[Federal Register Volume 75, Number 211 (Tuesday, November 2, 2010)]
[Proposed Rules]
[Pages 67282-67301]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27533]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 40

RIN 3038-AD07


Provisions Common to Registered Entities

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is proposing rules to implement new statutory provisions 
enacted under Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (``Dodd-Frank Act'') and amend existing rules 
affected by the passage of the Dodd-Frank Act. These proposed rules 
apply to designated contract markets (``DCMs''), derivatives

[[Page 67283]]

clearing organizations (``DCOs''), swap execution facilities (``SEFs'') 
and swap data repositories (``SDRs''). The proposed rules implement the 
new statutory framework for certification and approval for new 
products, new rules and rule amendments submitted to the Commission by 
registered entities. Furthermore, the proposed rules prohibit event 
contracts based on certain excluded commodities, establish special 
procedures for certain rule changes proposed by systemically important 
derivatives clearing organizations (``SIDCOs''), and provide for the 
tolling of review periods for certain novel derivative products pending 
the resolution of jurisdictional determinations.

DATES: Submit comments on or before January 3, 2011.

ADDRESSES: You may submit comments, identified by RIN number, by any of 
the following methods:
     Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
     Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581
     Hand Delivery/Courier: Same as mail above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow instructions for submitting comments.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
http://www.cftc.gov. You should submit only information that you wish 
to make available publicly. If you wish the Commission to consider 
information that is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the procedures established in 
CFTC Regulation 145.9.\1\ The Commission reserves the right, but shall 
have no obligation, to review, pre-screen, filter, redact, refuse or 
remove any or all of your submission from http://www.cftc.gov that it 
may deem to be inappropriate for publication, such as obscene language. 
All submissions that have been redacted or removed that contain 
comments on the merits of the rulemaking will be retained in the public 
comment file and will be considered as required under the 
Administrative Procedure Act and other applicable laws, and may be 
accessible under the Freedom of Information Act.
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    \1\ 17 CFR 145.9.

FOR FURTHER INFORMATION CONTACT: Bella Rozenberg, Special Counsel, 
Division of Market Oversight (``DMO''), at 202-418-5119 or 
[email protected], Riva Spear Adriance, Associate Director for Market 
Review, DMO at 202-418-5494 or [email protected], in each case, also 
at the Commodity Futures Trading Commission, Three Lafayette Centre, 
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1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. The Proposed Amendments to Part 40 of the Commission's 
Regulations
    a. Definitions
    b. Listing and accepting products for trading or clearing by 
certification
    c. Voluntary submission of new products for Commission review 
and approval
    d. Amendments to terms or conditions of enumerated agricultural 
contracts
    e. Voluntary submission of rules for Commission review and 
approval
    f. Self-certification of rules
    g. Delegations
    h. Availability of public information
    i. Special certification procedures for submission of rules by 
systemically important derivatives clearing organizations
    j. Review of event contracts based on certain excluded 
commodities
    k. Tolling of review period pending jurisdictional determination
III. Related Matters
    a. Regulatory Flexibility Act
    b. Paperwork Reduction Act
    c. Cost Benefit Analysis

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\2\ 
Title VII of the Dodd-Frank Act \3\ amended the Commodity Exchange Act 
(``Act'') \4\ to establish a comprehensive new regulatory framework for 
swaps and security-based swaps. The legislation was enacted to reduce 
risk, increase transparency, and promote market integrity within the 
financial system by, among other things: (1) Providing for the 
registration and comprehensive regulation of swap dealers and major 
swap participants; (2) imposing clearing and trade execution 
requirements on standardized derivative products; (3) creating robust 
recordkeeping and real-time reporting regimes; and (4) enhancing the 
Commission's rulemaking and enforcement authorities with respect to, 
among others, all registered entities and intermediaries subject to the 
Commission's oversight.
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    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov/LawRegulation/OTCDERIVATIVES/index.htm.
    \3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \4\ 7 U.S.C. 1 et seq.
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    Section 745 of the Dodd-Frank Act amends Section 5c of the Act to 
provide for new rule, rule amendment and product certification and 
approval procedures, which are applicable to DCMs and DCOs, as well as 
new registered entities, SEFs and SDRs.\5\ Section 745 of the Dodd-
Frank Act also authorizes the Commission to prohibit the listing of 
event contracts based on certain excluded commodities if such contracts 
involve one or more activities enumerated in the Dodd-Frank Act. 
Furthermore, Section 745 of the Dodd-Frank Act authorizes the 
Commission to prohibit contracts based on similar activities if they 
are determined by rule or regulation to be contrary to the public 
interest. Section 806(e)(1) of the Dodd-Frank Act requires that a SIDCO 
\6\ provide the Commission with 60 days advance notice of any proposed 
changes to rules, procedures or operations that could materially affect 
the nature or level of risk presented by a SIDCO. Finally, the 
Commission proposes to toll the review period of novel derivative 
products pending a determination as to whether the Commission or the 
Securities and Exchange Commission (``SEC'') has jurisdiction over 
novel derivative products.
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    \5\ The Dodd-Frank Act created new registered entities, 
including SEFs and SDRs. Issues related to the regulation of these 
entities will be addressed in other rulemakings issued by the 
Commission.
    \6\ A SIDCO is a DCO that has been designated as a systemically 
important financial market utility by the Financial Stability 
Oversight Council pursuant to Section 804 of the Dodd-Frank Act.
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    The Commission proposes a number of changes in order to enhance its 
ability to administer the Act, as amended, ensure consistency with 
various new requirements of the Dodd-Frank Act and clarify the 
regulatory obligations imposed on market participants. Specifically, 
the Commission proposes to amend sections 40.1 through 40.8 and adopt 
new sections 40.10 through 40.12 \7\ to amend the definitions, 
establish certification and approval procedures for the rules and 
products of registered entities, including SIDCOs, prohibit event 
contracts based on certain excluded commodities, and codify statutory 
requirements relating to tolling of the review period pending SEC and 
CFTC jurisdictional determinations.
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    \7\ Commission regulations referred to herein are found at 17 
CFR 1.

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[[Page 67284]]

    Although Section 745 of the Dodd-Frank Act does not provide a 
statutory deadline for promulgation of final rules, Part 40 of the 
Commission's regulations currently is inconsistent with certain 
provisions of Section 745. In addition, since, as noted, the Dodd-Frank 
Act created new registered entities, SEFs and SDRs, the rule 
certification procedures for these new registered entities must be in 
place by the time these entities begin operating. Therefore, Part 40 
should be amended by July 15, 2011, the date when relevant provisions 
of the Dodd-Frank Act become effective.
    The Commission requests comment on all aspects of the proposed 
rules, as well as comment on the specific provisions and issues 
highlighted in the discussion below.

II. The Proposed Amendments to Part 40 of the Commission's Regulations

a. Section 40.1 Definitions

    To implement the requirements of the Dodd-Frank Act and to ensure 
the Commission's ability to administer Part 40, the Commission proposes 
a number of amendments to the definitions found in Sec.  40.1. The 
Commission proposes to add definitions for ``dormant swap execution 
facilities'' and ``dormant swap data repositories'' to provide 
consistency with the extant Sec.  40.1definitions for dormant DCMs and 
dormant DCOs. Also, the Commission proposes to delete the definition of 
a ``dormant derivatives trading execution facility'' since this entity 
was eliminated by the Dodd-Frank Act.
    Further, the Commission proposes to revise the definition of 
``emergency'' to include an occurrence or circumstance that threatens 
the timely collection and payment of funds in connection with clearing 
and settlement by a derivatives clearing organization. In addition, the 
Commission proposes to incorporate references to swap transactions 
where appropriate to ensure consistency in application of Part 40 to 
both current and new registered entities. The Commission also proposes 
to delete the existing restriction on Commission review of rules 
relating to margin levels currently included in the definition of 
rule.\8\ The restriction is no longer appropriate as Section 736 of the 
Dodd-Frank Act amends Section 8a(7) of the Act to permit the Commission 
to alter or supplement the rules of a registered entity by issuing 
rules, regulations or orders regarding margin requirements. By 
necessity, such action requires the Commission to be able to review a 
DCO's rules ``relating to the setting of levels of margin'' in the 
first instance, even though the Commission itself is not authorized to 
``set specific margin amounts'' under Section 8(a)(7). Finally, the 
Commission proposes to revise the definition of ``terms and 
conditions'' to add a new paragraph (j)(15) to include specific 
information relating to swaps proposed to be cleared by a DCO. By 
supplementing other provisions of paragraph (j) that are relevant to 
swaps, the Commission seeks to clarify the types of information that 
may differentiate swaps from futures contracts. These include, for 
example, the following: notional value; relevant dates, tenor, and day 
count conventions; stub, premium, or initial cash flow components; and 
payment and reset frequency.
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    \8\ The restriction in the current regulations reflects an 
ambiguity in the Act as modified by the Commodity Futures 
Modernization Act (``CFMA''). Prior to enactment of the CFMA in 
2000, Section 5a(a)(12)(A) of the Act required that all changes to 
contract terms and conditions be submitted to the Commission for 
approval ``except those rules relating to the setting of levels of 
margin.'' In Section 113 of the CFMA, Congress removed Section 
5a(a)(12)(A), allowing registered entities to amend their rules by 
self-certification. The new provision did not retain any reference 
to margin rules. However, Section 8(a)(7) was not amended by the 
CFMA, and retained a provision that allowed the Commission to alter 
or supplement the rules of a registered entity, except for rules 
relating to ``the setting of levels of margin,'' thereby creating 
uncertainty as to whether registered entities could adopt or change 
margin rules without certifying those rules to the Commission. 
Because there was no indication that Congress intended to alter the 
special status of rules relating to the setting of margin levels, 
the Commission resolved this ambiguity by excluding the setting of 
margin levels from the definition of ``rule.'' Section 8(a)(7)(D) 
now permits the Commission to require the changes with respect to 
margin requirements provided that the Commission's rules, 
regulations or orders (i) are limited to protecting the financial 
integrity of a DCO, (ii) are designed for risk management purposes 
to protect the financial integrity of transactions, and (iii) do not 
set specific margin amounts.
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b. Section 40.2 Listing and accepting products for trading or clearing 
by certification

    Section 5c(c) of the Act permits registered entities to list for 
trading or accept for clearing any new product by providing to the 
Commission a written certification that the new product, rule, or rule 
amendment complies with the Act and Commission regulations. Under 
current Sec.  40.2, prior to listing or accepting products for trading 
or clearing by certification, the Commission requires, among other 
things, that registered entities provide the terms and conditions of 
their products and certify that submitted products comply with the Act 
and Commission regulations. The Commission also requires that 
registered entities provide, only if requested by Commission staff, 
additional information relating to whether the contract meets the 
requirements of the Act or the Commission's regulations or policies 
thereunder.
    Further, the Act permits registered entities to list for trading 
only those products that are not susceptible to manipulation and have 
appropriate position limitations or position accountability for 
speculators. To assist registered entities in demonstrating compliance 
with these Core Principles and to better ensure the integrity of 
certified products, the Commission proposes two amendments to Sec.  
40.2.
    The Commission proposes to amend Sec.  40.2 to require registered 
entities to include in their submission documentation relied on to 
establish the basis for compliance with the applicable provisions of 
the Act and the Commission's regulations thereunder, including the Core 
Principles for registered entities. The proposed amendments to Sec.  
40.2 will increase the timeliness and efficiency of Commission review. 
The Commission has always required that registered entities have 
evidence supporting their certification of compliance with the Act 
available for Commission review.\9\
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    \9\ For instance, in January 2006, when the Commission issued 
Technical and Clarifying Amendments to Rules for Exempt Markets, 
Derivatives Transaction Execution Facilities and Designated Contract 
Markets, and Procedural Changes for Derivatives Clearing 
Organization Registration Applications, it required DCMs to provide 
documentation demonstrating compliance with the Act and the 
Commission's regulations. It expressly stated, ``DCMs are 
responsible in the first instance, and the Commission is ultimately 
responsible in its oversight role, for assuring that DCM products 
and rules comply with applicable designation criteria and Core 
Principles. When a DCM self-certifies a product or rule, it is, in 
effect, pledging that the product or rule does meet those standards. 
Assuming the DCM is acting in good faith, it must have some 
reasonable basis for making that pledge * * * [and therefore] * * * 
when reasonable questions arise, it should not be burdensome for a 
DCM to share information regarding the reasonable basis underlying 
the new product or a rule with the Commission or its staff.'' See 71 
FR 1956 (Jan. 12, 2006).
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    Based on these experiences, the Commission proposes to amend Sec.  
40.2(a) to require a registered entity to include in its submission any 
documentation relied on to establish the basis for compliance with the 
Act and the Commission's regulations thereunder, including the 
applicable Core Principles. For DCM and SEF submissions of new products 
and product amendments, the Commission expects submissions to include 
documentation demonstrating that the product is not readily susceptible 
to manipulation (Core Principle 3 for

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DCMs and SEFs) and that associated position limits or position 
accountability provisions are necessary and appropriate (Core Principle 
5 for DCMs and Core Principle 4 for SEFs). Proposed Sec. Sec.  40.3, 
40.5, and 40.6 contain a similar requirement for submission of new 
products, rules and rule amendments.
    The Commission believes that before self-certifying that a new 
contract complies with the Act and the Commission's regulations, a 
registered entity should conduct an appropriate due diligence review to 
support that assertion. Furthermore, the Commission believes that any 
such review should generate some form of documentation at the 
registered entity substantiating the review, including information used 
and sources consulted to reach the conclusion supporting self-
certification. Therefore, the Commission believes that the inclusion of 
such information in the self-certified submission itself should not be 
burdensome for registered entities that are conducting appropriate due 
diligence reviews before making such submissions.
    Further, the Commission proposes a new Sec.  40.2 requirement that 
registered entities examine potential legal issues associated with the 
listing of products and include certain representations with their 
submissions. The reason for these requirements is that certain 
commodity futures and option products are based on measures or linked 
to information that may be subject to bona fide intellectual property 
rights claims. Commodity futures and option contracts, such as those 
based on emission credits, can also be based on underlying markets that 
are constructs of Federal or state regulations. In these and other 
circumstances, the Commission has an interest in verifying that 
registered entities have an adequate understanding of the legal 
conditions and constraints that may have a material impact on the 
trading of these types of products. Accordingly, the Commission 
proposes to add Sec.  40.2(a)(3)(vi) to require that certified product 
submissions be accompanied by a written statement verifying that the 
registered entity has undertaken a due diligence review of the legal 
conditions, including conditions relating to contractual and 
intellectual property rights, that may affect the trading of the 
product underlying the contract. Finally, the Commission proposes in 
Sec.  40.2(a)(3)(vii) to require a registered entity to certify that 
the registered entity has posted a copy of the pending product 
certification submission on the registered entity's Web site at the 
time of the filing. This will permit market participants to receive 
prompt notice of new rules filed with the Commission.

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

    Although the Dodd-Frank Act does not specifically require that the 
Commission amend Sec.  40.3, the Commission believes that the 
amendments described below are necessary to enhance the Commission's 
ability to administer the Act. Similar to its proposed amendments to 
Sec.  40.2, described above, the Commission proposes to amend Sec.  
40.3 to require DCMs, DCOs, and SEFs to include with their requests for 
new product approval all documentation relied upon to determine that 
the new product complies with applicable Core Principles.
    In addition, similar to proposed Sec.  40.2(a)(3)(vi), proposed 
Sec.  40.3(a)(9) requires registered entities to submit a written 
statement that they have undertaken a due diligence review of the legal 
conditions, including conditions relating to contractual and 
intellectual property rights, that may affect the trading of the 
product. These additional requirements should expedite Commission 
review. Moreover, parallel to proposed Sec. Sec.  40.2(a)(3)(vii) and 
40.6(a)(2), proposed Sec.  40.3(a)(10) requires a registered entity to 
certify that the registered entity has posted a copy of the pending 
product certification submission on the registered entity's Web site at 
the time of the filing. As mentioned above, this will allow market 
participants to receive prompt notice of pending requests for product 
approval. Also, to provide the overall consistency with the 
requirements of the Dodd-Frank Act, proposed Sec.  40.3(d)(1) 
authorizes the Commission to extend the review period if the product 
raises novel or complex issues.
    Finally, the Commission notes that the standard for review and 
approval for new products remains unchanged; that is, the Commission 
shall approve a new product unless the terms and conditions of such 
product would violate the Act or the Commission's regulations 
thereunder.

d. Section 40.4 Amendments to terms or conditions of enumerated 
agricultural products

    The Commission proposes a number of technical amendments to clarify 
existing regulatory obligations imposed on the DCMs that trade 
contracts based on an agricultural commodity listed in Section 1a(9) of 
the Act.
    Pursuant to Section 5c(c)(2)(B) of the Act, rules that materially 
change a term or condition of a contract with open interest that is 
based on an agricultural commodity enumerated in Section 1a(9) of the 
Act, must be approved by the Commission prior to implementation. A 
finding of materiality is, by statute, at the reasonable discretion of 
the Commission. Through prior rulemaking, the Commission has enumerated 
several rule categories in Sec.  40.4(b) that are deemed not to be 
material for purposes of Section 5c(c)(2)(B) of the Act and thus not 
subject to prior approval. The Commission has separately enumerated 
several categories of registered entities' rules in Sec.  40.6(d) that 
need not be approved by, or certified with, the Commission prior to 
implementation. Exchange 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.
    Since there is substantial overlap between the categories of rules 
deemed not to be material under Sec.  40.4(b) and the categories of 
rules enumerated in Sec.  40.6(d), the Commission proposes to amend 
Sec.  40.4(b) to refer to Sec.  40.6(d) for the purpose of identifying 
rules that are deemed by the Commission not to be material under 
Section 5c(c)(2)(B) of the Act. Such rules would qualify for 
implementation under Sec.  40.6 without prior approval or 
certification.
    In addition, the Commission proposes to clarify that changes in 
trading hours in Sec.  40.4(b)(3) and changes required to comply with 
an order of an adjudicative or regulatory body in Sec.  40.4(b)(4), 
while not material for purposes of Section 5c(c)(2)(B) of the Act, must 
be implemented through a prior certified submission under Sec.  40.6(a) 
because of their potential effects on the operations of a DCM.

e. Section 40.5 Voluntary submission of rules for Commission review and 
approval

    Section 745 of the Dodd-Frank Act establishes a new standard for 
the review of new rules or rule amendments. That standard, as codified 
in proposed Sec.  40.5(b), requires the Commission to approve a new 
rule or rule amendment unless the rule or rule amendment is 
inconsistent with the Act or the Commission's regulations promulgated 
thereunder. In determining whether a rule is inconsistent with the Act, 
the Commission may also consider, for example, whether the new rule or 
rule amendment potentially disrupts market integrity, or increases 
systemic risk.
    The Commission also proposes amendments to the information required 
to be submitted when requesting

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approval of amendments to the terms and conditions of a product under 
Sec.  40.5. Consistent with Sec.  40.2 and Sec.  40.3, the Commission 
proposes to amend Sec.  40.5(a)(7) to require a registered entity 
submitting an amendment of a product's terms and conditions to include 
with its submission the documentation relied upon to establish the 
basis for compliance with the Act and the Commission's regulations 
thereunder, including the applicable Core Principles.
    Additionally, similar to Sec. Sec.  40.2(a)(3)(vii), 40.3(a)(10) 
and 40.6 (a)(2), the Commission proposes in Sec.  40.5(a)(6) to require 
registered entities to certify that the registered entity has posted a 
copy of the pending product certification submission on the registered 
entity's Web site at the time of the filing. This will permit market 
participants to receive prompt notice of new requests for approval 
filed with the Commission. The Commission intends to continue its 
current practice of publishing all requests for Commission review and 
approval on its Web site. Finally, proposed Sec.  40.5(a)(11) requires 
registered entities, in connection with the submission of a request for 
changes to a product's terms or conditions, to submit a written 
statement that they have undertaken a due diligence review of the legal 
conditions, including conditions relating to contractual and 
intellectual property rights, that may affect the trading of the 
product, similar to the statement required in Sec. Sec.  40.2 and 40.3.

f. Section 40.6 Self-certification of rules

    Section 745 of the Dodd-Frank Act amended Section 5c(c) of the Act 
to include a new 10-day certification review period for all rules and 
rule amendments submitted to the Commission by registered entities and 
to permit the Commission to stay the certification of rules or rule 
amendments that, among other things, present novel or complex issues 
that require additional time to analyze. The Commission proposes to 
codify these new certification provisions in Sec.  40.6, as follows.
    To implement the amended procedures for self-certification of rules 
described in Section 745 of the Dodd-Frank Act, the Commission proposes 
in Sec.  40.6(a)(3) to require registered entities to submit self-
certifications at least ten business days before the projected 
effective date. A rule certification will become effective ten business 
days after the Commission receives the certification, unless the 
Commission notifies the registered entity, within 10 business days, 
that it is staying the certification pursuant to Sec.  40.6(c).
    Parallel to proposed Sec.  40.5(a), proposed Sec.  40.6(a) requires 
a registered entity to certify that the registered entity has posted a 
copy of the pending product certification submission on the registered 
entity's Web site at the time of the filing. This will permit market 
participants to receive prompt notice of new rules or rule amendments 
filed with the Commission. The Commission intends to continue its 
current practice of publishing the self-certified rules on its Web 
site.
    Further, in proposed Sec.  40.6(a)(6), the Commission clarifies the 
distinction between rules that establish standards and authorize 
appropriate parties to respond to an emergency--which must be submitted 
to the Commission prior to implementation--and rules that implement a 
response to a particular emergency--which, in certain circumstances, 
may be submitted to the Commission after implementation.
    Similar to Sec. Sec.  40.2, 40.3 and 40.5, proposed Sec.  
40.6(a)(7)(v) requires that amendments to the terms and conditions of a 
product be accompanied by documentation relied upon to establish the 
basis for compliance with the Act and the regulations thereunder, 
including the applicable Core Principles.
    As is proposed for Sec. Sec.  40.2, 40.3 and 40.5 and discussed 
above, the Commission proposes to amend Sec.  40.6(a)(7)(viii) to 
require registered entities to include with their certification of any 
changes to a product's terms and conditions, a written statement that 
they have undertaken a due diligence review of legal conditions 
relating to futures or options trading based on the underlying product 
or instrument.
    Under proposed Sec.  40.6(b), a new rule or rule amendment will 
become effective ten business days after the certified rule or rule 
amendment is received by the Commission, unless the Commission notifies 
the registered entity that it is staying the certification. Generally, 
a DCM seeking to adopt a program (such as a program to address 
conflicts of interest), which is in substance the same as a program 
previously approved by the Commission, or an exchange seeking to change 
a rule establishing trading hours or seeking to modify the terms and 
conditions of a listed contract for which it has provided sufficient 
evidence of compliance with Core Principles, may self-certify and, 
without Commission action, implement the proposed rule or rule 
amendment after ten business days.
    Proposed Sec.  40.6(c)(1) stays the certification of a rule if the 
Commission determines that the new rule or rule amendment presents 
novel or complex issues, is certified with an inadequate explanation, 
or is potentially inconsistent with the Act or the Commission's 
regulations thereunder. Once the Commission issues a notification of 
stay to the registered entity, the Commission will have 90 days to 
conduct a review. The rule will be certified upon expiration of the 90-
day review period unless the Commission objects to the certification. 
If the Commission decides to lift the stay prior to the expiration of 
the 90-day review period, the Commission will notify the registered 
entity of its action.
    The Commission also notes that the new stay provision in proposed 
Sec.  40.6(c)(1) is distinct from the stay provision presently in 
effect under current Sec.  40.6(b), which the Commission proposes to 
move to Sec.  40.6(c)(4). The latter provision, which implements 
Commission authority under section 8a(7) of the Act, permits the 
Commission to stay the effectiveness of a rule or rule amendment that 
already has been implemented pursuant to the self-certification 
procedures in Sec.  40.6(a). Conversely, the new stay provision in 
proposed Sec.  40.6(c)(1), pursuant to the Commission's new authority 
in Section 745 of the Dodd-Frank Act, authorizes a stay of the 
certification itself and would be issued during the review process, 
thereby possibly preventing the certified rule or rule amendment from 
ever becoming effective in the first instance.
    A stay of a rule certification may be appropriate, for example, 
where a registered entity certifies a rule that raises unique issues 
not previously reviewed by Commission staff. In addition, the 
Commission believes that new rules or rule amendments may raise a 
number of complex issues if they appear to have a material impact on 
the futures market or the underlying cash market. Thus such rules are 
more likely to be subject to an extended review period to allow the 
Commission to adequately identify and address complex regulatory 
issues. For example, the Commission may need more than ten business 
days to determine whether a proposed market maker incentive program 
appropriately encourages market liquidity and does not have unnecessary 
anticompetitive effects. Staff might also need more than ten business 
days to analyze whether deliverable supplies of an underlying commodity 
are sufficient to support a proposed change to a spot month speculative 
position limit on a physical-delivery contract. The above mentioned

[[Page 67287]]

examples of submissions often raise a number of complex issues that may 
require an extended review period.
    Proposed Sec.  40.6(c)(2) provides for a 30-day public comment 
period, within the 90-day review period, whenever the Commission 
determines to stay a new rule or rule amendment and take it under 
further review. Under proposed Sec.  40.6(c)(2), the Commission would 
provide notice of the comment period by posting the notice and the new 
rule or rule amendment submission on the Commission's Web site.\10\
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    \10\ It is the Commission's intention to promptly post the 
notice and new rule or rule amendment in order to commence the 
public comment period as soon as possible within the 90-day review 
period. This will maximize the amount of time after the comment 
period closes for the submitter to respond to public comments and 
possibly revise its proposed rule or rule amendment and for the 
Commission to thoroughly consider the issues raised by the new rule 
or rule amendment.
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    The Commission believes that publication of the notice of the 30-
day comment period on the Commission's Web site, www.cftc.gov, will 
provide the public and market participants with the timely opportunity 
to comment on new rules or rule amendment submissions. The Commission 
routinely uses its Web site to disseminate information regarding 
Commission activities and industry filings.\11\ Web site publication 
would facilitate public comment while allowing Commission staff 
adequate time to assess comments and complete a substantive analysis 
within the statutory 90-day time frame. Finally, the Commission 
anticipates enhancements to its Web site publication procedures to 
promptly inform interested members of the public of stayed rules 
through email notifications on the Commission's Web site.
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    \11\ In addition, the Commission's Web site provides a link for 
signing up to receive press releases issued by the Office of Public 
Affairs. This service enables members of the public to be apprised 
of the opening of comment periods in a timely manner.
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    The Commission is also exploring the possibility of having 
registered entities file rule certifications, as well as other types of 
submissions, through a portal located at www.cftc.gov. The Commission 
believes that allowing registered entities to file rule certifications 
in this manner will simplify the filing process and also provide the 
public with close to real-time access to new rules and rule amendments 
submitted to the Commission for review. The Commission is determining 
the technological requirements necessary to implement this filing 
process. Once the Commission has formulated a process for submitting 
certifications through the Commission's Web site, the Commission will 
notify the public and establish a timeline to implement new electronic 
filing procedures.
    The Commission proposes several amendments to Sec.  40.6(d). 
Specifically, the Commission proposes to permit registered entities to 
implement reductions to a contract's minimum tick size without approval 
by or certification to the Commission, in order to maintain consistency 
between Sec. Sec.  40.4(b) and 40.6(d). The Commission in proposed 
Sec.  40.6(d)(2)(v), requires that fee changes associated with market 
making or other incentive programs be submitted for Commission review 
under Sec.  40.6(a). Finally, the Commission also proposes that changes 
to the terms of all options, including options on agricultural 
products, options on futures, and options on physicals, that relate to 
the strike price listing procedures, strike price intervals, and the 
listing of strike price on a discretionary basis, be implemented 
without certification or notice under Sec.  40.6(d)(3).

g. Section 40.7 Delegations

    To ensure that the review process is conducted in an efficient 
manner, the Commission proposes to amend Sec.  40.7 to delegate to the 
Director of the Division of Clearing and Intermediary Oversight and, 
separately, to the Director of the Division of Market Oversight, after 
consultation with the General Counsel or the General Counsel's 
designee, the authority to extend the review of new contracts, rules 
and rule amendments submitted to the Commission pursuant to Sec.  
40.3(d) and Sec.  40.5(d) and the authority to stay the certification 
of new rules or rule amendments pursuant to Sec.  40.6(c), when the 
submission raises novel or complex issues that require additional time 
to analyze, is of major economic significance or is potentially 
inconsistent with the Act or Commission Regulations.
    Furthermore, the Commission proposes to delegate to the Director of 
the Division of Clearing and Intermediary Oversight and, separately, to 
the Director of the Division of Market Oversight the authority to stay 
or to extend the review of new products, new rules and rule amendments 
pursuant to Sec.  40.3 (d) or Sec.  40.5(d) or Sec.  40.6(c), when the 
submission is incomplete or accompanied by an inadequate explanation.
    Finally, proposed Sec.  40.7(a)(1)(iii) delegates to the Director 
of the Division of Clearing and Intermediary Oversight or the 
Director's designee, subject to the concurrence of the General Counsel 
or the General Counsel's designee, all determinations under proposed 
Sec.  40.10 with respect to a SIDCO's proposed change in rules, 
procedures or operations that could materially affect the nature or 
level of risks presented by the SIDCO. This includes a determination 
that the proposed change is consistent with the Act and the 
Commission's regulations, and the purposes of the Dodd-Frank Act and 
any applicable rules, orders or standards prescribed under Section 
805(a) of the Dodd-Frank Act.

h. Section 40.8 Availability of public information

    This section describes information that the Commission will make 
public and provides for procedures for requesting confidential 
treatment of part 40 submissions to the Commission. The Commission 
proposes to retain reference to an electronic trading facility on which 
significant price discovery contracts are traded or executed in Sec.  
40.8 until July 20, 2012. Although the Dodd-Frank Act eliminated these 
entities, they are allowed to continue operation until July 20, 2012, 
pursuant to grandfather relief issued by the Commission.\12\
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    \12\ See 75 FR 56513 (Sept. 16, 2010).
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    In addition, the Commission proposes to amend Sec.  40.8 to include 
new registered entities, SEFs and SDRs. Confidential treatment requests 
will be considered pursuant to part 145 of the Commission's 
regulations.\13\
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    \13\ 17 CFR part 145.
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i. Section 40.10 Special certification procedures for submission of 
rules by systemically important derivatives clearing organizations

    To implement the provisions of Section 806(e) of the Dodd-Frank 
Act, proposed Sec.  40.10(a) would require a SIDCO to provide the 
Commission with advance notice of any proposed change to its rules, 
procedures or operations that could ``materially affect the nature or 
level of risks'' presented by the SIDCO. The SIDCO would be required to 
provide the notice not less than 60 days in advance of the proposed 
change. Submission of proposed changes would be subject to the filing 
requirements of Sec.  40.6(a)(1), as well as the Web site publication 
requirements under Sec.  40.6(a)(2). In addition to providing 
information required under Sec.  40.6(a)(7), the notice would have to 
describe the nature of the change, the expected effects on risks to the 
SIDCO, its clearing members, and the market, and how the SIDCO planned 
to manage those risks. Under proposed 40.10(a)(2), concurrent with 
providing the Commission with the advance notice or

[[Page 67288]]

any request or other information related to the advance notice, the 
SIDCO would be required to provide the Board of Governors of the 
Federal Reserve System with a copy of such notice, request or other 
information.
    Under proposed Sec.  40.10(b), changes that could materially affect 
the nature or level of risks would be defined as those as to which 
there is a reasonable possibility that the changes could substantially 
affect the performance of essential clearing and settlement functions 
or the overall nature or level of risk presented by the SIDCO. Such 
changes could include, but would not be limited to, changes that 
materially affect financial resources, participant and product 
eligibility, risk management (including matters relating to margin and 
stress testing), daily or intraday settlement procedures, default 
procedures, system safeguards (business continuity and disaster 
recovery), and governance. Materiality would be determined on a case-
by-case basis. If a SIDCO were to determine that a proposed change was 
not material and it did not file an advance notice, but the Commission 
determined that the change was material, the Commission could require 
the SIDCO to withdraw the proposed change and provide advance notice 
pursuant to Sec.  40.10.
    The Commission requests comment on the proposed materiality 
standard in general and, more specifically, whether another approach to 
defining materiality would be more effective. The Commission further 
requests comment on whether, as an alternative to the proposed 
approach, the standard in proposed paragraph (b) should set forth 
examples of changes that would be considered to be non-material and 
could be treated in accordance with the provisions of Sec.  40.6. The 
Commission solicits recommendations regarding what types of changes 
might be identified as non-material. At a minimum, the Commission would 
consider deeming to be non-material changes those listed in Sec.  
40.6(c) (proposed to be redesignated as Sec.  40.6(d)) and that are 
relevant to SIDCOs.\14\ The Commission notes that while this list of 
non-material changes is useful in the broader context of all rule 
changes that could be submitted under the certification procedures of 
Sec.  40.6, the fact that the Dodd-Frank Act and Sec.  40.10 already 
establish a materiality threshold makes the existing list of non-
material changes less meaningful for purposes of Sec.  40.10. The 
Commission believes that any further refinement of what might be 
considered non-material for purposes of Sec.  40.10 would have to be 
appropriately circumscribed so as to be specific enough to provide 
useful guidance for SIDCOs, while remaining broad enough so as not to 
inappropriately limit the types of changes that the Commission would 
consider material and subject to the procedures of Sec.  40.10.
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    \14\ Non-material changes include, for example, corrections of 
typographical errors, renumbering, periodic updates to identifying 
information about approved entities and other such non-substantive 
revisions of a product's terms and conditions that have no effect on 
the economic characteristics of the product. See Sec.  
40.6(c)(2)(i).
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    Under proposed Sec.  40.10(c), the Commission may require a SIDCO 
to provide further information to assess the nature or level of any 
risks associated with the proposed change and the sufficiency of any 
proposed risk management technique.
    Further, under proposed Sec.  40.10(d), within 60 days from the 
date the Commission received a notice of a proposed change, the 
Commission would inform a SIDCO if it objects to the proposed change on 
the grounds that the change is not consistent with the Act or the 
Commission's regulations, or the purposes of the Dodd-Frank Act or any 
applicable rules, orders, or standards prescribed under Section 805(a) 
of the Dodd-Frank Act. If the Commission were to require further 
information, the Commission would have an additional 60 days after the 
date the Commission received the requested information, to inform the 
SIDCO of any objection to the proposed change. The Commission may ask 
for additional information more than once. In such case, the review 
period would be extended 60 days from the date that the information 
pertaining to the last request was received.
    Proposed Sec.  40.10(e) would allow a SIDCO to implement a proposed 
rule change if the review period lapsed without Commission action.
    Proposed Sec.  40.10(f) would allow the Commission, during the 60-
day review period, to extend the review period for an additional 60 
days if the proposed change raised novel or complex issues. For 
example, if the Commission does not request additional information but 
extends the review period 60 days upon receiving the advance notice, 
the maximum review period would be 120 days after receipt of the 
advance notice. On the other hand, if the Commission requests and 
obtains additional information 30 days after receiving the notice and 
then extends the review period 60 days in order to consider complex or 
novel issues, then the Commission would have a maximum of 150 days to 
reach a determination after receipt of the advance notice.
    Proposed Sec.  40.10(g) would permit a SIDCO to implement a 
proposed change prior to the expiration of the review period if it 
received a notification in writing from the Commission that the 
Commission does not object to the proposed change and authorizes the 
SIDCO to implement the change. Such authorization may be subject to 
conditions imposed by the Commission.
    Proposed Sec.  40.10(h) would permit a SIDCO to implement a change 
without providing 60 days advance notice to the Commission if the SIDCO 
determined that an emergency exists and immediate implementation of the 
change was necessary for the SIDCO to continue to provide its services 
in a safe and sound manner. The SIDCO would be required to notify the 
Commission of the emergency change as soon as practicable, but no later 
than 24 hours after implementation of the change. The notification must 
provide the information required in an advance notice, as well as 
describe the nature of the emergency and explain why the emergency 
change was necessary for the SIDCO to continue to provide its services 
in a safe and sound manner. Under the proposed regulation, the 
Commission could require modification or rescission of the emergency 
change if the Commission determined that the change was not consistent 
with the Act or the Commission's regulations or the purposes of the 
Dodd-Frank Act, or any applicable rules, orders, or standards 
prescribed under section 805(a) of the Dodd-Frank Act.
    Finally, the Commission requests comment on whether there are any 
substantive changes to rules, procedures, or operations that should not 
be permitted to be adopted under emergency circumstances without prior 
notice to the Commission. For example, should there be restrictions on 
a SIDCO's ability to demand significantly higher assessments from 
clearing members on an emergency basis?

j. Section 40.11 Review of event contracts based on certain excluded 
commodities

    Section 745(b) of the Dodd-Frank Act authorizes the Commission to 
prohibit the listing, trading, or clearing of agreements, contracts, 
transactions or swaps that are based upon an occurrence, extent of a 
concurrence, or contingency (other than a change in the price, rate, 
value, or level of a commodity not described in Section 1a(19)(i) of 
the Act) that is beyond the control of the parties to the relevant 
contract, agreement, or transaction and associated with financial, 
commercial, or economic consequence, as defined in

[[Page 67289]]

Section 1a(19)(iv) of the Act, if the contract involves terrorism, 
assassination, war, gaming, an activity that is unlawful under any 
Federal or State law, or any similar activity that the Commission 
determines, by rule or regulation, to be contrary to the public 
interest.
    Pursuant to this authority, the Commission proposes new Sec.  
40.11(a)(1) to prohibit the listing, trading, or clearing of any above 
mentioned agreements, contracts, transactions or swaps. In addition, 
the Commission proposes new Sec.  40.11(a)(2) to prohibit the listing, 
trading, or clearing of any agreements, contracts, transactions or 
swaps involving activities similar to those enumerated in Sec.  
40.11(a)(1) and that the Commission determines, by rule or regulation, 
to be contrary to the public interest.
    If during the review process for a product submitted under Sec.  
40.2 or Sec.  40.3, the Commission determines that such product may 
involve an activity that is enumerated in Sec.  40.11(a), the 
Commission will request that the registered entity suspend the listing 
or trading of the contract and will conduct a 90-day review to 
determine whether the product violates Sec.  40.11(a). Upon completion 
of its review, the Commission will issue an order, as required by 
Section 745(b) of the Dodd-Frank Act, finding either that the product 
violates or does not violate the prohibitions in proposed Sec.  
40.11(a).

k. Section 40.12 Tolling of review period pending jurisdictional 
determination

    Under Section 718(a) of the Dodd-Frank Act, a registered entity 
certifying, submitting for approval, or otherwise filing a proposal to 
list a product having elements of both a security and a derivative may 
provide notice of its proposal both to the Commission and the 
Securities and Exchange Commission. However, under Section 718(a)(1)(B) 
of the Dodd-Frank Act, if the registered entity chooses not to provide 
such notice, then the Commission must notify the Securities and 
Exchange Commission of the submission and accompany such notice with a 
copy of the registered entity's complete filing if it determines that 
the proposal has elements of both securities and futures. If either 
Commission requests a jurisdictional determination pursuant to Section 
718 of the Dodd-Frank Act, the Commission will toll the applicable 
product certification or approval review period until the issuance of a 
final determination order.
    If the Commission or the Securities and Exchange Commission seeks 
judicial review of a jurisdictional determination, proposed Sec.  40.12 
stays the challenged order, as well as the review period for the 
product, until the United States Court of Appeals for the District of 
Columbia Circuit issues a final determination pursuant to Section 
718(b) of the Dodd-Frank Act, or until there is resolution of an appeal 
of that determination. The submission review period will resume only 
upon a finding that the Commission has jurisdiction over the 
submission.

l. Revision of Appendices to Part 40

    The Commission proposes to revise the appendices to Part 40 to 
clarify the new regulatory requirements and to provide consistency with 
the overall requirements of the Act, as amended by the Dodd-Frank Act. 
The present content of Appendix A relates solely to the listing of 
certain futures contracts by DCMs and not to the listing of contracts 
by registered entities generally. Accordingly, the Commission proposes 
to delete the content of Appendix A, currently titled ``Guideline No. 
1,'' from part 40. The substance of the appendix will be incorporated 
into part 38 as part of a separate rulemaking.
    In addition, the Commission proposes to move and incorporate the 
current language in Appendix B, currently titled, ``Schedule of Fees,'' 
into Appendix A. The Commission proposes to reserve Appendix B for a 
future rulemaking. Appendix C remains reserved.
    The Commission proposes minor amendments to the submission cover 
sheet and instructions provided in Appendix D to part 40. The proposed 
submission cover sheet has been modified to include SEFs and SDRs. The 
amended cover sheet will be posted on the Commission's Web site upon 
publication of the final rules. The Commission also proposes to amend 
the instructions in Appendix D to clarify that registered entities must 
describe the substance of the submission with enough specificity to 
characterize all material aspects of the filing. A description of the 
submission should allow a party reading it to ascertain the subject and 
effect of the submission. For example, a description of ``Market 
Regulation Advisory'' does not provide the reader with sufficient 
information to understand what the particular Advisory addresses or its 
effect, thereby rendering the description less useful. A clear and 
informative description will facilitate and expedite the posting of the 
submission on the Commission's Web site. As noted above, the Commission 
is exploring whether an electronic submission system can be established 
and made available to registered entities in the near future. The 
Commission is seeking the public's view on whether automated submission 
of rules, rule amendments, and products might be facilitated by a Web 
site portal dedicated to this purpose.

III. Related Matters

a. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \15\ requires that 
agencies consider whether the rules they propose will have a 
significant economic impact on a substantial number of small entities 
and, if so, provide a regulatory flexibility analysis respecting the 
impact.\16\ The proposed rules detailed in this release would require 
DCOs, DCMs, SEFs and SDRs to submit to the Commission, before they 
become effective, new products, new rules, and rule amendments, with a 
self-certification that the rules comply with the Act and Commission 
regulations. The requirements for the self-certification are not 
complex, and may be satisfied by the completion of a cover sheet with a 
detailed explanation of the filing. These self-certification rules will 
not impose a significant economic impact on any entity.
---------------------------------------------------------------------------

    \15\ 5 U.S.C. 601 et seq.
    \16\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    Moreover, the Commission previously determined that DCOs and DCMs 
are not ``small entities'' for purposes of the RFA.\17\ The Commission 
has not determined whether SEFs and SDRs, new registered entities 
created by the Dodd-Frank Act, are small entities. The Dodd-Frank Act 
defines an SDR to mean any person that collects and maintains 
information or records with respect to transactions or positions in, or 
the terms and conditions of, swaps entered into by third parties for 
the purpose of providing a centralized recordkeeping facility for 
swaps. The Dodd Frank Act defines a SEF to mean a trading system or 
platform in which multiple participants have the ability to execute or 
trade swaps by accepting bids and offers made by multiple participants 
in the facility or system, through any means of interstate commerce, 
including any trading facility that facilitates the execution of swaps 
between persons and is not a DCM.\18\
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    \17\ 47 FR 18618, 18619 (April 30, 1982) and 66 FR 45604, 45609 
(August 29, 2001).
    \18\ See Section 721 of the Dodd-Frank Act. The Commission 
anticipates proposing regulations that would further specify those 
entities that must register as a SEF. The Commission does not 
believe that such proposals would alter its determination that a SEF 
is not a ``small entity'' for purposes of the RFA.

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[[Page 67290]]

    The Commission previously determined that DCMs and DCOs are not 
``small entities'' for purposes of the RFA. The Commission's reasoning 
included the fact that the Commission designates a contract market or a 
DCO only when the entity meets specific criteria, including the 
expenditure of sufficient resources to establish and maintain adequate 
self-regulatory programs. Likewise, the Commission will register an 
entity such as a SEF or an SDR only after the entity has met a number 
of criteria, including the expenditure of sufficient resources to 
establish and maintain an adequate self-regulatory program.\19\ Because 
SEFs and SDRs will be required to demonstrate compliance with Core 
Principles, many of which are similar to those applicable to DCMs and 
DCOs, the Commission hereby determines that SEFs and SDRs are not 
``small entities'' for the purposes of the RFA.
---------------------------------------------------------------------------

    \19\ See Core Principle 2 applicable to SEFs under Section 733 
of the Dodd-Frank Act and Core Principles 1-3 applicable to SDRs 
under Section 728 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    Accordingly, the Chairman, on behalf of the Commission, hereby 
certifies pursuant to 5 U.S.C. Sec.  605(b) that the proposed rules 
will not have a significant impact on a substantial number of small 
entities. The Commission invites the public to comment on all aspects 
of this Regulatory Flexibility Analysis.

b. Paperwork Reduction Act

    The Commission may not conduct or sponsor, and a registered entity 
is not required to respond to, a collection of information unless it 
displays a currently valid Office of Management and Budget (``OMB'') 
control number. Proposed amendments to Sec. Sec.  40.2, 40.3, 40.5 and 
40.6 will impose new information collection requirements within the 
meaning of the Paperwork Reduction Act \20\ on registered entities, as 
will new proposed Sec. Sec.  40.10 and 40.12. Accordingly, the 
Commission has requested that OMB approve and assign a new control 
number for the proposed collections of information. In connection with 
its request, the Commission has submitted this notice of proposed 
rulemaking along with supporting documentation for OMB's review in 
accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The title for this 
collection of information is Part 40, Provisions Common to Registered 
Entities, OMB control number 3038-D07. If adopted, responses to this 
new collection of information will be mandatory.
---------------------------------------------------------------------------

    \20\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Commission will protect proprietary information according to 
the Freedom of Information Act and 17 CFR part 145, ``Commission 
Records and Information.'' In addition, section 8(a)(1) of the Act 
strictly prohibits the Commission, unless specifically authorized by 
the Act, from making public ``data and information that would 
separately disclose the business transactions or market positions of 
any person and trade secrets or names of customers.'' The Commission 
also is required to protect certain information contained in a 
government system of records according to the Privacy Act of 1974, 5 
U.S.C. 552a.
1. Information Provided by Reporting Entities/Persons
    The proposed rules require DCMs, DCOs, and new registered entities, 
SEFs and SDRs, to collect and submit to the Commission new rules, 
amended rules and new products pursuant to the procedures outlined in 
proposed Sec. Sec.  40.2, 40.3, 40.5, 40.6, 40.10, and 40.12. The 
Commission proposes these information collection requirements in order 
to give effect to various notice, rule certification, and rule approval 
provisions of the Dodd-Frank Act.
    The Commission estimated the proposed information collection 
burdens on registered entities below. These estimates account for (1) 
the number of respondents; (2) the number of responses required of each 
respondent; (3) the average hours required to produce each response; 
and (4) the aggregate annual reporting burden. The Commission estimates 
that the aggregate effect of proposed Sec. Sec.  40.2, 40.3, 40.5, 
40.6, 40.10, and 40.12 will be to increase the overall information 
collection burden on registered entities by approximately 8,300 hours 
per year, resulting mostly from the preparation of materials to be 
filed with the Commission in connection with the listing of products or 
the certification or approval of rules and rule amendments. The 
Commission estimates that there will be 70 designated or registered 
entities that would be required to file documentation with the 
Commission on a periodic basis.
    Proposed Sec. Sec.  40.5 and 40.6 require each registered entity to 
comply with new certification and approval requirements when seeking to 
implement new rules or rule amendments, including changes to product 
terms or conditions. In addition, to ensure that market participants 
are promptly notified of product and rule submissions to the 
Commission, proposed Sec. Sec.  40.2(a)(3)(vii), 40.3(a)(10), 
40.5(a)(6), and 40.6(a)(2) require registered entities to state that 
they posted a copy of the certification or request for approval on the 
registered entity's Web site at the time of the filing with the 
Commission.

    Estimated number of respondents: 45.
    Annual responses by each respondent: 120.
    Estimated average hours per response: 2.52.
    Aggregate annual reporting burden: 13,608.

    Proposed Sec.  40.10 requires SIDCOs to provide to the Commission 
60 days advance notice of proposed changes to rules, procedures or 
operations that could materially affect the nature or level of risks 
presented by the SIDCO.

    Estimated number of respondents: 4.
    Annual responses by each respondent: 2.
    Estimated average hours per response: 5.
    Aggregate annual reporting burden: 40.

    Proposed Sec.  40.12 requires registered entities to provide notice 
to the Commission and the Securities and Exchange Commission when 
certifying, submitting for approval, or otherwise filing a proposal to 
list a product having elements of both a security and a derivative.

    Estimated number of respondents: 17.
    Annual responses by each respondent: 34.
    Estimated average hours per response: 2.52.
    Aggregate annual reporting burden: 1,456.

    The Commission invites public comment on the accuracy of its 
estimate of the collection requirements that would result from the 
proposed regulations.
2. Information Collection Comments
    The Commission invites the public and other federal agencies to 
comment on the information collection requirements proposed in this 
notice. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments to: (1) Evaluate whether the proposed collections of 
information are necessary for the proper performance of the functions 
of the Commission, including whether the information will have 
practical utility; (2) evaluate the accuracy of the estimated burden of 
the proposed information collection requirements, including the degree 
to which the methodology and the assumptions that the Commission 
employed were valid; (3) determine whether there are ways to enhance 
the quality, utility, or clarity of the

[[Page 67291]]

information proposed to be collected; and (4) minimize the burden of 
the proposed collections of information on DCMs, SEFs, DCOs, and SDRs, 
for example through implementation of an electronic rule and product 
submission system.
    Comments may be submitted directly to the Office of Information and 
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at 
[email protected]. Please provide the Commission with a copy 
of submitted comments so that they can be summarized and addressed in 
the final rule. Refer to the Addresses section of this notice of 
proposed rulemaking for comment submission instructions to the 
Commission. A copy of the supporting statements for the collections of 
information discussed above may be obtained by visiting RegInfo.gov. 
OMB is required to make a decision concerning the collection of 
information between 30 and 60 days after publication of this release. 
Consequently, a comment to OMB is best assured of receiving full 
consideration only if received by OMB (and the Commission) within 30 
days of publication of this notice of proposed rulemaking.

c. 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 or 
orders.\21\ By its terms, Section 15(a) does not require the Commission 
to quantify the costs and benefits of a new regulation or to determine 
whether the benefits of the proposed regulation outweigh its costs. 
Rather, Section 15(a) requires the Commission to ``consider the costs 
and benefits'' of its proposed regulation. Section 15(a) further 
specifies that costs and benefits shall be evaluated in light of five 
broad areas of market and public concern: (1) Protection of market 
participants and the public; (2) efficiency, competitiveness, and 
financial integrity of futures markets; (3) price discovery; (4) sound 
risk management practices; and (5) other public interest 
considerations. In conducting its analysis, the Commission may, in its 
discretion, give greater weight to any one of the five enumerated areas 
and it may determine that, notwithstanding its costs, a particular rule 
is necessary to protect the public interest or to effectuate any of the 
provisions or to accomplish any of the purposes of the Act.\22\
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    \21\ 7 U.S.C. 19(a).
    \22\ See, e.g., Fisherman's Doc Co-op., Inc v. Brown, 75 F.3d 
164 (4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336 
(DC Cir. 1985) (noting that an agency has discretion to weigh 
factors in undertaking cost-benefit analysis).
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    As discussed above, the proposed regulations require registered 
entities, including DCMs, SEFs, DCOs, and SDRs, to comply with new 
certification and approval procedures when submitting products and 
rules for Commission review. These procedures are mandatory pursuant to 
the Dodd-Frank Act. The Commission has determined that the costs 
associated with the self-certification and submission for Commission 
review of new products, new rules, and rule amendments will not 
negatively affect the efficiency, competitiveness, and financial 
integrity of the futures and swaps markets, particularly because of the 
time limits that Congress has imposed on Commission review. The 
Commission will have 10 days to review new products, new rules, and 
rule amendments, and only 90 days if it stays a rule to issue a rule 
approval or disapproval.
    The Commission believes that the benefits of the rulemaking are 
significant. The Commission's certification and approval procedures 
ensure that registered entities do not enact rules that may be 
anticompetitive, unfair to market participants, or otherwise 
detrimental to the public interest. In addition, the special 
certification procedures for SIDCOs and certain event contracts 
implement Section 745 of the Dodd-Frank Act and ensure that the 
Commission has adequate time and information to analyze the registered 
entity's proposal and to consider the broader implications of 
permitting the entity to implement the rule or list the product. The 
SIDCO notice requirement, in particular, may be crucially important to 
the Commission's oversight of sound risk management practices and to 
its efforts to mitigate systemic risks, whereas the proposed event 
contract provisions, consistent with the intent of Congress, prevent 
individuals from speculating on activities that are harmful to national 
security and potentially detrimental to the stability of the futures 
markets and their price discovery function. Finally, the Commission's 
notice requirements with respect to the submission of novel derivative 
products promote cooperation between the Commission and the SEC and 
facilitate more effective and less duplicative regulation of registered 
entities.
    For these reasons, the Commission believes that the certification 
and approval procedures proposed in this notice are needed to fulfill 
the requirements of the Dodd-Frank Act in order to protect market 
participants and to ensure the continued competitiveness and financial 
integrity of the futures and derivative markets.
    The Commission invites public comment on its cost-benefit 
considerations. Commenters are also invited to submit any data or other 
information that they may have quantifying or qualifying the costs and 
benefits of the proposal with their comment letters.

List of Subjects in 17 CFR Part 40

    Commodity futures, Contract markets, Designation application, 
Reporting and recordkeeping requirements, Swap execution facility, Swap 
data repository, Systemically important derivatives clearing 
organization, Rule approval, Rule certification, Review of certain 
event contracts.
    In light of the foregoing, and pursuant to authority in the Act, 
and, in particular, Sections 3, 5, 5c(c) and 8a(5) of the Act, the 
Commission hereby proposes to revise Part 40 of Title 17 of the Code of 
Federal Regulations to read as follows:

PART 40--PROVISIONS COMMON TO REGISTERED ENTITIES

Sec.
40.1 Definitions.
40.2 Listing and accepting products for trading or clearing by 
certification.
40.3 Voluntary submission of new products for Commission review and 
approval.
40.4 Amendments to terms or conditions of enumerated agricultural 
products.
40.5 Voluntary submission of rules for Commission review and 
approval.
40.6 Self-certification of rules.
40.7 Delegations.
40.8 Availability of public information.
40.9 Corporate governance [Reserved]
40.10 Special certification procedures for submission of rules by 
systemically important derivatives clearing organizations.
40.11 Review of event contracts based on certain excluded 
commodities.
40.12 Tolling of review period pending jurisdictional determination.
Appendix A to Part 40--Schedule of Fees
Appendix B to Part 40--[Reserved]
Appendix C to Part 40--[Reserved]
Appendix D to Part 40--Submission Cover Sheet and Instructions

    Authority: 7 U.S.C. 1a, 2, 5, 6, 7, 7a, 8 and 12, as amended by 
Titles VII and VIII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).


Sec.  40.1  Definitions.

    As used in this part:
    (a) Business day means the intraday period of time starting at the 
business hour of 8:15 a.m. and ending at the

[[Page 67292]]

business hour of 4:45 p.m.; business hour means any hour between 8:15 
a.m. and 4:45 p.m.. Business day and business hour are 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, instrument, swap or any 
such commodity futures or option contract with respect to all future or 
option expiries, listed on a designated contract market, a swap 
execution facility or cleared by a registered derivatives clearing 
organization, that has no open interest and in which no trading has 
occurred for a period of twelve complete calendar months following a 
certification to, or approval by, the Commission; provided, however, 
that no contract or instrument under this paragraph (b)(1) initially 
and originally certified to, 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, swap or other 
agreement, contract, transaction or instrument of a dormant designated 
contract market, swap execution facility or a dormant derivatives 
clearing organization; or
    (3) Any commodity futures or option contract or other agreement, 
contract, swap, transaction or instrument not otherwise dormant that a 
designated contract market, a swap execution facility or a derivatives 
clearing organization self-declares through certification to be 
dormant.
    (c) Dormant designated contract market means any designated 
contract market on which no trading has occurred during the period of 
twelve consecutive calendar months, preceding the first day of the most 
recent calendar month; 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 
consecutive calendar months.
    (d) Dormant derivatives clearing organization means any derivatives 
clearing organization registered pursuant to Section 5b of the Act 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 swap data repository means any registered swap data 
repository on which no data has resided for a period of twelve 
consecutive calendar months, preceding the most recent calendar month.
    (f) Dormant swap execution facility means any swap execution 
facility on which no trading has occurred for a period of twelve 
consecutive calendar months, preceding the first day of the most recent 
calendar month; provided, however, no swap execution facility shall be 
considered to be dormant if its initial and original Commission order 
of registration was issued within the preceding 36 consecutive calendar 
months.
    (g) Dormant rule means:
    (1) Any registered entity rule which remains unimplemented for 
twelve consecutive calendar months following a certification with, or 
an approval by, the Commission; or
    (2) Any rule or rule amendment of a dormant designated contract 
market, dormant swap execution facility, dormant swap data repository 
or dormant derivatives clearing organization.
    (h) 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, swaps or transactions or the timely collection and payment 
of funds in connection with clearing and settlement by a derivatives 
clearing organization, including:
    (1) Any manipulative or attempted manipulative activity;
    (2) Any actual, attempted, or threatened corner, squeeze, 
congestion, or undue concentration of positions;
    (3) Any circumstances which may materially affect the performance 
of agreements, contracts, swaps or transactions, including failure of 
the payment system or the bankruptcy or insolvency of any participant;
    (4) 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 or clearing and settlement; and
    (5) Any other circumstance which may have a severe, adverse effect 
upon the functioning of a registered entity.
    (i) Rule means any constitutional provision, article of 
incorporation, bylaw, rule, regulation, resolution, interpretation, 
stated policy, terms and conditions, trading protocol, agreement or 
instrument corresponding thereto, including those that authorize a 
response or establish standards for responding to a specific emergency, 
in whatever form adopted, and any amendment or addition thereto or 
repeal thereof, made or issued by a registered entity or by the 
governing board thereof or any committee thereof.
    (j) Terms and conditions means any definition of the trading unit 
or the specific commodity underlying a swap or a contract for the 
future delivery of a commodity or commodity option contract, 
specification of cash settlement or delivery standards and procedures, 
and establishment of buyers' and sellers' rights and obligations under 
the swap or contract. Whenever possible, all proposed swap or contract 
terms and conditions should conform to industry standards or those 
terms and conditions adopted by comparable contracts. Terms and 
conditions include provisions relating to the following:
    (1) Quality and other standards that define the commodity or 
instrument underlying the contract;
    (2) Quantity standards or other provisions related to swap or 
contract size;
    (3) Any applicable premiums or discounts for delivery of nonpar 
products;
    (4) Trading hours, trading months and the listing of swaps or 
contracts;
    (5) The pricing basis, minimum price fluctuations, and maximum 
price fluctuations;
    (6) Any price limits, trading halts, or circuit breaker provisions, 
and procedures for the establishment of daily settlement prices;
    (7) Position limits, position accountability standards, and 
position reporting requirements;
    (8) Delivery points and locational price differentials;
    (9) Delivery standards and procedures, including fees related to 
delivery or the delivery process; alternatives to delivery and 
applicable penalties or sanctions for failure to perform;
    (10) If cash settled; the definition, composition, calculation and 
revision of the cash settlement price or index;

[[Page 67293]]

    (11) Payment or collection of commodity option premiums or margins;
    (12) Option exercise price, if it is constant, and method for 
calculating the exercise price, if it is variable;
    (13) Threshold prices for an option contract, the existence of 
which is contingent upon those prices;
    (14) Any restrictions or requirements for exercising an option; and
    (15) With respect to swaps cleared by a derivatives clearing 
organization, specifications including but not limited to:
    (i) Notional values;
    (ii) Relevant dates, tenor, and day count conventions;
    (iii) Index;
    (iv) Relevant prices, rates or coupons;
    (v) Currency;
    (vi) Stub, premium, or initial cash flow components along with 
subsequent life cycle events;
    (vii) Payment and reset frequency;
    (viii) Business calendars;
    (ix) Accrual type; and
    (x) Spread or points.


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

    (a) A designated contract market or a swap 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 part or that remains dormant subsequent to being submitted 
under this section or approved under Sec.  40.3 of this part. A 
derivatives clearing organization must comply with the submission 
requirements of this section prior to accepting for clearing a product 
that is not listed or traded on a designated contract market, 
derivatives clearing organization or a swap execution facility and has 
not been approved for clearing under Sec.  40.3 or Sec.  40.5 of this 
part or that remains dormant subsequent to being submitted under this 
section or approved under Sec.  40.5 of this part. A submission shall 
comply with the following conditions:
    (1) The designated contract market, or the swap execution facility, 
or the derivatives clearing organization has filed its submission 
electronically in a format specified by the Secretary of the Commission 
with the Secretary of the Commission at [email protected], and with 
the relevant branch chief at the regional office having local 
jurisdiction over the registered entity;
    (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
    (3) The submission includes:
    (i) A copy of the submission cover sheet in accordance with the 
instructions in Appendix D to this part;
    (ii) A copy of the product's rules, including all rules related to 
its terms and conditions, or the rules establishing the terms and 
conditions of the listed product that make it acceptable for clearing;
    (iii) The intended listing date;
    (iv) A certification by the designated contract market, the swap 
execution facility, or the derivatives clearing organization that the 
product to be listed complies with the Act and Commission regulations 
thereunder;
    (v) The documentation relied on to establish the basis for 
compliance with the applicable provisions of the Act and the 
Commission's regulations thereunder, including the Core Principles;
    (vi) A written statement verifying that the registered entity has 
undertaken a due diligence review of the legal conditions, including 
conditions that relate to contractual and intellectual property rights, 
which may materially affect the trading of the product;
    (vii) Certification that the registered entity posted a notice of 
pending product certification with the Commission and a copy of the 
submission, concurrent with the filing of a submission with the 
Commission, on the registered entity's Web site. Information which the 
registered entity seeks to keep confidential may be redacted from the 
documents published on the registered entity's Web site, but must be 
republished consistent with any determination made pursuant to Sec.  
40.8(c)(4);
    (viii) A request for confidential treatment, if appropriate, as 
permitted under Sec.  40.8.
    (b) Additional information. If requested by Commission staff, a 
registered entity shall provide any additional evidence, information or 
data that demonstrates that the contract meets, initially or on a 
continuing basis, all of the requirements of the Act and the 
Commission's regulations and policies thereunder.
    (c) Stay. The Commission may stay the listing of a contract 
pursuant to paragraph (a) of this section during the pendency of 
Commission proceedings for filing a false certification or during the 
pendency of a petition to alter or amend the contract terms and 
conditions pursuant to Section 8a(7) of the Act. The decision to stay 
the listing of a contract in such circumstances shall not be delegable 
to any employee of the Commission.


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, a 
designated contract market, a swap execution facility, or a derivatives 
clearing organization may request that the Commission approve a new or 
dormant product prior to listing the product for trading or clearing, 
or if a product was initially submitted under Sec.  40.2 of this part, 
subsequent to listing the product for trading or clearing. A submission 
requesting approval shall:
    (1) Be filed electronically with the Secretary of the Commission at 
[email protected], and with the regional office of the Commission 
having local jurisdiction over the registered entity in a format 
specified by the Secretary of the Commission;
    (2) Include a copy of the submission cover sheet in accordance with 
the instructions in Appendix D to this part;
    (3) Include a copy of the rules that set forth the contract's terms 
and conditions;
    (4) Include the documentation relied on to establish the basis for 
compliance with the applicable provisions of the Act and the 
Commission's regulations thereunder, including the Core Principles;
    (5) Describe any agreements or contracts entered into with other 
parties that enable the registered entity to carry out its 
responsibilities;
    (6) Include the certifications required in Sec.  41.22 for product 
approval of a commodity that is a security future or a security futures 
product as defined in Sections 1a(44) or 1a(45) of the Act, 
respectively, and, if applicable, include the notice required in Sec.  
40.12(a) for the listing of novel derivative products;
    (7) Include, if appropriate, a request for confidential treatment 
as permitted under Sec.  40.8;
    (8) Include the filing fee required under Appendix A to this part;
    (9) Include a written statement verifying that the registered 
entity has undertaken a due diligence review of the legal conditions, 
including conditions relating to contractual and intellectual property 
rights, that may materially affect the trading of the product;
    (10) Certify that the registered entity posted a notice of pending 
request for approval of new product with the Commission and a copy of 
the submission, concurrent with the filing of a submission with the 
Commission, on the registered entity's Web site. Information which the 
registered entity seeks to keep confidential may be redacted from the 
documents published

[[Page 67294]]

on the registered entity's Web site, but must be republished consistent 
with any determination made pursuant to Sec.  40.8(c)(4);
    (11) Include, if requested by Commission staff, additional 
evidence, information or data demonstrating that the contract meets, 
initially or on a continuing basis, all of the requirements of the Act, 
or other requirements for designation or registration under the Act or 
the Commission's regulations or policies thereunder. The registered 
entity shall submit the requested information by the open of business 
on the date that is two business days from the date of request by 
Commission staff.
    (b) Standard for review and approval. The Commission shall approve 
a new product unless the terms and conditions of the product violate 
the Act or the Commission's regulations.
    (c) Forty-five day review. All products submitted for Commission 
approval under this paragraph shall be deemed approved by the 
Commission 45 days after receipt by the Commission, or at the 
conclusion of an extended period as provided under paragraph (d) of 
this section, unless notified otherwise within the applicable period, 
if:
    (1) The submission complies with the requirements of paragraph (a) 
of this section; and
    (2) The submitting entity does not amend the terms or conditions of 
the product or supplement the request for approval, except as requested 
by the Commission or for correction of typographical errors, 
renumbering or other non-substantive revisions, during that period. Any 
voluntary, substantive amendment by the submitting entity will be 
treated as a new submission under this section.
    (d) Extension of time. The Commission may extend the 45 day review 
period in paragraph (c) of this section for:
    (1) An additional 45 days, if the product raises novel or complex 
issues that require additional time for review in which case, the 
Commission shall notify the registered entity within the initial 45 day 
review period and shall briefly describe the nature of the specific 
issues for which additional time for review is required; or
    (2) Any extended review period to which the registered entity 
agrees in writing.
    (e) Notice of non-approval. The Commission at any time during its 
review under this section may notify the registered entity that it will 
not, or is unable to, approve the product. This notification will 
briefly specify the nature of the issues raised and the specific 
provision of the Act or the Commission's regulations, including the 
form or content requirements of paragraph (a) of this section, that the 
product violates, appears to violate or potentially violates but which 
cannot be ascertained from the submission.
    (f) Effect of non-approval. (1) Notification to a registered entity 
under paragraph (e) of this section of the Commission's determination 
not to approve a product does not prejudice the entity from 
subsequently submitting a revised version of the product for Commission 
approval or from submitting the product as initially proposed pursuant 
to a supplemented submission.
    (2) Notification to a registered entity under paragraph (e) of this 
section of the Commission's refusal to approve a product shall be 
presumptive evidence that the entity may not truthfully certify under 
Sec.  40.2 that the same, or substantially the same, product does not 
violate the Act or the Commission's regulations thereunder.


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

    (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(j), of 
a contract for future delivery in an agricultural commodity enumerated 
in Section 1a(9) of the Act, or of an option on such a contract or 
commodity.
    (b) The following rules or rule amendments are not material and 
should not be submitted under this section:
    (1) Changes that are enumerated in Sec.  40.6(d)(2) may be 
implemented without prior approval or certification if implemented 
pursuant to the notification procedures of Sec.  40.6(d);
    (2) Changes that are enumerated in Sec.  40.6(d)(3)(ii) may be 
implemented without prior approval or certification or notification as 
permitted pursuant to Sec.  40.6(d)(3);
    (3) Changes in trading hours may be implemented without prior 
approval if implemented pursuant to the procedures of Sec.  40.6(a);
    (4) Changes required to comply with a binding order of a court of 
competent jurisdiction, or a rule, regulation or order of the 
Commission or of another federal regulatory authority, may be 
implemented without prior approval if implemented pursuant to the 
procedures of Sec.  40.6(a); or
    (5) Any other rule:
    (i) The text of which has been submitted for review at least ten 
business days prior to its implementation and that has been labeled 
``Non-Material Agricultural Rule Change;''
    (ii) For which the designated contract market has provided an 
explanation as to why it considers the rule ``non-material,'' and any 
other information that may be beneficial to the Commission in analyzing 
the merits of the entity's claim of non-materiality; and
    (iii) With respect to which the Commission has not notified the 
contract market during the review period that the rule appears to 
require or does require prior approval under this section, may be 
implemented without prior approval if implemented under the procedures 
of Sec.  40.6(a).


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, a registered entity may request that the Commission approve a new 
rule, rule amendment or dormant rule prior to implementation of the 
rule, or if the request was initially submitted under Sec. Sec.  40.2 
or 40.6 of this part, subsequent to implementation of the rule. A 
request for approval shall:
    (1) Be filed electronically with the Secretary of the Commission at 
[email protected], and with the regional office of the Commission 
having local jurisdiction over the registered entity in a format 
specified by the Secretary of the Commission;
    (2) Include a copy of the submission cover sheet in accordance with 
the instructions in Appendix D to this part;
    (3) Set forth the text of the rule or rule amendment (in the case 
of a rule amendment, deletions and additions must be indicated);
    (4) Describe the proposed effective date of the rule or rule 
amendment and any action taken or anticipated to be taken to adopt the 
proposed rule by the registered entity or by its governing board or by 
any committee thereof, and cite the rules of the entity that authorize 
the adoption of the proposed rule;
    (5) Explain the operation, purpose, and effect of the proposed 
rule, including, as applicable, a description of the anticipated 
benefits to market participants or others, any potential 
anticompetitive effects on market participants or others, and how the 
rule fits into the registered entity's framework of self-regulation;
    (6) Certify that the registered entity posted a notice of pending 
rule with the Commission and a copy of the

[[Page 67295]]

submission, concurrent with the filing of a submission with the 
Commission, on the registered entity's Web site. Information which the 
registered entity seeks to keep confidential may be redacted from the 
documents published on the registered entity's Web site but must be 
republished consistent with any determination made pursuant to Sec.  
40.8(c)(4);
    (7) Include the documentation relied on to establish the basis for 
compliance with the applicable provisions of the Act and the 
Commission's regulations thereunder, including the Core Principles;
    (8) Provide additional information which may be beneficial to the 
Commission in analyzing the new rule or rule amendment. If a proposed 
rule affects, directly or indirectly, the application of any other rule 
of the registered entity, the pertinent text of any such rule must be 
set forth and the anticipated effect described;
    (9) Describe briefly any substantive opposing views expressed to 
the registered entity by governing board or committee members, members 
of the entity or market participants with respect to the new rule or 
rule amendment that were not incorporated into the new rule or rule 
amendment;
    (10) Identify any Commission regulation that the Commission may 
need to amend, or sections of the Act or the Commission's regulations 
that the Commission may need to interpret, in order to approve the new 
rule or rule amendment. To the extent that such an amendment or 
interpretation is necessary to accommodate a new rule or rule 
amendment, the submission should include a reasoned analysis supporting 
the amendment to the Commission's regulation or the interpretation;
    (11) Include, for all products, a written statement verifying that 
the registered entity has undertaken a due diligence review of the 
legal conditions, including conditions relating to contractual and 
intellectual property rights, which may materially affect the trading 
of such product or products, if the proposed rule specifically relates 
to one or more listed products;
    (12) As appropriate, include a request for confidential treatment 
as permitted under the procedures of Sec.  40.8;
    (b) Standard for review and approval. The Commission shall approve 
a new rule or rule amendment unless the rule or rule amendment is 
inconsistent with the Act or the Commission's regulations.
    (c) Forty-five day review. (1) All rules submitted for Commission 
approval under paragraph (a) of this section shall be deemed approved 
by the Commission under section 5c(c) of the Act 45 days after receipt 
by the Commission, or at the conclusion of such extended period as 
provided under paragraph (d) of this section, unless the registered 
entity is notified otherwise within the applicable period, if:
    (i) The submission complies with the requirements of paragraph (a) 
of this section;
    (ii) The registered entity does not amend the proposed rule or 
supplement the submission, except as requested by the Commission, 
during the pendency of the review period other than for correction of 
typographical errors, renumbering or other non-substantive revisions. 
Any amendment or supplementation not requested by the Commission will 
be treated as the submission of a new filing under this section.
    (2) The Commission shall commence the review period in paragraph 
(c) of this section for a compliant submission under Sec.  40.4(b)(5) 
ten business days after its receipt.
    (d) Commencement and extension of time for review. The Commission 
may further extend the review period in paragraph (c) of this section 
for any approval request for:
    (1) An additional 45 days, if the proposed rule raises novel or 
complex issues that require additional time for review or is of major 
economic significance, the submission is incomplete or the requestor 
does not respond completely to Commission questions in a timely manner, 
in which case, the Commission shall notify the submitting registered 
entity within the initial forty-five day review period and shall 
briefly describe the nature of the specific issues for which additional 
time for review shall be required; or
    (2) Any period, beyond the additional 45 days provided in Sec.  
40.5(d)(1), to which the registered entity agrees in writing.
    (e) Notice of non-approval. Any time during its review under this 
section, the Commission may notify the registered entity that it will 
not, or is unable to, approve the new rule or rule amendment. This 
notification will briefly specify the nature of the issues raised and 
the specific provision of the Act or the Commission's regulations, 
including the form or content requirements of this section, with which 
the new rule or rule amendment is inconsistent or appears to be 
inconsistent with the Act or the Commission's regulations.
    (f) Effect of non-approval. (1) Notification to a registered entity 
under paragraph (e) of this section does not prevent the registered 
entity from subsequently submitting a revised version of the proposed 
rule or rule amendment for Commission review and approval or from 
submitting the new rule or rule amendment as initially proposed in a 
supplemented submission; the revised submission will be reviewed 
without prejudice.
    (2) Notification to a registered entity under paragraph (e) of this 
section of the Commission's determination not to approve a proposed 
rule or rule amendment of a registered entity shall be presumptive 
evidence that the entity may not truthfully certify that the same, or 
substantially the same, proposed rule or rule amendment under Sec.  
40.6(a) of this section.
    (g) Expedited approval. Notwithstanding the provisions of paragraph 
(c) of this section, changes to a proposed rule or a rule amendment, 
including changes to terms and conditions of a product that are 
consistent with the Act and Commission regulations and with standards 
approved or established by the Commission may be approved by the 
Commission at such time and under such conditions as the Commission 
shall specify in the written notification, provided, however, that the 
Commission may, at any time, alter or revoke the applicability of such 
a notice to any particular product or rule amendment.


Sec.  40.6  Self-certification of rules.

    (a) Required certification. A registered entity shall comply with 
the following conditions prior to implementing any rule that has not 
obtained Commission approval under Sec.  40.5 of this part, that 
remains dormant subsequent to being submitted under this section or 
approved under Sec.  40.5 of this part, or that is submitted under 
Sec.  40.10 of this part, except as otherwise provided by Sec.  
40.10(a):
    (1) The registered entity has filed its submission electronically 
in a format specified by the Secretary of the Commission with the 
Secretary of the Commission at [email protected] and with the 
relevant branch chief at the regional office having local jurisdiction 
over the registered entity.
    (2) The registered entity has provided a certification that the 
registered entity posted a notice of pending certification with the 
Commission and a copy of the submission, concurrent with the filing of 
a submission with the Commission, on the registered entity's Web site. 
Information that the registered entity seeks to keep confidential may 
be redacted from the documents published on the registered entity's Web 
site, but it must be republished consistent with

[[Page 67296]]

any determination made pursuant to Sec.  40.8(c)(4).
    (3) The Commission has received the submission at its headquarters 
not later than the open of business on the business day that is 10 
business days prior to the registered entity's implementation of the 
rule or rule amendment.
    (4) The Commission has not stayed the submission pursuant to Sec.  
40.6(c).
    (5) The rule or rule amendment is not a rule or rule amendment of a 
designated contract market that materially changes a term or condition 
of a contract for future delivery of an agricultural commodity 
enumerated in section 1a(4) of the Act or an option on such a contract 
or commodity in a delivery month having open interest;
    (6) Emergency rule certifications. (i) New rules or rule amendments 
that establish standards for responding to an emergency must be 
submitted pursuant to Sec.  40.6(a);
    (ii) 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
    (7) The rule submission shall include:
    (i) A copy of the submission cover sheet in accordance with the 
instructions in Appendix D to this part (in the case of a rule or rule 
amendment that responds to an emergency, ``Emergency Rule 
Certification'' should be noted in the Description section of the 
submission coversheet);
    (ii) The text of the rule (in the case of a rule amendment, 
deletions and additions must be indicated);
    (iii) The date of intended implementation;
    (iv) A certification by the registered entity that the rule 
complies with the Act and the Commission's regulations thereunder;
    (v) The documentation relied on to establish the basis for 
compliance with the applicable provisions of the Act and the 
Commission's regulations thereunder, including the Core Principles;
    (vi) A brief explanation of any substantive opposing views 
expressed to the registered entity by governing board or committee 
members, members of the entity or market participants, that were not 
incorporated into the rule, or a statement that no such opposing views 
were expressed;
    (vii) As appropriate, a request for confidential treatment pursuant 
to the procedures provided in Sec.  40.8;
    (viii) For amendments to a product's terms or conditions, a written 
statement certifying that the registered entity has undertaken a due 
diligence review of the legal conditions, including conditions relating 
to contractual and intellectual property rights, that may materially 
affect the trading of the product.
    (8) The registered entity shall provide, if requested by Commission 
staff, additional evidence, information or data that may be beneficial 
to the Commission in conducting a due diligence assessment of the 
filing and the registered entity's compliance with any of the 
requirements of the Act or the Commission's regulations or policies 
thereunder.
    (b) Review by the Commission. The Commission shall have 10 business 
days to review the new rule or rule amendment before the new rule or 
rule amendment is deemed certified and can be made effective, unless 
the Commission notifies the registered entity during the 10-business 
day review period that it intends to issue a stay of the certification 
under paragraph (c) of this section.
    (c) Stay--(1) Stay of certification of new rule or rule amendment. 
The Commission may stay the certification of a new rule or rule 
amendment submitted pursuant to paragraph (a) of this section by 
issuing a notification informing the registered entity that the 
Commission is staying the certification of the rule or rule amendment 
on the grounds that the new rule or rule amendment presents novel or 
complex issues that require additional time to analyze, the rule is 
accompanied by an inadequate explanation or the rule is potentially 
inconsistent with the Act or the Commission's regulations thereunder. 
The Commission will have 90 days from the date of the notification to 
conduct the review. The decision to stay the certification of a rule in 
such circumstances shall be delegable pursuant to Sec.  40.7 of this 
part.
    (2) Public comment. The Commission shall provide a 30-day comment 
period, within the 90-day period while the stay is in effect as 
described in paragraph (c)(1) of this section. The Commission shall 
publish a notice of the 30-day comment period on the Commission Web 
site. Comments from the public shall be submitted as specified in that 
notice.
    (3) Expiration of a stay of certification of new rule or rule 
amendment. A new rule or rule amendment subject to a stay pursuant to 
paragraph (c) shall become effective, pursuant to the certification, at 
the expiration of the 90-day review period described in paragraph 
(c)(1) of this section unless the Commission withdraws the stay prior 
to that time, or the Commission notifies the registered entity during 
the 90-day time period that it objects to the proposed certification on 
the grounds that the proposed rule or rule amendment is inconsistent 
with the Act or the Commission's regulations.
    (4) Stay of effectiveness of rules or rule amendments already 
implemented. The Commission may stay the effectiveness of an 
implemented rule during the pendency of Commission proceedings for 
filing a false certification or during the pendency of a petition to 
alter or amend the rule pursuant to section 8a(7) of the Act. The 
decision to stay the effectiveness of a rule in such circumstances 
shall not be delegable to any employee of the Commission.
    (d) Notification of rule amendments. Notwithstanding the rule 
certification requirement of Section 5c(c)(1) of the Act and paragraph 
(a) of this section, a registered entity may place the following rules 
or rule amendments into effect on the following business day without 
certification to the Commission if the following conditions are met:
    (1) The registered entity provides to the Commission at least 
weekly a summary notice of all rule amendments made effective pursuant 
to this paragraph during the preceding week. Such notice must be 
labeled ``Weekly Notification of Rule Amendments'' and need not be 
filed for weeks during which no such actions have been taken. One copy 
of each such submission shall be furnished electronically in a format 
specified by the Secretary of the Commission; and
    (2) The rule governs:
    (i) Non-substantive revisions. Corrections of typographical errors, 
renumbering, periodic routine updates to identifying information about 
approved entities and other such non-substantive revisions of a 
product's terms and conditions that have no effect on the economic 
characteristics of the product;
    (ii) Delivery standards set by third parties. Changes to grades or 
standards of commodities deliverable on a product that are established 
by an independent third party and that are incorporated by reference as 
product terms, provided that the grade or standard is not established, 
selected or calculated solely for use in connection with futures or 
option trading and such changes do not affect deliverable supplies or 
the pricing basis for the product;

[[Page 67297]]

    (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 (d)(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 paragraph 
(d)(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) Fees. Fees or fee changes, other than fees or fee changes 
associated with market making or trading incentive programs, that:
    (A) Total $1.00 or more per contract, and
    (B) Are established by an independent third party or are unrelated 
to delivery, trading, clearing or dispute resolution.
    (vi) Survey lists. Changes to lists of banks, brokers, dealers, or 
other entities that provide price or cash market information to an 
independent third party and that are incorporated by reference as 
product terms;
    (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 weigh masters, assayers, and inspectors) at a delivery 
location, pursuant to previously certified or Commission approved 
standards or criteria;
    (ix) Trading months. The initial listing of trading months, which 
may qualify for implementation without notice pursuant to (d)(3)(ii)(H) 
of this section, within the currently established cycle of trading 
months; or
    (x) Minimum tick. Reductions in the minimum price fluctuation (or 
``tick'').
    (3) Notification of rule amendments not required. Notwithstanding 
the rule certification requirements of section 5c(c)(1) of the Act and 
paragraph (a) of this section, a registered entity may place the 
following rules or rule amendments into effect without certification or 
notice to the Commission if the following conditions are met:
    (i) The registered entity maintains documentation regarding all 
changes to rules; and
    (ii) The rule governs:
    (A) Transfer of membership or ownership. Procedures and forms for 
the purchase, sale or transfer of membership or ownership, but not 
including qualifications for membership or ownership, any right or 
obligation of membership or ownership or dues or assessments;
    (B) Administrative procedures. The organization and administrative 
procedures of a registered entity governing bodies such as a Board of 
Directors, Officers and Committees, but not voting requirements, Board 
of Directors or Committee composition requirements or procedures, 
decision making procedures, use or disclosure of material non-public 
information gained through the performance of official duties, or 
requirements relating to conflicts of interest;
    (C) Administration. The routine, daily administration, direction 
and control of employees, requirements relating to gratuity and similar 
funds, but not guaranty, reserves, or similar funds; declaration of 
holidays, and changes to facilities housing the market, trading floor 
or trading area;
    (D) Standards of decorum. Standards of decorum or attire or similar 
provisions relating to admission to the floor, badges, or visitors, but 
not the establishment of penalties for violations of such rules; and
    (E) Fees. Fees or fee changes, other than fees or fee changes 
associated with market making or trading incentive programs, that:
    (1) Are less than $1.00; or
    (2) Relate to matters such as dues, badges, telecommunication 
services, booth space, real time quotations, historical information, 
publications, software licenses or other matters that are 
administrative in nature.
    (F) Securities indexes. Routine changes to the composition, 
computation or method of security selection of an index that is 
referenced and defined in the product's rules, and which is made by an 
independent third party.
    (G) Option contract terms. For registered entities that are in 
compliance with the daily reporting requirements of Sec.  16.01 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 of this chapter, 
the initial listing of trading months which are within the currently 
established cycle of trading months.


Sec.  40.7  Delegations.

    (a) Procedural matters. (1) The Commission hereby delegates, until 
it orders otherwise, to the Director of the Division of Clearing and 
Intermediary Oversight and, separately, to the Director of the Division 
of Market Oversight, to be exercised by either Director, as 
appropriate, or by such employees of the Commission that either 
Director may designate from time to time, the following authorities, 
with the concurrence of the General Counsel or the General Counsel's 
delegate:
    (i) To request, pursuant to Sec.  40.3(c)(2) or Sec.  40.5(c)(1)(B) 
of this part, that the registered entity requesting approval amend the 
proposed product, rule or rule amendment, or supplement the submission 
to the Commission;
    (ii) To notify the registered entity, pursuant to Sec.  40.3(e) or 
Sec.  40.5(e) of this part, that the Commission is not approving, or is 
unable to approve, the proposed product, rule or rule amendment;
    (iii) To make all determinations reserved to the Commission in 
Sec.  40.10.
    (2) The Commission hereby delegates, until it orders otherwise, to 
the Director of the Division of Clearing and Intermediary Oversight 
and, separately, to the Director of the Division of Market Oversight, 
to be exercised by either Director, as appropriate, or by such 
employees of the Commission that either Director may designate from 
time to time, the following authorities, after consultation with the 
Office of General Counsel or the General Counsel's delegate to notify a 
registered entity:
    (i) Pursuant to Sec.  40.3(d) of this part, that the time for 
review of the submission has been extended because the product raises 
novel or complex issues that require additional time for review;
    (ii) Pursuant to Sec.  40.5(d) of this part, that the time for 
review of the submission has been extended because the proposed rule or 
rule amendment raises novel or complex issues that require additional 
time for review or is of major economic significance;
    (iii) Pursuant to Sec.  40.6(c) of this part, that the proposed 
rule or rule amendment has been stayed because there exist novel or 
complex issues that require additional time to analyze, or there is 
potential inconsistency with the Act or the Commission's regulations.
    (3) The Commission hereby delegates, until it orders otherwise, to 
the Director

[[Page 67298]]

of the Division of Clearing and Intermediary Oversight and, separately, 
to the Director of the Division of Market Oversight, to be exercised by 
either Director, as appropriate, or by such employees of the Commission 
that either Director may designate from time to time, the authority to 
notify a registered entity, pursuant to Sec.  40.3(d) or Sec.  40.5(d) 
of this part, that the time for review of the submission has been 
extended, or that a rule certified pursuant to Sec.  40.6(c) has been 
stayed, because the submission is incomplete or provides an inadequate 
explanation.
    (4) Emergency rules. The Commission hereby delegates to the 
Director of the Division of Market Oversight and, separately, to the 
Director of the Division of Clearing and Intermediary Oversight, to be 
exercised by either Director, as appropriate, or by such other employee 
or employees of the Commission that either Director may designate from 
time to time, authority to receive notification of emergency rules 
under Sec.  40.6(a)(6)(ii) of this part.
    (5) The Commission hereby delegates to the Director of the Division 
of Market Oversight, to be exercised by the Director or by such 
employees of the Commission that the Director may designate from time 
to time, with the concurrence of the General Counsel or the General 
Counsel's delegate, the authority to determine whether a rule change 
submitted by a designated contract market for a materiality 
determination under Sec.  40.4(b)(5) of this part is not material (in 
which case it may be reported pursuant to the provisions of Sec.  
40.6(d) of this part), or is material, in which case he or she shall 
notify the registered entity that the rule change must be submitted for 
the Commission's prior approval.
    (b) Approval authority. The Commission hereby delegates, until it 
orders otherwise, to the Director of the Division of Clearing and 
Intermediary Oversight and, separately, to the Director of the Division 
of Market Oversight, to be exercised by either Director, as 
appropriate, or by such employees of the Commission that either 
Director may designate from time to time, with the concurrence of the 
General Counsel or the General Counsel's delegate, the authority to 
approve, pursuant to section 5c(c)(3) of the Act and Sec.  40.5 of this 
part, rules or rule amendments of a registered entity that:
    (1) Relate to, but do not substantially change, the quantity, 
quality, or other delivery specifications, procedures, or obligations 
for delivery, cash settlement, or exercise under an agreement, contract 
or transaction approved for trading by the Commission; daily settlement 
prices; clearing position limits; requirements or procedures for 
governance of a registered entity; procedures for transfer trades; 
trading hours; minimum price fluctuations; and maximum price limit and 
trading suspension provisions;
    (2) Reflect routine modifications that are required or anticipated 
by the terms of the rule of a registered entity;
    (3) Establish or amend speculative limits or position 
accountability provisions that are in compliance with the requirements 
of the Act and the Commission's regulations;
    (4) Are in substance the same as a rule of the same or another 
registered entity which has been approved previously by the Commission 
pursuant to section 5c(c)(3) of the Act;
    (5) Are consistent with a specific, stated policy or interpretation 
of the Commission; or
    (6) Relate to the listing of additional trading months of approved 
contracts.
    (c) Notwithstanding the provisions of this section, the Director of 
the Division of Clearing and Intermediary Oversight and, separately, 
the Director of the Division of Market Oversight may submit to the 
Commission for its consideration any matter that has been delegated 
pursuant to this section.
    (d) Nothing in this section shall be deemed to prohibit the 
Commission, at its election, from exercising any of the authority 
delegated pursuant to this section.


Sec.  40.8  Availability of public information.

    (a) The following sections of all applications to become a 
designated contract market, a swap execution facility, a derivatives 
clearing organization, or a swap data repository shall be made publicly 
available: Transmittal letter, proposed rules, the applicant's 
regulatory compliance narrative, documents establishing the applicant's 
legal status, documents setting forth the applicant's corporate and 
governance structure, and any other part of the application not covered 
by a request for confidential treatment.
    (b) The following submissions provided by an electronic trading 
facility on which significant price discovery contracts are traded or 
executed will be public: Rulebook, the facility's regulatory compliance 
chart, documents establishing the facility's legal status, documents 
setting forth the facility's governance structure, and any other parts 
of the submissions not covered by a request for confidential treatment 
(Sec.  40.8(b) will be removed on July 20, 2012).
    (c) A registered entity's filing of new products pursuant to the 
self-certification procedures of Sec.  40.2 of this part, new products 
for Commission review and approval pursuant to Sec.  40.3 of this part, 
new rules and rule amendments for Commission review and approval 
pursuant to Sec.  40.4 or Sec.  40.5 of this part, and new rules and 
rule amendments pursuant to the self-certification procedures of Sec.  
40.6 and Sec.  40.10 of this part shall be treated as public 
information unless accompanied by a request for confidential treatment. 
If a registered entity files a request for confidential treatment, the 
following procedures shall apply:
    (1) A detailed written justification of the confidential treatment 
request must be filed simultaneously with the request for confidential 
treatment. The form and content of the detailed written justification 
shall be governed by Sec.  145.9 of this chapter;
    (2) All material for which confidential treatment is requested must 
be segregated in an Appendix to the submission;
    (3) The submission itself must indicate that material has been 
segregated and, as appropriate, an additional redacted version 
provided;
    (4) Commission staff may make an initial determination with respect 
to the request for confidential treatment without regard to whether a 
request for the information has been sought under the Freedom of 
Information Act;
    (5) All requests for confidential treatment shall be subject to the 
process provided by Sec.  145.9 of this chapter.
    (6) A submitter of information under this part may appeal an 
adverse decision by staff to the Commission's Office of General 
Counsel. The form and content of such appeal shall be governed by Sec.  
145.9(g) of this chapter.
    (7) The grant of any part of a request for confidential treatment 
under this section may be reconsidered if a subsequent request under 
the Freedom of Information Act is made for the information
    (d) Commission staff will not consider confidential treatment 
requests for information that is required to be made public under 
Section 5(d)(7) of the Act. The terms and conditions of a product 
submitted to the Commission pursuant to Sec.  40.2, Sec.  40.3 or Sec.  
40.5 of this part shall be made publicly available at the time of 
submission.

[[Page 67299]]

Sec.  40.9  Corporate Governance [Reserved]


Sec.  40.10  Special certification procedures for submission of rules 
by systemically important derivatives clearing organizations.

    (a) Advance notice. A registered derivatives clearing organization 
that has been designated by the Financial Stability Oversight Council 
as a systemically important derivatives clearing organization shall 
provide notice to the Commission not less than 60 days in advance of 
any proposed change to its rules, procedures, or operations that could 
materially affect the nature or level of risks presented by the 
systemically important derivatives clearing organization. A notice 
submitted under this section shall be subject to the filing 
requirements of Sec.  40.6(a)(1) and the Web site publication 
requirements of Sec.  40.6(a)(2).
    (1) The notice of a proposed change shall provide the information 
required to be submitted under Sec.  40.6(a)(7) and shall specifically 
describe:
    (i) The nature of the change and expected effects on risks to the 
systemically important derivatives clearing organization, its clearing 
members, or the market; and
    (ii) How the systemically important derivatives clearing 
organization plans to manage any identified risks.
    (2) Concurrent with providing the Commission with the advance 
notice or any request or other information related to the advance 
notice, the systemically important derivatives clearing organization 
shall provide the Board of Governors of the Federal Reserve System with 
a copy of such notice, request or other information.
    (b) Materiality. The term ``materially affect the nature or level 
of risks presented,'' when used to qualify determinations on a change 
to rules, procedures, or operations of a systemically important 
derivatives clearing organization, means matters as to which there is a 
reasonable possibility that the change could affect the performance of 
essential clearing and settlement functions or the overall nature or 
level of risk presented by the systemically important derivatives 
clearing organization. Such changes may include, but are not limited 
to, changes that materially affect financial resources, participant and 
product eligibility, risk management (including matters relating to 
margin and stress testing), daily or intraday settlement procedures, 
default procedures, system safeguards (business continuity and disaster 
recovery), and governance. If a systemically important derivatives 
clearing organization determines that a proposed change is not material 
and therefore does not file an advance notice under this Sec.  40.10, 
but the Commission determines that the change is material, the 
Commission may require the systemically important derivatives clearing 
organization to withdraw the proposed change and provide notice 
pursuant to this section.
    (c) Further information. The Commission may require the 
systemically important derivatives clearing organization to provide any 
further information necessary to assess the effect the proposed change 
would have on the nature or level of risks associated with the 
systemically important derivatives clearing organization's payment, 
clearing, or settlement activities and the sufficiency of any proposed 
risk management techniques.
    (d) Notice of objection. A systemically important derivatives 
clearing organization shall not implement a change to which the 
Commission has an objection on the grounds that the proposed change is 
not consistent with the Act or the Commission's regulations, or the 
purposes of the Dodd-Frank Act or any applicable rules, orders, or 
standards prescribed under Section 805(a) of the Dodd-Frank Act. The 
Commission will notify the systemically important derivatives clearing 
organization in writing of any objection regarding the proposed change 
within 60 days from the later of:
    (1) The date that the notice of the proposed change was received; 
or
    (2) The date the Commission received any further information it had 
requested for consideration of the notice.
    (e) Implementation of change absent Commission objection. A 
systemically important derivatives clearing organization may implement 
a change if it has not received an objection to the proposed change 
within 60 days from the later of:
    (1) The date that the Commission received the notice of proposed 
change; or
    (2) The date the Commission received any further information it had 
requested for consideration of the notice.
    (f) Extended review. The Commission may, during the 60-day review 
period, extend the review period if the proposed change raises novel or 
complex issues. A notification by the Commission pursuant to this 
paragraph will extend the review for an additional 60 days. Any 
extension under this paragraph will extend the time periods under 
paragraphs (d) and (e) of this section for an additional 60 days.
    (g) Change allowed earlier if notified of no objection. A 
systemically important derivatives clearing organization may implement 
a change in less than 60 days from the date the Commission receives the 
notice of proposed change or the date the Commission receives any 
further information it has requested, if the Commission notifies the 
systemically important derivatives clearing organization in writing 
that it does not object to the proposed change and authorizes 
implementation of the change on an earlier date, subject to any 
conditions imposed by the Commission.
    (h) Emergency changes. A systemically important derivatives 
clearing organization may implement a change that would otherwise 
require advance notice under this section if it determines that an 
emergency exists and immediate implementation of the change is 
necessary for the systemically important derivatives clearing 
organization to continue to provide its services in a safe and sound 
manner.
    (1) The systemically important derivatives clearing organization 
shall provide notice of any such emergency change to the Commission as 
soon as practicable, which shall be no later than 24 hours after 
implementation of the change.
    (2) The notice of an emergency change shall:
    (i) Provide the information required for advance notice as set 
forth in paragraph (a) of this section;
    (ii) Describe the nature of the emergency; and
    (iii) Describe the reason the change was necessary for the 
systemically important derivatives clearing organization to continue to 
provide its services in a safe and sound manner.
    (3) The Commission may require modification or rescission of the 
emergency change if it finds that the change is not consistent with the 
Act or the Commission's regulations, or the purposes of the Dodd-Frank 
Act or any applicable rules, orders, or standards prescribed under 
Section 805(a) of the Dodd-Frank Act.


Sec.  40.11  Review of event contracts based on certain excluded 
commodities.

    (a) Prohibition. A registered entity shall not list for trading or 
clearing on or through the registered entity any of the following:
    (1) An agreement, contract, transaction, or swap based on an 
excluded commodity, as defined in Section 1a(19)(iv) of the Act, that 
involves, relates to, or references terrorism, assassination, war, 
gaming, or an activity that is unlawful under any State or Federal law; 
or

[[Page 67300]]

    (2) An agreement, contract, transaction, or swap based on an 
excluded commodity, as defined in Section 1a(19)(iv) of the Act, which 
involves, relates to, or references an activity that is similar to an 
activity enumerated in Sec.  40.11(a)(1) of this part, and that the 
Commission determines, by rule or regulation, to be contrary to the 
public interest.
    (b) [Reserved.]
    (c) 90-day review and approval of certain event contracts. The 
Commission may determine, based upon a review of the terms or 
conditions of a submission under Sec.  40.2 or Sec.  40.3, that an 
agreement, contract, transaction, or swap based on an excluded 
commodity, as defined in Section 1a(19)(iv) of the Act, which may 
involve, relate to, or reference an activity enumerated in Sec.  
40.11(a)(1) or Sec.  40.11(a)(2), be subject to a 90-day review. The 
90-day review shall commence from the date the Commission notifies the 
registered entity of a potential violation of Sec.  40.11(a).
    (1) The Commission shall request that a registered entity suspend 
the listing or trading of any agreement, contract, transaction, or swap 
based on an excluded commodity, as defined in Section 1a(19)(iv) of the 
Act, which may involve, relate to, or reference an activity enumerated 
in Sec.  40.11(a)(1) or Sec.  40.11(a)(2), during the Commission's 90-
day review period. The Commission shall post on the Web site a 
notification of the intent to carry out a 90-day review.
    (2) Final determination. The Commission shall issue an order 
approving or disapproving an agreement, contract, transaction, or swap 
that is subject to a 90-day review under Sec.  40.11(c) no later than 
90 days subsequent to the date that the Commission commences review, or 
if applicable, at the conclusion of such extended period agreed to or 
requested by the registered entity.


Sec.  40.12  Tolling of review period pending jurisdictional 
determination.

    (a) Notice of novel derivative products. (1) A registered entity 
certifying, submitting for approval, or otherwise filing a proposal to 
list, trade, or clear an agreement, contract, transaction, or swap 
having elements of both a security and a derivative, including a 
contract for the sale of a commodity for future delivery, may provide 
notice of its proposal to the Commission and the Securities and 
Exchange Commission with a statement that written notice has been 
provided to both agencies through an appropriate means provided in each 
Commission's regulations.
    (2) If concurrent notice is not provided pursuant to Sec.  
40.12(a)(1), the Commission shall notify the Securities and Exchange 
Commission of the registered entity's submission of a novel derivative 
product and accompany such notice with a copy of the submission. The 
Commission shall determine whether a particular submission is a novel 
derivative product requiring notice to the Securities and Exchange 
Commission not later than five business days subsequent to the date 
that the registered entity submits the product for Commission review.
    (b) Tolling of review period. Upon receipt of a request for a 
jurisdictional determination, pursuant to Section 718(a)(2) of the 
Dodd-Frank Act, by the Commission or the Securities and Exchange 
Commission, the product certification or the approval review period for 
the submitted agreement, contract, transaction, or swap shall be tolled 
until a final determination order is issued.
    (1) The Commission will provide the registered entity with a 
written notice of stay pending issuance of a final determination order 
by the Commission or the Securities and Exchange Commission.
    (2) The submission review period will resume upon the Commission's 
or the Securities and Exchange Commission's issuance of a final 
determination order finding that the Commission has jurisdiction over 
the submission.
    (3) Determination order. A final determination, for purposes of 
Sec.  40.12(b) of this part, shall be a determination order issued by 
the Commission or the Securities and Exchange Commission pursuant to 
Section 718(a)(3) of the Dodd-Frank Act.
    (c) Judicial review of determination order. The filing of a 
petition by a complaining Commission, pursuant to Section 718(b) of the 
Dodd-Frank Act, shall operate as a stay of the agency order.
    (1) The stay shall remain in effect until the date on which the 
United States Court of Appeals for the District of Columbia Circuit 
issues a final determination pursuant to Section 718(b)(4) of the Dodd-
Frank Act, or until such date that there is a final disposition of an 
appeal of that determination.
    (2) The submission review period shall resume upon issuance of a 
final determination, as described in Sec.  40.12(c)(1), that the 
Commission has jurisdiction over the submission.

Appendix A to Part 40--Schedule of Fees

    (a) Applications for product approval. Each application for 
product approval under Sec.  40.3 must be accompanied by a check or 
money order made payable to the Commodity Futures Trading Commission 
in an amount to be determined annually by the Commission and 
published in the Federal Register.
    (b) Checks and applications should be sent to the attention of 
the Office of the Secretariat, Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 
No checks or money orders may be accepted by personnel other than 
those in the Office of the Secretariat.
    (c) Failure to submit the fee with an application for product 
approval will result in return of the application. Fees will not be 
returned after receipt.

Appendix B to Part 40--[Reserved]

Appendix C to Part 40--[Reserved]

Appendix D to Part 40--Submission Cover Sheet and Instructions

    (a) A properly completed submission cover sheet shall accompany 
all rule and product submissions submitted electronically by a 
registered entity to the Secretary of the Commodity Futures Trading 
Commission, at [email protected] in a format specified by the 
Secretary of the Commission. A properly completed submission cover 
sheet shall include all of the following:
    1. Identifier Code (optional)--A registered entity Identifier 
Code at the top of the cover sheet, if applicable. Such codes are 
commonly generated by registered entities to provide an identifier 
that is unique to each filing (e.g., NYMEX Submission 03-116).
    2. Date--The date of the filing.
    3. Organization--The name of the organization filing the 
submission (e.g., CBOT).
    4. Filing as a--Check in the appropriate box indicating that the 
rule or product is being submitted by a designated contract market 
(DCM), derivatives clearing organization (DCO), swap execution 
facility (SEF), or swap data repository (SDR), electronic trading 
facility with a significant price discovery contract (the term will 
be removed on July 20, 2012).\1\
---------------------------------------------------------------------------

    \1\ Even though ECM-SPDC was eliminated by the Dodd-Frank Act, 
the Commission proposes to retain references to this entity in the 
cover sheet since ECM may be allowed to operate until July 20, 2012, 
pursuant to grandfather relief issued by the Commission. See 75 FR 
56513 (Sept. 16, 2010).
---------------------------------------------------------------------------

    5. Type of Filing--An indication as to whether the filing is a 
new rule, rule amendment or new product. The registered entity 
should check the appropriate box to indicate the applicable category 
under that heading.
    6. Rule Numbers--For rule filings, the rule number(s) being 
adopted or modified in the case of rule amendment filings.
    7. Description--For rule or rule amendment filings a description 
of the new rule or rule amendment, including a discussion of its 
expected impact on the

[[Page 67301]]

registered entity, market participants, and the overall market. The 
narrative should describe the substance of the submission with 
enough specificity to characterize all material aspects of the 
filing.
    (b) Other Requirements--A submission shall comply with all 
applicable filing requirements for proposed rules, rule amendments, 
or products. The filing of the submission cover sheet does not 
obviate the registered entity's responsibility to comply with 
applicable filing requirements (e.g., rules submitted for Commission 
approval under Sec.  40.5 must be accompanied by an explanation of 
the purpose and effect of the proposed rule along with a description 
of any substantive opposing views).
    (c) Checking the box marked ``confidential treatment requested'' 
on the Submission Cover Sheet does not obviate the submitter's 
responsibility to comply with all applicable requirements for 
requesting confidential treatment in Sec.  40.8 and, where 
appropriate, Sec.  145.9 of this chapter, and will not substitute 
for notice or full compliance with such requirements.

    Issued in Washington, DC, on October 26, 2010, by the 
Commission.
David A. Stawick,
Secretary of the Commission.

    Note: The following attachment will not appear in the Code of 
Federal Regulations.

Statement of Chairman Gary Gensler Provisions Common to Registered 
Entities October 26, 2010

    I support the proposal to publish for comment the proposed rule 
on the Commission's process for certification and approval of rules 
and new products for designated contract markets (DCMs), derivatives 
clearing organizations (DCOs), swap execution facilities (SEFs) and 
swap data repositories (SDRs). The Dodd-Frank Act establishes 
enhanced procedures for Commission review and certification of new 
rules, rule amendments and products. Today's rule gives important 
procedural guidance to registered entities on how to comply with 
Congress's mandate for the Commission's review of new rules and 
products.

[FR Doc. 2010-27533 Filed 11-1-10; 8:45 am]
BILLING CODE 6351-01-P