[Federal Register Volume 75, Number 118 (Monday, June 21, 2010)]
[Notices]
[Pages 34983-34987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14974]


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COMMODITY FUTURES TRADING COMMISSION


Order (1) Pursuant to Section 4(c) of the Commodity Exchange Act, 
Permitting the Kansas City Board of Trade Clearing Corporation To Clear 
Over-the-Counter Wheat Calendar Swaps and (2) Pursuant to Section 4d of 
the Commodity Exchange Act, Permitting Customer Positions in Such 
Cleared-Only Swaps and Associated Funds To Be Commingled With Other 
Positions and Funds Held in Customer Segregated Accounts

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: By petition dated May 26, 2009 (Petition), the Kansas City 
Board of Trade (KCBT), a designated contract market, and its wholly-
owned subsidiary corporation, the Kansas City Board of Trade Clearing 
Corporation (KCBTCC), a registered derivatives clearing organization 
(DCO), requested permission to clear over-the-counter (OTC) swap 
agreements (swaps) in wheat. Authority for granting this request is 
found in section 4(c) of the Commodity Exchange Act (Act).\1\ The 
Petition also requested permission pursuant to section 4d of the Act 
\2\ to allow KCBTCC and futures commission merchants (FCMs) to 
commingle positions in those cleared-only OTC swaps and funds 
associated with those positions with positions and funds otherwise 
required to be held in a customer segregated account. The Commodity 
Futures Trading Commission (Commission) has reviewed public comments 
and the entire record in this matter and it has determined to issue an 
order granting the requested permission, subject to certain terms and 
conditions.
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    \1\ 7 U.S.C. 6(c).
    \2\ 7 U.S.C. 6d.

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DATES: Effective Date: June 15, 2010.

FOR FURTHER INFORMATION CONTACT: Phyllis P. Dietz, Associate Director, 
202-418-5449, [email protected], or Eileen A. Donovan, Special Counsel, 
202-418-5096, [email protected], Division of Clearing and Intermediary 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. The KCBT/KCBTCC Petition

    KCBT and KCBTCC (``Petitioners'') jointly submitted a Petition 
requesting that the Commission issue an exemptive order under section 
4(c) of the Act.\3\ The order would grant KCBTCC approval to clear OTC 
wheat calendar swaps, and it would permit KCBT to list those products 
for ``clearing-only'' (``cleared-only wheat swaps''). The contract size 
for the cleared-only wheat swaps would be the same as that for wheat 
futures--5,000 bushels. The proposed cleared-only wheat swaps would be 
cash settled, in contrast to the futures contracts which are physically 
settled.
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    \3\ A copy of the petition is available on the Commission's Web 
site at http://www.cftc.gov/.
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    Part 35 of the Commission's regulations \4\ exempts, subject to 
conditions, swap agreements and eligible persons entering into such 
agreements from most provisions of the Act.\5\ Part 35 was promulgated 
pursuant to authority conferred upon the Commission in section 4(c) of 
the Act to exempt certain transactions in order to explicitly permit 
certain off-exchange derivatives transactions and thus promote 
innovation and competition.\6\ A number of exemptions and exclusions 
for off-exchange derivatives transactions were subsequently added to 
the Act by the Commodity Futures Modernization Act of 2000,\7\ but none 
apply to agricultural contracts.\8\ Accordingly, swaps involving 
agricultural commodities continue to rely upon the exemption in part 
35.
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    \4\ 17 CFR part 35 (Commission regulations are hereinafter cited 
as ``Reg. Sec.  ----'').
    \5\ Jurisdiction is retained for, among other things, provisions 
of the Act proscribing fraud and manipulation. See Reg. Sec.  35.2.
    \6\ See 58 FR 5587 (Jan. 22, 1993). Section 4(c) of the Act was 
added by section 502(a) of the Futures Trading Practices Act of 
1992, Public Law 102-546, 106 Stat. 3590 (1992).
    \7\ Pub. L. 106-554, 114 Stat. 2763 (2000).
    \8\ See, e.g., sections 2(d), (g) and (h) of the Act, 7 U.S.C. 
2(d), (g), and (h).
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    Part 35 requires, among other things, that a swap agreement not be 
part of a fungible class of agreements that are standardized as to 
their material economic terms,\9\ and that the creditworthiness of any 
party having an interest under the agreement be a material 
consideration in entering into or negotiating the terms of the

[[Page 34984]]

agreement.\10\ Under the arrangement proposed by Petitioners, a 
cleared-only wheat swap could be offset by another cleared-only wheat 
swap with equivalent terms. In addition, due to the introduction of a 
clearing guarantee, the creditworthiness of the counterparty would no 
longer be a consideration. Accordingly, the OTC swaps KCBTCC would 
clear would not satisfy all of the conditions of part 35.\11\
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    \9\ Reg. Sec.  35.2(b).
    \10\ Reg. Sec.  35.2(c).
    \11\ The contracts that KCBT proposes to list for clearing only 
would, however, meet the requirements of Reg. Sec. Sec.  35.2(a) and 
(d) in that they would be entered into solely between eligible swap 
participants and executed OTC, respectively.
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    Part 35 permits ``any person [to] apply to the Commission for 
exemption from any of the provisions of the Act * * * for other 
arrangements or facilities.'' \12\ Petitioners have requested that the 
Commission issue an order under section 4(c) of the Act that would 
exempt cleared-only wheat swaps to the same extent as contracts that 
are exempt pursuant to part 35 of the Commission's regulations.
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    \12\ Reg. Sec.  35.2(d).
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    In addition, Petitioners also requested an order under section 4d 
of the Act so that KCBTCC and FCMs could hold customer positions in the 
cleared-only wheat swaps and associated funds in the customer 
segregated account along with positions in exchange-traded futures and 
customer funds, resulting in improved collateral management and other 
benefits.

II. Sections 4(c) and 4d of the Act

A. Permitting the OTC Swaps To Be Cleared

    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.'' \13\ Section 4(c)(1) of the Act empowers the 
Commission to ``promote responsible economic or financial innovation 
and fair competition'' by exempting any transaction or class of 
transactions from any of the provisions of the Act (subject to 
exceptions not relevant here) where the Commission determines that the 
exemption would be consistent with the public interest.\14\ The 
Commission may grant such an exemption by rule, regulation, or order, 
after notice and opportunity for hearing, and may do so on application 
of any person or on its own initiative.
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    \13\ House Conf. Report No. 102-978, 1992 U.S.C.C.A.N. 3179, 
3213.
    \14\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), provides in 
full as follows:
    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.
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    Section 4(c)(2) of the Act provides that the Commission may grant 
exemptions from section 4(a) of the Act only when the Commission 
determines that the requirements for which an exemption is being 
provided should not be applied to the agreements, contracts, or 
transactions at issue, and 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 contract market or derivatives 
transaction execution facility to discharge its regulatory or self-
regulatory responsibilities under the Act.\15\
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    \15\ Section 4(c)(2) of the Act, 7 U.S.C. 6(c)(2), provides in 
full as follows:
    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.
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    The Commission requested comment on whether it should grant an 
exemption from the requirements of the Act, thereby permitting cleared-
only wheat swaps to be cleared through KCBTCC. It also requested 
comment on whether such an exemption would affect its ability to 
discharge its regulatory responsibilities under the Act or the self-
regulatory duties of any contract market.

B. Permitting Funds To Be Commingled

    Section 4d(a)(2) of the Act prohibits commingling positions 
executed on a contract market and customer funds associated with such 
positions together with any funds not required to be so segregated.\16\ 
Section 4d(a)(2) provides that the Commission may grant exceptions to 
this prohibition by order.
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    \16\ Under Reg. Sec.  1.3(gg), the term ``customer funds'' is 
defined to include all money, securities, and property received by 
an FCM or by a DCO from, for, or on behalf of, customers or option 
customers to margin, guarantee or secure exchange-traded futures 
contracts or options on futures, and all money accruing to such 
customers as the result of such contracts. The term ``funds'' is 
similarly used herein to refer to cash as well as securities and 
other property associated with futures contracts or cleared-only 
contracts.
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    In this case, the cleared-only wheat swaps are not executed on a 
contract market and, thus, holding positions in those contracts and 
associated funds in an account together with positions and customer 
funds required to be segregated would, absent a Commission order, 
violate Section 4d. Having analyzed the risks and benefits associated 
with commingling such positions and funds in a customer segregated 
account, the Commission has determined that the benefits of the 
proposal outweigh the risks and that the proposal, along with 
conditions set forth by the Commission in its order, will provide 
sufficient safeguards to address the risks adequately.

III. Comment Letters

    The Commission published a request for comments regarding the 4(c) 
exemption in the Federal Register on November 13, 2009.\17\ At the same 
time, it posted the Petition on the Commission's Web site, providing 
the opportunity for the public to comment on any aspect of the 
Petition, including the request for an order under section 4d of the 
Act.
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    \17\ See 74 FR 58608 (Nov. 13, 2009).
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    The Commission received three comment letters.\18\ All three 
letters expressly supported the issuance of an exemptive order to 
permit clearing of the OTC wheat calendar swaps, citing such benefits 
as increased transparency and liquidity in the OTC markets and enhanced 
risk management for market participants. Of those letters, two 
specifically commented on the 4d order request. Both of those letters 
supported the issuance of an order to permit the commingling of 
positions in cleared-only wheat swaps and associated funds

[[Page 34985]]

with positions and customer funds otherwise required to be held in a 
customer segregated account.
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    \18\ Letters were submitted by Louis Dreyfus Commodities, 
International Assets Holding Company, and the Futures Industry 
Association.
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IV. Findings and Conclusions

    After considering the complete record in this matter, including the 
comments received, the Commission finds that the requirements of 
section 4(c) of the Act have been met with respect to the request for 
an order permitting the clearing of OTC wheat calendar swaps.
    First, permitting the clearing of these transactions, subject to 
the terms and conditions of the order, is consistent with the public 
interest and with the purposes of the Act. The purposes of the Act 
include ``promot[ing] responsible innovation and fair competition among 
boards of trade, other markets, and market participants.'' \19\ The 
purpose of an exemption is ``to promote economic or financial 
innovation and fair competition.'' \20\ Permitting the clearing of OTC 
wheat calendar swaps by KCBTCC would appear to foster both financial 
innovation and competition. It could benefit the marketplace by 
providing eligible swap participants the ability to bring together 
flexible negotiation with central counterparty guarantees and capital 
efficiencies. Clearing also may increase the liquidity of the OTC 
markets and thereby foster competition in those markets. Moreover, in 
furtherance of the public interest, the order requires that the 
cleared-only wheat swaps be executed pursuant to the requirements of 
part 35 of the Commission's regulations. Part 35, among other things, 
provides for the Commission's continuing authority to enforce 
provisions of the Act and Regulations that prohibit fraud and 
manipulation.
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    \19\ Section 3(b) of the Act, 7 U.S.C. 5(b).
    \20\ Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1).
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    Second, the cleared-only wheat swaps would be entered into solely 
between appropriate persons. Those would be limited to persons 
qualifying as eligible swap participants under part 35 of the 
Commission's regulations.\21\
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    \21\ See Reg. Sec.  35.1(b)(2) (defining the term ``eligible 
swap participant'').
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    Third, the exemption would not have a material adverse effect on 
the ability of the Commission or any designated contract market to 
carry out its regulatory or self-regulatory responsibilities under the 
Act. Clearing of OTC wheat swaps will actually enhance the Commission's 
ability to carry out its regulatory responsibilities by, for example, 
facilitating the collection of large trader reports for cleared-only 
wheat swaps. KCBTCC will use the same systems, procedures, personnel, 
and processes to clear the cleared-only wheat swaps as it currently 
employs with respect to all of the other transactions it clears for 
KCBT.
    The Commission has concluded that permitting the clearing of OTC 
wheat swaps, subject to the terms and conditions of the order, furthers 
the goals of market transparency and liquidity, and financial risk 
management. It also enhances the Commission's ability to obtain market 
information and conduct oversight once OTC transactions are cleared by 
a registered DCO.
    With respect to the Petitioners' request for an order pursuant to 
section 4d permitting KCBTCC and FCMs, including non-clearing and non-
member FCMs, to commingle cleared-only contract positions and 
associated funds with positions and customer funds required to be held 
in a customer segregated account, the Commission recognizes that there 
is additional risk to customer funds as a result of the possibility of 
default involving commingled cleared-only positions. The Commission has 
considered whether such additional risk to customers can be adequately 
addressed and mitigated by KCBTCC and participating FCMs.
    Each carrying FCM should have adequate means to address a default 
by a customer holding cleared-only contracts. In the event of a 
customer default on a position in the cleared-only wheat swaps, the FCM 
could offset its risk by liquidating the customer position through a 
broker or dealer in the OTC swap market or by taking an economically 
equivalent position in the KCBT wheat futures contract.
    The order requires that KCBTCC review the FCMs' risk management 
capabilities to verify that all FCMs carrying the cleared-only wheat 
swaps maintain sufficient operational capability to manage a default in 
a cleared-only contract. In the event of an FCM default, KCBTCC would 
have available the same means for managing the default as the FCM would 
have in the first instance.
    The order further requires that all FCMs subject to the order, 
regardless of whether an FCM is a member of KCBT or KCBTCC, to execute 
a participation agreement that provides, among other things, that the 
FCM agrees to be bound by all KCBT rules pertaining to the cleared-only 
wheat swaps and to cooperate with, promptly respond to any inquiries or 
requests for information from, and make available its books and records 
for inspection to KCBT.
    The order also requires that KCBT: (1) Maintain a coordinated 
market surveillance program that encompasses the cleared-only wheat 
swaps and the corresponding wheat futures contracts, and (2) adopt 
speculative position limits for the cleared-only wheat swaps that are 
the same as the limits applicable to the corresponding wheat futures 
contracts. These measures should mitigate market risk.
    Accordingly, the Commission has determined that KCBTCC will be able 
to employ reasonable safeguards to protect customer funds, and that it 
will be able to measure, monitor, manage, and account for risks 
associated with transactions and open interest in the cleared-only 
wheat swaps in the same manner as it does for other contracts it 
clears. The Commission believes that KCBTCC has sufficiently 
demonstrated that it will continue to comply with the DCO core 
principles set forth in section 5b of the Act in connection with 
holding customer positions in cleared-only wheat swaps and associated 
funds with positions and customer funds required to be held in a 
customer segregated account pursuant to section 4d of the Act.

V. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \22\ 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 Commission's order will not 
require a new collection of information from any entities that would be 
subject to the order.
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    \22\ 44 U.S.C. 3507(d).
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B. Cost-Benefit Analysis

    Section 15(a) of the Act \23\ requires the Commission to consider 
the costs and benefits of its action before issuing an order under the 
Act. 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.
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    \23\ 7 U.S.C. 19(a).
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    Section 15(a) of the Act further specifies that costs and benefits 
shall be evaluated in light of 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. Accordingly, the Commission could in its discretion 
give

[[Page 34986]]

greater weight to any one of the five enumerated areas and could in its 
discretion determine that, notwithstanding its costs, a particular 
order was 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 Commission has considered the costs and benefits of this order 
in light of the specific provisions of section 15(a) of the Act, as 
follows:
    1. Protection of market participants and the public. The cleared-
only wheat swaps will be entered into only by persons who are 
``appropriate persons'' as set forth in section 4(c) of the Act. Only 
eligible swap participants will enter into the wheat calendar swaps 
that will be cleared pursuant to the Commission's order. Allowing the 
commingling of positions in cleared-only contracts and associated funds 
with positions and customer funds required to be segregated under 
section 4d of the Act will benefit market participants by facilitating 
clearing and the reduction of credit risk for contracts that meet 
market participants' specific risk management requirements. Customers 
holding positions in cleared-only wheat swaps also will benefit from 
having those positions and associated funds held in a customer 
segregated account in the event of the insolvency of an FCM. Futures 
customers will be protected from risks associated with the commingling 
of funds by a number of existing risk management and other safeguards, 
including KCBTCC's financial surveillance and oversight of clearing 
members and non-clearing member and non-member FCMs pursuant to the 
participation agreement, and its financial resources package, as 
supplemented by conditions imposed by the order. Bringing OTC contracts 
into a regulated clearing venue also protects market participants by 
eliminating bilateral counterparty risk through the clearing process.
    2. Efficiency and competition. Allowing the OTC wheat calendar 
swaps to be cleared appears likely to promote liquidity and 
transparency in the markets for OTC derivatives as well as futures on 
those commodities. The commingling of positions in cleared-only 
contracts and associated funds with positions and customer funds 
required to be held in a customer segregated account should result in 
improved, more efficient, collateral management and lower 
administrative costs given that risk-reducing positions will be held 
together in the same account rendering a more precise estimation of the 
risk posed by the account. The availability of cleared-only wheat swaps 
also provides another risk management tool that can compete with other 
OTC products.
    3. Financial integrity of futures markets and price discovery. 
Price discovery is likely to be enhanced by bringing greater 
transparency to the OTC market for wheat. The section 4(c) exemption 
also may promote financial integrity by providing the benefits of 
clearing to the OTC wheat market. As discussed above, the Commission 
believes that the risks associated with the commingling of funds in the 
customer segregated account can be appropriately mitigated.
    4. Sound risk management practices. Clearing of the cleared-only 
wheat swaps is likely to improve risk management by the participant 
counterparties. KCBTCC's risk management practices in clearing these 
transactions are subject to the Commission's supervision and oversight, 
and the requirements of the participation agreement expressly 
supplement the FCMs' responsibilities to adequately manage risk.
    5. Other public interest considerations. The action taken by the 
Commission under sections 4(c) and 4d of the Act is likely to encourage 
market competition in agricultural derivatives products. It will also 
further the Commission's overall goals in supporting greater market 
transparency, credit risk management, and regulatory oversight by 
encouraging the clearing of OTC products.
    The Commission requested comment on its application of these 
factors in the proposing release. No comments were received.

VI. Order

    After considering the above factors and the comment letters 
received in response to its request for comments, the Commission has 
determined to issue the following:

Order

    (1) The Commission, pursuant to its authority under section 4(c) of 
the Commodity Exchange Act (``Act'') and subject to the conditions 
below, hereby permits eligible swap participants to submit for 
clearing, and FCMs and KCBTCC to clear, OTC wheat calendar swaps 
(eligible products).
    (2) The Commission, pursuant to its authority under section 4d of 
the Act and subject to the conditions below, hereby permits:
    (a) KCBTCC;
    (b) registered FCMs that are clearing members of KCBT;
    (c) registered FCMs that are non-clearing members of KCBT; and
    (d) registered FCMs that are non-members of KCBT,

acting on behalf of customers pursuant to this order, to hold money, 
securities, and other property, used to margin, guarantee, or secure 
cleared-only transactions in eligible products (cleared-only 
contracts), and belonging to customers that are eligible swap 
participants, with other customer funds used to margin, guarantee, or 
secure trades or positions in commodity futures or commodity option 
contracts executed on or subject to the rules of a contract market 
designated pursuant to section 5 of the Act, in a customer segregated 
account or accounts maintained in accordance with section 4d of the Act 
(including any orders issued pursuant to section 4d(a)(2) of the Act) 
and the Commission's regulations thereunder, and all such customer 
funds shall be accounted for and treated and dealt with as belonging to 
the customers of the registered FCM, consistent with section 4d of the 
Act and the regulations thereunder.
    (3) This order is subject to the following conditions:
    (a) The contracts, agreements, or transactions subject to this 
order shall be executed pursuant to the requirements of part 35 of the 
Commission's regulations, as modified herein, and shall be limited to 
the eligible products identified in this order.
    (b) All eligible products that are submitted for clearing shall be 
submitted pursuant to KCBT and KCBTCC rules.
    (c) Each registered FCM subject to this order shall take 
appropriate measures to:
    (i) Ensure that any customer submitting eligible products for 
clearing qualifies as an eligible swap participant; and
    (ii) identify, measure, and monitor financial risk associated with 
carrying the cleared-only contracts in the customer segregated account 
and implement risk management procedures to address those financial 
risks.
    (d) KCBT shall require each registered FCM subject to this order, 
regardless of whether such FCM is a member of KCBT or KCBTCC, to 
execute an agreement that provides, among other things, that the FCM 
agrees to be bound by all KCBT rules pertaining to the cleared-only 
contracts and to cooperate with, promptly respond to any inquiries or 
requests for information from, and make available its books and records 
for inspection to KCBT.

[[Page 34987]]

    (e) KCBTCC shall apply appropriate risk management procedures with 
respect to transactions and open interest in the cleared-only 
contracts. KCBTCC shall conduct financial surveillance and oversight of 
each registered FCM subject to this order, regardless of whether such 
FCM is a member of KCBT or KCBTCC, and it shall conduct oversight 
sufficient to assure KCBTCC that each such FCM has the appropriate 
operational capabilities necessary to manage defaults in such 
contracts. KCBTCC and each FCM subject to this order shall take all 
other steps necessary and appropriate to manage risk related to 
clearing eligible products.
    (f) Each cleared-only contract shall be marked to market on a daily 
basis, and final settlement prices shall be established in accordance 
with KCBT rules.
    (g) KCBTCC shall apply its margining system and calculate 
performance bond rates for each cleared-only contract in accordance 
with its normal and customary practices;
    (h) KCBT shall make available open interest and settlement price 
information for the cleared-only contracts on a daily basis in the same 
manner as for contracts listed on KCBT.
    (i) KCBT shall establish and maintain a coordinated market 
surveillance program that encompasses the cleared-only contracts and 
the corresponding futures contracts listed by KCBT on its designated 
contract market.
    (j) KCBT shall adopt speculative position limits for the cleared-
only contracts that are the same as the limits applicable to the 
corresponding futures contracts pursuant to Commission regulation Sec.  
150.2.
    (k) The cleared-only contracts shall not be treated as fungible 
with any contract listed for trading on KCBT.
    (l) Each FCM acting pursuant to this order shall keep the types of 
information and records that are described in section 4g of the Act and 
Commission regulations thereunder, including but not limited to 
Commission regulation Sec.  1.35, with respect to all cleared-only 
contracts. Such information and records shall be produced for 
inspection in accordance with the requirements of Commission regulation 
Sec.  1.31.
    (m) KCBT shall provide to the Commission the types of information 
described in part 16 of the Commission's regulations in the manner 
described in parts 15 and 16 of the Commission's regulations with 
respect to all cleared-only contracts.
    (n) KCBT shall apply large trader reporting requirements to 
cleared-only contracts in accordance with its rules, and each FCM 
acting pursuant to this order shall provide to the Commission the types 
of information described in part 17 of the Commission's regulations in 
the manner described in parts 15 and 17 of the Commission's regulations 
with respect to all cleared-only contracts in which it participates.
    (o) KCBT and KCBTCC shall at all times fulfill all representations 
made in their requests for Commission action under sections 4(c) and 4d 
of the Act and all supporting materials thereto.
    Based upon the representations made and supporting material 
provided to the Commission by KCBT and KCBTCC in connection with the 
Petition, the Commission finds that KCBT and KCBTCC, subject to the 
terms and conditions specified herein, have demonstrated their ability 
to comply with the requirements of the Act and Commission regulations, 
as applicable to the clearing of the OTC contracts subject to this 
order and the carrying of related customer funds in a customer 
segregated account.
    Any material change or omission in the facts and circumstances 
pursuant to which this order is granted might require the Commission to 
reconsider its finding that the actions taken herein are appropriate. 
Further, in its discretion, the Commission may condition, suspend, 
terminate, or otherwise modify this order, as appropriate, on its own 
motion.

    Issued in Washington, DC, on June 15, 2010, by the Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
[FR Doc. 2010-14974 Filed 6-18-10; 8:45 am]
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