[Federal Register Volume 72, Number 155 (Monday, August 13, 2007)]
[Proposed Rules]
[Pages 45185-45191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15370]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 36 and 40

RIN 3038-AC39


Amendments Pertinent to Registered Entities and Exempt Commercial 
Markets

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rulemaking.

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SUMMARY: The proposed regulations expand the set of persons delegated 
by the Commission with the authority to issue exempt commercial market 
(ECM) special calls to include the Director of the Division of 
Enforcement and that Director's designees. The proposed regulations 
clarify the process for listing, clearing, or implementing registered 
entity products or rules, including dormant products and rules, and 
amend the definition of emergency to clarify that persons other than 
members of the governing board of a registered entity may declare an 
emergency on behalf of the governing board. The proposed regulations 
also clarify the duration of the rule approval period for designated 
contract market (DCM) rules that may change a material term or 
condition of a contract based on the agricultural commodities 
enumerated in section 1a(4) of the Commodity Exchange Act (CEA or Act). 
Finally, the proposed regulations clarify how far in advance of 
implementation registered entities must submit self-certified contracts 
and rules to the Commission, and identify three additional categories 
of rules that a registered entity may implement without filing 
certified submissions or receiving prior Commission approval.

DATES: Comments must be received by September 12, 2007.

ADDRESSES: Comments should be sent to the Commodity Futures Trading 
Commission, Three Lafayette Centre, 1155 21st Street, NW., Washington, 
DC 20581, attention: Office of the Secretariat. Comments may be sent by 
facsimile to 202.418.5521, or by e-mail to [email protected]. 
Reference should be made to the ``Amendments Pertinent to Registered 
Entities and Exempt Commercial Markets.'' Comments may also be 
submitted through the Federal eRulemaking Portal at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Bruce Fekrat, Special Counsel, Office 
of the Director (telephone 202.418.5578, e-mail [email protected]), 
Division of Market Oversight, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Commodity Futures Trading Commission (Commission) published 
comprehensive final regulations for trading facilities on August 10, 
2001.\1\ The final regulations codified the procedural provisions 
common to exempt boards of trade and ECMs operating pursuant to 
sections 5d or 2(h)(3) through (5) of the Act, respectively, in part 36 
of the Commission's regulations. The final regulations also codified 
the procedural provisions common to DCMs, derivatives transaction 
execution facilities (DTEF), and derivatives clearing organizations 
(DCO) in part 40 of the Commission's regulations, and further 
established the regulatory framework necessary to implement and 
interpret the provisions of the CEA, as amended by the Commodity 
Futures Modernization Act of 2000 (CFMA),\2\ pertinent to trading 
facilities. Based upon its subsequent experience in administering the 
Act, the Commission herein proposes several amendments to parts 36 and 
40 of the Commission's regulations to better implement the Act and 
provide clearer direction as to the Commission's regulatory 
requirements thereunder.
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    \1\ 66 FR 42256 (August 10, 2001).
    \2\ Pub. L. 106-554, 114 Stat. 2763 (December 21, 2000).
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II. Exempt Commercial Markets

    The CFMA created a qualified exemption from the Commission's 
jurisdiction for transactions executed or traded on ECMs. Section 
2(h)(3) of the Act, which was added by the CFMA, applies the exemption 
to transactions in exempt commodities executed or traded on an 
electronic trading facility that are entered into on a principal-to-
principal basis solely between persons that are eligible commercial 
entities.\3\ The CEA specifically reserves the applicability of the 
Commission's antifraud and antimanipulation authority to transactions 
executed or traded on ECMs in section 2(h)(4) of the Act \4\ and gives 
the Commission the authority to issue ECM special calls for information 
to, among other things, enforce that authority.\5\
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    \3\ 7 U.S.C. 2(h)(3).
    \4\ 7 U.S.C. 2(h)(4).
    \5\ 7 U.S.C. 2(h)(5).
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    In July 2004, the Commission amended regulation 36.3(b), which 
governs the Commission's access to ECM transaction data, to improve the 
quality of accessible information relevant to its antifraud and 
antimanipulation authority.\6\ In that rulemaking, the Commission 
stated that aberrant price behavior on ECMs may require further 
Commission investigation and the eventual use of the Commission's 
special call authority to identify wrongful conduct.\7\ The authority 
to issue special calls to ECMs currently is delegated to the Directors 
of

[[Page 45186]]

the Division of Market Oversight (DMO) and the Division of Clearing and 
Intermediary Oversight and their designees. Given the importance of the 
authority to issue special calls to the Commission's ability to enforce 
its reserved antifraud and antimanipulation authority with respect to 
ECM transactions, the Commission herein proposes to amend regulation 
36.3 to expand the set of persons with delegated authority to issue 
special calls pursuant to section 2(h)(5)(B)(iii) of the Act to include 
the Director of the Division of Enforcement and that Director's 
designees.
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    \6\ 69 FR 43285 (July 20, 2004).
    \7\ Id. at 43289.
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III. Proposed Amendments to Part 40 of the Commission's Regulations

A. Self-Certification, Approval, and Dormancy

    Part 40 of the Commission's regulations currently does not clearly 
indicate that the procedural requirements for listing, clearing or 
implementing dormant contracts and rules \8\ are identical to the 
requirements established for initial submissions of contracts and rules 
that have never been approved by, or certified with, the Commission.\9\ 
The current product and rule filing provisions of part 40 also do not 
clearly indicate that a DCM or DCO, in general, must choose either to 
comply with the rule approval process established in part 40 or, in the 
alternative, the certification process established in part 40 prior to 
listing, clearing, or implementing any product or rule, including any 
product or rule that has become dormant.\10\ The Commission therefore 
proposes to amend the language in regulations 40.2(a), 40.3(a), 
40.4(a), 40.5(a) and 40.6(a) to clarify that a DCM or DCO in general 
must choose either to list, clear, or implement a product or rule, 
including any dormant product or rule, pursuant to the self-
certification provisions of part 40 or, in the alternative, pursuant to 
the process established in part 40 for receiving the Commission's prior 
approval.\11\
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    \8\ The Commission defines a dormant contract as a contract or 
product without open interest that, after the expiration of a 
thirty-six month development period following initial certification 
or approval, has not traded in the preceding twelve consecutive 
calendar months. 17 CFR 40.1(b). The Commission defines a dormant 
rule as a rule that has remained unimplemented for twelve 
consecutive calendar months following the rule's initial 
certification with, or approval by, the Commission. 17 CFR 40.1(f).
    \9\ This alignment of procedural requirements is based, in part, 
on the premise that certain contracts and rules, which have remained 
inactive or unimplemented for a significant period of time, may no 
longer contain terms that are consistent with the Commission's 
regulations and prevailing market conditions. 67 FR 62783, 62784 
(October 9, 2002).
    \10\ The Commission's regulations do not require a DTEF to 
either certify or submit for Commission approval a product or rule 
prior to listing or implementation. However, a DTEF, which is 
generally subject to notice filing requirements, may choose to self-
certify products or rules or submit them for Commission approval 
pursuant to the procedures established in part 40 of the 
Commission's regulations. See 17 CFR 37.7.
    \11\ DCM rules that will materially change a term or condition 
of a contract with open interest that is based on an agricultural 
commodity enumerated in section 1a(4) of the Act must be approved by 
the Commission prior to implementation. 7 U.S.C. 7a-2(c)(2)(B).
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B. Dormant Registered Entities, Contracts, and Rules

    The Commission has applied the concept of dormancy to registered 
entities by defining a dormant market or clearing organization as a 
registered entity that has been designated by, or registered with, the 
Commission for a period of thirty-six months or more but has not served 
as a facility for the trading or clearing of transactions for a period 
of twelve consecutive calendar months.\12\ The Commission recognizes 
that a significant period of inactivity can potentially have a negative 
impact on a registered entity's ability to implement rules and list and 
clear contracts in a manner that remains consistent with current market 
conditions, the Commission's regulations, and self-regulatory best 
practices.\13\ Accordingly, the Commission has deemed that upon a 
registered entity becoming dormant, its rules and contracts shall also 
become dormant.\14\
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    \12\ See 17 CFR 40.1.
    \13\ See 47 FR 29515 (July 7, 1982).
    \14\ See 71 FR 1953, 1960 (January 12, 2006).
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    In contrast to this view, the current language of the Commission's 
regulations implies that the earliest possible time that a rule can 
become dormant, regardless of whether a registered entity has entered 
into dormancy, is at the end of a twelve month implementation 
period.\15\ Similarly, the current language of the Commission's 
regulations implies that the earliest possible time that a contract can 
become dormant, regardless of whether a registered entity has entered 
into dormancy and absent affirmative action on the part of the 
registered entity, is at the end of a thirty-six month contract 
development period. To remedy any uncertainty, the Commission proposes 
to amend regulation 40.1(b), the definition of dormant product or 
contract, and regulation 40.1(f), the definition of a dormant rule, to 
clearly establish that the dormancy of a registered entity will 
automatically and separately trigger the dormancy of that entity's 
contracts and rules. In addition, the Commission is proposing a 
technical amendment to the definition of a dormant DCM, DTEF, and DCO 
in regulation 40.1 to conform the language used to define those terms 
to the proposed amendments of regulations 40.1(b) and 40.1(f).
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    \15\ The term ``rule'' is defined to include any registered 
entity (DCM, DTEF, or DCO) ``* * * rule, regulation, resolution, 
interpretation, stated policy, term and condition * * * in whatever 
form adopted, and any amendment or addition thereto or repeal 
thereof * * *'' 17 CFR 40.1(h).
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C. Definition of Emergency

    The Commission's regulations give registered entities the ability 
to implement rules in response to an emergency without certifying, or 
receiving the Commission's approval of, such rules prior to 
implementation.\16\ The current definition of emergency implies that 
the full governing board of a registered entity must itself make the 
determination as to whether a circumstance is an emergency before 
operating under emergency procedures.\17\ This notice of rulemaking 
proposes to amend Commission regulation 40.1(g), the definition of 
emergency, to clarify that persons other than members of the governing 
board may determine that a particular occurrence or circumstance 
constitutes an emergency. In a letter commenting on a previous notice 
of proposed rulemaking, the New York Mercantile Exchange (NYMEX) 
suggested that the full governing board of an exchange, under emergency 
conditions, may not be able to issue an opinion in a timely manner to 
address an emergency.\18\ In such a situation, it may be optimal for a 
duly authorized subcommittee or exchange official to have the ability 
to respond to fast developing emergency conditions.
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    \16\ See 17 CFR 40.6(a)(2).
    \17\ See 17 CFR 40.1(g).
    \18\ See letter from James A. Newsome, President, NYMEX, to Jean 
A. Webb, Secretary of the Commission (September 26, 2005) (on file 
with the Commission), available at http://www.cftc.gov/foia/comment05/foi05--004_1page2.htm.
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    The Commission is in agreement with NYMEX. Accordingly, the 
Commission proposes to amend the definition of emergency in part 40 to 
clarify that duly authorized persons may determine whether a particular 
occurrence or circumstance is an emergency that ``requires immediate 
action and threatens or may threaten such things as the fair and 
orderly trading in, or the liquidation of or delivery pursuant to, any 
agreements, contracts or transactions.'' \19\ The amendment would 
require that the rules of the registered entity specify in detail (1) 
the persons

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authorized to issue an emergency opinion on behalf of the governing 
board; and (2) the procedures for the exercise of such authority.\20\
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    \19\ 17 CFR 40.1(g).
    \20\ The Commission also proposes to amend the definition of 
emergency to clarify the definition's applicability to all 
registered entities, including DCOs.
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D. Commission Review and Approval of Registered Entity Rules

    In contrast to other registered entity rules that may be 
implemented pursuant to the self-certification process established in 
part 40, DCM rules that, as determined by the Commission, materially 
change a term or condition of a contract with open interest that is 
based on an agricultural commodity enumerated in section 1a(4) of the 
Act must be approved by the Commission prior to implementation.\21\ 
Since a finding of materiality is by statute at the reasonable 
discretion of the Commission, part 40 affords DCMs the opportunity to 
request a materiality opinion from the Commission for rules that a 
submitting DCM characterizes as non-material. Upon request the 
Commission will determine whether a DCM rule submitted under regulation 
40.4(b)(9) at least ten business days prior to implementation is 
material within the meaning of section 5c(c) of the Act.\22\
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    \21\ 7 U.S.C. 7a-2(c).
    \22\ Id.
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    DCMs often simultaneously request that agricultural rule changes be 
reviewed for materiality, and if found to be material, approved by the 
Commission. Currently, Commission regulation 40.5 does not clearly 
specify when the approval period commences with respect to rules 
submitted for materiality review under the process framed by regulation 
40.4(b)(9).\23\ To establish certainty, the amendments to regulation 
40.5 propose to commence the rule approval period at the conclusion of 
the 10-day materiality review period under regulation 40.4(b)(9). The 
Commission believes that commencing the approval period at this point 
is appropriate because the determination as to whether a registered 
entity rule should be approved (that is whether a rule is consistent 
with the Act and the Commission's regulations thereunder) requires an 
analysis that is qualitatively different from the analysis required to 
determine whether the same rule is material within the meaning of 
section 5c(c) of the Act.
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    \23\ See 17 CFR 40.4(b) and 40.5(b).
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E. Listing of Products and the Implementation of Registered Entity 
Rules

1. The Timing of Submissions
    The Commission understands that there may be some confusion as to 
how far in advance of implementation registered entities must submit 
self-certified products and rules to the Commission. Commission 
regulations 40.2(a) and 40.6(a) provide that such submissions must be 
filed electronically with the Commission at or before the close of 
business on the business day preceding implementation. Questions have 
arisen as to whether these provisions refer to the Commission's 
business day or the business day of the submitting registered entity.
    The proposed regulations clarify that the specified date is the 
Commission's business day. For clarity and in order to ensure proper 
notice of certified products and rules, the Commission proposes to 
define business day in part 40 and add language to Commission 
regulations 40.2(a) and 40.6(a) to expressly require the filing of 
certified submissions with the Commission at least one full Commission 
business day prior to implementation.\24\ In addition, to ensure that 
the appropriate operating divisions of the Commission have the ability 
to access electronic copies of submissions at the time of filing, the 
proposed regulations add the e-mail addresses [email protected] and 
[email protected] to, and specify each regional branch chief in, 
Commission regulations 40.2(a)(1) and 40.6(a)(2) as additional 
mandatory recipients of electronically filed submissions.
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    \24\ These proposed amendments are consistent with other 
Commission regulations that exclude the day on which a notice is 
given or an event occurs in computing time periods that begin upon 
the occurrence of that notice or event. See 17 CFR 1.3(b) and 10.5.
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2. Implementing Registered Entity Rules Without Certification
    a. Additional Rule Categories. As discussed above, the Commission's 
regulations generally permit a registered entity to implement a new or 
dormant rule without seeking prior Commission approval by certifying to 
the Commission that the rule complies with the Act and the regulations 
thereunder on the business day preceding implementation.\25\ Registered 
entities, however, are not required to file certified submissions prior 
to implementing several categories of registered entity rules that are 
enumerated in regulation 40.6(c)(2).\26\ Registered entity rules that 
come within these categories typically are limited in scope and are 
implemented under enabling rules that have already been approved by, or 
certified with, the Commission. In order to lessen the burden placed on 
registered entities as well as better utilize Commission resources, the 
Commission proposes to codify several additional registered entity rule 
categories that may be implemented without prior certification or 
Commission approval if subsequently included in a weekly notification 
of rule changes under regulation 40.6(c)(2). The Commission proposes to 
add (1) changes in trading months with no open interest that are 
consistent with previously approved or certified standards; (2) changes 
in lists of producers' brands or markings that are made pursuant to 
previously approved or certified standards or criteria relating to 
quality specifications, and for existing delivery locations, (3) 
changes in lists of approved delivery facilities and delivery service 
providers that are made pursuant to previously approved or certified 
standards or criteria \27\ to the categories of rules enumerated in 
regulation 40.6(c)(2).
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    \25\ See 17 CFR 40.6(a).
    \26\ 17 CFR 40.6(c)(2).
    \27\ Commission regulation 40.4(b)(2) identifies rules that are 
changes in lists of approved delivery facilities as immaterial. In 
conformance with the proposed amendments to regulation 40.6(c)(2), 
the Commission proposes to amend regulation 40.4(b)(2) to also 
identify rules that are changes to lists of approved delivery 
service providers as immaterial.
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    A registered entity's ability to notice file changes that relate to 
trading months under proposed regulation 40.6(c)(2) only extends to 
trading months within currently established cycles of trading months. 
By way of example, assume that the currently established cycle of 
trading months for a particular contract is December, March, May, July 
and September. Under the proposed regulations, the listing of a new 
trading month, such as November, would not qualify for notice filing 
under regulation 40.6(c) while an earlier than anticipated listing of a 
July contract could properly be notice filed. With respect to 
producers, facilities and service providers, the Commission reviews the 
relevant enabling standards and criteria to ensure their consistency 
with cash market practices and to ensure that their terms do not 
unreasonably restrain trade by inappropriately prohibiting the open 
participation of certain producers,

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facilities or service providers.\28\ The identification of producers' 
brands and enumerated delivery facilities and service providers at a 
delivery location does not alter certified or Commission approved 
qualifying delivery standards or criteria, nor does it change exchange 
procedures that verify compliance with those standards or criteria. The 
Commission therefore proposes to be kept apprised of changes in lists 
of approved producers' brands or markings, changes in lists of delivery 
location delivery facilities and service providers, and changes in 
trading months with no open interest that are consistent with 
previously certified or approved standards through weekly notices of 
rule changes filed under regulation 40.6(c)(2) as opposed to requiring 
that such changes be certified with or approved by the Commission prior 
to implementation.\29\
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    \28\ See 17 CFR part 40, Appendix A (Application for Designation 
of Physical Delivery Futures Contracts).
    \29\ Registered entities must be able to cite registered entity 
rules that establish standards and criteria that are both 
substantive and clearly identifiable in any such submission made 
under regulation 40.6(c)(2).
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    b. Implementing Rules without Notification. Rule changes that may 
appear in a weekly notification pursuant to regulation 40.6(c)(2)(iv) 
also include ``[c]hanges to option contract rules relating to the 
strike price listing procedures, strike price intervals, and the 
listing of strike prices on a discretionary basis.'' \30\ The 
Commission currently receives substantially the same information under 
part 16 of the Commission's regulations, which specifies the daily 
reporting requirements that apply to DCMs.\31\ In particular, 
regulation 16.01(b) stipulates that each reporting market must submit 
to the Commission on a daily basis various trade data, including trade 
volume, open interest and price information for all listed option 
strike prices, including discretionary prices.\32\
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    \30\ 17 CFR 40.6(c)(iv).
    \31\ See 17 CFR part 16.
    \32\ 17 CFR 16.01(b).
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    In January 2006, DMO staff granted no-action relief to permit DCMs 
to satisfy the regulation 40.6(c)(2)(iv) notification requirement by 
complying with the daily reporting requirements of regulation 16.01 of 
the Commission's regulations.\33\ In order to codify the no-action 
relief granted by DMO and avoid duplicative regulatory requirements, 
the Commission proposes to amend regulation 40.6(c)(2)(iv) and add 
paragraph (G) to regulation 40.6(c)(3)(ii) to allow registered entities 
that are in compliance with regulation 16.01(b) to implement the 
specified changes relating to option contract strike prices without 
either prior approval, certification or inclusion in a weekly 
notification to the Commission.\34\
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    \33\ See CFTC Staff Letter 06-01 (January 9, 2006).
    \34\ In July of 2006, the Commission adopted final rules to 
permit the trading of futures contracts based on corporate debt 
securities. 71 FR 39541 (July 13, 2006) (Debt Futures Release). The 
Commission herein proposes a technical amendment that conforms 
regulation 40.6(c)(2)(iii) to the adoption of the Debt Futures 
Release by replacing that regulation's reference to stock indexes 
with a reference to securities indexes, a general term that includes 
both equity and debt securities. Proposed regulation 40.6(c)(2)(iii) 
includes a reference to regulation 40.6(c)(3)(ii)(F) to alert 
registered entities that certain rule changes relating to securities 
indexes may be implemented pursuant to notification or without such 
notice if implemented under regulation 40.6(c)(3).
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    The Commission is making a similar proposal with respect to 
registered entity rules denoting changes to contract trading months 
within currently established cycles of trading months to the categories 
of rules that may be implemented pursuant to a regulation 40.6(c)(2) 
notification filing.\35\ As with rules that are changes to option 
contract strike prices, the Commission currently receives adequate 
notification of the same information under regulation 16.01(a). In 
order to avoid duplicative regulatory requirements, the Commission 
proposes to add paragraph (H) to regulation 40.6(c)(3)(ii) to provide 
that registered entities that are in compliance with regulation 
16.01(a) may implement changes to the listing of contract trading 
months with no open interest, other than the delisting of contract 
trading months or the relisting of temporarily delisted contract 
trading months, without prior approval, certification or inclusion in a 
weekly notification to the Commission.\36\
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    \35\ As discussed in the previous subsection, the Commission is 
proposing to add such rules to the categories of rules that may be 
implemented without certification or prior Commission approval if 
subsequently included in a regulation 40.6(c)(2) weekly notification 
of rule changes.
    \36\ In addition, the Commission proposes a technical amendment 
to the heading of regulation 40.6, and that rule's references to 
DCMs and DCOs, to clarify the potential applicability of that 
regulation to all registered entities, including DTEFs.
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IV. Related Matters

A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing new regulations under 
the Act. Section 15(a) does not require the Commission to quantify the 
costs and benefits of new regulations or to determine whether the 
benefits of the proposed regulations outweigh their costs. Rather, 
section 15(a) requires the Commission to consider the cost and benefits 
of the subject regulations. Section 15(a) further specifies that the 
costs and benefits of the proposed regulations 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 of concern and may, in 
its discretion, determine that, notwithstanding its costs, a particular 
regulation is 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 proposed regulations expand the set of persons delegated by the 
Commission with the authority to issue ECM special calls to include the 
Director of the Division of Enforcement and that Director's designees. 
The proposed rules do not expand the basis for issuing ECM special 
calls; rather, they simply expand the set of persons authorized to 
issue such special calls. There are no regulatory costs imposed by this 
extension of delegated special call authority.
    The proposed regulations clarify that a DCM or DCO must generally 
choose either to comply with the rule approval process established in 
part 40 of the Commission's regulations or, in the alternative, the 
certification process established in part 40, prior to listing or 
clearing any product, or implementing any rule, including any product 
or rule that has become dormant. The proposed regulations also clearly 
establish that the dormancy of a registered entity will automatically 
and separately trigger the dormancy of that entity's contracts and 
rules. These clarifications are consistent with current Commission 
practice, do not impose any regulatory cost, and serve the public 
interest by facilitating regulatory certainty for persons subject to 
the Act and the Commission's regulations thereunder.
    The proposed regulations clarify that the definition of emergency 
allows persons other than members of the governing board of a 
registered entity to declare an emergency on behalf of the governing 
board. The proposed regulations expressly recognize that the governing 
board of an exchange under emergency conditions may not be able to 
issue an opinion in a timely manner to address an emergency. 
Accordingly, the Commission's proposed definition of emergency in part 
40 clearly permits

[[Page 45189]]

duly authorized persons to determine whether a particular occurrence or 
circumstance is an emergency. The proposed regulations facilitate the 
ability of registered entities to undertake timely action in response 
to emergency events and thereby better protect market participants and 
the financial integrity of transactions executed and cleared on 
registered entities. The proposed regulations also limit the potential 
costs that may arise from any misuse of authority by requiring 
registered entities to adopt detailed procedural rules to effectuate 
the exercise of this delegated authority.
    The proposed regulations clearly set forth the duration of the rule 
approval period for DCM rules that may change a material term or 
condition of a contract based on the agricultural commodities 
enumerated in section 1a(4) of the Act by proposing to commence the 
rule approval period at the conclusion of the 10-day materiality review 
period under regulation 40.4(b)(9). Commencing the approval period at 
this point gives the Commission additional time to effectively 
discharge its separate regulatory responsibilities to review registered 
entity rule changes for their impact on contracts with open interest 
and to determine whether such changes are consistent with the Act and 
the Commission's regulations thereunder. The proposed review period is 
consistent with current Commission regulatory practice and should not 
place any additional cost or burden on submitting DCMs.
    The proposed regulations address how far in advance of 
implementation registered entities must submit self-certified contracts 
and rules to the Commission pursuant to regulations 40.2(a) and 40.6(a) 
by clarifying that the date specified in those regulations refers to 
the Commission's business day. The proposed regulations ensure that 
there is at least one full Commission business day between the 
submission of a certified product or rule and such product or rule's 
listing or implementation. The proposed regulations provide regulatory 
clarity and impose no additional cost or burden.
    The proposed regulations lessen the burden placed on registered 
entities as well as better utilize Commission resources by codifying 
several additional rule categories that may be implemented without 
prior certification or Commission approval if noticed to the Commission 
through other required filings or disclosure requirements or 
subsequently included in a weekly notification of rule changes to the 
Commission under regulation 40.6(c)(2). The proposed regulations add 
lists of approved producers' brands or markings, changes in lists of 
approved delivery facilities and delivery service providers, certain 
changes in contract trading months, and certain specified changes to 
option contract strike prices to the categories of rules may be 
implemented without prior certification or Commission approval, or as 
applicable, notification. Registered entity rules that come within 
these categories typically are limited in scope and are implemented 
under enabling rules that have already been approved by, or certified 
with, the Commission. Permitting their implementation without 
certification or approval, or as applicable, notification, avoids 
unnecessary or duplicative regulatory requirements and better utilizes 
the Commission's resources.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires that agencies consider the impact of their regulations on 
small businesses. The requirements related to the proposed amendments 
fall mainly on registered entities. The Commission has previously 
determined that registered entities are not ``small entities'' for the 
purposes of the RFA.\37\ In addition, these proposed regulations, 
collectively, tend to relieve regulatory burdens. Accordingly, the 
Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 
U.S.C. 605(b), that the actions proposed to be taken herein will not 
have a significant economic impact on a substantial number of small 
entities.
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    \37\ See 47 FR 18618 (April 30, 1982).
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C. Paperwork Reduction Act

    When publicizing proposed regulations, the Paperwork Reduction Act 
(PRA) of 1995 (44 U.S.C. 3501 et seq.) 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 information collection requirements associated with the 
proposed regulations are administered under Office of Management and 
Budget control numbers 3038-0022 and 3038-0054. These proposed 
amendments to parts 36 and 40 of the Commission's regulations would not 
impose any new or additional recordkeeping or information collection 
requirement that would require the approval of the Office of Management 
and Budget under 44 U.S.C. 3501, et seq. Accordingly, the PRA is 
inapplicable. We solicit comment on the accuracy of our estimate that 
no additional recordkeeping or information collection requirements or 
changes to existing collection requirements would result from the 
amendments proposed herein.

List of Subjects

17 CFR Part 36

    Commodity futures.

17 CFR Part 40

    Commodity futures, Reporting and recordkeeping requirements.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Act, and, in particular, sections 2, 4, 5, 5a, 5b, 5c, 
5d and 8a of the Act, the Commission hereby proposes to amend Chapter I 
of Title 17 of the Code of Federal Regulations as follows:

PART 36--EXEMPT MARKETS

    1. The authority citation for part 36 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6, 6c, and 12a, as amended by the 
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 
106-554, 114 Stat. 2763 (2000).

    2. In Sec.  36.3, revise paragraphs (b)(3)(ii) to read as follows:


Sec.  36.3  Exempt commercial markets.

* * * * *
    (b) * * *
    (3) * * *
    (ii) The Commission hereby delegates, until the Commission orders 
otherwise, the authority to make special calls as set forth in section 
2(h)(5)(B)(iii) of the Act to the Directors of the Divisions of Market 
Oversight, the Division of Clearing and Intermediary Oversight, and the 
Division of Enforcement to be exercised by each such Director or by 
such other employee or employees as the Director may designate. The 
Directors may submit to the Commission for its consideration any matter 
that has been delegated in this paragraph. Nothing in this paragraph 
prohibits the Commission, at its election, from exercising the 
authority delegated in this paragraph.
* * * * *

PART 40--PROVISIONS COMMON TO CONTRACT MARKETS, DERIVATIVES 
TRANSACTION EXECUTION FACILITIES AND DERIVATIVES CLEARING 
ORGANIZATIONS

    3. The authority citation for part 40 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a, 7a-1, 7a-2, 8 and 
12a, as amended by

[[Page 45190]]

appendix E of Pub. L. 106-554, 114 Stat. 2763A-365.

    4. In Sec.  40.1, revise paragraph (a) through (g) to read as 
follows:


Sec.  40.1  Definitions.

* * * * *
    (a) Business day means the same-day period of time starting at the 
business hour of 8:15 a.m. and ending at the business hour of 4:45 
p.m.; business hour means any hour between 8:15 a.m. and 4:45 p.m., 
Eastern Standard Time or Eastern Daylight Savings Time, whichever is 
currently in effect in Washington, DC, on all days except Saturdays, 
Sundays and federal holidays in Washington, DC.
    (b) Dormant contract or dormant product means:
    (1) Any agreement, contract, transaction, or instrument, or any 
commodity futures or option contract with respect to all future or 
option expiries that has no open interest and in which no trading has 
occurred for a period of twelve complete calendar months following a 
certification with, or approval by, the Commission; provided, however, 
that no contract or instrument under this paragraph (b)(1) initially 
and originally certified with, or approved by, the Commission within 
the preceding 36 complete calendar months shall be considered to be 
dormant; or
    (2) Any commodity futures or option contract or other agreement, 
contract, transaction or instrument of a dormant registered entity; or
    (3) Any commodity futures or option contract or other agreement, 
contract, transaction or instrument not otherwise dormant that a 
registered entity self-declares through certification to be dormant.
    (c) Dormant designated contract market means any designated 
contract market on which no trading has occurred for a period of twelve 
complete calendar months; provided, however, no designated contract 
market shall be considered to be dormant if its initial and original 
Commission order of designation was issued within the preceding 36 
complete calendar months.
    (d) Dormant derivatives clearing organization means any derivatives 
clearing organization that has not accepted for clearing any agreement, 
contract or transaction that is required or permitted to be cleared by 
a derivatives clearing organization under Sections 5b(a) and 5b(b) of 
the Act, respectively, for a period of twelve complete calendar months; 
provided, however, no derivatives clearing organization shall be 
considered to be dormant if its initial and original Commission order 
of registration was issued within the preceding 36 complete calendar 
months.
    (e) Dormant derivatives transaction execution facility means any 
derivatives transaction execution facility on which no trading has 
occurred for a period of twelve complete calendar months; provided, 
however, no derivatives transaction execution facility shall be 
considered to be dormant if its initial and original Commission order 
of designation was issued within the preceding 36 complete calendar 
months.
    (f) Dormant rule means:
    (1) Any registered entity rule which remains unimplemented for 
twelve complete calendar months following a certification with, or an 
approval by, the Commission; or
    (2) Any rule or rule amendment of a dormant registered entity.
    (g) Emergency means any occurrence or circumstance that, in the 
opinion of the governing board of a registered entity, or a person or 
persons duly authorized to issue such an opinion on behalf of the 
governing board of a registered entity under circumstances and pursuant 
to procedures that are specified by rule, requires immediate action and 
threatens or may threaten such things as the fair and orderly trading 
in, or the liquidation of or delivery pursuant to, any agreements, 
contracts or transactions, including:
    (1) Any manipulative or attempted manipulative activity; any 
actual, attempted, or threatened corner, squeeze, congestion, or undue 
concentration of positions;
    (2) Any circumstances which may materially affect the performance 
of agreements, contracts or transactions, including failure of the 
payment system or the bankruptcy or insolvency of any participant; or
    (3) Any action taken by any governmental body, or any other 
registered entity, board of trade, market or facility which may have a 
direct impact on trading; and any other circumstance which may have a 
severe, adverse effect upon the functioning of a registered entity.
* * * * *
    5. In Sec.  40.2, revise the heading and paragraphs (a) 
introductory text, (a)(1) and (a)(2) to read as follows:


Sec.  40.2  Listing and accepting products for trading or clearing by 
certification.

    (a) Unless permitted otherwise by Sec.  37.7 of this chapter, a 
designated contract market or a registered derivatives transaction 
execution facility must comply with the submission requirements of this 
section prior to listing a product for trading that has not been 
approved under Sec.  40.3 of this chapter or that remains dormant 
subsequent to being submitted under this section or approved under 
Sec.  40.3 of this chapter. A registered clearing organization must 
comply with the submission requirements of this section prior to 
accepting a product for clearing that is not traded on a registered 
entity and has not been approved for clearing under Sec.  40.5 of this 
chapter or that remains dormant subsequent to being submitted under 
this section or approved under Sec.  40.5 of this chapter. A submission 
shall comply with the following conditions:
    (1) The registered entity has filed its submission electronically 
with the Secretary of the Commission at [email protected], the 
Division of Market Oversight at [email protected], and the 
relevant branch chief at the regional office having local jurisdiction 
over the registered entity, in a format specified by the Secretary of 
the Commission;
    (2) The Commission has received the submission at its headquarters 
by the open of business on the business day preceding the product's 
listing or acceptance for clearing; and
* * * * *
    6. In Sec.  40.3, revise paragraph (a) introductory text to read as 
follows:


Sec.  40.3  Voluntary submission of new products for Commission review 
and approval.

    (a) Request for approval. Pursuant to Section 5c(c) of the Act and 
Sec. Sec.  37.7 and 38.4 of this chapter, a designated contract market 
or registered derivatives transaction execution facility may request 
that the Commission approve a new or dormant product prior to listing 
the product for trading, or if initially submitted under Sec.  40.2 of 
this chapter, subsequent to listing the product for trading. A 
submission requesting approval shall:
* * * * *
    7. In Sec.  40.4, revise paragraph (a) and (b)(2) to read as 
follows:


Sec.  40.4  Amendments to terms or conditions of enumerated 
agricultural contracts.

    (a) Notwithstanding the provisions of this part, a designated 
contract market must submit for Commission approval under the 
procedures of Sec.  40.5, prior to its implementation, any rule or 
dormant rule that, for a delivery month having open interest, would 
materially change a term or condition, as defined in Sec.  40.1(i), of 
a contract for future delivery in an agricultural commodity enumerated 
in Section 1a(4) of the Act, or of an option on such a contract or 
commodity.
* * * * *

[[Page 45191]]

    (b) * * *
    (2) For each delivery location, changes in lists of approved 
delivery facilities and delivery service providers, including 
weighmasters and inspectors, pursuant to previously set standards or 
criteria;
    8. In Sec.  40.5, revise paragraphs (a) introductory text and (c) 
introductory text to read as follows:


Sec.  40.5  Voluntary submission of rules for Commission review and 
approval.

    (a) Request for approval of rules. Pursuant to Section 5c(c) of the 
Act and Sec. Sec.  37.7, 38.4 and 39.4 of this chapter, a registered 
entity may request that the Commission approve a new or dormant rule 
prior to implementation, or if initially submitted under Sec. Sec.  
40.2 or 40.6 of this chapter, subsequent to implementation. A 
submission requesting approval shall:
* * * * *
    (c) Commencement and extension of time for review. The Commission 
shall commence the review period in paragraph (b) of this section ten 
business days after receipt of a compliant submission under Sec.  
40.4(b)(9) and further may extend the review period in paragraph (b) of 
this section for:
* * * * *
    9. Amend Sec.  40.6 as follows:
    A. Remove the term ``designated contract market or registered 
derivatives clearing organization'' and add in its place the term 
``registered entity'' in paragraphs (a)(2), (c)(1), and (c)(3)(i);
    B. Remove the term ``designated contract market or a registered 
derivatives clearing organization'' and add in its place the term 
``registered entity'' in paragraph (c) introductory text;
    C. Remove the term ``designated contract markets and registered 
derivatives clearing organizations'' and add in its place the term 
``registered entities'' in paragraph (c)(3) introductory text;
    D. Remove the term ``contract market or a derivatives clearing 
organization's'' and add in its place the term ``registered entity's'' 
in paragraph (c)(3)(ii)(B); and
    E. In addition, revise the heading and paragraphs (a), (c)(2)(iii), 
and (c)(2)(iv), and add paragraphs (c)(2)(vii) through (c)(2)(ix), 
(c)(3)(ii)(G) and (c)(3)(ii)(H) to read as follows:


Sec.  40.6  Self-certification of rules.

    (a) Required certification. Unless permitted otherwise by Sec.  
37.7 of this chapter, a registered entity must comply with the 
following conditions prior to the implementation of any rule that has 
not obtained Commission approval under Sec.  40.5 of this chapter or 
that remains dormant subsequent to being submitted under this section 
or approved under Sec.  40.5 of this chapter:
    (1) * * *
    (2) The registered entity has filed its submission electronically 
with the Secretary of the Commission at [email protected], the 
Division of Market Oversight at [email protected], and the 
relevant branch chief at the regional office having local jurisdiction 
over the registered entity, in a format specified by the Secretary of 
the Commission, and the Commission has received the submission at its 
headquarters by the open of business on the business day preceding 
implementation of the rule; provided, however, rules or rule amendments 
implemented under procedures of the governing board to respond to an 
emergency as defined in Sec.  40.1, shall, if practicable, be filed 
with the Commission prior to the implementation or, if not practicable, 
be filed with the Commission at the earliest possible time after 
implementation, but in no event more than twenty-four hours after 
implementation; and
* * * * *
    (c) * * *
    (2) * * *
    (iii) Index products. Routine changes in the composition, 
computation, or method of selection of component entities of an index 
(other than routine changes to securities indexes to the extent that 
such changes are not described in paragraph (c)(3)(ii)(F) of this 
section) referenced and defined in the product's terms, that do not 
affect the pricing basis of the index, which are made by an independent 
third party whose business relates to the collection or dissemination 
of price information and which was not formed solely for the purpose of 
compiling an index for use in connection with a futures or option 
product;
    (iv) Option contract terms. Changes to option contract rules, which 
may qualify for implementation without notice pursuant to section 
(c)(3)(ii)(G) of this section, relating to the strike price listing 
procedures, strike price intervals, and the listing of strike prices on 
a discretionary basis;
    (v) * * *
    (vii) Approved brands. Changes in lists of approved brands or 
markings pursuant to previously certified or Commission approved 
standards or criteria;
    (viii) Delivery facilities and delivery service providers. Changes 
in lists of approved delivery facilities and delivery service 
providers, including weighmasters, assayers, and inspectors, pursuant 
to previously certified or Commission approved standards or criteria; 
or
    (ix) Trading Months. Changes to the listing of trading months, 
which may qualify for implementation without notice pursuant to section 
(c)(3)(ii)(H), within the currently established cycle of trading months 
which do not have open interest.
    (3) * * *
    (ii) * * *
    (G) Option contract terms. For registered entities that are in 
compliance with the daily reporting requirements of Sec.  16.01(b) of 
this chapter, changes to option contract rules relating to the strike 
price listing procedures, strike price intervals, and the listing of 
strike prices on a discretionary basis.
    (H) Trading Months. For registered entities that are in compliance 
with the daily reporting requirements of Sec.  16.01(a) of this 
chapter, changes to the listing of trading months which are within the 
currently established cycle of trading months and which do not have 
open interest.
* * * * *

    Issued in Washington, DC, on August 1, 2007 by the Commission.
Eileen A. Donovan,
Acting Secretary of the Commission.
[FR Doc. E7-15370 Filed 8-10-07; 8:45 am]
BILLING CODE 6351-01-P