2011-27535

Federal Register, Volume 76 Issue 206 (Tuesday, October 25, 2011)[Federal Register Volume 76, Number 206 (Tuesday, October 25, 2011)]

[Proposed Rules]

[Pages 65999-66004]

From the Federal Register Online via the Government Printing Office [www.gpo.gov]

[FR Doc No: 2011-27535]

=======================================================================

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

COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter 1

Effective Date for Swap Regulation

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed amendment.

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

SUMMARY: On July 14, 2011, the Commodity Futures Trading Commission

(``CFTC'' or the ``Commission'') issued a final order (``July 14

Order'') that grants temporary exemptive relief from certain provisions

of the Commodity Exchange Act (``CEA'') that otherwise would have taken

effect on the general effective date of title VII of the Dodd-Frank

Wall Street Reform and Consumer Protection Act (``the Dodd-Frank

Act'')--July 16, 2011. The July 14 Order grants temporary relief in two

parts. The first part addresses those CEA provisions added or amended

by title VII of the Dodd-Frank Act that reference one or more terms

regarding entities or instruments that title VII requires be ``further

defined'' to the extent that requirements or portions of such

provisions specifically relate to such referenced terms and do not

require a rulemaking. The second part, which is based on part 35 of the

Commission's regulations, addresses certain provisions of the CEA that

may apply to certain agreements, contracts, and transactions in exempt

or excluded commodities as a result of the repeal of various CEA

exemptions and exclusions as of the general effective date of July 16,

2011. This is a notice of a proposed amendment to that July 14 Order,

76 FR 42508 (July 19, 2011), that would modify the temporary exemptive

relief provided therein by extending the potential latest expiration

date of the July 14 Order; and adding provisions to account for the

repeal and replacement (as of December 31, 2011) of part 35 of the

Commission's regulations. Only comments pertaining to these proposed

amendments to the July 14 Order will be considered as part of this

notice of proposed amendment.

DATES: Submit comments on or before November 25, 2011.

ADDRESSES: Comments may be submitted, referenced as ``Effective Date

Amendments,'' by any of the following methods:

Agency Web site, via its Comments Online process at http://comments.cftc.gov. Follow the instructions for submitting comments

through the Web site.

Mail: David A. Stawick, Secretary of the Commission,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581.

Hand Delivery/Courier: Same as mail above.

Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.

Please submit your comments using only one method.

All comments must be submitted in English, or if not, accompanied

by an English translation. Comments will be posted as received to

http://www.cftc.gov. You should submit only information that you wish

to make available publicly. If you wish the Commission to consider

information that may be exempt from disclosure under the Freedom of

Information Act, a petition for confidential treatment of the exempt

information may be submitted according to the established procedures in

Sec. 145.9 of the Commission's regulations, 17 CFR 145.9.

The Commission reserves the right, but shall have no obligation, to

review, pre-screen, filter, redact, refuse or remove any or all of your

submission from http://www.cftc.gov that it may deem to be

inappropriate for publication, such as obscene language. All

submissions that have been redacted or removed that contain comments on

the merits of the rulemaking will be retained in the public comment

file and will be considered as required under the Administrative

Procedure Act and other applicable laws, and may be accessible under

the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Terry Arbit, Deputy General Counsel,

202-418-5357, tarbit@cftc.gov, or Mark D. Higgins, Counsel, 202-418-

5864, mhiggins@cftc.gov, Office of the General Counsel, Commodity

Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,

NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Background

On July 21, 2010, President Obama signed the Dodd-Frank Act into

law.\1\ Title VII of the Dodd-Frank Act amends the CEA \2\ to establish

a comprehensive new regulatory framework for swaps. The legislation was

enacted to reduce risk, increase transparency, and promote market

integrity within the financial system by, among other things: (1)

Providing for the registration and comprehensive regulation of swap

dealers and major swap participants; (2) imposing clearing and trade

execution requirements on standardized derivative products; (3)

creating robust recordkeeping and real-time reporting regimes; and (4)

enhancing the rulemaking and enforcement authorities of the Commission

with respect to, among others, all registered entities and

intermediaries subject to the Commission's oversight.\3\

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

\1\ See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Public Law 111-203, 124 Stat. 1376 (2010).

\2\ 7 U.S.C. 1 et seq.

\3\ Title VII also includes amendments to the federal securities

laws to establish a similar regulatory framework for security-based

swaps under the authority of the Securities and Exchange Commission

(``SEC'').

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

Section 754 of the Dodd-Frank Act states that, unless otherwise

provided, the provisions of subtitle A of title VII of the Dodd-Frank

Act \4\ ``shall take

[[Page 66000]]

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.'' Thus, the

general effective date for provisions of title VII that do not require

a rulemaking was July 16, 2011. This includes the provisions that

repealed several provisions of the CEA as in effect prior to the Dodd-

Frank Act that excluded or exempted, in whole or in part, certain

transactions from Commission oversight.\5\

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

\4\ All of the amendments to the CEA in title VII are contained

in subtitle A. Accordingly, for convenience, references to ``title

VII'' in this notice of proposed amendment shall refer only to

subtitle A of title VII.

\5\ These exclusions and exemptions were contained in former CEA

sections 2(d), 2(e), 2(g), 2(h), and 5d, 7 U.S.C. 2(d), 2(e), 2(g),

2(h), and 7a-3.

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

Section 712(d)(1) of the Dodd-Frank Act requires the Commission and

the SEC to undertake a joint rulemaking to ``further define'' certain

terms used in title VII, including the terms ``swap,'' ``swap dealer,''

``major swap participant,'' and ``eligible contract participant.''\6\

Section 721(c) requires the Commission to adopt a rule to ``further

define'' the terms ``swap,'' ``swap dealer,'' ``major swap

participant,'' and ``eligible contract participant'' to prevent evasion

of statutory and regulatory obligations.\7\ The Commission has issued

two notices of proposed rulemaking that address these further

definitions.\8\

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

\6\ Section 712(d)(1) provides: ``Notwithstanding any other

provision of this title and subsections (b) and (c), the Commodity

Futures Trading Commission and the Securities and Exchange

Commission, in consultation with the Board of Governors [of the

Federal Reserve System], shall further define the terms `swap',

`security-based swap', `swap dealer', `security-based swap dealer',

`major swap participant', `major security-based swap participant',

and `security-based swap agreement' in section 1a(47)(A)(v) of the

Commodity Exchange Act (7 U.S.C. 1a(47)(A)(v)) and section 3(a)(78)

of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(78)).''

\7\ Section 721(c) provides: ``To include transactions and

entities that have been structured to evade this subtitle (or an

amendment made by this subtitle), the Commodity Futures Trading

Commission shall adopt a rule to further define the terms `swap',

`swap dealer', `major swap participant', and `eligible contract

participant'.''

\8\ See Further Definition of ``Swap Dealer,'' ``Security-Based

Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based

Swap Participant'' and ``Eligible Contract Participant,'' 75 FR

80174, Dec. 21, 2010 and Further Definition of ``Swap,'' ``Security-

Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps;

Security-Based Swap Agreement Recordkeeping, 76 FR 29818, May 23,

2011.

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

The Commission's final rulemakings further defining the terms in

sections 712(d) and 721(c) were not expected to be in effect as of July

16, 2011 (i.e., the general effective date set forth in section 754 of

the Dodd-Frank Act). Accordingly, the Commission on July 14, 2011

exercised its exemptive authority under CEA section 4(c) \9\ and its

authority under section 712(f) of the Dodd-Frank Act by issuing the

July 14 Order.\10\ In so doing, the Commission sought to address

concerns that had been raised about the applicability of various

regulatory requirements to certain agreements, contracts, and

transactions after July 16, 2011, and thereby ensure that current

practices will not be unduly disrupted during the transition to the new

regulatory regime.\11\

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

\9\ 7 U.S.C. 6(c).

\10\ Effective Date for Swap Regulation, 76 FR 42508 (issued and

made effective by the Commission on July 14, 2011; published in the

Federal Register on July 19, 2011).

\11\ Concurrent with the July 14 Order, the Commission's

Division of Clearing and Intermediary Oversight and the Division of

Market Oversight (together ``the Divisions'') identified certain

provisions of the Dodd-Frank Act and CEA as amended that would take

effect on July 16, 2011, but that may not be eligible for the

exemptive relief provided by the Commission in its July 14 Order--

specifically, the amendments made to the CEA by Dodd-Frank Act

sections 724(c), 725(a), and 731. On July 14, 2011, the Divisions

issued Staff No-Action Relief addressing the application of these

provisions after July 16, 2011. Available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/noactionletter071411.pdf (last visited Sept. 26, 2011). The

Commission anticipates that the Divisions will extend and conform

this no-action relief to any final amendment to the July 14 Order

that may result from this proposal.

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

Description of Existing Relief

The July 14 Order groups the relevant provisions of the Dodd-Frank

Act into four categories and provides temporary exemptive relief, set

to expire no later than December 31, 2011, with respect to Categories 2

and 3. A summary of the four categories of provisions follows.

Category 1 covers statutory provisions which by their express terms

require rulemaking to implement. Because, under section 754 of the

Dodd-Frank Act, these provisions do not become effective until at least

60 days after the final rule is published, no exemptive relief from the

general effective date is necessary. Category 1 provisions include,

among others, the further definitions of terms regarding swap entities

or instruments as required by the Dodd-Frank Act (such as the terms

``swap,'' ``swap dealer,'' ``major swap participant,'' or ``eligible

contract participant''). Category 1 also includes, among others: (1)

Registration, capital and margin requirements, and business conduct

standards for swap dealers and major swap participants; (2) provisions

prohibiting agricultural swaps except pursuant to CFTC rules; (3) rules

regarding swap execution facilities; and (4) various swap data

recordkeeping and reporting requirements. A complete list of the

Category 1 provisions is included in the appendix to the July 14 Order.

The first part of the relief provided for in the July 14 Order

reaches those Dodd-Frank Act provisions (``Category 2 provisions'')

that are self-effectuating (i.e., do not require a rulemaking) and that

reference one or more of the terms for which the Commission and SEC are

required to provide further definition, including ``swap,'' ``swap

dealer,'' ``major swap participant,'' ``eligible contract

participant,'' and ``security-based swap agreement'' (collectively, the

``referenced terms''). These Category 2 provisions include, for

example, the trade execution requirement of CEA section 2(h)(8), as

amended by Dodd-Frank Act section 723. A complete list of the Category

2 provisions is included in the appendix to the July 14 Order. Because

the Category 2 provisions would have taken effect on July 16, 2011

pursuant to section 754, the Commission granted temporary relief from

those provisions, but only to the extent that the requirements in such

provisions specifically relate to a referenced term that is not yet

further defined. Thus, if a Category 2 provision also applies to

futures or options on futures, the provision took effect on July 16

with respect to futures or options on futures. The exemption for

Category 2 provisions expires on the earlier of: (1) The effective date

of the applicable final rule further defining the relevant term; or (2)

December 31, 2011.

In part two of the July 14 Order, the Commission provides temporary

exemptive relief from the provisions of the CEA that may apply to

certain agreements, contracts, and transactions in exempt or excluded

commodities (generally, financial, energy and metals commodities) as a

result of the repeal of the CEA exemptions and exclusions in former CEA

sections 2(d), 2(e), 2(g), 2(h), and 5d as of July 16, 2011 pursuant to

sections 723(a)(1) and 734(a) of the Dodd-Frank Act (the ``Category 3

provisions''). As explained in the July 14 Order, this relief is based

on the Commission's existing ``part 35'' exemptive rules.\12\

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

\12\ 76 FR at 42514. The July 14 Order did not extend to

agreements, contracts, or transactions that fully met the conditions

of part 35, since in such circumstances further relief was

unnecessary.

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

Part 35 originally was promulgated in 1993 pursuant to, among

others, the Commission's general exemptive authority in CEA section

4(c) and its plenary options authority under section 4c(b),\13\ and

provides a broad-based exemption from the CEA for ``swap

[[Page 66001]]

agreements'' in any commodity. Specifically, part 35 exempts ``swap

agreements,'' as defined therein, from most of the provisions of the

CEA if: (1) They are entered into by ``eligible swap participants''

(``ESPs''); \14\ (2) they are not part of a fungible class of

agreements standardized as to their material economic terms; (3) the

creditworthiness of any party having an actual or potential obligation

under the swap agreement would be a material consideration in entering

into or determining the terms of the swap agreement, including pricing,

cost, or credit enhancement terms; and (4) they are not entered into or

traded on a multilateral transaction execution facility.

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

\13\ 7 U.S.C. 6c(b).

\14\ As noted in the July 14 Order, the parties covered under

the ESP definition, while very broad, are not coextensive with those

covered by the terms ``eligible commercial entity'' or ``eligible

contract participant.'' Therefore, it is possible that a small

segment of persons or entities that are currently relying on one or

more of the CEA exclusions or exemptions cited above might not

qualify as an ESP and consequently would not be eligible for part

35. 76 FR at 42511, n. 40.

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

Under part two of the relief provided for in the July 14 Order, the

Commission stated that transactions in exempt or excluded commodities

(and persons offering, entering into, or rendering advice or rendering

other services with respect to such transactions) are temporarily

exempt from provisions of the CEA that may apply to such transactions

if such transactions comply with part 35, notwithstanding that: (1) The

transaction may be executed on a multilateral transaction execution

facility; (2) the transaction may be cleared; (3) persons offering or

entering into the transaction may be eligible contract participants as

defined in the CEA (prior to the enactment of the Dodd-Frank Act); (4)

the transaction may be part of a fungible class of agreements that are

standardized as to their material economic terms; and/or (5) no more

than one of the parties to the transaction is entering into the

transaction in conjunction with its line of business, but is neither an

eligible contract participant nor an ESP, and the transaction was not

and is not marketed to the public.\15\

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

\15\ 76 FR at 42514. With respect to commodity options, the

Commission made clear that options identified in the swap agreement

definition in paragraph (b)(1)(i) of Sec. 35.1 of the Commission's

regulations and any options captured by the concluding catch-all

language in that paragraph, as well as any options described in

paragraphs (b)(1)(ii) and/or (iii) of Sec. 35.1, involving excluded

or exempt commodities are within the scope of the July 14 Order. 76

FR at 42514-15.

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

Thus, for certain transactions, the July 14 Order provides relief

notwithstanding that the transaction may not satisfy certain part 35

requirements (e.g., cleared, executed on a multilateral trade execution

facility, entered into by certain persons that are not eligible

contract participants, etc.). The Commission stated in the July 14

Order that this relief is limited to transactions in exempt and

excluded commodities, and does not extend to transactions in

agricultural commodities, because transactions in agricultural

commodities were not covered by the applicable statutory exclusions and

exemptions in effect prior to July 16, 2011.\16\ The exemption in part

two of the July 14 Order expires on the earlier of: (1) The repeal,

withdrawal or replacement of part 35; or (2) December 31, 2011.

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

\16\ The Commission also stated, though, that because part 35

remained in effect at the time of the July 14 Order, market

participants could continue to rely on part 35 with respect to swaps

(other than commodity options) on enumerated agricultural

commodities as defined in CEA section 1a(4) or Sec. 32.2 of the

Commission's regulations, as well as swaps and commodity options on

non-enumerated agricultural commodities, to the extent these

transactions fully comply with part 35. Under the July 14 Order,

market participants also may continue to rely on part 32 for options

on enumerated agricultural commodities to the extent these

transactions are conducted in accordance with Sec. 32.13(g) of the

Commission's regulations. Rule 32.13(g) permits off-exchange options

between producers, processors, commercial users or merchants of the

commodity or its products or by-products that have a net worth of at

least $10 million.

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

Category 4 contains those Dodd-Frank Act provisions for which the

Commission determined not to issue relief, and which therefore went

into effect on July 16, 2011. A complete list of the Category 4

provisions is included in the appendix to the July 14 Order.

The temporary exemptions issued in the July 14 Order are subject to

several conditions. These conditions provide that the July 14 Order

shall not: (1) Limit in any way the Commission's anti-fraud or anti-

manipulation authority under the CEA; (2) apply to any provision of the

Dodd-Frank Act or the CEA that became effective prior to July 16, 2011;

(3) affect any effective date or compliance date set forth in any

rulemaking issued by the Commission to implement provisions of the

Dodd-Frank Act; (4) limit the Commission's authority under Dodd-Frank

Act section 712(f) to issue rules, orders, or exemptions prior to the

effective date of any provision of the Dodd-Frank Act and the CEA, in

order to prepare for such effective date; and (5) affect the

applicability of any provision of the CEA to futures contracts or

options on futures contracts, or to cash markets.\17\

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

\17\ 76 FR at 42522.

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

II. Discussion of the Proposed Amendments to the July 14 Order

The Commission is proposing to amend the July 14 Order in two ways.

First, the Commission is proposing to amend the July 14 Order to extend

the potential latest expiry dates. With respect to provisions covered

in the first part of the relief in the July 14 Order, the Commission is

proposing that the temporary exemptive relief expire upon the earlier

of: (1) The effective date of the applicable final rule further

defining the relevant referenced term; or (2) July 16, 2012.\18\ This

amendment addresses the potential that, as of December 31, 2011, the

CFTC-SEC joint rulemakings ``further defining'' the referenced terms

will not yet be effective. The Commission also is proposing to amend

the July 14 Order to extend the expiry date of the second part of the

relief in the July 14 Order until the earlier of: (1) July 16, 2012; or

(2) such other compliance date as may be determined by the Commission.

For the same reason stated by the Commission with respect to the second

part of the relief provided in the July 14 Order, the proposed

extension of this exemptive relief ``will allow markets and market

participants to continue to operate under the regulatory regime as in

effect prior to July 16, 2011, but subject to various implementing

regulations that the Commission promulgates and applies to the subject

transactions, market participants, or markets.'' \19\

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

\18\ The date of July 16, 2012, is consistent with the potential

transitional period provided in section 723(c) of the Dodd-Frank Act

regarding former CEA section 2(h) and section 734(c) of the Dodd-

Frank Act regarding former CEA section 5d (i.e., for ``not longer

than a 1-year period'' following the general effective date of title

VII) .

\19\ 76 FR at 42513.

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

Second, the Commission is proposing to include within the second

part of the relief any agreement, contract or transaction that fully

meets the conditions in part 35 as in effect on December 31, 2011. This

amendment addresses the fact that such transactions, which were not

included within the scope of the July 14 Order because the exemptive

rules in part 35 covered them at that time, now require temporary

relief because part 35 will no longer be available after December 31,

2011.\20\ Accordingly, to ensure that the

[[Page 66002]]

exemptive relief currently available for these transactions continues

to be available after December 31, 2011, the Commission proposes to

amend the July 14 Order to incorporate by reference the part 35 relief

available as of December 31, 2011. Whereas the relief provided in part

two of the July 14 Order was (and would remain) limited to transactions

in excluded or exempt commodities, this proposed amendment also would

include, beginning on January 1, 2012, transactions in agricultural

commodities that fully meet the conditions in part 35 as in effect on

December 31, 2011.\21\ The Commission proposes that this further

amendment to the July 14 Order is necessary to ensure that the same

scope of the exemptive relief available before December 31, 2011 is

available to all swaps and extends through July 16, 2012, at the

latest.

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

\20\ The Commission recently promulgated a rule pursuant to

section 723(c)(3) of the Dodd-Frank Act that, effective December 31,

2011, will repeal the existing part 35 relief and replace it with

new Sec. 35.1 of the Commission's regulations. See Agricultural

Swaps, 76 FR 49291 (Aug. 10, 2011). Rule 35.1 provides, in pertinent

part, that ``agricultural swaps may be transacted subject to all

provisions of the CEA, and any Commission rule, regulation or order

thereunder, that is otherwise applicable to swaps. [It] also

clarifies that by issuing a rule allowing agricultural swaps to

transact subject to the laws and rules applicable to all other

swaps, the Commission is allowing agricultural swaps to transact on

[designated contract markets (``DCMs''), swap execution facilities

(``SEFs'')], or otherwise to the same extent that all other swaps

are allowed to trade on DCMs, SEFs, or otherwise.'' Id. at 49296.

\21\ The Commission also is clarifying that, by operation of new

Sec. 35.1 of the Commission's regulations, the Commission's

statement in adopting the July 14 Order that a DCM may list and

trade swaps ``under the DCM's rules related to futures contracts,

without exemptive relief,'' 76 FR at 42518, would apply, as of

January 1, 2012, to swaps in agricultural commodities.

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

In proposing these amendments, the Commission continues to strive

to ensure that current practices will not be unduly disrupted during

the transition to the new regulatory regime. As stated above, the

proposed July 16, 2012 date coincides with the potential transitional

period provided in sections 723(c) and 734(c) of the Dodd-Frank

Act.\22\ Further, should the Commission deem it appropriate to

terminate or extend any exemptive relief under part two of the July 14

Order, the Commission will be in a better position to comprehensively

evaluate and consider any tailored exemption at that time.

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

\22\ See Order Regarding the Treatment of Petitions Seeking

Grandfather Relief for Exempt Commercial Markets and Exempt Boards

of Trade, 75 FR 56513, Sept. 16, 2010.

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

The Commission believes it is in the interest of the public and

market participants to continue to provide regulatory certainty

regarding the applicability of the Dodd-Frank Act. There have been no

disruptions to the market resulting from the July 14 Order, nor has the

Commission received any request for additional relief beyond that

provided for in the July 14 Order. Accordingly, the Commission believes

the scope of the existing relief is appropriate and is proposing here

only to amend that relief in the aforementioned ways. The Commission

notes, for example, that Category 1 provisions--i.e., those for which a

rulemaking is required--will continue to be addressed outside the scope

of the July 14 Order. Further, where appropriate, the Commission

expects to phase-in compliance with its final rules over a period of

time as part of the Commission's ongoing commitment to ensuring an

orderly transition to the new regulatory regime.

III. Request for Comment

The Commission requests and will only consider comments on the

amendments to the July 14 Order that are proposed in this notice of

proposed amendment.

IV. Related Matters

a. Paperwork Reduction Act

The Paperwork Reduction Act (``PRA'') \23\ imposes certain

requirements on Federal agencies (including the Commission) in

connection with conducting or sponsoring any collection of information

as defined by the PRA. These proposed amendments, if approved, would

not require a new collection of information from any persons or

entities that would be subject to the proposed amendments.

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

\23\ 44 U.S.C. 3507(d).

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

b. Cost-Benefit Considerations

Section 15(a) of the CEA \24\ requires the Commission to consider

the costs and benefits of its action before issuing an order under the

CEA. CEA section 15(a) further specifies that costs and benefits shall

be evaluated in light of five broad areas of market and public concern:

(1) Protection of market participants and the public; (2) efficiency,

competitiveness, and financial integrity of futures markets; (3) price

discovery; (4) sound risk management practices; and (5) other public

interest considerations. The Commission may in its discretion give

greater weight to any one of the five enumerated areas and could in its

discretion determine that, notwithstanding its costs, a particular

order is necessary or appropriate to protect the public interest or to

effectuate any of the provisions or to accomplish any of the purposes

of the CEA.

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

\24\ 7 U.S.C. 19(a).

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

This notice of proposed amendment proposes to amend the existing

July 14 Order by extending the currently available temporary relief to

no later than July 16, 2012, and by accounting for the repeal of part

35 of the Commission's regulations. As such, and because this proposal

does not change the nature or limit the scope of relief granted in the

July 14 Order, the costs and benefits set forth in the July 14 Order

may be incorporated by reference in this proposal.\25\ Nevertheless,

the Commission seeks comment on whether these proposed amendments would

impose any costs or confer any benefits beyond the July 14 Order.

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

\25\ 76 FR 42521.

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

V. Proposed Amendments to the July 14 Order

The Commission proposes the following amendments to the July 14

Order:

The Commission, to provide for the orderly implementation of the

requirements of Title VII of the Dodd-Frank Act, pursuant to sections

4(c) and 4c(b) of the CEA and section 712(f) of the Dodd-Frank Act,

hereby issues this Order consistent with the determinations set forth

above, which are incorporated in this Final Order, as amended, by

reference, and:

(1) Exempts, subject to the conditions set forth in paragraph (3),

all agreements, contracts, and transactions, and any person or entity

offering, entering into, or rendering advice or rendering other

services with respect to, any such agreement, contract, or transaction,

from the provisions of the CEA, as added or amended by the Dodd-Frank

Act, that reference one or more of the terms regarding entities or

instruments subject to further definition under sections 712(d) and

721(c) of the Dodd-Frank Act, which provisions are listed in Category 2

of the Appendix to this Order; provided, however, that the foregoing

exemption:

a. Applies only with respect to those requirements or portions of

such provisions that specifically relate to such referenced terms; and

b. With respect to any such provision of the CEA, shall expire upon

the earlier of: (i) The effective date of the applicable final rule

further defining the relevant term referenced in the provision; or (ii)

July 16, 2012.

(2) Exempts, subject to the conditions set forth in paragraph (3),

all agreements, contracts, and transactions, and any person or entity

offering, entering into, or rendering advice or rendering other

services with respect to, any such agreement, contract, or transaction,

from the provisions of the CEA, if the agreement, contract, or

transaction complies with part 35 of the Commission's regulations as in

effect as of December 31, 2011, including any

[[Page 66003]]

agreement, contract, or transaction in an exempt or excluded (but not

agricultural) commodity that complies with such provisions then in

effect notwithstanding that:

a. The agreement, contract, or transaction may be executed on a

multilateral transaction execution facility;

b. The agreement, contract, or transaction may be cleared;

c. Persons offering or entering into the agreement, contract or

transaction may not be eligible swap participants, provided that all

parties are eligible contract participants as defined in the CEA prior

to the date of enactment of the Dodd-Frank Act;

d. The agreement, contract, or transaction may be part of a

fungible class of agreements that are standardized as to their material

economic terms; and/or

e. No more than one of the parties to the agreement, contract, or

transaction is entering into the agreement, contract, or transaction in

conjunction with its line of business, but is neither an eligible

contract participant nor an eligible swap participant, and the

agreement, contract, or transaction was not and is not marketed to the

public;

Provided, however, that: (i) Such agreements, contracts, and

transactions (and persons offering, entering into, or rendering advice

or rendering other services with respect to, any such agreement,

contract, or transaction) fall within the scope of any of the existing

CEA sections 2(d), 2(e), 2(g), 2(h), and 5d provisions or the line of

business provision as in effect prior to July 16, 2011; and (ii) the

foregoing exemption shall expire upon the earlier of: (I) July 16,

2012; or (II) such other compliance date as may be determined by the

Commission.

(3) Provides that the foregoing exemptions in paragraphs (1) and

(2) above shall not:

a. Limit in any way the Commission's authority with respect to any

person, entity, or transaction pursuant to CEA sections 2(a)(1)(B), 4b,

4o, 6(c), 6(d), 6c, 8(a), 9(a)(2), or 13, or the regulations of the

Commission promulgated pursuant to such authorities, including

regulations pursuant to CEA section 4c(b) proscribing fraud;

b. Apply to any provision of the Dodd-Frank Act or the CEA that

became effective prior to July 16, 2011;

c. Affect any effective or compliance date set forth in any

rulemaking issued by the Commission to implement provisions of the

Dodd-Frank Act;

d. Limit in any way the Commission's authority under section 712(f)

of the Dodd-Frank Act to issue rules, orders, or exemptions prior to

the effective date of any provision of the Dodd-Frank Act and the CEA,

in order to prepare for the effective date of such provision, provided

that such rule, order, or exemption shall not become effective prior to

the effective date of the provision; and

e. Affect the applicability of any provision of the CEA to futures

contracts or options on futures contracts, or to cash markets.

In its discretion, the Commission may condition, suspend,

terminate, or otherwise modify this Order, as appropriate, on its own

motion. This Final Order, as amended, shall be effective immediately.

Issued in Washington, DC, on October 18, 2011 by the Commission.

David A. Stawick,

Secretary of the Commission.

Note:

The following appendices will not appear in the Code of Federal

Regulations.

Appendices to Notice of Proposed Amendment to Effective Date for Swap

Regulation--Commission Voting Summary and Statements of Commissioners

Appendix 1--Commission Voting Summary

On this matter, Chairman Gensler and Commissioners Dunn,

Sommers, Chilton and O'Malia voted in the affirmative; no

Commissioner voted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

I support the proposed amendment to the July 14th Exemptive

Order regarding the effective dates of certain Dodd-Frank Act

provisions.

The July 14th order provided relief until December 31, 2011, or

when the definitional rulemakings become effective, whichever is

sooner, from certain provisions that would otherwise apply to swaps

or swap dealers on July 16. This includes provisions that do not

directly rely on a rule to be promulgated, but do refer to terms

that must be further defined by the CFTC and SEC, such as ``swap''

and ``swap dealer.''

Commission staff is working very closely with Securities and

Exchange Commission (SEC) staff on rules relating to entity and

product definitions. Staff is making great progress, and we

anticipate taking up the further definition of entities in the near

term and product definitions shortly thereafter.

As these definitional rulemakings have yet to be finalized or

become effective, today's proposed amendment would provide relief

through July 16, 2012, or when the definitional rulemakings become

effective--whichever is sooner.

The order also provided relief through no later than December

31, 2011, from certain CEA requirements that may apply as the result

of the repeal, effective on July 16, 2011, of CEA sections 2(d),

2(e), 2(g), 2(h) and 5d. The proposed amendment also extends this

relief to July 16, 2012, or until a date the Commission may

otherwise determine with respect to a particular requirement under

the CEA.

In addition, today's proposed amendment also tailors the July

14th relief in light of the Commission's actions finalizing the

agricultural swap rules.

Appendix 2--Statement of Commissioner Scott O'Malia

As Yogi Berra famously proclaimed: ``It is d[eacute]j[agrave] vu

all over again.'' Yogi perfectly encapsulates my feelings today. We

find ourselves again voting on a proposed order aimed at providing

legal certainty in the form ``temporary exemptive relief'' for swap

market participants that extends the soon to expire relief found in

the Commission's July 14, 2011 exemptive order (``July 14 Order'').

This temporary relief is necessary because: (1) The Commission has

not yet put forth final rules defining such key terms such as

``swap'' and ``swap dealer''; and (2) certain exemptions and

exclusions for transactions in exempt and excluded commodities

currently relied upon by market participants will be repealed

effective December 31, 2011. The proposal states: ``[t]he Commission

proposes that this further amendment to the July 14 Order is

necessary to ensure that the same scope of the exemptive relief

available before December 31, 2011 is available to all swaps and

extends through July 16, 2012, at the latest.''

Unfortunately, we are once again facing an exemptive order that

suffers the same faults that the July 14 Order suffered, namely: (1)

It again includes an arbitrary sunset provision that will cut the

transition period short and so will likely not provide necessary

``relief'' to market participants, and (2) it demonstrates the lack

of ordering of rulemakings combined with the failure to put forth an

implementation schedule. We now need to broaden the scope of the

July 14 Order because the exemptive rules contained in part 35 will

no longer be available to market participants after December 31,

2011 even though the replacement regulatory regime is not in place

yet.\26\ Part 35 is more commonly known as the swap exemption and is

relied upon primarily by entities engaging in agricultural swaps.

The Commission repealed part 35 in order to ensure that it is not

used by individuals and entities who had relied on Sections 2(d),

(g) and (h) of the Commodity Exchange Act (``CEA'') as an end run

around the new statutory and regulatory requirements.

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

\26\ The Commission recently promulgated a rule pursuant to

section 723(c)(3) of the Dodd-Frank Act that, effective December 31,

2011, will repeal the existing part 35 relief and replace it with

new Sec. 35.1 of the Commission's regulations. See Agricultural

Swaps, 76 FR 49291 (Aug. 10, 2011).

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

I support the proposal, as I did last time, because it is

important for the Commission to provide market participants and the

public with the form of relief the exemptive order is contemplating,

but I would have preferred

[[Page 66004]]

that this rule, like its predecessor, would not select an arbitrary

end date.

Mr. Chairman, I again renew my call for a comprehensive

rulemaking schedule and implementation plan, that provides greater

insight on reporting requirements to swap data repositories as well

as separate rulemaking on real time and block rules. The Commission

must also provide some certainty on the clearing and trading mandate

including clarification of ``made available for trading'' and

guidance on swap clearing.

[FR Doc. 2011-27535 Filed 10-24-11; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: October 25, 2011