[Federal Register Volume 75, Number 179 (Thursday, September 16, 2010)]
[Notices]
[Pages 56512-56513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23141]
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COMMODITY FUTURES TRADING COMMISSION
Notice Regarding the Treatment of Petitions Seeking Grandfather
Relief for Trading Activity Done in Reliance Upon Section 2(h)(1)-(2)
of the Commodity Exchange Act
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice.
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SUMMARY: Section 723 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act permits persons transacting business in exempt
commodities in reliance upon Section 2(h) of the Commodity Exchange Act
to petition the Commission for grandfather relief enabling them to
continue to rely on Section 2(h) after the effective date of the Dodd-
Frank Wall Street Reform and Consumer Protection Act. While persons may
submit such grandfather relief petitions in accordance with the
procedures provided herein, at this time the Commission has determined
that it will not be issuing such relief to persons seeking to continue
to rely on Section 2(h)(1)-(2). The Commission is prepared to revisit
its decision in the future should it be necessary in order to ensure a
smooth transition to the new regulatory regime mandated by the Dodd-
Frank Wall Street Reform and Consumer Protection Act. Any relief that
the Commission determines to grant in the future will not be limited to
persons that may file a petition.
DATES: Effective date: September 10, 2010 Petitions for relief will be
accepted until September 20, 2010. Comments on this notice will be
accepted until October 18, 2010.
ADDRESSES: You may submit comments or petitions for relief, identified
with ``Section 2(h)(1)-(2) Grandfather Relief'' in the subject line, by
any of the following methods:
E-mail for comments: [email protected]. E-mail for
petitions: [email protected].
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.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments and petitions will be posted as
received to http://www.cftc.gov.
FOR FURTHER INFORMATION CONTACT: David P. Van Wagner, Chief Counsel,
Division of Market Oversight, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
Telephone: (202) 418-5481. E-mail: [email protected]; or Beverly E.
Loew, Assistant General Counsel, Office of the General Counsel, same
address. Telephone: (202) 418-5648. E-mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Treatment of Petitions for Grandfather Relief Received From Persons
Relying Upon Section 2(h)(1)-(2) of the Commodity Exchange Act
On July 21, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'').\1\
Title VII of the Dodd-Frank Act \2\ will amend the Commodity Exchange
Act (``CEA'') \3\ to establish a comprehensive new regulatory framework
for swaps and security-based swaps. As part of the revisions to the
CEA, the Dodd-Frank Act will delete various provisions from the CEA
that were first established by the Commodity Futures Modernization Act
of 2000 (``CFMA'') \4\ to permit the trading of derivative instruments
off of regulated markets. Among other such provisions, the Dodd-Frank
Act will strike Section 2(h)(1)-(2) (the ``Exempt Commodity
Exemption'') from the CEA, effective July 15, 2011.\5\ CEA Section
2(h)(1)-(2) generally provides that bilateral ``exempt commodity'' \6\
transactions entered into between eligible contract participants, as
that term is defined by CEA Section 1a(12), are exempt from all of the
provisions of the CEA, except for the anti-fraud and anti-manipulation
provisions.
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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\3\ 7 U.S.C. 1 et seq.
\4\ See Commodity Futures Modernization Act of 2000, Pub. L.
106-554, 114 Stat. 2763 (2000).
\5\ See Section 723(a)(1)(A) of the Dodd-Frank Act.
\6\ Under CEA Section 1a(14), an exempt commodity is defined as
a commodity that is neither an excluded nor an agricultural
commodity. Generally, the term encompasses energy and metals
commodities.
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Section 723(c)(1) of the Dodd-Frank Act provides that a person who
is subject to the Exempt Commodity Exemption may petition the
Commission to continue to operate pursuant to Section 2(h)(1)-(2) by
submitting a petition to the Commission within 60 days of the enactment
of the Dodd-Frank Act (i.e., by September 20, 2010). Section 723(c)(1)
further states that the Commission must consider all such petitions in
a ``prompt manner'' and may grant grandfather relief for up to one
year. The Dodd-Frank Act does not suggest any standard for the
Commission to evaluate grandfather relief petitions from parties
seeking to continue their reliance on the Exempt Commodity Exemption.
Ordinarily, a grandfather clause in a regulatory statute relieves
or exempts
[[Page 56513]]
those already involved in an activity or business from the new
regulations to be established by the statute because it is anticipated
that it may be difficult for the parties to transition the activity or
business to the new regulatory scheme.
The Commission is aware of the transformational nature of the Dodd-
Frank Act and its potential impact on the swaps industry. The
Commission also recognizes that bilateral swaps trading activity
currently conducted in reliance upon the CEA's Exempt Commodity
Exemption will likely become subject to any number of regulatory
provisions implementing the requirements of the Dodd-Frank Act,
including business conduct standards, recordkeeping and reporting
requirements, and capital and margin requirements.\7\ Until the
contents and timing of the Commission's regulations affecting bilateral
swaps are better known, however, the Commission has determined not to
grant grandfather relief as it is impossible to know at this time
whether such relief will be necessary.\8\
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\7\ See Sections 731 and 747 of the Dodd-Frank Act.
\8\ In a separate action, the Commission has issued orders
providing grandfather relief to parties affected by the Dodd-Frank
Act's elimination of the CEA Section 2(h)(3)-(7) exempt commercial
market (``ECM'') provision and the CEA Section 5d exempt board of
trade (``EBOT'') provision. In that matter, the Commission foresaw
that many entities that currently operate as ECMs or EBOTs will seek
to become either swap execution facilities (``SEFs'') or designated
contract markets (``DCMs'') when the Commission adopts regulations
implementing Dodd-Frank's requirements for those facilities. Because
the new SEF and DCM regulatory provisions are not likely to be
completed until close to the same time that the ECM and EBOT
provisions are deleted from the CEA, the Commission anticipated that
there would be a large number of new SEF and DCM applications at
that time. In order to ease this congestion of applications, and to
facilitate the transition of current ECM and EBOT businesses to the
new regulatory regime mandated by the Dodd-Frank Act, the Commission
provided limited grandfather relief to EBOTs and ECMs.
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In implementing the important requirements of the Dodd-Frank Act,
the Commission will strive to ensure that current practices will not be
unduly disrupted during the transition to the new regulatory regime.
Persons relying upon the Exempt Commodity Exemption will have an
opportunity to comment on each of the rulemakings that may affect them,
which will permit the Commission to consider and adopt appropriate
regulatory provisions to address transitioning from the Exempt
Commodity Exemption to the Dodd-Frank regulations as they become
effective. Additionally, while the Commission has chosen at this time
not to grant grandfather relief to parties that rely on the Exempt
Commodity Exemption, if it later determines that Dodd-Frank Act-
required regulations might pose particular difficulties for such
parties that cannot be addressed in final regulations, the Commission
is committed to use its available exemptive authorities to address such
a situation. Any relief that the Commission determines to grant will
not be limited to persons who may wish to file a petition.\9\
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\9\ In addition to deleting the CEA Section 2(h)(1)-(2) Exempt
Commodity Exemption from the CEA, the Dodd-Frank Act also will
delete two other provisions that provide for the exclusion of
bilateral swaps from the CEA--Section 2(d)(2) for excluded
commodities (mostly financial products) and Section 2(g) for non-
agricultural commodities. The Commission notes that the Dodd-Frank
Act does not provide for the possibility of any grandfather relief
for parties relying on those exclusions, which partially overlap
with the Section 2(h)(1)-(2). The Commission also pledges to be
attentive to the transition needs of parties that rely on those
provisions, as well as Section 2(h)(1)-(2) users, as it considers
Dodd-Frank Act-required regulations.
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II. Related Matters
a. Paperwork Reduction Act
This notice does not impose any recordkeeping or information
collection requirements, or other collections of information that
require approval of the Office of Management and Budget (``OMB'') under
the Paperwork Reduction Act (``PRA'').\10\ Requests for comment that
are published in the Federal Register in which collections of
information are not embedded are excluded from PRA compliance by OMB
regulations.\11\ Collections of information that may be required as a
condition for the grant of grandfather relief for persons relying on
the Exempt Commodity Exemption will be addressed at the time such
conditions may be imposed.
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\10\ 44 U.S.C. 3501 et seq.
\11\ 5 CFR 1320.3(h)(4).
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b. Cost-Benefit Analysis
Section 15(a) of the CEA \12\ requires the Commission to consider
the costs and benefits of its actions before taking certain actions
under the Act. This notice is neither a regulation nor an order to
which Section 15(a) applies.
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\12\ 7 U.S.C. 19(a).
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c. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that agencies
consider the impact of their rules on small businesses. This notice is
not a ``rule for which the agency publishes a general notice of
proposed rulemaking.'' \13\ Therefore, the Commission is not required
to conduct a regulatory flexibility analysis.\14\
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\13\ 5 U.S.C. 601(2).
\14\ See 5 U.S.C 603.
Issued in Washington, DC, on September 10, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Concurring Statement of Commissioner Scott D. O'Malia
Regarding the Treatment of Petitions Seeking Grandfather Relief
Pursuant to Section 723 of the Dodd-Frank Act for Trading Activity Done
in Reliance Upon Section 2(h)(1)-(2)
I concur in the Commission's decision to presently decline to
grant relief under Section 723 of the Dodd-Frank Act to persons
transacting business in exempt commodities in reliance upon Sections
2(h)(1)-(2) of the Commodity Exchange Act (the ``Act''). While the
Commission has chosen to decline to grant relief at this time, it is
not restricted from using its authority to address and provide
relief to such persons in the future. In an effort to proactively
ensure the smoothest possible transition of these bilateral markets
for transactions in exempt commodities into the new regulatory
landscape, it is my hope that the Commission will revisit the issue
at least ninety days prior to the Dodd-Frank Act effective date. The
Commission remains committed to the efficient functioning of the
markets in exempt commodities, and the path that we take in each
rulemaking under the Dodd-Frank Act will only be enhanced by the
comments we receive. Therefore, I urge all market participants who
currently rely on Sections 2(h)(1)-(2) of the Act to help shape the
new regulatory frontier by submitting their comments to the
Commission.
[FR Doc. 2010-23141 Filed 9-15-10; 8:45 am]
BILLING CODE 6351-01-P