[Federal Register Volume 75, Number 211 (Tuesday, November 2, 2010)]
[Proposed Rules]
[Pages 67277-67282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27532]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 39 and 140
RIN 3038-AD00
Process for Review of Swaps for Mandatory Clearing
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing rules to implement new statutory provisions enacted by
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection
Act. These proposed rules apply to the review of swaps by the
Commission to determine whether the swaps are required to be cleared.
DATES: Submit comments on or before January 3, 2011.
ADDRESSES: You may submit comments, identified by RIN number, by any of
the following methods:
Agency Web Site, via its Comments Online process: 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.
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
CFTC Regulation 145.9.\1\
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\1\ Commission regulations referred to herein are found at 17
CFR Ch. 1.
FOR FURTHER INFORMATION CONTACT: Eileen A. Donovan, Special Counsel,
202-418-5096, [email protected], Division of Clearing and Intermediary
Oversight, Commodity Futures Trading Commission, Three Lafayette
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Centre, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act).\2\ Title VII of
the
[[Page 67278]]
Dodd-Frank Act \3\ amended the Commodity Exchange Act (CEA) \4\ to
establish a comprehensive new regulatory framework for swaps and
security-based 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 rigorous
recordkeeping and real-time reporting regimes; and (4) enhancing the
Commission's rulemaking and enforcement authorities with respect to,
among others, all registered entities and intermediaries subject to the
Commission's oversight.
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\2\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 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.
\3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\4\ 7 U.S.C. 1 et seq.
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Section 723(a)(3) of the Dodd-Frank Act amends the CEA to provide
that ``it shall be unlawful for any person to engage in a swap unless
that person submits such swap for clearing to a derivatives clearing
organization [(DCO)] that is registered under [the CEA] or a [DCO] that
is exempt from registration under [the CEA] if the swap is required to
be cleared.'' \5\ Section 723(a)(3) requires the Commission to adopt
rules for the review of a swap, or group, category, type, or class of
swaps (collectively, ``swaps'') to make a determination as to whether
the swaps should be required to be cleared.
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\5\ See Section 2(h) of the CEA, 7 U.S.C. 2(h).
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In addition, Section 745(b) of the Dodd-Frank Act amends the CEA to
direct the Commission to prescribe criteria, conditions, or rules under
which the Commission will determine the initial eligibility or the
continuing qualification of a DCO to clear swaps.\6\
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\6\ See Section 5c(c)(5)(C)(iii) of the CEA, 7 U.S.C. 7a-
2(c)(5)(C)(iii).
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Accordingly, the Commission is proposing to adopt Regulation 39.5
to implement procedures for determining the eligibility of a DCO to
clear swaps that it plans to accept for clearing; for DCOs submitting
swaps to the Commission for review; for Commission-initiated reviews of
swaps; and for staying a clearing requirement while the clearing of a
swap is reviewed.
The Commission requests comment on all aspects of the proposed
rules, as well as comment on the specific provisions and issues
highlighted in the discussion below.
II. Proposed Regulations
A. Eligibility of a DCO To Clear Swaps
The Dodd-Frank Act requires the Commission to determine, upon
request or its own motion, the initial eligibility or continuing
qualification of a DCO to clear a swap that it plans to accept for
clearing, under criteria, conditions, or rules determined by the
Commission. Such criteria, conditions, or rules must consider the
financial integrity of the DCO and any other factors that the
Commission determines to be appropriate.\7\
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\7\ See Section 5c(c)(5)(C)(iii)(II) of the CEA, 7 U.S.C. 7a-
2(c)(5)(C)(iii)(II).
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Under proposed Regulation 39.5(a), a DCO would be presumed eligible
to accept for clearing any swap that is within a group, category, type,
or class of swaps that the DCO already clears. However, such a
presumption would be subject to Commission review, and if the
Commission determines that the swap is not within a group, category,
type, or class of swaps that the DCO already clears, the DCO would be
required to request a determination by the Commission of its
eligibility to clear the swap. A DCO that plans to accept for clearing
any swap that is not within a group, category, type, or class of swaps
that the DCO already clears also would be required to make such a
request.
To receive a determination of eligibility to clear a swap, a DCO
would have to file a written request with the Commission that addresses
its ability to maintain compliance with the core principles for DCOs
set out in Section 5b(c)(2) of the CEA if it accepts the swap for
clearing, specifically: (1) The sufficiency of its financial resources;
and (2) its ability to manage the risks associated with clearing the
swap, especially if the Commission determines that the swap is required
to be cleared.
B. Submission of Swaps to the Commission for Review
The Dodd-Frank Act requires a DCO that plans to accept a swap (or
group, category, type, or class of swaps) for clearing to submit the
swap to the Commission for review.\8\ Proposed Regulation 39.5(b) sets
out the process for DCOs to follow, including what information a DCO
must include in its submission to assist the Commission in its review.
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\8\ See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C.
2(h)(2)(B)(i).
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First, the submission would have to include a statement that the
DCO is eligible to clear the swap and, if the Commission determines
that the swap is required to be cleared, the DCO would be able to
maintain compliance with Section 5b(c)(2) of the CEA. This provision is
intended to satisfy the Dodd-Frank Act requirement that a swap
submission be consistent with Section 5b(c)(2).\9\ Regulation
39.5(b)(1) would require a DCO submitting a swap to be eligible to
clear the swap under Regulation 39.5(a) and, as noted above, a DCO that
seeks to be considered eligible to clear a swap must demonstrate its
ability to maintain compliance with the core principles in Section
5b(c)(2). Therefore, a DCO submitting a swap under Regulation 39.5(b)
would have already demonstrated pursuant to Regulation 39.5(a) its
ability to comply with Section 5b(c)(2). Accordingly, the Commission
believes it is appropriate to require only a statement to that effect
in the swap submission itself.
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\9\ See Section 2(h)(2)(D)(i) of the CEA, 7 U.S.C.
2(h)(2)(D)(i).
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A DCO would also have to provide a statement that includes, but is
not limited to, information that would assist the Commission in the
quantitative and qualitative assessment of five specific factors that
the Dodd-Frank Act requires the Commission to take into account when
reviewing a swap submission,\10\ and additional information that the
Commission believes is needed for an effective review of the swap
submission. The proposed regulation would require the DCO to provide
specific information relating to product specifications; participant
eligibility standards; pricing sources, models, and procedures; \11\
risk management procedures; measures of market liquidity and trading
activity; the effect of a clearing requirement on the market for the
swap; applicable rules, manuals, policies, or procedures; and terms and
trading conventions on which the swap is currently traded.
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\10\ See Section 2(h)(2)(D)(ii) of the CEA, 7 U.S.C.
2(h)(2)(D)(ii).
\11\ This would include information about any price reference
index used, such as the name of the index, the source that
calculates it, the methodology used to calculate the price reference
index and how often it is calculated, and when and where it is
published publicly. For example, the BBA LIBOR 3-Month USD interest
rate published by the British Bankers Association is calculated
daily by Thomson Reuters on behalf of BBA. The rate is published
daily at 11 a.m. London Time via data vendors like Reuters and
Bloomberg, and is calculated using a survey of 16 major banks. The
bank quotes are then ranked in order, high four and bottom four
removed, and the remaining eight quotes are averaged to determine
the official 3-Month USD LIBOR fixing rate for that day. A DCO would
be required to provide documentation of the index methodology and
publication frequency or the relevant hyperlink if it is openly
available on the Internet.
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Finally, the swap submission would have to include a description of
the manner in which the DCO has provided
[[Page 67279]]
notice of the submission to its members and a summary of any opposition
to the submission expressed by members. The Dodd-Frank Act requires a
DCO to provide notice of the submission to its members in a manner to
be determined by the Commission.\12\ The Commission recognizes that a
DCO typically has established procedures for providing notice to its
members and believes it is appropriate to allow the DCO to provide
notice of a swap submission in the same manner. The submission to the
Commission also would have to include a summary of any opposition
expressed by members, which means that a DCO would be expected to
notify members before it makes its submission to the Commission. The
Commission invites comment on whether the regulation should prescribe a
specific manner in which a DCO must provide notice to its members, and
whether the regulation should prescribe a specific period of time
between the notice to members and the submission to the Commission to
allow time for members to make their views on the submission known.
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\12\ See Section 2(h)(2)(B)(i) of the CEA, 7 U.S.C.
2(h)(2)(B)(i).
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Upon receiving a DCO's submission, the Commission would begin its
90-day review by posting the submission on the Commission Web site for
a 30-day public comment period, as required by the Dodd-Frank Act. The
Commission invites comment regarding the appropriateness and
sufficiency of providing notice of the submission on the Commission Web
site as compared to publishing notice of the submission in the Federal
Register. The review would not begin until the submission was complete,
as determined solely in the discretion of the Commission. Due to the
relatively brief 90-day review period prescribed by the Dodd-Frank Act,
the Commission must be certain before it begins a review that it has
the information it needs to reach an appropriate determination.
The proposed regulation encourages a DCO to submit swaps to the
Commission, to the extent reasonable and practicable to do so, by
group, category, type, or class of swaps. The Commission believes this
will make the review process more efficient. The Commission would be
able to consolidate multiple submissions from one DCO or subdivide a
DCO's submission for review as appropriate.
The Commission would review the submission and make a determination
as to whether the swap will be required to be cleared not later than 90
days after receiving the submission, unless the submitting DCO agreed
to an extension. In making a determination that the swap must be
cleared, the Commission would impose terms and conditions on the
requirement as appropriate.
C. Commission-Initiated Reviews of Swaps
The Dodd-Frank Act requires the Commission on an ongoing basis to
review swaps that have not been accepted for clearing by a DCO to make
a determination as to whether the swaps should be required to be
cleared.\13\ Under proposed Regulation 39.5(c), the Commission would
use information obtained pursuant to Commission regulations \14\ from
swap data repositories, swap dealers, and major swap participants, and
any other available information, in undertaking such reviews.
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\13\ See Section 2(h)(2)(A) of the CEA, 7 U.S.C. 2(h)(2)(A).
\14\ The Commission intends to adopt such regulations before any
Commission reviews would be initiated.
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If no DCO has accepted for clearing a particular swap, group,
category, type, or class of swaps that the Commission finds would
otherwise be subject to a clearing requirement, the Commission would,
as required by the Dodd-Frank Act,\15\ investigate the relevant facts
and circumstances and, within 30 days of the completion of its
investigation, issue a public report containing the results of the
investigation. The Commission would take such actions as it determines
to be necessary and in the public interest, which may include
establishing margin or capital requirements for parties to the swap,
group, category, type, or class of swaps.
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\15\ See Section 2(h)(4)(B) of the CEA, 7 U.S.C. 2(h)(4)(B).
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D. Stay of Clearing Requirement
After making a determination that a swap (or group, category, type,
or class of swaps) is required to be cleared, the Commission, on
application of a counterparty to a swap or on its own initiative, may
stay the clearing requirement until it completes a review of the terms
of the swap and the clearing arrangement.\16\ Proposed Regulation
39.5(d)(2) sets out the process for a counterparty to a swap to apply
for a stay of the clearing requirement.
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\16\ See Section 2(h)(3)(A) of the CEA, 7 U.S.C. 2(h)(3)(A).
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A counterparty to a swap that wants to apply for a stay of the
clearing requirement for that swap would be required to submit a
written request to the Secretary of the Commission that includes
information that would assist the Commission in its review, including:
The identity and contact information of the counterparty to the swap;
the terms of the swap subject to the clearing requirement; the name of
the DCO that clears the swap; a description of the clearing
arrangement; and a statement explaining why the swap should not be
subject to a clearing requirement.
The Commission also would be able to obtain additional information
to assist it in its review from the DCO that clears the swap. The
Commission would complete its review not later than 90 days after
issuance of the stay, unless the DCO that clears the swap agrees to an
extension.
Upon completion of its review, the Commission could determine,
subject to any terms and conditions as the Commission determines to be
appropriate, that the swap must be cleared, or that the clearing
requirement will not apply but clearing may continue on a non-mandatory
basis.
III. Technical Amendments
The Commission is proposing to amend Regulation 140.94 \17\ to
delegate authority to the Director of the Division of Clearing and
Intermediary Oversight to consolidate or subdivide swap submissions as
appropriate for review under proposed Regulation 39.5(b)(2) and to
request information from a derivatives clearing organization in
connection with the stay of a clearing requirement under proposed
Regulation 39.5(d)(3).
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\17\ See 75 FR 55410 (Sep. 10, 2010). The Commission previously
proposed to amend Regulation 140.94 in connection with the proposal
of Regulation 39.11 (75 FR 63113 (Oct. 14, 2010)). The Commission
intends to place all delegations to the Director of the Division of
Clearing and Intermediary Oversight for Part 39 under this
regulation.
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IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that agencies
consider whether the rules they propose will have a significant
economic impact on a substantial number of small entities and, if so,
provide a regulatory flexibility analysis respecting the impact.\18\
The rules proposed by the Commission shall affect only DCOs. The
Commission has previously established certain definitions of ``small
entities'' to be used by the Commission in evaluating the impact of its
regulations on small entities in accordance with the RFA.\19\ The
Commission has previously determined that DCOs are not small entities
for the purpose of the RFA.\20\
[[Page 67280]]
Accordingly, the Chairman, on behalf of the Commission, hereby
certifies pursuant to 5 U.S.C. 605(b) that the proposed rules will not
have a significant economic impact on a substantial number of small
entities.
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\18\ 5 U.S.C. 601 et seq.
\19\ 47 FR 18618 (Apr. 30, 1982).
\20\ See 66 FR 45605, 45609 (August 29, 2001).
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B. Paperwork Reduction Act
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
currently valid control number. OMB has not yet assigned a control
number to the new collection. The Paperwork Reduction Act of 1995 (PRA)
\21\ 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. This proposed
rulemaking would result in new collection of information requirements
within the meaning of the PRA. The Commission therefore is submitting
this proposal to the Office of Management and Budget (OMB) for review.
If adopted, responses to this collection of information would be
mandatory. The Commission will protect proprietary information
according to the Freedom of Information Act and 17 CFR Part 145,
``Commission Records and Information.'' In addition, section 8(a)(1) of
the CEA strictly prohibits the Commission, unless specifically
authorized by the CEA, from making public ``data and information that
would separately disclose the business transactions or market positions
of any person and trade secrets or names of customers.'' The Commission
is also required to protect certain information contained in a
government system of records according to the Privacy Act of 1974, 5
U.S.C. 552a.
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\21\ 44 U.S.C. 3501 et seq.
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1. Information Provided by Reporting Entities/Persons
The proposed regulations require each respondent to file
information with the Commission on an occasional basis, which would
result in one annual response per respondent. Commission staff
estimates that each respondent would expend 40 hours to prepare each
filing required under the proposed regulations, which was estimated
based on the Commission's prior experience with DCOs and their
preparation of filings for the Commission's review. Commission staff
estimates that it would receive filings from up to 12 respondents
annually, which assumes that each DCO would make an average of one
filing per year. Accordingly the burden in terms of hours would in the
aggregate be 40 hours annually per respondent and 480 hours annually
for all respondents.
Commission staff estimates that each respondent could expend up to
$4000 annually, based on an hourly wage rate of $100, to comply with
the proposed regulations. This would result in an aggregated cost of
$48,000 per annum (12 respondents x $4000). The Commission invites
public comment on the accuracy of its estimate regarding the collection
requirements that would result from the proposed regulations.
2. Information Collection Comments
The Commission invites the public and other federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
solicits comments in order to: (i) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (ii) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information; (iii)
determine whether there are ways to enhance the quality, utility, and
clarity of the information to be collected; and (iv) minimize the
burden of the collection of information on those who are to respond,
including through the use of automated collection techniques or other
forms of information technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at
[email protected]. Please provide the Commission with a copy
of submitted comments so that all comments can be summarized and
addressed in the final rule preamble. Refer to the Addresses section of
this notice of proposed rulemaking for comment submission instructions
to the Commission. A copy of the supporting statements for the
collections of information discussed above may be obtained by visiting
RegInfo.gov. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this document in the Federal Register. Therefore, a comment is best
assured of having its full effect if OMB receives it within 30 days of
publication.
C. Cost-Benefit Analysis
Section 15(a) of the CEA \22\ requires the Commission to consider
the costs and benefits of its actions before issuing a rulemaking under
the CEA. By its terms, Section 15(a) does not require the Commission to
quantify the costs and benefits of a rule or to determine whether the
benefits of the rulemaking outweigh its costs; rather, it requires that
the Commission ``consider'' the costs and benefits of its actions.
Section 15(a) further specifies that the 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 rule
is necessary or appropriate to protect the public interest or to
effectuate any of the provisions or accomplish any of the purposes of
the CEA.
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\22\ 7 U.S.C. 19(a).
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Summary of proposed requirements. The proposed rule would implement
processes for determining the eligibility of a DCO to clear swaps that
it wishes to accept for clearing; for DCOs submitting swaps to the
Commission for review; for Commission-initiated reviews of swaps; and
for staying a clearing requirement while the clearing of a swap is
reviewed.
Costs. With respect to costs, the Commission has determined that
the rule results in minimal costs. The rule only requires DCOs and swap
counterparties to provide sufficient information for the Commission to
carry out its responsibilities under the Dodd-Frank Act in an efficient
manner. The rule itself does not require the clearing of any swap, so
the Commission did not consider the potential costs of mandatory
clearing in its analysis.
Benefits. With respect to benefits, the Commission has determined
that the rule will benefit the public by making information publicly
available and by providing opportunity for comment. The rule also takes
into account the risk management practices of a DCO in making a
determination on the DCO's eligibility to clear swaps. The rule itself
does not require the clearing of any swap, so the Commission did not
[[Page 67281]]
consider the potential benefits of mandatory clearing in its analysis.
Public Comment. The Commission invites public comment on its cost-
benefit considerations. Commenters are also invited to submit any data
or other information that they may have quantifying or qualifying the
costs and benefits of the proposal with their comment letters.
List of Subjects
17 CFR Part 39
Business and industry, Commodity futures, Reporting and
recordkeeping requirements.
17 CFR Part 140
Authority delegations (Government agencies), Conflict of interests,
Organization and functions (Government agencies).
For the reasons stated in the preamble, the Commission proposes to
amend 17 CFR parts 39 and 140 as follows:
PART 39--DERIVATIVES CLEARING ORGANIZATIONS
1. The authority citation for part 39 is revised to read as
follows:
Authority: 7 U.S.C. 7a-1 as amended by Pub. L. 111-203, 124
Stat. 1376.
2. Redesignate Sec. Sec. 39.5 through 39.7 as Sec. Sec. 39.6
through 39.8 and add new Sec. 39.5 to read as follows:
Sec. 39.5 Review of swaps for Commission determination on clearing
requirement.
(a) Eligibility to clear swaps. (1) A derivatives clearing
organization shall be presumed eligible to accept for clearing any swap
that is within a group, category, type, or class of swaps that the
derivatives clearing organization already clears. Such presumption of
eligibility, however, is subject to review by the Commission.
(2) A derivatives clearing organization that wishes to accept for
clearing any swap that is not within a group, category, type, or class
of swaps that the derivatives clearing organization already clears
shall request a determination by the Commission of the derivatives
clearing organization's eligibility to clear such a swap before
accepting the swap for clearing. The request, which shall be filed
electronically with the Secretary of the Commission, shall address the
derivatives clearing organization's ability, if it accepts the swap for
clearing, to maintain compliance with section 5b(c)(2) of the Act,
specifically:
(i) The sufficiency of the derivatives clearing organization's
financial resources; and
(ii) The derivative clearing organization's ability to manage the
risks associated with clearing the swap, especially if the Commission
determines that the swap is required to be cleared.
(b) Swap submissions. (1) A derivatives clearing organization shall
submit to the Commission each swap, or any group, category, type, or
class of swaps that it plans to accept for clearing. The derivatives
clearing organization making the submission must be eligible under
paragraph (a) of this section to accept for clearing the submitted
swap, or group, category, type, or class of swaps.
(2) A derivatives clearing organization shall submit swaps to the
Commission, to the extent reasonable and practicable to do so, by
group, category, type, or class of swaps. The Commission may in its
reasonable discretion consolidate multiple submissions from one
derivatives clearing organization or subdivide a derivatives clearing
organization's submission as appropriate for review.
(3) The submission shall be filed electronically with the Secretary
of the Commission and shall include:
(i) A statement that the derivatives clearing organization is
eligible to accept the swap, or group, category, type, or class of
swaps for clearing and, if the Commission determines that the swap, or
group, category, type, or class of swaps is required to be cleared, the
derivatives clearing organization will be able to maintain compliance
with section 5b(c)(2) of the Act;
(ii) A statement that includes, but is not limited to, information
regarding the swap, or group, category, type, or class of swaps that is
sufficient to provide the Commission a reasonable basis to make a
quantitative and qualitative assessment of the following factors:
(A) The existence of significant outstanding notional exposures,
trading liquidity, and adequate pricing data;
(B) The availability of rule framework, capacity, operational
expertise and resources, and credit support infrastructure to clear the
contract on terms that are consistent with the material terms and
trading conventions on which the contract is then traded;
(C) The effect on the mitigation of systemic risk, taking into
account the size of the market for such contract and the resources of
the DCO available to clear the contract;
(D) The effect on competition, including appropriate fees and
charges applied to clearing; and
(E) The existence of reasonable legal certainty in the event of the
insolvency of the relevant DCO or one or more of its clearing members
with regard to the treatment of customer and swap counterparty
positions, funds, and property;
(iii) Product specifications, including copies of any standardized
legal documentation, generally accepted contract terms, standard
practices for managing any life cycle events associated with the swap,
and the extent to which the swap is electronically confirmable;
(iv) Participant eligibility standards, if different from the
derivatives clearing organization's general participant eligibility
standards;
(v) Pricing sources, models, and procedures, demonstrating an
ability to obtain sufficient price data to measure credit exposures in
a timely and accurate manner, including any agreements with clearing
members to provide price data and copies of executed agreements with
third-party price vendors, and information about any price reference
index used, such as the name of the index, the source that calculates
it, the methodology used to calculate the price reference index and how
often it is calculated, and when and where it is published publicly;
(vi) Risk management procedures, including measurement and
monitoring of credit exposures, initial and variation margin
methodology, methodologies for stress testing and back testing,
settlement procedures, default management procedures, and an
independent validation of the scalability of the derivatives clearing
organization's risk management policies, systems, and procedures,
including the margin methodology, settlement procedures, and default
management procedures;
(vii) Measures of market liquidity and trading activity, including
information on the sources of such measures;
(viii) An analysis of the effect of a clearing requirement on the
market for the group, category, type, or class of swaps, both
domestically and globally, including the potential effect on market
liquidity, trading activity, use of swaps by direct and indirect market
participants, and any potential market disruption;
(ix) Applicable rules, manuals, policies, or procedures;
(x) Terms and trading conventions on which the swap is currently
traded;
(xi) A description of the manner in which the derivatives clearing
organization has provided notice of the submission to its members and a
summary of any opposition to the submission expressed by the members. A
copy of the notice to members shall be included with the submission.
(4) The submission will be made available to the public and posted
on
[[Page 67282]]
the Commission Web site for a 30-day public comment period. A
derivatives clearing organization that wishes to request confidential
treatment for portions of its submission may do so in accordance with
the procedures set out in Sec. 145.9(d).
(5) The Commission will review the submission and determine whether
the swap, or group, category, type, or class of swaps described in the
submission is required to be cleared. The Commission will make its
determination not later than 90 days after a complete submission has
been received, unless the submitting derivatives clearing organization
agrees to an extension. The determination of when such submission is
complete shall be at the sole discretion of the Commission. In making a
determination that a clearing requirement shall apply, the Commission
may require such terms and conditions to the requirement as the
Commission determines to be appropriate.
(c) Commission-initiated reviews. (1) The Commission on an ongoing
basis will review swaps that have not been accepted for clearing by a
derivatives clearing organization to make a determination as to whether
the swaps should be required to be cleared. In undertaking such
reviews, the Commission will use information obtained pursuant to
Commission regulations from swap data repositories, swap dealers, and
major swap participants, and any other available information.
(2) Notice regarding any determination made under paragraph (c)(1)
of this section will be posted on the Commission Web site for a 30-day
public comment period.
(3) If no derivatives clearing organization has accepted for
clearing a particular swap, group, category, type, or class of swaps
that the Commission finds would otherwise be subject to a clearing
requirement, the Commission will:
(i) Investigate the relevant facts and circumstances;
(ii) Within 30 days of the completion of its investigation, issue a
public report containing the results of the investigation; and
(iii) Take such actions as the Commission determines to be
necessary and in the public interest, which may include requiring the
retaining of adequate margin or capital by parties to the swap, group,
category, type, or class of swaps.
(d) Stay of clearing requirement. (1) After making a determination
that a swap, or group, category, type, or class of swaps is required to
be cleared, the Commission, on application of a counterparty to a swap
or on its own initiative, may stay the clearing requirement until the
Commission completes a review of the terms of the swap, or group,
category, type, or class of swaps and the clearing arrangement.
(2) A counterparty to a swap that wishes to apply for a stay of the
clearing requirement for that swap shall submit a written request to
the Secretary of the Commission that includes:
(i) The identity and contact information of the counterparty to the
swap;
(ii) The terms of the swap subject to the clearing requirement;
(iii) The name of the derivatives clearing organization clearing
the swap;
(iv) A description of the clearing arrangement; and
(v) A statement explaining why the swap should not be subject to a
clearing requirement.
(3) A derivatives clearing organization that has accepted for
clearing a swap, or group, category, type, or class of swaps that is
subject to a stay of the clearing requirement shall provide any
information requested by the Commission in the course of its review.
(4) The Commission will complete its review not later than 90 days
after issuance of the stay, unless the derivatives clearing
organization that clears the swap, or group, category, type, or class
of swaps agrees to an extension.
(5) Upon completion of its review, the Commission may:
(i) Determine, subject to any terms and conditions as the
Commission determines to be appropriate, that the swap, or group,
category, type, or class of swaps must be cleared; or
(ii) Determine that the clearing requirement will not apply to the
swap, or group, category, type, or class of swaps, but clearing may
continue on a non-mandatory basis.
PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION
3. The authority citation for part 140 continues to read as
follows:
Authority: 7 U.S.C. 2 and 12a.
4. In Sec. 140.94, revise paragraph (a)(5) and add new paragraphs
(a)(6) and (a)(7) to read as follows:
Sec. 140.94 Delegation of authority to the Director of the Division
of Clearing and Intermediary Oversight.
(a) * * *
(5) All functions reserved to the Commission in Sec. 5.14 of this
chapter;
(6) All functions reserved to the Commission in Sec. Sec.
39.5(b)(2) and (d)(3) of this chapter; and
(7) All functions reserved to the Commission in Sec. Sec. 39.11
(b)(1)(vi), (b)(2)(ii), (c)(1), (c)(2), (f)(1), and (f)(4) of this
chapter.
* * * * *
Issued in Washington, DC, on October 26, 2010, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Note: The following attachment will not appear in the Code of
Federal Regulations:
Statement of Chairman Gary Gensler Process for Review of Swaps for
Mandatory Clearing October 26, 2010
I support the proposed rulemaking to establish a process for the
review and designation of swaps for mandatory clearing. One of the
primary goals of the Dodd-Frank Act was to lower risk by requiring
standardized swaps to be centrally cleared. The process set out in the
proposed rule is consistent with the Congressional requirement that
derivatives clearing organizations (DCOs) be eligible to clear the
swaps and that before a swap becomes subject to mandatory clearing the
public get to provide input on the contract or class of contracts.
Though we have until July to finalize this rulemaking, it is my hope
that we can finish by April. This would allow us to begin reviewing the
contracts that are already being cleared by DCOs and under Dodd-Frank
have already been deemed submitted to the Commission for consideration.
[FR Doc. 2010-27532 Filed 11-1-10; 8:45 am]
BILLING CODE 6351-01-P