Document ID: SEC-2013-0671-0001
Agency: sec
Document Type: Rule
Title: Filing Requirements for Dually-Registered Clearing Agencies; Amendment
Posted Date: 2013-04-09T04:00Z

[Federal Register Volume 78, Number 68 (Tuesday, April 9, 2013)]
[Rules and Regulations]
[Pages 21046-21058]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08141]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-69284; File No. S7-29-11]
RIN 3235-AL18

Amendment to Rule Filing Requirements for Dually-Registered 
Clearing Agencies

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is affirming recent amendments to Rule 19b-4 under the 
Securities Exchange Act of 1934 (``Exchange Act'') in connection with 
filings of proposed rule changes by certain registered clearing 
agencies and is expanding on those amendments in response to comments 
received (collectively, ``Final Rule''). The Commission also is making 
corresponding technical modifications to the General Instructions for 
Form 19b-4 under the Exchange Act. The amendments to Rule 19b-4 and the 
instructions to Form 19b-4 are intended to streamline the rule filing 
process in areas involving certain activities concerning non-security 
products that may be subject to duplicative or inconsistent regulation 
as a result of, in part, certain provisions under Section 763(b) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(``Dodd-Frank Act'').

DATES: Effective June 10, 2013.

FOR FURTHER INFORMATION CONTACT: Joseph P. Kamnik, Assistant Director; 
Gena Lai, Senior Special Counsel; and Neil Lombardo, Attorney, Office 
of Clearance and Settlement, Division of Trading and Markets, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-7010 at (202) 551-5710.

SUPPLEMENTARY INFORMATION: The Commission is adopting a Final Rule that 
affirms and expands upon recent amendments to Rule 19b-4 under the 
Exchange Act concerning categories of proposed rule changes that 
qualify for effectiveness upon filing under Section 19(b)(3)(A) of the 
Exchange Act. The Commission also is making a corresponding technical 
modification to the General Instructions for Form 19b-4 under the 
Exchange Act.

I. Introduction

A. Background on the Commission's Process for Proposed Rule Changes

    Section 19(b)(1) of the Exchange Act \1\ requires each self-
regulatory organization (``SRO''), including any Registered Clearing 
Agency,\2\ to file with the Commission copies of any proposed rule or 
any proposed change in, addition to, or deletion from the rules of such 
SRO (collectively, ``proposed rule change''),\3\ which must be 
submitted on Form 19b-4 \4\ in accordance with the General Instructions 
thereto. Once a proposed rule change has been filed, the Commission is 
required to publish it in the Federal Register to provide an 
opportunity for public comment.\5\ A proposed rule change generally may 
not take effect unless the Commission approves it,\6\ or it otherwise 
becomes effective under Section 19(b).\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ See Section 3(a)(26) of the Exchange Act, 15 U.S.C. 
78c(a)(26) (defining the term ``self-regulatory organization'' to 
mean any national securities exchange, registered securities 
association, registered clearing agency, and, for purposes of 
Section 19(b) and other limited purposes, the Municipal Securities 
Rulemaking Board) (emphasis added).
    \3\ 15 U.S.C. 78s(b)(1). Section 3(a)(27) of the Exchange Act 
defines ``rules'' to include ``the constitution, articles of 
incorporation, bylaws, and rules, or instruments corresponding to 
the foregoing * * * and such of the stated policies, practices, and 
interpretations of such exchange, association, or clearing agency as 
the Commission, by rule, may determine to be necessary or 
appropriate in the public interest or for the protection of 
investors to be deemed to be rules of such exchange, association, or 
clearing agency.'' 15 U.S.C. 78c(a)(27). Rule 19b-4(b) under the 
Exchange Act defines ``stated policy, practice, or interpretation'' 
to mean, in part, ``[a]ny material aspect of the operation of the 
facilities of the self-regulatory organization'' or ``[a]ny 
statement made generally available'' that ``establishes or changes 
any standard, limit, or guideline'' with respect to the ``rights, 
obligations, or privileges'' of persons or the ``meaning, 
administration, or enforcement of an existing rule.'' 17 CFR 
240.19b-4(b).
    \4\ See 17 CFR 249.819.
    \5\ See 15 U.S.C. 78s(b)(1). The SRO is required to prepare the 
notice of its proposed rule change on Exhibit 1 of Form 19b-4 that 
the Commission then publishes in the Federal Register.
    \6\ See 15 U.S.C. 78s(b)(2). However, as provided in Section 
19(b)(2)(D) of the Exchange Act, 15 U.S.C. 78s(b)(2)(D), a proposed 
rule change shall be ``deemed to have been approved by the 
Commission'' if the Commission does not take action on a proposal 
that is subject to Commission approval within the statutory time 
frames specified in Section 19(b)(2).
    \7\ See, e.g., 15 U.S.C. 78s(b)(3)(A).
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    Section 19(b)(2) of the Exchange Act sets forth the standards and 
time periods for Commission action either to approve, disapprove, or 
institute proceedings to determine whether the proposed rule change 
should be disapproved.\8\ The Commission must approve a proposed rule 
change if it

[[Page 21047]]

finds that the underlying rule change is consistent with the 
requirements of the Exchange Act and the rules and regulations 
thereunder applicable to the SRO proposing the rule change.\9\
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    \8\ See 15 U.S.C. 78s(b)(2).
    \9\ 15 U.S.C. 78s(b)(2).
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    At the same time, Section 19(b)(3)(A) of the Exchange Act provides 
that a proposed rule change may become effective upon filing with the 
Commission, without pre-effective notice and opportunity for comment, 
if it is appropriately designated by the SRO as: (i) Constituting a 
stated policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the SRO; (ii) 
establishing or changing a due, fee, or other charge imposed by the SRO 
on any person, whether or not the person is a member of the SRO; or 
(iii) relating solely to the administration of the SRO.\10\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
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    Section 19(b)(3)(B) of the Exchange Act also separately provides 
that a proposed rule change may be put into effect summarily if it 
appears to the Commission that such action is necessary for the 
protection of investors, the maintenance of fair and orderly markets, 
or the safeguarding of securities or funds, and provides that any 
proposed rule change so put into effect shall be filed promptly 
thereafter with the Commission under Section 19(b)(1) of the Exchange 
Act.\11\ Accordingly, a proposed rule change put into effect summarily 
under Section 19(b)(3)(B) of the Exchange Act is also subject to the 
procedures of Section 19(b)(2) of the Exchange Act--in other words, 
that it is summarily effective only until such time as the Commission: 
(i) enters an order, pursuant to Section 19(b)(2)(A) of the Act, to 
approve or disapprove such proposed rule change; or (ii) institutes 
proceedings to determine whether the proposed rule change should be 
disapproved.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(B).
    \12\ See Securities Exchange Act Release Nos. 11461 (June 11, 
1975); 11554 (July 28, 1975); 11555 (July 28, 1975); and 11556 (July 
28, 1975). See also 17 CFR 249.819.
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    Under Section 19(b)(3)(C) of the Exchange Act, the Commission 
summarily may temporarily suspend a proposed rule change of an SRO that 
has taken effect pursuant to either Section 19(b)(3)(A) or 19(b)(3)(B) 
of the Exchange Act within sixty days of its filing if it appears to 
the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Exchange Act.\13\ If the Commission 
takes such action, it is then required to institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(C).
    \14\ Id. Temporary suspension of a proposed rule change and any 
subsequent action to approve or disapprove such change shall not 
affect the validity or force of the rule change during the period it 
was in effect and shall not be reviewable under Section 25 of the 
Exchange Act, nor shall it be deemed to be ``final agency action'' 
for purposes of 5 U.S.C. 704. Id.
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    In addition to the matters expressly set forth in the statute, 
Section 19(b)(3)(A) also provides the Commission with the authority, by 
rule and when consistent with the public interest, to designate other 
types of proposed rule changes that may be effective upon filing with 
the Commission.\15\ The Commission has previously used this authority 
to designate, under Rule 19b-4 of the Exchange Act, certain rule 
changes that qualify for effectiveness upon filing under Section 
19(b)(3)(A).\16\ On July 7, 2011, the Commission adopted an interim 
final rule (``Interim Final Rule'') to amend Rule 19b-4 to include in 
the list of categories that qualify for effectiveness upon filing under 
Section 19(b)(3)(A) of the Exchange Act any matter effecting a change 
in an existing service of a Registered Clearing Agency that (i) 
primarily affects the futures clearing operations of the clearing 
agency with respect to futures that are not security futures and (ii) 
does not significantly affect any securities \17\ clearing operations 
of the clearing agency or any related rights or obligations of the 
clearing agency or persons using such service.\18\ The Interim Final 
Rule also made corresponding technical modifications to the General 
Instructions for Form 19b-4. These actions were intended to provide a 
streamlined process for making effective, subject to certain 
conditions, proposed rule changes that primarily concern the futures 
clearing operations of a Registered Clearing Agency and are not linked 
to securities clearing operations.
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ For example, Rule 19b-4(f) under the Exchange Act currently 
permits SROs to declare rule changes to be immediately effective 
pursuant to Section 19(b)(3)(A) if properly designated by the SRO 
as: (i) Effecting a change in an existing service of a Registered 
Clearing Agency that: (A) does not adversely affect the safeguarding 
of securities or funds in the custody or control of the clearing 
agency or for which it is responsible; and (B) does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using the service; (ii) effecting a 
change in an existing order-entry or trading system of an SRO that: 
(A) does not significantly affect the protection of investors or the 
public interest; (B) does not impose any significant burden on 
competition; and (C) does not have the effect of limiting the access 
to or availability of the system; or (iii) effecting a change that: 
(A) does not significantly affect the protection of investors or the 
public interest; (B) does not impose any significant burden on 
competition; and (C) by its terms, does not become operative for 30 
days after the date of the filing, or such shorter time as the 
Commission may designate if consistent with the protection of 
investors and the public interest; provided that the SRO has given 
the Commission written notice of its intent to file the proposed 
rule change, along with a brief description and text of the proposed 
rule change, at least five business days prior to the date of filing 
of the proposed rule change, or such shorter time as designated by 
the Commission. See 17 CFR 240.19b-4(f).
    \17\ Section 3(a)(10) of the Exchange Act defines ``security'' 
to include ``any note, stock, treasury stock, security future, bond, 
debenture, certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral royalty or 
lease, any collateral-trust certificate, preorganization certificate 
or substitution, transferable share, investment contract, voting-
trust certificate, certificate of deposit for a security, any put, 
call, straddle, option, or privilege on any security, certificate of 
deposit, or group or index of securities (including any interest 
therein or based on the value thereof), or any put, call, straddle, 
option, or privilege entered into on a national securities exchange 
relating to foreign currency, or, in general, any instrument 
commonly known as a `security'; or any certificate of interest or 
participation in, temporary or interim certificate for, receipt for, 
or warrant or right to subscribe to or purchase, any of the 
foregoing * * *.'' 15 U.S.C. 78c(a)(10).
    \18\ See Amendment to Rule Filing Requirements for Dually-
Registered Clearing Agencies, Securities Exchange Act Release No. 
34-64832 (July 7, 2011), 76 FR 41056 (July 13, 2011).
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B. Clearing Agencies Deemed Registered Under the Dodd-Frank Act

    Section 763(b) of the Dodd-Frank Act \19\ provides that (i) a 
depository institution registered with the Commodities Futures Trading 
Commission (``CFTC'') that cleared swaps as a multilateral clearing 
organization prior to the date of enactment of the Dodd-Frank Act and 
(ii) a derivatives clearing organization (``DCO'') registered with the 
CFTC that cleared swaps pursuant to an exemption from registration as a 
clearing agency prior to the date of enactment of the Dodd-Frank Act 
will be deemed registered with the Commission as a clearing agency 
solely for the purpose of clearing security-based swaps (``Deemed 
Registered Provision'').\20\ On July 16, 2011, the Deemed Registered 
Provision, along with other general provisions

[[Page 21048]]

under Title VII of the Dodd-Frank Act, became effective,\21\ thereby 
requiring each affected clearing agency to comply with all requirements 
of the Exchange Act and the rules and regulations thereunder applicable 
to Registered Clearing Agencies including, for example, the obligation 
to file proposed rule changes under Section 19(b) of the Exchange Act. 
The clearing of swaps,\22\ futures, options on futures, and forwards is 
generally regulated by the CFTC in connection with its oversight and 
supervision of DCOs. DCOs are generally permitted to implement rule 
changes by self-certifying that the new rule complies with the CEA and 
the CFTC's regulations.\23\ The changes effected by the Interim Final 
Rule were intended to eliminate unnecessary delays that could arise due 
to the differences between the Commission's rule filing process and the 
CFTC's self-certification process, which generally allows rule changes 
to become effective either before or within ten days after filing.\24\
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    \19\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \20\ See Section 763(b) of the Dodd-Frank Act (adding new 
Section 17A(l) to the Exchange Act, 15 U.S.C. 78q-1(1)). Under this 
Deemed Registered Provision, each of the Chicago Mercantile Exchange 
Inc. (``CME''), ICE Clear Europe Limited (``ICE Clear Europe'') and 
ICE Clear Credit LLC (``ICC''), as the successor entity of ICE Trust 
US LLC, became Registered Clearing Agencies solely for the purpose 
of clearing security-based swaps. Registered Clearing Agencies that 
currently conduct a swaps or a futures business are The Options 
Clearing Corporation (``OCC''), CME, ICE Clear Europe and ICC.
    \21\ Section 774 of the Dodd-Frank Act states, ``[u]nless 
otherwise provided, the provisions of this subtitle shall take 
effect on the later of 360 days after the date of the enactment of 
this subtitle or, to the extent a provision of this subtitle 
requires a rulemaking, not less than 60 days after publication of 
the final rule or regulation implementing such provision of this 
subtitle.''
    \22\ Section 721 of the Dodd-Frank Act amended Section 1a of the 
Commodity Exchange Act (``CEA'') to define the term ``swap.'' Among 
other things, the definition of ``swap'' specifically excludes any 
security-based swap other than a mixed swap. 7 U.S.C. 1a(47)(B)(x). 
See also Further Definition of ``Swap,'' ``Security-Based Swap,'' 
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based 
Swap Agreement Recordkeeping, 77 FR 48207 (August 13, 2012) 
(``Adopting Release''); 76 FR 29818 (May 23, 2011) (``Proposing 
Release'').
    \23\ See 7 U.S.C. 7a-2(c) and 17 CFR 40.6.
    \24\ See 7 U.S.C. 7a-2(c) and 17 CFR 40.6.
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C. The Interim Final Rule

    The Interim Final Rule amended Rule 19b-4 to expand the list of 
categories that qualify for effectiveness immediately upon filing 
pursuant to Section 19(b)(3)(A) of the Exchange Act to include proposed 
rule changes made by Registered Clearing Agencies with respect to 
certain futures clearing operations.\25\ Specifically, the Interim 
Final Rule amended Rule 19b-4(f)(4)(ii) to allow a proposed rule change 
concerning futures clearing operations filed by a Registered Clearing 
Agency to take effect upon filing with the Commission pursuant to 
Section 19(b)(3)(A) so long as it is properly designated by the 
Registered Clearing Agency as effecting a change in a service of the 
Registered Clearing Agency that meets two conditions.\26\ The first 
condition, set forth in Interim Final Rule 19b-4(f)(4)(ii)(A), is that 
the proposed rule change must primarily affect the futures clearing 
operations of the clearing agency with respect to futures that are not 
security futures.\27\ For purposes of this requirement, a Registered 
Clearing Agency's ``futures clearing operations'' includes any activity 
that would require the Registered Clearing Agency to register with the 
CFTC as a DCO in accordance with the CEA.\28\ In addition, to 
``primarily affect'' such futures clearing operations means that the 
proposed rule change is targeted to affect matters related to the 
clearing of futures specifically, and that any effect on other clearing 
operations would be incidental in nature and not significant in extent. 
Because a security futures product is a security for purposes of the 
Exchange Act,\29\ a Registered Clearing Agency may not invoke Rule 19b-
4(f)(4)(ii) to designate proposed rule changes concerning the agency's 
security futures operations as taking effect upon filing with the 
Commission pursuant to Section 19(b)(3)(A). Instead, the Commission 
reviews such proposed rule changes in accordance with Section 19(b)(2), 
unless there is another basis for the change to be filed under Section 
19(b)(3)(A).
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    \25\ When an SRO designates a proposed rule change as becoming 
effective upon filing with the Commission pursuant to Section 
19(b)(3)(A) of the Exchange Act, the Commission has the power 
summarily to temporarily suspend the change within sixty days of its 
filing if it appears to the Commission that such action is necessary 
or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the 
Exchange Act. See 15 U.S.C. 78s(b)(3)(A). See also supra note 14 and 
accompanying text.
    \26\ 17 CFR 240.19b-4(f)(4)(ii) (as amended by the Interim Final 
Rule).
    \27\ 17 CFR 240.19b-4(f)(4)(ii)(A) (as amended by the Interim 
Final Rule). For example, rules of general applicability that apply 
equally to securities clearing operations, including security-based 
swaps, would not be considered to primarily affect such futures 
clearing operations. In addition, changes to general provisions in 
the constitution, articles, or bylaws of the Registered Clearing 
Agency that address the operations of the entire clearing agency 
would not be considered to primarily affect such futures clearing 
operations. See Interim Final Rule, Securities Exchange Act Release 
No. 64832 (July 7, 2011), 76 FR 41056, 41058 (July 13, 2011).
    \28\ See 7 U.S.C. 7a-1 (providing that it shall be unlawful for 
a DCO, unless registered with the CFTC, directly or indirectly to 
make use of the mails or any means or instrumentality of interstate 
commerce to perform the functions of a DCO (as described in 7 U.S.C. 
1a(9)) with respect to a contract of sale of a commodity for future 
delivery (or option on such a contract) or option on a commodity, in 
each case unless the contract or option is (i) otherwise excluded 
from registration in accordance with certain sections of the CEA or 
(ii) a security futures product cleared by a Registered Clearing 
Agency); see also Interim Final Rule, Securities Exchange Act 
Release No. 64832 (July 7, 2012), 76 FR 41056, 41058 (July 13, 
2011).
    \29\ 15 U.S.C. 78c(a)(10).
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    The second condition, contained in Interim Final Rule 19b-
4(f)(4)(ii)(B), is that the proposed rule change must not significantly 
affect any securities clearing operations of the clearing agency or any 
related rights or obligations of the clearing agency or persons using 
such service.\30\ The phrase ``significantly affect'' is used elsewhere 
in Rule 19b-4 in the context of defining other categories of proposed 
rule changes that qualify for effectiveness upon filing under Section 
19(b)(3)(A) of the Exchange Act.\31\ Accordingly, ``significantly 
affect'' has the same meaning and interpretation as that phrase has in 
Rules 19b-4(f)(4)(i) (as amended by the Interim Final Rule), 19b-
4(f)(5), and 19b-4(f)(6). The Commission believes that a Registered 
Clearing Agency's ``securities clearing operations * * * or any related 
rights or obligations of the clearing agency or persons using such 
service'' would include activity that would require the Registered 
Clearing Agency to register as a clearing agency in accordance with the 
Exchange Act.
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    \30\ 17 CFR 240.19b-4(f)(4)(ii)(B) (as amended by the Interim 
Final Rule).
    \31\ See, e.g., 17 CFR 240.19b-4(f)(4)(i) (as amended by the 
Interim Final Rule) (in respect of a proposed rule change in an 
existing service of a Registered Clearing Agency that: (1) Does not 
adversely affect the safeguarding of securities or funds in the 
custody or control of the clearing agency or for which it is 
responsible and (2) does not significantly affect the respective 
rights or obligations of the clearing agency or persons using the 
service); see also Interim Final Rule, Securities Exchange Act 
Release No. 64832 (July 7, 2012), 76 FR 41056, 41059 (July 13, 
2011).
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II. Final Rule

A. Comments Received on the Interim Final Rule

    The Commission received three comment letters on the Interim Final 
Rule.\32\ Two commenters urged the Commission to modify the Interim 
Final Rule to broaden the list of rule changes that qualify for 
effectiveness upon filing pursuant to Section 19(b)(3)(A) to include 
changes related to all products that are regulated by the CFTC.\33\
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    \32\ Copies of comments received on the proposal are available 
on the Commission's Web site at: http://www.sec.gov/comments/s7-29-11/s72911.shtml.
    \33\ See, e.g., comment letter of Craig Donohue, Chief Executive 
Office, CME Group, Inc. (Sep. 15, 2011) (``CME Letter'') and comment 
letter of Shearman & Sterling LLP, on behalf of ICE Clear Europe 
Limited (Sept. 15, 2011) (``ICE Clear Europe Letter'').
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    In their comment letters, both CME and ICE Clear Europe urged the 
Commission to expand Rule 19b-4(f)(4)(ii) to include proposed rule 
changes related to the swaps clearing

[[Page 21049]]

operations of a Registered Clearing Agency.\34\ In particular, CME 
noted that its current business involves the clearing of both futures 
and swaps, including agricultural swaps, interest rate swaps, certain 
over-the-counter (``OTC'') commodity products (including gold forwards 
and freight forwards) and, potentially, energy and foreign exchange 
swaps.\35\ CME raised concerns that, by omitting swaps and certain 
other OTC products from the types of products covered by Rule 19b-
4(f)(4)(ii), it is ``now subject to substantial potential delays'' when 
implementing rule changes that deal with products over which the 
Commission is not its primary regulator.\36\ ICE Clear Europe raised 
similar concerns with respect to its non-security-based swaps business, 
particularly its longstanding energy derivatives clearing business.\37\ 
Specifically, ICE Clear Europe requested that Rule 19b-4(f)(4)(ii) be 
expanded to include proposed rule changes that relate solely to swaps, 
and are not related to security-based swaps.\38\
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    \34\ See CME Letter and ICE Clear Europe Letter.
    \35\ See CME Letter.
    \36\ Id.
    \37\ See ICE Clear Europe Letter.
    \38\ Id.
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    CME also requested that the Commission revise Rule 19b-4(f)(4)(ii) 
generally such that only proposed rule changes that relate directly to 
security[hyphen]based swap clearing activities would be subject to the 
Commission's review in accordance with Section 19(b)(2).\39\ CME 
further requested that Rule 19b-4(f)(4)(ii) permit proposed rule change 
filings to be made pursuant to Section 19(b)(3)(A) with respect to 
``rules of general applicability for product categories, such as 
[credit default swaps], where clearing is offered for both swaps and 
security[hyphen]based swaps'' and that a Section 19(b)(2) filing not be 
required for any other swap or ``OTC product categories with no direct 
or significant impact on security[hyphen]based swaps,'' and should also 
not be required for ``broad rules of general applicability as to 
clearing operations that will not have any particular or significant 
impact on security[hyphen]based swaps clearing.'' \40\ CME stated that, 
at present, its entire business, including the clearing of credit 
default swaps on broad-based indices, falls under the exclusive 
jurisdiction of the CFTC, and that the effect of the Interim Final Rule 
has been to replace the rule filing regime of the CEA with the pre-
approval rule filing regime of the Exchange Act. CME stated that it 
believes the Deemed Registered Provision was intended to allow clearing 
agencies already authorized to clear and engaged in the clearing of 
credit default swaps and other products under the authority of the CFTC 
to continue to do so without undue disruption to its service offerings, 
and that Congress did not intend to change this fundamental division of 
responsibilities.
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    \39\ See CME Letter.
    \40\ Id. In its comment letter, CME noted that Executive Order 
13563, which the President signed on January 18, 2011, requires, 
among other things, that all executive branch agencies identify and 
consider regulatory approaches that reduce burdens and maintain 
flexibility and freedom of choice for the public, in each case where 
relevant, feasible, and consistent with regulatory objectives, and 
to the extent permitted by law. While this order does not apply to 
independent agencies, the President separately signed Executive 
Order 13579 on July 11, 2011, which requires each independent agency 
to develop and release a public plan to periodically review its 
existing significant regulations ``to determine whether any such 
regulations should be modified, streamlined, expanded, or repealed 
so as to make the agency's regulatory program more effective or less 
burdensome in achieving the regulatory objectives.'' The Commission 
notes that the purpose of Rule 19b-4(f)(4)(ii) is to reduce burdens 
that would otherwise apply to Registered Clearing Agencies by virtue 
of certain statutory provisions contained in the Exchange Act, as 
amended by the Dodd-Frank Act. Specifically, the Final Rule permits 
Registered Clearing Agencies to submit to the Commission for 
effectiveness upon filing proposed rule changes that effect changes 
in their existing services that primarily affect their clearing of 
products that are not securities, including futures that are not 
security futures, swaps that are not securities-based swaps or mixed 
swaps, and forwards that are not security forwards, and that and do 
not significantly affect the clearing agency's securities clearing 
operations or the rights or obligations of the clearing agency with 
respect to securities clearing or persons using such securities 
clearing services.
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B. Amendments to the Interim Final Rule

    The Commission hereby affirms the amendments effected by the 
Interim Final Rule. As set forth herein, and after giving consideration 
to the comments received concerning the Interim Final Rule, the 
Commission is hereby modifying Rule 19b-4(f)(4)(ii) in two further 
respects.
1. Inclusion of Other Products That Are Not Securities, Including 
Certain Swaps and Forwards \41\
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    \41\ Section 721 of the Dodd-Frank Act defines the term ``swap'' 
broadly to encompass a variety of derivatives products. The 
definition includes, for example, interest rate swaps, commodity 
swaps, currency swaps, equity swaps, and credit default swaps. It 
also extends to certain types of forward contracts, as well as 
certain types of options, but excludes, among other things, options 
on any security or group or index of securities, including any 
interest therein or based on the value thereof. See 7 U.S.C. 1a(47).
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    First, the Commission is revising Rule 19b-4(f)(4)(ii) to add 
certain rule changes primarily affecting a Registered Clearing Agency's 
clearing operations for other non-securities products to the list of 
changes that qualify for effectiveness upon filing pursuant to Section 
19(b)(3)(A). In particular, in response to commenters,\42\ the 
Commission is broadening Rule 19b-4(f)(4)(ii)(A) to encompass proposed 
rule changes that primarily affect not only a Registered Clearing 
Agency's clearing of futures that are not security futures, but also 
other products that are not securities, including swaps that are not 
security-based swaps \43\ or mixed swaps,\44\ and forwards that are not 
security forwards.\45\ The Commission believes that also including 
proposed rule changes that primarily affect a Registered Clearing 
Agency's clearing operations with respect to these non-securities 
products in the list of changes that would qualify for effectiveness 
upon filing under Section 19(b)(3)(A) is consistent with the 
Commission's purposes for initially amending Rule 19b-4 pursuant to the 
Interim Final Rule. Specifically, this approach should help limit 
potential delays to the effectiveness of rule changes that primarily 
concern a Registered Clearing Agency's clearing operations with respect 
to products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards, subject to the 
limitations contained in Rule 19b-4(f)(4)(ii)(B).\46\
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    \42\ See CME Letter and ICE Clear Europe Letter.
    \43\ See 15 U.S.C. 78(c)(68).
    \44\ See 15 U.S.C. 78(c)(68)(D).
    \45\ The Commission notes that it would not regard a clearing 
agency's filing of proposed rule changes relating to a product the 
legal status of which may not be clear pursuant to Section 19(b)(2) 
or Section 19(b)(3)(B) of the Act as a determination or presumption 
by the clearing agency that such proposed rule changes involve 
products that are securities. Similarly, the Commission's acceptance 
of proposed rule changes for filing under paragraph (f)(4)(ii) would 
not constitute a presumption or determination by the Commission that 
the products involved are not securities. The Commission also notes 
that Section 718 of the Dodd-Frank Act (``Section 718'') established 
a process through which the Commission and the CFTC could work 
together to determine the status of ``novel derivative products'' 
that may have elements of both securities and contracts of sale of a 
commodity for future delivery (or options on such contracts or 
options on commodities). In this regard, the Commission notes that 
the filing of a proposed rule change pursuant to Section 19(b)(2) or 
Section 19(b)(3)(B) of the Act, or paragraph (f)(4)(ii), would not 
be considered a notice under Section 718 to the Commission.
    \46\ 17 CFR 240.19b-4(f)(ii)(B) (providing, as the second 
condition for satisfying Rule 19b-4(f)(ii), that the proposed rule 
change ``[d]oes not significantly affect any securities clearing 
operations of the clearing agency or any rights or obligations of 
the clearing agency with respect to securities clearing or persons 
using such securities-clearing service.'').
---------------------------------------------------------------------------

    For purposes of Rule 19b-4(f)(4)(ii)(A), a Registered Clearing 
Agency's clearing operations with

[[Page 21050]]

respect to products that are not securities, including futures that are 
not security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards, would include an 
activity that would require the Registered Clearing Agency to register 
with the CFTC as a DCO in accordance with the CEA.\47\ In addition, a 
proposed rule change ``[p]rimarily affects'' a clearing agency's 
clearing operations with respect to products that are not securities 
when it is targeted to matters related only to the clearing of those 
products.\48\ For example, rules of general applicability that would 
apply equally to securities clearing operations, including security-
based swaps, would not be considered to primarily affect a Registered 
Clearing Agency's non-securities clearing operations. While CME 
requested that rules of general applicability be eligible for 
effectiveness upon filing, the Commission believes rules that would 
have equal applicability to securities clearing operations must be 
filed for Commission review in accordance with Section 19(b)(2), which 
will enable the Commission to fulfill its statutory obligations under 
the Exchange Act. If rules that have a significant impact on securities 
operations were permitted to become immediately effective, the 
Commission would not have the ability to review the impact of the rules 
against Exchange Act standards before their effectiveness, which would 
undercut the scope of the Commission's oversight of registered clearing 
agencies. In addition, changes to general provisions in the 
constitution, articles, or bylaws of the Registered Clearing Agency 
that address the operations of the entire clearing agency also would 
not be considered to primarily affect such Registered Clearing Agency's 
clearing operations with respect to products that are not securities.
---------------------------------------------------------------------------

    \47\ See 7 U.S.C. 7a-1 (providing that it shall be unlawful for 
a DCO, unless registered with the CFTC, directly or indirectly to 
make use of the mails or any means or instrumentality of interstate 
commerce to perform the functions of a DCO (as described in 7 U.S.C. 
1a(9)) with respect to a contract of sale of a commodity for future 
delivery (or option on such a contract) or option on a commodity, in 
each case unless the contract or option is (i) otherwise excluded 
from registration in accordance with certain sections of the CEA or 
(ii) a security futures product cleared by a Registered Clearing 
Agency).
    \48\ If a proposed rule change filed pursuant to Section 
19(b)(3)(A) has an incidental but significant effect on clearing 
operations with respect to products that are not securities and does 
not qualify under new Rule 19b-4(f)(4)(ii)(B)(II), the Commission 
summarily may, within 60 days after the proposed rule change becomes 
effective under Section 19(b)(3)(A), temporarily suspend the rule 
change and institute proceedings to determine whether to approve or 
disapprove the rule change pursuant to the provisions of Section 
19(b)(2). Alternatively, as with other filings that do not meet the 
requirements of Section 19(b)(3)(A) and Rule 19b-4(f), the 
Commission may reject the filing as technically deficient within 
seven business days, pursuant to Section 19(b)(10)(B). 15 U.S.C. 
78s(b)(10)(B).
---------------------------------------------------------------------------

    Further, because security futures, security-based swaps, mixed 
swaps, security forwards, and options on securities are considered 
securities for purposes of the Exchange Act,\49\ a Registered Clearing 
Agency would not be permitted to file proposed rule changes related to 
these lines of business pursuant to Section 19(b)(3)(A) of the Exchange 
Act in reliance on Rule 19b-4(f)(4)(ii). Instead, such clearing agency 
would continue to be required to file proposed rule changes related to 
its clearing of security futures, security-based swaps, mixed swaps, 
security forwards, options on securities, or other securities products 
for Commission review in accordance with Section 19(b)(2) of the 
Exchange Act, unless there is another basis for the proposed rule 
change to be filed under Section 19(b)(3)(A).
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78c(a)(10). As previously noted, however, the 
definition of ``swap'' specifically excludes any security-based swap 
other than a mixed swap. See supra note 22.
---------------------------------------------------------------------------

    The Commission generally believes that it is appropriate to review 
proposed rule changes in accordance with the process set forth in 
Section 19(b)(2) of the Exchange Act whenever the changes 
``significantly affect'' any securities clearing operations of the 
clearing agency (unless there is another basis for the proposed rule 
change to be filed under Section 19(b)(3)(A)), even in circumstances 
when such effects may be indirect.\50\
---------------------------------------------------------------------------

    \50\ For example, in instances where the swap and security-based 
swap business of a clearing agency are intertwined, such as when a 
clearing agency has established one clearing fund or pool of 
financial resources for both products, changes applicable to such 
swaps are unlikely to meet the requirement that the change not 
significantly affect any securities clearing operations of the 
clearing agency or any related rights or obligations of the clearing 
agency or persons using such service.
---------------------------------------------------------------------------

    The Commission is charged with determining whether the rules of a 
Registered Clearing Agency are designed, among other things, ``to 
assure the safeguarding of securities and funds which are in the 
custody or control of the clearing agency or for which it is 
responsible * * * and, to protect investors and the public interest.'' 
\51\ The Commission's oversight responsibility over Registered Clearing 
Agencies extends to the clearing agency as a whole and is entity-based, 
rather than product-based.\52\ If Registered Clearing Agencies did not 
file proposed rule changes with the Commission that relate to their 
clearing operations, as required under Section 19(b) of the Exchange 
Act, the Commission would not be able to meet its statutory oversight 
responsibilities.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78q-1(b)(3)(F).
    \52\ See S. Rep. No. 94-75, at 34 (1975), reprinted in 1975 
U.S.C.C.A.N. 179, 212 (``The Commission has oversight responsibility 
with respect to the self-regulatory organizations to insure that 
they exercise their delegated governmental power effectively to meet 
regulatory needs in the public interest and that they do not 
exercise that delegated power in a manner inimical to the public 
interest or unfair to private interests.'').
---------------------------------------------------------------------------

2. Addition of the ``Fair and Orderly Markets'' Provision
    In light of the issues identified by the commenters in connection 
with the Interim Final Rule, the Commission has determined to further 
revise Rule 19b-4(f)(4)(ii)(B) by adding a second clause that will 
permit clearing agencies to file a proposed rule change under Section 
19(b)(3)(A) when the rule change primarily affects the clearing 
operations of the clearing agency with respect to products that are not 
securities, including futures that are not security futures, swaps that 
are not security-based swaps or mixed swaps, and forwards that are not 
security forwards, even when the proposed rule ``significantly 
affects'' any securities clearing operations of the clearing agency or 
any rights or obligations of the clearing agency with respect to 
securities clearing or persons using such securities-clearing service, 
if the clearing agency can demonstrate that the rule change is 
``necessary to maintain fair and orderly markets for products that are 
not securities, including futures that are not security futures, swaps 
that are not security-based swaps or mixed swaps, and forwards that are 
not security forwards.''
    A proposed rule change filed by a clearing agency relying on this 
``fair and orderly markets'' provision must, in addition to being filed 
for approval pursuant to Section 19(b)(3)(A), be separately filed for 
approval pursuant to Section 19(b)(2), and this second filing must be 
made within fifteen calendar days after the proposed rule change was 
filed for approval under Section 19(b)(3)(A). Accordingly, in most 
cases, a rule that is effective upon filing under Section 19(b)(3)(A) 
that relies upon the ``fair and orderly markets'' provision of Rule 
19b-4(f)(4)(ii)(B) shall be effective until such time as the Commission 
enters an order, pursuant to Section 19(b)(2)(A) of the Exchange Act, 
to approve such proposed rule change or, depending on the 
circumstances, until such time as the Commission summarily temporarily 
suspends the rule change

[[Page 21051]]

pursuant to Section 19(b)(3)(C) or, alternatively, until such time as 
the Commission, at the conclusion of proceedings to determine whether 
to approve or disapprove the proposed rule change, enters an order, 
pursuant to Section 19(b)(2)(B), approving or disapproving such 
proposed rule change.\53\
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    \53\ Because proposed rule changes filed pursuant to Rule 19b-
4(f)(4)(ii)(B)(II) are submitted in accordance with the Commission's 
statutory authority set forth in Section 19(b)(3)(A), the Commission 
would retain the power to summarily temporarily suspend the rule 
change within 60 days of its filing if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Exchange Act. See 15 U.S.C. 78s(b)(3)(C). The 
Commission would then be required to institute proceedings to 
determine whether the rule should be approved or disapproved. Id. As 
a practical matter, however, the Commission expects that proposed 
rule changes filed under the ``fair and orderly markets'' provision 
would remain in effect while they are reviewed in accordance with 
Section 19(b)(2) which, among other things, requires the Commission 
to approve, disapprove, or institute proceedings to determine 
whether to disapprove a proposed rule change within 45 days of its 
date of publication in the Federal Register, subject in certain 
circumstances to an extension of up to an additional 45 days. The 
Commission would nonetheless retain the ability, within 60 days 
after a proposed rule change becomes effective under 19(b)(3)(A), to 
summarily temporarily suspend the rule change and institute 
proceedings or, after the 60-day summary suspension deadline, to 
disapprove the rule change pursuant to the provisions of Section 
19(b)(2).
---------------------------------------------------------------------------

    To demonstrate that a proposed rule change is ``necessary to 
maintain fair and orderly markets,'' a clearing agency must include in 
both of its filings with the Commission a detailed explanation of the 
following: (i) Why the proposed rule change is necessary to maintain 
fair and orderly markets for products that are not securities, 
including futures that are not security futures, swaps that are not 
security-based swaps or mixed swaps, and forwards that are not security 
forwards; (ii) why the proposed rule change cannot achieve this goal 
unless it takes effect immediately; (iii) how, and to what extent, 
markets would be adversely affected if the proposed rule change were 
not implemented immediately; (iv) whether the proposed rule change is 
temporary or permanent; (v) how the proposed rule change significantly 
affects any securities clearing operations of the clearing agency or 
the rights or obligations of the clearing agency with respect to 
securities clearing or persons using such securities-clearing service; 
and (vi) why the proposed rule change would have no adverse effect on 
maintaining fair and orderly markets for securities.
    The Commission believes that the new ``fair and orderly markets'' 
provision directly addresses the specific concerns raised by 
commenters, while preserving the core features of the Commission's 
existing notice and comment rule filing process. In particular, this 
provision is intended to respond to commenters' observations that the 
pre-effective notice and comment requirement of the Commission's 
Section 19(b)(2) rule filing process may unnecessarily burden existing 
non-securities markets. The new rule provision in Rule 19b-
4(f)(4)(ii)(B)(II) allows Registered Clearing Agencies that are also 
DCOs to have rules that are necessary to maintain fair and orderly 
markets and that have a significant effect on securities operations of 
the Registered Clearing Agencies to take effect immediately upon 
filing, while the traditional notice and comment period under the 
Exchange Act proceeds thereafter.
    The Commission believes the limited period of effectiveness while 
the notice and comment period proceeds is justified in the specific 
circumstances contemplated by the Final Rule given the nature of the 
issues raised by commenters and the substantial protections that will 
continue to exist under the Final Rule. In particular, the Dodd-Frank 
Act represents a significant reform of the national market system for 
securities and the national system for the clearance and settlement of 
securities transactions in which cooperation between the Commission and 
the CFTC is explicitly contemplated. Moreover, the clearly established 
time periods and procedures associated with the Commission's notice and 
comment process should lead to a greater level of assurance that rules 
enacted in this manner that will have significant direct or indirect 
effects on the securities clearing activities of the clearing agency 
either immediately or in the future will be given due consideration by 
the Commission with the benefit of views from outside parties.
    The Commission does not intend or expect the new ``fair and orderly 
markets'' provision to become, in practice, a common method for 
Registered Clearing Agencies to submit proposed rule changes that 
affect their clearing operations with respect to products that are not 
securities, including futures that are not securities futures, swaps 
that are not securities-based swaps or mixed swaps, and forwards that 
are not security forwards, but which also affect their securities 
clearing operations.\54\ The ``necessary to maintain fair and orderly 
markets'' language central to the new provision is intended to be 
narrowly circumscribed, and will permit clearing agencies to use the 
new provision for rule filings that may be necessary to respond 
promptly to major market emergencies and other situations of 
significant importance to the functioning of markets for products that 
are not securities. In instances when securities clearing operations 
are significantly affected, but the proposed rule change is not 
necessary to maintain fair and orderly markets for products that are 
not securities, including futures that are not security futures, swaps 
that are not security-based swaps or mixed swaps, and forwards that are 
not security forwards, a Registered Clearing Agency must file the 
proposed rule change pursuant to Section 19(b)(1) of the Exchange Act 
for approval under Section 19(b)(2) without reliance on Rule 19b-
4(f)(4)(ii)(B)(II).
---------------------------------------------------------------------------

    \54\ One court that interpreted a ``fair and orderly markets'' 
standard appearing in another area of the Exchange Act found the 
phrase to be an indication that relevant Commission actions are to 
be evaluated primarily by reference to the Congressional purposes of 
the Securities Act Amendments of 1975 involving the establishment of 
a national market system for securities and a national system for 
the clearance and settlement of securities transactions. See Ludlow 
Corp. v. SEC, 604 F.2d 704 (D.C. Cir. 1979) (discussing origins and 
purposes of ``fair and orderly markets'' provision in Section 
12(f)(2) of the Exchange Act).
---------------------------------------------------------------------------

    Finally, the Commission notes that Section 19(b)(2) of the Exchange 
Act permits the Commission to approve a proposed rule change on an 
accelerated basis if it finds good cause to do so and publishes its 
reasons for so finding.\55\ The application of this provision will be 
determined by the Commission on a case-by-case basis depending on the 
facts and circumstances pertaining to the proposed rule change.
---------------------------------------------------------------------------

    \55\ See 15 U.S.C. 78s(b)(2)(C)(iii) (``[t]he Commission may not 
approve a proposed rule change earlier than 30 days after the date 
of publication under paragraph (1), unless the Commission finds good 
cause for so doing and publishes the reason for the finding.'').
---------------------------------------------------------------------------

3. Conclusion
    The Commission believes that permitting clearing agencies to submit 
proposed rule changes that meet the two conditions in Rule 19b-
4(f)(4)(ii) for immediate effectiveness upon filing pursuant to Section 
19(b)(3)(A) of the Exchange Act is consistent with the public interest 
and the purposes of the Exchange Act. In particular, this approach 
should help limit the potential for delays by providing a streamlined 
filing process for rule changes that primarily affect the clearing 
agency's clearing operations with respect to products that are not 
securities, including futures that are not securities futures, swaps 
that are not securities-

[[Page 21052]]

based swaps or mixed swaps, and forwards that are not security forwards 
which, unless such clearing operations were linked to securities 
clearing operations, would not be subject to regulation by the 
Commission. In addition, the information provided to the Commission by 
a Registered Clearing Agency in a filing submitted for review in 
accordance with Section 19(b)(2) of the Exchange Act is virtually 
identical to the information required to be included in a filing made 
pursuant to Section 19(b)(3)(A). At the same time, the Final Rule will 
specifically require clearing agencies relying on the new ``fair and 
orderly markets'' provision to continue to submit to the Section 
19(b)(2) approval process while the rule change is in effect, and the 
Commission will retain the power to temporarily suspend the Registered 
Clearing Agency's rule change on a summary basis within sixty days 
after the rule is filed under Section 19(b)(3)(A) if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Exchange Act.\56\
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78s(b)(3)(C). If the Commission takes such 
action, it is then required to institute proceedings to determine 
whether the proposed rule change should be approved or disapproved.
---------------------------------------------------------------------------

B. Amendment to the General Instructions for Form 19b-4

    To accommodate the amendment to Rule 19b-4 being adopted today, the 
Commission also is making a corresponding technical modification to the 
General Instructions for Form 19b-4 under the Exchange Act. 
Specifically, the Commission is amending Item 7(b) of the General 
Instructions for Form 19b-4 (Information to be Included in the 
Completed Form), which requires the respondent SRO to cite the 
statutory basis for filing a proposed rule change pursuant to Section 
19(b)(3)(A) in accordance with the existing provisions of Rule 19b-
4(f). This amendment revises Item 7(b)(iv) to include the option to 
file the form in accordance with Rule 19b-4(f)(4)(ii), which provides 
for situations when a Registered Clearing Agency is effecting a change 
in an existing service that (i) primarily affects the clearing 
operations of the clearing agency with respect to products that are not 
securities, including futures that are not security futures, swaps that 
are not security-based swaps or mixed swaps, and forwards that are not 
security forwards and (ii) either (a) does not significantly affect any 
securities clearing operations of the clearing agency or any rights or 
obligations of the clearing agency with respect to securities clearing 
or persons using such securities-clearing service, or (b) does 
significantly affect any securities clearing operations of the clearing 
agency or any rights or obligations of the clearing agency with respect 
to securities clearing or persons using such securities-clearing 
service, but is necessary to maintain fair and orderly markets for 
products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards. Additional language 
is also being added to specify that clearing agencies using the ``fair 
and orderly markets'' provision will also be subject to the provisions 
of Section 19(b)(2) of the Exchange Act, in a manner equivalent to the 
process now used by the Commission for filings that are summarily 
approved by the Commission under Section 19(b)(3)(B) of the Exchange 
Act, and to specify the information clearing agencies must include in 
order to demonstrate that a proposed rule change is ``necessary to 
maintain fair and orderly markets for products that are not securities, 
including futures that are not security futures, swaps that are not 
security-based swaps or mixed swaps, and forwards that are not security 
forwards.''

III. Paperwork Reduction Act

    The Commission does not believe that the Final Rule contains any 
``collection of information'' requirements as defined by the Paperwork 
Reduction Act of 1995, as amended (``PRA'').\57\ The Final Rule affirms 
and further modifies recent amendments to Rule 19b-4 under the Exchange 
Act, such that the list of categories that qualify for effectiveness 
upon filing under Section 19(b)(3)(A) of the Exchange Act include any 
matter effecting a change in an existing service of a Registered 
Clearing Agency that: (i) primarily affects the clearing operations of 
the clearing agency with respect to products that are not securities, 
including futures that are not security futures, swaps that are not 
securities-based swaps or mixed swaps, and forwards that are not 
security forwards; and (ii) either (a) does not significantly affect 
any securities clearing operations of the clearing agency or any rights 
or obligations of the clearing agency with respect to securities 
clearing or persons using such securities-clearing service, or (b) does 
significantly affect any securities clearing operations of the clearing 
agency or any rights or obligations of the clearing agency with respect 
to securities clearing or persons using such securities-clearing 
service, but is necessary to maintain fair and orderly markets for 
products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards. In addition, a 
proposed rule change filed by a Registered Clearing Agency relying on 
the ``fair and orderly markets'' provision set forth in new Rule 19b-
4(f)(4)(ii)(B)(II) would also be filed for approval pursuant to Section 
19(b)(2) of the Exchange Act.\58\ Lastly, the Final Rule also makes a 
corresponding technical modification to the General Instructions for 
Form 19b-4 under the Exchange Act.
---------------------------------------------------------------------------

    \57\ 44 U.S.C. 3501, et seq.
    \58\ Accordingly, in most cases, a rule that is effective upon 
filing under Section 19(b)(3)(A) that relies upon the ``fair and 
orderly markets'' provision of Rule 19b-4(f)(4)(ii)(B)(II) shall be 
effective only until such time as the Commission enters an order, 
pursuant to Section 19(b)(2)(A) of the Exchange Act, to approve such 
proposed rule change or, depending on the circumstances, until such 
time as the Commission summarily temporarily suspends the rule 
change pursuant to Section 19(b)(3)(C) or, alternatively, until such 
time as the Commission, at the conclusion of proceedings to 
determine whether to approve or disapprove the proposed rule change, 
enters an order, pursuant to Section 19(b)(2)(B), approving or 
disapproving such proposed rule change.
---------------------------------------------------------------------------

    The Commission does not believe that these amendments would require 
any new or additional collection of information, as such term is 
defined in the PRA. The PRA defines a ``collection of information'' as 
``the obtaining, causing to be obtained, soliciting or requiring the 
disclosure to third parties or the public, of facts or opinions by or 
for an agency, regardless of form or format, calling for * * * answers 
to identical questions posed to, or identical reporting or 
recordkeeping requirements imposed on, ten or more persons * * *.'' 
\59\ The Commission does not believe that the reporting and 
recordkeeping provisions in this Final Rule contain ``collection of 
information requirements'' within the meaning of the PRA because fewer 
than ten persons are expected to rely on Rule 19b-4(f)(4)(ii). At 
present, only four Registered Clearing Agencies maintain a futures or 
swaps clearing business regulated by the CFTC.
---------------------------------------------------------------------------

    \59\ 44 U.S.C. 3502(3)(A).
---------------------------------------------------------------------------

IV. Economic Analysis

A. Introduction

    The Commission is sensitive to the economic effects of the 
amendments to Rule 19b-4, including their costs and benefits. Section 
23(a) \60\ of the Exchange Act requires the Commission, when making 
rules and regulations

[[Page 21053]]

under the Exchange Act, to consider the impact a new rule would have on 
competition. Section 23(a)(2) of the Exchange Act prohibits the 
Commission from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act. Section 3(f) of the Exchange Act \61\ requires the 
Commission, when engaging in rulemaking that requires it to consider 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action would promote efficiency, competition, and capital formation. We 
have considered and discussed below the effects of the rules we are 
adopting today on efficiency, competition, and capital formation, as 
well as the benefits and costs associated with the rulemaking.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78w(a).
    \61\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    As noted above, the Deemed Registered Provision, along with other 
general provisions under Title VII of the Dodd-Frank Act, became 
effective on July 16, 2011. Accordingly, the four Registered Clearing 
Agencies that currently maintain a futures, swaps, or forwards clearing 
business regulated by the CFTC are generally required to file proposed 
rule changes with the Commission under Section 19(b) of the Exchange 
Act, and to comply separately with the CFTC's process for self-
certification or direct approval of rules or rule amendments.\62\ The 
Commission is sensitive to the increased burdens these obligations will 
impose, and agrees that it is in the public interest to eliminate any 
potential inefficiencies and undue delays that could result from the 
requirement that the Commission review changes to rules primarily 
affecting clearing operations with respect to products that are not 
securities, including futures that are not securities futures, swaps 
that are not securities swaps or mixed swaps, and forwards that are not 
security forwards before these changes may be considered effective.
---------------------------------------------------------------------------

    \62\ These include OCC, CME, ICC, and ICE Clear Europe.
---------------------------------------------------------------------------

    In connection with the Interim Final Rule, the Commission 
identified certain costs and benefits of the amendments to Rule 19b-4 
and Form 19b-4, and requested commenters to provide views and 
supporting information regarding the costs and benefits associated with 
the proposals, including estimates of these costs and benefits, as well 
as any costs and benefits not already identified. Although the 
Commission did not receive any comments on the specific cost-benefit 
analysis conducted in connection with the Interim Final Rule, one 
commenter expressed a general view questioning whether the Commission's 
rulemaking in this area adequately respects the jurisdictional 
boundaries established by Congress when it passed the Dodd-Frank Act, 
noting that the requirement to file with the Commission for review in 
accordance with Section 19(b)(2) proposed rule changes that primarily 
affect the futures and swaps operations of a clearing agency registered 
with the Commission and the CFTC (``Dually-Registered Clearing 
Agency'') is an unreasonable outcome under a costs-benefits 
analysis.\63\ Specifically, this commenter argued that the Commission 
should not impose a rule that subjects a proposed rule change to a 
``lengthy public comment review process'' in cases when the change 
relates to a matter that falls within the ``exclusive or primary 
jurisdiction'' of another agency (i.e., the CFTC).\64\ The commenter 
argued that duplicative regulatory oversight is inherently unreasonable 
and imposes ``tremendous'' costs, but did not adduce any empirical 
evidence to support its assertion.
---------------------------------------------------------------------------

    \63\ See CME Letter.
    \64\ Id. In its letter, CME also noted that it currently does 
not clear any security-based swaps and is registered with the 
Commission solely by operation of the Deemed Registered Provision 
(although it does have plans to offer clearing services for credit 
default swaps that are security-based swaps in the near future). See 
also ICE Clear Europe Letter (expressing the view that ``rulemaking 
in furtherance of the purposes of the Dodd-Frank Act should, as much 
as possible, (i) respect the jurisdictional boundaries delegated to 
the CFTC and the Commission under that Act, and (ii) pursue 
efficiency and reduce the costs of rulemaking wherever possible'').
---------------------------------------------------------------------------

    The Commission disagrees with the commenter's assertion that the 
rule will result in unnecessarily duplicative regulatory oversight. The 
Exchange Act imposes upon the Commission an independent statutory 
responsibility to oversee the operations of Registered Clearing 
Agencies as a whole, and not solely in regard to specific products.\65\ 
The Commission's role in reviewing rule filings ensures that the 
Commission has complete information regarding the overall scope of 
operations and financial condition of the clearing agency, so that the 
Registered Clearing Agency's ability to continue to provide clearing 
services for security futures, security-based swaps, mixed swaps, 
security forwards, options on securities, and other securities products 
in a manner consistent with the Exchange Act can be fully understood 
and placed in proper context. Accordingly, the Commission believes that 
its continued review of rule filings that primarily affect a Dually-
Registered Clearing Agency's operations involving futures that are not 
securities futures, swaps that are not securities swaps or mixed swaps, 
forwards that are not security forwards, and other non-securities 
products is a necessary and appropriate part of the Commission's 
statutory mandate.
---------------------------------------------------------------------------

    \65\ See 15 U.S.C. 78q-1(b); see also supra note 52.
---------------------------------------------------------------------------

    With respect to the commenter's assertion concerning unnecessary 
additional costs, the Commission observes that the Final Rule is not 
imposing an additional requirement to submit a proposed rule change to 
the Commission. As previously noted, Section 19(b)(1) of the Exchange 
Act requires each SRO, including all Registered Clearing Agencies, to 
file with the Commission copies of ``any proposed rule or any proposed 
change in, addition to, or deletion from the rules of such SRO'' 
(emphasis added).\66\ On its face, this provision applies to all 
proposed rule changes without regard to the extent to which the 
affected product is subject to the jurisdiction of another agency. The 
changes made to Rule 19b-4 pursuant to the Interim Final Rule were 
intended to utilize the Commission's statutory authority in Section 
19(b)(3)(A) of the Exchange Act to provide relief to Dually-Registered 
Clearing Agencies and to avoid undue delays that could result from the 
requirement that the Commission review proposed rule changes primarily 
concerning a clearing agency's non-security futures clearing operations 
before they may be considered effective. This Final Rule is intended to 
affirm and expand this relief to changes to rules primarily concerning 
a clearing agency's clearing operations with respect to swaps that are 
not securities-based swaps or mixed swaps, forwards that are not 
security forwards, and other non-securities products. The underlying 
obligation to file proposed rule changes arises entirely from Section 
19(b)(1) of the Exchange Act and not from any action taken by the 
Commission pursuant to the Interim Final Rule or this Final Rule.
---------------------------------------------------------------------------

    \66\ See supra note 3.
---------------------------------------------------------------------------

    Accordingly, and for the reasons discussed below, the Commission 
believes that its analysis of the benefits and costs of the amendments 
to Rule 19b-4 and the General Instructions for Form 19b-4, as set forth 
in the Interim Final Rule and described herein, are appropriate. 
Further, the Commission believes that any impact on competition would 
be neutral, as all Registered Clearing Agencies may avail themselves of 
the Final Rule if the circumstances meet the requirements of the Final 
Rule.

[[Page 21054]]

Also, this rule does not increase barriers for new clearing agencies to 
enter the clearing markets, and implementation of the Final Rule will 
not favor larger entities over smaller ones, and hence the impact on 
competition is negligible. Finally, the Commission does not believe 
that the Final Rule contributes towards the promotion of capital 
formation of Registered Clearing Agencies in any appreciable manner.
    The Commission discusses below a number of the costs and benefits 
that will attend the Final Rule. Many of these costs and benefits are 
difficult to quantify with any degree of certainty, particularly as it 
is difficult to predict the number of rule filings that will qualify 
for approval pursuant to Section 19(b)(3)(A) under the Final Rule. 
Thus, while much of the discussion is qualitative in nature, the 
Commission attempts to quantify certain burdens, when possible. The 
Commission believes that the changes brought about by the Final Rule--
which will require Registered Clearing Agencies to file under Section 
19(b)(1) both for Section 19(b)(2) approval and for Section 19(b)(3)(A) 
approval only in the rare situations in which the ``fair and orderly 
markets'' provision is invoked--will lead to only a negligible increase 
in the costs associated with filing proposed rule changes. The 
Commission further believes that these additional costs are justified 
by the efficiency gains that will result from the Final Rule's 
broadening of the types of rule changes that may become effective upon 
filing.

B. Justification for the Final Rule

    The Final Rule is intended to improve regulatory processes. 
Allowing proposed rule changes that (i) primarily affect the clearing 
of products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards; and (ii) do not 
significantly affect any securities clearing operations of the clearing 
agency or any rights or obligations of the clearing agency with respect 
to securities clearing or persons using such securities-clearing 
service, to be filed under Section 19(b)(3)(A) would further streamline 
rule filing procedures and reduce the potential for duplicative or 
inconsistent regulation affecting Registered Clearing Agencies. With 
regard to the addition of the ``fair and orderly markets'' provision 
and its attendant rule filing requirements, clearing agencies and the 
markets potentially benefit from the expedited effectiveness of the 
rule change, while a meaningful notice and comment process is preserved 
without the disruption of a summary suspension of the rule.

C. Affected Parties

    As indicated in the PRA section above, the Final Rule will affect 
four Registered Clearing Agencies.

D. Baseline

    The Interim Final Rule serves as the appropriate baseline for 
purposes of this analysis. Under the Interim Final Rule, the four 
Dually-Registered Clearing Agencies may file a proposed rule change and 
request that it become effective immediately upon filing if the rule 
change (i) primarily affects the futures clearing operations of the 
clearing agency with respect to futures that are not security futures 
and (ii) does not significantly affect any securities clearing 
operations of the clearing agency or any rights or obligations of the 
clearing agency with respect to securities clearing or persons using 
such securities-clearing service. Registered Clearing Agencies seeking 
approval for proposed rule changes involving the clearing of other 
products that are not securities, including swaps that are not 
security-based swaps or mixed swaps, and forwards that are not security 
forwards, providing the changes are not eligible for immediate 
effectiveness under Section 19(b)(3)(A) pursuant to one of the other 
eligibility categories, must do so pursuant to Section 19(b)(2), which 
requires a pre-effective notice and comment period, as well as formal 
Commission approval. Thus, in the ordinary case, Dually-Registered 
Clearing Agencies currently may not implement proposed rule changes 
with respect to certain products that are not securities, including 
swaps that are not security-based swaps or mixed swaps, and forwards 
that are not security forwards until the Commission: (i) Issues a 
notice of the proposed rule change for a period of time within which 
the public can comment; (ii) reviews and considers comments received 
regarding the proposed rule change, if any; and (iii) issues an order 
approving the proposed rule change. This review process ordinarily 
takes anywhere from forty-five to sixty calendar days after the 
Commission receives the proposed rule change from the clearing 
agency.\67\
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    \67\ The Commission has fifteen calendar days from the date of 
receipt of the proposed rule change to deliver notice of the 
proposed rule change for publication in the Federal Register, 
providing the clearing agency posted the notice of the proposed rule 
change, together with the substantive terms of the proposed change, 
that it delivered to the Commission on its Web site within two days 
of sending it to the Commission. 15 U.S.C. 78s(b)(2)(E). The 
Commission may not approve a proposed rule change until the 
thirtieth day after publication of the notice in the Federal 
Register and is required to approve, disapprove, or institute 
proceedings to determine whether to approve or disapprove a proposed 
rule change within forty-five days after publication of the notice 
in the Federal Register. See 15 U.S.C. 78s(b)(2)(C)(iii), (b)(2)(A).
---------------------------------------------------------------------------

    Since the Interim Final Rule took effect on July 15, 2011,\68\ 
Dually-Registered Clearing Agencies have utilized it on nine occasions 
to obtain immediate effectiveness for proposed rule changes that would 
not otherwise have been eligible to become effective upon filing.\69\ 
An examination of proposed rule filings made during the 2012 calendar 
year, however, indicates the number of proposed rule changes eligible 
for immediate effectiveness under Section 19(b)(3)(A) would have more 
than doubled had the changes contemplated by the Final Rule been in 
place. Specifically, between January 1 and October 1, 2012, the 
Commission received 75 rule filings from Dually-Registered Clearing 
Agencies, 52 of which were not already eligible for immediate 
effectiveness under Section 19(b)(3)(A). Of these 52, the Commission 
believes that 23 additional filings, or approximately 44%, likely would 
have been eligible for filing under Rule 19b-4(f)(4)(ii) had the Final 
Rule been in effect.\70\
---------------------------------------------------------------------------

    \68\ See Exchange Act Release No. 64832 (July 7, 2011), 76 FR 
41056 (July 13, 2011).
    \69\ The Chicago Mercantile Exchange, Inc. filed seven of these 
proposed rule changes, while The Options Clearing Corporation and 
ICE Clear Credit LLC each filed one. All of these rule filings were 
made pursuant to Rule 19b-4(f)(4)(ii), which allows a proposed rule 
change to take effect upon filing if it primarily affects the 
clearing agency's futures clearing operations with respect to 
futures that are not securities futures and does not have a 
significant effect upon the clearing agency's securities clearing 
operations.
    \70\ See, e.g., Notice of Filing and Order Granting Accelerated 
Approval of Proposed Rule Change to Amend Certain Aspects of the 
Performance Bond Regime Applicable to Cleared Only OTC FX Swaps, 
Exchange Act Release No. 66354 (Feb. 8, 2012), 77 FR 8318 (Feb. 14, 
2012) (SR-CME-2012-03); Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change Regarding Acceptance of 
Additional Interest Rate Swaps and Related Interbank Rates for 
Clearing, Exchange Act Release No. 66786 (Apr. 11, 2012), 77 FR 
22825 (Apr. 17, 2012) (SR-CME-2012-10).
---------------------------------------------------------------------------

    The Commission believes that requiring the Dually-Registered 
Clearing Agencies to seek approval under Section 19(b)(2) for the 23 
proposed rule changes described above created inefficiencies and 
unnecessary delay because the Interim Final Rule did not permit these 
proposed rule changes--which primarily affected the Dually-Registered 
Clearing Agencies' handling of non-security products, and had no 
significant effect on securities clearing operations or any related 
rights or obligations--to be filed for immediate effectiveness. As 
noted, the Section

[[Page 21055]]

19(b)(2) process requires the Commission to solicit public comments, 
review them, and issue an order approving or denying the rule change, a 
process that can take between 45 and 60 days, and possibly longer. This 
engenders a substantial degree of timing uncertainty for clearing 
agencies, as they must await the Commission's approval order before 
they can implement the proposed changes. This uncertainty, in turn, 
raises the transaction costs associated with implementing rule changes. 
The Commission believes this delay and the associated increase in 
transactional costs to be unnecessary because these rule changes are 
similar to the futures-related rule changes that presently qualify for 
immediate effectiveness under the Interim Final Rule.

E. Benefits and Costs and Consideration of the Final Rule's Effects on 
Efficiency, Competition, and Capital Formation

1. Benefits
    Rule 19b-4(f)(4)(ii), as amended by this Final Rule, will 
streamline the rule filing process by permitting Registered Clearing 
Agencies to utilize Section 19(b)(3)(A) for proposed rule changes that 
primarily affect the clearing operations of the clearing agency with 
respect to products that are not securities, including futures that are 
not security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards, and either do not 
significantly affect any securities clearing operations of the clearing 
agency or any rights or obligations of the clearing agency with respect 
to securities clearing or persons using such securities-clearing 
service, or do significantly affect any securities clearing operations 
of the clearing agency or any rights or obligations of the clearing 
agency with respect to securities clearing or persons using such 
securities-clearing service, but are necessary to maintain fair and 
orderly markets for products that are not securities, including futures 
that are not security futures, swaps that are not security-based swaps 
or mixed swaps, and forwards that are not security forwards. As such 
rule changes will become effective upon filing, the Final Rule should 
eliminate any potential inefficiencies and undue delays that could 
result from the requirement that the Commission review these proposed 
rule changes before they take effect. At the same time, the Commission 
retains the power to temporarily suspend these rule changes summarily 
within sixty days of their filing if it appears to the Commission that 
taking such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Exchange Act.\71\
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78s(b)(3)(C). If the Commission takes such 
action, it is then required to institute proceedings to determine 
whether the proposed rule change should be approved or disapproved.
---------------------------------------------------------------------------

    As a result, the Commission is providing Registered Clearing 
Agencies with the ability to make these proposed rule changes effective 
upon filing, thereby limiting potential delays in implementing changes 
to the clearing agencies' clearing operations with respect to products 
that are not securities that may be beneficial to both the clearing 
agencies and market participants. As the figures cited in the preceding 
section indicate, the number of proposed rule changes that could become 
effective upon filing may increase under the Final Rule. This, in turn, 
should enhance the efficiency of the filing process for affected 
clearing agencies, without impairing the Commission's ability to review 
the filings and to determine whether it would be necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act, to 
conduct a more thorough analysis of any issues the filings may present. 
As noted, these amendments to Rule 19b-4 and the General Instructions 
for Form 19b-4 by the Commission are intended to streamline the rule 
filing process in areas involving certain activities concerning 
products that are not securities that may be subject to duplicative or 
inconsistent regulation as a result of, in part, certain provisions 
under Section 763(b) of the Dodd-Frank Act. The Commission recognizes 
the importance of the proper allocation of regulatory resources and 
will monitor and evaluate the implementation and effects of these rule 
changes.
2. Costs
    As noted above, the Final Rule will expand the list of categories 
that qualify for effectiveness upon filing under Section 19(b)(3)(A) of 
the Exchange Act. These amendments will not materially increase or 
decrease the costs of complying with Rule 19b-4, nor will they modify 
an SRO's obligation to submit a proposed rule change to the Commission. 
Rather, the amendments will change the statutory basis under which a 
rule change is filed. This is because the costs associated with the 
19(b)(3)(A) filing would approximately be the same as the 19(b)(2) 
filing, and, because of the nature of the occasion in which such a 
filing would be applicable, only under rare circumstances would a 
clearing agency file under the ``fair and orderly markets'' provision.
    A proposed rule change filed by a Registered Clearing Agency 
relying on the ``fair and orderly markets'' provision set forth in Rule 
19b-4(f)(4)(ii)(B)(II) would be subject to the procedures of both 
Section 19(b)(2) and Section 19(b)(3)(A) of the Exchange Act. 
Accordingly, in most cases, the proposed rule change shall be effective 
until such time as the Commission enters an order, pursuant to Section 
19(b)(2)(A) of the Exchange Act, to approve such proposed rule change 
or, depending on the circumstances, until such time as the Commission 
summarily temporarily suspends the rule change pursuant to Section 
19(b)(3)(C) or, alternatively, until such time as the Commission, at 
the conclusion of proceedings to determine whether to approve or 
disapprove the proposed rule change, enters an order, pursuant to 
Section 19(b)(2)(B), approving or disapproving such proposed rule 
change.
    This new requirement applicable to Rule 19b-4(f)(4)(ii)(B)(II), 
which is in addition to the requirements that the Commission considered 
in connection with the cost-benefit analysis contained in the Interim 
Final Rule, would impose only a minimal additional burden on Registered 
Clearing Agencies that rely on the ``fair and orderly markets'' 
provision. Although a clearing agency seeking to use this provision 
would be required to make a separate filing under Section 19(b)(3)(A) 
in addition to the Section 19(b)(2) filing that is currently required, 
the information contained in both filings is virtually identical. 
Moreover, the Commission believes that clearing agencies will use the 
``fair and orderly markets'' provision only on rare occasions, and thus 
the additional costs of making a Section 19(b)(3)(A) filing will seldom 
be incurred. The Commission concludes that the incremental costs 
associated with the Final Rule are negligible.\72\
---------------------------------------------------------------------------

    \72\ The time required to complete a filing varies significantly 
and is difficult to separate from the time an SRO spends internally 
developing the proposed rule change. Accordingly, it is difficult to 
assess the impact of the Final Rule in terms of the additional 
amount of time SROs will have to devote to filing proposed rule 
changes. The Commission believes, however, that the Final Rule would 
have only a negligible effect in this regard. The Commission has 
estimated that 34 hours is the amount of time that would be required 
to complete an average proposed rule change filing, and 129 hours is 
the amount of time required to complete a novel or complex proposed 
rule change filing. Since the information contained in a Section 
19(b)(2) filing is virtually identical to the information required 
if the same filing were made under Section 19(b)(3)(A), the 
Commission believes that the 34 hour figure remains an appropriate 
estimate of the time it would take an SRO to prepare a proposed rule 
change for filing pursuant to the broadened scope of Section 
19(b)(3)(A). Moreover, as the information contained in the Section 
19(b)(2) filing that will be required under the ``fair and orderly 
markets'' provision is also virtually identical to the information 
contained in the Section 19(b)(3)(A) filing that is currently 
required, the Commission believes that the time estimates for a rule 
filing of average complexity and one involving novel issues remain 
unchanged at 34 and 129 hours, respectively, under all scenarios of 
the Final Rule.

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

[[Page 21056]]

    The Commission believes that the changes embodied in the Final Rule 
will not impair its ability to protect investors. Although the Final 
Rule will expand the types of proposed rule changes eligible to become 
effective upon filing, such rule changes remain subject to public 
comment after they take effect. Furthermore, the Commission summarily 
may temporarily suspend such rule changes within sixty days of filing 
if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Exchange Act.\73\ Given 
these safeguards, the Commission perceives only minimal, if any, new 
risks to investors stemming from the Final Rule.
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

3. Effects on Competition
    The Commission has also considered whether the Final Rule will have 
an appreciable effect on competition vis-[agrave]-vis the Interim Final 
Rule. Currently, the market for clearing services is segmented by 
financial instrument, and clearing agencies often specialize in 
particular instruments. As such, some market segments may tend to 
sustain natural monopolies, despite the existence of competitors that 
could potentially enter those segments.\74\ For example, following a 
period of consolidation facilitated by Section 17(A) of the Exchange 
Act, only one clearing agency processes equities listed in the United 
States, and only one clearing agency handles exchange traded options. 
At the same time, there are three clearing agencies that clear swaps 
and security-based swaps. Although two of these clearing agencies are 
affiliated, they do not compete with each other; one serves the market 
in the United States, and the other serves the European market. 
Further, the affiliate serving the market in the United States has a 
dominant market share, though the Commission believes this may be 
subject to change as a result of competition from other clearing 
agencies.
---------------------------------------------------------------------------

    \74\ A natural monopoly exists when a single provider is more 
efficient than multiple providers because economies of scale allow 
the single provider to have lower average costs.
---------------------------------------------------------------------------

    The Commission believes that the impact of the Final Rule on 
competition would be neutral, as the Final Rule would apply equally to 
similarly-situated Registered Clearing Agencies. As noted in the PRA 
section of this Release, the Final Rule will affect only the four 
Dually-Registered Clearing Agencies. Every Dually-Registered Clearing 
Agency that clears any of the products described in the Final Rule may 
avail itself of the Final Rule's benefits if the circumstances warrant, 
and may avail itself of the ``fair and orderly markets'' provision if 
the proposed rule change also meets those qualifications, namely that 
the proposed rule change is necessary to maintain fair and orderly 
markets for futures that are not security futures, swaps that are not 
security-based swaps or mixed swaps, or forward contracts that are not 
security forwards. Further, the Final Rule does not increase barriers 
for clearing agencies to enter this market, and its implementation will 
not favor larger entities over smaller ones. The Final Rule's impact on 
competition is therefore negligible.

F. Alternatives Considered

    The Commission considered CME's proposal that the Commission 
require only proposed rule changes relating directly to security-based 
swap clearing activities to be subject to the Commission's review in 
accordance with Section 19(b)(2). Specifically, CME posited that (i) 
the Commission should defer to the CFTC's rule filing processes with 
respect to proposed changes involving broad rules of general 
applicability as to clearing operations that would have only a 
peripheral impact on security-based swap clearing, and (ii) the 
Commission would still have the authority to abrogate rule changes by a 
clearing agency that do not meet the requirements of the Exchange 
Act.\75\ The Commission believes that, while this approach would 
increase efficiency for some Registered Clearing Agencies, it would 
undermine the Commission's ability to carry out its statutory 
obligations under Section 19(b) and the Exchange Act, as discussed in 
Section IV.A., above. For example, in June 2012, CME implemented a rule 
change that altered the amount of CME's capital contribution to its 
financial safeguards package in connection with losses arising from 
products other than credit default swaps and interest rate swaps.\76\ 
This amount would be applied to such losses before any amounts are 
applied from CME's Base Guaranty Fund. Although not directly applicable 
to products under the Commission's jurisdiction, the proposed rule 
change affects the operations and financial stability of the clearing 
agency. In another example, ICE Clear Credit LLC implemented a rule 
change in 2012 that permitted its participants to use US Treasuries to 
satisfy the initial margin-related liquidity requirements for all 
client-related positions cleared in a clearing participant's customer 
account,\77\ representing a rule of general applicability that, 
pursuant to CME's alternative approach, may not have been subject to 
Commission review. As the Commission is tasked with ensuring that a 
clearing agency's rules are designed, among other things, to assure the 
safeguarding of securities and funds, the Interim Final Rule required, 
and the Final Rule continues to require, that proposed rule changes of 
general applicability be subject to the Commission's pre-effective 
notice and comment process or, if such proposed rule change is filed 
pursuant to the fair and orderly markets provision in Rule 19b-
4(f)(4)(ii)(B), notice and comment after the change is temporarily 
effective under Section 19(b)(3)(A).
---------------------------------------------------------------------------

    \75\ See CME Letter.
    \76\ Securities Exchange Act Rel. No. 67232 (June 21, 2012), 77 
FR 38350 (June 27, 2012) (SR-CME-2012-24).
    \77\ Securities Exchange Act Rel. No. 66825 (Apr. 18, 2012), 77 
FR 24546 (Apr. 24, 2012) (SR-ICC-2012-01).
---------------------------------------------------------------------------

V. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \78\ requires the 
Commission, in promulgating rules, to consider the impact of those 
rules on small entities. The Commission certified in the Interim Final 
Rule release, pursuant to Section 605(b) of the RFA,\79\ that the rule 
would not have a significant impact on a substantial number of small 
entities. The Commission received no comments on this certification.
---------------------------------------------------------------------------

    \78\ 5 U.S.C. 601 et seq.
    \79\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For the purposes of Commission rulemaking in connection with the 
RFA, a small entity includes a clearing agency that: (i) Compared, 
cleared, and settled less than $500 million in securities transactions 
during the preceding fiscal year; (ii) had less than $200 million of 
funds and securities in its custody or control at all times during the 
preceding fiscal year (or at any time that it has been in business, if 
shorter) and (iii) is not affiliated with any person (other than a 
natural person) that is not a small

[[Page 21057]]

business or small organization.\80\ Under the standards adopted by the 
Small Business Administration, small entities in the finance industry 
include the following: (i) for entities engaged in investment banking, 
securities dealing and securities brokerage activities, entities with 
$6.5 million or less in annual receipts; (ii) for entities engaged in 
trust, fiduciary and custody activities, entities with $6.5 million or 
less in annual receipts; and (iii) funds, trusts and other financial 
vehicles with $6.5 million or less in annual receipts.\81\
---------------------------------------------------------------------------

    \80\ 17 CFR 240.0-10(d).
    \81\ 13 CFR 121.201, Sector 52.
---------------------------------------------------------------------------

    The amendments to Rule 19b-4 and to the General Instructions for 
Form 19b-4 apply to all Registered Clearing Agencies. There are 
currently seven clearing agencies with active operations registered 
with the Commission. Of the seven Registered Clearing Agencies with 
active operations, four currently maintain a futures or swaps clearing 
business. Based on the Commission's existing information about these 
four Registered Clearing Agencies, as well as on the entities likely to 
register with the Commission in the future, the Commission believes 
that such entities will not be small entities, but rather part of large 
business entities that exceed the thresholds defining ``small 
entities'' set out above.
    For the reasons stated above, the Commission certifies that the 
amendments to Rule 19b-4 and to the General Instructions for Form 19b-4 
would not have a significant economic impact on a substantial number of 
small entities for the purposes of the RFA.

VI. Statutory Basis and Text of Amendments

    Pursuant to the Exchange Act, and particularly Section 19(b) 
thereof, 15 U.S.C. 78s(b), the Commission amends Rule 19b-4 as set 
forth below.

List of Subjects in 17 CFR Parts 240 and 249

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of Rule

    In accordance with the foregoing, Title 17, chapter II of the Code 
of Federal Regulations is amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The general authority citation for part 240 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78p, 78q, 78q-1, 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.; 12 U.S.C. 
5221(e)(3), 15 U.S.C. 8302, and 18 U.S.C. 1350,, unless otherwise 
noted.
* * * * *

0
2. Revise Sec.  240.19b-4(f)(4)(ii) to read as follows:

Sec.  240.19b-4  Filings with respect to proposed rule changes by self-
regulatory organizations.

* * * * *
    (f) * * *
    (4) * * *
    (ii)(A) Primarily affects the clearing operations of the clearing 
agency with respect to products that are not securities, including 
futures that are not security futures, swaps that are not security-
based swaps or mixed swaps, and forwards that are not security 
forwards; and
    (B) Either
    (1) Does not significantly affect any securities clearing 
operations of the clearing agency or any rights or obligations of the 
clearing agency with respect to securities clearing or persons using 
such securities-clearing service, or
    (2) Does significantly affect any securities clearing operations of 
the clearing agency or the rights or obligations of the clearing agency 
with respect to securities clearing or persons using such securities-
clearing service, but is necessary to maintain fair and orderly markets 
for products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards. Proposed rule 
changes filed pursuant to this subparagraph II must also be filed in 
accordance with the procedures of Section 19(b)(1) for approval 
pursuant to Section 19(b)(2) and the regulations thereunder within 
fifteen days of being filed under Section 19(b)(3)(A).
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
3. The general authority citation for part 249 continues to read in 
part as follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *

0
4. Form 19b-4 (referenced in Sec.  249.819) is amended by revising Item 
7(b)(iv) of the General Instructions for Form 19b-4 as set forth in the 
attached Appendix A.

    Note:  The following Appendix A will not appear in the Code of 
Federal Regulations.

Appendix A

GENERAL INSTRUCTIONS FOR FORM 19b-4

* * * * *

Information to be Included in the Completed Form (``Form 19b-4 
Information'')

* * * * *

7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or for 
Accelerated Effectiveness Pursuant to Section 19(b)(2) or Section 
19(b)(7)(D)

* * * * *
    (b) * * *
    (iv) Effects a change in an existing service of a registered 
clearing agency that either (A)(1) does not adversely affect the 
safeguarding of securities or funds in the custody or control of the 
clearing agency or for which it is responsible and (2) does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using the service or (B)(1) primarily 
affects the clearing operations of the clearing agency with respect 
to products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards and (2) either 
(a) does not significantly affect any securities clearing operations 
of the clearing agency or any rights or obligations of the clearing 
agency with respect to securities clearing or persons using such 
securities-clearing service, or (b) does significantly affect any 
securities clearing operations of the clearing agency or the rights 
or obligations of the clearing agency with respect to securities 
clearing or persons using such securities-clearing service, but is 
necessary to maintain fair and orderly markets for products that are 
not securities, including futures that are not security futures, 
swaps that are not securities-based swaps or mixed swaps, and 
forwards that are not security forwards, and set forth the basis on 
which such designation is made, including, in the case of the fair 
and orderly markets provision, the following: (i) Why the proposed 
rule change is necessary to maintain fair and orderly markets for 
products that are not securities, including futures that are not 
security futures, swaps that are not security-based swaps or mixed 
swaps, and forwards that are not security forwards; (ii) why the 
proposed rule change cannot achieve this goal unless it takes effect 
immediately; (iii) the nature and the extent of the effect upon the 
relevant markets if the proposed rule change were not implemented 
immediately; (iv) whether the proposed rule change is temporary or 
permanent; (v) how the proposed rule change significantly affects 
any securities clearing operations of the clearing agency or any 
rights or obligations of the clearing agency with respect to 
securities clearing or persons using such securities-clearing 
service; and (vi) why the proposed rule change would have no adverse 
effect on maintaining fair and orderly markets for securities.
    (c) * * *

[[Page 21058]]

    Note. The Commission has the power under Section 19(b)(3)(C) of 
the Act summarily to temporarily suspend within sixty days of its 
filing any proposed rule change which has taken effect upon filing 
pursuant to Section 19(b)(3)(A) of the Act or was put into effect 
summarily by the Commission pursuant to Section 19(b)(3)(B) of the 
Act. In exercising its summary power under Section 19(b)(3)(B), the 
Commission is required to make one of the findings described above 
but may not have a full opportunity to make a determination that the 
proposed rule change otherwise is consistent with the requirements 
of the Act and the rules and regulations thereunder. The Commission 
will generally exercise its summary power under Section 19(b)(3)(B) 
on condition that the proposed rule change to be declared effective 
summarily shall also be subject to the filing procedures of Section 
19(b)(1) of the Act, for approval pursuant to Section 19(b)(2). 
Accordingly, in most cases, a summary order under Section 
19(b)(3)(B) shall be effective until such time as the Commission 
enters an order, pursuant to Section 19(b)(2)(A) of the Exchange 
Act, to approve such proposed rule change or, depending on the 
circumstances, until such time as the Commission summarily 
temporarily suspends the rule change pursuant to Section 19(b)(3)(C) 
or, alternatively, until such time as the Commission, at the 
conclusion of proceedings to determine whether to approve or 
disapprove the proposed rule change, enters an order, pursuant to 
Section 19(b)(2)(B), approving or disapproving such proposed rule 
change. Similarly, the Commission requires that any proposed rule 
change which has taken effect upon filing pursuant to paragraph 
(B)(II) of Rule 19b-4(f)(4)(ii) shall also be subject to the filing 
procedures of Section 19(b)(1) of the Act, for approval pursuant to 
Section 19(b)(2) of the Act. Accordingly, such rule change shall be 
effective until such time as the Commission enters an order, 
pursuant to Section 19(b)(2)(A) of the Exchange Act, to approve such 
proposed rule change or, depending on the circumstances, until such 
time as the Commission summarily temporarily suspends the rule 
change pursuant to Section 19(b)(3)(C) or, alternatively, until such 
time as the Commission, at the conclusion of proceedings to 
determine whether to approve or disapprove the proposed rule change, 
enters an order, pursuant to Section 19(b)(2)(B), approving or 
disapproving such proposed rule change.

    By the Commission.
    Dated: April 3, 2013.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-08141 Filed 4-8-13; 8:45 am]
BILLING CODE 8011-01-P