2012-11838

Federal Register, Volume 77 Issue 95 (Wednesday, May 16, 2012)[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]

[Proposed Rules]

[Pages 28819-28824]

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

[FR Doc No: 2012-11838]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter 1

Second Amendment to July 14, 2011 Order for Swap Regulation

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Proposed Amendment.

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

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

Order'') that granted 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. On December 23, 2011, the Commission

amended the July 14 Order to extend the potential latest expiration

date of the July 14 Order from December 31, 2011 to July 16, 2012, and

added provisions to account for the repeal and replacement (as of

December 31, 2011) of part 35 of the Commission's regulations (the

``First Amended July 14 Order''). In this Notice of Proposed Amendment

(``Notice''), the Commission proposes to further modify the temporary

exemptive relief provided in the First Amended July 14 Order by: (1)

Removing references to the entities terms, including ``swap dealer,''

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

light of the final, joint CFTC-SEC rulemaking further defining them

issued on April 18, 2012; (2) extending the potential latest expiration

date of the July 14 Order to December 31, 2012, or, depending on the

nature of the relief, such other compliance date as may be determined

by the Commission; (3) allowing the clearing of agricultural swaps, as

described herein; and (4) removing any reference to the exempt

commercial market (``ECM'') and exempt board of trade (``EBOT'')

grandfather relief previously issued by the Commission. Only comments

pertaining to these proposed amendments to the First Amended July 14

Order, as amended (the ``Second Amended July 14 Order''), will be

considered.

DATES: Submit comments on or before May 30, 2012.

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

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 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: Mark D. Higgins, Counsel, (202) 418-

5864, mhiggins@cftc.gov, Office of the General Counsel; David Van

Wagner, Chief Counsel, (202) 418-5481, dvanwagner@cftc.gov, Division of

Market Oversight; Commodity Futures Trading Commission, Three Lafayette

Centre, 1155 21st Street NW., Washington, DC 20581; or Anne Polaski,

Special Counsel, (312) 596-0575, apolaski@cftc.gov, Division of

Clearing and Risk; Commodity Futures Trading Commission, 525 West

Monroe, Chicago, Illinois 60661.

SUPPLEMENTARY INFORMATION:

On July 14, 2011, the Commission exercised its exemptive authority

under CEA section 4(c) \1\ and its authority under section 712(f) of

the Dodd-Frank Act by issuing a final order (the ``July 14 Order'')

that addressed the potential that the final, joint CFTC-SEC rulemakings

further defining the terms in sections 712(d) \2\ and 721(c) \3\ would

not be in effect as of July 16, 2011 (i.e., the general effective date

set forth in section 754 of the Dodd-Frank Act).\4\ 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 would not be unduly disrupted during the

transition to the new regulatory regime.\5\

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\1\ 7 U.S.C. 6(c).

\2\ 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)).''

\3\ 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'.''

\4\ 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). Section 712(f) of the Dodd-Frank

Act states that ``in order to prepare for the effective dates of the

provisions of this Act,'' including the general effective date set

forth in section 754, the Commission may ``exempt persons,

agreements, contracts, or transactions from provisions of this Act,

under the terms contained in this Act.'' Section 754 specifies that

unless otherwise provided in Title VII, provisions requiring a

rulemaking become effective ``not less than 60 days after

publication of the final rule'' (but not before July 16, 2011).

\5\ Concurrent with the July 14 Order, the Commission's Division

of Clearing and Intermediary Oversight (which is now two divisions--

the Division of Clearing and Risk (``DCR'') and the Division of Swap

Dealer and Intermediary Oversight (``DSIO'')) and the Division of

Market Oversight (``DMO'') (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/@lrlettergeneral/documents/letter/11-04.pdf.

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[[Page 28820]]

For those same reasons, on December 23, 2011, the Commission

published in the Federal Register a final order, the First Amended July

14 Order, amending the July 14 Order in two ways.\6\ First, the

Commission extended the potential latest expiry date from December 31,

2011 to July 16, 2012 or, depending on the nature of the relief, such

other compliance date as may be determined by the Commission,\7\ to

address the potential that, as of December 31, 2011, the aforementioned

joint CFTC-Securities and Exchange Commission (``SEC'') joint

rulemakings would not be effective. Second, the Commission included

within the relief set forth in the First Amended July 14 Order any

agreement, contract or transaction that fully meets the conditions in

part 35 as in effect prior to December 31, 2011. This amendment

addressed the fact that such transactions, which were not included

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

rules in part 35 covered them at that time, required temporary relief

because part 35 would not be available as of December 31, 2011.\8\ In

so doing, the Commission clarified that new part 35 and the exemptive

relief issued in the First Amended July 14 Order, and any interaction

of the two, do not operate to expand the pre-Dodd-Frank Act scope of

transactions eligible to be transacted on either an ECM or EBOT to

include transactions in agricultural commodities.

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\6\ Amendment to July 14, 2011 Order for Swap Regulation, 76 FR

80233 (Dec. 23, 2011).

\7\ The Commission clarified that while the exemption set forth

in the second part of the First Amended July 14 Order generally

shall expire upon the earlier of July 16, 2012 or such other

compliance date as may be determined by the Commission, it modified

that alternative condition to provide that the exemption will not

expire prior to July 16, 2012 in certain circumstances.

Specifically, the Commission stated that no other compliance date

will be determined (and thus, the exemption will remain in effect

until July 16, 2012) for agreements, contracts, and transactions

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

rendering other services with respect to, such agreements, contracts

or transactions) that: (1) Are executed on an ECM or EBOT that is

operating under the terms of the Commission's 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 ECM/EBOT Grandfather Order''), and that complies with

all of the applicable conditions of the ECM/EBOT Grandfather Order;

and (2) are cleared by a Commission-registered derivatives clearing

organization (``DCO''). Concurrent with the First Amended July 14

Order, the Divisions also issued a new staff no-action letter

further addressing the applicability of the amendments made to the

CEA by Dodd-Frank Act sections 724(c), 725(a), and 731. The

Commission staff has informed the Commission that it is separately

considering whether to issue a no-action letter in which the staff

would state that it would not recommend that the Commission commence

an enforcement action against markets or market participants for

failure to comply with the above-referenced provisions over a period

of time co-extensive with that set forth in the Second Amended July

14 Order, as proposed herein.

\8\ The Commission promulgated a rule pursuant to section

723(c)(3) of the Dodd-Frank Act, and CEA sections 4(c) and 4c(b),

that, effective December 31, 2011, repealed the existing part 35

relief and replaced it with new Sec. 35.1 of the Commission's

regulations. See Agricultural Swaps, 76 FR 49291 (Aug. 10, 2011).

Rule 35.1 generally provides 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.

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In this Notice, the Commission is proposing to further amend the

First Amended July 14 Order in the following four ways.\9\ First, in

light of the final, joint CFTC-SEC rulemaking further defining the

entities terms in sections 712(d), including ``swap dealer,'' ``major

swap participant,'' and ``eligible contract participant,'' issued on

April 18, 2012,\10\ the Commission is removing references to those

terms in this proposed Second Amended July 14 Order. Second, the

Commission is proposing to extend the latest potential expiry date from

July 16, 2012 to December 31, 2012 or, depending on the nature of the

relief, such other compliance date as may be determined by the

Commission. The extension would ensure that market practices will not

be unduly disrupted during the transition to the new regulatory regime.

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\9\ As proposed, the Second Amended July 14 Order.

\10\ CFTC-SEC, Further Definition of ``Swap Dealer'',

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

Security-Based Swap Participant'', and ``Eligible Contract

Participant'' (issued Apr. 18, 2012) (to be codified at 17 CFR pt.

1), available at: http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister041812b.pdf.

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Third, the Commission is proposing to further amend the First

Amended July 14 Order to provide that agricultural swaps, whether

entered into bilaterally, on a DCM, or a SEF, may be cleared in the

same manner that any other swap may be cleared and without the need for

the Commission to issue any further exemption under section 4(c) of the

CEA.\11\ This amendment is intended to harmonize the First Amended July

14 Order and the final rules amending part 35 of the Commission's

regulations, to the extent that the July 14 Order, as amended,

maintained the pre-Dodd-Frank part 35 prohibition against the clearing

of agricultural swaps. While the proposed Second Amended July 14 Order

would remove the clearing prohibition for agricultural swaps, this

proposal would not permit agricultural swaps to be entered into or

executed on an ECM or EBOT. The Commission notes that ECMs and EBOTs

both operate some form of trading facility without any self-regulatory

responsibilities. The Commission generally believes that any form of

exchange trading in agricultural swaps should only be permitted in a

self-regulated environment. In other words, unlike exempt and excluded

commodities, which were allowed to be transacted on a trading facility

(i.e., platform-traded) in an unregulated environment under the CEA

prior to the Dodd-Frank Act and now during the transition to the Dodd-

Frank Act regulatory regime, agricultural swaps, which were not allowed

to be platform-traded on an ECM or EBOT under the CEA prior to Dodd-

Frank Act, may not be platform-traded during the transition to the

Dodd-Frank Act regulatory regime. Accordingly, under this proposed

amendment and in conjunction with 17 CFR part 35, as effective on and

after December 31, 2011, the Commission confirms that agricultural

swaps may only be entered into or executed bilaterally, on a DCM,\12\

or on a SEF.\13\

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\11\ 7 U.S.C. 6(c).

\12\ See December 23 Order, 76 FR at 80236, note 11 (Dec. 23,

2011).

\13\ See 17 CFR 35.1(b).

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In connection with swaps executed on a DCM (whether agricultural

swaps or otherwise), the Commission clarifies that a DCM may list such

swaps for trading under the DCM's rules related to futures contracts

without exemptive relief.\14\ As required for futures, a DCM must

submit such swaps to the Commission under either Sec. 40.2 (listing

products for trading by certification) \15\ or Sec. 40.3 (voluntary

submission of new products for Commission review and approval) \16\ of

the Commission's regulations. Swaps that are traded on a DCM are

required to be cleared by a DCO.\17\ In order for a DCO to be able to

clear a swap listed for trading on a

[[Page 28821]]

DCM, the DCO must be eligible to clear such swap pursuant to Sec.

39.5(a)(1) or (2),\18\ and must submit the swap to the Commission

pursuant to Sec. 39.5(b).\19\

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\14\ See 76 FR at 80236, note 22 (Dec. 23, 2011).

\15\ 17 CFR 40.2.

\16\ 17 CFR 40.3.

\17\ See 7 U.S.C. 5(d)(11)(A).

\18\ 17 CFR 39.5(a).

\19\ 17 CFR 39.5(b).

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Fourth, the Commission is proposing to further amend the First

Amended July 14 Order to remove any reference to the ECM/EBOT

Grandfather Order, which expires on July 16, 2012.\20\ After July 16,

2012, ECMs and EBOTs, as well as markets that rely on pre-Dodd-Frank

CEA section 2(d)(2) (``2(d)(2) Markets''), will only be able to rely on

the Second Amended July 14 Order, as proposed herein. The relief for

ECMs and EBOTs, as well as for 2(d)(2) Markets, granted under the

proposed Second Amended July 14 Order shall expire upon the effective

date of the DCM or SEF final rules, whichever is later, unless the ECM

or EBOT, or 2(d)(2) Markets, files a DCM or SEF application on or

before the effective date of the DCM or SEF final rules, in which case

the relief shall remain in place during the pendency of the

application.\21\ For these purposes, an application will be considered

no longer pending upon the application being approved, provisionally

approved,\22\ withdrawn, or denied.

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\20\ The Commission issued the ECM/EBOT Grandfather Order

pursuant to Sections 723(c) and 734(c) of the Dodd-Frank Act which

authorized the Commission to permit ECMs and EBOTs respectively to

continue to operate pursuant to CEA Sections 2(h)(3) and 5d for no

more than one year after the general effective date of the Dodd-

Frank Act's amendments to the CEA.

\21\ The Commission currently receives notice filings from ECMs

and EBOTs, and thus has a general familiarity with the nature and

number of markets operating pursuant to ECM and EBOT exemptive

relief. See 17 CFR 36.2(b) and 17 CFR 36.3(a). In order for the

Commission to gain a similar familiarity with 2(d)(2) Markets, and

to facilitate their eventual transition to registered DCM or

registered SEF status, the Commission strongly encourages 2(d)(2)

Markets intending to operate pursuant to the exemptive relief

proposed in this Second Amended Order to provide the Commission with

notice of their operations (or intent to so operate) on or before

July 16, 2012, or as reasonably soon thereafter as is practicable.

Any such notice should be sent to the Commission's Division of

Market Oversight, 1155 21st St. NW., Washington, DC 20581 (or

electronically, to DMOLetters@cftc.gov), and should include the name

and address of the 2(d)(2) Market, and the name and telephone number

of a contact person. The Commission anticipates that such notice

will assist the Commission in its preparation to review any

subsequent application for registration, or provisional

registration, as a SEF or DCM submitted by such 2(d)(2) Market.

Notwithstanding the provision of such notice, the Commission notes

that any subsequent SEF or DCM registration application by a 2(d)(2)

Market will still undergo a separate, complete, and independent

evaluation by the Commission, just as will every SEF and/or DCM

application submitted by an ECM and/or EBOT.

\22\ For these purposes, an application is ``provisionally

approved'' on the date that such provisional approval becomes

effective such that the ECM, EBOT, or 2(d)(2) Market may then rely

on such provisional approval to operate as a DCM or SEF, as

applicable.

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The Commission seeks comment on all aspects of this proposal.

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. The proposed Second Amended July 14 Order will

not require a new collection of information from any persons or

entities that will be subject to the final order.

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

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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.

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

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The Commission proposes that there are no significant, if any,

costs associated with this proposed amendment. This is so because the

proposed order is permissive--that is, it provides additional time

beyond that provided for in the First Amended July 14 Order for persons

to comply with any substantive or administrative requirements being

imposed elsewhere.

The Commission further proposes that, as discussed above, the

primary benefits of this proposal include that it ensures that market

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

regulatory regime, and removes any actual or perceived inconsistency

between Commission orders and rules with regard to agricultural swaps.

The Commission requests comments on the consideration of costs and

benefits of the proposed amendments discussed in this Notice.

Proposed Second Amended July 14 Order

The Commission proposes a Second Amended July 14 Order to read as

follows:

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 (4),

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 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)

December 31, 2012.

(2) Agricultural Commodity Swaps. Exempts, subject to the

conditions set forth in paragraph (4), all agreements, contracts, and

transactions in an agricultural commodity, 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 prior to December 31, 2011, including any agreement, contract,

or transaction that complies with such provisions then in effect

notwithstanding that:

a. 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

b. The creditworthiness of any party having an actual or potential

obligation under the agreement, contract, or transaction would not be a

material consideration in entering into or determining the terms of the

agreement, contract, or transaction i.e., the agreement, contract, or

transaction may be cleared.

[[Page 28822]]

This exemption shall expire upon the earlier of (i) December 31,

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

Commission.

(3) Exempt and Excluded Commodity Swaps. Exempts, subject to the

conditions set forth in paragraph (4), 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 prior to December 31, 2011,

including any 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:

a. Such agreements, contracts, and transactions in exempt or

excluded commodities (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 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

b. This exemption shall expire upon the earlier of: (i) December

31, 2012; or (ii) such other compliance date as may be determined by

the Commission; except that, for agreements, contracts, and

transactions executed on an exempt commercial market (``ECM''), exempt

board of trade (``EBOT''), or pursuant to CEA section 2(d)(2) as in

effect prior to July 16, 2011 (``2(d)(2) Market''), this exemption

shall expire upon the earlier of (i) December 31, 2012; or (ii) the

effective date of the designated contract market (``DCM'') or swap

execution facility (``SEF'') final rules, whichever is later, unless

the ECM, EBOT, or 2(d)(2) Market files a DCM or SEF registration

application on or before the effective date of the DCM or SEF final

rules, in which case the relief shall remain in place during the

pendency of the application. For these purposes, an application will be

considered no longer pending when the application has been approved,

provisionally approved, withdrawn, or denied.

(4) Provided that the foregoing exemptions in paragraphs (1), (2),

and (3) 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 May 10, 2012 by the Commission.

David A. Stawick,

Secretary of the Commission.

Appendices to Proposed Order Amending the Second Amendment to July 14,

2011 Order for Swap Regulation--Commission Voting Summary and

Statements of Commissioners

Note: The following appendices will not appear in the Code of

Federal Regulations

On this matter, Chairman Gensler and Commissioner Sommers, Chilton,

O'Malia and Wetjen voted in the affirmative; no Commissioner voted in

the negative.

Appendix 1--Chairman Gary Gensler

I support the proposed exemptive order regarding the effective

dates of certain Dodd-Frank Wall Street Reform and Consumer Protection

Act (Dodd-Frank Act) provisions. Today's proposed exemptive order makes

four changes to the exemptive order issued on December 19, 2011.

First, the proposed exemptive order extends the sunset date from

July 16, 2012, to December 31, 2012.

Second, the Commodity Futures Trading Commission (CFTC) and the

Securities and Exchange Commission have now completed the rule further

defining the term ``swap dealer'' and ``securities-based swap dealer.''

Thus, the proposed exemptive order no longer provides relief as it once

did until those terms were further defined. The Commissions are also

mandated by the Dodd-Frank Act to further define the term ``swap'' and

``securities-based swap.'' The staffs are making great progress, and I

anticipate the Commissions will take up this final definitions rule in

the near term. Until that rule is finalized, the proposed exemptive

order appropriately provides relief from the effective dates of certain

Dodd-Frank provisions.

Third, in advance of the completion of the definitions rule, market

participants requested clarity regarding transacting in agricultural

swaps. The proposed exemptive order allows agricultural swaps cleared

through a derivatives clearing organization or traded on a designated

contract market to be transacted and cleared as any other swap. This is

consistent with the agricultural swaps rule the Commission already

finalized, which allows farmers, ranchers, packers, processors and

other end-users to manage their risk.

Fourth, unregistered trading facilities that offer swaps for

trading were required under Dodd-Frank to register

[[Page 28823]]

as swap execution facilities (SEFs) or designated contract markets by

July of this year. These facilities include exempt boards of trade,

exempt commercial markets and markets excluded from regulation under

section 2(d)(2). Given the Commission has yet to finalize rules with

regard to SEFs, this proposed order gives these platforms additional

time for such a transition.

Appendix 2--Statement of Commissioner Scott D. O'Malia

I concur in support of the Commission's proposal to further modify

the temporary exemptive relief provided in the Commission's final order

dated July 14, 2011 (the ``July 14 Order'').\25\ In the July 14 Order,

the Commission addressed concerns raised by industry regarding the

applicability of various regulatory requirements to agreements,

contracts and transactions after the effective date of Title VII of the

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

Act''). Today's proposal would, among other things, extend the

temporary exemptive relief from last extension date (i.e., July 16,

2012) to December 31, 2012.\26\

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\25\ See 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).

\26\ The proposed amendment to the July 14 Order also seeks to:

(1) Remove references to the entities terms in Sections 712(d) of

the Dodd-Frank Act, including ``swap dealer,'' ``major swap

participant,'' and ``eligible contract participant'' in light of the

final, joint CFTC-Securities and Exchange Commission rulemaking

further defining those terms on April 18, 2012; (2) allow the

clearing of agricultural swaps; and (3) removing any reference to

the exempt commercial market and exempt board of trade grandfather

relief previously issued by the Commission.

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Based on the Chairman's statements at a recent industry

conference,\27\ I am supportive of the Commission's proposed amendment

to the July 14 Order to the delay application until the end of the year

or until the implementation. However, I understand that unless the

Commission focuses on its priorities, it seems unlikely we can meet

this schedule.

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\27\ See Commodity Futures Trading Commission Chairman Gary

Gensler, Remarks before International Swaps and Derivatives

Association's 27 Annual General Meeting (May 2, 2012), available at

http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-112.

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Assuming that we complete all Dodd-Frank Act-related rules, orders

and guidance by the end of 2012, I think this proposed amendment is

appropriate and will provide the industry with needed comfort that the

new swaps regulatory regime will not unduly disrupt current market

practices.

Notwithstanding today's proposed amendment, I believe that market

participants continue to seek guidance regarding the timing of the

Commission's remaining rules. I frequently hear that the Commission's

rules are not sequenced in a manner that provides them with the

certainty they need to make budgeting, investment and hiring decisions.

For that reason, I have included along with my statement a list of

the remaining Commission rules, orders and guidance, as well as a

timetable of when I understand the Commission expects to vote on those

rules, orders and guidance. I have developed this list and timetable

based on my knowledge and through my conversations with Commission

staff. I strongly urge the public to provide comments on this list and

timetable. I also ask that the public answer whether: (1) The

Commission's year-end deadline is achievable; and (2) the sequencing of

these rules, orders and guidance is appropriate?

While I support the proposed amendment to the July 14 Order, I

believe that the Commission's accelerated rulemaking schedule will

likely result in many unforeseen perils. For example, to address many

of the problems arising out of the Commission's final rulemaking for

large trader reporting for physical commodity swaps, the Commission

issued temporary and conditional relief and a guidebook. These actions

were intended to act as a Band-Aid fixing what the Commission could

have addressed in the final rulemaking if it were not rushed.

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[FR Doc. 2012-11838 Filed 5-15-12; 8:45 am]

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Last Updated: May 16, 2012