Source: https://www.federalregister.gov/documents/2010/03/30/2010-6813/delegations-of-authority-to-disclose-confidential-information
Timestamp: 2018-09-20 20:23:20
Document Index: 351159758

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Federal Register :: Delegations of Authority To Disclose Confidential Information
A Proposed Rule by the Commodity Futures Trading Commission on 03/30/2010
Comments must be received by April 29, 2010.
https://www.federalregister.gov/d/2010-6813 https://www.federalregister.gov/d/2010-6813
The Commodity Futures Trading Commission (“CFTC” or “Commission”) is proposing to amend its regulations governing delegations of authority to disclose confidential information to permit CFTC staff to provide confidential information to “registered entities,” including exempt commercial markets offering significant price discovery contracts, and to require that registered entities update their lists of confidential data recipients on an annual basis. The Commission's proposal would also clarify that confidential information provided by the Commission to registered entities may only be used for market surveillance, audit, investigative or rule enforcement purposes and would remove the requirement that disclosures of confidential information to foreign government agencies and foreign futures authorities require the concurrence of the Commission's Division of Enforcement. Finally, the proposal would make certain other technical and conforming amendments to the Commission's rules.
Comments should be submitted to David Stawick, Secretary, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. Comments also may be sent by facsimile to (202) 418-5521, or by e-mail to confidentialinforules@cftc.gov. Reference should be made to “Delegations of Authority to Disclose Confidential Information.” Comments may also be submitted through the Federal eRulemaking Portal at http://www.regulations.gov. All comments must be in English.
Donald Heitman, Senior Special Counsel, Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5041. E-mail: dheitman@cftc.gov.
Section 8(a) of the Commodity Exchange Act (“CEA” or “Act”) prohibits the Commission from disclosing information that would separately disclose the business transactions or market positions of any person or trade secrets or names of customers.[1] Despite this general prohibition, the CEA recognizes the need to share confidential information with registered entities and certain other self-regulatory bodies under specified circumstances. Section 8a(6) of the Act therefore authorizes the Commission to communicate to the proper officials of “registered entities” [2] and other self-regulatory bodies [3] the full facts regarding a particular transaction or market operation, “which in the judgment of the Commission disrupts or tends to disrupt any market or is otherwise harmful or against the best interests of producers, consumers, or investors, or which is necessary or appropriate to effectuate the purposes of [the] Act.” Disclosure under this provision is subject to the caveat that information furnished by the Commission may not be disclosed by the receiving registered entity, registered futures association or self-regulatory organization except in a self-regulatory action or proceeding.
Commission regulation 140.72 implements these statutory provisions, delegates to specified senior staff the authority to make disclosures to “a contract market, registered futures association or self-regulatory organization,” and establishes the standards and protocols governing such disclosures. However, regulation 140.72 has never been amended to replace the reference to “contract market” with a reference to the more inclusive defined term, “registered entity,” which includes not only designated contract markets, but several other types of entities as well (see note 2 above). The term, “registered entity,” was added to the Act by the Commodity Futures Modernization Act of 2000 (“CFMA”).[4] The registered entity definition was subsequently expanded by the CFTC Reauthorization Act of 2008 (“2008 Reauthorization Act”),[5] which incorporated electronic trading facilities trading significant price discovery contracts into the registered entity definition as section 1a(29)(E).
As discussed below, the principal amendments to regulation 140.72 are being proposed: (1) To conform the Commission's rule to the CEA, as amended by the CFMA and the 2008 Reauthorization Act, by applying the regulation to “registered entities;” (2) to require that registered entities update their lists of confidential data recipients on an annual basis and notify the Commission within 10 business days of any changes to the list; and (3) to clarify that confidential information provided by the Commission to registered entities Start Printed Page 15636may only be used for market surveillance, audit, investigative or rule enforcement responsibilities of the registered entity. The Commission additionally is proposing technical amendments to both regulations 140.72 and 140.73.
As noted above, by its terms, regulation 140.72 includes procedural requirements for DCMs that relate to the receipt and use of information furnished by the CFTC.[6] As a result of the passage of the CFMA, the Commission adopted regulations that exempted DCMs from all Commission regulations that were not specifically reserved in regulation 38.2. Regulation 140.72 was not specifically reserved in regulation 38.2. The Commission, however, believes that regulation 140.72 (both in its current form and as proposed to be amended herein) contains procedural safeguards that are intended to protect furnished information from improper use and disclosure. In that regard, the Commission attaches particular importance to the requirement that registered entities (including DCMs) must formally identify the officials within the organization who are specifically authorized to receive information from Commission staff and update that contact information annually. The Commission therefore proposes to add regulation 140.72 to the list of regulations reserved in regulation 38.2.
The 2008 Reauthorization Act directs the CFTC to extend its regulatory oversight to the trading of significant price discovery contracts (“SPDCs”) on exempt commercial markets (“ECMs”) and, among other statutory amendments, adds ECMs with SPDCs to the definition of “registered entity” in section 1(a)(29) of the CEA.[7] Accordingly, with respect to a contract that the Commission determines is a SPDC, the ECM on which it is traded or executed becomes a registered entity subject to all the provisions of the CEA applicable to registered entities—including section 8a(6) of the Act. Consistent with this statutory change, the proposed amendments to regulation 140.72 would make its provisions applicable to “registered entities” and would permit staff to disclose confidential information to ECMs insofar as the disclosures relate to the ECM's SPDCs.
Regulation 140.72(b) provides that disclosures shall only be made to a contract market, registered futures association or self-regulatory organization official who is named in a list filed with the Commission by the chief executive officer of the entity. By amending paragraph (b) to refer to “registered entities” (instead of “contract markets”) the proposed amendments would apply the disclosure rules to all such registered entities, including, among others, derivatives clearing organizations (“DCOs”) and ECMs with respect to their SPDCs. Thus, for example, all registered entities would be required to provide to the Commission a list of officials within their organization authorized to receive disclosures of confidential information. The proposed rules would also require that the lists of officials authorized to receive disclosures must be updated annually. Finally, the proposed amendments would clarify that the chief executive officer of the registered entity must notify the Commission within ten business days of any additions or deletions to the list.
Recently, questions have arisen regarding the potential use of confidential information provided by the Commission to DCMs. In particular, DCM officials have inquired as to whether they might be allowed to use that information to assess the current composition of a given market with an eye to developing additional types of contracts. Consistent with the Section 8a(6), these proposed rules clarify that confidential information provided by the Commission to registered entities (including DCMs) can only be used for their market surveillance, audit, investigative or rule enforcement responsibilities, which do not include business development purposes. The Commission solicits comments regarding whether similar restrictions should be applied to confidential information generated internally by a registered entity.[8] In addition, registered entities should review their procedures for the handling of confidential information from the Commission to ensure that persons handling such information are properly “walled off” from the rest of the organization.
The CFMA added a number of new definitions to section 1a of the CEA. As a result, the definition of “foreign futures authority,” formerly found in section 1a(10) of the CEA, has been renumbered as section 1(a)(18). The Commission proposes a conforming amendment to regulation 140.73(a)(3), Start Printed Page 15637which is applicable to foreign futures authorities, to correctly identify the definitional section.
The Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601 et seq., requires that agencies, in proposing rules, consider the impact of those rules on small entities. These amendments would extend CFTC staff's ability to share relevant information with additional registered entities, including ECMs with SPDCs, would further protect the confidentiality of disclosed information by requiring that registered entities could only use the information for their market surveillance, audit, investigative or rule enforcement responsibilities and would enhance the reliability of the disclosure system by requiring registered entities to update their lists of confidential data recipients on an annual basis. The proposed rules otherwise would make technical and conforming changes to rules 140.72 and 140.73. The Commission has previously determined that DCMs, derivatives transaction execution facilities (“DTEFs”), ECMs (with or without SPDCs) and DCOs are not small entities for purposes of the RFA.[9] Similarly, the Commission believes that the other type of registered entity listed in section 1a(29) of the Act, a board of trade designated as a contract market under section 5f,[10] is likewise not a small entity for purposes of the RFA. Accordingly, the Commission does not expect that these amendments will have a significant impact on a substantial number of small entities. For this reason, and pursuant to section 3(a) of the RFA, 5 U.S.C. 605(b), the Chairman, on behalf of the Commission, hereby certifies that these regulations will not have a significant economic impact on a substantial number of small entities. Nevertheless, the Commission solicits public comments as to whether a DTEF, a DCM designated under section 5f of the Act or an ECM with a SPDC should be considered a small entity for purposes of the RFA.
The Paperwork Reduction Act of 1980 (“PRA”), 44 U.S.C. 3501 et seq., imposes certain requirements on Federal agencies, including the Commission, in connection with conducting or sponsoring any collection of information as defined by the PRA. Rules 140.72 and 140.73 are not associated with an information collection as defined by the PRA. Accordingly, the Commission certifies that, for purposes of the PRA, these proposed amendments would not impose any new reporting or recordkeeping requirements.
Transactions off the centralized market
Agreements, contracts, or transactions traded on a designated contract market under Section 5 of the Act, the contract market and the contract market's operator are exempt from all Commission regulations for such activity, except for the requirements of this Part 38 and §§ 1.3, 1.12(e), 1.31, 1.37(c)-(d), 1.38, 1.52, 1.59(d), 1.60, 1.63(c), 1.67, 33.10, Part 9, Parts 15 through 21, Part 40, Part 41, § 140.72 and Part 190 of this chapter, including any related definitions and cross-referenced sections.
Delegation of authority to disclose confidential information to a registered entity, registered futures association or self-regulatory organization.
(d) For purposes of this section, the term “official” shall mean any officer or member of the staff, management or a committee of a registered entity, registered futures association or self-regulatory organization who is specifically charged with market surveillance, audit, investigative or rule enforcement responsibilities, or their duly authorized representative or agent, who is named on the list filed pursuant to paragraph (b) of this section or any supplement thereto.
(e) For the purposes of this section, the term “self-regulatory organization” shall mean the same as that defined in section 3(a)(26) of the Securities Exchange Act of 1934.
(f) Any registered entity, registered futures association or self-regulatory organization receiving information from the Commission under these provisions may use such information only for its market surveillance, audit, investigative or rule enforcement responsibilities and shall not disclose such information, except that disclosure may be made in any self-regulatory action or proceeding.
Delegation of authority to disclose information to United States, State, and foreign government agencies and foreign futures authorities.
1. 7 U.S.C. 12(a).
2. Section 1a(29) of the Act defines the term registered entity to mean: “(A) a board of trade designated as a contract market under section 5; (B) a derivatives transaction execution facility registered under section 5a; (C) a derivatives clearing organization registered under section 5b; (D) a board of trade designated as a contract market under section 5f; and (E) with respect to a contract that the Commission determines is a significant price discovery contract, any electronic trading facility on which the contract is executed or traded.”
3. In addition to “registered entities,” the Commission is authorized to share confidential information with registered futures associations (see section 17 of the Act, 7 U.S.C. 21) and self-regulatory organizations as defined in section 3(a)(26) of the Securities Exchange Act of 1934. 7 U.S.C. 12a(6).
4. Public Law 106-554, 114 Stat. 2763 (2000).
6. The amendments proposed herein would not alter those requirements since the amendments would replace the term, “contract market,” with the term, “registered entity,” which by definition includes contract markets.
7. As noted above, the 2008 Reauthorization Act added the following provision to section 1(a)(29)'s definition of registered entity: “(E) with respect to a contract that the Commission determines is a significant price discovery contract, any electronic trading facility on which the contract is executed or traded.” 7 U.S.C. 1(a)(29)(E).
8. For example, Part 17 of the Commission's regulations requires that clearing members, FCMs, and foreign brokers file daily large trader reports with the Commission. The Kansas City Board of Trade (KCBT) and the Minneapolis Grain Exchange (MGX) rely on receiving daily transmissions of large trader reports from the Commission for monitoring speculative position limits and reportable positions. The remaining DCMs have adopted their own large trader reporting rules and independently collect large trader reports. Under this proposed rule, KCBT and MGX would be prohibited from using the confidential large trader reports they receive from the Commission for anything other than market surveillance, audit, investigative or rule enforcement purposes. DCMs that independently collect large trader reports would not be subject to the same prohibitions because they do not receive the data from the Commission.
9. See: 47 FR 18618 at 18619 (April 30, 1982) with respect to DCMs; 66 FR 42255 at 42268 (August 10, 2001) with respect to DTEFs and ECMs; and 66 FR 45604 at 45609 (August 29, 2001) with respect to DCOs.
10. Section 5f deals with “Designation of Securities Exchanges and Associations as Contract Markets.”