[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Notices]
[Pages 34434-34438]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14682]
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COMMODITY FUTURES TRADING COMMISSION
Request To Amend an Existing Order Under Section 4(c) of the
Commodity Exchange Act Permitting Eligible Swap Participants To Submit
for Clearing, and ICE Clear U.S., Inc. and Futures Commission Merchants
To Clear, Certain-Over-The-Counter Agricultural Swaps
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of Request for Comment on an Amendment to an Exemption
Order.
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SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or
``Commission'') is requesting comment on whether to amend an existing
order to extend the exemption granted to ICE Clear U.S., Inc. (``ICE
Clear'') under Section 4(c) of the Commodity Exchange Act (``Act'') \1\
to certain over-the-counter (``OTC'') agricultural swaps for which
there is no corresponding futures contract listed for trading on ICE
[[Page 34435]]
Futures U.S., Inc. (``ICE Futures'') at the time of acceptance for
clearing. Authority for extending this relief is found in Section 4(c)
of the Act.
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\1\ 7 U.S.C. 6(c).
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DATES: Comments must be received on or before August 2, 2010.
ADDRESSES: Comments may be submitted by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov/http://frwebgate.access.gpo/cgi-bin/leaving. Follow the instructions
for submitting comments.
E-mail: [email protected]. Include ``ICE Clear
Section 4(c) Amended Exemption Request'' in the subject line of the
message.
Fax: 202-418-5521.
Mail: Send to David A. Stawick, Secretary, Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street,
NW., Washington, DC 20581.
Courier: Same as mail above.
All comments received will be posted without change to http://www.CFTC.gov/.
FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate
Director, 202-418-5092, [email protected], or Alicia L. Lewis,
Attorney-Advisor, 202-418-5862, [email protected], Division of Clearing
and Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1151 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
In September 2007, ICE Clear, a registered derivatives clearing
organization (``DCO'') and the clearing organization for ICE Futures,
submitted applications to the Commission requesting an order (1)
pursuant to Section 4(c) of the Act, (a) to permit the clearing of
coffee, sugar, and cocoa OTC swap contracts and (b) to determine that
certain ICE Futures floor brokers and traders are eligible swap
participants (``ESPs'') for the purpose of trading these OTC swaps; and
(2) pursuant to Section 4d of the Act, to permit certain customer
positions in these cleared OTC swap contracts and the property
collateralizing these positions to be commingled with property and
positions otherwise required to be held in customer segregated
accounts. Part 35 of the Commission's regulations \2\ allows the
trading but not the clearing of such contracts.\3\ On December 12,
2008, the Commission approved the applications and issued an order
pursuant to Sections 4(c) and 4d of the Act (the ``Previous
Order'').\4\ ICE Clear represents that it commenced clearing the
permitted swaps on February 13, 2009.
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\2\ 17 CFR Part 35.
\3\ Part 35 of the Commission's regulations, 17 CFRPart 35,
promulgated pursuant to the authority of Section 4(c) of the Act,
exempts swap agreements and eligible persons entering into these
agreements from most provisions of the Act. The term ``swap
agreement'' is defined to include, among other types of agreements,
``a * * * commodity swap,'' which latter term includes swaps on
agricultural products. While the Commodity Futures Modernization Act
of 2000 amends the Act to exempt the trading of many OTC
transactions from many provisions of the Act, these exemptions
explicitly do not apply to OTC transactions in agricultural
commodities. Accordingly, swaps involving agricultural commodities
continue to rely upon the exemptions of Part 35. Part 35 requires,
among other things, that a swap agreement not be part of a fungible
class of agreements that are standardized as to their material
economic terms and that the creditworthiness of any party having an
interest under the agreement be a material consideration in entering
into or negotiating the terms of the agreement. Thus, absent an
additional exemption pursuant to Section 4(c) of the Act, ICE Clear
could not engage in the clearing of OTC swap contracts in cocoa,
sugar and coffee, since such contracts would not fulfill all of the
conditions for exemption in Part 35. For further discussion of the
Part 35 analysis, see 72 FR 68862, 68863 (Dec. 6, 2007).
As discussed further below, the Commission is requesting comment
on the impact of pending financial services reform legislation on
Part 35.
\4\ 73 FR 77015 (Dec. 18, 2008).
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The clearing process for these swaps involves the replacement of
each OTC swap with a ``cleared-only'' contract, the essential terms of
which match the terms, including the expiration date, of a
corresponding underlying exchange-listed futures contract in coffee,
sugar, or cocoa traded on ICE Futures. The clearinghouse is interposed
as the central counterparty. The cleared-only contracts are financially
settled while the underlying futures contracts are settled with
physical delivery.
In granting the relief requested, the Commission imposed certain
terms and conditions in the Previous Order to address its regulatory
concerns and mitigate the risks associated with the clearing of OTC
agricultural swaps. With respect to Section 4d of the Act, the
Commission evaluated whether ICE Clear's proposal would provide
appropriate protection for customer funds since futures customers would
be exposed to a different source of risk if funds supporting contracts
executed in the OTC market were commingled with customer funds
supporting futures transactions in customer segregated accounts. In
analyzing this issue, the Commission considered (1) the ability of a
futures commission merchant (``FCM'') or DCO to offset these contracts
in the OTC markets in the event of a default on such contracts by a
customer or an FCM, respectively, since a cleared-only contract could
be offset only by another cleared-only contract and (2) the
availability of the exchange-traded markets for coffee, sugar and cocoa
for hedging purposes, as well as the correspondence between the terms
of a cleared-only contract and a corresponding exchange-traded contract
for these products. Based on ICE Clear's proposal, the Commission found
that these cleared-only contracts correspond to transactions in a
potentially liquid OTC market and, importantly, that they were
economically equivalent to, and thus could be effectively hedged with
an exchange-listed futures contract.\5\
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\5\ See 73 FR at 77018.
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Accordingly, in order to ensure an effective means of risk
management for these cleared-only contracts, the Commission included
Condition 3(B) in the Previous Order, which required that the cleared-
only contracts be closely related to underlying futures contracts
traded on ICE Futures. Specifically, Condition 3(B) provides that:
``[t]he economic terms and the daily settlement prices of each
contract, agreement or transaction subject to this order must be
analogous to the economic terms, and equal to the daily settlement
prices, respectively, of a corresponding futures contract listed for
trading on ICE Futures.''
The fulfillment of this condition would enable an FCM carrying the
positions of a defaulting customer or ICE Clear carrying the positions
of a defaulting member, to economically hedge those positions in the
ICE Futures market by entering into an equal but opposite position in
the corresponding listed futures contract. Thus, the Commission
considered economic hedging in the exchange-listed market and actual
offset based on the OTC market as feasible risk management measures for
FCMs carrying cleared-only positions, as well as for ICE Clear itself.
II. The Current ICE Clear Petition
ICE Clear seeks to modify Condition 3(B) of the Previous Order to
allow it to clear OTC swaps in coffee, sugar and cocoa that have
economic terms analogous to the terms of corresponding futures
contracts listed for trading on ICE Futures with the exception of their
expiration dates. Such expiration dates would be permitted to be beyond
that of the corresponding futures contracts. These OTC swap contracts
are referred to herein as ``Long-Dated Swaps''. The clearing of Long-
Dated Swaps will require ICE Clear to establish independent settlement
prices for such swaps until there is a corresponding futures contract,
with the same expiration date, listed for trading on ICE
[[Page 34436]]
Futures. In order to establish such prices, ICE Clear represents that
it has developed specific pricing models for Long-Dated Swaps and will
use those models along with the best available market data to determine
settlement prices.\6\ In addition, ICE Clear represents that only ESPs
would be permitted to trade these swaps.
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\6\ ICE Clear proposes to use a process similar to the industry-
standard pricing procedures for options pricing models used to value
longer dated options positions in less liquid contract months.
Moreover, ICE Clear represents that the market data used will
include: (i) Cleared-swaps data submitted to the clearinghouse; (ii)
year-on-year spread values for the underlying traded futures
contract for actively traded months; (iii) OTC transaction data
solicited from third-party brokers such as the major inter-dealer
brokers; (iv) indicative quotes provided by third-party brokers; and
(v) historical data.
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ICE Clear has not requested an order pursuant to Section 4d of the
Act permitting customer positions in these Long-Dated Swap contracts
and the property collateralizing those positions to be commingled with
property and positions otherwise required to be held in customer
segregated accounts. Accordingly, positions in such contracts, and
property collateralizing such positions, would not be commingled with
positions and related collateral segregated pursuant to Section 4d of
the Act.\7\ Long-Dated Swaps, and property collateralizing such swaps,
would be treated as other cleared-only contracts by ICE Clear and its
clearing members that are registered as FCMs.
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\7\ Pursuant to recent amendments to Part 190 of the
Commission's Regulations, 17 CFR Part 190, positions in these
contracts, and related collateral, could be included as Cleared OTC
Derivatives, if ICE Clear's rules or bylaws were to require them to
be segregated. The amendments were published at 75 FR 17297 (Apr. 6,
2010).
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Eventually, however, the expiration date of a Long-Dated Swap will,
after the passage of time, correspond to that of a futures contract
listed for trading by ICE Futures (at that point, the Long-Dated Swap
would become an ``Aged Long-Dated Swap''). An Aged Long-Dated Swap
would be economically equivalent to an OTC swap that was first accepted
for clearing after the listing of a corresponding futures contract. As
a result, an Aged Long-Dated Swap would also satisfy all the
requirements specified in the Previous Order, and therefore, could be
carried in the customer segregated account pursuant to the provisions
of that order. ICE Clear would not establish an independent settlement
price for an Aged Long-Dated Swap, but instead would use the settlement
price of the corresponding listed futures contract.
III. Section 4(c) of the Commodity Exchange Act
Section 4(c)(1) of the Act empowers the Commission to ``promote
responsible economic or financial innovation and fair competition'' by
exempting any transaction or class of transactions from any of the
provisions of the Act (subject to exceptions not relevant here) where
the Commission determines that the exemption would be consistent with
the public interest.\8\ The Commission may grant such an exemption by
rule, regulation, or order, after notice and opportunity for hearing,
and may do so on application of any person or on its own initiative. In
enacting Section 4(c) of the Act, Congress noted that the goal of the
provision ``is to give the Commission a means of providing certainty
and stability to existing and emerging markets so that financial
innovation and market development can proceed in an effective and
competitive manner.'' \9\ Permitting the inclusion of Long-Dated Swaps
in the class of OTC agricultural swap transactions that can be cleared
by ICE Clear may foster both financial innovation and competition. It
may benefit the marketplace by providing ESPs with the ability to bring
together flexible negotiation with central counterparty guarantees, as
well as capital and operational efficiencies. ESPs also may precisely
hedge their cash positions with offsetting swap positions that match
closely in terms of expiration date. The Commission is requesting
comment on whether it should extend the permission to clear granted
previously to include those OTC swap contracts for which the expiration
date is beyond that of any corresponding futures contract listed for
trading on ICE Futures at the time of acceptance for clearing.
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\8\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides in
full that:
In order to promote responsible economic or financial innovation
and fair competition, the Commission by rule, regulation, or order,
after notice and opportunity for hearing, may (on its own initiative
or on application of any person, including any board of trade
designated or registered as a contract market or derivatives
transaction execution facility for transactions for future delivery
in any commodity under section 7 of this title) exempt any
agreement, contract, or transaction (or class thereof) that is
otherwise subject to subsection (a) of this section (including any
person or class of persons offering, entering into, rendering advice
or rendering other services with respect to, the agreement,
contract, or transaction), either unconditionally or on stated terms
or conditions or for stated periods and either retroactively or
prospectively, or both, from any of the requirements of subsection
(a) of this section, or from any other provision of this chapter
(except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this
title, except that the Commission and the Securities and Exchange
Commission may by rule, regulation, or order jointly exclude any
agreement, contract, or transaction from section 2(a)(1)(D) of this
title), if the Commission determines that the exemption would be
consistent with the public interest.
\9\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179,
3213.
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Section 4(c)(2) provides that the Commission may grant exemptions
only when it determines that the requirements for which an exemption is
being provided should not be applied to the agreements, contracts, or
transactions at issue, and the exemption is consistent with the public
interest and the purposes of the Act; that the agreements, contracts or
transactions will be entered into solely between appropriate persons;
and that the exemption will not have a material adverse effect on the
ability of the Commission or any contract market or derivatives
transaction execution facility to discharge its regulatory or self-
regulatory duties under the Act.\10\ Section 4(c)(3) includes within
the term ``appropriate persons'' a number of specified categories of
persons deemed appropriate under the Act for entering into transactions
exempt by the Commission under Section 4(c). This includes persons the
Commission determines to be appropriate in light of their financial or
other qualifications, or the applicability of appropriate regulatory
protections. ESPs, as defined in Part 35 of the Commission's
regulations,\11\ and ICE Futures floor members deemed ESPs by the
Commission in the Order, will be eligible to submit Long-Dated Swap
transactions to ICE Clear for clearing. The proposed Order requires ICE
Clear, FCMs and ESPs acting pursuant to the Order to provide the market
and large-trader information described in Parts 16, 17 and 18 of the
Commission's regulations, in the manner described in
[[Page 34437]]
Parts 15, 16, 17 and 18 of the Commission's regulations, with respect
to all Cleared-Only Contracts, including Long-Dated Swaps. In light of
the above, the Commission is requesting comment as to whether the
extension of this exemption will affect the ability of the Commission
or any contract market or derivatives clearing organization to
discharge its regulatory or self-regulatory duties under the Act.
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\10\ Section 4(c)(2) of the Act, 7 U.S.C. Sec. 6(c)(2),
provides in full that:
The Commission shall not grant any exemption under paragraph (1)
from any of the requirements of subsection (a) of this section
unless the Commission determines that--
(A) the requirement should not be applied to the agreement,
contract, or transaction for which the exemption is sought and that
the exemption would be consistent with the public interest and the
purposes of this Act; and
(B) the agreement, contract, or transaction--
(i) will be entered into solely between appropriate persons; and
(ii) will not have a material adverse effect on the ability of
the Commission or any contract market or derivatives transaction
execution facility to discharge its regulatory or self-regulatory
duties under this Act.
\11\ This definition includes many of the classes of persons
explicitly referred to in Act Section 4(c)(3) (e.g., a bank or trust
company) as well as some classes of persons who are included under
the category of Section 4(c)(3)(K) (``[s]uch other persons that the
Commission determines to be appropriate in light of their financial
or other qualifications, or the applicability of appropriate
regulatory protections'').
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With respect to protecting the public interest, the Commission
notes that Congress has begun to take steps to promote transparency in
swap contracts. The financial services reform bills passed by the House
of Representatives \12\ and Senate \13\ each requires swaps \14\ to be
cleared, subject to certain exemptions, and further requires, with
respect to swaps that are subject to the clearing requirement, that
such swaps be executed on a board of trade designated as a contract
market under Section 5 of the Act (``DCM'') or on a swap execution
facility (``SEF'') registered or exempt under Section 5h of the Act
(where such a trading environment is available).\15\ Although these
bills have not completed the legislative process, the Commission
recognizes that future legislative enactments may require the execution
of cleared swaps on a DCM or SEF. Accordingly, the Commission seeks
comment, both as to the current proposed exemption, as well as more
generally with respect to Part 35 of the Commission's regulations, on
the issues raised by the pending legislation regarding trading
requirements for swap contracts, including agricultural swap contracts.
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\12\ H.R. 4173, 111th Cong. (2009).
\13\ H.R. 4173 EAS, 111th Cong. (2010).
\14\ We note that both bills include agricultural swap contracts
in their definition of swaps. See H.R. 4173 Sec. 3103(a) (at 575-
77); H.R. 4173 EAS Sec. 721(a) (at 535-38).
\15\ H.R. 4173 EAS Sec. 723(a) (at 570); H.R. 4173 Sec.
3103(a) (at 605). Each of the financial services reform bills also
provides that agricultural swaps may not be traded except pursuant
to CFTC enabling regulations. See H.R. 4173 Sec. 3103(a) (at 605)
and Sec. 3109 (at 646); H.R. 4173 EAS Sec. 723(c)(3) (at 577-78).
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IV. Amended Order
The Previous Order is proposed to be revised to read as follows:
ORDER
(1) The Commission, pursuant to its authority under Section 4(c) of
the Commodity Exchange Act (``Act'') and subject to the conditions
below, hereby:
(a) Permits eligible swap participants (``ESPs'') to submit for
clearing, and futures commission merchants (``FCMs'') and ICE Clear
to clear, OTC agricultural swap contracts in coffee, sugar, and
cocoa (``Cleared-Only Contracts''); and
(b) Permits all ICE Futures floor members that are registered
with the Commission, when trading for their own accounts, to be
deemed ESPs for the purpose of entering into bilateral swap
transactions involving coffee, sugar, or cocoa to be cleared on ICE
Clear.
(2) The term ``Long-Dated Swap Contract'' shall be defined as a
Cleared-Only Contract with terms analogous to those of a
corresponding futures contract listed for trading on ICE Futures,
except that the expiration date of the swap contract is later than
that of any such futures contract. If the expiration date of a Long-
Dated Swap Contract, after the passage of time, is on or before that
of a futures contract listed for trading by ICE Futures, such OTC
swap contract will become an ``Aged Long-Dated Swap Contract''.
(3) The Commission, pursuant to its authority under Section 4d
of the Act and subject to the conditions below, hereby permits ICE
Clear and its clearing members that are registered FCMs, acting
pursuant to this order, to hold money, securities, and other
property, used to margin, guarantee, or secure Cleared-Only
Contracts (with the exception of Long-Dated Swap Contracts) and
belonging to customers that are ESPs (including customers that are
deemed ESPs in accordance with this order), with other customer
funds used to margin, guarantee, or secure trades or positions in
commodity futures or commodity option contracts executed on or
subject to the rules of a contract market designated pursuant to
Section 5 of the Act in a customer segregated account or accounts
maintained in accordance with Section 4d of the Act (including any
orders issued pursuant to Section 4d(a)(2) of the Act) and the
Commission's regulations thereunder, and all such customer funds
shall be accounted for and treated and dealt with as belonging to
the customers of the ICE Clear clearing member, consistent with
Section 4d of the Act and the regulations thereunder. This
permission shall also apply to an Aged Long-Dated Swap Contract.
(4) The Order is subject to the following conditions:
(a) The contracts, agreements, or transactions subject to this
order shall be executed pursuant to the requirements of Part 35 of
the Commission's regulations, as modified herein, and shall be
limited to Cleared-Only Contracts as defined herein.
(b) The economic terms and the daily settlement prices of each
contract, agreement, or transaction subject to this order, except
for a Long-Dated Swap Contract, shall be analogous to the economic
terms, and equal to the daily settlement prices, respectively, of a
corresponding futures contract listed for trading on ICE Futures.
(c) ICE Clear shall establish a settlement price for each Long-
Dated Swap Contract for each trading day until such time as the
contract's expiration date corresponds to that of a futures contract
listed for trading on ICE Futures. ICE Clear shall make records
reflecting the basis for setting each such price and shall maintain
such records pursuant to Core Principle K.
(d) All contracts subject to this order shall be submitted for
clearing by an ICE Futures clearing member to ICE Clear pursuant to
ICE Clear rules.
(e) Each ICE Futures floor member, acting as an ESP pursuant to
this order, shall be the subject of a financial guarantee from a
member of ICE Clear covering the trading of the OTC swap contracts
subject to this order. The clearing member shall be registered with
the Commission as an FCM and shall clear for the floor member the
contracts, agreement, or transactions covered by the financial
guarantee.
(f) An ICE Futures floor member shall be prohibited from
entering into a transaction in a Cleared-Only Contract with another
ICE Futures floor member as the counterparty.
(g) ICE Clear and its clearing members shall mark to market each
Cleared-Only Contract on a daily basis in accordance with ICE Clear
rules.
(h) ICE Clear shall apply its margining system and calculate
performance bond rates for each Cleared-Only Contract in accordance
with its normal and customary practices.
(i) ICE Futures shall maintain appropriate compliance systems to
monitor the transactions of its floor members in the OTC swap
transactions permitted pursuant to this order.
(j) ICE Clear shall apply appropriate risk management procedures
with respect to transactions and open interest in all Cleared-Only
Contracts. ICE Clear shall conduct financial surveillance and
oversight of its members clearing Cleared-Only Contracts, and shall
conduct oversight sufficient to assure ICE Clear that each such
member has the appropriate operational capabilities necessary to
manage defaults in such contracts. ICE Clear and its clearing
members, acting pursuant to this order, shall take all other steps
necessary and appropriate to manage risk related to clearing
Cleared-Only Contracts.
(k) ICE Clear shall make available open interest and settlement
price information for the Cleared-Only Contracts on a daily basis in
the same manner as for futures contracts listed for trading on ICE
Futures.
(l) ICE Futures shall establish and maintain a coordinated
market surveillance program that encompasses the Cleared-Only
Contracts and the corresponding futures contracts listed by ICE
Futures on its designated contract market. ICE Futures shall adopt
position accountability levels for each cleared-only contract that
are appropriate in light of the position accountability levels
applicable to the corresponding futures contracts listed for trading
on ICE Futures.
(m) Cleared-only contracts shall not be treated as fungible with
any contract listed for trading on ICE Futures.
(n) Each FCM acting pursuant to this order shall keep the types
of information and records that are described in Section 4g of the
Act and Commission regulations thereunder, including but not limited
to Commission Regulation 1.35, with respect to all Cleared-Only
Contracts. Such information and records shall be produced for
inspection in accordance with the requirements of Commission
Regulation 1.31.
(o) ICE Futures shall provide to the Commission the types of
information
[[Page 34438]]
described in Part 16 of the Commission's regulations in the manner
described in Parts 15 and 16 of the Commission's regulations with
respect to all Cleared-Only Contracts.
(p) ICE Clear shall apply large trader reporting requirements to
all Cleared-Only Contracts in accordance with its rules, and each
FCM and ESP acting pursuant to this order shall provide to the
Commission the types of information described in Parts 17 and 18 of
the Commission's regulations in the manner described in Parts 15,
17, and 18 of the Commission's regulations with respect to all
Cleared-Only Contracts in which it participates.
(q) ICE Clear and ICE Futures shall at all times fulfill all
representations made in their requests for Commission action under
Sections 4(c) and 4d of the Act and all supporting materials
thereto.
V. Request for Comment
The Commission requests comment on all aspects of the issues
presented by this amended exemption request.
VI. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \16\ imposes certain
requirements on federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. The amended exemption would not, if
approved, require a new collection of information from any entities
that would be subject to the exemption.
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\16\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis
Section 15(a) of the Act,\17\ requires the Commission to consider
the costs and benefits of its action before issuing an order under the
Act. By its terms, Section 15(a) does not require the Commission to
quantify the costs and benefits of an order or to determine whether the
benefits of the order outweigh its costs. Rather, Section 15(a) simply
requires the Commission to ``consider the costs and benefits'' of its
action.
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\17\ 7 U.S.C. 19(a).
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Section 15(a) of the Act further specifies that costs and benefits
shall be evaluated in light of five broad areas of market and public
concern: protection of market participants and the public; efficiency,
competitiveness, and financial integrity of futures markets; price
discovery; sound risk management practices; and other public interest
considerations. Accordingly, the Commission could 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 was necessary or appropriate to protect the public
interest or to effectuate any of the provisions or to accomplish any of
the purposes of the Act.
The Commission is considering the costs and benefits of an amended
exemption order in light of the specific provisions of Section 15(a) of
the Act, as follows:
1. Protection of market participants and the public. The contracts
that are the subject of the amended exemption request will only be
entered into by persons who are ``appropriate persons'' as set forth in
Section 4(c) of the Act.
2. Efficiency, competition, and financial integrity. Extending the
exemption granted under Part 35 to allow the clearing of Long-Dated
Swap Contracts may promote liquidity and transparency in the markets
for OTC derivatives in coffee, sugar, and cocoa, as well as for futures
on those commodities. Extending the exemption also may promote
financial integrity by increasing the benefits of clearing in these OTC
markets.
3. Price discovery. Price discovery may be enhanced through market
competition.
4. Sound risk management practices. Clearing of Long-Dated Swap
Contracts may foster risk management by the participant counterparties.
ICE Clear's risk management practices in clearing these transactions
would be subject to the Commission's supervision and oversight.
5. Other public interest considerations. The requested amended
exemption may encourage market competition in agricultural derivative
products without unnecessary regulatory burden. As noted above,
however, there are pending financial services reform bills that would
affect the trading and clearing requirements for agricultural swap
contracts.
After considering these factors, the Commission has determined to
seek comment on the request for an amended exemption order as discussed
above. The Commission also invites public comment on its application of
the cost-benefit provision.
* * * * *
Issued in Washington, DC, on June 14, 2010 by the Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
[FR Doc. 2010-14682 Filed 6-16-10; 8:45 am]
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