[Federal Register Volume 73, Number 109 (Thursday, June 5, 2008)]
[Notices]
[Pages 31979-31981]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-12579]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

RIN 3038-AC52


Exemptive Order for SPDR[reg] Gold Futures Contracts

AGENCY: Commodity Futures Trading Commission.

ACTION: Final order.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is exempting certain transactions in physically delivered futures 
contracts based on SPDR[reg] Gold Shares 
(SPDR[reg] gold futures contracts) from those provisions of 
the Commodity Exchange Act (CEA or Act),\1\ and the Commission's 
regulations thereunder, that are inconsistent with the trading and 
clearing of SPDR[reg] gold futures contracts as security 
futures. The exemption is conditioned on the compliance of transactions 
in SPDR[reg] gold futures contracts with the requirements 
established for the trading and clearing of security futures. The 
authority for the issuance of this exemption is found in Section 4(c) 
of the Act.\2\
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 1 et seq.
    \2\ 7 U.S.C. 6(c).

---------------------------------------------------------------------------
DATES: Effective June 5, 2008.

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. Background

    In correspondence dated October 26, 2007, OneChicago, LLC 
(OneChicago or the Exchange),\3\ a board of trade designated with the 
Commission pursuant to Sections 5 and 6(a) of the Act, proposed and 
requested Commission approval to list for trading SPDR[reg] 
gold futures contracts as security futures.\4\ OneChicago is notice-
registered with the Securities and Exchange Commission (SEC) as a 
national securities exchange under Section 6(g) of the Securities 
Exchange Act of 1934 ('34 Act) for the purpose of listing and trading 
security futures products. The approval request was filed pursuant to 
Section 5c(c)(2) of the Act and Commission Regulations 40.5 and 
41.23.\5\ OneChicago submitted its request for approval under the 45-
day fast-track review period established by Commission Regulation 40.5. 
The fast-track review period for the Exchange's submission was 
scheduled to expire on December 10, 2007. The review period was 
extended by the Director of the Division of Market Oversight, pursuant 
to Regulations 40.5(c) and 40.7(a)(1), to January 24, 2008 on the 
grounds that the SPDR[reg] gold futures contracts raised 
novel and complex issues that required additional time for review.\6\ 
By letter dated January 23, 2008, the Exchange, upon the request of the 
Commission's staff, voluntarily extended the review period to March 17, 
2008. By letter dated February 26, 2008, the Exchange voluntarily 
extended the review period to April 30, 2008.\7\ By letter dated April 
28, 2008, the Exchange further voluntarily extended the review period 
to May 30, 2008.
---------------------------------------------------------------------------

    \3\ OneChicago is jointly owned by the CME Group, Inc., IB 
Exchange Corp., and the Chicago Board Options Exchange.
    \4\ In accordance with Section 2(a)(9)(B)(i) of the Act, 
Commission staff forwarded the new contract filing to the Securities 
and Exchange Commission, the U.S. Department of Treasury and the 
Board of Governors of the Federal Reserve System on October 29, 
2007. No comments were received in response to this correspondence. 
On January 4, 2008, the Exchange filed a rule amendment concerning 
minimum price fluctuations to supplement its initial submission.
    \5\ 7 U.S.C. 7a-2(c)(2), 17 CFR 40.5, 41.23.
    \6\ Commission Regulations 40.5(c) and 40.7(a)(1) allow the 
Commission, and certain staff acting pursuant to delegated 
authority, to extend the 45-day fast-track review period by an 
additional 45 days if a product raises novel or complex issues 
requiring additional time for review. 17 CFR 40.5(c), 40.7(a)(1).
    \7\ Section 5c(c) of the Act requires the Commission to approve 
any designated contract market instrument submitted for approval 
within 90 days after the submission of the request unless (1) it 
finds that the trading or clearing of the instrument would violate 
the Act (or the Commission's regulations), or (2) the person 
submitting the request for approval agrees to extend the period of 
review beyond the 90 day time limitation.
---------------------------------------------------------------------------

    On March 14, 2008, the Commission published for pubic comment in 
the Federal Register a proposal to exempt, pursuant to Section 4(c) of 
the Act, SPDR[reg] gold futures contracts from those 
provisions of the CEA, and the Commission's regulations thereunder, 
that are inconsistent with the trading and clearing of 
SPDR[reg] gold futures contracts as security futures.\8\ The 
Commission proposed to issue the exemption in order to facilitate the 
Exchange's request for contract approval. No formal comments were 
submitted in response to the Commission's publication.\9\
---------------------------------------------------------------------------

    \8\ Proposed Exemptive Order for ST [SPDR[reg]] Gold 
Futures Contracts, 73 FR 13876 (March 14, 2008) (Proposed Order). 
Effective May 21, 2008, the streetTRACKS[reg] Gold Trust 
has been restyled as the SPDR[reg] Gold Trust. 
Consequently, on May 22, 2008 the Exchange filed a rule amendment to 
reflect that change.
    \9\ A thorough summary of the Trust's operations is provided in 
the Proposed Order.
---------------------------------------------------------------------------

II. CEA Section 4(c) Exemptive Order

    In accordance with the Memorandum of Understanding entered into 
between the CFTC and the SEC on March 11, 2008, and in particular the 
addendum thereto concerning Principles Governing the Review of Novel 
Derivative Products, the Commission believes that novel derivative 
products that implicate areas of overlapping regulatory concern should 
be permitted to trade in either or both a CFTC or SEC regulated 
environment, in a manner consistent with laws and regulations 
(including the appropriate use of all available exemptive and 
interpretive authority). The Commission has determined to use

[[Page 31980]]

its authority under Section 4(c) of the Act, as proposed, to exempt 
transactions in SPDR[reg] gold futures contracts from those 
provisions of the Act and the Commission's regulations thereunder that, 
if the underlying were considered to be a commodity that is not a 
security, would be inconsistent with the trading and clearing of 
SPDR[reg] gold futures contracts as security futures.\10\ 
Section 4(c)(1) of the CEA empowers the Commission to ``promote 
responsible economic or financial innovation and fair competition'' by 
exempting any transaction or class of transactions \11\ from any of the 
provisions of the Act upon determining that the exemption would be 
consistent with the public interest.\12\ Section 4(c)(2) of the Act 
provides that the Commission may grant exemptions only when it 
determines that the requirements for which an exemption is being 
provided should not be applied to the agreements, contracts or 
transactions at issue; that the exemption is consistent with the public 
interest and the purposes of the Act; that the agreements, contracts or 
transactions will be entered into solely between appropriate persons; 
and that the exemption will not have a material adverse effect on the 
ability of the Commission or any designated contract market or 
derivatives transaction execution facility to discharge its regulatory 
or self-regulatory responsibilities under the CEA.\13\ With respect to 
the term ``appropriate persons,'' Section 4(c)(3) of the Act enumerates 
several categories of appropriate persons and provides in subparagraph 
(K) that the term shall include ``[s]uch other persons that the 
Commission determines to be appropriate in light of * * * the 
applicability of appropriate regulatory protections.''
---------------------------------------------------------------------------

    \10\ The Commission recently issued a similar order with respect 
to exchange-traded credit default products. See Order Exempting the 
Trading and Clearing of Certain Credit Default Products Pursuant to 
the Exemptive Authority in Section 4(c) of the Commodity Exchange 
Act, 72 FR 32079 (June 11, 2007).
    \11\ Covered transactions are subject to certain exceptions not 
relevant here.
    \12\ Section 4(c)(1) of the CEA, 7 U.S.C. Sec.  6(c)(1), 
provides in full that:
    In order to promote responsible economic or financial innovation 
and fair competition, the Commission by rule, regulation, or order, 
after notice and opportunity for hearing, may (on its own initiative 
or on application of any person, including any board of trade 
designated or registered as a contract market or derivatives 
transaction execution facility for transactions for future delivery 
in any commodity under section 7 of this title) exempt any 
agreement, contract, or transaction (or class thereof) that is 
otherwise subject to subsection (a) of this section (including any 
person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated terms 
or conditions or for stated periods and either retroactively or 
prospectively, or both, from any of the requirements of subsection 
(a) of this section, or from any other provision of this chapter 
(except subparagraphs (c)(ii) and (D) of section 2(a)(1) of this 
title, except that the Commission and the Securities and Exchange 
Commission may by rule, regulation, or order jointly exclude any 
agreement, contract, or transaction from section 2(a)(1)(D) of this 
title), if the Commission determines that the exemption would be 
consistent with the public interest.
    \13\ Section 4(c)(2) of the CEA, 7 U.S.C. 6(c)(2), provides in 
full that:
    The Commission shall not grant any exemption under paragraph (1) 
from any of the requirements of subsection (a) of this section 
unless the Commission determines that--
    (A) The requirement should not be applied to the agreement, 
contract, or transaction for which the exemption is sought and that 
the exemption would be consistent with the public interest and the 
purposes of this Act; and
    (B) The agreement, contract, or transaction--
    (i) Will be entered into solely between appropriate persons; and
    (ii) Will not have a material adverse effect on the ability of 
the Commission or any contract market or derivatives transaction 
execution facility to discharge its regulatory or self-regulatory 
duties under this Act.
---------------------------------------------------------------------------

    In enacting Section 4(c) of the Act, Congress noted that the goal 
of the provision ``is to give the Commission a means of providing 
certainty and stability to existing and emerging markets so that 
financial innovation and market development can proceed in an effective 
and competitive manner.'' \14\ SPDR[reg] gold futures 
contracts are novel instruments and the Commission believes that this 
is an appropriate case for issuing an exemption, as proposed, without 
making a finding as to the nature of these particular instruments. 
Accordingly, given the potential usefulness of SPDR[reg] 
gold futures contracts to the significant market for the Trust's 
Shares, as well as all gold-linked markets, the Commission herein 
exempts transactions in SPDR[reg] gold futures contracts 
traded on OneChicago, and the clearing of such contracts as security 
futures, from the provisions of the Act, and the Commission's 
regulations thereunder, to the extent necessary to permit them to be so 
traded and cleared. In the Commission's opinion, the issuance of this 
exemptive order is in the public interest and is consistent with the 
purposes of the Act, because it will likely foster both financial 
innovation by bringing an innovative derivatives product to market, and 
competition by not potentially excluding other similarly innovative 
products from trading on regulated futures markets. In addition, 
SPDR[reg] gold futures contracts, when traded as security 
futures pursuant to this exemption and the Commission's subsequent or 
concurrent approval of the Exchange's submissions, will be subject to 
regulation by both the SEC and the Commission.\15\ The implementation 
of an exemption, under these circumstances, will not erode appropriate 
regulatory protections, and thus SPDR[reg] gold futures 
contracts will be traded by appropriate persons. Nor will this 
exemption impair the ability of the Commission or OneChicago to 
discharge any regulatory or self-regulatory duty under the Act.
---------------------------------------------------------------------------

    \14\ H.R. Conf. Rep. No. 102-978, 1992 U.S.C.C.A.N. 3179, at 
3213 (H.R. Conf. Rep.).
    \15\ 7 U.S.C. 2(a)(1)(A). Security futures are subject to joint 
regulation by the CFTC and the SEC under Section 2(a)(1)(D) of the 
CEA, 7 U.S.C. 2(a)(1)(D).
---------------------------------------------------------------------------

    This Order is subject to termination or revision, on a prospective 
basis, if the Commission determines upon further information that this 
exemption is not consistent with the public interest. If the Commission 
believes such exemption becomes detrimental to the public interest, the 
Commission may revoke this Order on its own motion.

III. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \16\ imposes certain 
requirements on federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. This exemptive order does not 
require a new collection of information from any entity that would be 
subject to the order.
---------------------------------------------------------------------------

    \16\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

B. Cost-Benefit Analysis

    Section 15(a) of the CEA, as amended by Section 119 of the 
Commodity Futures Modernization Act of 2000,\17\ requires the 
Commission to consider the costs and benefits of its action before 
issuing an order under the CEA. Section 15(a) of the Act further 
specifies that costs and benefits shall be evaluated in light of the 
following five broad areas of market and public concern: protection of 
market participants and the public; efficiency, competitiveness, and 
financial integrity of futures markets; price discovery; sound risk 
management practices; and other public interest considerations. By its 
terms, Section 15(a) does not require the Commission to quantify the 
costs and benefits of an order or to determine whether the benefits of 
the order outweigh its costs. Rather, Section 15(a) simply requires the 
Commission to ``consider the costs and benefits'' of its action. The 
Commission may give greater weight to any one of the five enumerated 
areas and could in its discretion determine

[[Page 31981]]

that, notwithstanding potential costs, a particular order 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 CEA.
---------------------------------------------------------------------------

    \17\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    In the Proposed Order, the Commission analyzed the costs and 
benefits associated with the implementation of an exemption under 
Section 4(c) of the Act. The Commission invited public comment on its 
analysis of the costs and benefits associated with the issuance of an 
exemptive order under Section 4(c) of the Act.\18\ No comments were 
submitted to the Commission.
---------------------------------------------------------------------------

    \18\ Proposed Order at 13870.
---------------------------------------------------------------------------

    After considering the factors presented in this release, the 
Commission has determined to issue this Order.

    Issued in Washington, DC, on May 30, 2008 by the Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-12579 Filed 6-4-08; 8:45 am]
BILLING CODE 6351-01-P