[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Notices]
[Pages 75518-75520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30376]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63390; File No. S7-17-09]
Order Extending Temporary Conditional Exemptions Under the
Securities Exchange Act of 1934 in Connection With Request on Behalf of
Eurex Clearing AG Related to Central Clearing of Credit Default Swaps
and Request for Comment
November 29, 2010.
I. Introduction
The Securities and Exchange Commission (``Commission'') has taken
multiple actions designed to help foster the prompt development of
credit default swap (``CDS'') central counterparties (``CCP''),
including granting temporary conditional exemptions from certain
provisions of the federal securities laws.\1\
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\1\ See generally Securities Exchange Act Release Nos. 60372
(Jul. 23, 2009), 74 FR 37748 (Jul. 29, 2009) and 61973 (Apr. 23,
2010), 75 FR 22656 (Apr. 29, 2010) (temporary exemptions in
connection with CDS clearing by ICE Clear Europe Limited);
Securities Exchange Act Release Nos. 60373 (Jul. 23, 2009), 74 FR
37740 (Jul. 29, 2009) and 61975 (Apr. 23, 2010), 75 FR 22641 (Apr.
29, 2010) (temporary exemptions in connection with CDS clearing by
Eurex Clearing AG); Securities Exchange Act Release Nos. 59578 (Mar.
13, 2009), 74 FR 11781 (Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR
67258 (Dec. 18, 2009), and 61803 (Mar. 30, 2010), 75 FR 17181 (Apr.
5, 2010) (temporary exemptions in connection with CDS clearing by
Chicago Mercantile Exchange Inc.); Securities Exchange Act Release
Nos. 59527 (Mar. 6, 2009), 74 FR 10791 (Mar. 12, 2009), 61119 (Dec.
4, 2009), 74 FR 65554 (Dec. 10, 2009), and 61662 (Mar. 5, 2010), 75
FR 11589 (Mar. 11, 2010) (temporary exemptions in connection with
CDS clearing by ICE Trust U.S. LLC); Securities Exchange Act Release
No. 59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009) (temporary
exemptions in connection with CDS clearing by LIFFE A&M and
LCH.Clearnet Ltd.); and other Commission actions discussed in
several of these orders. In addition, the Commission has issued
interim final temporary rules that provide exemptions under the
Securities Act of 1933 and the Securities Exchange Act of 1934 for
CDS to facilitate the operation of one or more central
counterparties for the CDS market. See Securities Act Release Nos.
8999 (Jan. 14, 2009), 74 FR 3967 (Jan. 22, 2009) (initial approval),
9063 (Sep. 14, 2009), 74 FR 47719 (Sep. 17, 2009) (extension until
Nov. 30, 2010), and 9158 (Nov. 30, 2010) (extension until Jul. 16,
2011).
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In July 2009, the Commission issued an order providing temporary
conditional exemptions to Eurex Clearing AG (``Eurex''), and certain
other parties, to permit Eurex to clear and settle CDS transactions.\2\
In response to Eurex's request, the Commission temporarily extended and
expanded the exemptions in April 2010.\3\ The current
[[Page 75519]]
exemptions pursuant to the April 2010 Eurex Exemptive Order are
scheduled to expire on November 30, 2010, and Eurex has requested that
the Commission extend the exemptions contained in the April 2010 Eurex
Exemptive Order.\4\
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\2\ Securities Exchange Act Release No. 60373 (Jul. 23, 2009),
74 FR 37740 (Jul. 29, 2009) (``July 2009 Eurex Exemptive Order'').
\3\ Securities Exchange Act Release No. 61975 (Apr. 23, 2010),
75 FR 22641 (Apr. 29, 2010) (``April 2010 Eurex Exemptive Order'').
\4\ See Letter from Paul Architzel, Alston & Bird, to Elizabeth
Murphy, Secretary, Commission, Nov. 29, 2010 (``November 2010
Request'').
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II. Discussion
A. Legislative Developments
Subsequent to the Commission's issuance of the April 2010 Eurex
Exemptive Order, the President signed the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (``Dodd-Frank Act'') into law.\5\
The Dodd-Frank Act was enacted to, among other purposes, promote the
financial stability of the United States by improving accountability
and transparency in the financial system.\6\ To this end, the
provisions of Title VII of the Dodd-Frank Act provide for the
comprehensive regulation of security-based swaps \7\ by the
Commission.\8\ The Dodd-Frank Act amends the Exchange Act to require,
among other things, that transactions in security-based swaps be
cleared through a clearing agency that is registered with the
Commission or that is exempt from registration if they are of a type
that the Commission determines must be cleared, unless an exception or
exemption from mandatory clearing applies.\9\ Specifically, Section
763(b) of the Dodd-Frank Act adds a new Section 17A(g) to the Exchange
Act which states: ``It shall be unlawful for a clearing agency, unless
registered with the Commission, directly or indirectly to make use of
the mails or any means or instrumentality of interstate commerce to
perform the functions of a clearing agency with respect to a security-
based swap.'' \10\ This new registration provision, along with other
general provisions under Title VII of the Dodd-Frank Act, becomes
effective on July 16, 2011.\11\ As a result, the Commission anticipates
that Eurex would need to apply and become registered as a clearing
agency under Section 17A of the Exchange Act when relevant provisions
of the Dodd-Frank Act become effective in order to clear security-based
swaps.
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\5\ Public Law 111-203 (July 21, 2010).
\6\ See Public Law 111-203, Preamble.
\7\ Section 761(a)(6) of the Dodd-Frank Act defines a
``security-based swap'' as any agreement, contract, or transaction
that is a ``swap,'' as defined in Section 1a(47) of the Commodity
Exchange Act, 7 U.S.C. 1a(47), that is based on an index that is a
narrow-based security index, a single security, or a loan, including
any interest therein or on the value thereof; or the occurrence,
nonoccurrence, or extent of the occurrence of an event relating to a
single issuer of a security or the issuers of securities in a
narrow-based security index, provided that such event directly
affects the financial statements, financial condition, or financial
obligations of the issuer. See Section 3(a)(68) of the Securities
Exchange Act of 1934 (``Exchange Act''), 15 U.S.C.78c(a)(68) (as
added by Section 761(a)(6) of the Dodd-Frank Act). Section 712(d) of
the Dodd-Frank Act provides that the Commission and the Commodity
Futures Trading Commission (``CFTC''), in consultation with the
Board of Governors of the Federal Reserve System, shall, among other
things, jointly further define the terms ``swap'' and ``security-
based swap.''
\8\ Section 761(a)(2) of the Dodd-Frank Act explicitly includes
security-based swaps in the definition of ``security'' in Section
3(a)(10) of the Exchange Act, 15 U.S.C. 78c.
\9\ See Section 763(a) of the Dodd-Frank Act (adding new Section
3C to the Exchange Act, 15 U.S.C. 78c-2).
\10\ While Title VII of the Dodd-Frank Act provides that certain
entities that cleared swaps pursuant to an exemption from
registration as a clearing agency prior to the date of enactment of
the Dodd-Frank Act are deemed registered as a clearing agency for
the purposes of clearing security-based swaps (``Deemed Registered
Provision''), Eurex would not qualify for the Deemed Registered
Provision. See Section 763(b) of the Dodd-Frank Act (adding new
Section 17A(l) to the Exchange Act, 15 U.S.C. 78q-1(1)). A clearing
agency must be a depository institution that cleared swaps as a
multilateral clearing organization or a derivative clearing
organization that cleared swaps pursuant to an exemption from
registration as a clearing agency. Id. Since Eurex is not a
depository institution and is not a derivative clearing
organization, it does not qualify for the Deemed Registered
Provision.
\11\ Section 774 of the Dodd-Frank Act states, ``[u]nless
otherwise provided, the provisions of this subtitle shall take
effect on the later of 360 days after the date of the enactment of
this subtitle or, to the extent a provision of this subtitle
requires a rulemaking, not less than 60 days after publication of
the final rule or regulation implementing such provision of this
subtitle.''
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B. Eurex's Request for Extension of April 2010 Eurex Exemptive Order
Eurex seeks an extension of the temporary exemptions of the April
2010 Eurex Exemptive Order under the same terms and conditions
contained in the April 2010 Eurex Exemptive Order.\12\ Eurex's request
for an extension of the April 2010 Eurex Exemptive Order incorporates
the representations made in its request preceding the April 2010 Eurex
Exemptive Order and its request preceding the July 2009 Eurex Exemptive
Order.\13\ These representations are discussed in detail in our earlier
Eurex orders. Eurex represents that these representations remain
valid.\14\
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\12\ See November 2010 Request, supra note 4.
\13\ See id.
\14\ In the April 2010 Eurex Exemptive Order, the Commission
described Eurex's proposed activity to clear CDS transactions of its
members' customers. Under this proposed activity, Eurex intended to
provide customer clearing capability for: (i) customers that would
enter into a tri-party agreement with Eurex and the clearing member,
in which the clearing member agrees to guarantee the customer's
position and the customer agrees to be bound by Eurex's Clearing
Conditions (``Registered Customer'') and (ii) customers that do not
enter into such an agreement. Eurex indicated in its November 2010
Request that it now intends to provide customer clearing capability
only for Registered Customers under the exemptive relief.
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Accordingly, consistent with our findings in the April 2010 Eurex
Exemptive Order, and, in particular, in light of the risk management
and systemic benefits in continuing to facilitate CDS clearing by Eurex
until Title VII of the Dodd-Frank Act becomes fully effective, the
Commission finds that it is necessary or appropriate in the public
interest and is consistent with the protection of investors to exercise
its authority to extend the exemptive relief granted in the April 2010
Eurex Exemptive Order until July 16, 2011. Specifically, pursuant to
the Commission's authority under Section 36 of the Exchange Act,\15\
based on the facts presented and the representations made by Eurex,\16\
the Commission is extending until July 16, 2011, under the same terms
and conditions in the April 2010 Eurex Exemptive Order, each of the
existing exemptions connected with CDS clearing by Eurex, which
include: The temporary conditional exemption granted to Eurex from
clearing agency registration under Section 17A of the Exchange Act
solely to perform the functions of a clearing agency for certain non-
excluded CDS; the temporary conditional exemption of Eurex and certain
of its clearing members from the registration requirements of Sections
5 and 6 of the Exchange Act solely in connection with the calculation
of mark-to-market prices for certain non-excluded CDS cleared by Eurex;
the temporary conditional exemption of Eurex and certain eligible
contract participants from certain Exchange Act
[[Page 75520]]
requirements with respect to certain non-excluded CDS cleared by Eurex;
the temporary conditional exemption of Eurex clearing members and
certain others from broker-dealer registration requirements and related
requirements in connection with CDS clearing by Eurex (including
clearing of customer CDS transactions); and the temporary conditional
exemption from certain Exchange Act requirements granted to registered
broker-dealers with respect to certain non-excluded CDS.\17\
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\15\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes
the Commission to conditionally or unconditionally exempt any
person, security, or transaction, or any class of classes of
persons, securities, or transactions, from any provision or
provisions of the Exchange Act or any rule or regulation thereunder,
by rule, regulation, or order, to the extent that such exemption is
necessary or appropriate in the public interest, and is consistent
with the protection of investors.
\16\ See November 2010 Request, supra note 4. The exemptions we
are granting today are based on all of the representations made by
Eurex in its request, which incorporate representations made by
Eurex in its request for relief granted in the April 2010 Eurex
Exemptive Order and its request for relief granted in the July 2009
Eurex Exemptive Order. We recognize, however, that there could be
legal uncertainty in the event that one or more of the underlying
representations were to become inaccurate. Accordingly, if any of
these exemptions were to become unavailable by reason of an
underlying representation no longer being materially accurate, the
legal status of existing open positions in non-excluded CDS (as
defined in the April 2010 Eurex Exemptive Order) that previously had
been cleared pursuant to the exemptions would remain unchanged, but
no new positions could be established pursuant to the exemptions
until all of the underlying representations were again accurate.
\17\ See April 2010 Eurex Exemptive Order, supra note 4.
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C. Solicitation of Comments
When we granted the April 2010 Eurex Exemptive Order, we requested
comment on all aspects of the exemptions. We received no comments in
response this request.
In connection with this Order extending exemptions granted in
connection with CDS clearing by Eurex, we reiterate our request for
comments on all aspects of the exemptions.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or
Send an e-mail to [email protected]. Please include
File Number S7-17-09 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov/). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-17-09. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. We will post all comments on the Commission's Internet website
(http://www.sec.gov/rules/other.shtml). Comments are also available for
website viewing and printing in the Commission's Public Reference Room,
100 F Street, NE., Washington, DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.. All comments received will be
posted without change; we do not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly.
III. Conclusion
It is hereby ordered, pursuant to Section 36(a) of the Exchange
Act, that, until July 16, 2011, the following exemptions connected with
CDS clearing by Eurex contained in the April 2010 Eurex Exemptive Order
are extended: (i) The temporary conditional exemption granted to Eurex
from clearing agency registration under Section 17A of the Exchange Act
solely to perform the functions of a clearing agency for certain non-
excluded CDS; (ii) the temporary conditional exemption of Eurex and
certain of its clearing members from the registration requirements of
Sections 5 and 6 of the Exchange Act solely in connection with the
calculation of mark-to-market prices for certain non-excluded CDS
cleared by Eurex; (iii) the temporary conditional exemption of Eurex
and certain eligible contract participants from certain Exchange Act
requirements with respect to certain non-excluded CDS cleared by Eurex;
(iv) the temporary conditional exemption of Eurex clearing members and
certain others from broker-dealer registration requirements and related
requirements in connection with CDS clearing by Eurex (including
clearing of customer CDS transactions); and (v) the temporary
conditional exemption from certain Exchange Act requirements granted to
registered broker-dealers with respect to certain non-excluded CDS.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-30376 Filed 12-2-10; 8:45 am]
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