporary amendment to 

Securities Act Rule 146, eligible 

contract participants that are sold 

eligible CDS in reliance on interim final 

temporary Securities Act Rule 239T will 

be defined as ‘‘qualified purchasers’’ 

under Section 18(b)(3) of the Securities 

Act and thereby such eligible CDS that 

are or will be issued or cleared by a 

Registered or Exempt CCP will be 

considered ‘‘covered securities’’ under 

Section 18 of the Securities Act and 

exempt from state blue sky laws.26 We 

are adopting this amendment because 

we believe that eligible contract 

participants are the kinds of 

sophisticated investors who do not 

require the protections of registration 

under state securities laws. In this 

regard, as we discuss above, Congress 

determined that eligible contract 

participants were the types of persons 

that were able to engage in activities in 

the OTC CDS market unregulated by the 

Commission and preempted the 

application of certain state laws to 

transactions in OTC security-based 

swap agreements, including CDS.27 We 

believe that defining such eligible 

contract participants as ‘‘qualified 

purchasers’’ for purposes of engaging in 

transactions in eligible CDS in reliance 

on temporary Securities Act Rule 239T 

would be consistent with such 

Congressional intent. 

C. Exchange Act Rule 12a–10T and Rule 

12h–1(h)T 

We also are adopting two interim final 

temporary rules relating to Exchange 

Act registration of eligible CDS that are 

or have been issued or cleared by a 

Registered or Exempt CCP. We are 

adopting interim final temporary 

Exchange Act Rule 12a–10T to exempt 

eligible CDS that are or have been 

issued or cleared by a Registered or 

Exempt CCP from the provisions of 

Section 12(a) of the Exchange Act under 

certain conditions.28 We also are 

adopting an interim final temporary 

amendment to Exchange Act Rule 12h– 

1 to exempt eligible CDS that are or 

have been issued or cleared by a 

Registered or Exempt CCP from the 

provisions of Section 12(g) of the 

Exchange Act under certain 

conditions.29 This exemption is the 

same as that available to standardized 

options issued by a registered options 

clearing agency and security futures 

products issued by a registered clearing 

agency, and this temporary rule should 

facilitate the operation of the CCPs. 

D. Trust Indenture Act Rule 4d–11T 

We are adopting a new interim final 

temporary rule under Section 304(d) of 

the Trust Indenture Act that would 

exempt any eligible CDS, as defined in 

Securities Act Rule 239T and offered 

and sold in reliance on Securities Act 

Rule 239T, from having to comply with 

the provisions of the Trust Indenture 

Act.30 We believe an exemption from 

the Trust Indenture Act is appropriate 

in this situation. 

The Trust Indenture Act is aimed at 

addressing problems that unregulated 

debt offerings posed for investors and 

the public,31 and provides a mechanism 

for debtholders to protect and enforce 

their rights with respect to the debt. We 

do not believe that the protections 

contained in the Trust Indenture Act are 

needed at this time to protect eligible 

contract participants to whom a sale of 

an eligible CDS is made in reliance on 

interim final temporary Securities Act 

Rule 239T. The identified problems that 

the Trust Indenture Act is intended to 

address do not occur in the offer and 

sale of eligible CDS.32 For example, 

eligible CDS are contracts between two 

parties and, as a result, do not raise the 

same problem regarding the ability of 

parties to enforce their rights under the 

instruments as would, for example, a 


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33See 5 U.S.C. 553(b). 

34 Id. 

35See 5 U.S.C. 553(d). 

36 Id. 

debt offering to the public. Moreover, 

through novation, the CCP becomes the 

counterparty to the buyer and the seller, 

and each would look directly to the CCP 

to satisfy the obligations under the 

eligible CDS. As a consequence, 

enforcement of contractual rights and 

obligations under the eligible CDS 

would occur directly between such 

parties, and the Trust Indenture Act 

provisions would not provide any 

additional meaningful substantive or 

procedural protections. 

Accordingly, due to the nature of 

eligible CDS as bilateral contracts that 

will have been issued or cleared by 

Registered or Exempt CCPs, we do not 

believe the protections contained in the 

Trust Indenture Act are currently 

needed with respect to these 

instruments. Therefore, we believe the 

exemption is necessary or appropriate 

in the public interest, consistent with 

the protection of investors and the 

purposes fairly intended by the Trust 

Indenture Act. 

E. Request for Comment 

We request and encourage any 

interested person to submit comments 

regarding the interim final temporary 

rules. In particular, we solicit comment 

on the following questions: 

• We are interested in understanding 

what type of non-excluded CDS would 

not be eligible for these exemptions. Are 

there credit swaps that would not be 

encompassed within the scope of the 

exemptions and that should be covered? 

• What are the amounts and types of 

CDS that may not satisfy the conditions 

for the exemptions? 

• Is the definition of eligible CDS 

appropriate and does it include the 

types of CDS that should be within the 

exemptions or should there be another 

definition? Does the definition of 

eligible CDS include all the appropriate 

or relevant material terms of a CDS? 

Should we require more specificity as to 

the terms, including final settlement 

valuations? 

• Each of the temporary exemptions 

contains particular conditions. Should 

the Securities Act exemption in 

temporary Securities Act Rule 239T be 

conditioned on the eligible CDS being 

issued or cleared by a Registered or 

Exempt CCP? If not, why not? 

• Should there be information 

conditions in the Securities Act 

exemptions themselves regarding the 

reference entities or reference securities 

similar to the information requirements 

in the CCP exemptive orders? If so, what 

type of information conditions should 

be included and why? Is additional or 

different information from that 

contained in the CCP exemption orders 

appropriate? 

• Are the Securities Act, Exchange 

Act and Trust Indenture Act exemptions 

appropriate? If not, why not? Given the 

voluntary nature of using a CCP, should 

we take a different approach? 

• The Securities Act exemption also 

provides that eligible CDS that are or 

will be issued or cleared by a Registered 

or Exempt CCP and are entered into 

with an issuer of a security, or an 

underwriter or affiliate of such issuer, if 

such security is delivered in settlement 

or whose value is used to determine the 

amount of the settlement obligation, 

will be considered an offer and sale of 

such security at that time. Are there 

circumstances in which the application 

of the Securities Act to such security of 

the issuer should not apply at the time 

of the offer and sale of eligible CDS that 

are or will be issued or cleared by a 

Registered or Exempt CCP? Are there 

securities or obligations used in CDS 

transactions that are not debt 

obligations? If yes, please explain. 

• The Securities Act exemption is 

limited to offers and sales to eligible 

contract participants. Should the 

exemption be limited in this manner? If 

not, why not? Are there persons who 

invest in CDS now in the OTC market 

that would not be able to take advantage 

of the exemptions? If yes, please explain 

the categories of persons and why the 

exemptions should include such 

persons. 

• The definition of ‘‘qualified 

purchaser’’ for purposes of the interim 

final temporary amendment to 

Securities Act Rule 146 applies only to 

eligible contract participants that have 

been sold eligible CDS in reliance on the 

new interim final temporary exemption 

in Securities Act Rule 239T. Is this an 

appropriate definition and should 

eligible contract participants that are 

sold eligible CDS pursuant to Securities 

Act Rule 239T be considered ‘‘qualified 

purchasers’’ for purposes of Section 18 

of the Securities Act? 

• Should the Securities Act 

exemption be limited to an exemption 

from Section 5 and Section 12 of the 

Securities Act? Please explain your 

reasoning in detail. 

• Should we exempt eligible CDS that 

have been issued or cleared by a 

Registered or Exempt CCP from the 

registration requirements of the 

Exchange Act? If not, why? 

• The conditions of the temporary 

Exchange Act and Trust Indenture Act 

exemptions are the same as the 

conditions to the temporary Securities 

Act exemption. Is this appropriate or 

should there be different conditions 

relating to the Exchange Act and Trust 

Indenture Act exemptions? If yes, please 

explain. 

• The interim final temporary rules 

include an exemption from the 

application of the Trust Indenture Act 

for eligible CDS that are offered and sold 

in reliance on interim final Securities 

Act Rule 239T. Is this exemption 

appropriate or are there contractual 

protections in the Trust Indenture Act 

that should be included as mandatory 

provisions of an eligible CDS contract 

that is or will be issued or cleared by a 

Registered or Exempt CCP? If yes, please 

explain in detail. 

III. Transition and Expiration Date of 

Interim Final Temporary Rules 

We are adopting the interim final 

rules on a temporary basis until 

September 25, 2009. We anticipate that 

this term of this exemption will provide 

us with adequate time to evaluate the 

availability of the exemptions 

applicable to CDS CCPs and nonexcluded CDS, and whether any 

conditions or provisions of such 

exemptions should be modified. 

Adoption of the interim final 

temporary rules, which will be effective 

on [effective date] and will continue in 

effect until September 25, 2009, will 

facilitate the development of one or 

more CCPs as well as our review of the 

CDS market. We have included several 

requests for comment in this release. We 

will consider the public comments we 

receive in determining whether we 

should revise the interim final 

temporary rules in any respect, as well 

as whether we should consider 

extending the exemptions. The rules 

will expire and cease to be effective on 

September 25, 2009 unless we act to 

extend the effective date or revise the 

interim final temporary rules. 

IV. Other Matters 

The Administrative Procedure Act 

generally requires an agency to publish 

notice of a proposed rulemaking in the 

Federal Register.33 This requirement 

does not apply, however, if the agency 

‘‘for good cause finds * * * that notice 

and public procedure are impracticable, 

unnecessary, or contrary to the public 

interest.’’ 34 Further, the Administrative 

Procedure Act also generally requires 

that an agency publish an adopted rule 

in the Federal Register 30 days before 

it becomes effective.35 This requirement 

does not apply, however, if the agency 

finds good cause for making the rule 

effective sooner.36 We, for good cause, 


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37 In addition to the potential systemic risks that 

CDS pose to financial stability, we are concerned 

about other potential risks in this market, including 

operational risks, risks relating to manipulation and 

fraud, and regulatory arbitrage risks. 38See Policy Objectives for the OTC Derivatives 

Market, The President’s Working Group on 

Financial Markets (November 14, 2008), http:// 

www.ustreas.gov/press/releases/reports/policy

objectives.pdf (‘‘Public reporting of prices, trading 

volumes and aggregate open interest should be 

required to increase market transparency for 

participants and the public.’’) 

39See The Role of Credit Derivatives in the U.S. 

Economy Before the H. Agric. Comm., 110th Cong. 

(2008) (Statement of Erik Sirri, Director of the 

Division of Trading and Markets, Commission). 

40See id. 

41See Policy Objectives for the OTC Derivatives 

Market, The President’s Working Group on 

Financial Markets (November 14, 2008), http:// 

www.ustreas.gov/press/releases/reports/policy

objectives.pdf. See also Policy Statement on 

Financial Market Developments, The President’s 

Working Group on Financial Markets (March 13, 

2008), http://www.treas.gov/press/releases/reports/

pwgpolicystatemktturmoil_03122008.pdf; Progress 

Update on March Policy Statement on Financial 

Market Developments, The President’s Working 

Group on Financial Markets (October 2008), 

http://www.treas.gov/press/releases/reports/

q4progress%20update.pdf. 

42See MOU, supra note 10. 

43This finding also satisfies the requirements of 

5 U.S.C. 808(2), allowing the rule amendment to 

become effective notwithstanding the requirement 

of 5 U.S.C. 801 (if a federal agency finds that notice 

and public comment are ‘‘impractical, unnecessary 

or contrary to the public interest,’’ a rule ‘‘shall take 

effect at such time as the federal agency 

promulgating the rule determines’’). 

44 44 U.S.C. 3501 et seq. 

45 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

46See Semiannual OTC derivatives statistics at 

end-December 2007, Bank for International 

Settlements (‘‘BIS’’), available at http://www.bis.

org/statistics/otcder/dt1920a.pdf. 

find that notice and solicitation of 

comment before adopting the new rules 

is impracticable, unnecessary, or 

contrary to the public interest. 

For the reasons we discussed 

throughout this release, we believe that 

we have good cause to act immediately 

to adopt these rules on an interim final 

temporary basis. The OTC market for 

CDS has been a source of concerns to us 

and other financial regulators. These 

concerns include the systemic risk 

posed by CDS, highlighted by the 

possible inability of parties to meet their 

obligations as counterparties and the 

potential resulting adverse effects on 

other markets and the financial 

system.37 Recent credit market events 

have demonstrated the seriousness of 

these risks in a CDS market operating 

without meaningful regulation, 

transparency,38 or CCPs.39 These events 

have emphasized the need for CCPs as 

mechanisms to help control such 

risks.40 A CCP for CDS could be an 

important step in reducing the 

counterparty risks inherent in the CDS 

market, and thereby help mitigate 

potential systemic impacts. In 

November 2008, the President’s 

Working Group on Financial Markets 

stated that the implementation of a CCP 

for CDS was a top priority 41 and, in 

furtherance of this recommendation, the 

Commission, the FRB and the CFTC 

signed a Memorandum of 

Understanding 42 that establishes a 

framework for consultation and 

information sharing on issues related to 

CCPs for CDS. Given the continued 

uncertainty in this market, taking action 

to help foster the prompt development 

of CCPs, including granting conditional 

exemptions from certain provisions of 

the federal securities laws, thus is in the 

public interest. The interim final 

temporary rules we are adopting are 

intended to facilitate the ability of one 

or more CCPs for CDS to operate by 

providing exemptions from certain 

regulatory provisions that might 

otherwise prevent them from engaging 

in such activities. Absent an exemption, 

the offer and sale of eligible CDS that 

are or will be issued or cleared by a 

Registered or Exempt CCP may have to 

be registered under the Securities Act, 

the eligible CDS that have been so 

issued or cleared may have to be 

registered as a class under the Exchange 

Act and the provisions of the Trust 

Indenture Act may need to be complied 

with. We believe that the interim final 

temporary rules exempting the 

registration of eligible CDS that are or 

will be issued or cleared by a Registered 

or Exempt CCP under certain conditions 

will facilitate the use by eligible 

contract participants of CDS CCPs. 

Without also exempting the offers and 

sales of the eligible CDS from the 

registration requirements of the 

Securities Act and the Exchange Act 

and the provisions of the Trust 

Indenture Act, we believe that the CCPs 

would not be able to operate in the 

manner contemplated by the exemptive 

orders. We emphasize that we are 

requesting comments on the interim 

final temporary rules and will carefully 

consider any comments that we receive 

and respond to them in a subsequent 

release. Moreover, these interim final 

temporary rules will expire on 

September 25, 2009. Setting a 

termination date for the interim final 

temporary rules will necessitate further 

Commission action no later than the end 

of that period if we determine to 

continue the same, or similar, 

requirements contained in the interim 

final temporary rules. We find that there 

is good cause to have the rules effective 

as interim final temporary rules on 

January 22, 2009 and that notice and 

public procedure in advance of 

effectiveness of the interim final 

temporary rules is impracticable, 

unnecessary and contrary to the public 

interest.43

V. Paperwork Reduction Act 

The interim final temporary rules do 

not impose any new ‘‘collections of 

information’’ within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’),44 nor do they create any new 

filing, reporting, recordkeeping, or 

disclosure reporting requirements for a 

CCP that is or will be issuing or clearing 

eligible CDS. Accordingly, we are not 

submitting the interim final temporary 

rules to the Office of Management and 

Budget for review in accordance with 

the PRA.45 We request comment on 

whether our conclusion that there are 

no collections of information is correct. 

VI. Cost-Benefit Analysis 

We are adopting interim final 

temporary rules under the Securities 

Act, the Exchange Act and the Trust 

Indenture Act that would exempt 

eligible CDS that are or will be issued 

or cleared by a Registered or Exempt 

CCP and offered and sold only to 

eligible contract participants from all 

provisions of the Securities Act, other 

than the Section 17(a) anti-fraud 

provision, as well as from the 

registration requirements under Section 

12 of the Exchange Act and from the 

provisions of the Trust Indenture Act. 

These interim final temporary rules are 

intended to facilitate the operation of 

one or more CCPs to act as a clearing 

agency in the CDS market to reduce 

some of the risks in the CDS market. 

A CDS is a bilateral contract between 

two parties, known as counterparties. 

The value of this financial contract is 

based on underlying obligations of a 

single entity or on a particular security 

or other debt obligation, or an index of 

several such entities, securities, or 

obligations. The obligation of a seller to 

make payment under a CDS contract is 

triggered by a default or other credit 

event as to such entity or entities or 

such security or securities. Investors 

may use CDS for a variety of reasons, 

including to offset or insure against risk 

in their fixed-income portfolios, to take 

synthetic positions in bonds or in 

segments of the debt market as 

represented by an index, or to capitalize 

on the volatility in credit spreads during 

times of economic uncertainty. In recent 

years, CDS market volumes have rapidly 

increased.46 This growth has coincided 

with a significant rise in the types and 


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Federal Register / Vol. 74, No. 13 / Thursday, January 22, 2009 / Rules and Regulations 3973 

47CDSs were initially created to meet the demand 

of banking institutions looking to hedge and 

diversify the credit risk attendant with their lending 

activities. However, financial institutions such as 

insurance companies, pension funds, securities 

firms and hedge funds have entered the CDS 

market. 

48See, e.g., Securities Act Section 3(a)(14) [15 

U.S.C. 77c(a)(14)], Securities Act Rule 238 [17 CFR 

230.238]; Exchange Act Section 12(a) [15 U.S.C. 

78l], and Exchange Act Rule 12h–1(d) and (e) [17 

CFR 240.12h–1(d) and (e)]. 

49 17 CFR 230.238. 

50 15 U.S.C. 78j(b). 

51 15 U.S.C. 77k and 77l. 

52See 15 U.S.C. 77q and 15 U.S.C. 78j(b). 

number of entities participating in the 

CDS market.47

In a CCP arrangement, both parties 

entering a CDS would novate their 

trades to the CCP, and the CCP would 

stand in as the counterparty to all 

parties of the CDS it clears. Through this 

novation process, the counterparty risk 

of a CDS would be effectively 

concentrated in the CCP. 

A. Benefits 

We are providing exemptive orders 

that will facilitate the operation of CCPs 

for the CDS market. In connection with 

these actions, we are adopting 

exemptions from certain provisions of 

the Securities Act, the Exchange Act 

and the Trust Indenture Act, subject to 

certain conditions described in the 

companion exemptive orders and in the 

exemptions themselves. The conditions 

and representations in the companion 

exemptive orders and exemptions 

require that information be available 

about the terms of the CDS, the 

creditworthiness of the CCP or any 

guarantor, and the clearing and 

settlement process for the CDS. 

Additionally, the conditions require that 

financial information about the 

reference entity, the issuer of the 

reference security, or the reference 

security be publicly available. We 

believe that these interim final 

temporary rules and the exemptions we 

are providing under the Exchange Act, 

will facilitate the operation of CCPs 

while enabling us to provide oversight 

to the non-excluded CDS market. We 

believe that the operation of one or more 

CCPs in accordance with our 

exemptions likely would improve the 

efficiency and effectiveness of the CDS 

market, provide clearing participants 

with increased transparency of 

exposures to particular reference 

entities or reference securities, and 

increase available information about 

reference entities or reference securities. 

Absent an exemption, the offer and 

sale of eligible CDS that are or will be 

issued or cleared by a Registered or 

Exempt CCP would have to be registered 

under the Securities Act, the eligible 

CDS that are or have been issued or 

cleared by a Registered or Exempt CCP 

would have to be registered as a class 

under the Exchange Act, and the 

provisions of the Trust Indenture Act 

would apply. We believe that the 

interim final temporary rules exempting 

the registration of eligible CDS issued or 

cleared by a Registered or Exempt CCP 

under certain conditions will facilitate 

the use by eligible contract participants 

of CDS CCPs. Without also exempting 

the offers and sales of eligible CDS 

issued or cleared by a Registered or 

Exempt CCP from the registration 

requirements of the Securities Act and 

the Exchange Act and the provisions of 

the Trust Indenture Act, we believe that 

the CCPs would not be able to operate 

in the manner contemplated by the 

exemptive orders. 

The interim final temporary 

exemptions also will treat eligible CDS 

issued or cleared by a Registered or 

Exempt CCP under the Securities Act 

and the Exchange Act in the same 

manner as certain other types of 

derivative contracts, such as security 

futures products and standardized 

options.48 A Registered or Exempt CCP 

issuing or clearing eligible CDS will 

benefit from the temporary exemptions 

because it will not have to file 

registration statements with us covering 

the offer and sale of the eligible CDS. 

The registration form most applicable to 

a CCP is a Form S–20, which is the form 

that is used by options clearing houses 

that do not qualify for our exemption in 

Securities Act Rule 238 49 from 

registering the offer and sale of 

standardized options. If a CCP is not 

required to register the offer and sale of 

eligible CDS (on Form S–20, for 

example), it would not have to incur the 

costs of such registration, including 

legal and accounting costs. Some of 

these costs, of course, such as the costs 

of obtaining audited financial 

statements, may still be incurred as a 

result of the operations of the entity as 

a CCP and the regulatory oversight of 

the central counterparty operations. In 

addition, if any of the CCPs are entities 

that are subject to the periodic reporting 

requirements of the Exchange Act, the 

cost of filing a registration statement 

covering the eligible CDS would be 

lessened further as the information 

regarding the CCP already would be 

prepared. The availability of exemptions 

under the Securities Act, the Exchange 

Act, and the Trust Indenture Act also 

would mean that CCPs would not incur 

the costs of preparing disclosure 

documents describing eligible CDS and 

from preparing indentures and 

arranging for the services of a trustee. 

B. Costs 

The interim final temporary rules 

exempting offers and sales of eligible 

CDS that are or will be issued or cleared 

by a Registered or Exempt CCP should 

facilitate the use by eligible contract 

participants of CDS CCPs that are the 

subject of exemptive orders at minimal 

cost to the CCP or investors. Because the 

interim final temporary rules are selfexecuting, the costs of being able to rely 

on such exemptions, we believe, are 

minimal. 

Absent an exemption, a CCP may 

have to file a registration statement 

covering the offer and sale of the eligible 

CDS, may have to satisfy the applicable 

provisions of the Trust Indenture Act, 

and may have to register the class of 

eligible CDS that it has issued or cleared 

under the Exchange Act, which would 

provide investors with civil remedies in 

addition to antifraud remedies. While a 

CCP registration statement covering 

eligible CDS (or the offer and sale of 

such eligible CDS) may provide certain 

information about the CCP, CDS 

contract terms, and the identification of 

reference entities or reference securities, 

it would not necessarily provide the 

type of information necessary to assess 

the credit risk of the reference entity or 

reference security. Further, while a CCP 

registration statement would provide 

information to the CDS market 

participants, as well as to the market as 

a whole, a condition of the clearing 

agency exemption in the exemptive 

orders is that the CCPs make their 

audited financial statements and other 

information about themselves publicly 

available. We recognize that a 

consequence of the exemptions would 

be the unavailability of certain remedies 

under the Securities Act and the 

Exchange Act and certain protections 

under the Trust Indenture Act. While an 

investor would be able to pursue an 

antifraud action in connection with the 

purchase and sale of eligible CDS under 

Exchange Act Section 10(b),50 it would 

not be able to pursue civil remedies 

under Sections 11 or 12 of the Securities 

Act.51 We could still pursue an 

antifraud action in the offer and sale of 

eligible CDS issued or cleared by a 

CCP.52


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53 15 U.S.C. 78w(a)(2). 

54 15 U.S.C. 77b(b). 

55 15 U.S.C. 78c(f). 

VII. Consideration of Impact On the 

Economy, Burden On Competition and 

Promotion of Efficiency, Competition 

and Capital Formation 

Section 23(a)(2) of the Exchange 

Act 53 requires us, when adopting rules 

under the Exchange Act, to consider the 

impact that any new rule would have on 

competition. Section 23(a)(2) prohibits 

us from adopting any rule that would 

impose a burden on competition not 

necessary or appropriate in furtherance 

of the purposes of the Exchange Act. In 

addition, Section 2(b) 54 of the Securities 

Act and Section 3(f) 55 of the Exchange 

Act require us, when engaging in 

rulemaking where we are required to 

consider or determine whether an action 

is necessary or appropriate in the public 

interest, to also consider whether the 

action will promote efficiency, 

competition, and capital formation. 

We are adopting interim final 

temporary rules that would exempt 

eligible CDS issued or cleared by a 

Registered or Exempt CCP from all 

provisions of the Securities Act, other 

than the Section 17(a) antifraud 

provision, as well as from the 

registration requirements under Section 

12 of the Exchange Act and the 

provisions of the Trust Indenture Act. 

Because our interim final temporary 

exemptions will be available to any 

Registered or Exempt CCP offering and 

selling eligible CDS, we do not believe 

that our actions today will impose a 

burden on competition. We also believe 

that the ability to settle CDS through 

CCPs will improve the transparency of 

the CDS market and provide greater 

assurance to participants as to the 

capacity of the eligible CDS 

counterparty to perform its obligations 

under the eligible CDS. We believe that 

increased transparency in the CDS 

market could help to decrease further 

market turmoil and thereby facilitate the 

capital formation process. 

VIII. Regulatory Flexibility Act 

Certification 

The Commission hereby certifies 

pursuant to 5 U.S.C. 605(b) that the 

interim final temporary rules contained 

in this release will not have a significant 

economic impact on a substantial 

number of small entities. The interim 

final temporary rules exempt eligible 

CDS that are or will be issued or cleared 

by a Registered or Exempt CCP. None of 

the entities that are eligible to meet the 

requirements of the exemption from 

registration under Section 17A is a 

small entity. For this reason, the interim 

final temporary rules should not have a 

significant economic impact on a 

substantial number of small entities. 

IX. Statutory Authority and Text of the 

Rules and Amendments 

The rules and amendments described 

in this release are being adopted under 

the authority set forth in Sections 18, 19 

and 28 of the Securities Act; Sections 

12(h), 23(a) and 36 of the Exchange Act; 

and Section 304(d) of the Trust 

Indenture Act. 

List of Subjects 

17 CFR Parts 230, 240 and 260. 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Rules and Amendments 

■ For the reasons set out in the 

preamble, the Commission amends Title 

17, Chapter II, of the Code of Federal 

Regulations as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for Part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 

77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 

78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 

78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a– 

30, and 80a–37, unless otherwise noted. 

* * * * * 

■ 2. Section 230.146 is amended by 

adding paragraph (c)T to read as 

follows: 

§ 230.146 Rules under section 18 of the 

Act. 

* * * * * 

(c)T Temporary definition of eligible 

contract participant as qualified 

purchaser. For purposes of Section 

18(b)(3) of the Act (15 U.S.C. 77r(b)(3)), 

the term ‘‘qualified purchaser’’ shall 

mean any eligible contract participant 

(as defined in Section 1a(12) of the 

Commodity Exchange Act (7 U.S.C. 

1a(12)) as in effect on the date of 

adoption of this section, other than a 

person who is an eligible contract 

participant under Section 1(a)(12)(C) of 

the Commodity Exchange Act) that has 

been sold an eligible credit default swap 

(as defined in Rule 239T of this Act) in 

reliance on Rule 239T of this Act. This 

temporary rule will expire on 

September 25, 2009. 

■ 3. Section 230.239T is added to read 

as follows: 

§ 230.239T Temporary exemption for 

eligible credit default swaps. 

(a) Except as expressly provided in 

paragraph (b) and (c) of this section, the 

Act does not apply to any eligible credit 

default swap that is: 

(1) Issued or cleared by a clearing 

agency registered as a clearing agency 

under Section 17A of the Securities 

Exchange Act of 1934 (15 U.S.C. 78q–1) 

or exempt from registration under 

Section 17A of the Securities Exchange 

Act of 1934 pursuant to a rule, 

regulation, or order of the Commission; 

and 

(2) Offered and sold only to an 

eligible contract participant (as defined 

in Section 1a(12) of the Commodity 

Exchange Act (7 U.S.C. 1a(12)) as in 

effect on the date of adoption of this 

section, other than a person who is an 

eligible contract participant under 

Section 1(a)(12)(C) of the Commodity 

Exchange Act). 

(b) The exemption provided in 

paragraph (a) of this section does not 

apply to the provisions of Section 17(a) 

of the Act (15 U.S.C. 77q(a)). 

(c) Offers and sales. Any offer or sale 

of an eligible credit default swap 

pursuant to this section by or on behalf 

of the issuer of an identified security 

that is to be delivered if there is a creditrelated event or whose value is used to 

determine the amount of the settlement 

obligation, an affiliate of such issuer, or 

an underwriter, will constitute a 

‘‘contract for sale of,’’ ‘‘sale of,’’ ‘‘offer 

for sale,’’ or ‘‘offer to sell’’ such 

identified security under Section 2(a)(3) 

of the Act (15 U.S.C. 77b(a)(3)). 

(d) Definition of Eligible Credit 

Default Swap. For purposes of this 

section, an eligible credit default swap 

is a bilateral executory derivative 

contract not subject to individual 

negotiation: 

(1) in which a buyer makes payments 

to the seller and, in return, receives a 

payout if there is a default or other 

credit event involving identified 

obligation(s) or identified entity(ies) 

within a certain time; and 

(2) The agreement for which includes 

the: 

(i) Specification of the identified 

obligation or obligor; or, in the case of 

an identified group or index thereof, all 

of the identified obligations or obligors 

comprising any such group or index; 

(ii) Term of the agreement; 

(iii) Notional amount upon which 

payment obligations are calculated; 

(iv) Credit-related events that trigger a 

settlement obligation; and 

(v) Obligations to be delivered if there 

is a credit-related event or, if it is a cash 

settlement, the obligations whose value 

is to be used to determine the amount 

of settlement obligation under the 

eligible credit default swap. 

(e) This temporary rule will expire on 

September 25, 2009. 


rmajette on PRODPC74 with RULES
Federal Register / Vol. 74, No. 13 / Thursday, January 22, 2009 / Rules and Regulations 3975 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 4. The authority citation for Part 240 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, 

78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a– 

20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4, 

80b–11, and 7201 et seq., and 18 U.S.C. 1350, 

unless otherwise noted. 

* * * * * 

■ 5. Section 240.12a–10T is added to 

read as follows: 

§ 240.12a–10T Temporary exemption of 

eligible credit default swaps from Section 

12(a) of the Act. 

(a) The provisions of Section 12(a) of 

the Act (15 U.S.C. 78l(a)) do not apply 

in respect of any eligible credit default 

swap, as defined in Rule 239T of the 

Securities Act of 1933 (17 CFR 

230.239T) issued or cleared by a 

clearing agency registered as a clearing 

agency under Section 17A of the Act (15 

U.S.C. 78q–1) or exempt from 

registration under Section 17A of the 

Act pursuant to a rule, regulation, or 

order of the Commission, that will be 

purchased by or sold to an eligible 

contract participant (as defined in 

Section 1a(12) of the Commodity 

Exchange Act (7 U.S.C. 1a(12)) as in 

effect on the date of adoption of this 

section, other than a person who is an 

eligible contract participant under 

Section 1(a)(12)(C) of the Commodity 

Exchange Act. 

(b) This temporary rule will expire on 

September 25, 2009. 

■ 6. Section 240.12h–1 is amended by 

adding paragraph (h)T to read as 

follows: 

§ 240.12h–1 Exemptions from registration 

under section 12(g) of the Act. 

* * * * * 

(h)T any eligible credit default swap, 

as defined in Rule 239T of the Securities 

Act of 1933 (17 CFR 230.239T), issued 

or cleared by a clearing agency 

registered as a clearing agency under 

Section 17A of the Act (15 U.S.C. 78q– 

1) or exempt from registration under 

Section 17A of the Act pursuant to a 

rule, regulation, or order of the 

Commission that will be purchased by 

or sold to an eligible contract 

participant (as defined in Section 1a(12) 

of the Commodity Exchange Act (7 

U.S.C. 1a(12)) as in effect on the date of 

adoption of this section, other than a 

person who is an eligible contract 

participant under Section 1(a)(12)(C) of 

the Commodity Exchange Act. This 

temporary rule will expire on 

September 25, 2009. 

PART 260—GENERAL RULES AND 

REGULATIONS, TRUST INDENTURE 

ACT OF 1939 

■ 7. The authority citation for Part 260 

continues to read as follows: 

Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 

77sss, 78ll(d), 80b–3, 80b–4, and 80b–11. 

■ 8. Section 260.4d–11T is added to 

read as follows: 

§ 260.4d–11T Temporary exemption for 

eligible credit default swaps offered and 

sold in reliance on Securities Act of 1933 

Rule 239T (§ 230.239T). 

Any eligible credit default swap (as 

defined in Rule 239T of this chapter, 17 

CFR 230.239T), whether or not issued 

under an indenture, is exempt from the 

Act if offered and sold in reliance on 

Rule 239T of this chapter. This 

temporary rule will expire on 

September 25, 2009. 

By the Commission. 

Dated: January 14, 2009. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–1123 Filed 1–21–09; 8:45 am] 

BILLING CODE 8011–01–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2008–0705; FRL–8748–7] 

Approval and Promulgation of 

Implementation Plans; Nevada; Vehicle 

Inspection and Maintenance Program 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: Under the Clean Air Act, EPA 

is approving certain revisions, and 

disapproving certain other revisions, to 

the Nevada State Implementation Plan 

submitted by the Nevada Division of 

Environmental Protection. These 

revisions relate to the application of the 

State’s vehicle inspection and 

maintenance program to vehicles 

operated on Federal installations. EPA 

is also correcting certain plan revisions 

related to this subject that EPA 

previously approved in error. The 

intended effect is to ensure that vehicles 

operated on Federal installations are 

subject only to those requirements of the 

State’s vehicle inspection and 

maintenance program that apply in the 

same manner and to the same extent to 

nongovernmental entities. 

DATES: Effective Date: This rule is 

effective on February 23, 2009. 

ADDRESSES: EPA has established docket 

number EPA–R09–OAR–2008–0705 for 

this action. The index to the docket is 

available electronically at http:// 

www.regulations.gov and in hard copy 

at EPA Region IX, 75 Hawthorne Street, 

San Francisco, California. While all 

documents in the docket are listed in 

the index, some information may be 

publicly available only at the hard copy 

location (e.g., copyrighted material), and 

some may not be publicly available in 

either location (e.g., CBI). To inspect the 

hard copy materials, please schedule an 

appointment during normal business 

hours with the contact listed in the FOR

FURTHER INFORMATION CONTACT section. 

FOR FURTHER INFORMATION CONTACT: 

Eleanor Kaplan, Air Planning Office 

(AIR–2), U.S. Environmental Protection 

Agency, Region IX, (415) 947–4147, 

kaplan.eleanor@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Throughout this document, ‘‘we’’, ‘‘us’’ 

and ‘‘our’’ refer to EPA. 

Table of Contents 

I. Proposed Action 

II. Public Comments 

III. EPA Action 

IV. Statutory and Executive Order Reviews 

I. Proposed Action 

On September 25, 2008 (73 FR 55466), 

under the Clean Air Act (CAA or ‘‘Act’’), 

EPA proposed to approve certain 

revisions, and to disapprove certain 

other revisions, to the Nevada State 

Implementation Plan (SIP) submitted by 

the Nevada Division of Environmental 

Protection (NDEP). These revisions 

relate to the application of the State’s 

vehicle inspection and maintenance 

(I/M) program to vehicles operated on 

Federal installations. EPA also proposed 

to correct certain SIP revisions related to 

this subject that EPA previously 

approved in error. 

Specifically, EPA proposed to 

approve paragraphs (a), (b) and (c) of 

subsection (2) of Nevada Administrative 

Code (NAC) section 445B.595 

(‘‘Inspections of vehicles owned by 

State or political subdivisions or 

operated on federal installations’’). 

NDEP submitted NAC 445B.595 to EPA 

on May 11, 2007. We proposed to 

approve these paragraphs of NAC 

445B.595(2) because they extend the 

same vehicle I/M testing, standards, and 

certification requirements to motor 

vehicles operated on Federal 

installations as apply to 

nongovernmental entities, consistent 

with CAA section 118(a). See our 

September 25, 2008 proposed rule at 73 

FR 55467. By the same token, we 


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